COLORADO 7375 52-2077581
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation or Organization) No.)
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COPIES TO:
JOHN W. CAMPBELL, III, ESQ. NORA L. GIBSON, ESQ.
KRISTIAN E. WIGGERT, ESQ. PETER S. BUCKLAND, ESQ.
VALERIE A. VILLANUEVA, ESQ. ANGELA C. HILT, ESQ.
JACLYN LIU, ESQ. Brobeck, Phleger & Harrison LLP
Morrison & Foerster LLP Spear Street Tower, One Market
425 Market Street San Francisco, California 94105
San Francisco, California 94105-2482
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If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
Common Stock, no par value per share............................ $149,500,000 $41,561
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(1) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
This is an initial public offering of common stock by National Information Consortium, Inc. Of the shares of common stock being sold in this offering, shares are being sold by us and shares are being sold by the selling shareholders. We will not receive any of the proceeds from the sale of shares by the selling shareholders. The estimated initial public offering price is between $ and $ per share.
Prior to this offering, there has been no public market for our common stock. The shares of common stock have been proposed to be listed for quotation on the Nasdaq National Market under the symbol EGOV.
PER SHARE TOTAL
----------------- ----------
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to National Information Consortium, Inc., before
expenses.................................................. $ $
Proceeds to the selling shareholders, before expenses....... $ $
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The selling shareholders have granted the underwriters an option for a
period of 30 days to purchase up to additional shares of common
stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
HAMBRECHT & QUIST
, 1999
[Picture of people standing in line with arrow pointing at picture and text accompanying arrow stating "You are here."]
[Inverted triangle divided horizontally into three sections, with text over triangle reading "Top-Down Government Processes," text in top section reading "Cumbersome, hard to access and time consuming," with arrows pointing to next section; text in middle section reading "State, Local and County Agencies with inconvenient processes," with arrows pointing to next section; and text in bottom section reading "Unhappy Citizens and Businesses."]
[NIC Logo]
[Picture of person using computer at home [Box with text reading "Enabling Online with arrow pointing at picture and text Interaction with Government."] accompanying arrow reading "You should be here."] |
[Triangle divided horizontally into three [Picture of person using computer at office sections, with text under triangle reading with arrow pointing at picture and text "Bottom-Up Convenience"; text in bottom accompanying arrow reading "or here."] section reading "Convenient, 24x7 access from anywhere," with arrows pointing to next section; text in middle section reading "Less burdened, more responsive State, Local and County Agencies," with arrows pointing to top section; and text in top section reading "Empowered citizens and businesses."] |
[NIC Logo]
[Text design reading "nicusa.com" in background and "Premium Services" in foreground.]
[Screen shot of one of National Information Consortium's government portals
on the Internet showing a selection of services, with explanatory information
for each service.]
PAGE
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Prospectus Summary........................................... 4
Risk Factors................................................. 8
Forward-Looking Statements................................... 20
How We Intend to Use the Proceeds from the Offering.......... 21
Dividend Policy.............................................. 21
Capitalization............................................... 22
Dilution..................................................... 23
Selected Consolidated Actual and Pro Forma Financial Data.... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 25
Business..................................................... 34
Management................................................... 45
Certain Transactions......................................... 56
Principal and Selling Shareholders........................... 57
Description of Capital Stock................................. 60
Shares Eligible for Future Sale.............................. 62
Underwriting................................................. 63
Legal Matters................................................ 65
Experts...................................................... 65
Where You Can Find Additional Information About Us........... 65
Index to Consolidated Financial Statements................... F-1
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All brand names and trademarks appearing in this prospectus are the property of their respective holders.
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS BEFORE MAKING AN INVESTMENT DECISION.
National Information Consortium, Inc. (NIC) is the leading provider of Internet-based electronic government solutions that help governments reduce costs and provide a higher level of service to businesses and citizens. We form partnerships with governments and on their behalf design, build and operate Internet-based portals. These portals consist of Web sites and applications that we build, which allow businesses and citizens to complete transactions and obtain government information online. Our unique business model allows us to minimize our government partners' financial and technology risks and share in the revenue generated by providing electronic government solutions to businesses and citizens. Our partners benefit because they gain a centralized, customer-focused presence on the Internet. Businesses and citizens gain a faster, more convenient and more cost-effective means to obtain valuable government information and to complete transactions with governments, including permit applications, license renewals and report filings.
Government's regulation of commercial and consumer activities requires billions of transactions and exchanges of large volumes of information between government agencies, and businesses and citizens. These transactions and exchanges include driver's license renewals, motor vehicle registrations, tax returns, permit applications and requests for government-gathered information. Traditionally, government agencies have transacted, and in many cases continue to transact, with businesses and citizens using processes that are inconvenient and labor-intensive, require extensive paperwork and use large amounts of scarce resources. Electronic alternatives have often been unavailable, technically challenging and expensive to implement, or fragmented among different government agencies. The growing acceptance of the Internet and electronic commerce presents a significant opportunity for the development of electronic government, in which government agencies can quickly and cost-effectively conduct transactions and distribute information over the Internet.
Despite the potential benefits of electronic government solutions, government entities encounter a unique set of challenges in implementing and maintaining Internet-based solutions. In addition to the conventional barriers the private sector confronts, including high costs, technological risk, the need for customized and rapid deployment, and the scarcity of qualified personnel, governments also face the intricacies of the political process, a diverse constituent base, limited marketing capabilities and heightened security requirements due to public trust concerns.
We have pioneered the development of an Internet-based electronic government solution that addresses these unique government challenges and meets the needs of businesses and citizens. The key elements of our solution are:
- a customer-focused, one-stop government portal that provides a single point of presence on the Web for all government agencies and permits businesses and citizens to conduct transactions and process information requests 24 hours a day, seven days a week;
- a cost-efficient financial model that minimizes the use of government resources and up-front investment and is quickly and easily deployed; and
- a partnership with governments that aligns our interests with those of government and encourages the participation of interested government agencies, business and consumer groups and other important government entities. We work with each of our government
We plan to strengthen our position as the leading provider of electronic government solutions. Key elements of our strategy are to:
- continue to penetrate new markets, including other states, multi-state cooperative organizations, local governments and federal agencies, and to expand our services into international markets;
- broaden product and service offerings with new applications that will enable government agencies and businesses and citizens to interact more effectively online;
- increase transaction volumes from existing and new customers by generating awareness and educating potential business and consumer users about the availability and benefits of electronic government solutions;
- enhance the capability and efficiency of our business units by aggregating best practices across our organization and strengthening corporate operational and administrative functions; and
- attract, retain and train specialized and qualified personnel through performance incentives, targeted hiring and development programs.
We currently provide Internet-based electronic government solutions for the state governments of Arkansas, Georgia, Indiana, Iowa, Kansas, Maine, Nebraska, and Virginia and the city-county government of the City of Indianapolis and Marion County, Indiana. We have been selected to provide services to and are negotiating a contract with a ninth state government. We typically enter into three to five year contracts with our government partners and manage operations through decentralized business units. Each local business unit helps its partner implement, develop, manage and enhance a single, comprehensive portal for conducting transactions and delivering information to businesses and citizens online.
We were incorporated in Delaware in December 1997 and reincorporated in Colorado in April 1999. Our headquarters are located at 12 Corporate Woods, 10975 Benson Street, Suite 390, Overland Park, Kansas 66210 and our telephone number is 877-234-EGOV. Our Web site is www.nicusa.com. Any reference contained in this prospectus to our Web site, or to any other Web site, shall not be deemed to incorporate information from those sites into this prospectus.
THIS PROSPECTUS INCLUDES STATISTICAL DATA ABOUT THE INTERNET INDUSTRY THAT COMES FROM INFORMATION PUBLISHED BY SOURCES INCLUDING INTERNATIONAL DATA CORPORATION AND FORRESTER RESEARCH. ALTHOUGH WE BELIEVE THAT DATA FROM THESE COMPANIES IS GENERALLY RELIABLE, STATISTICAL DATA IS INHERENTLY IMPRECISE. WE CAUTION YOU NOT TO PLACE UNDUE RELIANCE ON SUCH DATA.
Common stock offered by NIC..................... shares
Common stock offered by the selling shares
shareholders..................................
Common stock to be outstanding after this shares
offering......................................
Use of proceeds................................. - increased marketing efforts;
- creation of new products and services;
- further development of infrastructure;
- working capital;
- general corporate purposes; and
- potential aquisitions.
Proposed Nasdaq National Market Symbol.......... EGOV
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The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 1999 and does not include the following:
- 544,789 shares of common stock subject to options issued at a weighted average exercise price of $6.70 per share granted under our 1998 stock option plan; or
- 1,940,286 shares of common stock reserved for future issuance under our 1998 stock option plan and our 1999 employee stock purchase plan.
Please see "Capitalization" for a more complete discussion regarding the outstanding shares of our common stock and options to purchase our common stock and other related matters.
PLEASE SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--EXCHANGE OFFER" FOR MORE DETAILED INFORMATION ABOUT THE EXCHANGE OFFER.
The following summary consolidated actual and pro forma financial
information should be read in conjunction with our consolidated financial
statements and their related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this prospectus. The
consolidated statement of operations data for the years ended December 31, 1997
and 1998 labeled "Actual" are derived from, and are qualified by reference to,
the audited financial statements included in this prospectus. The consolidated
statement of operations data for the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1998 labeled "Pro Forma" are unaudited and
derived from and qualified by reference to the pro forma consolidated statements
of operations included in this prospectus. The consolidated statement of
operations data for the three month periods ended March 31, 1998 and 1999 and
the consolidated balance sheet data at March 31, 1999 labeled "Actual" are
derived from, and qualified by reference to, our unaudited interim financial
statements included in this prospectus. The as adjusted consolidated balance
sheet data summarized below gives effect to the receipt of the estimated net
proceeds from the sale of shares of common stock offered by us in this
offering at an assumed initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ ------------------------
1997 1998 1998
------------------------ ---------------------- ------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
----------- ----------- --------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 996 $ 24,382 $ 28,624 $ 36,532 $ 361 $ 8,270
Cost of revenues................................ 5 18,410 21,211 27,394 1 6,184
Gross profit.................................... 991 5,972 7,413 9,138 360 2,086
Operating income (loss).........................
Net income (loss)............................... $ (277) $ (6,932) $ (7,679) $ (9,213) $ (124) $ (1,658)
Net loss per share--basic and diluted........... $ (0.06) $ (0.80) $ (0.96) $ (1.02) $ (0.03) $ (0.18)
Weighted average shares outstanding............. 4,492 8,639 8,021 9,034 4,884 9,031
1999
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ACTUAL
---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 11,455
Cost of revenues................................ 8,604
Gross profit.................................... 2,851
Operating income (loss).........................
Net income (loss)............................... $ (1,902)
Net loss per share--basic and diluted........... $ (0.21)
Weighted average shares outstanding............. 9,097
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MARCH 31, 1999
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash.................................................................................... $ 1,115 $
Total assets............................................................................ 16,633
Bank lines of credit.................................................................... 839
Long-term debt (includes current portion of notes payable/capital lease obligations).... 1,179
Total shareholders' equity.............................................................. 9,693
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YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ADDITIONAL RISKS AND UNCERTAINTIES THAT ARE NOT YET IDENTIFIED OR THAT WE CURRENTLY THINK ARE IMMATERIAL MAY ALSO MATERIALLY HARM OUR BUSINESS AND FINANCIAL CONDITION IN THE FUTURE. ANY OF THE FOLLOWING RISKS COULD MATERIALLY HARM OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION AND COULD RESULT IN A COMPLETE LOSS OF YOUR INVESTMENT.
BECAUSE WE HAVE SERVICE CONTRACTS WITH A LIMITED NUMBER OF STATES AND CITY GOVERNMENTS, THE TERMINATION OF ANY OF THESE CONTRACTS MAY HARM OUR BUSINESS AND FINANCIAL CONDITION
Currently, we have contracts with eight states and one local government, and have been selected to provide services to and are negotiating a contract with a ninth state government. These contracts typically have initial terms of three to five years with option renewal periods of one to five years. However, any renewal is optional and a government may terminate its contract prior to the expiration date upon specific cause events that are not cured within a period of 20 to 180 days or, in some cases, upon passing legislation. Additionally, the contracts under which we provide management and development services can be terminated without cause on a specified period of notice. The decision by one or more governments not to renew an existing contract or the unexpected termination of one or more of these contracts may result in significant revenue shortfalls. If these revenue shortfalls occur, our business and financial condition would be harmed. We cannot be certain if, when or to what extent governments might fail to renew or terminate any or all of their contracts with us.
OUR REVENUE GROWTH IS LIMITED BY THE NUMBER OF STATES THAT WILL ADOPT OUR BUSINESS MODEL AND THE FINITE NUMBER OF STATES WITH WHICH WE MAY CONTRACT FOR OUR ELECTRONIC GOVERNMENT SOLUTIONS
We contract with state governments to provide electronic government solutions on the state government's behalf to complete transactions and distribute public information electronically. We cannot assure you that any additional states will decide to pursue a public/private partnership to provide these solutions. In addition, as there is a finite number of states remaining with which we can contract for our services, future increases in our revenues will depend on our ability to expand our business model to include multi-state cooperative organizations, local government, federal agencies and international entities. We cannot assure you that we will succeed in our expansion into new markets or that our services will be adaptable to those new markets.
OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED IF WE FAIL TO OBTAIN FUTURE CONTRACTS THROUGH THE REQUEST FOR PROPOSAL PROCESS
Once a government decides to adopt a public/private model for electronic government, it starts a selection process that operates under special rules that apply to government purchasing. These rules typically require open bidding by possible service providers like us against a list of requirements established by governments under existing or specially-created procedures. To respond successfully to these requests for proposals, commonly known as RFPs, we must estimate accurately our cost structure for servicing a proposed contract, the time required to establish operations for the proposed client and the likely terms of any other proposals submitted. We also must assemble and submit a large volume of information within the strict time schedule mandated by an RFP. Whether or not we are able to respond successfully to RFPs in the future will significantly impact our business. We cannot guarantee that we will win any bids in the future through the RFP process, or that any winning bids will ultimately result in contracts. Our business, financial condition and operating results would be harmed if we fail to obtain future contracts through the RFP process.
We collect user fees on behalf of government agencies and, under the terms of our government contracts, we retain a portion of the fees. Generally, our contracts provide that the amount of any fees we retain is set by the government to provide us with a reasonable return or profit or, in one case, a specified return on equity. We have limited control over the level of fees we are permitted to retain. Our business, results of operations and financial condition may be harmed if the level of fees we are permitted to retain is too low or if our costs rise without a commensurate increase in fees.
THE POSSIBILITY OF GOVERNMENTS DEMANDING FIXED-PRICE CONTRACTS MAY SIGNIFICANTLY REDUCE OUR REVENUES AND PROFITS
Substantially all of our present contracts are on a transaction or subscription fee basis, through which our fees vary depending on the number of Internet users who access our products and services. However, we cannot assure you that governments will not demand fixed-price contracts in the future. Currently, we earn fees under our contracts with the states of Georgia and Iowa predominantly on a fixed-price basis. We may, from time to time, enter into other fixed-price contracts. Our failure to estimate accurately the resources and time required for an engagement, to manage the government's expectations effectively regarding the scope of services to be delivered for an estimated price or to complete fixed-price engagements within budget, on time and to the government's satisfaction could expose us to risks associated with cost overruns and, in certain instances, penalties and may harm our business, operating results and financial condition.
IF WE ARE UNABLE TO SUSTAIN THE USAGE LEVELS OF CURRENT PRODUCTS AND SERVICES THAT PROVIDE A SIGNIFICANT PERCENTAGE OF OUR REVENUES, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE HARMED
We obtain a high proportion of our revenues from a limited number of products and services. Subscription-based and transaction-based fees charged for access to motor vehicle records, financing statements, corporation and court information accounted for over 90% of our revenues for the year ended December 31, 1998 on a pro forma basis and are expected to continue to account for a significant portion of our revenue in the near future. Regulatory changes or the development of alternative information sources could materially reduce our revenues from these products and services. A reduction in revenues from currently popular products and services would harm our business, results of operations and financial condition.
BECAUSE A MAJOR PORTION OF OUR CURRENT REVENUES ARE GENERATED FROM A SMALL NUMBER OF USERS, THE LOSS OF ANY OF THESE USERS MAY HARM OUR BUSINESS AND FINANCIAL CONDITION
The primary source of our revenue is derived from the use of our electronic government portals to access motor vehicle records for sale to the auto insurance industry. During the year ended December 31, 1998, approximately 71% of our revenues were derived from two data resellers. For the year ended December 31, 1998, Choicepoint accounted for approximately 60% of our revenues. Although our portals are the primary means of accessing this data, it is possible that these users will develop alternative data sources or new business processes that would materially diminish their use of our portals. The loss of all or a substantial portion of business from any of these entities would harm our business and financial condition.
OUR BUSINESS WITH VARIOUS GOVERNMENT ENTITIES OFTEN REQUIRES SPECIFIC GOVERNMENT LEGISLATION TO BE PASSED FOR US TO INITIATE AND MAINTAIN OUR GOVERNMENT CONTRACTS
Because our business includes the execution of contracts with governments under which we receive a portion of user fees charged to businesses and citizens, it is often necessary for governments to
BECAUSE WE RELY ON A CONTRACTUAL BIDDING PROCESS WHOSE PARAMETERS ARE ESTABLISHED BY GOVERNMENTS, THE LENGTH OF OUR SALES CYCLES IS UNCERTAIN AND CAN LEAD TO REVENUE SHORTFALLS
Our dependence on a bidding process to initiate new projects, the parameters of which are established by governments, results in uncertainty in our sales cycles because the duration and the procedures for each bidding process vary significantly according to each government entity's policies and procedures. The time between the date of initial contact with a government for a bid and the award of the bid may range from as little as 180 days to up to 36 months. The bidding process is subject to factors over which we have little or no control, including:
- political acceptance of the concept of government agencies contracting with third parties to distribute public information, which has been offered traditionally only by the government agencies;
- the internal review process by the government agencies for bid acceptance;
- the need to reach a political accommodation among various interest groups;
- changes to the bidding procedure by the government agencies;
- changes to state legislation authorizing government's contracting with third parties to distribute public information;
- changes in government administrations;
- the budgetary restrictions of government entities;
- the competition generated by the bidding process; and
- the possibility of cancellation or delay by the government entities.
Any delay in the bidding process, changes to the bidding practices and policies, the failure to receive the bid or the failure to execute a contract may disrupt our financial results for a particular period and harm our business and financial condition.
ENTRANCE OF POTENTIAL COMPETITORS INTO THE MARKETPLACE COULD HARM OUR ABILITY TO MAINTAIN OR IMPROVE OUR POSITION IN THE MARKET
Many companies exist that provide one or more parts of the solution we offer. In most cases, the principal substitute for our solution is a government-designed and managed solution that integrates other vendors' technologies, products and services. Companies that have expertise in marketing and providing technical solutions to government entities may begin to compete with us by further developing their services and increasing their focus on this piece of their business and market shares. Examples of companies that may compete with us are the following:
- large systems integrators, including American Management Systems, Inc.
and Sapient Corporation;
- Web service companies, including USWeb/CKS, AppNet Systems, Inc. and Verio Inc.
Many of our potential competitors are national or international in scope and may have greater resources than we do. These resources could enable our potential competitors to initiate severe price cuts or take other measures in an effort to gain market share. Additionally, in certain geographic areas, we may face competition from smaller consulting firms with established reputations and political relationships with potential government partners. If we do not compete effectively or if we experience any pricing pressures, reduced margins or loss of market share resulting from increased competition, our business and financial condition may be harmed.
THE SEASONALITY OF USE FOR CERTAIN ELECTRONIC GOVERNMENT PRODUCTS AND SERVICES MAY HARM OUR FOURTH QUARTER RESULTS OF EACH CALENDAR YEAR
The use of certain of our electronic government products and services is seasonal, with lower revenues in the fourth quarter of each calendar year, due to the fewer number of business days in this quarter and a lower volume of government-to-business and government-to-citizen transactions during the holiday period. As a result, seasonality is likely to cause our quarterly results to fluctuate, which could harm our business and financial condition and could harm the trading price of our common stock.
THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS MAY HARM THE TRADING PRICE OF OUR COMMON STOCK
Our future revenues and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control, and any of which may harm our business. These factors include:
- our ability to obtain and retain government contracts;
- the commencement, completion or termination of contracts during any particular quarter;
- the introduction of new electronic government products and services by us or our competitors;
- the timing and uncertainty of our sales cycles;
- the seasonality of our business model;
- the level of Internet usage;
- our ability to attract, integrate and retain qualified personnel;
- our ability to successfully integrate operations and technologies from acquisitions or other business combinations;
- technical difficulties or system downtime affecting the Internet generally or the operation of our electronic government products and services; and
- the amount and timing of operating costs and capital expenditures relating to the expansion of our business operations and infrastructure.
Due to the factors noted above and the other risks discussed in this section, our revenues in a particular quarter may be lower than we anticipate and if we are unable to reduce spending in that quarter, our operating results for that quarter may be harmed. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. It is possible that in some future periods our results of operations may be below the expectations of public market analysts and investors. If this occurs, the price of our common stock may decline. See "Management's Discussion and
WE DEPEND ENTIRELY ON GOVERNMENTS FOR CONTENT, THE LOSS OF WHICH MAY HARM OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
We do not own or create the content distributed through our government portals. We depend on the governments with which we contract to supply information and data feeds to us on a timely basis to allow businesses and citizens to complete transactions and obtain government information. We cannot assure you that these data sources will continue to be available in the future. Government entities could terminate their contracts to provide data. Changes in regulations could mean that governments no longer collect certain types of data, or that the data is protected by more stringent privacy rules preventing uses now made of it. Moreover, our data sources are not always subject to exclusive agreements, so that data included in our products and services also may be included in those of our potential competitors. The loss or the unavailability of our data sources in the future would harm our business, operating results and financial condition.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH AND EXPANSION THAT MAY HARM THE RESULTS OF OUR OPERATIONS
Our growth rate may increase rapidly in response to the acceptance of our products and services under new or existing government contracts. If we cannot manage our growth effectively, we may not be able to coordinate the activities of our technical, accounting, and marketing staffs, and our business could be harmed. We intend to plan for the acceptance of new bids by a number of governmental entities so that we may be ready to begin operations as soon as possible after receipt of a bid. As part of this plan of growth, we must implement new operational procedures and controls to expand, train and manage our employees and to coordinate the operations of our various subsidiaries. If we acquire new businesses, we also may need to integrate new operations, technologies and personnel. If we cannot manage the growth of our government portals, staff, offices and operations, our business may be harmed.
IF WE ARE NOT ABLE TO HIRE, INTEGRATE OR RETAIN QUALIFIED PERSONNEL, OUR BUSINESS MAY BE HARMED
The recent growth in our business has resulted in an increase in the responsibilities for both existing and new management personnel. Many of our personnel are presently serving in both an executive capacity and as general managers of our government portals. The loss of any of our executives, particularly Jeffery S. Fraser, our Chief Executive Officer, and James B. Dodd, our President and Chief Operating Officer, would likely harm our business.
In addition, we expect that we will need to hire additional personnel in all areas in 1999, including a chief financial officer and general managers for new operations in jurisdictions in which we obtain contracts. Competition for personnel in the Internet industry is intense. We may not be able to retain our current key employees or attract, integrate or retain other qualified employees in the future. If we do not succeed in attracting new personnel or integrating, retaining and motivating our current personnel, our business could be harmed. In addition, new employees generally require substantial training in the presentation, policies and positioning of our government portals. This training will require substantial resources and management attention.
IN ORDER TO BE SUCCESSFUL, WE MUST DEVELOP AND MARKET COMPREHENSIVE, EFFICIENT, COST-EFFECTIVE AND SECURE ELECTRONIC ACCESS TO PUBLIC INFORMATION AND NEW PRODUCTS AND SERVICES
Our success depends in part upon our ability to attract a greater number of Internet users to access public information electronically by delivering a comprehensive composite of public information and an efficient, cost-effective and secure method of electronic access and transactions. Moreover, in order to
- the comprehensiveness of public records available through our government portals;
- the perceived efficiency and cost-effectiveness of accessing public records electronically;
- the effectiveness of security measures; and
- the increased usage and continued reliability of the Internet.
DEFICIENCIES IN OUR PERFORMANCE UNDER A GOVERNMENT CONTRACT COULD RESULT IN CONTRACT TERMINATION, REPUTATIONAL DAMAGE OR FINANCIAL PENALTIES, WHICH COULD HARM OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Each government entity with which we contract has the authority to require an independent audit of our performance. The scope of audits could include inspections of income statements, balance sheets, fee structures, collections practices, service levels and our compliance with applicable laws, regulations and standards. To date, while no audit has found any material performance deficiencies, it is possible that deficiencies could be found in the future. These deficiency findings could result in an adjustment to our revenues. Moreover, the consequent negative publicity could harm our reputation among other governments with which we would like to contract. All of these factors could harm our business, results of operations and financial condition.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A CONSOLIDATED COMPANY, IT MAY BE DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS
In March 1998, we completed an exchange offer through which we consolidated our individual business units that deliver electronic government solutions into our present company. Accordingly, although many of our business units have extensive operating history and experience, we only have a limited operating history as a consolidated company on which to base an evaluation of our business and prospects. You must consider our business in the light of the risks, expenses and problems frequently encountered by companies like us, particularly recently consolidated companies in new and rapidly evolving markets like the Internet. These risks include whether we will be able to take advantage of economies of scale for the following:
- cost-effective use of our company-wide managerial and administrative resources;
- efficient allocation of operating and financial resources among the individual business units;
- efficient integration of new marketing and sales strategies and technological improvements among the individual business units; and
- the addition of new business units without overburdening our current management and operational resources.
We may not be able to successfully address these risks and as a result our business, operating results and financial condition may be harmed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for detailed information on our limited operating history as a consolidated company.
We rely on a combination of nondisclosure and other contractual arrangements with governments, our employees and third parties, and privacy and trade secret laws to protect and limit the distribution of the proprietary applications, documentation and processes we have developed in connection with the electronic government products and services we offer. If we fail to adequately protect our intellectual property rights and proprietary information or if we become involved in litigation relating to our intellectual property rights and proprietary technology, our business could be harmed. Any actions we take may not be adequate to protect our proprietary rights and other companies may develop technologies that are similar or superior to our proprietary technology.
Although we believe that our products and services do not infringe on the intellectual property rights of others and that we have all rights needed to use the intellectual property employed in our business, it is possible that we could in the future become subject to claims alleging infringement of third party intellectual property rights. Any claims could subject us to costly litigation, and may require us to pay damages and develop non-infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged infringement.
Additionally, upon the completion of the initial term of our government contracts, governments and their successors and affiliates obtain a perpetual right of use license to the software programs and other applications we have developed for them in the operation of their portals. It is possible that governments may use their limited license rights after termination of our contracts to launch competing services, or inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors.
WE MAY NEED MORE WORKING CAPITAL TO EXPAND OUR BUSINESS
We believe that our current cash resources, combined with the net proceeds from this offering, will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 18 months following the date of this prospectus. We may need to raise additional capital, however, to do the following:
- support our expansion into other states, cities, municipalities, federal agencies and internationally;
- respond to competitive pressures; and
- acquire complementary businesses or technologies.
Our future liquidity and capital requirements will depend upon numerous factors, including the success of our existing and new product and service offerings and potentially competing technological and market developments. We may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. We cannot assure you that such additional funding, if needed, will be available on terms acceptable to us, or at all. If adequate funds are not available on acceptable terms, our ability to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures would be significantly limited. This limitation could harm our business, operating results and financial condition. See "How We Intend to Use the Proceeds from the Offering" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for a discussion of our working capital and capital expenditures.
IF WE ARE UNABLE TO INTEGRATE NEW TECHNOLOGIES AND INDUSTRY STANDARDS EFFECTIVELY, OUR RESULTS OF OPERATIONS COULD BE HARMED
Our future success will depend on our ability to enhance and improve the responsiveness, functionality and features of our products and services in accordance with industry standards and to
- enhance and improve the responsiveness, functionality and other features of the government portals we offer;
- continue to develop our technical expertise;
- develop and introduce new services, applications and technology to meet changing customer needs and preferences; and
- influence and respond to emerging industry standards and other technological changes in a timely and cost-effective manner.
We cannot assure you that we will be successful in responding to the above technological and industry challenges in a timely and cost-effective manner. If we are unable to integrate new technologies and industry standards effectively, our results of operations could be harmed.
FAILURE OF OUR BUSINESS MODEL TO ATTRACT OR RETAIN CUSTOMERS WOULD HARM OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our established business model consists of a public/private partnership adopted by governments, under which we pursue contracts to provide electronic government solutions on their behalf to distribute public information electronically and to expand our services into cities, municipalities, federal agencies and international entities. The sustainability of our business model depends on government entities adopting such public/private partnerships. We cannot assure you that government entities will not internally create, develop and operate their own portals without any private assistance. The profitability of our business model may not be sustained, and as a result, our results of operations and financial condition may be harmed.
BECAUSE OUR SUCCESS DEPENDS ON THE CONTINUED INCREASE IN INTERNET USAGE, ANY FAILURE OF INTERNET USAGE TO GROW WOULD HARM OUR RESULTS OF OPERATIONS
The growth of our business depends on the increase in Internet usage generally and in particular as a means to access public information electronically. However, a number of factors may inhibit the growth of Internet usage, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- limited availability of cost-effective, high-speed access.
If these or any other factors cause Internet usage to slow or decline, our results of operations could be harmed.
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED, OUR BUSINESS WOULD BE HARMED BECAUSE USERS MAY NOT BE ABLE TO ACCESS OUR GOVERNMENT PORTALS
Our success depends in part on the development and maintenance of the Internet infrastructure. If this infrastructure fails to develop or be adequately maintained, our business would be harmed because users may not be able to access our government portals. Among other things, this development and maintenance will require a reliable network backbone with the necessary speed, data capacity, security and timely development of complementary products for providing reliable Internet access and services.
WE MAY BE HELD LIABLE FOR CONTENT THAT WE OBTAIN FROM GOVERNMENT AGENCIES, WHICH COULD HARM OUR FINANCIAL RESULTS
Because we aggregate and distribute sometimes private and sensitive public information over the Internet, we may face potential liability for defamation, negligence, invasion of privacy and other claims based on the nature and content of the material that is published on our government portals. Most of the agreements through which we obtain consent to disseminate this information do not contain indemnity provisions in our favor. These types of claims have been brought, sometimes successfully, against online services and Web sites in the past. Although we carry general liability insurance, it may not be adequate to indemnify us for all liability that may be imposed. Any liability that is not covered by our insurance or is in excess of our insurance coverage could severely harm our business operations and financial conditions.
CONCERNS OVER TRANSACTIONAL SECURITY MAY HINDER THE GROWTH OF OUR BUSINESS
A significant barrier to electronic commerce is the secure transmission of confidential information over public networks. Any breach in our security could expose us to a risk of loss or litigation and possible liability. We rely on encryption and authentication technology licensed from third parties to provide secure transmission of confidential information. As a result of advances in computer capabilities, new discoveries in the field of cryptography or other developments, a compromise or breach of the algorithms we use to protect customer transaction data may occur. Because we provide information released from various government entities, we may represent an attractive target for security breaches.
A compromise of our security or a perceived compromise of our security could severely harm our business. A party who is able to circumvent our security measures could misappropriate proprietary information, including customer credit card information, or cause interruptions or incur direct damage to our government portals. Also, should hackers obtain sensitive data and information, or create bugs or viruses in an attempt to sabotage the functionality of our products and services, we may receive negative publicity, incur liability to our customers or lose the confidence of the governments with which we contract, any of which may cause the termination or modification of our government contracts.
We may be required to expend significant capital and other resources to protect against the threat of security breaches or to alleviate problems caused by these breaches. However, protection may not be available at a reasonable price or at all.
GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT THE OPERATION AND GROWTH OF OUR BUSINESS
There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. Laws and regulations may be adopted in the future, however, that address these issues including user privacy, pricing, and the characteristics and quality of products and services. An increase in regulation or the application of existing laws to the Internet could significantly increase our cost of operations and harm our business. For example, the Federal Communications Commission may, in the future, reconsider its ruling that Internet access service is not "telecommunications" and may decide that Internet service providers must pay a percentage of their gross revenues as a "universal service
OUR BUSINESS MAY BE NEGATIVELY AFFECTED BY YEAR 2000 ISSUES
We may discover Year 2000 readiness problems in the software systems that we use for portal management, network monitoring, quality assurance, applications and information and transaction processing. In addition, our computer infrastructure, including network equipment and servers, may need to be revised or replaced, all of which could be time-consuming and expensive. If we cannot fix or replace our systems or network equipment and servers before January 1, 2000 our operating costs could be increased and we could experience business interruptions which could harm our business. Additionally, if we cannot adequately address Year 2000 readiness issues in our software systems we could be subject to claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend.
In addition, the software and systems of our government partners, critical vendors, financial institutions, utility companies, Internet access companies, third-party service providers and others outside of our control may not be Year 2000 ready. Because our products and services depend significantly on information provided by various government entities, our ability to perform our services properly depends on these government entities being Year 2000 ready. Disruption to the information systems of these government entities would interfere with our proper distribution of public information on our government portals and, as a result, may harm our business operations and financial condition.
Furthermore, if certain third-party entities are not Year 2000 ready, a systemic failure beyond our control could result, including a prolonged Internet, telecommunications or general electrical failure. This type of failure would make it difficult or impossible to use the Internet or access our government portals. If a prolonged failure of this type occurs, our business would be severely harmed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness" for more detailed information.
OUR SYSTEMS MAY FAIL OR LIMIT USER TRAFFIC WHICH MAY HARM OUR BUSINESS
Our communications hardware and computer hardware operations for delivering our electronic government solutions are located individually in each state or city where we provide those solutions. Although we have modem banks and direct dial-up connections to serve as back-up systems, the occurence of fire, floods, earthquakes, power loss, telecommunications failures, break-ins and similar events could damage our systems and cause interruptions to our services. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting our government portals and could cause our clients to terminate agreements with us. If any of these circumstances occurred, our business could be harmed. Our insurance policies may not adequately compensate us for any losses that may occur due to any failures of or interruptions in our systems.
Our government portals must accommodate a high volume of traffic and deliver frequently updated information. These government portals may experience interruptions due to any failure or delay by government agencies in the transmission or receipt of this information. Our Web sites have also experienced in the past and may in the future experience slower response times or decreased traffic for a variety of reasons. In addition, our users depend on Internet service providers, online service providers and other Web site operators for access to our government portals. Many of these providers and operators have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Any of these system failures could harm our business, results of operations and financial condition.
Antitrust laws could prohibit anti-competitive conduct, including price fixing, concerted refusals to deal and divisions of markets. Among other things, these laws may limit our ability to expand our business model to other states, municipalities, federal agencies and internationally. Any limitation on our ability to expand our business may harm our business and financial condition.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL RETAIN SIGNIFICANT CONTROL OVER NIC AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF MATTERS SUBMITTED TO SHAREHOLDERS FOR APPROVAL
After this offering, executive officers, directors and holders of 5% or more of our outstanding common stock will, in the aggregate, own approximately % of our outstanding common stock. In addition, as of March 31, 1999, 6,869,170 shares of our outstanding common stock have been placed in a voting trust, which will represent % of our outstanding common stock after this offering. The trustees of this voting trust are Messrs. Fraser and Hartley, both of whom serve as directors of our company. As a result, Messrs. Fraser and Hartley have, among other rights, the ability to control the election of directors and approve corporate actions that must be submitted for a vote of shareholders. See "Description of Capital Stock--Voting Trust" for more information on the terms of the voting trust.
The interests of these affiliates may conflict with the interests of other shareholders, and the actions they take or approve may be contrary to those desired by the other shareholders. This concentration of ownership may also have the effect of delaying, preventing or deterring an acquisition of our company by a third party.
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING AND MAY USE THE PROCEEDS IN WAYS IN WHICH YOU DO NOT AGREE
We intend to use the net proceeds from the sale of the common stock for increased marketing efforts, creation of new products and services, further development of infrastructure, working capital, general corporate purposes and potential acquisitions. However, our management will retain significant flexibility in applying the net proceeds of this offering and may use the proceeds in ways in which you do not agree. Until the proceeds are needed, we plan to invest them in investment-grade, interest-bearing securities. The failure of our management to apply such funds effectively could harm our business. See "How We Intend to Use the Proceeds from the Offering" for a more detailed description.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR FUTURE MAY HARM THE MARKET PRICE FOR OUR COMMON STOCK
Sales of a substantial number of shares of common stock in the public market following this offering could harm the market price for our common stock. See "Shares Eligible for Future Sale" for a description of the eligibility of shares of our common stock for future sale.
PRIOR TO THIS OFFERING THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK
While we have applied to list our common stock on the Nasdaq National Market, a trading market for our common stock may not develop or, if a market does develop, the common stock may still be difficult to trade. The initial public offering price of the common stock has been determined through negotiation between us and Hambrecht & Quist LLC, as the lead underwriter for this offering, and may bear no relation to the price at which our common stock will trade in the public market. You may not be
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock is likely to be highly volatile and could be subject to fluctuations in response to quarterly variations in operating results, announcements of new contracts or applications, changes in financial estimates by securities analysts or other events and factors. The stock market has experienced significant price and volume fluctuations and the market prices of securities of technology companies, particularly Internet-related companies, have been highly volatile, often unrelated to the operating performance of such companies. Investors may not be able to resell their shares at or above the initial public offering price. See "Underwriting" for more information.
In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company's stock price. This type of litigation could result in substantial costs and could divert our management's attention and resources.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE DILUTION AND A DISPARITY IN STOCK PURCHASE PRICE
The initial public offering price is expected to be substantially higher than the pro forma net tangible book value per share of the outstanding common stock immediately after the offering. Accordingly, purchasers of common stock in this offering will experience immediate and substantial dilution of approximately $ in net tangible book value per share, or approximately % of the assumed offering price of $ per share. In contrast, existing shareholders paid an average price of $ per share. Investors will incur additional dilution upon the exercise of outstanding stock options and warrants. Furthermore, any additional equity financing may be dilutive to shareholders and debt financing, if available, may involve restrictive covenants, which may limit our operating flexibility with respect to certain business matters. If additional funds are raised through the issuance of equity securities, the percentage ownership of our shareholders will be reduced. Shareholders may experience additional dilution in net book value per share and such equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD PREVENT OR DELAY A CHANGE OF CONTROL AND, AS A RESULT, NEGATIVELY IMPACT OUR SHAREHOLDERS
Our articles of incorporation provide that our board of directors may not for a period of three years engage in a business combination with an interested shareholder unless the business combination is approved in certain prescribed manners. Furthermore, our bylaws limit the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice. The anti-takeover provisions in our articles of incorporation and bylaws may have the effect of delaying, deterring or preventing changes in control or management of our company, even if such change in control or management would be beneficial to shareholders. These provisions also could limit the price that certain investors might be willing to pay in the future for shares of our common stock. See "Description of Capital Stock" for more detailed information.
This prospectus contains "forward-looking statements" as defined in
Section 27A of the Securities Act of 1933 and the Exchange Act of 1934. These
statements are included under the captions "Prospectus Summary," "Risk Factors,"
"How We Intend to Use the Proceeds from the Offering," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
and elsewhere in this prospectus. These forward-looking statements include, but
are not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements. In
addition, this prospectus includes statistical data about the Internet that
comes from information published by sources including International Data
Corporation and Forrester Research. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
reasons, including those discussed under "Risk Factors" and elsewhere in this
prospectus. We assume no obligation to update any forward-looking statements.
We estimate that we will receive net proceeds of $ from the sale of the shares of common stock offered by us in this offering, assuming an initial public offering price of $ per share and after deducting the estimated underwriting discounts and offering expenses. We will not receive any of the proceeds from the sale of shares by the selling shareholders.
While we cannot predict with certainty how the proceeds of this offering will be used, we currently intend to use them as follows:
- to increase our new market development efforts;
- to increase marketing efforts aimed at raising transaction volume;
- to create new products and services; and
- to futher develop common infrastructure and operating platforms.
We expect to use the remaining net proceeds from this offering for working capital and other general corporate purposes. In addition, although we are not currently participating in any active negotiations and have no commitments or agreements with respect to any acquisition, we might in the future use a portion of the remaining proceeds to pay for acquisitions.
Pending these uses, the net proceeds of this offering will be invested in short-term, investment-grade, interest-bearing investments or accounts.
The amounts we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described under "Risk Factors." Therefore, we will have broad discretion in the way we use the net proceeds. See "Risk Factors--Our management will retain broad discretion in the use of proceeds from this offering and may use the proceeds in ways in which you do not agree" for more information.
Other than dividends paid while we were a corporation formed under Subchapter S of the Internal Revenue Code, we have never declared or paid any cash dividends on shares of our common stock. We intend to retain any future earnings for future growth and do not anticipate paying any cash dividends in the foreseeable future.
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis, giving effect to our reincorporation in Colorado in April 1999 and an increase in our authorized shares of common stock in May 1999; and
- as adjusted to give effect to the receipt of the estimated net proceeds from the sale of shares of common stock offered by us in this offering at an assumed initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses.
The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 1999 and does not include the following:
- 544,789 shares of common stock subject to options issued at a weighted average exercise price of $6.70 per share granted under our 1998 stock option plan; or
- 1,940,286 shares of common stock reserved for future issuance under our 1998 stock option plan and our 1999 employee stock purchase plan.
The information below is qualified by, and should be read in conjunction with, our financial statements and the notes to those statements appearing at the end of this prospectus.
MARCH 31, 1999
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
Capital lease obligations-- long-term portion............................................ $ 384 $
----------- -----------
Shareholders' equity:
Common stock, no par value; 200,000,000 shares authorized; 9,148,944 shares issued and
outstanding; shares issued and outstanding, as adjusted............................. $ --
Additional paid-in capital............................................................... 21,257
Accumulated deficit...................................................................... (10,833)
----------- -----------
10,424
Less other............................................................................... (731)
----------- -----------
Total shareholders' equity............................................................... $ 9,693
----------- -----------
Total capitalization..................................................................... $ 10,077 $
----------- -----------
----------- -----------
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As of March 31, 1999, our actual net tangible book value was approximately $ million or $ per share. Actual net tangible book value per share represents the amount of total actual tangible assets less total actual liabilities, divided by the shares of common stock outstanding as of March 31, 1999. After giving effect to the sale of the shares of common stock we are offering, after deducting the underwriting discount and estimated offering expenses, our adjusted net tangible book value as of March 31, 1999 would have been $ million, or $ per share. This represents an immediate increase in as adjusted net tangible book value of $ per share to existing shareholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution:
Assumed public offering price per share................................. $
Pro forma net tangible book value per share as of March 31, 1999.... $
Increase per share attributable to new investors....................
-----------
Pro forma net tangible book value per share after the offering..........
-----------
Dilution per share to new investors.....................................
-----------
-----------
|
The following table sets forth, on a pro forma basis, as of March 31, 1999 the difference between the number of shares of common stock purchased, the total consideration paid and the average price per share paid by the existing shareholders and the new investors purchasing shares of common stock in this offering:
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ----------- ----------- ---------------
Existing
shareholders........ -- --.--% -- --.--% $ --.--
New investors......... -- --.--
--
----- ----- -----
Total............. -- --.--% --.--%
--
--
----- ----- -----
----- ----- -----
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The foregoing discussion and tables assume no exercise of any of the 544,789 stock options with a weighted average exercise price of $6.70 outstanding as of March 31, 1999.
Sales by the selling shareholders to this offering will reduce the number of shares of common stock held by existing shareholders to or approximately % (approximately %, if the underwriters' over-allotment option is exercised in full) of the total number of shares of common stock outstanding upon the closing of this offering and will increase the number of shares held by new public investors to or approximately % ( shares, or approximately %, if the underwriters' over-allotment option is exercised in full) of the total number of shares of common stock outstanding after this offering. See "Principal and Selling Shareholders."
The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and their related notes, our pro forma consolidated statement of operations and their related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus. No financial data is reported for 1994 as we had no meaningful operations during that year. The consolidated statement of operations data for the year ended December 31, 1995 and the consolidated balance sheet data as of December 31, 1995 and 1996 are unaudited and derived from financial statements not included in this prospectus. The consolidated statement of operations data for the years ended December 31, 1997 and 1998 and the consolidated balance sheet data as of December 31, 1996, 1997 and 1998 labeled "Actual" are derived from, and are qualified by reference to, our audited financial statements included in this prospectus. The consolidated statement of operations data for the years ended December 31, 1997 and 1998 and the three month period ending March 31, 1998 labeled "Pro Forma" are unaudited and derived from and qualified by reference to our pro forma consolidated statements of operations and their related notes included in this prospectus. The consolidated statement of operations data for the three month period ended March 31, 1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 labeled "Actual" are unaudited and derived from and qualified by reference to our unaudited interim financial statements included in this prospectus.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1998
--------------------------
1995 1997
--------- --------------------------
1996
-----
ACTUAL ACTUAL PRO FORMA ACTUAL PRO FORMA
------------ ----------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 3 $ 236 $ 996 $ 24,382 $ 28,624 $ 36,532
Cost of revenues........................... -- 21 5 18,410 21,211 27,394
--------- ----- ----------- ------------- ----------- -------------
Gross profit............................. 3 215 991 5,972 7,413 9,138
Operating expenses:
Service development and operations....... -- 38 224 1,308 3,885 4,327
Selling, general and administrative...... 12 168 660 3,122 4,242 5,087
Stock compensation....................... -- -- 370 631 292 297
Depreciation and amortization -- 1 14 7,774 5,922 7,887
--------- ----- ----------- ------------- ----------- -------------
Total operating expenses............... 12 207 1,268 12,835 14,341 17,598
--------- ----- ----------- ------------- ----------- -------------
Operating income (loss).................... (9) 8 (277) (6,863) (6,928) (8,460)
--------- ----- ----------- ------------- ----------- -------------
Other income (expense):
Interest expense......................... -- -- -- (52) (88) (105)
Other income (expense), net.............. -- -- -- (17) 56 71
--------- ----- ----------- ------------- ----------- -------------
Total other income (expense)........... -- -- -- (69) (32) (34)
--------- ----- ----------- ------------- ----------- -------------
Income (loss) before income taxes.......... (9) 8 (277) (6,932) (6,960) (8,494)
Income tax expense......................... -- -- -- -- 719 719
--------- ----- ----------- ------------- ----------- -------------
Net income (loss).......................... $ (9) $ 8 $ (277) $ (6,932) $ (7,679) $ (9,213)
--------- ----- ----------- ------------- ----------- -------------
--------- ----- ----------- ------------- ----------- -------------
Net income (loss) per share:
Basic and diluted........................ $ (2.25) $ 2.00 $ (0.06) $ (0.80) $ (0.96) $ (1.02)
--------- ----- ----------- ------------- ----------- -------------
--------- ----- ----------- ------------- ----------- -------------
Weighted average shares outstanding........ 4 4 4,492 8,639 8,021 9,034
THREE MONTHS
ENDED MARCH 31,
---------------------------------------
1998 1999
-------------------------- -----------
ACTUAL PRO FORMA ACTUAL
----------- ------------- -----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 361 $ 8,270 $ 11,455
Cost of revenues........................... 1 6,184 8,604
----------- ------------- -----------
Gross profit............................. 360 2,086 2,851
Operating expenses:
Service development and operations....... 135 577 935
Selling, general and administrative...... 325 1,171 1,518
Stock compensation....................... -- 5 267
Depreciation and amortization 24 1,988 2,001
----------- ------------- -----------
Total operating expenses............... 484 3,741 4,721
----------- ------------- -----------
Operating income (loss).................... (124) (1,655) (1,870)
----------- ------------- -----------
Other income (expense):
Interest expense......................... -- (17) (37)
Other income (expense), net.............. -- 15 17
----------- ------------- -----------
Total other income (expense)........... -- (3) (20)
----------- ------------- -----------
Income (loss) before income taxes.......... (124) (1,658) (1,890)
Income tax expense......................... -- -- 12
----------- ------------- -----------
Net income (loss).......................... $ (124) $ (1,658) $ (1,902)
----------- ------------- -----------
----------- ------------- -----------
Net income (loss) per share:
Basic and diluted........................ $ (0.03) $ (0.18) $ (0.21)
----------- ------------- -----------
----------- ------------- -----------
Weighted average shares outstanding........ 4,884 9,031 9,097
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DECEMBER 31,
-------------------------------------
1997
-----------
1995 1996 ACTUAL
----- ----- -----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................................................. $ $ $ 179
Total assets......................................................................... 14 110 326
Bank lines of credit................................................................. --
Long-term debt (includes current portion of notes payable/capital lease
obligations)....................................................................... -- -- 30
Total shareholders' equity........................................................... (15) 95 188
MARCH 31,
-------------
1998 1999
----------- -------------
ACTUAL ACTUAL
----------- -------------
CONSOLIDATED BALANCE SHEET DATA:
Cash................................................................................. $ 1,311 $ 1,115
Total assets......................................................................... 17,249 16,633
Bank lines of credit................................................................. 1,024 839
Long-term debt (includes current portion of notes payable/capital lease
obligations)....................................................................... 745 1,179
Total shareholders' equity........................................................... 10,852 9,693
|
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE RELATED NOTES APPEARING AT THE END OF THIS PROSPECTUS. OUR DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
NIC is the leading provider of Internet-based electronic government solutions that help governments reduce costs and provide a higher level of service to businesses and citizens. We form partnerships with governments and on their behalf design, build and operate Internet-based portals that allow businesses and citizens to complete transactions and obtain government information online. We typically enter into three to five year contracts with our government partners and manage operations for each partnership through decentralized business units. Each business unit focuses solely on providing a comprehensive electronic government solution for that partner. By establishing a local business unit for each government partner, we have been able to develop a management culture and incentive system that focuses on locally-based service that distinguishes us from divisions of larger traditional technology providers.
We were founded in 1991 when our first business unit was selected to provide electronic government solutions in Kansas under a public/private partnership model. Since then, we have formed partnerships and created business units to serve the eight states of Arkansas, Georgia, Indiana, Iowa, Kansas, Maine, Nebraska and Virginia, and one city-county government, the City of Indianapolis and Marion County, Indiana. We have been selected by a ninth state to provide our electronic government solution and are currently negotiating the contract for our services.
In 1997, we contracted with one of our government partners to develop, for a fixed fee, a back-office solution which would enable improved electronic filing, storage, management and distribution of Uniform Commercial Code (UCC) and other corporate records. We formed a separate application development division to develop, maintain and implement the core technology for this solution, and subsequently entered into development contracts with four additional states to implement similar back-office solutions.
EXCHANGE OFFER
Starting with the partnership with the State of Kansas, our founders established a separate S corporation for business conducted within each state where they were awarded a public/private partnership contract. On March 31, 1998, we completed an exchange offer to combine our business units, which previously operated as five separate affiliated companies, into one consolidated company. The exchange offer was accounted for using the purchase accounting method. The $17.3 million excess of the fair market value over the net book value of the acquired business units has been partially allocated to intangible assets that relate to our existing government contracts. The contracts were valued at the net present value of projected future cash flows over the lives of the existing contracts. The remainder of the excess was allocated to goodwill. See Note 3 of the notes to our consolidated financial statements that appear at the end of this prospectus for additional discussion of the accounting for the exchange offer.
BUSINESS MODEL
- the sale of electronic access to public records on behalf of government;
- subscription and transaction-based fees;
- fees for managing electronic government operations; and
- fees and charges for government application development.
In seven of our nine existing business units, our revenues are generated from transactions, which generally include the sale of electronic access to public records on behalf of the government and the collection of subscription
We charge for access to records on a per-record basis and, depending upon government policies, also on a fixed or sliding scale bulk basis. Our fees are set by negotiation with the government agencies that control the records and are typically approved by a government sanctioned oversight body. We recognize revenues from transactions on an accrual basis and bill end-user customers primarily on a monthly basis. We typically receive a majority of payments via electronic funds transfer and credit card within 20 days of billing and remit payment to governments within 60 days of the transaction. Government agency fees and amounts payable to the primary contracting governmental entities are also accrued as cost of revenues and accounts payable at the time revenues are recognized.
In our government partnerships with Georgia and Iowa, we provide consulting, development and management services to state-operated government portals predominantly under a fixed-price model. Revenues from these service contracts are recognized when service is provided and billed at rates and intervals provided for in the contract.
Our application development division develops and implements back-office government applications for a fixed development fee, which is recognized as revenue on a percentage of completion basis. In the fourth quarter of 1998, we determined that the balance of revenues remaining to be recognized in 1999 under our existing application development division contractual obligations was not expected to cover anticipated costs of developing and implementing the related solutions. Estimated costs in excess of fixed contract prices of $1.3 million for completing these projects were expensed in the fourth quarter of 1998. These fixed-price contracts currently do not, and we believe in the future will not, represent a significant percentage of our revenues.
Revenues from individual business units are highly correlated to population, but are also affected by pricing policies established by government entities for public records, the number and growth of commercial enterprises and the government entity's development of policy and information technology (IT) infrastructure supporting electronic government.
Approximately 83% of our pro forma revenue growth from 1997 to 1998 was attributable to revenues from our business units that conducted operations for substantially less than a full year in 1997. We believe that the formation of partnerships with additional government entities will continue to be the primary contributor to our revenue growth in the foreseeable future.
Substantially all of our cost of revenues consist of payments we make to our government partners for access to public records we distribute over the Internet to businesses and citizens, and the remainder consist of telecommunications costs. The pricing, costs and gross margin derived from these records vary by the type of public record and by state.
The majority of our operating expenses are personnel-related, and directly associated with the development and marketing of electronic government solutions in our business units. All nine business units have largely the same operational design and a similar cost structure. Each of our business units has a president, a marketing group and a service development and operations group which together focus on the rapid development and deployment of Internet applications to meet the needs of governments, businesses and citizens in that particular venue. The amortization of goodwill and intangible assets related to our exchange offer is the other major component of operating expenses.
Since the inception of our first business unit in Kansas, we have used stock purchase and stock option programs for key employees as compensation to attract strong business and technical talent. We have recorded compensation expense for some of our stock and options grants. The expense is equal to the excess of the fair market price on the date of grant or sale over the option exercise or stock sale price. As of March 31, 1999, we recorded deferred compensation of approximately $606,000. For the stock options granted, deferred compensation is being amortized over the vesting periods of the stock options. We recognized a total of approximately $292,000 in stock
RESULTS OF OPERATIONS
Prior to the completion of our exchange offer in March 1998, we were a holding company with no operations of our own. Our exchange offer consolidated five business units as operating subsidiaries under our holding company.
Prior to April 1, 1998, our historical consolidated results of operations reflect only the results of our business unit formed to pursue new business opportunities and not the results of our business units operating in Indiana, Kansas, Arkansas and Nebraska. For example, for the three months ended March 31, 1999, revenues were $11.5 million which represents all of our business units while the $361,000 reported for the three months ended March 31, 1998 represents primarily the start-up of our operations in Virginia. Total operating expenses are likewise not comparable. Accordingly, we believe that that historical comparison of our results of operations for the three months ended March 31, 1999 against the three months ended March 31, 1998, the year ended December 31, 1998 against the year ended December 31, 1997 and the year ended December 31, 1997 against the year ended December 31, 1996 are not necessarily meaningful.
We believe that comparisons of the three months ended March 31, 1999 against the pro forma for the three months ended March 31, 1998 and the pro forma for the year ended December 31, 1998 against the pro forma for the year ended December 31, 1997 most accurately represents our combined operations for these periods. See the pro forma consolidated financial information that appears at the end of this prospectus for additional details regarding the pro forma information.
The following table presents certain consolidated statement of operations data for the periods indicated as a percentage of total revenues on a pro forma basis, except for the three months ended March 31, 1999.
PERCENTAGE OF REVENUES
------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER
31, MARCH 31,
-------------------- --------------------------
1997 1998 1998 1999
--------- --------- ------------- -----------
PRO FORMA PRO FORMA ACTUAL
-------------------- ------------- -----------
Revenues....................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................................... 75.5 75.0 74.8 75.1
--------- --------- ----- -----
Gross profit................................................... 24.5 25.0 25.2 24.9
Operating expenses.............................................
Service development and operations........................... 5.4 11.8 7.0 8.2
Selling, general and administrative.......................... 12.8 13.9 14.2 13.2
Stock compensation........................................... 2.6 0.8 0.1 2.3
Depreciation and amortization................................ 31.8 21.6 24.0 17.5
--------- --------- ----- -----
Total operating expenses................................... 52.6 48.1 45.2 41.2
--------- --------- ----- -----
Operating income (loss)........................................ (28.1) (23.1) (20.0) (16.3)
Interest expense............................................... (0.2) (0.3) (0.2) (0.3)
Other income (expense), net.................................... (0.1) 0.2 0.2 0.1
--------- --------- ----- -----
Income before income taxes..................................... (28.4) (23.2) (20.0) (16.5)
Income taxes................................................... 0.0 2.0 0.0 0.1
--------- --------- ----- -----
Net income (loss).............................................. (28.4)% (25.2)% (20.0 )% (16.6 )%
--------- --------- ----- -----
--------- --------- ----- -----
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REVENUES. Revenues increased 38.5% to $11.5 million for the three months ended March 31, 1999 from $8.3 million on a pro forma basis for the three months ended March 31, 1998. This increase was primarily attributable to two new business units that were fully operational in the first quarter of 1999, but were not operational in 1998.
COST OF REVENUES. Cost of revenues consists of payments we make to our government partners for access to public records we distribute over the Internet to businesses and citizens, and the remainder consist of telecommunications costs. Cost of revenues increased 39.1% to $8.6 million for the three months ended March 31, 1999 from $6.2 million on a pro forma basis for the three months ended March 31, 1998. This increase primarily was attributable to the cost related to the two new business units that were fully operational in the first quarter of 1999, but were not operational in 1998.
SERVICE DEVELOPMENT AND OPERATIONS. Service development and operations costs consist of costs to develop, implement, operate and maintain government portals, as well as costs of personnel that design, develop and implement back-office government solutions. These costs increased 62.1% to $935,000 for the three months ended March 31, 1999 from $577,000 on a pro forma basis for the three months ended March 31, 1998. This increase primarily was attributable to new business units and the increase in size of our application development division.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs consist of marketing and sales costs in our business units and costs of corporate-level personnel. These costs increased 29.6% to $1.5 million for the three months ended March 31, 1999 from $1.2 million on a pro forma basis for the three months ended March 31, 1998. This increase primarily was attributable to new business units and the addition of corporate-level personnel.
STOCK COMPENSATION. Stock compensation was $267,000 for the three months ended March 31, 1999 compared to $5,000 on a pro forma basis for the three months ended March 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consisted primarily of amortization of goodwill and intangible assets related to our exchange offer. Depreciation and amortization was $2.0 million for the three months ended March 31, 1999 and 1998.
INCOME TAXES. On March 31, 1998 we were an S corporation, as were all of our business units, and therefore we did not record income tax expense. We recognized an income tax provision of $12,000 for the three months ended March 31, 1999. This provision primarily was attributable to goodwill amortization and stock compensation being non-deductible for tax purposes.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Pro forma revenues increased 49.8% to $36.5 million for the year ended December 31, 1998 from $24.4 million for the year ended December 31, 1997. This increase was primarily attributable to the addition of four new business units in 1997 that had a full year of operations in 1998.
COST OF REVENUES. Pro forma cost of revenues increased 48.8% to $27.4 million for the year ended December 31, 1998 from $18.4 million for the year ended December 31, 1997. This increase was primarily attributable to the costs related to the addition of four new business units in 1997 that had a full year of operations in 1998.
SERVICE DEVELOPMENT AND OPERATIONS. Pro forma service development and operations costs increased 237.4% to $4.3 million of the year ended December 31, 1998 from $1.3 million for the year ended December 31, 1997. This increase was primarily attributable to the development of new business units and increased development costs of our applications development division, including a one-time
SELLING, GENERAL AND ADMINISTRATIVE. Pro forma selling, general and administrative costs increased 62.9% to $5.1 million for the year ended December 31, 1998 from $3.1 million for the year ended December 31, 1997. This increase primarily was attributable to marketing and sales activities within our new business units.
STOCK COMPENSATION. Pro forma stock compensation costs were $297,000 for the year ended December 31, 1998 and was $631,000 for the year ended December 31, 1997.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization was $7.9 million for the year ended December 31, 1998 and was $7.8 million for the year ended December 31, 1997.
INCOME TAXES. We recognized an income tax provision of $719,000 for the year ended December 31, 1998. This provision was attributable to a one-time $1.4 million provision for deferred taxes on our conversion to a C corporation and goodwill amortization and stock compensation being non-deductible for tax purposes. For the year ended December 31, 1997, we were an S corporation, as were all of our business units, and therefore we did not record income tax expense.
SELECTED QUARTERLY OPERATING RESULTS
The following tables present certain consolidated statements of operations data for our nine most recent quarters ended March 31, 1999 in dollars and as a percentage of net revenue. Data for periods prior to the three months ended June 30, 1998 are presented on a pro forma basis. In management's opinion, this unaudited information has been prepared on the same basis as the audited annual financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of the unaudited information for the quarters presented. You should read this information in conjunction with the consolidated financial statements, including the notes thereto, included elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of results that we might achieve for any subsequent periods.
QUARTER ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
Revenues....................... $ 5,295 $ 5,410 $ 6,395 $ 7,282 $ 8,270 $ 8,494 $ 9,773 $ 9,996 $11,455
Cost of revenues............... 4,017 4,081 4,874 5,438 6,184 6,152 7,347 7,711 8,604
-------- -------- --------- -------- -------- -------- --------- -------- --------
Gross profit................... 1,278 1,329 1,521 1,844 2,086 2,342 2,426 2,285 2,851
Operating expenses:
Service development and
operations................. 276 288 329 416 577 676 806 2,268 935
Selling, general and
administrative............. 612 694 764 1,052 1,171 1,381 1,219 1,317 1,518
Stock compensation........... 10 -- 150 471 5 259 -- 33 267
Depreciation and
amortization............... 1,936 1,946 1,937 1,955 1,989 1,968 1,962 1,968 2,001
-------- -------- --------- -------- -------- -------- --------- -------- --------
Total operating expenses..... 2,834 2,928 3,180 3,894 3,742 4,284 3,987 5,586 4,721
-------- -------- --------- -------- -------- -------- --------- -------- --------
Operating income (loss)........ $(1,556) $(1,599) $(1,659) $(2,050) $(1,656) $(1,942) $(1,561) $(3,301) $(1,870)
-------- -------- --------- -------- -------- -------- --------- -------- --------
-------- -------- --------- -------- -------- -------- --------- -------- --------
AS A PERCENTAGE OF TOTAL REVENUES
--------------------------------------------------------------------------------------------------
Revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............... 75.9 75.4 76.2 74.7 74.8 72.4 75.2 77.1 75.1
-------- -------- --------- -------- -------- -------- --------- -------- --------
Gross profit................... 24.1 24.6 23.8 25.3 25.2 27.6 24.8 22.9 24.9
Operating expenses:
Service development and
operations................. 5.2 5.3 5.2 5.7 7.0 8.0 8.2 22.7 8.2
Selling, general and
administrative............. 11.6 12.8 11.9 14.5 14.1 16.2 12.5 13.2 13.2
Stock compensation........... 0.2 0.0 2.3 6.5 0.1 3.0 0.0 0.3 2.3
Depreciation and
amortization............... 36.5 36.0 30.3 26.8 24.0 23.2 20.1 19.7 17.5
-------- -------- --------- -------- -------- -------- --------- -------- --------
Total operating expenses..... 53.5 54.1 49.7 53.5 45.2 50.4 40.8 55.9 41.2
-------- -------- --------- -------- -------- -------- --------- -------- --------
Operating income (loss)........ (29.4)% (29.5)% (25.9)% (28.2)% 20.0% (22.8)% (16.0)% (33.0)% (16.3)%
-------- -------- --------- -------- -------- -------- --------- -------- --------
-------- -------- --------- -------- -------- -------- --------- -------- --------
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We expect operating results to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. See "Risk Factors--The unpredictability of our quarter to quarter results may adversely affect the trading price of our common stock" and "--The seasonality of use for certain electronic government products and services may adversely affect our fourth quarter results of each calendar year" for more information on quarterly fluctuations and seasonality and how it affects our business.
We believe that period to period comparisons of our operating results will not necessarily be meaningful and you should not rely on them as an indication of future performance. It is possible that in some future periods our operating results may be below the expectations of public market analysts and investors. In such event, the trading price of our common stock may decline.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the exchange offer, each of our business units funded its initial development and organizational costs from stock sales to employees and certain private investors. Since March 31, 1998, initial development and organizational costs related to new business units have been funded by net cash generated from operations in existing business units. In most cases, our business units have generated positive cash flow from operations within the first ninety days following initial service implementation, and have thereafter begun to fund all activities from operating cash flow. As of March 31, 1999, we had approximately $1.1 million in cash and cash equivalents.
Investing activities resulted in net cash used of $10,000 in the three months ended March 31, 1999, and net cash provided of $607,000 in the year ended December 31, 1998. The cash provided from investing activities in the year ended December 31, 1998 was attributable to cash of $765,000 held by the business units we consolidated in connection with our exchange offer, offset by cash invested in property and equipment of $255,000.
Cash flows provided from financing activities were $181,000 for the three months ended March 31, 1999, and $170,000 for the year ended December 31, 1998. Cash flows provided from financing activities for the three months ended March 31, 1999 were primarily attributable to issuances of our common stock to executives and a board member during the period. Cash flows provided from financing activities for the year ended December 31, 1998 were primarily attributable to cash flows from borrowings of $1.2 million, offset by cash used for payments on notes, leases, debentures and distributions to shareholders totalling $588,000.
Cash provided and/or used for operating, investing and financing activities during the periods ended March 31, 1998, December 31, 1997, and December 31, 1996 reflected the cash flow from our business unit formed to pursue new business opportunities, and is not comparable to cash flow patterns reflected in our consolidated operations.
Each of our business units maintains operating lines of credit and equipment lines of credit on identical or substantially similar terms and conditions from the same bank. The total amount outstanding on our bank lines of credit for our business units totaled $839,000 as of March 31, 1999.
We believe that the net proceeds from this offering, together with the existing cash balances and financing arrangements, will provide us with sufficient funds to finance our operations through at least the next 18 months. If the cash we generate from our operations is insufficient to satisfy our liquidity requirements after this 18 month period, we may need to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to our shareholders. We may not be able to raise any additional capital or on acceptable terms or at all.
YEAR 2000 READINESS
Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. As a result, software that records only the last two digits of the calendar year may not be able to distinguish whether "00" means 1900 or 2000. This may result in software failures or the creation of erroneous results.
We have conducted an internal review of software systems that we use for portal management, network monitoring, quality assurance, applications and information and transaction processing. Because we developed most of these software systems internally after the Year 2000 problem was already known, we were largely able to anticipate four digit requirements. In connection with ongoing reviews of our government portals, we also are reviewing our computer infrastructure, including network equipment and servers. We do not anticipate material problems with network equipment, as the majority of our current configuration have been installed or upgraded with Year 2000 ready systems. Similarly, we purchased most of our servers within the past four years. With this relatively current equipment, we do not anticipate
We also have internally standardized the majority of our systems on a Solaris operating system, which we are advised by our vendor is Year 2000 ready after implementation of the latest service upgrades. We use multiple software systems for internal business purposes, including accounting, electronic mail, service development, human resources, customer service and support and sales tracking systems. The majority of these applications have either been purchased, upgraded or internally developed within the last three years.
We have made inquiries of vendors of systems we believe to be mission critical to our business regarding their Year 2000 readiness. Although we have received various assurances, we have not received affirmative documentation of Year 2000 readiness from any of these vendors and we have not performed any operational tests on our internal systems. We generally do not have contractual rights with third party providers should their equipment or software fail due to Year 2000 issues. If this third-party equipment or software does not operate properly with regard to Year 2000, we may incur unexpected expenses to remedy any problems. These expenses could potentially include purchasing replacement hardware and software. We have not determined the state of readiness of certain third-party suppliers of information and services such as our government partners, phone companies, long distance carriers, financial institutions and electric companies, the failure of any one of which could severely disrupt our ability to conduct our business.
Concurrently with our two-phase analysis of our internal systems, we have begun to survey third-party entities with which we transact business, including government partners, critical vendors and financial institutions, for Year 2000 readiness. We expect to complete this survey in the second quarter of 1999. We cannot estimate the effect, if any, that non-ready systems of these entities could have on our business, results of operations or financial condition, and there can be no assurance that the impact, if any, would not be material.
We anticipate that our review of Year 2000 issues and any remediation efforts will continue throughout calendar 1999. The costs incurred to date to remediate our Year 2000 issues have not been material. If any Year 2000 issues are uncovered with respect to these systems or our other internal systems, we believe that we will be able to resolve these problems without material difficulty, as replacement systems are available on commercially reasonable terms. Presently, we have included the total remaining cost of addressing Year 2000 issues within our existing information technology budget. We do not anticipate any Year 2000 complications based on a number of assumptions, including the assumption that we have already identified our most significant Year 2000 issues. However, these assumptions may not be accurate, which could cause our actual results to differ materially from those anticipated. In view of our Year 2000 review and remediation efforts to date, the recent development of a number of our products and services, the recent installation of our networking equipment and servers, and the limited activities that remain to be completed, we do not consider contingency planning to be necessary at this time.
Our applications operate in complex network environments and directly and indirectly interact with a number of external hardware and software systems. We are unable to predict to what extent our business may be affected if our systems or the systems that operate in conjunction with our systems experience a material Year 2000 failure. The most likely worst case scenarios are that the Internet infrastructure fails or the internal systems of our government partners fail, either of which would render us unable to provide products and services, which would harm our business. Additionally, known or unknown errors or defects that affect the operation of our software and systems could result in delay or loss of revenue, interruption of services, cancellation of contracts and memberships, diversion of development resources, damage to our reputation, increased service and warranty costs, and litigation costs, any of which could harm our business, financial condition and results of operations.
The Financial Accounting Standards Board issued Statement No. 131, "Disclosure about Segments of an Enterprise and Related Information," which establishes standards for the way public business enterprises report information in annual statements and interim financial reports regarding operating segments, products and services, geographic areas and major customers. This statement is effective for financial statements for periods beginning after December 15, 1997. The adoption of this statement did not have a significant impact on the way we report information in our annual statements and interim financial reports.
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which establishes guidelines for the accounting for the costs of all computer software developed or obtained for internal use. We are required to adopt SOP 98-1 effective January 1, 1999. The adoption of SOP 98-1 is not expected to have a material impact on our consolidated financial statements.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our cash balances and on the increase or decrease in the amount of interest expense we must pay with respect to our various outstanding debt instruments. The risk associated with fluctuating interest expense is limited, however, to the exposure related to those debt instruments and credit facilities which are tied to market rates. We do not use derivative financial instruments. We ensure the safety and preservation of our invested principal funds by limiting default risks, market risk and investment risk.
OVERVIEW
NIC is the leading provider of Internet-based electronic government solutions that help governments reduce costs and provide a higher level of service to businesses and citizens. We form partnerships with governments and on their behalf design, build and operate Internet-based portals. These portals consist of Web sites and applications that we build, which allow businesses and citizens to complete transactions and obtain government information online. Our unique business model allows us to minimize our partners' financial and technology risks and share in the revenue generated by providing electronic government solutions to businesses and citizens. Our partners benefit because they gain a centralized, customer-focused presence on the Internet. Businesses and citizens gain a faster, more convenient and more cost-effective means to obtain valuable government information and to complete transactions with government, including permit applications, license renewals and report filings.
Currently, we provide Internet-based electronic government solutions for eight states and one local government. A ninth state has recently selected us as a solution provider, and we are in the process of negotiating a contract to implement our solution. We typically enter into three to five year contracts with our government partners and manage operations for each partnership through decentralized business units. We intend to increase our revenues by replicating our model in other states, municipalities, federal agencies and international entities, and by delivering new services and expanding markets within our existing partnerships.
INDUSTRY BACKGROUND
THE MARKET FOR GOVERNMENT-TO-BUSINESS AND GOVERNMENT-TO-CITIZEN TRANSACTIONS
Government's regulation of commercial and consumer activities requires billions of transactions and exchanges of large volumes of information between government agencies and businesses and citizens. These transactions and exchanges include driver's license renewals, motor vehicle registrations, tax returns, permit applications and requests for government-gathered information. Government agencies typically defray the cost of processing these transactions and of storing, retrieving and distributing information through a combination of general tax revenue, service fees and charges for direct access to public records. In 1996, state and local governments collected $27 billion in miscellaneous services fees from businesses and citizens. Additionally, the federal government collected $56 billion in miscellaneous service fees in 1997.
THE LIMITS OF TRADITIONAL GOVERNMENT TRANSACTION METHODS
Traditionally, government agencies have transacted, and in many cases continue to transact, with businesses and citizens using processes that are inconvenient and labor-intensive, require extensive paperwork and use large amounts of scarce staff resources. Transactions and information requests are often made in person or by mail and are processed manually, increasing the potential for errors and the need for numerous revisions and follow-up. Even newer methods, including telephone response systems, tape exchanges and dial-up computer networks, rely on multiple systems and potentially incompatible data formats, and require significant expertise and expenditures to introduce and maintain. As a result, businesses and citizens often have no choice but to face costly delays to complete essential tasks. These delays include waiting in line at a government agency, waiting for answers by telephone or waiting for responses by mail. Businesses and citizens encounter further inconvenience and delay because they usually can work with government agencies only during normal business hours. Even when electronic alternatives are available, they often require a cumbersome process of multiple contacts with different government agencies. Increases in the level of economic activity and in the population have exacerbated these problems and increased the demand for new solutions.
The Internet has emerged as a global medium, enabling millions of people worldwide to share information, communicate and conduct business electronically. International Data Corporation, a market research firm, estimates that the number of Web users will grow from approximately 97 million worldwide in 1998 to approximately 320 million worldwide by the end of 2002. This growth is expected to be driven by the large and growing number of PCs installed in homes and offices, the decreasing cost of PCs, easier, faster and cheaper access to the Internet, improvements in network infrastructure, the proliferation of Internet content and the increasing familiarity with and acceptance of the Internet by governments, businesses and consumers. In addition, the volume of electronic commerce has grown in parallel with the Internet itself. According to International Data Corporation, transactions on the Internet are expected to increase from approximately $32 billion in 1998 to approximately $426 billion in 2002. Business-to-business usage is also growing rapidly. Forrester Research, a market research firm, estimates that business-to-business electronic commerce will grow from $17 billion in 1998 to $327 billion in 2002.
EMERGENCE OF THE INTERNET AS A MEDIUM FOR ELECTRONIC GOVERNMENT
The growing acceptance of the Internet and electronic commerce presents a significant opportunity for the development of electronic government, in which government agencies conduct transactions and distribute information over the Internet. By using the Internet, government agencies can increase the number and efficiency of interactions with constituents without increasing expenditures or demands on current personnel. In addition, regardless of physical distance, businesses and citizens can obtain government information quickly and easily over the Internet. For example, motor vehicle administrations can provide instantaneous responses to auto insurers' requests for driving record data by allowing controlled access to government databases through the Internet. This Internet-based interaction reduces costs for both government and users and decreases response times compared to providing the same data by mail or special purpose dial-up computer connections.
CHALLENGES TO THE IMPLEMENTATION OF ELECTRONIC GOVERNMENT SOLUTIONS
Despite the potential benefits of electronic government, barriers to creating successful Internet-based solutions often preclude governments from implementing them. Some of these barriers are similar to those the private sector encounters, including:
- the high cost of implementing and maintaining Internet technology in a budget-constrained environment;
- the financial, operational and technology risks of moving from older, established technologies to rapidly evolving Internet technologies;
- the need to quickly assess the requirements of potential customers and cost-effectively design and implement solutions that are tailored to meet these requirements; and
- the intense competition for qualified technical personnel.
Governments also face some unique challenges that exacerbate the difficulty of advancing to Internet-based solutions, including:
- lengthy and political appropriations processes that make it difficult for governments to acquire resources and to develop Internet solutions quickly;
- a diverse and substantially autonomous group of government agencies that have adopted varying and fragmented approaches to providing information and transactions over the Internet;
- security and privacy concerns that are amplified by the confidential nature of the information and transactions available from and conducted with governments and the view that government information is part of the public trust.
Traditional private sector Internet solutions generally do not address the unique needs of electronic government. Most Internet solution providers do not fully understand and are not well-equipped to deal with the unique political and regulatory structures of governments. These providers, including large systems integrators, typically take a time-and-materials, project-based pricing approach that may not adequately balance the responsiveness to change of a successful Internet business with the longer time-horizons and extended commitment periods of government projects.
OUR SOLUTION
We provide a unique, Internet-based electronic government solution that meets the needs of businesses, citizens and governments. The key elements of our solution are:
CUSTOMER-FOCUSED, ONE-STOP GOVERNMENT PORTAL
Using our well-established marketing and technical expertise and our government experience, we design, implement and manage portals for each of our government partners that meet their needs as well as those of businesses and citizens. Our portals are designed to create a single point of presence on the Internet for our government partners that allows businesses and citizens to reach the Web site of every government agency in a specific jurisdiction from one online location. We employ a common look and feel in the Web sites of all government agencies associated with our electronic government portals and make them useful, appealing and easy to use. In addition to developing and managing the government portal, we develop applications that, in one location on the Internet, allow businesses and citizens to complete processes that have traditionally required separate interaction with several different government agencies, including establishing and obtaining required permits for a new business enterprise. These applications also permit businesses and citizens to conduct transactions with government agencies and to obtain information from them 24 hours per day, seven days per week. We also help our government partners to generate awareness and educate businesses and citizens about the availability and potential benefits of electronic government solutions.
COMPELLING FINANCIAL MODEL
We allow governments to implement a comprehensive electronic government solution at minimal cost and risk. We take on the responsibility and cost of designing, building and operating government portals and applications, with minimal use of government resources. We employ our technological resources and accumulated expertise to help governments avoid the risks of selecting and investing in new technologies. We implement our electronic government solutions rapidly, efficiently and accurately, using our well-tested and reliable infrastructure and processes. Once we establish a government portal and associated applications, we manage transaction flows and fund ongoing costs from a share of fees received from information accessed and transactions conducted through the portal.
PARTNERSHIP WITH GOVERNMENTS
We form partnerships with governments by developing an in-depth understanding of their interests and then aligning our interests with theirs. By tying our revenues to the development of successful services and applications, we assure government agencies and constituents that we are focused on their needs. Moreover, we have pioneered, and encourage our partners to adopt, a model for electronic government policymaking that involves the formation of oversight boards that bring together interested
OUR STRATEGY
Our objective is to strengthen our position as the leading provider of Internet-based electronic government solutions. Key strategies to achieve this objective include:
CONTINUE TO PENETRATE NEW MARKETS
We intend to increase the number of our government partners by leveraging our relationships with current government partners, our reputation for providing proven electronic government solutions and our technology and government process knowledge base. We have designed our solutions and infrastructure so that we can deploy solutions quickly, easily and cost-effectively in new locations. We intend to market our one-stop approach to other states, multi-state cooperative organizations, local governments and federal agencies. In the future, we may expand our services into international markets. Our expansion efforts will include developing relationships and sponsors throughout an individual government entity, making presentations at conferences of government executives with responsibility for information technology policy, and developing contacts with organizations that act as forums for discussions between these executives.
BROADEN PRODUCT AND SERVICE OFFERINGS
We intend to develop new product and service offerings to enable government agencies and businesses and citizens to interact more effectively online. We will increase our development efforts by leveraging our experience and deepening the knowledge base that we have developed from our operations. We will continue to work with government agencies, professional associations and other organizations to better understand the current and future needs of our customers.
INCREASE TRANSACTION VOLUMES FROM EXISTING AND NEW CUSTOMERS
We intend to increase traffic to our government portals through both targeted and broad marketing initiatives. We will continue to work with our government partners to create awareness of the online alternatives to traditional government interaction, through initiatives including informational brochures, government voicemail recordings and inclusion of Web site information on government invoices. In addition, we will continue to update our portals to highlight new government service information provided on the portals. We plan to work with professional associations to directly and indirectly communicate to their members the convenience, ease of use and other benefits of the electronic government solutions our portals offer.
ENHANCE CAPABILITY AND EFFICIENCY OF CORE BUSINESS OPERATIONS
We will continue to enhance our business model by increasing the overall capability and efficiency of each government business unit. On a corporate level, we will work with each business unit to share and coordinate the implementation of best practices across our organization and to create new products and services in response to the needs of businesses and citizens. We intend to strengthen our operational and administrative functions to provide standardized services in areas that benefit from economies of scale, including new market development and human resources management. In addition, we
ATTRACT, RETAIN AND TRAIN SPECIALIZED AND QUALIFIED PERSONNEL
We believe that attracting, training and retaining specialized talent is critical to executing our growth strategy. We will continue to improve employee retention through challenging and entrepreneurial work assignments and incentive programs, including equity interests in our company. We strive to foster a creative, open atmosphere in which we encourage each employee to make valuable contributions. We intend to hire employees with experience in government processes who also have specific technical, marketing or contract negotiation skills. In addition, we intend to improve the quality and retention of our workforce through increased centralized training programs.
GOVERNMENT PARTNERSHIPS
We provide electronic government solutions to eight states and one city-county government through the following partnerships:
YEAR
SERVICES POPULATION
PARTNERSHIP NAME COMMENCED SERVED WEB ADDRESS
------------------------------------------------ ----------- ----------- -----------------
InforME (Maine)................................. 1999 1,244,000 www.state.me.us
Information Network of Arkansas................. 1997 2,538,000 www.state.ar.us
CivicNet (Indianapolis and Marion County,
Indiana)...................................... 1997 813,000 www.civicnet.net
IOWAccess Network............................... 1997 2,862,000 www.iowaccess.org
Virginia Information Providers Network.......... 1997 6,791,000 www.vipnet.org
GeorgiaNet Authority............................ 1996 7,642,000 www.state.ga.us
Access Indiana Information Network.............. 1995 5,899,000 www.state.in.us
Nebrask@ Online................................. 1995 1,663,000 www.state.ne.us
Information Network of Kansas................... 1992 2,629,000 www.state.ks.us
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Source: 1998 estimated population information from the U.S. Census Bureau Web site at www.census.gov.
Each of these partnerships operates under a separate contract, which generally has an initial term of three to five years. Under a typical contract, a government agrees that:
- we have the right to develop a comprehensive Internet portal owned by the government to deliver an electronic government solution;
- the portal we establish is the primary electronic and Internet interface between the government and its citizens;
- the government supports the use of the portal for all commercially valuable applications in order to support the operation and expansion of the portal;
- the government sponsors access to agencies for the purpose of entering into agreements with these agencies to develop applications for their data and transactions and to link their Web pages to the portal; and
In return, we agree to:
- develop, manage, market, maintain and expand the government's portal and information and electronic commerce applications;
- assume the investment risk of building and operating the government's portal and applications without the direct use of tax dollars;
- bear the risk of collecting transaction fees; and
- have an independent audit conducted upon the government's request.
We own all the software we develop under these contracts. After completion of the initial contract term, our government partners receive a perpetual, royalty free license to use the software only in their own portals.
We enter into separate agreements with various agencies and divisions of our government partners to provide specific services and to conduct specific transactions. These agreements preliminarily establish the pricing of the electronic transactions and data access services we provide and the allocation of revenues between us and the agency. These terms are then submitted to the policy making and fee approval board for approval.
In our government partnerships with Georgia and Iowa, we provide consulting, development and management services for these government portals predominantly under a fixed-price model.
OUR PRODUCTS AND SERVICES
Each of our business units works with its government partner to implement, develop, manage, and constantly enhance a single, comprehensive Internet-based portal to deliver electronic government solutions to the government's constituents. Citizens and businesses use these portals to gain access to Web-based interactive applications in order to conduct transactions with the government and gain access to public service information.
We provide user-friendly and convenient access to useful government information and services on each portal and develop numerous fee-based transaction services and applications. These fee-based services and applications allow businesses and citizens to access constantly changing government information and to file necessary government documents, including driver's license renewals, motor vehicle registrations, tax returns, and permit applications. The types of products and services and the fees charged vary in each jurisdiction according to the unique preferences of that jurisdiction. In an effort to reduce the frustration businesses and citizens often encounter when dealing with multiple government agencies, we handle cross-agency communications whenever feasible and shield businesses and citizens from the complexity of agency legacy systems, creating an intuitive and efficient way to deal with government.
PRODUCT OR SERVICE DESCRIPTION PRIMARY USERS
Driver's License Offers controlled instant look-up of driving Insurance companies
Records Search records by license number, name and birth date,
or social security number. Includes commercial
licenses.
Vehicle Title, Provides controlled interactive title, Insurance companies,
Lien & registration and lien database access. lenders
Registration
BillWatch-TM- Allows the user to monitor state legislative Attorneys, lobbyists
(Lobbyist in a activity. Users can tag bills by key word or
Box-Registered Trademark-) bill number, and BillWatch-TM- will send an
e-mail when a change occurs in the status of
the bill.
Health Allows users to search databases on several Hospitals, clinics,
Professional health professions. health insurers,
License Services citizens
Secretary of State Allows users to access filings of corporations, Attorneys, lenders
Searches partnerships and other entities, including
charter documents.
UCC Searches Permits searches of the UCC database. Attorneys, lenders
Professional Permits professionals to renew their licenses Attorneys, doctors,
License Renewal on line using a credit card. other licensed
professionals
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We also have a number of products and services in development,
including:
PRODUCT OR SERVICE DESCRIPTION PRIMARY USERS
Motor Fuel EDI Allows motor fuel carriers to file their tax Motor fuel carriers
Project reports electronically.
Sales/Use Tax Allows Sales and Use Tax filers to file the Retailers
Filing required forms online. The electronic forms
handle the computation in the form and write
the data out so that it can be entered into the
Department of Revenue's databases without the
need for the information to be re-keyed in the
Department's office.
Online Birth Processes an online request for an official Citizens
Certificate birth certificate, charging the user's credit
card.
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Our application development division develops and delivers applications that improve the back-office administration of government records, and that better enable electronic filing and distribution. These applications often are highly customized for specific government or agency needs, and have been developed under separate contracts outside of our core partnership arrangements with governments.
In addition to these products and services, we also provide customer service and support. Our customer service representatives serve as a liaison between our government partners and businesses and
SALES AND MARKETING
- to develop new sources of revenue through new government partnerships; and
- to retain and grow our revenue streams from existing government partnerships.
We have well-established sales and marketing processes for achieving these goals, which are managed by our national market development division and a marketing department within each business unit.
DEVELOPING NEW SOURCES OF REVENUE
We focus our new government sales and marketing efforts on increasing the number of state, local, federal and international governments and government agencies that are receptive to a public/private partnership for delivering information and completing transactions over the Internet. We meet regularly with interested government officials to educate them on the public/private partnership model and its potential advantages for their jurisdictions. Members of our management team are also regular speakers at conferences devoted to the application of Internet technologies to facilitate the relationship between governments and their citizens. In states where we believe interest is significant, we seek to develop supportive, educational relationships with professional and business organizations that may benefit from the government service improvements our Internet delivery strategy can produce.
Once a government decides to implement a public/private partnership model for managing Internet access to resources and transactions, it typically starts a selection process that operates under special rules that apply to government purchasing. These rules typically require open bidding by possible service providers against a list of requirements established by the government under existing procedures or procedures especially created for the Internet partner selection process. We respond to requests for bids with a proposal that outlines in detail our philosophy and plans for implementing our business model. Once our proposal is selected, we enter into negotiations for a contract. We have responded to a number of requests for comprehensive electronic government solution proposals from governments and have been awarded and entered into contracts in each case.
GROWING EXISTING MARKETS
In our existing government partnerships, our marketing efforts focus on:
- expanding the number of government agencies that provide services or information on the government portal;
- identifying new information and transactions that can be usefully and cost-effectively delivered over the Internet; and
- increasing the number of potential users who do business with the government over the Internet.
Although each government's unique political and economic environment drives different marketing and development priorities, we have found many of our core applications to be relevant across multiple jurisdictions. Each of our partnership operations has a director of marketing and additional marketing staff that regularly meet with government, business and consumer representatives to discuss potential new services. We also promote the use of existing services to existing and new customers through speaking engagements and targeted advertising to organizations for professionals, including lawyers, bankers and insurance agents, that have a need for regular interaction with government.
We have recently implemented a centralized marketing function, which will identify products and services that have been developed and implemented successfully for one government and replicate them in other jurisdictions.
Over the past eight years, we have made substantial investments in the development of Internet-based applications and operations specifically designed to allow businesses and citizens to transact with and receive information from governments. The scope of our technological expertise includes network engineering as it applies to the interconnection of government systems to the Internet, Internet security, Web-to-legacy system integration, Web-to-mainframe integration, database design, Web site administration and Web page development. Within this scope, we have developed and implemented a comprehensive Internet portal framework for governments, and a broad array of standalone service solutions using a combination of our own proprietary technologies and commercially available, licensed technologies. Our technological expertise, coupled with our in-depth understanding of governmental processes and systems, has made us adept at rapidly creating tailored solutions that keep our partners on the forefront of electronic government.
Each of our government partners has unique priorities and needs in the development of its electronic government solution. Over 60% of our employees work in the Internet services and applications development, and operations area, and nearly all are focused on a single government partner's application needs. Our employees develop an understanding of a specific government's application priorities, technical profiles and information technology personnel and management. At the same time, all of our development directors are trained by experienced technical staff from our other partnership operations on our standard technical framework, and there is frequent and growing communication and cooperation, which ensures that our government partners can make use of the most advanced solutions we have developed throughout our organization.
Most of our portals and applications are physically hosted in each jurisdiction in which we operate on servers that we own or lease. We also provide links to sites that are maintained by government agencies or organizations that we do not manage. Our business units provide uninterrupted 24 hour per day, 7 day a week online service, and all of our operations maintain fault-tolerant, redundant systems, with thorough backup and security and disaster recovery procedures.
Our systems and applications are scalable and can easily be replicated from one state to another. We focus on sustaining low-overhead operations, with all major investments driven by the objective of deploying the highest value-added technology and applications to each partnership operation.
Finally, we have designed our government portals and applications to be compatible with virtually any existing system and to be rapidly deployed. We have implemented a government portal in as little as seven days from the award of a contract, and have begun generating revenues from data access transactions in as little as 30 days. To enable this level of speed and efficiency, we license commercially available technology whenever possible and focus on the integration and customization of these off-the-shelf solutions when necessary. We expect that commercially licensed technology will continue to be available at reasonable costs.
COMPETITION
We believe that the principal factors upon which we compete are:
- understanding of government needs;
- the quality and fit of electronic government solutions;
- the speed and responsiveness to the needs of businesses and citizens; and
- cost-effectiveness.
We believe we compete favorably with respect to the above-listed factors. In most cases, the principal substitute for our solution is a government-designed and managed solution that integrates other
- large systems integrators, including American Management Systems, Inc.
and Sapient Corporation;
- traditional consulting firms, including International Business Machines Corporation and Science Applications International Corporation; and
- Web service companies, including USWeb/CKS, AppNet Systems, Inc., and Verio Inc.
Many of our potential competitors are national or international in scope and may have greater resources than we do. These resources could enable our potential competitors to initiate severe price cuts or take other measures in an effort to gain market share. Additionally, in certain geographic areas, we may face competition from smaller consulting firms with established reputations and political relationships with potential government partners. If we do not compete effectively or if we experience any pricing pressures, reduced margins or loss of market share resulting from increased competition, our business and financial condition may be materially adversely affected.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We rely on a combination of nondisclosure and other contractual arrangements with governments, our employees and third parties, and privacy and trade secret laws to protect and limit the distribution of the proprietary software, documentation and processes we have developed in connection with the electronic government products and services we offer. If we fail to adequately protect our intellectual property rights and proprietary information or if we become involved in litigation relating to our intellectual property rights and proprietary technology, our business could be harmed. Any actions we take may not be adequate to protect our proprietary rights and other companies may develop technologies that are similar or superior to our proprietary technology.
Although we believe that our products and services do not infringe on the intellectual property rights of others and that we have all rights needed to use the intellectual property employed in our business, it is possible that we could in the future become subject to claims alleging infringement of third party intellectual property rights. Any claims could subject us to costly litigation, and may require us to pay damages and develop non-infringing intellectual property or acquire licenses to the intellectual property that is the subject of the alleged infringement.
Additionally, upon the completion of the initial term of our government contracts, governments and their successors and affiliates obtain a perpetual right of use license to the software programs and other applications we have developed for them in the operation of the networks. It is possible that governments may use their limited license rights after termination of our contracts to launch competing services, or inadvertently allow our intellectual property or other information to fall into the hands of third parties, including our competitors.
EMPLOYEES
As of March 31, 1999, we had 102 full-time employees, of which 6 were working in our corporate operations and 96 were located in our business units. Of our employees, 18 were in sales and marketing, 63 were in service development and operations and 21 were in finance, business development and administration. Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly qualified technical and management personnel, for whom competition is intense. From time to time, we also employ independent contractors to support our research and development, marketing, sales and support and administrative organizations. Our employees are not covered by any
FACILITIES
Our principal administrative facility occupies a total of approximately 1,800 square feet at 12 Corporate Woods, 10975 Benson Street, Suite 390, Overland Park, Kansas 66210. All of our subsidiaries also lease their facilities. We believe our current facilities are adequate to meet our needs for the foreseeable future. We do not anticipate acquiring property or buildings in the foreseeable future.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings arising in the ordinary course of our business. However, we are not currently subject to any material legal proceedings.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive officers and directors as of May 1, 1999:
NAME AGE POSITION
------------------------------- --- ------------------------------------------------------
Jeffery S. Fraser.............. 39 Chairman, Chief Executive Officer and Director
James B. Dodd.................. 41 President, Chief Operating Officer and Director
William F. Bradley, Jr......... 44 Executive Vice President--Strategy, Policy & Legal,
General Counsel and Secretary
Samuel R. Somerhalder.......... 57 Executive Vice President--Operations and
Administration
Harry H. Herington............. 39 Executive Vice President--Marketing and Technology
Services
John L. Bunce, Jr.............. 40 Director
Daniel J. Evans................ 73 Director
Ross C. Hartley................ 51 Director
Patrick J. Healy............... 32 Director
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JEFFERY S. FRASER has served as our Chairman and Chief Executive Officer since January 1999 and as one of our directors since our formation. Mr. Fraser served as President and Chief Executive Officer of NIC from April 1998 to December 1998 and President and Chief Executive Officer of our subsidiary, NIC/ USA, Inc., from January 1993 to April 1998. Additionally, from January 1992 to September 1998, he served as President and Chief Executive Officer of our subsidiary, Kansas Information Consortium, Inc. Mr. Fraser holds a B.S. in human resource management and an M.S. in information systems from Friends University in Wichita, Kansas.
JAMES B. DODD has served as our President, Chief Operating Officer and a director since January 1999. Prior to joining us, Mr. Dodd spent 14 years with the Sprint Corporation, a telecommunications company, where he served in various senior management positions including, most recently, as Vice President and General Manager of Sprint's Consumer Internet Access Group. Other positions he held at Sprint included Vice President of Consumer International Marketing from 1992 to 1994, and Vice President of Consumer Product Management and Development from 1995 to 1996. Mr. Dodd earned a CPA in 1982 and holds a B.A. in economics from Stanford University and an M.B.A. from the Harvard Business School.
WILLIAM F. BRADLEY, JR. has served as our Secretary since May 1998, General Counsel since July 1998 and Executive Vice President--Strategy, Policy & Legal since January 1999. From May 1998 to February 1999, Mr. Bradley served as one of our directors. He also serves as President, Chief Executive Officer and a director of our subsidiary, Indian@ Interactive, Inc. Mr. Bradley is also the General Manager for City-County Interactive, LLC, a subsidiary of Indian@ Interactive, Inc., which manages CivicNet for the city of Indianapolis and Marion County, Indiana. From July 1989 to December 1994, Mr. Bradley was an associate and later a law partner at Hinkle, Eberhart & Elkouri, LLC, a law firm in Kansas. Mr. Bradley holds a B.A. in English from the University of Kansas, Lawrence, and a J.D. degree from the University of Kansas School of Law.
SAMUEL R. SOMERHALDER has served as our Executive Vice President of Operations and Administration since January 1999. From May 1998 to November 1998, Mr. Somerhalder served as one of our directors. He also serves as President, Chief Executive Officer and a director of our subsidiary, Nebrask@ Interactive, Inc., which manages Nebraska Online for which he has served as the General Manager since January 1995. From November 1994 to April 1996, he also served as Secretary of Nebrask@ Interactive, Inc. Prior to joining us, Mr. Somerhalder was the Senior Vice President of
HARRY H. HERINGTON has served as our Executive Vice President of Marketing and Technology Services since January 1999. He served as one of our directors from May 1998 to February 1999. He also serves as President of NIC/USA, Inc., which has a government partnership with Georgia to manage GeorgiaNet for which Mr. Herington is the General Manager. From September 1995 to September 1996, Mr. Herington served as the General Manager of Kansas Information Consortium, Inc. Prior to accepting his present position with us, Mr. Herington was the Associate General Counsel for the League of Kansas Municipalities from August 1992 to September 1995. Mr. Herington holds a B.A. in photo journalism from Wichita State University in Kansas and a J.D. degree from the University of Kansas School of Law.
JOHN L. BUNCE, JR. has served as one of our directors since June 1998. Mr. Bunce is a Managing Director and a member of the executive committee of Hellman & Friedman LLC, a direct investment firm, which he joined as an associate in 1988. Hellman & Friedman LLC is an affiliate of Hellman & Friedman Capital Partners III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III, L.P. Mr. Bunce also serves as a director of Western Wireless Corporation, a cellular telecommunications company, Voicestream Wireless Corporation, a telecommunications provider of personal communications services (PCS), Bronner Slosberg Humphrey, Co., a direct marketing and interactive agency, Falcon International Communications L.P., a cable company, and MobileMedia Corporation, a paging and messaging services company. Mr. Bunce holds a B.A. in international relations from Stanford University and an M.B.A. from the Harvard Business School.
DANIEL J. EVANS has served as one of our directors since November 1998. He is the chairman of and serves as a consultant for Daniel J. Evans Associates Consulting, a consulting company in Washington, since May 1989. Mr. Evans currently serves as a director of Puget Sound Energy, an investor-owned electric utility company, Flow International, a robotics company, Western Wireless Corporation, a wireless communications company, and Tera Computer, a computer manufacturing company. He also served as a U.S. Senator from September 1983 to January 1989 and the Governor of the State of Washington from January 1965 to January 1977. Mr. Evans holds a B.S. and an M.S. in civil engineering from the University of Washington.
ROSS C. HARTLEY has served as one of our directors since our formation. From its incorporation to March 1999, Mr. Hartley served as Vice President of Marketing of Kansas Information Consortium, Inc. Mr. Hartley also has served as President of The Hartley Insurance Group, an insurance company in Kansas, since 1974. He also serves as a director of Empire District Electric Company, an investor-owned electric utility company. Mr. Hartley holds a B.S. in mathematics from Baker University in Baldwin City, Kansas and a J.D. degree from the University of Kansas School of Law.
PATRICK J. HEALY has served as one of our directors since June 1998. Mr. Healy is a Managing Director of Hellman & Friedman LLC, a direct investment firm, having joined Hellman & Friedman LLC as an associate in 1994. Hellman & Friedman LLC is an affiliate of Hellman & Friedman Capital Partners III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III, L.P. Currently, he also serves as a director of Bronner Slosberg Humphrey, Co., a direct marketing and interactive agency. Mr. Healy holds an A.B. in economics from Harvard College and an M.B.A. from the Harvard Business School.
All directors hold office until the next annual meeting of the shareholders and until their successors have been duly elected and qualified. Executive officers are elected by and serve at the direction of the board of directors.
NAME AGE POSITION
------------------------------- --- ------------------------------------------------------
Richard L. Brown............... 36 President, Chief Operating Officer and a director of
Utah Interactive, Inc.
Robert P. Chandler............. 39 President, Chief Executive Officer and a director of
Arkansas Information Consortium, Inc. and General
Manager of the Information Network of Arkansas
Tamara Dukes................... 36 President, Chief Executive Officer and a director of
New England Interactive, Inc. and General Manager of
InforME Network
Steven Gill.................... 38 Director of Finance of NIC
W. Kent Hiller................. 32 President, Chief Executive Officer and a director of
Iowa Interactive, Inc. and General Manager of
IOWAccess Network
Daniel Houlihan................ 52 President, Chief Executive Officer and a director of
Virginia Interactive, LLC and General Manager of
Virginia Information Providers Network
Debra Luling................... 32 President, Chief Executive Officer and a director of
Kansas Information Consortium, Inc. and General
Manager of the Information Network of Kansas
Joseph Nemelka................. 30 President of Market Development Division of NIC and
Chief Executive Officer and a director of Utah
Interactive, Inc.
Keith Schraad.................. 38 President of Georgia Division of NIC/USA and General
Manager of GeorgiaNet Authority
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RICHARD L. BROWN has served since March 1999 as President, Chief Operating Officer and a director of our subsidiary, Utah Interactive, Inc. Mr. Brown served as the Director of Marketing and Operations of our subsidiary, Indiana Interactive, Inc., from June 1998 to March 1999 and a marketing executive from April 1998 to June 1998. Prior to joining us, Mr. Brown founded and was Chief Executive Officer of Community Ventures in Living, Ltd., a community-based non-profit organization in Indiana which assisted individuals with disabilities. Mr. Brown holds a B.S. in economics from Purdue University.
ROBERT P. CHANDLER has served since March 1999 as President and Chief Executive Officer of our subsidiary, Arkansas Information Consortium, Inc., which manages the Information Network of Arkansas for which he serves as the General Manager. He also has served as Secretary and a director of Arkansas Information Consortium, Inc., since January 1997. Prior to joining us, Mr. Chandler served as a Territory Director of ALLTEL Information Services Inc., an information services provider in the telecommunications and financial services industries, from January 1994 to September 1996 and as the Director of Sales and Marketing at the same company from May 1997 to February 1999. From October 1996 to April 1997, he served as the Director of Sales and Marketing for eCommLink, Inc., a software solutions provider in the financial services industry, a company for which he was also a founding member. Mr. Chandler holds a B.S. in marketing from Kansas State University and an M.B.A. from the University of Kansas School of Business.
TAMARA DUKES has served since March 1999 as President, Chief Executive Officer and a director of our subsidiary, New England Interactive, Inc. which manages InforME, our partnership with the State of Maine, for which she serves as the General Manager. Ms. Dukes served as Director of Marketing for Access Indiana Information Network from January 1998 through May 1998 and IOWAccess Network from June 1998 through February 1999. Prior to joining us, Ms. Dukes founded Tamara Downham Dukes Marketing Consultants, a marketing consulting company, in 1996, where she served as a principal from 1996 to January 1998. Additionally, Ms. Dukes created, produced and sold radio advertising campaigns for
STEVEN GILL has served as our Director of Finance since February 1999. Prior to joining us, Mr. Gill spent 11 years with Payless ShoeSource, Inc., a retail shoe company, where he served in various positions including, most recently, Assistant Controller, and other positions including Director of Financial Planning and Analysis, Functional Controller, Manager of Real Estate and Construction Planning and Analysis, and Manager of Corporate Financial Planning and Analysis. Mr. Gill holds a B.S. in statistics from Brigham Young University and an M.B.A. from the Brigham Young University School of Business.
W. KENT HILLER has served since November 1997 as President, Chief Executive Officer and a director of our subsidiary, Iowa Interactive, Inc., which manages the IOWAccess Network for which he serves as the General Manager. From April 1996 to November 1997, he served as Director of Development for Indiana Interactive, Inc. Prior to joining us, Mr. Hiller was a network engineering manager for the state of Indiana from March 1995 to April 1996. From January 1989 to March 1995, he held various positions in both engineering and software development for the Space & Defense Group of The Boeing Company, an aerospace company. Mr. Hiller holds a B.S. in mechanical engineering from Purdue University and an M.B.A. from the Seattle University School of Business.
DANIEL HOULIHAN has served since September 1997 as President, Chief Executive Officer and a director of our subsidiary, Virginia Interactive, LLC, which manages Virginia Information Providers Network for which he serves as the General Manager. From October 1996 to August 1997, Mr. Houlihan served as Vice President of Operations for Kansas Information Consortium, Inc. Prior to joining us, he served as Chief Information Officer from December 1995 to October 1996 and the Director of Information Services Division from June 1993 to December 1995 for the State of Indiana. Mr. Houlihan holds a B.A. in political science from Creighton University and an M.B.A. from the Florida Institute of Technology.
DEBRA LULING has served since May 1998 as President, Chief Executive Officer and a director of Kansas Information Consortium, Inc., which manages Information Network of Kansas for which she serves as the General Manager. She also served as the Director of Marketing from November 1996 to May 1998 and a marketing representative from January 1996 November 1996 for Kansas Information Consortium, Inc. Prior to joining us, Ms. Luling served from June 1993 to December 1995 as the Director of Marketing for NewTek, Inc., a computer hardware and software manufacturer in the desktop video industry, where she oversaw the marketing and public relations efforts. Ms. Luling holds a B.A. in journalism from the University of Kansas.
JOSEPH NEMELKA has served since March 1999 as President of our Market Development Division. Mr. Nemelka also serves as Chief Executive Officer and a director of our subsidiary, Utah Interactive, Inc. From July 1997 to March 1999, he served as President and Chief Executive Officer of Arkansas Information Consortium, Inc. Prior to joining us, Mr. Nemelka served as a marketing associate for Kansas Information Consortium, Inc. from October 1995 to August 1996 and for Indiana Interactive, Inc. from August 1996 to October 1996. From October 1996 to July 1997, he served as a project manager for the Georgia division of our subsidiary NIC/USA. Mr. Nemelka holds a B.A. in political science from Brigham Young University and a J.D. degree from the University of Kansas School of Law.
KEITH SCHRAAD has served since March 1999 as President of the Georgia division of NIC/USA, which manages GeorgiaNet Authority for which he serves as the General Manager. From October 1998 until March 1999, he served as a project manager for NIC/USA. Additionally, from October 1997 to October 1998 he served as a marketing associate for Kansas Information Consortium, Inc. Prior to joining us, Mr. Schraad served as a Kansas State Senator and was an aide to U.S. Senator Robert Dole. Mr. Schraad holds a B.A. in general studies from the University of Kansas and a J.D. degree from the Washburn University School of Law.
Under our articles of incorporation and bylaws, the board of directors has the power to set the number of directors at not less than three nor more than 10. The number of members of the board of directors is currently set at six. We intend to add one additional independent director prior to the closing of this offering.
BOARD COMMITTEES
The board of directors has established a compensation committee and an audit committee. The compensation committee, consisting of Messrs. Hartley and Bunce, reviews and approves the salaries, bonuses and other compensation payable to our executive officers and administers and makes recommendations concerning our employee benefit plans.
The audit committee, consisting of Messrs. Hartley and Evans, and an additional independent director to be elected prior to the closing of this offering, recommends the selection of independent public accounts to the board of directors, reviews the scope and results of the audit and other services provided by our independent accounts, and reviews our accounting practices and systems of internal accounting controls.
DIRECTOR COMPENSATION
Directors who are also our employees receive no additional compensation for their services as directors. Directors who are not our employees do not receive a fee for attendance in person at meetings of the board of directors or committees of the board of directors, but are reimbursed for travel expenses and other out-of-pocket costs incurred in connection with their attendance of meetings.
In the past, Messrs. Fraser, Bradley, Somerhalder, Herington and Hartley received consulting fees for their services, including serving as directors for our subsidiaries.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
There are no family relationships among any of our directors or executive officers other than between Mr. Fraser and Mr. Somerhalder, who is Mr. Fraser's brother-in-law.
EXECUTIVE COMPENSATION
The following table contains information in summary form concerning the compensation paid to our chief executive officer and each of our most highly compensated executive officers whose total salary, bonus and other compensation exceeded $100,000 during the year ended December 31, 1998. In accordance with the rules of the SEC, the compensation described in this table does not include perquisites and other personal benefits received by the executive officers named in the table below which do not exceed the lesser of $50,000 or 10% of the total salary and bonus reported for these officers.
ALL OTHER 1998
1998 ANNUAL COMPENSATION
COMPENSATION --------------------------
---------------------- TOTAL HEALTH CONSULTING
SALARY BONUS INSURANCE FEES 401(K) MATCH
--------- ----------- ------------- ----------- ---------------
Jeffery S. Fraser ...................... $ 202,591 -- $ 13,799 $ 51,500 $ 2,733
Chairman and Chief Executive
Officer
William F. Bradley, Jr. ................ 110,509 -- 11,912 18,000 2,733
Secretary, General Counsel and
Executive Vice President--Strategy,
Policy & Legal
Samuel R. Somerhalder .................. 101,004 -- 13,758 12,000 2,733
Executive Vice President--
Operations and Administration
Harry H. Herington ..................... 83,999 -- 14,263 32,000 2,733
Executive Vice President--
Marketing and Technology Services
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Consulting fees consist of fees we paid to the executive officers in the table above for director fees and various other services to our subsidiaries.
OPTION GRANTS AND EXERCISES DURING FISCAL 1998
No stock options were granted to or exercised by each of the executive officers listed in the summary compensation table above during fiscal 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND FISCAL YEAR END OPTION VALUES
None of the executives officers listed in the summary compensation table above exercised or held options in 1998.
EMPLOYMENT AGREEMENTS
On July 24, 1998, Jeffery S. Fraser entered into an employment agreement with us to serve as our President. Mr. Fraser currently serves as our Chairman and Chief Executive Officer. The employment agreement provides Mr. Fraser with an annual base salary of $249,000. Should we terminate Mr. Fraser's employment without cause, as defined in the agreement, before July 1, 2000, we must pay Mr. Fraser one year's base salary in equal monthly payments on the first day of the month for each of the twelve months following his termination. Should we terminate Mr. Fraser's employment without cause after such time, but prior to July 1, 2001, we must pay Mr. Fraser the equivalent of his base salary for the number of months remaining until July 1, 2001. Should we terminate Mr. Fraser's employment without cause on or after July 1, 2001, Mr. Fraser will not be entitled to severance pay, except as provided in our severance benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Fraser's employment for cause, we must pay Mr. Fraser all compensation due on the date of termination.
Under the terms of his agreement, Mr. Fraser may terminate his employment with us in writing at any time for any reason. In connection with his employment agreement, Mr. Fraser entered into a
On January 1, 1999, James B. Dodd entered into an employment agreement with us to serve as our President and Chief Operating Officer. This agreement provides Mr. Dodd with an annual base salary of $200,000. Should we terminate Mr. Dodd's employment without cause, as defined in the agreement, before January 1, 2002, we must pay Mr. Dodd his then-current salary in equal monthly payments on the first day of the month for each of the eighteen months following his termination. Should we terminate Mr. Dodd's employment without cause on or after January 1, 2002, Mr. Dodd will not be entitled to severance pay, except as provided in our severance benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Dodd's employment for cause, we must pay Mr. Dodd all compensation due on the date of termination.
Under the terms of his agreement, Mr. Dodd may terminate his employment with us in writing at any time for any reason. In connection with his employment agreement, Mr. Dodd entered into a proprietary information and inventions agreement and a non-competition agreement. Should Mr. Dodd's employment with us terminate for any reason, the agreements provide collectively that Mr. Dodd: (a) will not use any of our proprietary information without our prior written consent; (b) will not use any confidential information to compete against us or any of our employees; and (c) will not, for three years following termination, solicit any of our employees or customers.
On July 24, 1998, William F. Bradley Jr., entered into an employment agreement with us to serve as our Subsidiary President. In addition Mr. Bradley serves as our Secretary, General Counsel, and Executive Vice President of Strategy, Policy & Legal. The employment agreement provides Mr. Bradley with an annual base salary of $140,000. Should we terminate Mr. Bradley's employment without cause, as defined in the agreement, before July 1, 2000, we must pay Mr. Bradley one year's base salary in equal monthly payments on the first day of the month for each of the twelve months following his termination. Should we terminate Mr. Bradley's employment without cause after such time, but prior to July 1, 2001, we must pay Mr. Bradley the equivalent of his base salary for the number of months remaining until July 1, 2001. Should we terminate Mr. Bradley's employment without cause on or after July 1, 2001, Mr. Bradley will not be entitled to severance pay, except as provided in our severance benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Bradley's employment for cause, we must pay Mr. Bradley all compensation due on the date of termination.
Under the terms of his agreement, Mr. Bradley may terminate his employment with us in writing at any time for any reason. In connection with his employment agreement, Mr. Bradley entered into a proprietary information and inventions agreement and a non-competition agreement. Should Mr. Bradley's employment with us terminate for any reason, the agreements provide collectively that Mr. Bradley: (a) will not use any of our proprietary information without our prior written consent; (b) will not use any confidential information to compete against us or any of our employees; and (c) will not, for three years following termination, solicit any of our employees or customers.
On July 24, 1998, Samuel R. Somerhalder entered into an employment agreement with us to serve as our Subsidiary President. In addition, Mr. Somerhalder serves as our Executive Vice President of Operations and Administration. The employment agreement provides Mr. Somerhalder with an annual base salary of $115,000. Should we terminate Mr. Somerhalder's employment without cause, as defined in the agreement, before July 1, 2000, we must pay Mr. Somerhalder one year's base salary in equal monthly payments on the first day of the month for each of the twelve months following his termination. Should we terminate Mr. Somerhalder's employment without cause after such time, but prior to July 1, 2001, we must pay Mr. Somerhalder the equivalent of his base salary for the number of months remaining until July 1, 2001. Should we terminate Mr. Somerhalder's employment without cause on or after July 1, 2001, Mr. Somerhalder will not be entitled to severance pay, except as provided in our severance benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Somerhalder's employment for cause, we must pay Mr. Somerhalder all compensation due on the date of termination.
Under the terms of his agreement, Mr. Somerhalder may terminate his employment with us in writing at any time for any reason. In connection with his employment agreement, Mr. Somerhalder entered into a proprietary information and inventions agreement and a non-competition agreement. Should Mr. Somerhalder's employment with us terminate for any reason, the agreements provide collectively that Mr. Somerhalder: (a) will not use any of our proprietary information without our prior written consent; (b) will not use any confidential information to compete against us or any of our employees; and (c) will not, for three years following termination, solicit any of our employees or customers.
On July 24, 1998, Harry H. Herington entered into an employment agreement with us to serve as our Subsidiary President. In addition, Mr. Herington serves as our Executive Vice President of Marketing and Technology Services. The employment agreement provides Mr. Herington with an annual base salary of $125,000. Should we terminate Mr. Herington's employment without cause, as defined in the agreement, before July 1, 2000, we must pay Mr. Herington one year's base salary in equal monthly payments on the first day of the month for each of the twelve months following his termination. Should we terminate Mr. Herington's employment without cause after such time, but prior to July 1, 2001, we must pay Mr. Herington the equivalent of his base salary for the number of months remaining until July 1, 2001. Should we terminate Mr. Herington's employment without cause on or after July 1, 2001, Mr. Herington will not be entitled to severance pay, except as provided in our severance benefit plan, if any, in effect on the termination date.
Should we terminate Mr. Herington's employment for cause, we must pay Mr. Herington all compensation due on the date of termination.
Under the terms of his agreement, Mr. Herington may terminate his employment with us in writing at any time for any reason. In connection with his employment agreement, Mr. Herington entered into a proprietary information and inventions agreement and a non-competition agreement. Should Mr. Herington's employment with us terminate for any reason, the agreements provide collectively that Mr. Herington: (a) will not use any of our proprietary information without our prior written consent; (b) will not use any confidential information to compete against us or any of our employees; and (c) will not, for three years following termination, solicit any of our employees or customers.
BENEFIT PLANS
The 1998 plan was adopted and approved by our board of directors and by our shareholders in May 1998, at which time a total of 1,000,000 shares of common stock was reserved for issuance under this
Our board of directors has delegated administration of the 1998 plan to its compensation committee. The compensation committee is made up of not less than two nor more than five non-employee directors within the meaning under Rule 16b-3 of the Exchange Act. Awards under the 1998 plan may consist of incentive stock options, which are stock options that qualify under Section 422 of the Internal Revenue Code, or non-qualified stock options, which are stock options that do not qualify under that provision.
The compensation committee may grant incentive stock options to employees and officers of our company or any of our subsidiaries, and non-qualified stock options to employees, officers or directors of our company or any of our subsidiaries. The compensation committee may set the terms of such grants, subject to the restrictions in the 1998 plan. Incentive stock option grants are subject to the following limitations:
- the term of any incentive stock option may not be longer than ten years;
- the term of any incentive stock option granted to an individual possessing more than 10% of the combined voting power of our company or a subsidiary may not be longer than five years;
- the aggregate fair market value of all shares underlying incentive stock options granted to an individual that first become exercisable in any calendar year may not exceed $100,000;
- the exercise price of incentive stock options may not be less than the greater of the par value of the underlying shares or the fair market value of the underlying shares on the grant date; and
- the exercise price of any incentive stock option granted to an individual possessing more than 10% of the combined voting power of our company or a subsidiary may not be less than 110% of the fair market value of the underlying shares on the grant date.
During an optionee's lifetime, only an optionee can exercise an incentive stock option or non-qualified stock option. He or she cannot transfer such options other than by will or the laws of descent and distribution. If an optionee's status as an employee or director of our company or any of our subsidiaries terminates for any reason other than termination because of death, disability, for cause or on account of voluntary termination, then the optionee may exercise, in the 30 day period following the termination, that portion of the options that is exercisable at the time of the termination unless such options terminate or expire sooner by their terms. If an optionee's employment by our company or any of our subsidiaries is terminated for cause, as defined in the 1998 plan, or if an optionee voluntarily terminates his or her employment with our company or with any of our subsidiaries, then any option held by the optionee shall be terminated immediately and forfeited without any payment from our company or our subsidiaries. In the event the optionee becomes disabled or dies while the optionee is an employee or director of our company, then the options vested as of the date of disability or death may be exercised prior to the earlier of their expiration date or 12 months from the date of the optionee's disability or death.
In the event of (a) a merger, consolidation or reorganization in which we are not the surviving company or (b) the acquisition by another company of all or substantially all of our assets, then every option outstanding under the 1998 plan may be assumed or replaced with new options of comparable value by the surviving, continuing, successor or acquiring company. In the event that the outstanding options are neither assumed nor replaced, the compensation committee may provide that an optionee can
The 1998 plan will terminate automatically in 2008 unless sooner terminated by the board of directors. The board of directors has the authority to amend, suspend or terminate the 1998 plan, subject to shareholder approval of certain amendments. However, no action may be taken which will affect any shares of common stock previously issued and sold or any option previously granted under the 1998 plan without the optionee's consent.
Our stock purchase plan was approved by the board of directors and our shareholders in May 1999. Our stock purchase plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code in order to provide our employees with an opportunity to purchase our stock through payroll deductions. An aggregate of 500,000 shares of common stock has been reserved for issuance and are available for purchase under the stock purchase plan, subject to adjustment in the event of a stock split, stock dividend or other similar change in our common stock or our capital structure. All employees of our company and of our affiliates who have been employed for a continuous period, as determined by the board or committee administering the stock purchase plan but which will not exceed two years, preceding the offering are eligible to participate in our stock purchase plan, provided that no employee of our company or of our affiliates whose customary employment is for less than five months in any calendar year and less than 20 hours per week are eligible to participate in our stock purchase plan. Non-employee directors, consultants, and employees subject to the rules or laws of a foreign jurisdiction that prohibit or make impractical their participation in a stock purchase plan are not eligible to participate in our stock purchase plan. Participation in our stock purchase plan is also subject to the following limitations: (a) no employee will be eligible for the grant of a stock purchase right if immediately after the right is granted the employee would own more than five percent of the total combined voting power of all of our or our affiliates' classes of stock, and (b) an eligible employee may be granted a purchase right only to the extent that the right does not permit the employee to purchase stock with a fair market value of greater than $25,000 for each calendar year.
Our stock purchase plan will be administered by the board of directors or a committee appointed by the board consisting of three or more board members. The committee will have complete authority to determine the employees who will receive stock purchase rights and will designate offering periods not to exceed 27 months. The committee will establish one or more purchase dates during an offering period during which stock purchase rights may be exercised and common stock may be purchased.
In the event we dissolve, liquidate, merge or consolidate through a merger in which we are not the surviving corporation, effectuate a reverse merger in which we are the surviving corporation but our shares of common stock outstanding prior to the merger are converted into other property, whether in the form of securities, cash or otherwise, or are acquired by any person, entity or group, as defined by the Exchange Act or any successive provisions, holding at least 50% of our combined voting power, then, the board or committee administering the stock purchase plan may (a) allow the surviving or acquiring corporation to assume the outstanding rights or substitute similar rights for those participating under the stock purchase plan, (b) have the existing rights under the stock purchase plan remain in full force and effect or (c) allow those participating under the stock purchase plan to use their accumulated payroll deductions to purchase our common stock immediately prior to the transactions described above, provided that their rights under the ongoing offering period will be terminated.
On the first day of each offer period, a participating employee is granted a purchase right. A purchase right is a form of option to be automatically exercised on the forthcoming exercise dates within the offer period during which authorized deductions are to be made from the pay of participants and credited to their accounts under the stock purchase plan. When the purchase right is exercised, the
Payroll deductions may range up to 15% of a participant's regular base pay, exclusive of bonuses, overtime, shift-premiums, commissions, reimbursements or other expense allowances. Participants may not make direct cash payments to their accounts. The board or committee administering the stock purchase plan may establish the maximum number of our shares of common stock that any employee may purchase under the stock purchase plan during an offering period. The Internal Revenue Code imposes additional limitations on the amount of common stock that may be purchased during any calendar year.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our articles of incorporation and bylaws provide that we will indemnify any person entitled to indemnity under the Colorado Business Corporation Act, as it now exists or as amended, against all liability and expenses to the fullest extent permitted by Colorado law. However, we will not indemnify any person in connection with any proceeding initiated by this person, unless the proceeding is authorized by a majority of our board of directors. In addition to indemnification provided for in our charter documents, upon the closing of this offering, we will have entered into agreements to indemnify our directors and officers. These agreements, among other things, provide for the indemnification of our directors and officers for certain expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of NIC, arising out of such person's services as a director or officer of NIC, any subsidiary of NIC or any other company or enterprise to which such person provides services at the request of NIC, to the fullest extent permitted by the Colorado Business Corporation Act. Furthermore, we plan to purchase and maintain insurance on behalf of our directors and officers to insure them against liabilities that they may incur in their capacities as or arising out of their status as directors and officers. We believe that these provisions and agreements will assist us in attracting and retaining qualified persons to serve as directors and officers.
Section 7-109-102 of the Colorado Business Corporation Act provides that a corporation may indemnify a director from liability incurred in connection with a proceeding in which the director is made a party because of his or her status as a director, except upon adjudication in connection with the particular proceeding that (a) the director was liable to the corporation or (b) the director was liable because he or she derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors and officers under the provisions contained in our charter documents, the Colorado Business Corporation Act or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors or officers, the successful defense of any action, suit, or proceeding is asserted by such director or officer, we will submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue, unless in the opinion of our counsel the matter has been settled by controlling precedent.
There is no pending litigation or proceeding involving one of our directors or officers as to which indemnification is being sought, nor are we aware of any pending or threatened litigation that may result in claims for indemnification by any director or officer.
Mr. Hartley is the President of The Hartley Insurance Agency, an insurance company, which acts as our insurance agent and broker. In 1998, a payment of $8,345 was made directly to The Hartley Insurance Agency. However, the aggregate insurance payment made by NIC that was brokered by The Hartley Insurance Agency totaled $478,392, including the $8,345 payment made directly to The Hartley Insurance Agency.
We have periodically leased aircraft from Sky King Leasing, a Kansas corporation, of which Mr. Fraser, Mr. Hartley and Christopher L. Shults, a five percent shareholder of NIC, each approximately have a 25% interest. In 1998, we made payments totaling $24,223 to Sky King Leasing.
On January 8, 1998, we entered into an agreement with each of Messrs. Fraser and Hartley to provide their respective estates with a right to require us to repurchase some or all shares of our common stock owned by them upon their death. These agreements were terminated on July 1, 1998.
In March 1998, we completed an exchange offer in which shareholders in our local operating networks exchanged their stock for shares of our common stock. Messrs. Fraser, Hartley, Bradley, Somerhalder and Herington received an aggregate of 4,654,891 shares of our common stock in the exchange offer.
On June 30, 1998, Messrs. Fraser and Hartley entered into a voting trust agreement under which they act as joint trustees for a voting trust which holds, as of March 31, 1999, 6,869,170 shares of our common stock. See "Description of Capital Stock--Voting Trust."
On June 30, 1998, the voting trust described above sold to Hellman & Friedman Capital Partners III, L.P., H&F International Partners III, L.P. and H&F Orchard Partners III, L.P., collectively, 2,264,849 shares of our common stock at a price of $6.62 per share for an aggregate of approximately $15,000,000.
On February 9, 1999, we sold to Mr. James B. Dodd 37,313 shares of our common stock at $6.70 per share for an aggregate of approximately $250,000.
We intend to enter into indemnification agreements with each of our directors and officers. These indemnification agreements will require us to indemnify these individuals to the fullest extent permitted by Colorado law.
We have also entered into various employment agreements with our officers. See "Management-- Employment Agreements" for a more detailed description.
We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. We intend that all future transactions, including loans, between us and our officers, directors, principal shareholders and their affiliates will be approved by a majority of the board of directors, including a majority of the independent and disinterested outside directors on the board of directors, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties.
The following table sets forth the beneficial ownership of our common stock as of March 31, 1999 and as adjusted to reflect the sale of the shares of common stock in this offering by:
- each person or entity known by us to own beneficially more than five percent of our common stock;
- our chief executive officer, each of the executive officers named in the summary compensation table and each of our directors;
- all of our executive officers and directors as a group; and
- all other selling shareholders.
The beneficial ownership is calculated based on 9,148,944 shares of our common stock outstanding as of March 31, 1999 and shares outstanding immediately following the completion of this offering. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power, or shares voting and investment power with his or her spouse, with respect to all shares of capital stock listed as owned by such person. Shares issuable upon the exercise of options that are currently exercisable or become exercisable within sixty days of March 31, 1999 are considered outstanding for the purpose of calculating the percentage of outstanding shares of our common stock held by the individual, but not for the purpose of calculating the percentage of outstanding shares of our common stock held by any other individual.
The address of each of the executive officers and directors is c/o
National Information Consortium, Inc., 12 Corporate Woods, 10975 Benson Street,
Suite 390, Overland Park, Kansas 66210.
SHARES
BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER
PRIOR TO OFFERING OFFERING
----------------------------- NUMBER OF SHARES ------------
NAME AND ADDRESS NUMBER PERCENTAGE BEING OFFERED NUMBER
------------------------------------------------------- ------------- -------------- ----------------- ------------
5% SHAREHOLDERS
Jeffery S. Fraser and Ross C. Hartley, co-trustees of
NIC Voting Trust, dated June 30, 1998 c/o Jeffery S.
Fraser
1811 Wakarusa Drive, Suite 100
Lawrence, KS 66047................................... 6,869,170 75.0%
Hellman & Friedman Capital Partners III, L.P. c/o
Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111.............................. 2,067,807 22.6
H&F Orchard Partners III, L.P.
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111.............................. 151,745 1.7
H&F International Partners III, L.P
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111.............................. 45,297 *
Christopher L. and Linda D. Shults
633 North Wheatland Place
Wichita, KS 67235.................................... 480,222 5.2
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Jeffery S. Fraser...................................... 6,869,170 75.0
James B. Dodd.......................................... 65,313 *
William F. Bradley, Jr................................. 459,295 5.0
Samuel R. Somerhalder.................................. 505,047 5.5
Harry H. Herington..................................... 258,868 *
John L. Bunce, Jr...................................... 2,264,849 24.8
Daniel J. Evans........................................ 14,925 *
Ross C. Hartley........................................ 6,869,170 75.0
Patrick J. Healy....................................... 2,264,849 24.8
All executive officers and directors as a group (9
persons)............................................. 9,148,944 100.00
NAME AND ADDRESS PERCENTAGE
------------------------------------------------------- --------------
5% SHAREHOLDERS
Jeffery S. Fraser and Ross C. Hartley, co-trustees of
NIC Voting Trust, dated June 30, 1998 c/o Jeffery S.
Fraser
1811 Wakarusa Drive, Suite 100
Lawrence, KS 66047...................................
Hellman & Friedman Capital Partners III, L.P. c/o
Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111..............................
H&F Orchard Partners III, L.P.
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111..............................
H&F International Partners III, L.P
c/o Hellman & Friedman LLC
One Maritime Plaza
San Francisco, CA 94111..............................
Christopher L. and Linda D. Shults
633 North Wheatland Place
Wichita, KS 67235....................................
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Jeffery S. Fraser......................................
James B. Dodd..........................................
William F. Bradley, Jr.................................
Samuel R. Somerhalder..................................
Harry H. Herington.....................................
John L. Bunce, Jr......................................
Daniel J. Evans........................................
Ross C. Hartley........................................
Patrick J. Healy.......................................
All executive officers and directors as a group (9
persons).............................................
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H&F Investors III, a California general partnership, is the sole general partner of Hellman & Friedman Capital Partners III, L.P., a California limited partnership, H&F Orchard Partners III, L.P., a California limited partnership, and H&F International Partners III, L.P., a California limited partnership. Messrs. Bunce and Healy are Managing Directors of Hellman & Friedman LLC, an affiliate of H&F Investors III. The managing general partner of H&F Investors III is Hellman & Friedman Associates III, L.P., a California limited partnership, and the general partners of Hellman & Friedman Associates III are H&F Management III, L.L.C., a California limited liability company, and H&F Investors III, Inc., a California corporation. The sole shareholder of H&F Investors III, Inc. is the Hellman Family Revocable Trust. The investment decisions of H&F Investors III, Inc. and H&F Management III, L.L.C. are made by an executive committee, of which Mr. Bunce is a member. The executive committee indirectly exercises voting and investment power with respect to the shares of our common stock held by Hellman & Friedman Capital Partners III, H&F Orchard Partners III and H&F International Partners III, and could be deemed to beneficially own such shares. The executive committee disclaims such beneficial ownership except to the extent of its indirect pecuniary interest in such shares.
Mr. Bunce and Mr. Healy each disclaim beneficial ownership of all shares of our common stock held by Hellman & Friedman Capital Partners III, H&F Orchard Partners III and H&F International Partners III, except to the extent of their individual indirect pecuniary interest in those shares.
Shares held by Mr. and Mrs. Shults include 480,222 shares held in the voting trust for which Messrs. Fraser and Hartley act as co-trustees.
Shares held by Mr. Fraser include 5,264,579 shares held in the voting trust for which Mr. Fraser acts as a co-trustee and 1,604,591 shares held in a family trust established for the benefit of Mr. Fraser.
Shares held by Mr. Dodd include 37,313 shares held in the voting trust for which Messrs. Fraser and Hartley act as co-trustees and 28,000 shares subject to options exercisable within 60 days of March 31, 1999.
Shares held by Mr. Bradley include 459,295 shares held in the voting trust for which Messrs. Fraser and Hartley act as co-trustees.
Shares held by Mr. Somerhalder include 505,047 shares held in the voting trust for which Messrs. Fraser and Hartley act as co-trustees. These shares include 44,500 shares held by Mr. Somerholder's wife, Jean Somerhalder, as custodian to Chloe V. Fraser, 44,500 shares held by Ms. Somerhalder as custodian to Jacob B. Fraser, 44,500 shares held by Ms. Somerhalder as custodian to Joshua D. Fraser, 44,500 shares held by Ms. Somerhalder as custodian to Matthew S. Fraser and 44,500 shares held by Ms. Somerhalder as custodian to William N. Fraser.
Shares held by Mr. Herington include 258,868 shares held in the voting trust for which Messrs. Fraser and Hartley act as co-trustees.
Shares held by Mr. Evans include 8,925 shares held in the Evans family revocable trust.
Shares held by Mr. Hartley include 5,042,080 shares held in the voting trust for which Mr. Hartley acts as a co-trustee, 80,000 shares held in an irrevocable trust established for the benefit of Hillary L. Hartley, 80,000 shares held in an irrevocable trust established for the benefit of Antonia C. Hartley and 80,000 shares held in an irrevocable trust established for the benefit of William R. Hartley.
Shares held by all executive officers and directors as a group include 4,692,204 shares held in the voting trust for which Messrs. Fraser and Hartley act as co-trustees and 28,000 shares subject to options exercisable within 60 days of March 31, 1999.
SHARES BENEFICIALLY OWNED
SHARES BENEFICIALLY
PRIOR TO OFFERING NUMBER OF OWNED AFTER OFFERING
------------------------- SHARES BEING -----------------------
NAME AND ADDRESS NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
----------------------------- ---------- ------------- ------------ ---------- -----------
Jeffery S. Fraser............ 1,604,591 23.36%
Ross C. Hartley.............. 1,827,090 26.60
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We are authorized to issue up to 200,000,000 shares of common stock, with no par value per share.
The following summary of certain provisions of our common stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of our articles of incorporation, which are included as an exhibit to the registration statement of which this prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of March 31, 1999, there were 9,148,944 shares of common stock outstanding that were held of record or beneficially through a voting trust by approximately 53 persons. There will be shares of common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options, after giving effect to the sale of the common stock we are offering.
The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. We do not have cumulative voting rights in the election of directors, and accordingly, holders of a majority of the shares voting are able to elect all of the directors. Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available for such purpose as well as any distributions to the shareholders. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of our assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of common stock have no preemptive or other subscription of conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.
VOTING TRUST
As of March 31, 1999, a portion of our outstanding common stock, totaling 6,869,170 shares and representing approximately 75% of the outstanding common stock prior to the offering and approximately % after the offering, is held in a voting trust, for which Messrs. Fraser and Hartley serve as trustees. A total of 5,205,317 shares in the voting trust are held for the benefit of affiliates of our company. The address of each of the trustees is c/o Jeffery S. Fraser, 1811 Wakarusa Drive, Suite 100, Lawrence, Kansas 66047. The trustees have dispositive and exclusive voting power over all shares held by the voting trust, including without limitation, the right to vote for the election of directors, authorize an amendment to the articles of incorporation or bylaws, and authorize a merger or consolidation of the company. Additionally, the trustees are empowered to perform any and all acts necessary and appropriate for the organization and operation of the voting trust.
The voting trust certificates are transferable upon surrender of the same according to the rules established by the trustees. The voting trust expires on (a) June 30, 2018, (b) upon mutual assent of the trustees with written notification to holders of the voting trust certificates, or (c) upon deadlock between the trustees and failure to remedy the deadlock after 90 days.
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS
Provisions of our articles of incorporation and bylaws restrict certain transactions and business combinations between our company and an interested shareholder owning 15% or more of our outstanding voting stock, for a period of three years from the date the shareholder becomes an interested shareholder. Subject to certain exceptions, unless the transaction is approved by our board of directors and the holders of at least two-thirds of our outstanding voting stock, excluding shares held by the interested shareholder, these provisions prohibit significant business transactions. These prohibited business transactions include a merger with, disposition of assets to, or receipt of disproportionate financial benefits by the interested shareholder, or any other transaction that would increase the interested shareholder's proportionate
Our bylaws provide that all shareholder action may be effected at a duly called meeting of shareholders or by a consent in writing. The bylaws also provide that the president or secretary at the request in writing of a majority of the board of directors or at the request in writing of shareholders owning a majority of the issued and outstanding capital stock of the company entitled to vote may call a special meeting of shareholders. Furthermore, our bylaws limit the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice.
These provisions in our articles of incorporation and bylaws will make it more difficult for our existing shareholders to replace the board of directors as well as for another party to obtain control by replacing the board of directors. Since the board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing shareholders or another party to effect a change in management.
These and other provisions also may have the effect of deterring, preventing or delaying changes in control or management. These provisions are intended to enhance the likelihood of continued stability in the composition of the board of directors and in the policies furnished by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe. Its address is 289 S. San Antonio Road, Suite 100, Los Altos, California 94022, and its telephone number is (650) 917-3800.
Upon completion of this offering, we will have outstanding shares of common stock based upon shares outstanding at March 31, 1999, assuming no exercise of the underwriters' over-allotment option. Excluding the shares of common stock offered hereby and assuming no exercise of the underwriters' over-allotment option, as of the effective date of the registration statement, there will be shares of common stock outstanding, all of which are "restricted" shares under the Securities Act. All restricted shares are subject to lock-up agreements with the underwriters pursuant to which the holders of the restricted shares have agreed not to sell, pledge or otherwise dispose of such shares for a period of 180 days after the date of this prospectus. Hambrecht & Quist LLC may release the shares subject to the lock-up agreements in whole or in part at any time with or without notice. However, Hambrecht & Quist LLC has no current plans to do so.
The following table indicates approximately when the shares of our common stock that are not being sold in the offering but which will be outstanding at the time the offering is complete will be eligible for sale into the public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
------------------------------------------------------------------------------
At effective date................................................ 0
180 days after effective date....................................
After 180 days post-effective date...............................
|
Most of the restricted shares that will become available for sale in the public market beginning 180 days after the effective date will be subject to certain volume and other resale restrictions pursuant to Rule 144 because the holders are our affiliates. The general provisions of Rule 144 are described below.
In general, under Rule 144, any of our affiliates, or person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, will be entitled to sell in any three-month period a number of shares that does not exceed the GREATER of
- 1% of the then outstanding shares of the common stock, approximately shares immediately after this offering, OR
- the average weekly trading volume during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about us. A person, or persons whose shares are aggregated, who is not deemed to have been one of our affiliates at any time during the 90 days immediately preceding the sale and who has beneficially owned his or her shares for at least two years is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above.
As of March 31, 1999, 2,000,000 shares were reserved for issuance under our amended and restated 1998 stock option plan, of which options to purchase 544,789 shares were then outstanding and 28,000 were then exercisable. We intend to file, within 180 days after the date of this prospectus, a registration statement under the Securities Act to register the 2,000,000 shares under our 1998 stock option plan and the 500,000 shares of common stock reserved for issuance under our employee stock purchase plan. Upon registration, all of these shares will be freely tradable when issued, subject to Rule 144 volume limitations applicable to affiliates and lock-up agreements.
LOCK-UP AGREEMENTS
All officers and directors and certain holders of common stock and options to purchase common stock have agreed pursuant to certain "lock-up" agreements that they will not offer, sell, contract to sell, pledge, grant any option to sell, or otherwise dispose of, directly or indirectly, any shares of common stock or securities convertible or exchangeable for common stock, or warrants or other rights to purchase common stock for a period of 180 days after the date of this prospectus without the prior written consent of Hambrecht & Quist LLC.
Subject to the terms and conditions of the underwriting agreement and the underwriters named below, through their representatives, Hambrecht & Quist LLC, Thomas Weisel Partners LLC, FAC/ Equities, a division of First Albany Corporation, and Volpe Brown Whelan & Company, LLC have severally agreed to purchase from us the following respective numbers of shares of common stock:
NUMBER OF
NAME SHARES
--------------------------------------------------------------------------------- -----------
Hambrecht & Quist LLC............................................................
Thomas Weisel Partners LLC.......................................................
First Albany Corporation.........................................................
Volpe Brown Whelan & Company, LLC................................................
-----------
Total..........................................................................
-----------
-----------
|
The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and the independent accountants. The nature of the underwriters' obligation is such that they are committed to purchase all shares of common stock offered if any shares are purchased.
The following tables show the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares.
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------------- -----------------------------
Per Share................................... $ $
Total....................................... $ $
|
We estimate that the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $ .
The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession not in excess of $ per share. The underwriters may allow and the dealers may reallow a concession not in excess of $ per share to certain other dealers. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. The representatives have informed us that the underwriters do not intend to confirm discretionary sales of more than 5% of the shares of common stock offered in this offering.
The selling shareholders have granted to the underwriters an option, exercisable no later than 30 days after the date of this prospectus, to purchase up to additional shares of common stock at the initial public offering price, less the underwriting discount set forth on the cover page of this prospectus. To the extent that the underwriters exercise this option, each of the underwriters will have a
The offering of shares is made for delivery when, as and if accepted by the underwriters and subject to prior sale and withdrawal, cancellation or modification of the offering without notice. The underwriters reserve the right to reject an order for the purchase of shares in whole or in part.
The selling shareholders and us have each agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
Our shareholders, including executive officers, directors and the selling shareholders, have agreed not to, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common stock or options to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock owned by them during the 180-day period following the date of this prospectus. We have agreed that we will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of common stock or options to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock during the 180-day period following the date of this prospectus, except that we may issue shares upon the exercise of options granted prior to the date hereof, and may grant additional options under our stock option plans, provided that, without the prior written consent of Hambrecht & Quist LLC, the additional options shall not be exercisable during that period.
Prior to this offering, there has been no public market for the common stock. The initial public offering price for the common stock will be determined by negotiation among us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price are prevailing market and economic conditions, our revenues and earnings, market valuations of other companies engaged in activities similar to ours, estimates of our business potential and our prospects, the present state of our business operations, our management and other factors deemed relevant.
Certain persons participating in this offering may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the common stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the common stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits the underwriters to reclaim a selling concession from a syndicate member in connection with the offering when shares of common stock sold by the syndicate member are purchased in syndicate covering transactions. Such transactions may be effected on the Nasdaq National Market, in the over-the-counter market, or otherwise. This stabilizing, if commenced, may be discontinued at any time.
Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on 24 filed public offerings of equity securities, of which nine have been completed, and has acted as a syndicate member in an additional ten public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or controlling persons, except with respect to its contractual relationships with us pursuant to the underwriting agreement entered into in connection with this offering.
The validity of the common stock offered hereby will be passed upon for us by Morrison & Foerster LLP, San Francisco, California. Certain legal matters in connection with the offering will be passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San Francisco, California.
The audited financial statements included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.
We have filed with Securities and Exchange Commission in Washington, D.C. a Registration Statement on Form S-1 under the Securities Act with respect to the common stock offered in this prospectus. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, certain portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and the common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, and each such statement being qualified in all respects by reference to the document to which it refers. Anyone may inspect the registration statement and its exhibits and schedules without charge at the public reference facilities the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may also inspect these reports and other information without charge at a Web site maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act and, in accordance therewith, file reports, proxy statements and other information with the SEC. You will be able to inspect and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC and at the SEC's regional offices at the addresses noted above. You also will be able to obtain copies of this material from the Public Reference Section of the SEC as described above, or inspect them without charge at the SEC's Web site. Our common stock will be quoted on the Nasdaq National Market. You will be able to inspect reports, proxy and information statements and other information concerning us at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
NATIONAL INFORMATION CONSORTIUM, INC. Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-3 Consolidated Balance Sheets......................................................... F-4 Consolidated Statements of Operations............................................... F-5 Consolidated Statements of Changes in Shareholders' Equity.......................... F-6 Consolidated Statements of Cash Flows............................................... F-7 Notes to Consolidated Financial Statements.......................................... F-8 INDIAN@ INTERACTIVE, INC. AND SUBSIDIARY Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-25 Consolidated Balance Sheets......................................................... F-26 Consolidated Statements of Income................................................... F-27 Consolidated Statements of Changes in Shareholders' Equity.......................... F-28 Consolidated Statements of Cash Flows............................................... F-29 Notes to Consolidated Financial Statements.......................................... F-30 KANSAS INFORMATION CONSORTIUM, INC. Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-36 Balance Sheets...................................................................... F-37 Statements of Income................................................................ F-38 Statements of Changes in Shareholders' Equity....................................... F-39 Statements of Cash Flows............................................................ F-40 Notes to Financial Statements....................................................... F-41 ARKANSAS INFORMATION CONSORTIUM, INC. Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-45 Balance Sheets...................................................................... F-46 Statements of Operations............................................................ F-47 Statements of Changes in Shareholders' Equity....................................... F-48 Statements of Cash Flows............................................................ F-49 Notes to Financial Statements....................................................... F-50 NEBRASK@ INTERACTIVE, INC. Report of PricewaterhouseCoopers LLP, Independent Accountants....................... F-54 |
Balance Sheets...................................................................... F-55 Statements of Income................................................................ F-56 Statements of Changes in Shareholders' Equity....................................... F-57 Statements of Cash Flows............................................................ F-58 Notes to Financial Statements....................................................... F-59 PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Overview............................................................................ F-63 Pro Forma Consolidated Statements of Operations..................................... F-64 Notes to Pro Forma Consolidated Financial Information............................... F-67 |
To the Board of Directors and Shareholders of National Information Consortium, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of National Information Consortium, Inc. and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri May 6, 1999 |
DECEMBER 31,
---------------------
1997 1998
-------- -----------
MARCH 31,
1999
------------
(UNAUDITED)
ASSETS
Current assets:
Cash...................................................................................... $178,695 $ 1,310,751 $ 1,115,136
Trade accounts receivable................................................................. 6,932 2,908,043 3,694,625
Prepaid expenses.......................................................................... 21,849 47,133 103,420
Other current assets...................................................................... 6,247 67,311 255,410
-------- ----------- ------------
Total current assets.................................................................... 213,723 4,333,238 5,168,591
Property and equipment, net................................................................. 112,203 1,229,415 1,684,850
Other assets................................................................................ 120 17,183 4,790
Intangible assets, net...................................................................... -- 11,669,059 9,775,258
-------- ----------- ------------
Total assets............................................................................ $326,046 $17,248,895 $16,633,489
-------- ----------- ------------
-------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 56,681 $ 2,376,505 $ 2,755,641
Accrued expenses.......................................................................... 34,551 227,106 261,122
Income taxes payable...................................................................... -- 68,700 22,700
Deferred income taxes..................................................................... -- 224,076 348,233
Bank lines of credit...................................................................... -- 1,023,592 839,452
Capital lease obligations--current portion................................................ -- 235,323 201,233
Notes payable--current portion............................................................ 5,019 50,000 594,000
Application development contracts......................................................... -- 1,256,000 1,174,471
Other current liabilities................................................................. 17,119 49,465 47,865
-------- ----------- ------------
Total current liabilities............................................................... 113,370 5,510,767 6,244,717
Capital lease obligations--long term portion................................................ -- 409,989 384,019
Note payable--long term portion............................................................. 24,923 50,000 --
Deferred income taxes....................................................................... -- 425,878 312,098
-------- ----------- ------------
Total liabilities....................................................................... 138,293 6,396,634 6,940,834
-------- ----------- ------------
-------- ----------- ------------
Commitments and contingencies (Notes 10 and 11)
Shareholders' equity:
Common stock, no par, 200,000,000 shares authorized, 4,800,000, 9,059,394 and 9,148,944
shares issued and outstanding........................................................... -- -- --
Additional paid-in capital................................................................ 627,435 20,141,933 21,256,885
Accumulated deficit....................................................................... (414,682) (8,931,694) (10,833,487)
-------- ----------- ------------
212,753 11,210,239 10,423,398
Less notes and stock subscriptions receivable............................................. (25,000) -- (125,000)
Less deferred compensation expense........................................................ -- (357,978) (605,743)
-------- ----------- ------------
Total shareholders' equity.............................................................. 187,753 10,852,261 9,692,655
-------- ----------- ------------
Total liabilities and shareholders' equity.............................................. $326,046 $17,248,895 $16,633,489
-------- ----------- ------------
-------- ----------- ------------
|
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ----------
(UNAUDITED)
Revenues........................ $ 235,971 $ 996,550 $28,623,656 $ 361,358 $11,455,065
Cost of revenues................ 21,248 5,168 21,210,632 690 8,603,698
--------- --------- ---------- --------- ----------
Gross profit.................. 214,723 991,382 7,413,024 360,668 2,851,367
--------- --------- ---------- --------- ----------
Operating expenses:
Service development and
operations.................. 38,248 224,128 3,884,810 134,932 934,871
Selling, general and
administrative.............. 168,399 660,254 4,241,780 325,290 1,517,568
Stock compensation............ -- 370,235 291,706 -- 267,187
Depreciation and
amortization................ 297 13,679 5,922,396 24,031 2,001,559
--------- --------- ---------- --------- ----------
Total operating expenses...... 206,944 1,268,296 14,340,692 484,253 4,721,185
--------- --------- ---------- --------- ----------
Operating income (loss)......... 7,779 (276,914) (6,927,668) (123,585) (1,869,818)
--------- --------- ---------- --------- ----------
Other income (expense):
Interest expense.............. -- -- (88,161) (628) (36,995)
Other income, net............. -- 111 55,839 -- 16,565
--------- --------- ---------- --------- ----------
Total other income
(expense)................... -- 111 (32,322) (628) (20,430)
--------- --------- ---------- --------- ----------
Income (loss) before income
taxes......................... 7,779 (276,803) (6,959,990) (124,213) (1,890,248)
Income tax expense.............. -- -- 718,655 -- 11,545
--------- --------- ---------- --------- ----------
Net income (loss)............... $ 7,779 $(276,803) $(7,678,645) $(124,213) $(1,901,793)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Net income (loss) per share:
Basic and diluted............. $ 0.01 $ (0.06) $ (0.96) $ (0.03) $ (0.21)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Weighted average shares
outstanding (Note 8)........ 1,293,159 4,491,943 8,020,547 4,884,187 9,097,461
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Pro forma tax provision
(unaudited)--Note 9:
Net income (loss)............. $ 7,779 $(276,803) $(7,678,645) $(124,213)
Pro forma provision for income
taxes....................... 3,034 36,438 (1,516,894) (48,443)
--------- --------- ---------- ---------
Pro forma net income (loss)... $ 4,745 $(313,241) $(6,161,751) $ (75,770)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
Pro forma basic and diluted
income (loss) per share..... $ 0.00 $ (0.07) $ (0.77) $ (0.02)
--------- --------- ---------- ---------
--------- --------- ---------- ---------
|
NOTES
COMMON STOCK ADDITIONAL AND STOCK DEFERRED
-------------------- PAID-IN ACCUMULATED SUBSCRIPTIONS COMPENSATION
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE EXPENSE TOTAL
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, JANUARY 1, 1996..... 4,273 $ -- $ 100 $ (15,331) $ -- $ -- $ (15,231)
Net income................... 7,779 7,779
Issuance of common stock..... 4,379,952 -- 102,500 -- -- -- 102,500
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, DECEMBER 31, 1996... 4,384,225 -- 102,600 (7,552) -- -- 95,048
Net loss..................... -- -- -- (276,803) -- -- (276,803)
Distributions to
shareholders............... -- -- -- (130,327) -- -- (130,327)
Issuance of common stock..... 415,775 -- 524,835 -- (25,000) -- 499,835
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, DECEMBER 31, 1997... 4,800,000 -- 627,435 (414,682) (25,000) -- 187,753
Common stock issued in
exchange................... 4,146,800 -- 18,539,814 -- -- -- 18,539,814
Net loss..................... -- -- -- (7,678,645) -- -- (7,678,645)
Issuance of common stock..... 112,594 -- 583,333 -- -- -- 583,333
Stock options granted with
exercise price less than
fair market value at date
of grant................... -- -- 391,351 -- -- (391,351) --
Deferred compensation expense
recognized................. -- -- -- -- -- 33,373 33,373
Distributions to
shareholders............... -- -- -- (838,367) -- -- (838,367)
Stock subscription
received................... -- -- -- -- 25,000 -- 25,000
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, DECEMBER 31, 1998... 9,059,394 -- 20,141,933 (8,931,694) -- (357,978) 10,852,261
Net loss (unaudited)......... -- -- -- (1,901,793) -- -- (1,901,793)
Stock options granted with
exercise price less than
fair market value at date
of grant (unaudited)....... -- -- 362,598 -- -- (275,986) 86,612
Stock options exercised
(unaudited)................ 29,850 -- 200,000 -- -- -- 200,000
Deferred compensation expense
recognized (unaudited)..... -- -- -- -- -- 28,221 28,221
Issuance of common stock
(unaudited)................ 59,700 -- 552,354 -- (125,000) -- 427,354
--------- --------- ------------ ------------ ------------ ------------- -----------
BALANCE, MARCH 31, 1999
(unaudited)................ 9,148,944 $ -- $ 21,256,885 $(10,833,487) $ (125,000) $ (605,743) $ 9,692,655
--------- --------- ------------ ------------ ------------ ------------- -----------
--------- --------- ------------ ------------ ------------ ------------- -----------
|
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- ------------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)................................ $ 7,779 $(276,803) $(7,678,645) $(124,213) $ (1,901,793)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 297 13,679 5,922,396 24,031 2,001,559
Compensation expense recognized upon issuance
of common stock.............................. -- 370,235 258,333 -- 152,354
Compensation expense recognized upon granting
of stock options............................. -- -- -- -- 86,612
Recognition of deferred compensation expense... -- -- 33,373 -- 28,221
(Gain) loss on disposals of property and
equipment.................................... -- 1,200 (12,639) -- --
Application development contracts.............. -- -- 1,256,000 -- (81,529)
Deferred income taxes.......................... -- -- 649,955 -- 10,377
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable........ (11,708) (1,471) (21,980) (110,991) (786,582)
(Increase) decrease in prepaid expenses........ -- (21,849) 3,335 -- (56,287)
(Increase) in other current assets............. -- -- (54,956) (10,805) (188,099)
(Increase) decrease in other assets............ -- -- (8,103) (3,505) 3,574
Increase (decrease) in accounts payable........ -- 56,681 (184,889) 15,265 379,136
Increase in accrued expenses................... -- 19,199 80,472 4,092 34,016
Increase (decrease) in income taxes payable.... -- -- 68,700 -- (46,000)
Increase (decrease) in other current
liabilities.................................. 15,351 17,119 43,034 (17,119) (1,600)
--------- --------- ----------- --------- ------------
Net cash provided by (used in) operating
activities................................... 11,719 177,990 354,386 (223,245) (366,041)
--------- --------- ----------- --------- ------------
Cash flows from investing activities:
Purchase of property and equipment............... (19,676) (112,521) (255,203) (46,881) (10,374)
Proceeds from disposals of property and
equipment...................................... -- 5,026 42,736 -- --
Proceeds from notes receivable from
shareholders................................... -- -- 55,000 -- --
Cash of acquired companies....................... -- -- 764,908 -- --
--------- --------- ----------- --------- ------------
Net cash provided by (used in) investing
activities..................................... (19,676) (107,495) 607,441 (46,881) (10,374)
--------- --------- ----------- --------- ------------
Cash flows from financing activities:
Proceeds from bank lines of credit............... -- -- 1,190,285 150,000 70,000
Payments on bank lines of credit................. -- -- (270,084) -- (254,140)
Proceeds from notes payable...................... -- 29,942 -- -- --
Payments on notes payable........................ (29,251) -- (29,942) (1,617) (50,000)
Payments on capital lease obligations............ -- -- (101,533) -- (60,060)
Payments on debentures payable................... -- -- (130,130) -- --
Distributions to shareholders.................... -- (130,327) (588,367) -- --
Proceeds from issuance of common stock........... 102,500 129,600 75,000 -- 475,000
Proceeds from subscriptions receivable........... -- -- 25,000 -- --
--------- --------- ----------- --------- ------------
Net cash provided by financing activities........ 73,249 29,215 170,229 148,383 180,800
--------- --------- ----------- --------- ------------
Net increase (decrease) in cash.................... 65,292 99,710 1,132,056 (121,743) (195,615)
Cash, beginning of year............................ 13,693 78,985 178,695 178,695 1,310,751
--------- --------- ----------- --------- ------------
Cash, end of period................................ $ 78,985 $ 178,695 $ 1,310,751 $ 56,952 $ 1,115,136
--------- --------- ----------- --------- ------------
--------- --------- ----------- --------- ------------
Other cash flow information:
Interest paid.................................... $ -- $ -- $ 54,707 $ -- $ 36,995
--------- --------- ----------- --------- ------------
--------- --------- ----------- --------- ------------
|
1. THE COMPANY AND BASIS OF PRESENTATION
National Information Consortium, Inc. (the "Company" or "NIC") is a provider of Internet-based electronic government solutions that help governments reduce costs and provide a higher level of service to businesses and citizens. The Company was formed as a Delaware corporation on December 18, 1997, for the sole purpose of effecting a common stock exchange offer (the "Exchange Offer") to combine under common ownership five separate affiliated entities under which the Company conducted its business operations. The five companies were National Information Consortium USA, Inc. ("NIC/USA"), Kansas Information Consortium, Inc. ("KIC"), Indian@ Interactive, Inc. ("III"), Nebrask@ Interactive, Inc. ("NII") and Arkansas Information Consortium, Inc. ("AIC"). The Exchange Offer was consummated on March 31, 1998, and has been accounted for as a business combination. NIC/USA is the entity whose shareholders received the largest portion of the Company's common stock shares and is treated as the accounting acquirer with the purchase method of accounting being applied to the four other companies (see Note 3). The accompanying consolidated financial statements reflect the acquisitions on March 31, 1998, with the results of operations and cash flows subsequent to that date reflecting the results of all the companies, and prior to that date only the operations of NIC/USA.
As of December 31, 1998, the Company provides electronic government solutions for seven states and one local government. The Company's primary business activity is to design, build and operate Internet-based portals for its government partners under multi-year contracts (referred to as government partnerships--see Note 4). In addition, the Company enters into contracts to provide consulting, development and management services to government portals in exchange for a negotiated fee. The Company also has a development division that develops applications to automate certain government back-office processes to facilitate electronic access.
The Company negotiates contracts with government agencies desiring to include their information on the government portal. The Company markets the services and solicits users to enter into subscriber contracts permitting the user to access the portal and the government information contained therein in exchange for a transactional or subscription user fee. The Company is responsible for funding up front investment and ongoing operational costs. Through separate wholly-owned subsidiaries, NIC/USA operates in Virginia and Iowa, and has a service contract with the state of Georgia. Following the Exchange Offer, the Company has wholly-owned subsidiaries operating in the states of Arkansas, Indiana, Kansas and Nebraska in addition to the operations of NIC/USA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements consolidate NIC/USA with its wholly-owned subsidiaries for periods prior to the Exchange Offer and the Company together with all of its direct and indirect wholly-owned subsidiaries, including NIC/USA, for periods subsequent to the Exchange Offer. All significant intercompany balances and transactions have been eliminated. The Company and NIC/USA have no partially owned subsidiaries.
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of 8 years for furniture and fixtures, 3-8 years for equipment, 3-5 years for purchased software and 5 years for leasehold improvements. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) from the accounts and any resulting gain or loss is included in operations for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
At each balance sheet date, the Company assesses the value of recorded goodwill and other intangible assets for possible impairment based primarily on the ability to recover the balances from expected future operating cash flows on an undiscounted basis through the remaining amortization period. The Company has not recorded any provisions for possible impairment of goodwill or intangible assets.
The Company recognizes revenues from providing electronic government services (primarily transaction and information access fees) when the service is provided. The Company must remit a certain percentage of these fees to government agencies regardless of whether the Company ultimately collects the fees. Government agency fees and amounts payable to the primary contracting governmental entities (see Note 4) are accrued as cost of revenues and accounts payable at the time the revenue is recognized.
Revenue from service contracts is recognized as the services are provided at rates provided for in the contract.
The Company recognizes revenues from application development contracts on the percentage of completion method, principally based on the estimated percentage of completion of each contract. Included in the measurement of percentage of completion are the internal costs of developing the core technology which is a deliverable under the Company's current contracts. Any anticipated losses on contracts are charged to operations as soon as they are determinable. In the fourth quarter of 1998, the Company determined that its most recent cost estimates exceeded the remaining revenues to be recognized. The Company accrued $1.3 million of estimated costs in excess of revenues for satisfying remaining obligations under the contracts. Because of the inherent uncertainties in estimating the costs of completion, it is at least reasonably possible that the estimates will change within the near term.
The Company changed its income tax status from an S corporation to a C corporation on July 1, 1998. The Company, along with its subsidiaries, files a consolidated federal income tax return.
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SERVICE DEVELOPMENT COSTS
The Company expenses as incurred the employee costs to develop, implement, operate and maintain the government portals. These costs are included in service development and operations expense in the consolidated statements of operations.
As discussed above, the Company, through a development division, is
developing an application
under customer contracts that automates certain government back-office processes
to facilitate electronic access. Costs of developing this application are
considered costs of performance under the contracts and have been expensed as
incurred. These costs are included in service development and operations expense
in the consolidated statements of operations.
The Company has elected to account for its stock-based compensation plan using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," establishes accounting and disclosure requirements using a fair-value-based method of accounting for stock-based compensation plans. The Company has elected the method of accounting prescribed by APB No. 25 as described above, and has adopted the disclosure requirements of SFAS No. 123.
Accordingly, the Company records as compensation expense the amount by which the fair value of common stock sold to employees and consultants exceeds the amount paid. Any excess of fair value of the price of common stock over the exercise price for options granted to employees is recorded as deferred compensation expense within shareholders' equity and amortized as expense ratably over the vesting period.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions. The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. The Company has not experienced any significant credit losses.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting financial information regarding operating segments, products and services, geographic areas and major customers. The statement is effective for financial statements for periods beginning after December 15, 1997. As the Company operates in one business segment, the adoption of this statement did not have a significant impact on the Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which establishes guidelines for the accounting for the costs of all computer software developed or obtained for internal use. SOP 98-1 is effective January 1, 1999. The adoption of SOP 98-1 is not expected to have a material impact on the Company's consolidated financial statements.
The accompanying consolidated balance sheet as of March 31, 1999, the consolidated statements of operations and cash flows for the three months ended March 31, 1999 and 1998 and the consolidated statement of changes in shareholders' equity for the three months ended March 31, 1999, have been prepared by the Company, without audit, pursuant to the rules of the Securities and Exchange Commission, and reflect all adjustments to present fairly the financial position of the Company and its subsidiaries as of March 31, 1999, the results of their operations and their cash flows for the three months ended March 31, 1999 and 1998 and the changes in their shareholders' equity for the three months ended March 31, 1999.
3. ACCOUNTING FOR THE EXCHANGE OFFER
On March 31, 1998, the Company exchanged its common shares for the common shares of five affiliated business units--NIC/USA, KIC, III, NII and AIC. Starting in 1991 with the state of Kansas, the Company's founders established an S corporation for business conducted within each state in which it was awarded a contract. By 1996, the Company had expanded into four states and decided to pursue future business opportunities through NIC/USA, leaving the four other business units to pursue opportunities solely within those states.
Ownership of the five affiliated business units was similar, but not identical, leading to the conclusion to account for the Exchange Offer as a business combination. Prior to consummating the Exchange Offer, the Company was a holding company with no operations of its own. Exchange ratios were determined proportionately based on estimated 1998 pretax earnings for each company. No appraisal of fair market value of the separate companies was obtained.
Management determined the fair value of the consolidated company on March 31, 1998 was $40 million. The fair value was allocated to each of the business units based upon proportional values agreed to by the shareholders in consummating the Exchange Offer.
Shareholders of NIC/USA, III, KIC, AIC and NII received 4,800,000, 2,175,025, 900,000, 652,475 and 418,800 shares of the Company's common shares which were valued for purchase accounting at $21,460,187, $9,724,259, $4,023,785, $2,919,368 and $1,872,401, respectively. As the shareholders of
3. ACCOUNTING FOR THE EXCHANGE OFFER (CONTINUED) NIC/USA received 54% of the Company's common shares, NIC/USA was treated as the acquirer in applying purchase accounting.
The cost of the acquired business units of $18,539,813 was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values on the Exchange Offer date. The fair value of net tangible assets, consisting primarily of cash, accounts receivable, property and equipment, accounts payable and debt, approximated historical carrying amounts. The sole identifiable intangible asset relates to the government contracts and was valued at the net present value of projected future cash flows over the lives of the existing contracts discounted by 15%. Developed applications were not assigned a value because each state has a perpetual right of use license to applications developed if the Company's relationship is terminated. The remainder of the cost was allocated to goodwill. The purchase price and allocation by acquired business unit and in total is summarized as follows:
III KIC AIC NII TOTAL
--------- --------- --------- --------- ----------
Fair market value at March 31,
1998............................ $9,724,259 $4,023,785 $2,919,368 $1,872,401 $18,539,813
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Allocated to:
Tangible net assets............. 464,766 311,159 304,529 108,897 1,189,351
Contract intangibles............ 1,911,321 433,611 447,994 672,387 3,465,313
Goodwill........................ 7,348,172 3,279,015 2,166,845 1,091,117 13,885,149
--------- --------- --------- --------- ----------
$9,724,259 $4,023,785 $2,919,368 $1,872,401 $18,539,813
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Government contract expiration
date............................ 8/31/00 12/31/99 6/30/00 1/31/02
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As a result of rapid technological changes occurring in the Internet industry and the intense competition for qualified Internet professionals, recorded contract intangibles and goodwill are amortized on a straight-line basis over the life of the existing contracts. There can be no assurance the contracts will be renewed when they expire at terms that will be beneficial to the Company. At the time of the Exchange Offer, the Company and each of the business units were S corporations. The Exchange Offer was tax free to the shareholders. The historical tax basis in the assets and liabilities carries over to the Company and the amortization of the goodwill and contract intangibles is not deductible for income tax purposes.
The following unaudited pro forma consolidated amounts give effect to the acquisitions of the business units as if they had occurred on January 1, 1997, using the amortization of goodwill and contract intangible the Company has and will record for periods subsequent to the Exchange Offer:
YEAR ENDED
DECEMBER 31,
---------------------- THREE MONTHS ENDED
1997 1998 MARCH 31, 1998
---------- ---------- -------------------
Revenues...................... $24,382,184 $36,532,345 $ 8,270,047
Operating income (loss)....... (6,863,442) (8,459,468) (1,655,386)
Net income (loss)............. (6,931,996) (9,212,596) (1,658,166)
Basic and diluted loss per
share....................... $ (0.80) $ (1.02) $ (0.18)
Weighted average shares
outstanding................. 8,638,743 9,034,463 9,030,787
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4. GOVERNMENT PARTNERSHIPS
Each of the Company's government partnerships operates under a separate contract, which generally has an initial term of three to five years. The Company enters into separate agreements with various agencies and divisions of the government partners to provide specific services and to conduct specific transactions. These agreements preliminarily establish the pricing of the electronic transactions and data access services the Company provides and the division of revenues between the Company and the government agency. Prices and revenue sharing agreements must be approved by the government. The Company owns all the applications developed under these contracts. After completion of a defined contract term, the Company's government partners receive a perpetual, royalty-free license to the applications for use only. If the Company's contract is not renewed after a defined term the government partners would be entitled to take over the portal in place with no future obligation of the Company. In some cases, the Company provides management services to government-owned portals in exchange for an agreed-upon fee.
The following is a summary of the Company's larger business units that have entered into agreements with government partners and the significant terms of those operating agreements.
On July 30, 1997, VI, a wholly-owned subsidiary of NIC/USA, entered into a contract to provide an electronic government solution with the Virginia Information Providers Network Authority (the "Virginia Authority"). VI is responsible for managing and marketing the government portal as well as funding up front investment and ongoing operational costs. The contract is for a period of five years, commencing September 1, 1997, with the Virginia Authority having a five-year renewal option. If the Virginia Authority extends the contract through 2007, it is entitled to a perpetual license for applications developed at no additional compensation to VI.
User fees received by the VI business unit are disbursed (1) first for the payment of operating expenses (primarily telecommunication costs), (2) then to the Virginia Authority in accordance with interagency agreements negotiated by VI on behalf of the Virginia Authority and for the reasonable and necessary expenses of the Virginia Authority, and (3) then all remaining funds to VI.
The III business unit develops, operates, maintains and expands an electronic government solution for electronic access to public information for the Access Indiana Information Network ("AIIN"). AIIN is a State of Indiana government instrumentality created by the Indiana legislature for the purpose of providing electronic access to state, county and local information required by Indiana businesses and citizens. III is responsible for managing and marketing the government portal as well as funding up-front investment and ongoing operational costs. The contract with AIIN and the interagency agreements with various government agencies include limitations and provisions for the rates III can charge and the amount of remuneration to AIIN and each government agency. The initial contract expires September 2000 but may be renewed, or amended and renewed, for up to an additional five years. AIIN is entitled to a perpetual for use only license to the applications developed for no additional compensation to III.
III's wholly-owned subsidiary, City-County Interactive, L.L.C. (the "Subsidiary"), was formed in 1997 to provide electronic government solutions for CivicNet, formerly CivicLink, the electronic gateway service for the city of Indianapolis and Marion County, Indiana. In addition, the Subsidiary is to further operate, manage and expand CivicNet.
4. GOVERNMENT PARTNERSHIPS (CONTINUED) In connection with the revenues generated under the contract with AIIN, AIIN receives 2% of gross revenues per annum, before all other payments. The data-providing entities are then paid in accordance with interagency agreements. The remaining balance is retained by III.
AIC serves as a provider of electronic government solutions, by a contract signed in July 1997 between AIC and the Information Network of Arkansas ("INA"), a public instrumentality created by legislation in the State of Arkansas (the "State"). AIC is responsible for managing and marketing the government portal as well as funding up-front investment and ongoing operational costs. The contract is for one three-year term through June 30, 2000, with four one-year renewals at the option of INA. If the State decides to extend the contract through June 30, 2003, or at anytime thereafter, the INA shall be entitled to a perpetual for use only license to the applications developed for no additional compensation to AIC. Prior to June 30, 2003, the INA reserves the right to negotiate terms to license the applications.
Network transaction fees received pursuant to the agreement with INA are disbursed first for payment of certain operating expenses for the government portal (primarily telecommunication costs). Five percent of the amount by which gross revenues for the portal exceed the amount payable to government agencies is then distributed to the INA. The balance is disbursed to AIC.
KIC was incorporated August 15, 1991 to serve as a provider of electronic government solutions to develop, operate, maintain and expand a government portal for electronic access to public information for the Information Network of Kansas ("INK"). INK is a State of Kansas government instrumentality created by the Kansas legislature for the purpose of providing electronic access to state, county and local information required by Kansas businesses and citizens. KIC is responsible for managing and marketing the government portal as well as funding up-front investment and ongoing operational costs. The contract with INK includes limitations and provisions for the rates KIC can charge and the amount of remuneration to INK and each government agency. The initial contract was to expire on December 31, 1996, but was renewed until December 31, 1999 unless earlier terminated by INK for cause. INK shall have the option, upon termination or expiration of the contract, to require KIC to provide electronic government solutions in accordance with the terms of the contract for a period of up to twelve months from the time of the expiration or notification of termination. INK is entitled to a perpetual for use only license to the applications developed for no additional compensation to KIC.
In connection with the revenues generated under the contract with INK, INK receives 2.0% of gross revenue, per annum, payable monthly, before all other payments. KIC may then receive a 25.0% rate of return per annum on its risk capital from net income before taxes. The remaining net income before taxes is shared 66.7% with KIC and 33.3% with INK. Risk capital is defined in the contract as the sum of paid-in capital, corporate loans with a payback period exceeding one year, and noncancellable obligations under corporate leases.
NII was incorporated November 22, 1994 for the purpose of operating as a provider of electronic government solutions for the public information portal of the State of Nebraska ("Nebrask@ Online"). NII developed and operates the public information portal to provide businesses and citizens with electronic
4. GOVERNMENT PARTNERSHIPS (CONTINUED) access to state, county and local information via the Internet. NII is responsible for managing and marketing the portal as well as funding up-front investment and ongoing operational costs.
On December 3, 1997, NII entered into a contract with the Nebraska State Records Board ("NSRB") to provide electronic government solutions to enhance, operate, maintain and expand the existing portal that was developed by NII under its 1995 contract with the Nebraska Library Commission ("NLC") and various government agencies. The contract includes limitations and provisions for the rates NII can charge and the amount of remuneration to each government agency. The contract will expire on January 31, 2002 unless earlier terminated by the NSRB for cause. The NSRB shall have the option, upon termination or expiration of the contract, to require NII to provide electronic government solutions in accordance with the terms of the contract for a period of up to twelve months from the time of the expiration or notice of termination, whichever is earlier. On January 1, 2002, the NSRB will be entitled to a perpetual for use only license to the applications developed for no additional compensation to NII.
In connection with the revenues generated under the contract with the NSRB, the NSRB receives 4.5% of the first $89,000 in gross profit and 2% of gross profit thereafter. Gross profit is defined in the contract as the difference between NII's gross revenues and amounts paid to government agencies and for certain telecommunication expenses.
A service contract was entered into between NIC/USA and the GeorgiaNet Authority ("GANET"), an agency of the State of Georgia, on September 15, 1996. Pursuant to the contract, NIC/USA must dedicate a minimum number of full time employees to assist GANET in creating and providing an information access program. Pursuant to the contract, GANET is entitled to a perpetual use license to the applications developed at no additional compensation to NIC/USA. However, if GANET terminates the contract prior to September 2001, GANET must pay NIC/USA a fee ranging from $500,000 to $1,000,000 (based on the date of termination) in order to receive a license for the applications. The contract must be renewed by GANET on a yearly basis. In the event fees received by GANET from its customers are insufficient to cover its obligations to NIC/USA, the contract shall terminate without further obligation of GANET.
In connection with the revenues generated under the contract with GANET, GANET pays NIC/ USA $800,000 per year, in equal amounts of $200,000 on a quarterly basis. In addition, GANET pays NIC/ USA 5% of gross GANET revenues from non-bulk fees per quarter.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
--------------------
1997 1998
--------- ---------
Furniture and fixtures............................... $ -- $ 210,209
Equipment............................................ 125,048 1,530,636
Purchased software................................... -- 101,484
Leasehold improvements............................... -- 39,285
--------- ---------
125,048 1,881,614
Less accumulated depreciation........................ 12,845 652,199
--------- ---------
$ 112,203 $1,229,415
--------- ---------
--------- ---------
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Depreciation expense for the years ended December 31, 1996, 1997 and 1998, was $177, $13,559 and $236,699, respectively.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
---------------------- MARCH 31, 1999
1997 1998 (UNAUDITED)
---------- ---------- -------------------
Goodwill....................... $ -- $13,885,149 $13,885,149
Contract intangibles........... -- 3,465,313 3,465,313
---------- ---------- -------------------
-- 17,350,462 17,350,462
Less accumulated
amortization................. -- 5,681,403 7,575,204
---------- ---------- -------------------
$ -- $11,669,059 $ 9,775,258
---------- ---------- -------------------
---------- ---------- -------------------
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7. BANK LINES OF CREDIT AND OTHER DEBT OBLIGATIONS
NIC/USA has a $1,000,000 operating line of credit from a bank that bears interest at the bank's index rate (7.75% at December 31, 1998). The expiration date on the line is April 30, 1999. At December 31, 1997 and 1998, $0 and $370,000 was outstanding on the line. The line is collateralized by NIC/USA's assets and guaranteed by various affiliated companies. The line was renewed on April 30, 1999 with a maturity date of April 30, 2000.
NIC/USA entered into a $225,000 equipment line of credit with a bank in January 1998. The line bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, no amounts were outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
In December 1997, NIC/USA borrowed $29,942 from a bank in the form of a note payable collateralized by an automobile. The note was repaid in full in 1998.
In October 1998, NIC/USA issued to GANET, an irrevocable letter of credit in the amount of $200,000 that expires October 31, 1999.
On January 19, 1999, NIC/USA purchased an airplane and financed the purchase by borrowing $544,000 from a bank in the form of a note payable. The note bears interest at 7.75% and matures
7. BANK LINES OF CREDIT AND OTHER DEBT OBLIGATIONS (CONTINUED) January 19, 2000. The loan is to be repaid in eleven monthly installments of $6,529 commencing February 19, 1999 with a final lump-sum payment of $513,707 on January 19, 2000. The note is collateralized by the airplane.
VI entered into a $250,000 operating line of credit with a bank in May 1998. The line bears interest at the bank's index rate (7.75% at December 31, 1998). The expiration date on the line is April 30, 2000. At December 31, 1998, $218,750 was outstanding on the line. The line is collateralized by VI's assets and guaranteed by various affiliated companies.
VI entered into a $225,000 equipment line of credit with a bank in April 1998. The line bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, there were no amounts outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
Iowa Interactive, Inc. entered into a $225,000 equipment line of credit with a bank in April 1998. The line bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, no amounts were outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
III has a $400,000 operating line of credit from a bank that bears interest at the bank's index rate (7.75% at December 31, 1998). The expiration date on the line is April 30, 2000. At December 31, 1998, $192,136 was outstanding on the line. The line is collateralized by the III's assets and guaranteed by various affiliated companies.
III has a $150,000 operating line of credit with a bank that bears interest at the bank's prime rate plus 0.50% (8.25% at December 31, 1998). The expiration date on the line is November 1, 1999. At December 31, 1998, $18,209 was outstanding on the line. The line is collateralized by III's assets.
III has a $225,000 equipment line of credit with a bank which bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, there were no amounts outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
KIC has a $250,000 operating line of credit from a bank that bears interest at the bank's index rate (7.75% at December 31, 1998). The expiration date on the line is April 30, 2000. At December 31, 1998, $179,497 was outstanding on the line. The line is collateralized by KIC's assets and guaranteed by various affiliated companies.
KIC has a $225,000 equipment line of credit with a bank which bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, no amounts were outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
AIC has a $150,000 operating line of credit from a bank that bears interest at the bank's index rate (7.75% at December 31, 1998). The expiration date on the line is April 30, 2000. At December 31, 1998, no amounts were outstanding on the line. The line is collateralized by AIC's assets and guaranteed by the parent company.
AIC has a $225,000 equipment line of credit with a bank which bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, no amounts were outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
7. BANK LINES OF CREDIT AND OTHER DEBT OBLIGATIONS (CONTINUED) In March 1998, AIC agreed to pay a shareholder $19,500 for past services and reacquired the shareholder's 5,005 shares of NII. An initial payment of $6,500 was made with the remaining balance of $13,000 due in two annual installments of $6,500 in 1999 and 2000.
AIC has issued to the State of Arkansas an irrevocable letter of credit in the amount of $50,000.
NII has a $100,000 line of credit with a bank that bears interest at the bank's index rate (7.75% at December 31, 1998). The expiration date on the line is April 30, 2000. At December 31, 1998, $45,000 was outstanding on the line. The line is collateralized by NII's assets and guaranteed by the parent company.
NII has a $225,000 equipment line of credit with a bank which bears interest at the bank's reference rate plus 1.75% (9.50% at December 31, 1998). There is no given expiration date on the line. At December 31, 1998, no amounts were outstanding on the line. The line is collateralized by the related equipment and guaranteed by the parent company.
In March 1998, NII agreed to pay a shareholder $130,500 for past services and reacquired the shareholder's 5,250 shares of NII. An initial payment of $43,500 was made with the remaining balance of $87,000 due in two annual installments of $43,500 in 1999 and 2000.
The operating line of credit agreements contain various covenants relating to reporting requirements and financial ratios. At December 31, 1998, the Company was either in compliance with these covenants or had received waivers on any violations of these covenants.
8. CAPITAL STOCK AND EARNINGS PER SHARE
The Company's Board of Directors has authorized 13,500,000 shares of common stock for issuance by the Company at December 31, 1998. In April 1999, the Company was reincorporated in the state of Colorado and changed the par value of its common stock from $.01 per share to no par. On May 6, 1999, the Company increased its authorized shares to 200,000,000.
In the first six months of 1998, the Company made $588,367 of S corporation cash distributions to common shareholders. NIC/USA made $130,327 of distributions to its shareholders in 1997.
On June 30, 1998, the Company and a voting trust entered into by the Company's shareholders entered into a stock purchase agreement for the Company's shareholders to sell a 25% interest in the Company to an investment management firm. The Company did not receive any of the proceeds from the sale. Under the voting trust agreement, two principal shareholders have the right to vote all of the Company's common shares, except those held by the investment management firm and to sell all or any part of such shares. The investment management investors also have certain registration rights, a right of first refusal to purchase any common shares proposed to be sold by the voting trust, a right to participate in any sale by the voting trust and certain other rights. The Company's bylaws give the Company the right of first refusal to purchase any common shares desired to be sold by a shareholder at the lesser of a third party offered price or a formula price. One common shareholder has the right to cause the Company to repurchase 37,313 shares of common stock purchased by the shareholder on February 9, 1999, at the $6.70 price per share paid by the shareholder.
8. CAPITAL STOCK AND EARNINGS PER SHARE (CONTINUED)
At December 31, 1997 and as of March 31, 1998, the date of the Exchange Offer, NIC/USA had 1,000,000 common shares authorized and 112,330 common shares issued and outstanding. However, as NIC/USA is considered the accounting acquirer, its historical outstanding share information has been adjusted for the Exchange Offer exchange ratio. Shareholders of NIC/USA received 42.73124 Company common shares for each share held of NIC/USA on March 31, 1998. Retroactive adjustments are also made for purposes of calculating and reporting earnings per share.
From August 1997 through December 1997, NIC/USA sold 5,130 and 4,500 shares of its common stock to employees at prices of $29.24 and $1.00 per share, respectively. The Company recorded $370,235 in compensation expense related to these transactions.
In April 1998, the Company sold 75,000 shares of common stock to two employees at $1.00 per share. The Company recorded $258,333 in compensation expense related to this transaction. From September 1998 through December 1998, the Company granted 545,895 common stock options. Deferred compensation expense of $391,351 was recorded which is being expensed ratably over the vesting period.
On June 30, 1998, the Company issued 37,594 shares of its common stock and made an S corporation distribution of those shares, which were valued at $6.65 per share, to its shareholders. These shares were given to a consultant as compensation for services rendered to the Company's shareholders with the investment management firm sale. In connection with the transaction, the Company also paid $57,077 in professional fees on behalf of the shareholders which were also distributed as an S corporation distribution.
In May 1999, the Company's Board of Directors approved an employee stock
purchase plan intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code.
The Company computes net income (loss) per share in accordance with the provisions of SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98. Under SFAS No. 128 and SAB No. 98, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding for the period. Treated as outstanding for all periods prior to the Exchange Offer is an issuance of 37,594 of common shares to all common shareholders on July 1, 1998 for no consideration to the Company as described above. Diluted net income (loss) per share is the same as basic net income (loss) per share because common stock issuable upon exercise of employee stock options is antidilutive.
8. CAPITAL STOCK AND EARNINGS PER SHARE (CONTINUED) The following sets forth the calculation of earnings per share for the actual and pro forma periods indicated:
YEAR ENDED DECEMBER 31, PRO FORMA
------------------------------------- THREE THREE THREE
1998 MONTHS ENDED MONTHS ENDED MONTHS ENDED
1997 PRO FORMA 1998 MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1999
ACTUAL (UNAUDITED) ACTUAL (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- ------------ ----------- -------------- -------------- --------------
Net loss................ $ (276,803) $(9,212,596) $(7,678,645) $ (1,658,166) $ (124,213) $ (1,901,793)
Basic and diluted loss
per share............. $ (0.06) $ (1.02) $ (0.96) $ (0.18) $ (0.03) $ (0.21)
Weighted-average common
shares outstanding.... 4,491,943 9,034,463 8,020,547 9,030,787 4,884,187 9,097,461
|
9. INCOME TAXES
On July 1, 1998, the Company changed its income tax status from an S corporation to a C corporation. The Company recognized a net deferred tax liability of approximately $1,374,000 representing the temporary differences between the book and tax bases of assets and liabilities on that date. No deferred tax liability was recorded for goodwill. The effect of recognizing the deferred tax liability has been included in the consolidated statement of operations for the year ended December 31, 1998.
Income tax expense for the year ended December 31, 1998 consisted of the following:
Current income taxes:
Federal........................................................ $ 56,045
State.......................................................... 12,655
---------
Total........................................................ 68,700
---------
Deferred income taxes, net:
Federal........................................................ 575,060
State.......................................................... 74,895
---------
Total........................................................ 649,955
---------
Total income taxes........................................... $ 718,655
---------
---------
|
The unaudited pro forma tax provision for the years ended December 31, 1996, 1997 and 1998 and the three-months ended March 31, 1998 presented on the Consolidated Statements of Operations present the Company's results of operations as if it were a C corporation for the entire period. The pro forma provision for the year ended December 31, 1998 represents the incremental provision for the six month period the Company was an S corporation together with removing the $1,374,000 cumulative effect recorded in 1998 as discussed above. The pro forma provision for income taxes was calculated based on enacted tax laws and statutory tax rates applicable to the periods presented taking into account permanent differences.
9. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax assets and liabilities at December 31, 1998, are as follows:
Deferred tax assets
Accrued accounts payable...................................... $ 721,757
Application development contracts............................. 479,922
Other......................................................... 28,130
---------
Total....................................................... 1,229,809
---------
Deferred tax liabilities:
Accrued revenue............................................... 897,097
Contract intangibles.......................................... 881,346
Depreciation.................................................. 62,324
Other......................................................... 38,996
---------
Total....................................................... $1,879,763
---------
Net deferred tax liability...................................... $ 649,954
---------
---------
|
The following table is a reconciliation between the effective income tax rate indicated by the consolidated statements of operations and the statutory federal income tax rate for the year ended December 31, 1998:
Effective federal and state income tax rate (provision).............. (10.3)%
Goodwill amortization (six months)................................... 15.5
S to C corporation adjustment........................................ 19.7
Pretax loss as an S corporation (six months)......................... 10.4
State income taxes................................................... (1.3)
Other................................................................ 1.0
---------
Statutory federal income tax rate.................................... 35.0%
---------
---------
|
10. CAPITAL LEASE OBLIGATIONS
The Company and its subsidiaries lease various property and equipment under capital leases. The agreements require the company and its subsidiaries to pay all taxes, fees, assessments or other charges.
Capitalized leased property and equipment consists of the following at December 31, 1998:
Furniture and fixtures............................................ $ 117,911
Equipment......................................................... 766,153
Purchased software................................................ 81,795
---------
965,859
Less accumulated depreciation..................................... 314,026
---------
$ 651,833
---------
---------
|
10. CAPITAL LEASE OBLIGATIONS (CONTINUED) Future minimum noncancellable lease payments under these capital leases at December 31, 1998 are as follows:
FISCAL YEAR
------------------------------------------------------------------
1999.............................................................. $ 280,884
2000.............................................................. 217,180
2001.............................................................. 213,918
2002.............................................................. 17,787
---------
729,769
Less interest..................................................... 84,457
---------
Present value of net minimum lease payments....................... 645,312
Less current portion.............................................. 235,323
---------
Long-term portion................................................. $ 409,989
---------
---------
|
11. OPERATING LEASES
The Company and its subsidiaries lease office space and certain equipment under operating leases. The future minimum lease payments under noncancellable operating leases are as follows:
FISCAL YEAR
--------------------------------------------------------------------------------
1999............................................................................ $ 408,412
2000............................................................................ 320,125
2001............................................................................ 248,143
2002............................................................................ 209,932
2003............................................................................ 24,989
------------
$ 1,211,601
------------
------------
|
Total rent expense for the years ended December 31, 1996, 1997 and 1998 was $0, $2,099 and $354,192 respectively.
12. EMPLOYEE BENEFIT PLAN
The Company and its subsidiaries sponsor a defined contribution 401(k) profit sharing plan. In accordance with the plan, all full-time employees are eligible immediately upon employment. A discretionary match and a discretionary contribution may be made to the plan as determined by the Board of Directors. Company contributions totaled $1,731, $14,031, and $94,571 for the years ended December 31, 1996, 1997 and 1998, respectively.
13. STOCK OPTION PLAN
The Company has adopted a formal stock option plan (the "Plan") to provide for the granting of either incentive stock options or non-qualified stock options to encourage certain employees of the Company and its subsidiaries, and certain directors of the Company, to participate in the ownership of the Company, and to provide additional incentive for such employees and directors to promote the success of
13. STOCK OPTION PLAN (CONTINUED) its business through sharing the future growth of such business. The Company is authorized to grant options for up to 2,000,000 common shares under the Plan, of which 545,895 have been granted in 1998. The exercise price of all options granted under the plan was $6.70, which was less than the fair market value of the stock on the various grant dates. The weighted-average grant-date fair value of options granted during the year was $7.42. Employee options are generally exercisable one year from date of grant in cumulative annual installments of 33% and expire four years after the grant date.
On December 31, 1998, the Company granted 300,000 options (225,375 non-qualified options and 74,625 incentive options) to an executive of the Company under two separate stock option agreements covered by the Plan. Non-qualified stock options totaling 13,075 vested immediately with the remainder of the options exercisable one year from date of grant in cumulative annual installments of 25%. The non-qualified stock options expire ten years after the grant date. Incentive stock options totaling 14,925 vested immediately with the remainder of the options exercisable one year from date of grant in cumulative annual installments of 25%. The incentive stock options expire five years from the date of grant.
Stock option activity for the year ended December 31, 1998, was as follows:
SHARES WEIGHTED AVERAGE PRICE
--------- -------------------------
Outstanding at January 1.................... -- --
Granted................................... 545,895 $ 6.70
Exercised................................. -- --
Forfeited................................. 4,478 $ 6.70
---------
Outstanding at December 31.................. 541,417 $ 6.70
Exercisable at December 31.................. 42,925 $ 6.70
|
For all options outstanding at December 31, 1998, the exercise price was $6.70 per share and the weighted-average remaining contractual life was 6.7 years.
The Company accounts for the Plan using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," requires certain disclosures regarding expense and value of options granted using the fair-value-based method even though the Company follows APB No. 25. Had compensation cost for the Company's Plan been determined consistent with SFAS No. 123, the Company's net loss and loss per share would have been as follows for the year ended December 31, 1998:
Net loss As reported.................................................... $(7,678,645) Pro forma...................................................... $(7,689,230) Basic and diluted loss per share: As reported.................................................... $ (0.96) Pro forma...................................................... $ (0.96) |
The Company used the minimum value option pricing model, as permitted by the Financial Accounting Standards Board for nonpublic companies, to determine the fair value of grants made in 1998.
13. STOCK OPTION PLAN (CONTINUED) The minimum value model does not consider expected volatility in stock price. The following assumptions were applied in determining pro forma compensation cost for the year ended December 31, 1998:
Risk-free interest rate.......................................... 5.00% Expected dividend yield.......................................... 0.00% Expected option life............................................. 6.6 years Expected stock price volatility.................................. 0.001% Fair value of options granted.................................... $7.42 |
14. CONCENTRATION OF CREDIT
For the year ended December 31, 1998, the Company derived 71% of its revenues from two data resellers.
15. RELATED PARTY TRANSACTIONS
The Company and its subsidiaries pay their Board members director fees for services rendered. Total expense incurred for the year ended December 31, 1998 was $130,500. No director fees were paid in either 1997 or 1996.
The Company and its subsidiaries purchase business and health insurance through an insurance agency that is controlled by a shareholder and director of the Company. Insurance expense for the years ended December 31, 1996, 1997 and 1998 was approximately $3,000, $50,000 and $444,600, respectively.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NIC/USA financed the purchase of $335,646 of property and equipment in 1998 under capital leases.
KIC sold certain assets during 1998 which were then leased back from the purchaser over a period of three years. The resulting lease is being accounted for as a capital lease. The purchaser paid down KIC's bank line of credit in 1998 by $28,666 as part of this sale-leaseback transaction.
III sold certain assets during 1998 which were then leased back from the purchaser over a period of three years. The resulting lease is being accounted for as a capital lease. The purchaser paid down III's bank line of credit in 1998 by $169,287 as part of this sale-leaseback transaction.
AIC financed the purchase of $13,083 of property and equipment in 1998 under capital leases.
NII financed the purchase of $7,114 of property and equipment in 1998 under capital leases.
To the Board of Directors of
Indian@ Interactive, Inc. and subsidiary
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Indian@ Interactive, Inc. and subsidiary (the "Company") at December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri May 6, 1999 |
DECEMBER 31,
--------------------
1996 1997
--------- --------- MARCH 31,
1998
-----------
(UNAUDITED)
ASSETS
Current assets:
Cash................................................... $ 280,918 $ 964 $ 380,209
Trade accounts receivable.............................. 860,777 1,505,464 1,203,141
Receivable from employees.............................. -- -- 1,000
Due from related companies............................. -- -- 662
Prepaid expenses....................................... 10,042 16,531 14,359
--------- --------- -----------
Total current assets............................. 1,151,737 1,522,959 1,599,371
--------- --------- -----------
Property and equipment, net.............................. 372,222 375,426 363,196
--------- --------- -----------
Other assets:
Note receivable from shareholder....................... 25,000 15,000 15,000
Deposits and other..................................... 10,464 13,988 250
Organization costs, net of accumulated amortization of
$5,815, $10,627, and $11,830......................... 18,244 13,432 12,229
--------- --------- -----------
Total other assets............................... 53,708 42,420 27,479
--------- --------- -----------
Total assets..................................... $1,577,667 $1,940,805 $1,990,046
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of bank balance................ $ -- $ 117,405 $ --
Accounts payable....................................... 724,411 876,710 1,089,165
Accrued expenses....................................... 44,756 25,671 55,617
Due to related companies............................... -- 528 4,527
Bank lines of credit................................... 119,196 92,923 92,923
Current portion of capital lease obligations........... 99,603 141,632 144,499
--------- --------- -----------
Total current liabilities........................ 987,966 1,254,869 1,386,731
--------- --------- -----------
Long-term liabilities:
Debentures payable to related parties.................. 90,000 90,000 90,000
Capital lease obligations, net of current portion...... 167,536 97,370 48,549
--------- --------- -----------
Total long-term liabilities...................... 257,536 187,370 138,549
--------- --------- -----------
Total liabilities................................ 1,245,502 1,442,239 1,525,280
--------- --------- -----------
Commitments and contingencies (Notes 6 and 7)............
Shareholders' equity:
Common stock, no par value; 100,000 shares authorized,
87,250, 88,122 and 88,122 shares issued and
outstanding.......................................... 18,825 18,825 18,825
Additional paid-in capital............................. 156,174 183,557 183,557
Retained earnings...................................... 157,166 296,184 262,384
--------- --------- -----------
Total shareholders' equity....................... 332,165 498,566 464,766
--------- --------- -----------
Total liabilities and shareholders' equity....... $1,577,667 $1,940,805 $1,990,046
--------- --------- -----------
--------- --------- -----------
|
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- 1998
1996 1997 (UNAUDITED)
---------- ---------- -------------
Revenues............................................ $11,658,194 $12,524,065 $ 3,541,101
Cost of revenues.................................... 9,623,884 10,040,041 2,727,257
---------- ---------- -------------
Gross profit.................................. 2,034,310 2,484,024 813,844
---------- ---------- -------------
Operating expenses:
Service development and operations................ 359,689 480,492 225,425
Selling, general and administrative............... 814,997 1,070,667 424,581
Stock compensation................................ -- 13,431 --
Depreciation and amortization..................... 83,448 107,332 31,841
---------- ---------- -------------
Total operating expenses...................... 1,258,134 1,671,922 681,847
---------- ---------- -------------
Operating income.............................. 776,176 812,102 131,997
---------- ---------- -------------
Other income (expense):
Interest income................................... 21,514 20,192 6,804
Interest expense.................................. (34,867) (32,330) (9,634)
Miscellaneous income.............................. -- 3,412 1,820
Gain on disposals of property and equipment....... -- 401 --
---------- ---------- -------------
Total other expense, net...................... (13,353) (8,325) (1,010)
---------- ---------- -------------
Net income.................................... $ 762,823 $ 803,777 $ 130,987
---------- ---------- -------------
---------- ---------- -------------
|
NOTES DUE
COMMON STOCK ADDITIONAL ON COMMON
---------------------- PAID-IN RETAINED STOCK
SHARES AMOUNT CAPITAL EARNINGS PURCHASES TOTAL
----------- --------- ----------- --------- ----------- --------------
BALANCE, JANUARY 1, 1996......... 87,250 $ 87,250 $ 156,174 $ (24,911) $ (68,425) $ 150,088
Net income....................... -- -- -- 762,823 -- 762,823
Change in par value of common
stock.......................... -- (68,425) -- -- 68,425 --
Distributions to shareholders.... -- -- -- (580,746) -- (580,746)
----------- --------- ----------- --------- ----------- --------------
BALANCE, DECEMBER 31, 1996....... 87,250 18,825 156,174 157,166 -- 332,165
Net income....................... -- -- -- 803,777 -- 803,777
Issuance of common stock......... 872 -- 27,383 -- -- 27,383
Distributions to shareholders.... -- -- -- (664,759) -- (664,759)
----------- --------- ----------- --------- ----------- --------------
BALANCE, DECEMBER 31, 1997....... 88,122 18,825 183,557 296,184 -- 498,566
Net income (unaudited)........... -- -- -- 130,987 -- 130,987
Distributions to shareholders
(unaudited).................... -- -- -- (164,787) (164,787)
----------- --------- ----------- --------- ----------- --------------
BALANCE, MARCH 31, 1998
(UNAUDITED).................... 88,122 $ 18,825 $ 183,557 $ 262,384 $ -- $ 464,766
----------- --------- ----------- --------- ----------- --------------
----------- --------- ----------- --------- ----------- --------------
|
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
---------------
(UNAUDITED)
Cash flows from operating activities:
Net income................................................ $ 762,823 $ 803,777 $ 130,987
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 83,448 107,332 31,841
Gain on disposals of property and equipment............. -- (401) --
Compensation expense recognized upon issuance of common
stock................................................. -- 13,431 --
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable...... (86,475) (644,687) 302,323
Decrease (increase) in receivable from employees...... 3,400 -- (1,000)
(Increase) in due from related companies.............. -- -- (662)
Decrease (increase) in prepaid expenses............... (6,799) (6,489) 2,172
Decrease (increase) in deposits and other............. (10,214) (3,524) 13,738
Increase (decrease) in accounts payable............... (17,435) 152,299 212,455
Increase (decrease) in accrued expenses............... 26,261 (19,085) 29,946
Increase in due to related companies.................. -- 528 3,999
--------- --------- ---------------
Net cash provided by operating activities............. 755,009 403,181 725,799
--------- --------- ---------------
Cash flows from investing activities:
Purchases of property and equipment....................... (237,287) (110,607) (18,408)
Proceeds from disposals of property and equipment......... -- 5,284 --
Proceeds from repayments of note receivable from
shareholder............................................. -- 10,000 --
--------- --------- ---------------
Net cash used in investing activities................. (237,287) (95,323) (18,408)
--------- --------- ---------------
Cash flows from financing activities:
Checks issued in excess of bank balance................... -- 117,405 (117,405)
Proceeds from bank lines of credit........................ 362,405 97,202 --
Payment on bank lines of credit........................... -- (19,834) --
Payments on capital lease obligations..................... (46,187) (131,778) (45,954)
Distributions to shareholders............................. (580,746) (664,759) (164,787)
Proceeds from issuance of common stock.................... -- 13,952 --
--------- --------- ---------------
Net cash used in financing activities................... (264,528) (587,812) (328,146)
--------- --------- ---------------
Net increase (decrease) in cash............................. 253,194 (279,954) 379,245
Cash, beginning of year..................................... 27,724 280,918 964
--------- --------- ---------------
Cash, end of period......................................... $ 280,918 $ 964 $ 380,209
--------- --------- ---------------
--------- --------- ---------------
Other cash flow information:
Interest paid............................................. $ 34,867 $ 32,330 $ 8,135
--------- --------- ---------------
--------- --------- ---------------
|
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Indian@ Interactive, Inc. (the "Company") was incorporated March 6, 1995 to design, build and operate Internet-based portals that allow businesses and citizens to complete transactions and obtain government information online for the Intelenet Commission ("Intelenet"). Intelenet is a State of Indiana government instrumentality created by the Indiana legislature for the purpose of providing electronic access to state, county and local information required by Indiana businesses and citizens. The Company is responsible for managing and marketing the government portal as well as funding up front investment and ongoing operational costs. The contract with Intelenet and the interagency agreements with various state agencies include limitations and provisions for the rates the Company can charge and the amount of remuneration to Intelenet and each state agency. The initial contract expires September 2000 but may be renewed, or amended and renewed, for up to an additional five years. Intelenet is entitled to a perpetual for use only license to the applications development for no additional compensation to the Company.
In October 1997, the Company entered into a computer system agreement with the Indiana Secretary of State ("SOS"). The system is intended to automate many of SOS's internal operations and provide the public electronic access to certain SOS data.
On March 31, 1998, the shareholders of the Company exchanged all of the issued and outstanding common stock shares for shares of common stock in International Information Consortium, Inc. whose name was later changed to National Information Consortium, Inc. ("NIC"). As a result, NIC became the sole shareholder of the Company.
The Company's wholly-owned subsidiary, City-County Interactive, L.L.C. (the "Subsidiary"), was formed in 1997 to assume the role of electronic government solutions provider for CivicNet, formerly CivicLink, the government portal for the city of Indianapolis and Marion County, Indiana. In addition, the Subsidiary is to further operate, manage and expand CivicNet.
The accompanying consolidated financial statements include the Company and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required.
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) At each balance sheet date, the Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company recognizes revenues from providing electronic government services (primarily transaction fees) when the service is provided. The Company must remit a certain percentage of fees to state agencies regardless of whether the Company ultimately collects the fees. In connection with the revenues generated under the contract with Intelenet, Intelenet receives 2% of gross revenues per annum, before all other payments. The data providing entities are then paid in accordance with interagency agreements. The remaining balance is retained by the Company.
During the period ended December 31, 1995, the Company incurred organization costs totaling $24,059. The organization costs are being amortized on a straight-line basis over a period of five years.
The Company expenses as incurred the employee costs to develop, implement, operate and maintain the government portal.
The Company records as compensation expense the amount by which the fair value of common stock sold to employees exceeds the amount paid.
The Company has elected to be taxed as a small business corporation under provisions of Subchapter S of the Internal Revenue Code. Under such provisions, the shareholders are taxed individually on their respective shares of the Company's taxable income. Therefore, no provision for income tax expense has been made. The Company changed its income tax status from an S corporation to a C corporation effective July 1, 1998.
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying balance sheet as of March 31, 1998, and the related statements of income, changes in shareholders' equity and cash flows for the three months ended March 31, 1998, have been prepared by the Company, without audit, pursuant to the rules of the Securities and Exchange
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Commission, and reflect all adjustments to present fairly the financial position of the Company as of March 31, 1998, and the results of its operations and its cash flows for the three month period then ended.
2. CONCENTRATION OF CREDIT
For the years ended December 31, 1997 and 1996, the Company derived 77% and 80%, respectively, of its transaction fees from two data resellers. At December 31, 1997 and 1996, 79% and 81%, respectively, of its accounts receivable were from the same two data resellers.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
-------------------- USEFUL
1996 1997 LIVES
--------- --------- ---------
Furniture....................... $ 75,996 $ 77,641 8 years
Equipment....................... 320,920 420,423 5 years
Software........................ 60,464 64,739 3 years
--------- ---------
457,380 562,803
Less accumulated depreciation... 85,158 187,377
--------- ---------
$ 372,222 $ 375,426
--------- ---------
--------- ---------
|
Depreciation expense for the years ended December 31, 1997 and 1996 was $102,520 and $78,637, respectively.
4. BANK LINES OF CREDIT
The Company has a $100,000 operating line of credit from a bank which was increased to $150,000 in October 1997. The interest rate on the line equals the bank's prime rate plus 0.50% (9.00% at December 31, 1997). The line expired on November 1, 1998. There were no amounts outstanding on the line of credit at December 31, 1997 and 1996. The line is collateralized by the Company's assets as well as personal guarantees of three of the Company's shareholders.
The Company obtained an additional $200,000 operating line of credit with a bank in December 1997 which was subsequently increased to $400,000 in 1998. The interest rate on the line equals the bank's index rate (8.50% at December 31, 1997). The line matures April 30, 2000. There were no amounts outstanding on the line of credit at December 31, 1997. The line of credit is collateralized by the Company assets and guaranteed by various affiliated companies.
The Company has a $600,000 equipment line of credit from a bank which bears interest at the bank's prime rate plus 0.50% (9.00% at December 31, 1997). The line expired on November 1, 1998. At December 31, 1997 and 1996, $79,508 and $119,196, respectively, of equipment purchases were outstanding on the line. During January 1997, $100,300 of the existing balance on the line of $119,196 was refinanced through a sale-leaseback with the bank. The line is collateralized by the Company's assets as well as personal guarantees of three of the Company's shareholders.
4. BANK LINES OF CREDIT (CONTINUED) The Company obtained an additional $225,000 equipment line of credit from a bank in April 1998. The interest rate on the line equals the bank's reference rate plus 1.75%. There is no given expiration date on the line. The line is collateralized by the related equipment and guaranteed by an affiliated company.
The line of credit agreements contain various covenants relating to reporting requirements and financial ratios. At December 31, 1997 and 1996, the Company was either in compliance with these covenants or had received waivers on any violations of these covenants.
The Subsidiary has a $100,000 operating line of credit with a bank which bears interest at the bank's prime rate plus 0.50%. (9.00% at December 31, 1997). The line expired November 1, 1998. There were no amounts outstanding on the line of credit at December 31, 1997 and 1996. The line is collateralized by the Subsidiary's assets as well as the guarantee of the Company and personal guarantees of three of the Company's shareholders.
The Subsidiary has a $75,000 equipment line of credit from a bank which bears interest at the bank's prime rate plus 0.50% (9.00% at December 31, 1997). The line expired on November 1, 1998. At December 31, 1997 and 1996, $13,415 and $0, respectively, of equipment purchases were outstanding on the line. The line is collateralized by the Subsidiary's assets as well as the guarantee of the Company and personal guarantees of three of the Company's shareholders.
5. DEBENTURES PAYABLE TO RELATED PARTIES
Debentures payable at December 31, 1997 and 1996 consist of $90,000 of 10% debentures issued to two shareholders. These debentures are due in one installment in October 2000. The Company called the debentures in May 1998. Due to the early call, the Company was required to pay a 5.0% premium.
6. CAPITAL LEASE OBLIGATIONS
The Company leases various equipment under agreements with original terms of three years. The agreements require the Company to pay all taxes, fees, assessments or other charges.
Capitalized leased property at December 31, 1997 and 1996, consists of:
1996 1997
--------- ---------
Furniture and fixtures.................. $ 72,507 $ 72,507
Equipment............................... 281,460 281,460
Software................................ 59,656 59,656
--------- ---------
413,623 413,623
Less accumulated depreciation........... 78,113 163,090
--------- ---------
$ 335,510 $ 250,533
--------- ---------
--------- ---------
|
6. CAPITAL LEASE OBLIGATIONS (CONTINUED) Future minimum lease payments under these capital leases at December 31, 1997 are as follows:
FISCAL YEAR
1998............................................ $ 155,874
1999............................................ 97,510
2000............................................ 3,262
---------
256,646
Less interest................................... (17,644)
---------
Present value of net minimum lease payments..... 239,002
Less current portion............................ (141,632)
---------
Long-term portion............................... $ 97,370
---------
---------
|
7. OPERATING LEASES
The Company leases its office space, an apartment and certain equipment under operating leases. Future minimum lease payments under noncancellable leases at December 31, 1997 are as follows:
FISCAL YEAR
1998............................................ $ 69,972
1999............................................ 58,120
2000............................................ 50,503
---------
$ 178,595
---------
---------
|
Total rent expense for the years ended December 31, 1997 and 1996 was $71,554 and $64,518, respectively.
On June 1, 1998, the Company leased additional office space which increased the future minimum lease payments to $77,502, $73,310 and $63,700 for the years ending December 31, 1998, 1999 and 2000, respectively.
8. RELATED PARTY TRANSACTIONS
The Company pays its Board members director fees for services rendered. Total expense incurred was $54,000 and $36,000 for the years ended December 31, 1997 and 1996, respectively.
Interest expense on debentures payable to related parties totaled $9,000 for the years ended December 31, 1997 and 1996.
The note receivable from shareholder of $15,000 was paid in full in July 1998.
The Company purchases business and health insurance through an insurance agency that is controlled by a shareholder of the Company. Insurance expense totaled approximately $65,000 and $43,000 for the years ended December 31, 1997 and 1996, respectively.
The Company rents an aircraft on an hourly basis from Sky King Leasing, a company with common shareholders. The amount paid to Sky King Leasing was approximately $10,500 and $19,500 in 1997 and 1996, respectively.
8. RELATED PARTY TRANSACTIONS (CONTINUED) The Company is affiliated, through common ownership, with several companies that also serve as electronic government solutions providers for various states. The Company is a partial guarantor of certain line of credit agreements entered into by these affiliated companies. The total amounts available and outstanding under such agreements at December 31, 1997 was $1,075,000 and $192,089.
9. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $18,432 and $16,319 for the years ended December
31, 1997 and 1996, respectively.
10. COMMON STOCK
During 1996, the Company amended the corporate bylaws to change the par value of common stock from $1.00 par to no par with a total stated value of $18,825. In conjunction with the amendment, notes due on common stock purchases were forgiven.
The Articles of Incorporation of the Company stipulate that should any shareholder desire to sell or transfer their respective shares of common stock, such stock must first be offered to the Company. Any stock not purchased by the Company within a specified time frame must then be offered to the remaining shareholders. The purchase price must be equivalent to the price that would be paid by a non-shareholder.
11. SUPPLEMENTARY CASH FLOW DISCLOSURES
The Company sold certain assets during 1996 which were leased back from the purchaser over a period of three years. The resulting leases are being accounted for as capital leases. The purchaser paid down $103,641 of the Company's bank line of credit during 1997 and $313,323 during 1996.
To the Board of Directors of
Kansas Information Consortium, Inc.
In our opinion, the accompanying balance sheets and the related statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Kansas Information Consortium, Inc. (the "Company") at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri May 6, 1999 |
DECEMBER 31,
--------------------
1996 1997
--------- --------- MARCH 31,
1998
-----------
(UNAUDITED)
ASSETS
Current assets:
Cash..................................................... $ 36,571 $ 136,379 $ 179,413
Trade accounts receivable................................ 483,092 542,979 626,303
Receivable from employees................................ 3,246 968 9,432
Due from related companies............................... -- 22,348 982
Prepaid expenses......................................... 23,353 16,870 10,930
--------- --------- -----------
Total current assets................................... 546,262 719,544 827,060
Property and equipment, net................................ 131,770 151,522 155,165
Deposits and other......................................... 2,145 625 25
--------- --------- -----------
Total assets........................................... $ 680,177 $ 871,691 $ 982,250
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 405,715 $ 445,054 $ 481,516
Accrued expenses......................................... 5,127 23,784 40,893
--------- --------- -----------
Total current liabilities.............................. 410,842 468,838 522,409
Bank lines of credit....................................... 100 178,674 148,682
Debentures payable to related parties...................... 75,000 -- --
--------- --------- -----------
Total liabilities...................................... 485,942 647,512 671,091
--------- --------- -----------
Commitments and contingencies (Note 6).....................
Shareholders' equity:
Common stock, $1 par value; 500,000 shares authorized,
250,000 issued and 224,750, 229,250 and 229,250
outstanding............................................ 250,000 250,000 250,000
Additional paid-in capital............................... 8,870 22,146 22,146
Retained earnings........................................ (6,385) (19,717) 67,263
--------- --------- -----------
252,485 252,429 339,409
Less common stock subscriptions receivable................. (25,500) -- --
Less treasury stock, at cost............................... (32,750) (28,250) (28,250)
--------- --------- -----------
Total shareholders' equity............................. 194,235 224,179 311,159
--------- --------- -----------
Total liabilities and shareholders' equity............. $ 680,177 $ 871,691 $ 982,250
--------- --------- -----------
--------- --------- -----------
|
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
--------------
(UNAUDITED)
Revenues............................................. $5,009,204 $6,067,362 $1,625,488
Cost of revenues..................................... 3,681,547 4,576,795 1,174,015
--------- --------- --------------
Gross profit..................................... 1,327,657 1,490,567 451,473
--------- --------- --------------
Operating expenses:
Service development and operations................. 300,044 387,083 99,685
Selling, general and administrative................ 783,971 812,306 190,994
Stock compensation................................. 3,870 13,276 --
Depreciation....................................... 44,983 32,496 9,971
--------- --------- --------------
Total operating expenses......................... 1,132,868 1,245,161 300,650
--------- --------- --------------
Operating income................................. 194,789 245,406 150,823
--------- --------- --------------
Other income (expense):
Interest income.................................... 1,909 822 401
Interest expense................................... (18,072) (13,056) (4,639)
Loss on disposals of property and equipment........ (11,214) (43,144) --
--------- --------- --------------
Total other expense, net......................... (27,377) (55,378) (4,238)
--------- --------- --------------
Net income....................................... $ 167,412 $ 190,028 $ 146,585
--------- --------- --------------
--------- --------- --------------
|
COMMON STOCK ADDITIONAL TREASURY STOCK COMMON STOCK
-------------------- PAID-IN RETAINED -------------------- SUBSCRIPTIONS
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT RECEIVABLE
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, JANUARY 1, 1996................ 250,000 $ 250,000 $ 1,400 $ (35,795) (28,250) $ (35,750) $ (25,500)
Net income.............................. -- -- -- 167,412 -- -- --
Distributions to shareholders........... -- -- -- (138,002) -- -- --
Sales of treasury stock................. -- -- 7,470 -- 3,000 3,000 --
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, DECEMBER 31, 1996.............. 250,000 250,000 8,870 (6,385) (25,250) (32,750) (25,500)
Net income.............................. -- -- -- 190,028 -- -- --
Distributions to shareholders........... -- -- -- (203,360) -- -- --
Sales of treasury stock................. -- -- 13,276 -- 4,500 4,500 --
Payment received for subscribed stock... -- -- -- -- -- -- 25,500
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, DECEMBER 31, 1997.............. 250,000 250,000 22,146 (19,717) (20,750) (28,250) --
Net income (unaudited).................. -- -- -- 146,585 -- -- --
Distributions to shareholders
(unaudited)........................... -- -- -- (59,605) -- -- --
--------- --------- ----------- ----------- --------- --------- -------------
BALANCE, MARCH 31, 1998 (UNAUDITED)..... 250,000 $ 250,000 $ 22,146 $ 67,263 (20,750) $ (28,250) $ --
--------- --------- ----------- ----------- --------- --------- -------------
--------- --------- ----------- ----------- --------- --------- -------------
TOTAL
---------
BALANCE, JANUARY 1, 1996................ $ 154,355
Net income.............................. 167,412
Distributions to shareholders........... (138,002)
Sales of treasury stock................. 10,470
---------
BALANCE, DECEMBER 31, 1996.............. 194,235
Net income.............................. 190,028
Distributions to shareholders........... (203,360)
Sales of treasury stock................. 17,776
Payment received for subscribed stock... 25,500
---------
BALANCE, DECEMBER 31, 1997.............. 224,179
Net income (unaudited).................. 146,585
Distributions to shareholders
(unaudited)........................... (59,605)
---------
BALANCE, MARCH 31, 1998 (UNAUDITED)..... $ 311,159
---------
---------
|
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
---------------
(UNAUDITED)
Cash flows from operating activities:
Net income............................................ $ 167,412 $ 190,028 $ 146,585
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 44,983 32,496 9,971
Loss on disposals of property and equipment......... 11,214 43,144 --
Compensation expense recognized upon sales of
treasury stock.................................... 3,870 13,276 --
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable............. (159,828) (59,887) (83,324)
Decrease (increase) in receivable from employees.... (3,246) 2,278 (8,464)
Decreases (increase) in due from related
companies......................................... -- (22,348) 21,366
Decrease (increase) in prepaid expenses............. (5,984) 6,483 5,940
Decrease (increase) in deposits and other........... (699) 1,520 600
Increase in accounts payable........................ 118,081 39,339 36,462
Increase (decrease) in accrued expenses............. (4,547) 18,657 17,109
--------- --------- ---------------
Net cash provided by operating activities......... 171,256 264,986 146,245
--------- --------- ---------------
Cash flows from investing activities:
Purchases of property and equipment................... (62,960) (96,151) (13,613)
Proceeds from disposals of property and equipment..... 56,775 759 --
--------- --------- ---------------
Net cash used in investing activities............. (6,185) (95,392) (13,613)
--------- --------- ---------------
Cash flows from financing activities:
Proceeds from bank lines of credit.................... 90,321 215,941 --
Payments on bank lines of credit...................... (164,981) (37,367) (29,993)
Payments on debentures payable to related parties..... (25,000) (75,000) --
Distributions to shareholders......................... (138,002) (203,360) (59,605)
Proceeds from sale of treasury stock.................. 6,600 4,500 --
Proceeds from common stock subscriptions receivable... -- 25,500 --
--------- --------- ---------------
Net cash used in financing activities............. (231,062) (69,786) (89,598)
--------- --------- ---------------
Net increase (decrease) in cash......................... (65,991) 99,808 43,034
Cash, beginning of year................................. 102,562 36,571 136,379
--------- --------- ---------------
Cash, end of period..................................... $ 36,571 $ 136,379 $ 179,413
--------- --------- ---------------
--------- --------- ---------------
Other cash flow information:
Interest paid......................................... $ 20,168 $ 14,310 $ 4,639
--------- --------- ---------------
--------- --------- ---------------
|
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Kansas Information Consortium, Inc. (the "Company") was incorporated August 15, 1991 to design, build and operate Internet-based portals that allow businesses and citizens to complete transactions and obtain government information online for the Information Network of Kansas ("INK"). INK is a State of Kansas government instrumentality created by the Kansas legislature for the purpose of providing electronic access to state, county and local information required by Kansas businesses and citizens. The Company is responsible for managing and marketing the government portal as well as funding up front investment and ongoing operational costs. The contract with INK includes limitations and provisions for the rates the Company can charge and the amount of remuneration to INK and each state agency. The initial contract was to expire on December 31, 1996, but was renewed until December 31, 1999 unless earlier terminated by INK for cause. INK shall have the option, upon termination or expiration of the contract, to require the Company to act in accordance with the terms of the contract for a period of up to twelve months from the time of the expiration or notification of termination. INK is entitled to a perpetual for use only license to applications developed for no additional compensation to the Company.
On March 31, 1998, the shareholders of the Company exchanged all of their issued and outstanding common stock shares for shares of common stock in International Information Consortium, Inc. whose name was later changed to National Information Consortium, Inc. ("NIC"). As a result, NIC became the sole shareholder of the Company.
The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required.
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company recognizes revenues from providing electronic government services (primarily transaction fees) when the service is provided. The Company must remit a certain percentage of transaction fees to state agencies regardless of whether the Company ultimately collects the fees. In connection with the revenues generated under the contract with INK, INK receives 2.0% of gross revenue per annum, payable monthly, before all other payments. The Company may then receive a 25.0% rate of return per annum on its risk capital from net income before taxes. The remaining net income before taxes is shared 66.7% with the Company and 33.3% with INK. Risk capital is defined in the contract as the sum of paid-in capital, corporate loans with a payback period exceeding one year, and noncancellable obligations under corporate leases.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SERVICE DEVELOPMENT COSTS.
The Company expenses as incurred the employee costs to develop, implement, operate and maintain the government portal.
The Company records as compensation expense the amount by which the fair value of common stock sold to employees exceeds the amount paid.
The Company has elected to be taxed as a small business corporation under provisions of Subchapter S of the Internal Revenue Code. Under such provisions, the shareholders are taxed individually on their respective shares of the Company's taxable income. Therefore, no provision for income tax expense has been made. The Company changed its income tax status from an S corporation to a C corporation effective July 1, 1998.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying balance sheet as of March 31, 1998, and the related statements of income, changes in shareholders' equity and cash flows for the three months ended March 31, 1998, have been prepared by the Company, without audit, pursuant to the rules of the Securities and Exchange Commission, and reflect all adjustments to present fairly the financial position of the Company as of March 31, 1998, and the results of its operations and its cash flows for the three month period then ended.
2. CONCENTRATION OF CREDIT
For the years ended December 31, 1997 and 1996, the Company derived 84% and 72%, respectively, of its transaction fees from six data resellers. At December 31, 1997 and 1996, 84% and 80%, respectively, of its accounts receivable were from the same six data resellers.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
-------------------- USEFUL
1996 1997 LIVES
--------- --------- -----------
Furniture and fixtures..................... $ 77,519 $ 84,419 8 years
Equipment.................................. 170,578 116,195 5-8 years
Software................................... 25,103 -- 5 years
Leasehold improvements..................... 15,457 15,457 5 years
--------- ---------
288,657 216,071
Less accumulated depreciation.............. 156,887 64,549
--------- ---------
$ 131,770 $ 151,522
--------- ---------
--------- ---------
|
Depreciation expense for the years ended December 31, 1997 and 1996 was $32,496 and $44,983, respectively.
4. BANK LINES OF CREDIT
The Company obtained a $250,000 line of credit from a bank in May 1997. The interest rate on the line equals the prime rate as per the Wall Street Journal (8.50% at December 31, 1997). The line matures May 1, 1999. At December 31, 1997, $178,674 was outstanding on the line of credit. The line of credit is collateralized by the Company's assets.
The Company obtained an additional $250,000 line of credit from a bank in December 1997. The interest rate on the line equals the bank's index rate (8.50% at December 31, 1997). The line matures April 30, 2000. There were no amounts outstanding on the line of credit at December 31, 1997. The line of credit is collateralized by the Company's assets and guaranteed by various affiliated companies.
The Company obtained a $225,000 equipment line of credit from a bank in
April 1998. The interest rate on the line equals the bank's reference rate plus
1.75%. There is no given expiration date on the line. The line is collateralized
by the related equipment and guaranteed by an affiliated company.
The Company had a $50,000 line of credit from a bank with a maturity date of March 30, 1998, which was repaid during 1997. At December 31, 1997 and 1996, $0 and $100, respectively, was outstanding on the line of credit.
5. DEBENTURES PAYABLE TO RELATED PARTIES
The Company had $75,000 of 10% debentures with a maturity date of October 31, 2001 which were repaid during 1997.
6. OPERATING LEASES
The Company leases its office space and certain equipment under operating leases. The future minimum lease payments under noncancellable operating leases are as follows:
FISCAL YEAR
-----------------------------------------------------------------
1998............................................................. $ 118,374
1999............................................................. 105,041
2000............................................................. 38,374
2001............................................................. 38,374
2002............................................................. 31,980
-----------
$ 332,143
-----------
-----------
|
Total rent expense for the years ended December 31, 1997 and 1996 was $137,161 and $66,143, respectively.
7. RELATED PARTY TRANSACTIONS
The Company pays its Board members director fees for services rendered. Total expense incurred was $41,000 and $45,000 for the years ended December 31, 1997 and 1996, respectively.
The Company purchases business and health insurance through an insurance agency that is controlled by a shareholder of the Company. Insurance expense totaled approximately $58,000 and $86,000 in 1997 and 1996, respectively.
The Company rents an aircraft on an hourly basis from Sky King Leasing, a company with common shareholders. The amount paid to Sky King Leasing was approximately $18,000 and $8,500 in 1997 and 1996, respectively.
During 1997, a shareholder of the Company sold a vehicle to the Company for $30,000.
8. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $37,178 and $10,611 for the years ended December
31, 1997 and 1996, respectively.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company sold certain assets during 1996 which were leased back from the purchaser over a period of three years. The resulting lease is being accounted for as an operating lease. The purchaser paid down on the Company's bank line of credit in 1996 by $51,929 as part of this sale-leaseback transaction.
To the Board of Directors of
Arkansas Information Consortium, Inc.
In our opinion, the accompanying balance sheet and the related statement of operations, of changes in shareholders' equity, and of cash flows present fairly, in all material respects, the financial position of Arkansas Information Consortium, Inc. (the "Company") at December 31, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri May 6, 1999 |
DECEMBER 31,
1997
------------- MARCH 31, 1998
--------------
(UNAUDITED)
ASSETS
Current assets:
Cash....................................................... $ 72,916 $ 104,345
Trade accounts receivable.................................. 585,989 734,639
Interest receivable from shareholders...................... 1,786 2,773
Prepaid expenses........................................... 778 924
------------- --------------
Total current assets................................... 661,469 842,681
------------- --------------
Property and equipment, net.................................. 123,492 141,410
------------- --------------
Other assets:
Deposits................................................... 3,000 3,000
Organization costs, net of accumulated amortization of $315
and $504................................................. 3,466 3,277
Notes receivable from shareholders......................... 40,000 40,000
------------- --------------
Total other assets..................................... 46,466 46,277
------------- --------------
Total assets........................................... $ 831,427 $1,030,368
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 534,760 $ 656,689
Accrued expenses........................................... 5,620 15,766
Due to related party....................................... 4,510 254
Note payable to former shareholder--current portion........ -- 6,500
------------- --------------
Total current liabilities.............................. 544,890 679,209
Debentures payable........................................... 40,130 40,130
Note payable to former shareholder--long-term portion........ -- 6,500
------------- --------------
Total liabilities...................................... 585,020 725,839
------------- --------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock:
Series A $1 par, 500,000 voting shares authorized,
272,059 shares issued and outstanding.................. 272,059 272,059
Series B $1 par, 500,000 non-voting shares authorized,
220,881 shares issued, 220,881 and 215,876 shares
outstanding............................................ 220,881 220,881
Retained earnings........................................ (246,533) (174,026)
------------- --------------
246,407 318,914
Less treasury stock, at cost............................... -- (14,385)
------------- --------------
Total shareholders' equity............................. 246,407 304,529
------------- --------------
Total liabilities and shareholders' equity............. $ 831,427 $1,030,368
------------- --------------
------------- --------------
|
YEAR ENDED
DECEMBER 31,
1997
------------- THREE MONTHS
ENDED MARCH 31,
1998
----------------
(UNAUDITED)
Revenues................................................... $ 2,346,889 $2,041,142
Cost of revenues........................................... 2,077,144 1,802,776
------------- ----------------
Gross profit......................................... 269,745 238,366
------------- ----------------
Operating expenses:
Service development and operations....................... 90,447 56,808
Selling, general and administrative...................... 187,567 100,425
Stock compensation....................................... 232,384 5,115
Depreciation and amortization............................ 8,232 6,236
------------- ----------------
Total operating expenses............................. 518,630 168,584
------------- ----------------
Operating income (loss).............................. (248,885) 69,782
------------- ----------------
Other income (expense):
Interest income.......................................... 4,083 3,628
Interest expense......................................... (1,731) (903)
------------- ----------------
Total other income................................... 2,352 2,725
------------- ----------------
Net income (loss).................................... $ (246,533) $ 72,507
------------- ----------------
------------- ----------------
|
SERIES A AND B
COMMON STOCK TREASURY STOCK
-------------------- RETAINED ----------------------
SHARES AMOUNT EARNINGS SHARES AMOUNT TOTAL
--------- --------- --------- ----------- --------- ---------
Balance, January 1, 1997.................. -- $ -- $ -- -- $ -- $ --
Issuance of common stock.................. 492,940 492,940 -- -- -- 492,940
Net loss.................................. -- -- (246,533) -- -- (246,533)
--------- --------- --------- ----------- --------- ---------
Balance, December 31, 1997................ 492,940 492,940 (246,533) -- -- 246,407
Net income (unaudited).................... -- -- 72,507 -- -- 72,507
Purchase of treasury stock (unaudited).... -- -- -- (5,005) (14,385) (14,385)
--------- --------- --------- ----------- --------- ---------
Balance, March 31, 1998 (unaudited)....... 492,940 $ 492,940 $(174,026) (5,005) $ (14,385) $ 304,529
--------- --------- --------- ----------- --------- ---------
--------- --------- --------- ----------- --------- ---------
|
YEAR ENDED
DECEMBER 31,
1997
------------- THREE MONTHS
ENDED MARCH 31,
1998
----------------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)........................................ $(246,533) $ 72,507
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 8,232 6,236
Issuance of common stock for services.................... 232,384 --
Expense recognized upon repurchase of treasury stock..... -- 5,115
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable................ (585,989) (148,650)
(Increase) in interest receivable from shareholders.... (1,786) (987)
(Increase) in prepaid expenses......................... (778) (145)
(Increase) in deposits................................. (3,000) --
Increase in accounts payable........................... 534,760 121,929
Increase in accrued expenses........................... 5,620 10,146
Increase (decrease) in due to related party............ 4,510 (4,256)
------------- --------
Net cash provided by (used in) operating
activities....................................... (52,580) 61,895
------------- --------
Cash flows from investing activities:
Purchases of property and equipment...................... (131,409) (23,966)
Organization costs....................................... (3,781) --
------------- --------
Net cash used in investing activities.............. (135,190) (23,966)
------------- --------
Cash flows from financing activities:
Proceeds from issuance of debentures..................... 40,130 --
Proceeds from issuance of common stock................... 220,556 --
Purchase of treasury stock............................... -- (6,500)
------------- --------
Net cash provided by (used in) financing
activities....................................... 260,686 (6,500)
------------- --------
Net increase in cash....................................... 72,916 31,429
Cash, beginning of year.................................... -- 72,916
------------- --------
Cash, end of period........................................ $ 72,916 $ 104,345
------------- --------
------------- --------
Other cash flow information:
Interest paid............................................ $ 128 $ 903
------------- --------
------------- --------
|
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arkansas Information Consortium, Inc. (the "Company") was incorporated in October 1996 to design, build and operate Internet-based portals that allow businesses and citizens to complete transactions and obtain government information online, as defined by a contract signed in July 1997 between the Company and the Information Network of Arkansas ("INA"), a public instrumentality created by legislation in the State of Arkansas (the "State"), to provide electronic access via the Internet to public information. The Company is responsible for managing and marketing the government portal as well as funding up front investment and ongoing operational costs. The contract is for one three year term through June 30, 2000, with four one-year renewals at the option of INA. If the State decides to extend the contract through June 30, 2003, or at anytime thereafter, INA shall be entitled to a perpetual for use only license to the applications developed for no additional compensation to the Company. Prior to June 30, 2003, INA reserves the right to negotiate terms for licensure of applications.
On March 31, 1998, substantially all of the shareholders of the Company exchanged their shares for common stock shares in International Information Consortium, Inc., whose name was later changed to National Information Consortium, Inc. ("NIC"). As a result, NIC became the sole shareholder of the Company. Only one shareholder did not participate in the exchange. In March 1998, the Company agreed to pay this shareholder $19,500 for past services and reacquired the shareholder's 5,005 shares in the Company. The reacquired shares were recorded as treasury stock at fair market value, which totaled $14,385. An initial payment of $6,500 was made with the remaining balance recorded as a note payable due in two annual installments of $6,500 in 1999 and 2000. The difference between $19,500 and the fair value of the reacquired stock was recorded as expense in the amount of $5,115.
The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts has been recorded.
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Organization costs represent legal costs incurred by the Company relating to its incorporation and formation and are being amortized using the straight-line method over five years.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES
The Company has elected to be treated as a small business corporation under provisions of Subchapter S of the Internal Revenue Code. Under such provisions, the shareholders are taxed individually on their respective shares of the Company's taxable income. Therefore, no provision for income tax has been made. The Company changed its income tax status from an S corporation to a C corporation effective July 1, 1998.
The Company recognizes revenues from providing electronic government services (primarily transaction fees) when the service is provided. The Company must remit a certain percentage of transaction fees to state agencies regardless of whether the Company ultimately collects the fees. In addition, transaction fees received pursuant to the agreement with INA are disbursed first for payment of network operating expenses, then to INA 5% of the amount by which gross revenues exceed the amount payable to state agencies, and the balance to the Company.
The Company expenses as incurred the employee costs to develop, implement, operate and maintain the government portal.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying balance sheet as of March 31, 1998, and the related statements of operations, cash flows and changes in shareholders' equity for the three months ended March 31, 1998, have been prepared by the Company, without audit, pursuant to the rules of the Securities and Exchange Commission, and reflect all adjustments to present fairly the financial position of the Company as of March 31, 1998, and the results of its operations and its cash flows for the three month period then ended.
2. CONCENTRATION OF CREDIT
For the year ended December 31, 1997, the Company derived 99% of its transaction fees from three data resellers. The same three data resellers represent 99% of accounts receivable at December 31, 1997.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
USEFUL
LIVES
-----------
Equipment............................................ $ 125,706 3-8 years
Leasehold improvements............................... 5,703 5 years
---------
131,409
Less accumulated depreciation........................ 7,917
---------
$ 123,492
---------
---------
|
Depreciation expense for the year ended December 31, 1997 was $7,917.
4. DEBENTURES PAYABLE
Debentures payable at December 31, 1997 consists of $40,130 of 9% debentures issued to seven individuals as part of the initial capitalization of the Company. In May 1998, the Company entered into a $150,000 bank line of credit agreement, which is guaranteed by NIC. Proceeds from the line of credit totaling $40,000 were used to repay the debentures. The line of credit was repaid in August 1998.
5. BANK LINES OF CREDIT AND LETTER OF CREDIT
The Company obtained a $150,000 operating line of credit from a bank in May 1998. The interest rate on the line equals the bank's index rate (8.50% at the inception of the line). The expiration date on the line is April 30, 2000. The line is collateralized by the Company's assets and guaranteed by an affiliated company.
The Company obtained a $225,000 equipment line of credit from a bank in April 1998. There is no given expiration date on the line. The line is collateralized by the related equipment and guaranteed by an affiliated company.
The Company has issued to the State an irrevocable letter of credit in the amount of $50,000.
6. OPERATING LEASES
The Company leases its office space and certain equipment under operating leases. Future minimum lease payments under noncancellable operating leases are as follows at December 31, 1997:
FISCAL YEAR
------------------------------------------------------------------
1998.............................................................. $ 42,322
1999.............................................................. 43,024
2000.............................................................. 22,328
2001.............................................................. 936
2002.............................................................. 936
---------
$ 109,546
---------
---------
|
The lease for office space is a six year lease that runs through 2003 with annual rent of $42,000 per year for years four through six, which is not included above. In the event that the Company's contract with INA was not renewed, the Company may terminate the lease at the end of the third, fourth or fifth
6. OPERATING LEASES (CONTINUED) years, upon written notice given 90 days before the end of that year. Under no other circumstances can the Company terminate the lease.
Total rent expense for the year ended December 31, 1997 was $18,364.
7. RELATED PARTY TRANSACTIONS
The Company pays its Board members director fees for services rendered. Total expense incurred was $6,000 for the three month period ended March 31, 1998. No director fees were paid in 1997.
The Company is affiliated, through common ownership, with several companies that also serve as electronic government solutions providers for various states. The Company is a partial guarantor of certain line of credit agreements entered into by these affiliated companies. The total amounts available and outstanding under such agreements at December 31, 1997 were $1,050,000 and $178,674.
Notes receivable from shareholders at December 31, 1997 represents two notes paying interest at 10% per annum which were originally issued in exchange for shares of the Company's stock and payable in three years. The notes were paid in full in July 1998.
During the start-up phase of the organization, an affiliated company paid expenses on behalf of the Company totaling approximately $96,000, all of which has been reimbursed by the Company. Of this amount, approximately, $3,800 was recorded as organization costs with the remaining $92,200 expensed as incurred.
The Company rents an aircraft on an hourly basis from Sky King Leasing, which has common shareholders with the Company. The amount paid to Sky King Leasing for the year ended December 31, 1997 was approximately $8,300.
The Company purchases business and health insurance through an insurance agency that is controlled by a shareholder of the Company. Insurance expense for the year ended December 31, 1997 was approximately $13,900.
8. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $4,301 for the year ended December 31, 1997.
9. COMMON STOCK
The initial capitalization of the Company in June 1997 consisted of 492,940 shares of $1 par common stock issued to approximately 35 individual investors. Cash was received for 220,556 of the shares and a note receivable was issued for 40,000 of the shares. The remaining 232,384 shares were issued in exchange for previous services rendered and were expensed at the $1 par amount which was the same price per share paid by the other investors.
The Articles of Incorporation of the Company stipulate that should any shareholder desire to sell or transfer their respective shares of common stock, such stock must first be offered to the Company. Any stock not purchased by the Company within a specified time period must then be offered to the remaining shareholders. The purchase price must be equivalent to the price that would be paid by a non-shareholder.
To the Board of Directors of
Nebrask@ Interactive, Inc.
In our opinion, the accompanying balance sheets and the related statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Nebrask@ Interactive, Inc. (the "Company") at December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP Kansas City, Missouri May 6, 1999 |
DECEMBER 31,
--------------------
1996 1997
--------- ---------
MARCH 31,
1998
-----------
(UNAUDITED)
ASSETS
Current assets:
Cash...................................................... $ 83,955 $ 129,676 $ 100,941
Trade accounts receivable................................. 179,730 316,162 320,499
Prepaid expenses.......................................... -- -- 2,407
--------- --------- -----------
Total current assets.................................. 263,685 445,838 423,847
Property and equipment, net................................. 129,917 110,158 104,259
Other....................................................... 2,743 2,336 2,235
--------- --------- -----------
Total assets.......................................... $ 396,345 $ 558,332 $ 530,341
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 119,836 $ 227,340 $ 263,914
Accrued expenses.......................................... 257 5,167 10,790
Bank line of credit--current portion...................... 24,789 -- --
Capital lease obligation.................................. 60,148 -- --
Note payable to former shareholder--current portion....... -- -- 43,500
--------- --------- -----------
Total current liabilities............................. 205,030 232,507 318,204
Bank line of credit--long-term portion...................... 23,563 89,412 59,740
Note payable to former shareholder--long-term portion....... -- -- 43,500
--------- --------- -----------
Total liabilities..................................... 228,593 321,919 421,444
--------- --------- -----------
Commitments and contingencies (Notes 5 and 6)
Shareholders' equity:
Common stock--$1 par value, 100,000 shares authorized,
50,167, 50,367 and 50,367 issued and 50,167, 50,367 and
45,117 outstanding...................................... 50,167 50,367 50,367
Additional paid-in capital................................ 72,535 75,585 75,585
Retained earnings......................................... 45,050 110,461 72,384
--------- --------- -----------
167,752 236,413 198,336
Less treasury stock, at cost.............................. -- -- (89,439)
--------- --------- -----------
Total shareholders' equity............................ 167,752 236,413 108,897
--------- --------- -----------
Total liabilities and shareholders' equity............ $ 396,345 $ 558,332 $ 530,341
--------- --------- -----------
--------- --------- -----------
|
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
--------- --------- THREE MONTHS
ENDED
MARCH 31, 1998
---------------
(UNAUDITED)
Revenues............................................ $2,324,176 $2,447,318 $ 706,059
Cost of revenues.................................... 1,613,978 1,710,699 479,090
--------- --------- ---------------
Gross profit.................................... 710,198 736,619 226,969
--------- --------- ---------------
Operating expenses:
Service development and operations................ 129,575 126,510 59,912
Selling, general and administrative............... 358,902 393,355 134,994
Stock compensation................................ 1,232 1,978 --
Depreciation and amortization..................... 37,852 36,701 22,664
--------- --------- ---------------
Total operating expenses...................... 527,561 558,544 217,570
--------- --------- ---------------
Operating income.............................. 182,637 178,075 9,399
--------- --------- ---------------
Other income (expense):
Interest income................................... 7,877 5,951 1,974
Interest expense.................................. (16,949) (4,552) (1,602)
Loss on disposal of property and equipment........ (174) (8,713) --
--------- --------- ---------------
Total other income (expense).................. (9,246) (7,314) 372
--------- --------- ---------------
Net income.................................... $ 173,391 $ 170,761 $ 9,771
--------- --------- ---------------
--------- --------- ---------------
|
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ PAID-IN RETAINED --------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, January 1, 1996......... 50,000 $ 50,000 $ 70,225 $ 20,435 -- $ -- $ 140,660
Net income....................... -- -- -- 173,391 -- -- 173,391
Distributions to shareholders.... -- -- -- (148,776) -- -- (148,776)
Issuance of common stock......... 167 167 2,310 -- -- -- 2,477
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, December 31, 1996....... 50,167 50,167 72,535 45,050 -- -- 167,752
Net income....................... -- -- -- 170,761 -- -- 170,761
Distributions to shareholders.... -- -- -- (105,350) -- -- (105,350)
Issuance of common stock......... 200 200 3,050 -- -- -- 3,250
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, December 31, 1997....... 50,367 50,367 75,585 110,461 -- -- 236,413
Net income (unaudited)........... -- -- -- 9,771 -- -- 9,771
Distributions to shareholders
(unaudited).................... -- -- -- (47,848) -- -- (47,848)
Purchase of treasury stock
(unaudited).................... -- -- -- -- (5,250) (89,439) (89,439)
----------- ----------- ----------- ----------- --------- --------- ---------
Balance, March 31, 1998
(unaudited).................... 50,367 $ 50,367 $ 75,585 $ 72,384 (5,250) $ (89,439) $ 108,897
----------- ----------- ----------- ----------- --------- --------- ---------
----------- ----------- ----------- ----------- --------- --------- ---------
|
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- ---------
THREE MONTHS
ENDED
MARCH 31, 1998
--------------
(UNAUDITED)
Cash flows from operating activities:
Net income........................................... $ 173,391 $ 170,761 $ 9,771
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 37,852 36,701 22,664
Loss on disposals of property and equipment.......... 174 8,713 --
Expense recognized upon purchase of treasury stock... -- -- 41,061
Compensation expense recognized upon issuance of
common stock....................................... 1,232 1,978 --
Changes in operating assets and liabilities:
(Increase) in trade accounts receivable............ (20,665) (136,432) (4,337)
(Increase) in prepaid expenses..................... -- -- (2,407)
Increase in accounts payable....................... 15,060 107,504 36,574
Increase in accrued expenses....................... 4 4,910 5,623
--------- --------- --------------
Net cash provided by operating activities........ 207,048 194,135 108,949
--------- --------- --------------
Cash flows from investing activities:
Purchases of property and equipment.................. (1,734) (25,248) (16,664)
Proceeds from disposals of property and equipment.... 1,200 -- --
Proceeds from repayments of note receivable from
related party...................................... 10,220 -- --
--------- --------- --------------
Net cash provided by (used in) investing
activities..................................... 9,686 (25,248) (16,664)
--------- --------- --------------
Cash flows from financing activities:
Proceeds from bank line of credit.................... -- 85,000 --
Payments on bank line of credit...................... (32,176) (43,940) (29,672)
Payments on capital lease obligation................. (83,227) (60,148) --
Distributions to shareholders........................ (148,776) (105,350) (47,848)
Proceeds from issuance of common stock............... 1,245 1,272 --
Purchase of treasury stock........................... -- -- (43,500)
--------- --------- --------------
Net cash used in financing activities............ (262,934) (123,166) (121,020)
--------- --------- --------------
Net increase (decrease) in cash........................ (46,200) 45,721 (28,735)
Cash, beginning of year................................ 130,155 83,955 129,676
--------- --------- --------------
Cash, end of period.................................... $ 83,955 $ 129,676 $ 100,941
--------- --------- --------------
--------- --------- --------------
Other cash flow information:
Interest paid........................................ $ 16,949 $ 4,552 $ 1,602
--------- --------- --------------
--------- --------- --------------
|
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nebrask@ Interactive, Inc., (the "Company") was incorporated on November 22, 1994 to design, build and operate Internet-based portals for the State of Nebraska ("Nebrask@ Online") that allow businesses and citizens to complete transactions and obtain government information online. The Company is responsible for managing and marketing the portal as well as funding up front investment and ongoing operational costs.
On December 3, 1997, the Company entered into a contract to provide electronic government solutions for the Nebraska State Records Board ("NSRB") to enhance, operate, maintain and expand the existing portal that was developed by the Company under its 1995 contract with the Nebraska Library Commission ("NLC") and various state agencies. The contract includes limitations and provisions for the rates the Company can charge and the amount of remuneration to each state agency. The contract will expire on January 31, 2002 unless earlier terminated by the NSRB for cause. The NSRB shall have the option, upon termination or expiration of the contract, to require the Company to act in accordance with the terms of the contract for a period of up to twelve months from the time of expiration or notice of termination, whichever is earlier. On January 1, 2002, the NSRB will be entitled to a perpetual for use only license to the applications developed for no additional compensation to the Company.
On March 31, 1998, substantially all of the shareholders of the Company exchanged their shares for common stock shares in International Information Consortium, Inc., whose name was later changed to National Information Consortium, Inc. ("NIC"). As a result, NIC became the sole shareholder of the Company. Only one shareholder did not participate in the exchange. In March 1998, the Company agreed to pay this shareholder $130,500 for past services and reacquired the shareholder's 5,250 shares in the Company. The reacquired shares were recorded as treasury stock at fair market value, which totaled $89,439. An initial payment of $43,500 was made with the remaining balance recorded as a note payable due in two annual installments of $43,500 in 1999 and 2000. The difference between $130,500 and the fair value of the reacquired stock was recorded as expense in the amount of $41,061.
The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required.
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals and betterments are capitalized.
At each balance sheet date, the Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES
The Company has elected to be treated as a small business corporation under provisions of Subchapter S of the Internal Revenue Code. Under such provisions, the shareholders are taxed individually on their respective shares of the Company's taxable income. Therefore, no provision for income tax has been made. The Company changed its income tax status from an S corporation to a C corporation effective July 1, 1998.
The Company recognizes revenues from providing electronic government services (primarily transaction fees) when the service is provided. The Company must remit a certain percentage of transaction fees to state agencies regardless of whether the Company ultimately collects the fees. In addition, the NSRB receives 4.5% of the first $89,000 in gross profit and 2% of gross profit thereafter. Gross profit is defined in the contract as the difference between the Company's gross revenues and amounts paid to state agencies and for certain telecommunication expenses.
The Company expenses as incurred the employee costs to develop, implement, operate and maintain the government portal.
The Company records as compensation expense the amount by which the fair value of common stock sold to employees exceeds the amount paid.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying balance sheet as of March 31, 1998, and the related statements of income, cash flows and changes in shareholders' equity for the three months ended March 31, 1998, have been prepared by the Company, without audit, pursuant to the rules of the Securities and Exchange Commission and reflect all adjustments to present fairly the financial position of the Company as of March 31, 1998, and the results of its operations and its cash flows for the three-month period then ended.
2. CONCENTRATION OF CREDIT
For the year ended December 31, 1997, the Company derived 86% of its transaction fees from four data resellers. At December 31, 1997, 89% of its accounts receivable were from five data resellers. For the year ended December 31, 1996, the Company derived 83% of its transaction fees from three data resellers. At December 31, 1996, 89% of its accounts receivable were from the same three data resellers.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
-------------------- USEFUL
1996 1997 LIVES
--------- --------- -----------
Furniture and fixtures..................... $ 718 $ 718 8 years
Purchased software......................... 14,020 18,320 3 years
Equipment.................................. 163,592 170,398 5-8 years
--------- ---------
178,330 189,436
Less accumulated depreciation.............. 48,413 79,278
--------- ---------
$ 129,917 $ 110,158
--------- ---------
--------- ---------
|
Depreciation expense for the years ended December 31, 1997 and 1996 was $36,294 and $37,446, respectively.
4. BANK LINE OF CREDIT
The Company has a $100,000 line of credit with a bank which bears interest at a rate equal to an index (8.50% at December 31, 1997). The maturity date of the line is April 30, 2000. At December 31, 1997 and 1996, the amount outstanding under the line was $89,412 and $48,352, respectively. The line is collateralized by the Company's assets and guaranteed by affiliated companies.
The Company obtained a $225,000 equipment line of credit from a bank in
April 1998. The interest rate on the line equals the bank's reference rate plus
1.75%. There is no given expiration date on the line. The line is collateralized
by the related equipment and guaranteed by an affiliated company.
5. CAPITAL LEASE OBLIGATION
At December 31, 1996, the Company had a noncancellable capital lease obligation with a bank for computer equipment totaling $60,148, which was repaid in August 1997.
6. OPERATING LEASES
The Company leases its office space and certain equipment under operating leases. The future minimum lease payments under noncancellable operating leases are as follows:
FISCAL YEAR
---------------------------------------------------
1998............................................... $ 28,626
1999............................................... 28,626
2000............................................... 11,296
2001............................................... 7,830
---------
$ 76,378
---------
---------
|
Total rent expense for the years ended December 31, 1997 and 1996 was $22,992 and $21,475, respectively.
7. RELATED PARTY TRANSACTIONS
The Company purchases business and health insurance through an insurance agency that is controlled by a shareholder of the Company. Insurance expense totaled approximately $34,400 and $37,800 for the years ended December 31, 1997 and 1996, respectively.
The Company rents an aircraft on an hourly basis from Sky King Leasing, which has common shareholders with the Company. The amount paid to Sky King Leasing was approximately $4,700 and $6,600 for the years ended December 31, 1997 and 1996, respectively.
The Company is affiliated, through common ownership, with several companies that also serve as electronic government solution providers for various states. The Company is a partial guarantor of certain line of credit agreements entered into by these affiliated companies. The total amounts available and outstanding under such agreements at December 31, 1997 were $950,000 and $178,674.
8. EMPLOYEE BENEFIT PLAN
The Company, in conjunction with affiliated companies, maintains a
401(k) profit sharing plan. In accordance with the plan, all employees are
eligible immediately upon employment. A discretionary match and a discretionary
contribution may be made to the plan as determined by the Board of Directors.
Company contributions totaled $8,163 and $9,319 for the years ended December 31,
1997 and 1996, respectively.
9. RESTRICTIONS ON TRANSFERABILITY OF COMMON STOCK
The Articles of Incorporation of the Company stipulate that should any shareholders desire to sell or transfer their respective shares of common stock, such stock must first be offered to the Company. Any stock not purchased by the Company within a specified time frame must then be offered to the remaining shareholders. The purchase price must be equivalent to the price that would be paid by a non-shareholder.
On March 31, 1998, National Information Consortium, Inc. (the "Company" or "NIC") exchanged its common shares for the common shares of five affiliated companies (the "Exchange Offer") in a transaction accounted for using the purchase method of accounting. Prior to consummating the Exchange Offer, the Company was a holding company with no operations of its own. Shareholders of one of the affiliated companies, National Information Consortium USA, Inc. ("NIC/USA") received 54% of the Company's common shares and NIC/USA has been treated as the acquirer in applying purchase accounting.
The following unaudited pro forma consolidated statements of operations give effect to the acquisition by NIC/USA of Kansas Information Consortium, Inc. ("KIC"), Indian@ Interactive, Inc. ("III"), Nebrask@ Interactive, Inc. ("NII") and Arkansas Information Consortium, Inc. ("AIC") (the "Acquired Companies"). The unaudited pro forma consolidated statements of operations are based on the individual statements of operations of the Company and the Acquired Companies appearing elsewhere in this Prospectus, and combine the results of operations of the Company and the Acquired Companies for the year ended December 31, 1997, the three month period ended March 31, 1998 and the year ended December 31, 1998 as if the transaction occurred on January 1, 1997. The pro forma adjustments include the elimination of all intercompany transactions. These unaudited pro forma consolidated statements of operations should be read in conjunction with the historical financial statements and notes thereto of the Company and the Acquired Companies included elsewhere in this Prospectus.
The unaudited pro forma consolidated statements of operations are not necessarily indicative of the operating results that would have been achieved had the transactions been in effect as of the beginning of the periods presented and should not be construed as being representative of future operating results.
NIC III KIC AIC NII ELIMINATIONS ADJUSTMENTS PRO FORMA
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Revenues................... $ 996,550 $12,524,065 $6,067,362 $2,346,889 $2,447,318 $ -- $ -- $24,382,184
Cost of revenues........... 5,168 10,040,041 4,576,795 2,077,144 1,710,699 -- -- 18,409,847
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Gross profit............. 991,382 2,484,024 1,490,567 269,745 736,619 -- -- 5,972,337
Operating expenses:
Service development and
operations............. 224,128 480,492 387,083 90,447 126,510 -- -- 1,308,660
Selling, general and
administrative......... 660,254 1,070,667 812,306 187,567 391,377 -- -- 3,122,171
Stock compensation....... 370,235 13,431 13,276 232,384 1,978 -- -- 631,304
Depreciation and
amortization........... 13,679 107,332 32,496 8,232 36,701 -- 7,575,204(A) 7,773,644
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Total operating
expenses............... 1,268,296 1,671,922 1,245,161 518,630 556,566 -- 7,575,204 12,835,779
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Operating income (loss).... (276,914) 812,102 245,406 (248,885) 180,053 -- (7,575,204) (6,863,442)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Other income (expense):
Interest expense......... -- (32,330) (13,056) (1,731) (4,552) -- -- (51,669)
Other income (expense),
net.................... 111 24,005 (42,322) 4,083 (2,762) -- -- (16,885)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Total other income
(expense).............. 111 (8,325) (55,378) 2,352 (7,314) -- -- (68,554)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Income (loss) before income
taxes.................... (276,803) 803,777 190,028 (246,533) 172,739 -- (7,575,204) (6,931,996)
Income taxes (C)........... -- -- -- -- -- -- -- --
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Net income (loss).......... $(276,803) $ 803,777 $ 190,028 $(246,533) $ 172,739 $ -- ($7,575,204) $(6,931,996)
--------- ---------- --------- --------- --------- ----------- ----------- ----------
--------- ---------- --------- --------- --------- ----------- ----------- ----------
Net loss per share:
Basic and diluted........ $ (0.06) $ (0.80)
--------- ----------
--------- ----------
Weighted average shares
outstanding............ 4,491,943 4,146,800(B) 8,638,743
--------- ----------- ----------
--------- ----------- ----------
|
NIC III KIC AIC NII ELIMINATIONS ADJUSTMENTS PRO FORMA
--------- --------- --------- --------- --------- ----------- ----------- ----------
Revenues..................... $ 370,288 $3,541,101 $1,625,487 $2,041,142 $ 706,059 $ (14,030)(D) $ -- $8,270,047
Cost of revenues............. 690 2,727,257 $1,174,015 1,802,776 479,090 -- -- 6,183,828
--------- --------- --------- --------- --------- ----------- ----------- ----------
Gross profit............... 369,598 813,844 451,472 238,366 226,969 (14,030) -- 2,086,219
--------- --------- --------- --------- --------- ----------- ----------- ----------
Operating expenses:
Service development and
operations............... 148,962 225,425 99,685 56,808 59,912 (14,030)(D) -- 576,762
Selling, general and
administrative........... 320,190 424,581 190,994 100,425 134,994 -- -- 1,171,184
Stock compensation......... -- -- -- 5,115 -- -- -- 5,115
Depreciation and
amortization............. 24,031 31,841 9,971 6,236 22,664 -- 1,893,801(A) 1,988,544
--------- --------- --------- --------- --------- ----------- ----------- ----------
Total operating expenses... 493,183 681,847 300,650 168,584 217,570 (14,030) 1,893,801 3,741,605
--------- --------- --------- --------- --------- ----------- ----------- ----------
Operating income (loss)...... (123,585) 131,997 150,822 69,782 9,399 -- (1,893,801) (1,655,386)
--------- --------- --------- --------- --------- ----------- ----------- ----------
Other income (expense):
Interest expense........... (628) (9,633) (4,639) (903) (1,602) -- -- (17,405)
Other income, net.......... -- 8,623 400 3,628 1,974 -- -- 14,625
--------- --------- --------- --------- --------- ----------- ----------- ----------
Total other income
(expense)................ (628) (1,010) (4,239) 2,725 372 -- -- (2,780)
--------- --------- --------- --------- --------- ----------- ----------- ----------
Income (loss) before income
taxes...................... (124,213) 130,987 146,583 72,507 9,771 -- (1,893,801) (1,658,166)
Income taxes (C)............. -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- ----------
Net income (loss)............ $(124,213) $ 130,987 $ 146,583 $ 72,507 $ 9,771 $ -- ($1,893,801) $(1,658,166)
--------- --------- --------- --------- --------- ----------- ----------- ----------
--------- --------- --------- --------- --------- ----------- ----------- ----------
Net loss per share:
Basic and diluted.......... $ (0.03) $ (0.18)
--------- ----------
--------- ----------
Weighted average shares
outstanding.............. 4,884,187 4,146,800(B) 9,030,787
--------- ----------- ----------
--------- ----------- ----------
|
NIC III(E) KIC(E) AIC(E) NII(E) ELIMINATIONS ADJUSTMENTS PRO FORMA
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Revenues................. $28,623,656 $3,541,101 $1,625,488 $2,041,142 $ 706,059 $ (5,101)(D) $ -- $36,532,345
Cost of revenues......... 21,210,632 2,727,257 1,174,015 1,802,776 479,090 -- -- 27,393,770
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Gross profit........... 7,413,024 813,844 451,473 238,366 226,969 (5,101) -- 9,138,575
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Operating expenses:
Service development and
operations........... 3,884,810 225,425 99,685 56,808 59,912 -- -- 4,326,640
Selling, general and
administrative....... 4,241,780 424,581 190,994 100,425 134,994 (5,101)(D) -- 5,087,673
Stock compensation..... 291,706 -- -- 5,115 -- -- -- 296,821
Depreciation and
amortization......... 5,922,396 31,841 9,971 6,236 22,664 -- 1,893,801(A) 7,886,909
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Total operating
expenses............. 14,340,692 681,847 300,650 168,584 217,570 (5,101) 1,893,801 17,598,043
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Operating income
(loss)................. (6,927,668) 131,997 150,823 69,782 9,399 -- (1,893,801) (8,459,468)
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Other income (expense):
Interest expense....... (88,161) (9,634) (4,639) (903) (1,602) -- -- (104,939)
Other income, net...... 55,839 8,624 401 3,628 1,974 -- -- 70,466
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Total other income
(expense)............ (32,322) (1,010) (4,238) 2,725 372 -- -- (34,473)
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Income (loss) before
income
taxes.................. (6,959,990) 130,987 146,585 72,507 9,771 -- (1,893,801) (8,493,941)
Income taxes (C)......... 718,655 -- -- -- -- -- -- 718,655
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Net income (loss)........ $(7,678,645) $ 130,987 $ 146,585 $ 72,507 $ 9,771 $ -- ($1,893,801) $(9,212,596)
---------- ---------- --------- --------- --------- ----------- ----------- ----------
---------- ---------- --------- --------- --------- ----------- ----------- ----------
Net income (loss) per
share:
Basic and diluted...... $ (0.96) $ (1.02)
---------- ----------
---------- ----------
Weighted average shares
outstanding.......... 8,020,547 1,013,916(B) 9,034,463
---------- ----------- ----------
---------- ----------- ----------
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The following adjustments were applied to the Company's historical consolidated statements of operations for the periods indicated to arrive at the pro forma consolidated financial information.
(A) Represents amortization expense related to the contract intangibles and goodwill resulting from the application of purchase accounting for the Acquired Companies. For the year ended December 31, 1997, the amount represents the annual amortization for the twelve month period following the March 31, 1998 Exchange Offer. For the three months ended March 31, 1998, the adjustment represents the amortization for the first three months following the Exchange Offer. The Company's consolidated results for the year ended December 31, 1998 already reflect amortization for the nine months following the Exchange Offer. The adjustment represents an additional three months amortization to arrive at a full year.
(B) For the year ended December 31, 1997 and the three months ended March 31, 1998, represents the Company's common shares issued to the shareholders of the Acquired Companies in the Exchange Offer. For the year ended December 31, 1998, represents incremental shares needed to reflect the common shares outstanding for a full year.
(C) For the year ended December 31, 1997 and the three months ended March 31, 1998, all of the companies were S corporations. No provision for income taxes has been included.
(D) To eliminate intercompany revenues and expenses.
(E) Represents the Acquired Companies results of operations for the three months ended March 31, 1998. The Company's results of operations already include the Acquired Companies results of operations for the nine months subsequent to the March 31, 1998 Exchange Offer.
[Map of United States with maps of individual states in which National Information Consortium operates government portals rising from map into foreground. Each individual state map contains the logo of that state's government portal.]
[Listing of the addresses of National Information Consortium's portals
on the Internet.]
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the distribution of the securities being registered, other than underwriting discounts and commissions, are included in the following table. All amounts are estimates except the SEC filing fee, the NASD filing fee and the Nasdaq National Market listing fee.
AMOUNT
-----------
Securities and Exchange Commission Filing Fee..................... $ 41,561
NASD Filing Fee................................................... 15,450
Nasdaq National Market Listing Fee................................ *
Accounting Fees and Expenses...................................... *
Blue Sky Fees and Expenses........................................ 3,000
Legal Fees and Expenses........................................... *
Transfer Agent and Registrar Fees and Expenses.................... *
Printing Expenses................................................. *
Miscellaneous Expenses............................................ *
-----------
Total......................................................... $ *
-----------
-----------
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* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation Act provide that we may indemnify our directors and officers against all liabilities and expenses actually and reasonably incurred in connect with the defense or settlement of any judicial or administrative proceedings in which the director or officer has have become involved by reason of his or her status as a director or officer, if it is determined by our disinterested directors, a committee appointed by our directors, our shareholders or an independent counsel appointed by our directors that the director or officer acted in good faith and in the reasonable belief that his or her conduct was not opposed to our best interests or, in the case of criminal proceedings, unlawful. No indemnification shall be made with respect to any claim, issue or matter in connection with a proceeding in which the director or officer being indemnified is adjudged to be liable to us or in connection with any proceeding in which the director or officer being indemnified is adjudicated to have derived an improper personal benefit. Further, indemnification in connection with a proceeding is limited to reasonable expenses, including attorneys' fees, incurred in connection with the proceeding.
Article V of our articles of incorporation, which is Exhibit 3.1 to this
Registration Statement, and Article VIII of our bylaws, which is Exhibit 3.2 to
this Registration Statement, provide that we will indemnify any person entitled
to indemnity under the Colorado Business Corporation Act, as it now exists or as
amended, against all liability and expenses to the fullest extent permitted by
the same Act. Further, Article VI of our articles of incorporation provides that
our directors will not incur any personal liability from us or our shareholders
for monetary damages for breach of fiduciary duty as a director, except when the
personal liability arises from any breach of the director's duty of loyalty to
us or our shareholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, acts specified in
Section 7-108-403 of the Colorado Business Corporation Act, or any transaction
from which a director derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors or officers under the provisions contained in our charter documents, the Colorado Business
In addition to indemnification provided for in our charter documents, we intend to enter into agreements, a form of which is Exhibit 10.1 to this Registration Statement, to indemnify our directors and officers. These agreements provide for the indemnification of our directors and officers for certain expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by us, arising out of such person's services as one of our directors or officers, any of our subsidiaries or any other company or enterprise to which such person provides services at our request, to the fullest extent permitted by the Colorado Business Corporation Act. Furthermore, we will purchase and maintain insurance on behalf of our directors and officers insuring them against liabilities that they may incur in their capacities as or arising out of their status as directors or officers.
The underwriting agreement, which is Exhibit 1.1 to this Registration Statement, provides for indemnification by our underwriters and their officers and directors for certain liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From our incorporation to May 1, 1999, we have granted or issued and sold the following unregistered securities:
1. Stock options to employees, officers, directors and consultants under our 1998 stock option plan exercisable for up to an aggregate of 544,789 shares of our common stock, at a weighted average exercise price of $6.70 per share.
2. On April 21, 1998, we sold to Ms. Debra Luling 50,000 shares of our common stock at $1.00 per share for an aggregate of $50,000.
3. On June 29, 1998, we sold to Mr. Everett Wohlers 25,000 shares of our common stock at $1.00 per share for an aggregate of $25,000.
4. On June 29, 1998, we as a distribution to our shareholders, issued to Mr. Randall Eccker 37,594 shares of our common stock for his services to our shareholders in the sale of 2,264,849 shares of our common stock by the voting trust, for which Messrs. Fraser and Hartley are co-trustees, to Hellman & Friedman Capital Partners III, L.P., and affiliates.
5. On February 8, 1999, we sold to Mr. Joseph Nemelka 14,925 shares of our common stock at $6.70 per share for an aggregate of $100,000.
6. On February 9, 1999, we sold to Mr. James B. Dodd 37,313 shares of our common stock at $6.70 per share for an aggregate of approximately $250,000.
7. On March 1, 1999, we sold to Mr. Robert P. Chandler 14,925 shares of our common stock at $6.70 per share for an aggregate of $100,000.
8. On March 1, 1999, we sold to Ms. Tamara Dukes 3,731 shares of our common stock at $6.70 per share for an aggregate of $25,000.
9. On March 1, 1999, we sold to Mr. Richard L. Brown 3,731 shares of our common stock at $6.70 per share for an aggregate of $25,000.
The issuances of the securities in the transactions above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated under the same as transactions by an issuer not involving a public offering, where the
On March 31, 1998, we exchanged shares of our common stock for the common stock of five affiliated companies--NIC/USA, Inc., Kansas Information Consortium, Inc., Indian@ Interactive, Inc., Nebrask@ Interactive, Inc. and Arkansas Information Consortium, Inc. The issuance of such securities was exempt from the registration requirements of the Securities Act of 1933, as amended, due to the exemptions from registration provided by Sections 3(a)(9) and 4(2) thereof.
Appropriate legends were affixed to the stock certificates issued in the above transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. No underwriters were employed in any of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules
All schedules have been omitted since they are not required or are not applicable or the required information is shown in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof.
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Overland Park, State of Kansas on the 6th day of May, 1999.
NATIONAL INFORMATION CONSORTIUM, INC.
By: /s/ JEFFERY S. FRASER
-----------------------------------------
Jeffery S. Fraser
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffery S. Fraser and James B. Dodd, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chairman and Chief
/s/ JEFFERY S. FRASER Executive Officer
------------------------------ (Principal Executive May 6, 1999
Jeffery S. Fraser Officer)
President, Chief Operating
/s/ JAMES B. DODD Officer and Director
------------------------------ (Principal Financial and May 6, 1999
James B. Dodd Accounting Officer)
/s/ JOHN L. BUNCE, JR.
------------------------------ Director May 6, 1999
John L. Bunce, Jr.
/s/ DANIEL J. EVANS
------------------------------ Director May 6, 1999
Daniel J. Evans
/s/ ROSS C. HARTLEY
------------------------------ Director May 6, 1999
Ross C. Hartley
/s/ PATRICK J. HEALY
------------------------------ Director May 6, 1999
Patrick J. Healy
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EXHIBIT
NUMBER DOCUMENT
----------- ----------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Investor Rights Agreement dated June 30, 1998
4.3 Specimen Stock Certificate of the Registrant*
5.1 Opinion of Morrison & Foerster LLP as to the legality of the common stock*
9.1 Voting Trust Agreement between Jeffery S. Fraser and Ross C. Hartley and certain
Holders of Shares of National Information Consortium, Inc. dated June 30, 1998 and
form of the voting trust certificate
10.1 Form of Indemnification Agreement between the Registrant and each of its executive
officers and directors
10.2 Registrant's 1998 Stock Option Plan, as amended and restated
10.3 Registrant's 1999 Employee Stock Purchase Plan
10.4 Employment Agreement between the Registrant and Jeffery S. Fraser dated July 1,
1998
10.5 Employment Agreement between the Registrant and William F. Bradley, Jr. dated July
24, 1998
10.6 Employment Agreement between the Registrant and Samuel R. Somerhalder dated July
24, 1998
10.7 Employment Agreement between the Registrant and Harry H. Herington dated July 24,
1998
10.8 Employment Agreement between the Registrant and James B. Dodd dated January 1,
1999
10.9 Contract for Network Manager Services between the Information Network of Kansas
and Kansas Information Consortium, Inc. dated December 18, 1991 with addenda dated
October 15, 1992, August 19, 1993, May 26, 1995 and June 13, 1996 and amendment on
March 2, 1998
10.10 Contract for Network Manager Services between the State of Indiana by and through
the Intelenet Commission and Indian@ Interactive, Inc., dated July 18, 1995
10.11 Services Contract by and between National Information Consortium, U.S.A. and the
GeorgiaNet Authority, an agency of the State of Georgia, dated September 15, 1996
10.12 Contract for Network Manager between Information Network of Arkansas by and
through the Information Network of Arkansas Board and Arkansas Information
Consortium, Inc. dated July 2, 1997
10.13 Contract for Network Manager Services between the Nebraska State Records Board on
behalf of the State of Nebraska and Nebrask@ Interactive, Inc. dated December 3,
1997 with addendum No. 1 dated as of the same date
10.14 Contract for Network Manager Services between the Commonwealth of Virginia by and
through the Virginia Information Providers Network Authority and Virginia
Interactive, LLC dated January 15, 1998
10.15 Contract for Network Manager Services between Iowa Interactive, Inc. and the State
of Iowa by and through Information Technology Services dated April 23, 1998
10.16 Contract for Network Manager Services between the Consolidated City of
Indianapolis and Marion County by and through the Enhanced Access Board of Marion
County and City-County Interactive, LLC dated August 31, 1998 with addendum dated
as of the same date
|
EXHIBIT
NUMBER DOCUMENT
----------- ----------------------------------------------------------------------------------
10.17 State of Maine Contract for Special Services with New England Interactive, Inc.
dated April 14, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Morrison & Foerster LLP. Reference is made to Exhibit 5.1*
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1 Powers of Attorney. Reference is made to Page II-4
27.1 Financial Data Schedule
|
* To be filed by amendment
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
July 2, 1998, by and among NATIONAL INFORMATION CONSORTIUM, INC., a Delaware
corporation (the "Company"), HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P., a
California limited partnership, H&F INTERNATIONAL PARTNERS III, L.P., a
California limited partnership, H&F ORCHARD PARTNERS III, L.P., a California
limited partnership (collectively, the "Investors"), and THE NATIONAL
INFORMATION CONSORTIUM, INC. VOTING TRUST U/A/D JUNE 30, 1998 (the "Voting
Trust").
WHEREAS, the Investors are acquiring 2,264,849 shares of common stock of the Company, $.01 par value ("Common Stock") pursuant to a Stock Purchase Agreement dated June 30, 1998 (the "Purchase Agreement") by and among the Company, the Voting Trust and the Investors; and
WHEREAS, as a condition of entering into the Purchase Agreement and as a condition precedent to the obligations of the Investors to consummate the transactions under the Purchase Agreement, the Company shall extend to the Investors registration rights, information rights and other rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1 GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
"HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public, but only if such holder is an Investor
or any assignee of record of such Registrable Securities in accordance with
Section 2.10 hereof; PROVIDED THAT for the purposes of Sections 2.3, 2.9 and
2.13, "Holder" shall include the Voting Trust.
"INITIAL OFFERING" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company; and
(b) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such above-described securities. Notwithstanding
the foregoing, Registrable Securities shall not include any securities that
have been sold to the public pursuant to a registration statement or Rule 144
or sold in a private transaction in which the transferor's rights under
Section 2 of this Agreement are not assigned. For purposes of the
registration rights granted to holders of Company securities pursuant to
Section 2.3 hereof and for the purposes of obligations imposed upon holders
of Registrable Securities under Sections 2.9 and 2.13, but not for the
purposes of Section 4.6, "Registrable Securities" shall include Voting Trust
Stock.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible securities.
"REGISTRATION EXPENSES" means all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company).
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling commissions applicable to the sale.
"VOTING TRUST STOCK" means all Common Stock of the Company held by the Voting Trust as of the date of this Agreement, and any Common Stock issued or issuable with respect to such Common Stock upon any recapitalizations, stock splits, stock dividends or similar distributions.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any portion of the Registrable Securities unless and until:
(i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members
in accordance with their interest in the limited liability company, or (D) to
the Holder's family member or trust for the benefit of an individual Holder;
PROVIDED THAT in each case the transferee will be subject to the terms of
this Agreement to the same extent as if such transferee were an original
Holder hereunder.
(b) Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company
(d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Initiating Holders that the Company file a registration statement under the Securities Act covering the registration of at least a majority of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $5,000,000 (a "Qualified Public Offering")), then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, use commercially reasonable efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a)
or Section 2.4(a), as applicable. In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent
provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2 or Section 2.4, if
the underwriter advises the Company that marketing factors require a
limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a PRO RATA basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders); PROVIDED, HOWEVER, that the number of
shares of Registrable Securities to be included in such underwriting and
registration shall not be reduced unless all other securities of the Company
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(i) prior to the earlier of (A) the fifth anniversary of the date of this Agreement or (B) one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering;
(ii) after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective;
(iii) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; PROVIDED THAT the Company makes reasonable good faith efforts to cause such registration statement to become effective;
(iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make its Initial Offering within ninety (90) days;
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by
the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; PROVIDED THAT such right to delay a
request shall be exercised by the Company not more than once in any twelve
(12) month period; or
(vi) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or
(a) UNDERWRITING. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a PRO RATA basis based on the total number of Registrable Securities held by the Holders; and third, to any stockholder of the Company (other than a Holder) on a PRO RATA basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting. In no event will shares of any other selling stockholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a limited liability company, partnership or corporation, the members, withdrawn members, partners, retired partners and stockholders of such Holder, or the estates and family members of any such members, withdrawn members, partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single "Holder", and any PRO RATA reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.
(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than one million dollars ($1,000,000), or
(iii) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make its Initial Offering or a public offering within ninety (90) days;
(iv) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; PROVIDED THAT such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or
(v) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4, or
(vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be
borne by the holders of the securities so registered PRO RATA on the basis of
the number of shares so registered. The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant to
Section 2.2 or 2.4, the request of which has been subsequently withdrawn by
the Initiating Holders unless (a) the withdrawal is based upon material
adverse information concerning the Company of which the Initiating Holders
were not aware at the time of such request or (b) the Holders of a majority
of Registrable Securities agree to forfeit their night to one requested
registration pursuant to Section 2.2 or Section 2.4, as applicable, in which
event such right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by
the holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement for the period set forth in paragraph
(a) above.
(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
(g) Use its commercially reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted under this Section 2 shall terminate and be of no further force and effect five (5) years after the date of the Company's Initial Offering. In addition, a Holder's registration rights shall expire if (a) the Company has completed its Initial Offering and is subject to the provisions of the Exchange Act, (b) such Holder (together with its affiliates, partners and former partners) holds less than 1% of the Company's outstanding Common Stock and (c) all Registrable Securities held by and issuable to such Holder (and its affiliates, partners, former partners, members and former members) may be sold under Rule 144 during any ninety (90) day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities.
2.9 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and, upon final determination by a court of competent jurisdiction, the Company will pay to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in
such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 2.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent,
(e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (a) is a subsidiary, parent, general partner, limited partner, retired partner, member or withdrawn member of a Holder, (b) is a Holder's family member or trust for the benefit of an individual Holder, or (c) acquires at least twenty-five thousand (25,000) shares of Registrable Securities (as adjusted for stock splits and combinations); PROVIDED, HOWEVER, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least sixty-six
and two-thirds percent (66 2/3%) of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this
Section 2.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Section 2, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights senior to those granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION. Each Holder hereby agrees that such Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; PROVIDED THAT (i) such agreement shall apply only to the Company's Initial Offering; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Company's voting securities enter into similar agreements.
2.14 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.
SECTION 3 COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days thereafter, the Company will furnish the Investors a balance sheet of the Company, as at the end of such fiscal year, and a statement of income and a statement of cash flows of the Company, for such year, all prepared in accordance
(c) The Company will furnish the Investors, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a balance sheet of the Company as of the end of each such quarterly period, and a statement of income and a statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made.
(d) The Company will furnish to the Investors (i) at least thirty
(30) days prior to the beginning of each fiscal year an annual budget and
operating plans for such fiscal year (and as soon as available, any
subsequent revisions thereto); and (ii) as soon as practicable after the end
of each month, and in any event within thirty (30) days thereafter, a balance
sheet of the Company as of the end of each such month, and a statement of
income and a statement of cash flows of the Company for such month and for
the current fiscal year to date, including a comparison to plan figures for
such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
3.2 INSPECTION RIGHTS. The Investors shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; PROVIDED, HOWEVER, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Investor for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section 3.3. All information disclosed under Section 3.1 hereof shall be deemed to be confidential information, except such information shall no longer be deemed confidential if such information (i) was in the public domain at the time it was communicated to the Investor, (ii) enters the public domain subsequent to the time it was communicated to the Investor through no fault of the Investor, (iii) was in the Investor's possession free of any obligation of confidence at the time it was communicated to the Investor, (iv) is rightfully communicated to the Investor free of any obligation of confidence subsequent to the time it was communicated to the Investor; (v) is communicated by the Company to an
3.4 KEY PERSON INSURANCE. The Company will assist the Investors in obtaining and maintaining in full force and effect, at the Investors' expense, term life insurance in the amount of Fifteen Million Dollars ($15,000,000) dollars on the life of Jeffery S. Fraser; naming the Investors as beneficiary.
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall require all employees and consultants to execute and deliver a Proprietary Information and Inventions Agreement in the form attached to the Purchase Agreement.
3.6 APPROVAL. The Company shall not without the approval of a majority of the disinterested directors of the Board of Directors and the approval at least one of the Directors nominated by the Investors, authorize or enter into any transactions with any director or management employee, or such director's or employee's immediate family.
3.7 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's Articles of Incorporation and Bylaws shall provide (a) for elimination of the liability of directors to the maximum extent permitted by law and (b) for indemnification of directors for acts on behalf of the Company to the maximum extent permitted by law.
3.8 TERMINATION OF COVENANTS. All covenants of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Investor upon the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering or (ii) upon (a) the acquisition of all or substantially all of the assets of the Company or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction.
SECTION 4 MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Kansas as applied to agreements among Kansas residents entered into and to be performed entirely within Kansas.
4.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted
4.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto set forth the entire understanding of the parties relating to the subject matter thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter thereof.
4.5 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
4.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Registrable Securities as "Investors," "Holders" and parties hereto.
4.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement, shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative.
4.8 NOTICES. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile number set forth on the signature
4.9 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including such reasonable fees, costs and expenses of attorneys and accountants, with shall include all fees, costs and expenses of appeals.
4.10 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
4.11 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement.
"INVESTORS": HELLMAN & FRIEDMAN
CAPITAL PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By: /s/ Patrick J. Healy
----------------------------
Its: Vice President
----------------------------
H&F INTERNATIONAL PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By: /s/ Patrick J. Healy
----------------------------
Its: Vice President
----------------------------
18
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H&F ORCHARD PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By: /s/ Patrick J. Healy
----------------------------
Its: Vice President
----------------------------
H&F ORCHARD PARTNERS III, L.P.,
a California limited partnership
By: H&F INVESTORS III,
a California general partnership
By: Hellman & Friedman Associates III, L.P.,
a California limited partnership
Its: Managing General Partner
By: H&F Investors III, Inc.,
a California corporation
Its: Managing General Partner
By:
----------------------------
Its:
----------------------------
"COMPANY": NATIONAL INFORMATION CONSORTIUM, INC.,
a Delaware corporation
By: /s/ Jeffery S. Fraser
----------------------------
Jeffery S. Fraser, President
Address: 4125 Wimbledon Drive,
Lawrence, KS 66047
Fax: (785) 832-2884
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"VOTING TRUST": THE NATIONAL INFORMATION CONSORTIUM, INC.
VOTING TRUST U/A/D JUNE 30, 1998
/s/ Jeffery S. Fraser
----------------------------
JEFFERY S. FRASER, co-trustee
/s/ Ross C. Hartley
----------------------------
ROSS C. HARTLEY, co-trustee
Address: 4125 Wimbledon Drive,
Lawrence, KS 66047
Fax: (785) 832-2884
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HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111
H&F INTERNATIONAL PARTNERS III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111
H&F ORCHARD PARTNERS III, L.P.
One Maritime Plaza, 12th Floor
San Francisco, California 94111
PAGE
SECTION 1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2 REGISTRATION; RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . . . . .3
2.1 Restrictions on Transfer.. . . . . . . . . . . . . . . . . . . . . . . .3
2.2 Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.3 Piggyback Registrations. . . . . . . . . . . . . . . . . . . . . . . . .5
2.4 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . . . . . . .6
2.5 Expenses of Registration.. . . . . . . . . . . . . . . . . . . . . . . .8
2.6 Obligations of the Company.. . . . . . . . . . . . . . . . . . . . . . .8
2.7 Termination of Registration Rights.. . . . . . . . . . . . . . . . . . .9
2.8 Delay of Registration; Furnishing Information. . . . . . . . . . . . . .9
2.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Assignment of Registration Rights. . . . . . . . . . . . . . . . . . . 12
2.11 Amendment of Registration Rights.. . . . . . . . . . . . . . . . . . . 12
2.12 Limitation on Subsequent Registration Rights.. . . . . . . . . . . . . 12
2.13 "Market Stand-Off" Agreement; Agreement to Furnish
Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14 Rule 144 Reporting.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3 COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Basic Financial Information and Reporting. . . . . . . . . . . . . . . 14
3.2 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Confidentiality of Records.. . . . . . . . . . . . . . . . . . . . . . 14
3.4 Key Person Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Proprietary Information and Inventions Agreement.. . . . . . . . . . . 15
3.6 Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Directors' Liability and Indemnification.. . . . . . . . . . . . . . . 15
3.8 Termination of Covenants.. . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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4.3 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Amendment and Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . 17
4.7 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.9 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . . . . 18
4.11 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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THIS AGREEMENT, made and entered into as of this 30th day of June, 1998, by and between Jeffery S. Fraser and Ross C. Hartley (the "Voting Trustees"), and those holders of shares of National Information Consortium, Inc., a Delaware corporation, (formerly International Information Consortium, Inc.) who shall execute this agreement (hereinafter referred to individually as "Stockholder" and collectively as "Stockholders"),
WHEREAS, the Stockholders and the Voting Trustees desire to enter into this voting trust;
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter contained, the parties hereto do hereby severally agree as follows:
As used in this agreement:
Section 1.1 The term "Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.2 The term "Company" shall mean National Information Consortium, Inc., a Delaware corporation, its successor and successors, any surviving corporation into which it may be merged, or any corporation resulting from its consolidation with any other corporation or corporations and the successor and successors of any such surviving or consolidated corporation or corporations.
Section 1.3 The term "Entity" shall mean a corporation, trust, limited liability company, joint venture, general partnership or limited partnership.
Section 1.4 The term "Sale" shall mean any transfer for consideration, the terms and conditions of which were arrived at through arms-length negotiations, other than a pledge, hypothecation or transfer of shares for security purposes only and not involving a change in voting rights in respect of any shares.
Section 1.5 The term "Shares" or "Shares of the Company" shall mean shares of the common stock of the Company or any other shares of the Company of whatever class having the right to vote for the election of directors of the Company.
Section 1.6 The term "Securities" as used herein shall include the Shares of the Company and all other forms of cash, stocks, bonds or other property held by the Voting Trustees under this Agreement.
Section 1.8 The term "Voting Trust Certificate Holder" or "Holder" shall mean the holder of a Voting Trust Certificate.
Section 2.1 Concurrently with a Stockholder's execution hereof the Stockholder shall deliver to the Voting Trustees the stock certificates representing all of the Shares owned by such Stockholder, duly transferred to the Voting Trustees. Each Stockholder shall deliver to the Voting Trustees any additional stock certificates representing all the Shares acquired by the Stockholder at any time after such Stockholder's execution hereof and shall duly transfer said certificates to the Voting Trustees. The Voting Trustees shall forthwith cause any certificates of stock so transferred to the Voting Trustees to be canceled and a new certificate of stock to be issued therefore to the Voting Trustees as Voting Trustees hereunder, and the Voting Trustees shall issue to the Stockholder a Voting Trust Certificate for the number of Shares transferred by the Stockholder to the Voting Trustees.
Section 3.1 The Voting Trust Certificates to be issued by the Voting Trustees shall be in the form attached hereto as Exhibit A. These Certificates may be written, typewritten, mimeographed or printed as determined by the Voting Trustees. The Voting Trustees may from time to time change the manner of preparation or general form of the Voting Trust Certificates and may require Certificates then outstanding to be exchanged for new Certificates in the modified form; PROVIDED, that no change in the Certificates shall be inconsistent with this Agreement or alter the rights of Holders hereunder.
Section 3.2 The Voting Trustees may, in their discretion, issue Voting Trust Certificates for fractions of a Share, or may issue scrip certificates in lieu thereof, which scrip certificates shall be in the form and shall carry the rights and privileges as the Voting Trustees may determine.
Section 3.3 The Voting Trust Certificates issued by the Voting Trustees may be transferred on the books of the Voting Trustees upon surrender of the Certificates, property endorsed by the record owner thereof in person, or by his attorney duly authorized, in accordance with the rules established by the Voting Trustees. Until so transferred the Voting Trustees may treat the record holders as owners thereof for all purposes whatsoever. The Voting Trustees shall not, however, be required to deliver any Securities without the surrender of the Voting Trust Certificates representing the Securities. The transfer books for Voting Trust Certificates may be closed by the Voting Trustees at any time prior to the payment or distribution of dividends, or for any other purpose, or the Voting Trustees may fix a record date in lieu of closing the transfer books.
Section 3.4 No voting right or power with respect to the Shares or other Securities held in trust hereunder shall pass to the Holders of Voting Trust Certificates or by or under this
Section 4.1 Until the complete termination of this Agreement as herein provided, the Voting Trustees are hereby irrevocably authorized and empowered in their discretion to exercise the following powers with respect to the Shares or any other Securities held by them under this Agreement:
(1) To vote or fail to vote for the election of directors and for any act or purpose, any and all of the Securities having voting rights, or to consent or fail to consent on behalf of said Securities to any act or proposal, including, but not limited, to the following:
(a) the increase, reduction or change of any Shares or the issuance of any different shares or other securities;
(b) the waiver of preemptive rights, if any, of the Stockholders or Voting Trust Certificate Holders to subscribe to additional Shares or securities, subject, however, to the provisions of Section 6.4 below;
(c) the classification or reclassification of Shares or other securities into any preferred, common or other shares, with or without par value, or into other securities or partly into shares and partly into other securities;
(d) the modification, elimination or waiver of the rights, preferences, privileges, priorities or par or stated value of any class of Shares or other securities;
(e) the amendment of the charter, articles of incorporation, bylaws or other organizational documents of the Company or any other Entity, including but not limited to an increase or decrease of authorized shares or of stated capital;
(f) the sale, mortgage, hypothecation or lease of all or any part of the assets of the Company or any other Entity;
(g) the authorization of indebtedness, secured or unsecured of the Company or any other Entity;
(h) the authorization of the merger or consolidation of the Company or any other Entity into or with other corporations or Entities, or of the dissolution, reorganization or recapitalization of the Company or any other Entity; and
(i) the authorization, ratification or approval of any other corporate act or other act (or non-action) of any nature whatsoever as fully as if the Voting Trustees were the absolute owners of the Securities.
(3) To receive dividends or distributions on all Securities.
(4) To exchange Securities, in whole or in part, for other securities, upon the terms as the Voting Trustees in their sole discretion may deem advisable, including the surrender and exchange of Securities, in a merger, consolidation, reorganization or recapitalization, or the sale or exchange of all or part of the assets of the Company for securities of another Entity. All securities received in any such exchange shall be held by the Voting Trustees in lieu of the Securities theretofore held hereunder.
(5) To sell all or any part of the Shares or other Securities for the consideration and upon the terms as the Voting Trustees in their sole discretion may deem advisable.
(6) To prepare, execute, verify and file in the name of, and on behalf of, any Holder any tax, form, return, amended return, declaration of estimated tax, amended declaration of estimated tax, report, protest, application for correction of assessed valuation of real or other property, appeal, brief, claim for refund, or petition, including petition to the Tax Court of the United States, in connection with any tax imposed or purported to be imposed by any government, or claimed, levied or assessed by any government, and to pay any such tax and to obtain any extension of time for any of the foregoing.
Section 4.2 The Voting Trustees are authorized and empowered to perform any and all acts necessary and appropriate in connection with the organization and operation of the Voting Trust.
Section 4.3 The Voting Trustees shall have power to appoint agents from time to time with powers, duties and functions as the Voting Trustees may deem advisable. All such appointments shall be made by instrument in writing and shall specify the authority and duties of the agent, and all such appointments may be revoked at any time by instrument in writing. These instruments shall all become effective upon filing an executed copy thereof with the secretary of the Company, and any agent so appointed may resign by filing a written notice of resignation with the Voting Trustees and a copy thereof with the secretary of the Company at least thirty (30) days prior to the date of resignation specified therein.
Section 4.4 The Voting Trustees are authorized and empowered to participate in, to intervene in, to become a party to or to defend any actions of any character, suits or legal proceedings relating to or affecting this Agreement, or the Securities or the rights of the parties hereto.
Section 4.5 Either of the Voting Trustees may at any time resign by mailing to the Holders and the Company a resignation in writing. In the event of the death, resignation or incapacity of either Voting Trustee, the surviving trustee shall become the sole Voting Trustee hereunder. In the event of the death, resignation or incapacity of both of the Voting Trustees, a successor voting trustee shall be appointed by instrument in writing signed by the Holders representing a majority of the Shares then held in this voting trust.
Section 5.1 The Voting Trustees shall not be responsible, as trustees, Stockholders of the Company or otherwise, by reason of any matter or thing done or omitted to be done by them, their agents or attorneys or by the management of the Company, except for their own willful misconduct. The Voting Trustees shall under no circumstances incur any liability whatsoever as a result of any action under this Agreement authorized, taken or permitted to be taken by the Voting Trustees in good faith (i) upon advice of counsel, or (ii) with the consent of the Holders representing a majority of the Shares then held hereunder.
Section 5.2 No agent appointed by the Voting Trustees shall be liable or responsible for any action taken or permitted to be taken upon and in accordance with the written instructions or with the written approval of the Voting Trustees.
Section 5.3 The Voting Trustees shall be indemnified in their capacities as Voting Trustees of the Company for any matter or thing done or omitted to be done by them, except for conduct which is finally adjudged by a court of law to have been willful misconduct. Such indemnification shall be paid out of the cash dividends of the Company, if any, or if there are no such cash dividends, then the indemnification may be paid out of the proceeds of the sale of Shares or Securities held hereunder.
Section 6.1 Within a reasonable time after receipt thereof, the Voting Trustees shall pay over to each Holder the cash dividends or other distributions, if any, collected by the VotingTrustees upon the Shares or other Securities then held hereunder represented by the Holder's Voting Trust Certificate or Certificates, subject to the provisions of Section 5.3 above.
Section 6.2 In the event that any dividend or other distribution paid in Shares shall be received by the Voting Trustees, each Holder shall be entitled to receive an additional Voting Trust Certificate representing the portion of the Shares so received by the Voting Trustees as the Shares represented by the Holder's Voting Trust Certificate or Certificates bear to the total number of Shares held hereunder prior to the receipt of the distribution. In the event any dividend or other distribution other than cash or Shares is received by the Voting Trustees, the Voting Trustees shall promptly distribute the same, less any and all expenses incurred by them in connection therewith, to the Holders pro rata as provided in the preceding sentence.
Section 6.3 The Voting Trustees may request the Company to make payment of any a cash dividends directly to the Holders entitled thereto. If the Company so agrees, the Voting Trustees,
Section 6.4 If the Company should offer any of its stock or other securities to its Stockholders for subscription, the Voting Trustees shall notify the Holders of that fact promptly after the Voting Trustees have themselves received notice thereof. Upon receiving from any Holder before the time limited by the Company for subscription and payment, a request to subscribe on his behalf and the money required to pay for a stated amount of the stock or other securities (not in excess of the ratable amount subscribable in respect to the Shares represented by the Holder's Voting Trust Certificate), the Voting Trustees shall make such subscription and payment, and upon receiving the shares or other securities so subscribed for, shall, if Shares of the Company, issue one or more Voting Trust Certificates in respect thereof to the Holder who shall have made the request and payment, and if other securities, shall deliver the securities to the Holder who shall have made the request and payment.
Section 7.1 If at any time the Voting Trustees are of the opinion that any tax or governmental charge is payable in respect of any Securities, or in respect of any dividends, distributions or other rights arising from or pertaining to the subject matter of this Agreement, the Voting Trustees may, but shall not be required to, pay the tax or charge. Any sum so paid, with interest thereon at 8% per annum, shall be a first charge against the Securities on which the tax or charge was levied or in respect of which the dividends, distributions or rights were received, and the Voting Trustees may reimburse themselves therefrom or from any funds coming into their possession as a result thereof.
Section 7.2 The Voting Trustees shall have a lien upon any and all
Securities held hereunder, or the proceeds thereof or the receipts therefrom,
to reimburse themselves for any and all such taxes or governmental charges
and any and all liabilities, claims and expenses which they may incur or pay,
either individually or as Voting Trustees, in the administration and
execution of this trust, including amounts that may be due them under Section
5.3 above; PROVIDED, that all such taxes, charges, liabilities, claims and
expenses which are chargeable to any specific Securities shall be
reimbursable only out of and shall constitute a lien against such specific
Securities or the proceeds thereof or receipts therefrom.
Section 7.3 As a condition of making any payment, issuance, transfer or distribution under this Agreement, the Voting Trustees may require the Stockholder to make payment to the Voting Trustees of a sum sufficient to pay or reimburse them for any transfer, issuance or other tax or governmental charges in connection therewith.
Section 8.1 Unless terminated earlier as hereinafter provided, this Agreement and the voting trust hereby created shall terminate upon the expiration of 20 years following the day and year first above written (the "Expiration Date").
Section 8.3 If, for whatever reason, the Voting Trustees become deadlocked, with respect to any matter relating to the Agreement, or any action to be taken or failure to act hereunder, then, after ninety (90) days of such deadlock, either of them may terminate this Agreement and the voting trust hereby created by giving written notice of the intent to terminate this Agreement and the voting trust hereby created to the other Voting Trustee and the Holders.
Section 8.4 Upon termination of this Agreement and the voting trust hereby created, the Voting Trustees shall call upon and require the Holders then outstanding to surrender their Certificates, and upon presentation of said Certificates the Holders thereof shall be entitled to receive, in exchange therefor, the Securities then held hereunder represented by said Certificates.
Section 8.5 Whenever Securities held by the Voting Trustees shall become deliverable to the Holders, the Voting Trustees may deliver the Securities, property endorsed, to any bank or trust company in Kansas City, Missouri, which they may select, with irrevocable instructions to deliver them to or upon the order of the appropriate Holders upon the surrender of said Certificates, and thereupon any further obligation or duty of the Voting Trustees under this Agreement with respect thereto shall cease.
Section 9.1 If the Voting Trustees desire to ascertain the views of the Holders with respect to any action or thing done or proposed to be done by the Voting Trustees, or upon any other question, the Voting Trustees may call a meeting of the Holders, to be held at 4125 Wimbledon Drive, Lawrence, Kansas 66047 or at any place that the Voting Trustees may select. The notice of the call shall set forth the time, place and purpose of the meeting, and shall be mailed at least 10 days before the date of the meeting as hereinafter provided.
Section 9.2 At each meeting each Holder shall have one vote for each Share represented by the Certificate or Certificates standing in such Holder's name, and may vote in person or by proxy. If at any such meeting the Holders representing a majority of the Shares at the time held in trust hereunder shall affirmatively concur in any expression or view with regard to any matter mentioned in the call of the meeting, such expression or view may conclusively and for all purposes be deemed by the Voting Trustees to be that of the Holders and each and every Holder agrees for himself, his successors and assigns, to accept and be bound by that expression or view, except as provided elsewhere in this Agreement. No action at any such meeting shall operate to modify the express provisions of this Agreement or in any way limit the powers and discretion of the Voting Trustees as defined by this Agreement.
Section 10.1 By signing this Agreement, each Holder acknowledges the provisions of Section 6.5 of the Company's Bylaws which not only restrict the transfer of Shares of the Company but also restrict the Holder's ability to transfer an interest in this voting trust, and which also grants
Section 10.2 In order that all transferees will be put on notice of the provisions of this Section 10, a legend in substantially the following form shall be placed on all stock certificates and Voting Trust Certificates representing Shares or Voting Trust Certificates of the Company.
The shares or voting trust certificates represented by this certificate are subject to certain provisions of a voting trust agreement imposing certain restrictions on the transfer of these shares or voting trust certificates and granting certain rights to the holders of these shares or voting trust certificates, and these shares or voting trust certificates cannot be sold, donated, transferred or in any other manner disposed of except in accordance with the terms of said voting trust agreement provisions, a copy of which is available for inspection at the Company's offices.
Section 11.1 This Agreement maybe amended in any and all respects by agreement in writing signed by the Voting Trustees and the Holders representing a majority of the Shares then held in this voting trust.
Section 11.2 All notices to the Holders shall be given by mail, postage prepaid, addressed to the Holders at their addresses shown upon the books of the Voting Trustees, and any call or notice whatsoever when so mailed by the Voting Trustees shall be considered as though personally served on all Holders, and that mailing shall be the only notice required to be given under any provision of this Agreement.
Section 11.3 A copy of this Agreement shall be filed at the principal office of the Company, and shall be open to the inspection of any Holder during business hours.
Section 11.4 The Voting Trustees may act as directors or officers,
with or without compensation therefor, of the Company or any subsidiary or
affiliated corporation of the Company or of any corporation the securities of
which are held by the Voting Trustees hereunder, and the Voting Trustees may
be Holders. The Voting Trustees may own or hold Shares outside of the voting
trust and shall be entitled to vote the same or exercise any and all of the
rights of ownership thereof as fully as if they were not the Voting Trustees.
The Voting Trustees or any firm or corporation in which they may be
interested may contract with, or become pecuniarily interested in, any matter
or transaction with the Company or any subsidiary
Section 11.5 This Agreement may be executed in several counterparts, each of which so executed shall be deemed to be the original of the counterpart and the counterparts shall together constitute one and the same instrument.
Section 11.6 Whenever under the terms of this Agreement the consent or approval of the Holders is required or may be desired to be obtained, the same may be evidenced by instruments of approval or consent signed by the Holders or their attorneys or agents.
Section 11.7 This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, administrators, executors, successors and assigns.
Section 11.8 If for any reason any provision hereof shall be determined to be inoperative, the validity and effect of the other provisions hereof shall not be affected thereby.
Section 11.9 This Agreement and the trust hereby created shall be construed in accordance with and be governed by the laws of the State of Delaware.
Section 11.10 The Voting Trustees by signing this Agreement accept the trust herein created.
IN WITNESS WHEREOF, the parties hereto have hereunto signed this Agreement as of the day and year first above written.
/s/ Jeffery S. Fraser ----------------------------------------- /s/ Ross L. Hartley ----------------------------------------- |
This is to certify that ________________________________________ hereafter referred to as the "Owner" or "Record Holder" of this certificate) or predecessor(s) in interest has or have deposited with the undersigned as voting trustees under the voting trust agreement (the "Agreement") hereinafter mentioned __________ shares of the common stock of National information Consortium, Inc., a Delaware corporation (the "Company"), and that the Owner, or assigns, is/are entitled to all the benefits and interests specified in the Agreement arising from the deposit of said shares, all as provided in and subject to the terms of the Agreement, to which reference is hereby made for a complete statement thereof.
Until the termination of the voting trust as provided in the Agreement and delivery or deposit of the Securities (as defined in the Agreement), the Owner of this Certificate or assigns is entitled to receive his pro rata part of any cash dividends received by the Voting Trustees (as defined in the Agreement) upon the Shares represented by this Certificate, subject to and as provided in the Agreement; and the Voting Trustees shall possess and shall be entitled to exercise the right to vote thereon and to execute consents with respect thereto for every purpose, and with all those rights and powers which are more specifically set out in the Agreement, it being expressly stipulated that no voting right passes to the Owner or assigns by or under the Agreement or this Certificate or by or under any agreement, express or implied.
This Certificate is issued under and pursuant to, and the rights of the Owner and assigns are subject to and limited by, the terms and conditions of the Agreement which is dated _____________19__ , and a copy of which is filed with the Company. Receipt of a copy of the Agreement is hereby acknowledged by the Owner, and the Owner and assigns hereby assent to the terms and conditions thereof. This Certificate is transferable on the books of the undersigned Voting Trustees by the Record Holder in person, or by attorney or agent, duly authorized according to the rules established for that purpose by the Voting Trustees, upon surrender of this Certificate properly endorsed; and until so transferred the Voting Trustees may treat the Record Holder as Owner hereof for all purposes whatsoever, but shall not be required to deliver any securities hereunder without the surrender hereof. In connection with and as a condition of making or permitting any transfer or delivery of Voting Trust Certificates or Securities, the Voting Trustees may require payment of a sum sufficient to pay or reimburse them for any stamp tax or other governmental charge in connection therewith.
This Indemnity Agreement ("Agreement") is made and entered into by and between National Information Consortium, Inc., a Colorado corporation ("Company"), and ___________________ ___________________ ("Indemnitee") on this ______ day of ________________, ______.
Indemnitee is a director and/or officer of the Company. The parties desire that the Company provide indemnification (including advancement of expenses) to Indemnitee against any and all liabilities asserted against Indemnitee to the fullest extent permitted by the Colorado Business Corporation Act ("Act"), as the Act presently exists and may be expanded from time to time. Based on such premise, and for certain good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. CONTINUED SERVICE. Indemnitee will serve at the will of the Company or under separate contract, if such exists, as a director and/or officer of the Company for so long as Indemnitee is duly elected and qualified in accordance with the Bylaws of the Company or until Indemnitee tenders his or her resignation to the Company.
2. INDEMNIFICATION. The Company shall indemnify Indemnitee as follows:
2.1 The Company shall indemnify Indemnitee when Indemnitee was, is, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (other than an action by or in the right of the Company), by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee, associate, fiduciary, manager, member, partner, promoter, trustee or agent of another domestic or foreign corporation or other person or of an employee benefit plan against reasonable expenses (including counsel fees) incurred by Indemnitee in connection with such proceeding if Indemnitee conducted himself or herself in good faith and Indemnitee reasonably believed that his or her conduct was in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that Indemnitee did not meet the standard of conduct described in this Section 2.1.
2.2 The Company shall indemnify Indemnitee when Indemnitee was, is, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, associate, fiduciary, manager, member, partner, promoter, trustee or agent of another domestic or foreign corporation or other person or of an employee benefit plan against reasonable expenses (including counsel fees) incurred by Indemnitee in connection with such proceeding if Indemnitee conducted himself or herself in good
2.3 Any indemnification under Sections 2.1 and 2.2 (unless ordered by a court) shall be made by the Company only as authorized in the specific proceeding upon a determination, in accordance with the procedures set forth in Section 3, that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct set forth in such Sections 2.1 and 2.2. Such determination shall be made (1) by the board of directors of the Company by a majority vote of those present at a meeting at which a quorum consisting of directors who were not parties to such proceeding are present, (2) if a quorum cannot be obtained, by a majority vote of a committee of the board of directors designated by the board of directors, which committee shall consist of two or more directors not parties to the proceeding, (3) if a quorum of the board cannot be obtained nor a board committee established, or if a majority of the directors constituting such quorum or such board committee so directs, by (a) independent legal counsel selected by a vote of the board or the board committee, or if a quorum of the full board cannot be obtained or a board committee cannot be established, by independent legal counsel selected by a majority vote of the full Board, or (b) by the stockholders of the Company.
2.4 Reasonable expenses (including counsel fees) incurred by Indemnitee who is a party to any threatened, pending or completed civil, criminal, administrative, or investigative action, suit or proceeding shall be paid by the Company in advance of the final disposition of such proceeding, as authorized in the manner provided in Section 2.3, within 14 days after the receipt by the Company from Indemnitee of a Statement of Undertaking in substantially the form set forth in EXHIBIT A, in which Indemnitee undertakes to repay such amount if it is ultimately determined that Indemnitee did not meet the standard of conduct. Those people making the determination must also determine that based upon the facts then known to them, indemnification would not be precluded.
2.5 The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 2 shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office, shall continue after Indemnitee has ceased to be a director, officer, employee or agent of the Company, and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.
3.1 Indemnitee shall submit to the board of directors a Statement of Request for Indemnification in substantially the form set forth in EXHIBIT B, in which Indemnitee states that Indemnitee has met the applicable standard of conduct set forth in Sections 2.1 and 2.2.
3.2 Indemnitee's submission of a Statement of Request for Indemnification to the board of directors shall create a rebuttable presumption that Indemnitee has met the applicable standard of conduct set forth in sections 2.1 and 2.2 and, therefore, is entitled to indemnification under Section 2. The board of directors, board committee, independent legal counsel or stockholders, as the case may be, shall determine, within 30 days after submission of the Statement of Request for Indemnification, specifically, that Indemnitee is so entitled, unless it or they shall possess clear and convincing evidence to rebut the foregoing presumption, which evidence shall be disclosed to Indemnitee with particularity in a sworn written statement signed by all persons who participated in the determination and voted to deny indemnification.
4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a constituent corporation in a merger or consolidation, whether the Company is the resulting or surviving corporation or is absorbed as a result thereof, or if there is a change in control of the Company, Indemnitee shall stand in the same position under this agreement with respect to the resulting, surviving or changed corporation as Indemnitee would have with respect to the Company if its separate existence had continued or if there had been no change in control of the Company.
5. CERTAIN DEFINITIONS. For the purposes of this Agreement, the following terms shall have the indicated meanings and understandings:
5.1 The term "change in control" shall include any change in the ownership of a majority of the outstanding voting securities of the Company or in the composition of a majority of the members of the board of directors of the Company.
5.2 The term "corporation" shall include any domestic or foreign entity that is a predecessor of a corporation by reason of a merger or other transaction in which the predecessor's existence leased upon consummation of the transaction.
5.3 The term "director" means an individual who is or was a director of the Company or an individual who, while a director of the Company, is or was surviving at the Company's request as a director, an officer, an agent, an associate, an employee, a fiduciary, a manager, a member, a partner, a promoter or a trustee of, or to hold any similar position with, another domestic or foreign corporation or other person or of an employee benefit plan. A director is considered to be serving an employee benefit plan at the Company's request if the director's duties
5.4 The term "liability" means the obligation incurred with respect to a proceeding to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses.
5.5 The term "official capacity" means, when used with respect to a director, the office of director in the Company and, when used with respect to a person other than a director, the office in the Company held by the officer or the employment, fiduciary or agency relationship undertaken by the employee, fiduciary or agent on behalf of the Company. "Official capacity" does not include service for any other domestic or foreign corporation or other person or employee benefit plan.
5.6 The term "party" includes a person who was, is, or is threatened to be made a named defendant or respondent in a proceeding.
5.7 The term "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.
6. COUNSEL FEES. If Indemnitee institutes any legal action to enforce Indemnitee's rights under this Agreement, or to recover damages for breach of this Agreement, Indemnitee, if Indemnitee prevails in whole or in part, shall be entitled to recover from the Company all fees and expenses (including counsel fees) incurred by Indemnitee in connection therewith.
7. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to dissolve or to file a petition for relief under the applicable bankruptcy, moratorium or similar laws, then not later than 10 days prior to such dissolution or filing, the Company shall deposit in trust for the sole and exclusive benefit of Indemnitee a cash amount equal to all amounts previously authorized to be paid to Indemnitee hereunder, such amounts to be used to discharge the Company's obligations to Indemnitee hereunder. Any amounts in such trust not required for such purpose shall be returned to the Company. This Section 7 shall not apply to the dissolution of the Company in connection with a transaction as to which Section 4 applies.
8. AMENDMENTS TO ACT. This Agreement is intended to provide indemnity to Indemnitee to the fullest extent allowed under Colorado law. Accordingly, to the extent permitted by law, if the Act permits greater indemnity than the indemnity set forth herein, or if any amendment is made to the Act expanding the indemnity permissible under Colorado law, the indemnity obligations contained herein automatically shall be expanded, without the necessity of action on the part of any party, to the extent necessary to provide to Indemnitee the fullest indemnity permissible under Colorado law.
9.1 SURVIVAL. The provisions of this Agreement shall survive the termination of Indemnitee's service as a director or officer of the Company.
9.2 ENTIRE AGREEMENT. This Agreement constitutes the full understanding of the parties and a complete and exclusive statement of the terms and conditions of their agreement relating to the subject matter hereof and supersedes all prior negotiations, understandings and agreements, whether written or oral, between the parties, their affiliates, and their respective principals, shareholders, directors, officers, employees, consultants and agents with respect thereto.
STATE OF _______________________ )
) ss:
COUNTY OF _____________________ )
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I, _______________________, being first duly sworn, depose and say as follows:
10. This Statement of Undertaking is submitted pursuant to the Indemnity Agreement dated ___________, 1999, between National Information Consortium, Inc., a Colorado corporation ("Company"), and me.
11. I am requesting the advancement of certain reasonable expenses which I have incurred in defending a civil, criminal, investigative or administrative action, suit or proceeding by reason of the fact that I am or was a director and/or officer of the Company.
12. I hereby undertake to repay this advancement of expenses if it is ultimately determined that I did not meet the applicable standard of conduct to be indemnified by the Company.
13. I am requesting the advancement of reasonable expenses in connection with the following proceeding:
I have executed this Statement of Undertaking on ________________________.
Subscribed and sworn to before me on ______________________.
My commission expires: ________________________
STATE OF _______________________ )
) ss:
COUNTY OF _____________________ )
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I, _____________________________, being first duly sworn, depose and say as follows:
14. This Statement of Request for Indemnification is submitted pursuant to the Indemnity Agreement dated ________________, 1999, between National Information Consortium, Inc., a Colorado corporation ("Company"), and me.
15. I am requesting indemnification against reasonable expenses (including counsel fees) incurred by me in connection with a certain proceeding to which I am a party or am threatened to be made a party by reason of the fact that I am or was a director and/or officer of the Company.
16. With respect to all matters related to any such proceeding, I conducted myself in good faith and I reasonably believed that my conduct was in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, I had no reasonable cause to believe that my conduct was unlawful.
17. I am requesting indemnification in connection with the following proceeding:
I have executed this Statement of Request for Indemnification on ___________________.
Subscribed and sworn to before me on ______________________.
My commission expires: ________________________
NATIONAL INFORMATION CONSORTIUM, INC., a Colorado corporation (the "Company"), (formerly named International Information Consortium, Inc.) hereby formulates and adopts, voting in person or by proxy at a duly constituted meeting of the stockholders of the Company, a stock option plan to offer certain key employees of the Company and its subsidiaries and directors of the Company, the opportunity to become owners of Common Stock, no par value per share of the Company ("NIC Common Stock"), under stock options, certain of which are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and certain of which are intended to be nonqualified stock options. The Plan was adopted effective May 5, 1998 and as amended November 3, 1998 and May 4,1999.
1. PURPOSE OF PLAN. The purpose of this 1998 Stock Option Plan (the "Plan") is to encourage certain employees of the Company and its subsidiaries, and directors of the Company, to participate in the ownership of the Company, and to provide additional incentive for such employees and directors to promote the success of its business through sharing in the future growth of such business.
2. ADMINISTRATION. This Plan shall be administered by a committee ("Committee") which shall be selected by the Board of Directors and which shall be composed of not less than two (2) nor more than five (5) members of the Board of Directors. The Committee shall have full power and authority to construe, interpret and administer the Plan, and may from time to time adopt such rules and regulations for carrying out this Plan as it may deem proper and in the best interests of the Company. Subject to the terms, provisions and conditions of the Plan, the Committee shall have exclusive authority (i) to select the employees to whom options shall be granted, (ii) to determine the number of shares subject to each option, (iii) to determine the time or times when options will be granted, (iv) to determine the option price of the shares subject to each option, (v) to determine the time when each option may be exercised, (vi) to fix such other provisions of each option agreement as the Committee may deem necessary or desirable, consistent with the terms of this Plan, and (vii) to determine all other questions relating to the administration of this Plan. The interpretation and construction of this Plan by the Committee shall be final, conclusive and binding upon all persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or any option.
3. DIRECTOR OPTIONS. Options for NIC Common Stock may be awarded by the Committee to directors of the Company who are not otherwise employees of the Company, provided such options shall be nonqualified stock options.
(1) EMPLOYEES-- KEY EMPLOYEES. Options to purchase shares of NIC Common Stock shall be granted under this Plan only to employees who are key employees of the Company or of any of its subsidiary corporations, as that term is defined in Section 424(f) of the Code. Key employees to whom options may be granted under this Plan will be those employees selected by the Committee from time to time who, in the sole discretion of the Committee, have made material contributions in the past, or who are expected to make material contributions in the future, to the successful performance of the Company.
(2) STOCK OWNERSHIP LIMITATION. No option shall be granted under this Plan to any employee of the Company or of a subsidiary corporation who, immediately before the option is granted, owns (either directly or by application of the rules contained in Section 424(d) of the Code) stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any of its subsidiary corporations unless at the time of such grant the option price is fixed at not less than 110 percent of the fair market value of the stock subject to the option., and the exercise of such option is prohibited by its terms after the expiration of five (5) years from the date such option is granted.
5. SHARES SUBJECT TO THE PLAN. Options granted under this Plan shall be granted solely with respect to shares of NIC Common Stock. Subject to any adjustments made pursuant to the provisions of Section 12, the aggregate number of shares of NIC Common Stock which may be issued upon exercise of the options which will be granted under this Plan shall not exceed 2,000,000 shares. The aggregate number of shares of NIC Common Stock that are available for grant under an option at any particular time shall be equal to 2,000,000 shares, less the sum of: (i) the aggregate number of shares that have been issued pursuant to the exercise of options granted under the Plan, and (ii) the aggregate number of shares then subject to options that have not expired or been canceled (but excluding any shares included in clause (i) as a result of a partial exercise of an option).
If any option granted under this Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall be added to the number of shares otherwise available for options which may be granted in accordance with the terms of this Plan.
The shares to be delivered upon exercise of the options granted under this Plan shall be made available, at the discretion of the Board of Directors, from either the authorized but unissued shares of NIC Common Stock or any treasury shares of NIC Common Stock held by the Company.
6. OPTION AGREEMENT. Each option granted under this Plan shall be evidenced by a stock option agreement (an "Agreement"), which shall be signed by an officer of the Company and by the director or employee to whom the option is granted (the "Optionee"). The terms of said Agreement shall be in accordance with provisions as may be approved by the Committee. The
7. OPTION PRICE. The price at which shares of NIC Common Stock may be
purchased under an option granted pursuant to this Plan shall be determined
by the Committee, but in no event shalt the price be less than the greater of
(a) the par value thereof or (b) 100 percent of the fair market value of such
shares on the date that the option is granted. The fair market value of
shares of NIC Common Stock for purposes of this Plan shall be determined by
the Committee, in its sole discretion, and the Committee may adopt such
formulas as in its opinion shall reflect the true fair market value of such
stock from time to time, and may rely on such independent advice with respect
to such fair market value as the Committee shall deem appropriate.
8. PERIOD AND EXERCISE OF OPTION.
(1) PERIOD. Subject to the provisions of Section 10 hereof with
respect to the death or termination of employment of an Optionee, and Section
4(b) with respect to options granted to individuals owning more than 10% of
the Company, the period during which each option granted under this Plan may
be exercised shall be fixed by the Committee at the time such option is
granted, provided that such period shall expire no later than ten (10) years
from the date on which the option is granted. In the event the Company shall
not be the surviving corporation in any merger, consolidation, or
reorganization, or in the event of acquisition by another corporation of all
or substantially all of the assets of the Company, every option outstanding
hereunder may be assumed (with appropriate changes) by the surviving,
continuing, successor or purchasing corporation, as the case may be subject
to any applicable provisions of the Code or replaced with new options of
comparable value (in accordance with Section 424(a) of the Code). In the
event (i) that such surviving, continuing, successor or purchasing
corporation, as the case may be, does not assume or replace the outstanding
options hereunder, or (ii) of liquidation or dissolution of the Company, the
Committee may provide that each Optionee shall have the right, within a
period commencing not more than 30 days immediately prior to and ending on
the day immediately prior to such merger, consolidation, reorganization or
acquisition by another corporation of all or substantially all of the assets
of the Company or the liquidation or dissolution of the Company, to exercise
the Optionee's outstanding options to the extent of all or any part of the
aggregate number of shares subject to such option(s). In the event of a
"Change of Control" (as defined below) the Committee may accelerate the time
at which options granted under this Plan may be exercised by the Optionee.
For purposes of this paragraph (a) "Change of Control" shall be deemed to
occur when either (i) a person (other than a current stockholder, or a
director nominated or selected by the Board of Directors of the Company or an
officer elected by the Board of Directors of the Company) acquires beneficial
ownership (as defined by Securities and Exchange Commission Rule 13d-3) of 50
percent or more
(2) EXERCISE. Any option granted under this Plan may be
exercised by the Optionee (or by a person acting under Section 10(b) below)
only by (i) delivering to the Company written notice of the number of shares
with respect to which the Optionee is exercising his or her option right,
(ii) paying in full the option price of the purchased shares, and (iii) if
the shares to be purchased have not been registered under the applicable
securities laws and if necessary, in the opinion of counsel for the Company
to secure an exemption from such registration, furnishing to the Company such
representation or agreement in writing signed by the Optionee as shall be
necessary in the opinion of such counsel to secure such exemption. Subject to
the limitations of this Plan and the terms and conditions of the respective
Agreement, each option granted under this Plan shall be exercisable in whole
or in part at such time or times as the Committee may specify in such
Agreement. The granting of an option shall impose no obligation upon the
Optionee to exercise such option.
(3) PAYMENT FOR SHARES. Payment for shares of NIC Common Stock purchased pursuant to an option granted under this Plan may be made either in cash or in other shares of NIC Common Stock.
(4) DELIVERY OF CERTIFICATES. As soon as practicable after receipt by the Company of the notice and representation described in subsection (b), and of payment in full of the option price for all of the shares being purchased pursuant to an option granted under this Plan, a certificate or certificates representing such shares of stock shall be registered in the name of the Optionee and shall be delivered to the Optionee. However, no certificate for fractional shares of stock shall be issued by the Company notwithstanding any request therefor. Neither any Optionee, nor the legal representative, legatee or distributee of any Optionee, shall be deemed to be a holder of any shares of stock subject to an option granted under this Plan unless and until the certificate or certificates for such shares have been issued. All stock certificates issued upon the exercise of any options granted pursuant to this Plan may bear such legend as the Committee shall deem appropriate regarding restrictions upon the transfer or sale of the shares evidenced thereby.
(5) LIMITATIONS ON EXERCISE. Except as provided in Section 10 hereof, no option granted under this Plan to an employee (rather than a director to which this Section 8(e) does not apply) shall be exercised unless the Optionee is at the time of such exercise employed by the Company or one of its subsidiary corporations and shall have been so employed by the Company or one of its subsidiary corporations at all times since the date on which such option was granted.
(6) PARTIAL EXERCISE. Any option otherwise exercisable may be exercised in whole or in part; PROVIDED, HOWEVER, that the Company shall not be required to issue any fractional shares and the Committee may, by the terms of the option, require any partial exercise to be with respect to a specified minimum number of shares.
(1) The completion of any registration or other qualification of or notice regarding such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and
(2) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable.
9. LIMITATION ON INCENTIVE STOCK OPTIONS GRANTED TO INDIVIDUAL EMPLOYEES. The aggregate fair market value (determined at the time the options are granted) of stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year under this Plan (and under any other plan or plans of such individual's employer corporation and any parent or subsidiary corporation or corporations) shall not exceed $100,000; provided, however, the foregoing $100,000 limitation shall only apply to incentive stock options and shall not limit the aggregate fair market value of stock with respect to which all other options granted under the Plan are exercisable for the first time by any individual during any calendar year, and any options in excess of the $100,000 limitation shall be non-statutory stock options subject to all other provisions of this Plan. The $100,000 limitation provided by the preceding sentence shall be applied by taking options into account in the order in which they are granted. For purposes of this Plan, "incentive stock options" shall mean options that meet the requirements of Section 422 of the Code. Options granted to directors under Section 3 of this Plan shall not be incentive stock options.
10. TERMINATION OF EMPLOYMENT. If an Optionee (other than a director)
shall cease to be employed by the Company or any of its subsidiary
corporations for any reason other than death, disability (as defined herein),
for cause (as defined herein) or on account of voluntary termination, any
option or unexercised portion thereof granted to him under this Plan which is
otherwise exercisable shall terminate unless it is exercised within thirty
(30) days of the date on which such Optionee ceases to be so employed, and in
any event no later than the expiration date of such option as specified in
the respective stock option agreement. Nothing in this Plan or in any stock
option agreement shall be construed as an obligation on the part of the
Company or any of its subsidiary corporations to continue the employment of
any employee.
(1) TERMINATION OF EMPLOYMENT FOR CAUSE OR ON ACCOUNT OF VOLUNTARY TERMINATION. If an Optionee's employment by the Company or by any of its subsidiary corporations should be terminated for cause or if an Optionee should voluntarily terminate his employment with the Company or with any subsidiary of the Company, any option or unexercised portion thereof
(1) the willful and continued failure by such Optionee to substantially perform his duties with the Company or any subsidiary thereof on a full-time basis (other than any such failure resulting from total or partial incapacity due to physical or mental illness) alter a written demand for substantial performance is delivered to such Optionee by the Board, which demand identifies the manner in which the Board believes that he has not substantially performed such duties;
(2) the willful engaging by such Optionee in conduct which is significantly injurious to the Company or to any subsidiary of the Company, monetarily or otherwise, after a written demand for cessation of such conduct is delivered to such individual by the Board, which demand specifically identifies the manner in which the Board believes that such individual has engaged in such conduct and the injury to the Company or to a subsidiary of the Company resulting therefrom;
(3) the commission by such Optionee of an act or acts constituting a crime involving moral turpitude;
(4) the breach by such Optionee of one or more covenants, if any, in an agreement to which the Optionee and the Company are parties;
(5) violation by such Optionee of Company policy; or
(6) the commission by such Optionee of a significant act of dishonesty, deceit or breach of fiduciary duty in the performance of the Optionee's duties with the Company or with any subsidiary of the Company.
For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the part of an Optionee shall be deemed to be willful unless knowingly done, or omitted to be done, by such Optionee not in good faith and without a reasonable belief that such action or omission was in the best interests of the Company or of a subsidiary of the Company.
(2) TERMINATION OF EMPLOYMENT ON ACCOUNT OF DEATH OR DISABILITY OF OPTIONEE. In the event of the death or disability of an Optionee while he is an employee of the Company or of a subsidiary of the Company (or within thirty (30) days of the date on which such Optionee ceases to be so employed for any reason other than those set forth in subsection (a) of this Section 10) any option or unexercised portion thereof granted to him under this Plan which is otherwise exercisable
11. NONTRANSFERABILITY OF OPTIONS. Each option granted under this Plan shall not be transferable or assignable by the Optionee other than by will or the laws of descent and distribution, and during the lifetime of the Optionee may be exercised only by said Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
change in the capital structure of the Company, including but not limited to
a change resulting from a stock dividend, stock split, reorganization,
merger, consolidation, liquidation or any combination or exchange of shares,
the number of shares of NIC Common Stock subject to this Plan and the number
of such shares subject to each option granted hereunder shall be
correspondingly adjusted by the Committee; PROVIDED, HOWEVER, that no such
adjustment shall be made which would modify an option within the meaning of
Section 424(h) of the Code or grant benefits in excess of those permitted by
Section 424(a) of the Code, or any corresponding provisions of any future
internal revenue law. The option price for which shares of NIC Common Stock
may be purchased pursuant to an option granted under this Plan shall also be
adjusted so that there will be no change in the aggregate purchase price
payable upon the exercise of any option.
13. AMENDMENT AND TERMINATION OF PLAN. No option shall be granted
pursuant to this Plan after May 4, 2008, on which date this Plan will expire
except as to options then outstanding under the Plan, which options shall
remain in effect until they have been exercised or have expired. The Board of
Directors may at any time before such date amend, modify or terminate the
Plan; provided, however, that the Board of Directors may not, without further
approval by the holders of a majority of the issued and outstanding shares of
NIC Common Stock voting in person or by proxy at a duly constituted meeting
of the stockholders of the Company, (i) increase the maximum number of shares
of NIC Common Stock as to which options may be granted pursuant to this Plan,
(ii) change the class of employees eligible to be granted options pursuant to
the Plan, (iii) extend the period under this Plan during which options may be
granted or exercised, or (iv) change the provisions of Section 7 hereof with
respect to the determination of the option price, other than to change the
manner of determining the fair market value of shares of NIC Common Stock. No
amendment, modification or termination of this Plan may adversely affect the
rights of any Optionee under any then outstanding option granted hereunder
without the consent of such Optionee.
1. PURPOSE.
The purpose of the National Information Consortium Employee Stock
Purchase Plan ("Plan") is to provide a means by which an employee of National
Information Consortium, a Colorado corporation ("Company"), and any affiliate
of the Company ("Affiliate") may be given an opportunity to purchase stock of
the Company. By means of the Plan, the Company seeks to attract and retain
the services of persons of ability as employees and motivate such employees
to exert their best efforts on behalf of the Company, any Affiliate or other
shareholder of the Company. For the purposes of the Plan, the term
"Affiliate" means with respect to the Company either a parent corporation as
defined in Section 424(e) of the Internal Revenue Code of 1986, as amended
("Code"), or a subsidiary corporation as defined in Code Section 424(f). The
Plan is intended to qualify as an employee stock purchase plan under Code
Section 423.
2. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of Plan Section 12, 500,000 shares of the common voting stock of the Company ("Common Stock") will be reserved and may be sold pursuant to stock purchase rights granted under the Plan. The reserved shares will be such authorized and unissued shares of the Company as determined by the Company's Board of Directors ("Board"). If any right to purchase Common Stock granted under the Plan terminates for any reason without having been exercised, the Common Stock which was not purchased pursuant to such right will again be available under the Plan.
3. ADMINISTRATION OF THE PLAN.
The Plan will be administered by the Board or a committee thereof consisting of three or more Board members, who may or may not be employees of the Company or an Affiliate, ("Committee"). The members of the Committee will be appointed by and will serve at the pleasure of the Board. Any vacancies in the membership of the Committee will be filled by an appointment by the Board. If the Board administers the Plan, the term "Committee" will include the Board.
The Committee will keep minutes of its meetings. All actions of the Committee will be taken by a majority of its members at a meeting duly called and held and at which a quorum is present. Any act approved in writing by all of the Committee members will be as fully effective as if it had been taken by a vote of a majority of the members at a meeting duly called and held and at which a quorum is present.
Subject to and not inconsistent with the provisions of the Plan, the Committee will have complete authority in its sole discretion to determine the employees to whom stock purchase rights will be granted and the provisions for each offering of stock purchase rights (which need not be identical); to construe and interpret the Plan, including disputed and doubtful terms and provisions;
All decisions, determinations and interpretations of the Committee will be consistently and uniformly applied and will be conclusive and binding on all parties.
4. GRANT OF STOCK PURCHASE RIGHTS.
The Committee may from time to time grant to eligible employees the
right to purchase Common Stock under the Plan ("Offering") on a date
("Offering Date") designated by the Committee. Each Offering will be in such
form and will contain such terms and conditions as the Committee will deem
appropriate, which will comply with the requirements of Code Section
423(b)(5) so that all eligible employees granted rights to purchase stock
under the Plan will have the same rights and privileges. The terms and
conditions of an Offering will be incorporated by reference into the Plan and
treated as part of the Plan. The provisions of an Offering need not be
identical to the terms and conditions of any other Offering. Each Offering,
however, will include (through incorporation of the provisions of this Plan
by reference in the document comprising the Offering) the period during which
the Offering will be effective, which period will not exceed twenty-seven
months beginning with the Offering Date, and the substance of the provisions
contained in Plan Sections 5 through 8, inclusive.
5. ELIGIBILITY FOR STOCK PURCHASE RIGHTS.
(a) Subject to the provisions of this Section 5, any employee of the Company is eligible to be granted a stock purchase right under the Plan. Any employee of an Affiliate which adopts the Plan with the approval of the Board also is eligible to be granted a stock purchase right under the Plan, subject to the provisions of this Section 5. For the purposes of the Plan, the term "employee" means a common law employee as determined in accordance with the rules of Code Section 3401(c) and the related Treasury regulations. The term "employee will not include a member of the Board or of the board of directors of an Affiliate who is not also an employee of the Company or an Affiliate, or a leased employee within the meaning of Code Section 414(n). Additionally, the term employee will not include a person who provides services to the Company or an Affiliate under an agreement, contract or other arrangement pursuant to which he is classified initially as an independent contractor or whose remuneration for services to the Company or an Affiliate is treated initially as not subject to federal income tax withholding under Code Section 3402, unless he is subsequently reclassified as a common law employee as a result of a final decree of a court of competent jurisdiction or the settlement of an administrative or judicial proceeding.
(b) Except as provided in Plan Section 5(c), an employee of the Company or any Affiliate will not be eligible to be granted a stock purchase right under the Plan in an Offering, unless on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Committee may require. Any period of continuous employment required by the Committee with respect to a particular Offering will not exceed two
(c) The Committee may provide that each person who, within a prescribed period during the course of an Offering and after the Offering Date, first becomes eligible to be granted a stock purchase right under the Plan will, on a date specified in the Offering which coincides with or follows the date when such person becomes an eligible employee, receive under the Offering a stock purchase right which will be deemed to be a part of that Offering. Such right will have the same characteristics as any right originally granted under that Offering, except that:
(i) The date on which such right is granted will be the "Offering Date" of such right for all purposes, including determination of the exercise price for the right; and
(ii) The period of the Offering with respect to the right will begin on its Offering Date and end coincident with the end of such Offering.
(d) No employee will be eligible for the grant of any stock purchase right in an Offering under the Plan if, immediately after the right is granted, such employee owns or would own stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any Affiliate. For purposes of this Section 5(d), the rules of Code Section 424(d) of the Code will apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options will be treated as stock owned by such employee.
(e) An eligible employee may be granted a stock purchase right under
the Plan only to the extent that the right, together with all other stock
purchase rights granted to him under any "employee stock purchase plan" of
the Company and any Affiliates, as specified by Code Section 423(b)(8), does
not permit the eligible employee's rights to purchase stock of the Company or
any Affiliate under all such plans to accrue at a rate which exceeds twenty
five thousand dollars of Fair Market Value of such stock (as defined in
Section 6(c) and determined at the time such rights are granted) for each
calendar year in which such rights are outstanding at any time.
6. PURCHASE PRICE.
(a) On each Offering Date, each eligible employee will be granted the right to purchase up to the number of shares of Common Stock of the Company purchasable with a maximum percentage designated by the Committee not exceeding fifteen percent of such eligible employee's Compensation (as defined in Plan Section 7(a)) during the period which begins on the Offering Date (or such later date as the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date will be no later than the end of the Offering. The Committee will
(b) In connection with each Offering made under the Plan and subject to the Plan terms, the Committee may specify a maximum number of Common Stock shares that may be purchased by each eligible employee and a maximum aggregate number of Common Stock shares that may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Committee may specify a maximum aggregate number of Common Stock shares which may be purchased by all eligible employees on any given Purchase Date under the Offering. If the aggregate purchase of Common Stock shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Committee will make a pro rata allocation of the Common Stock shares available in as nearly a uniform manner as will be practicable and as it will deem to be equitable.
(c) The purchase price of Common Stock acquired pursuant to rights granted under the Plan will be not less than the lesser of:
(i) An amount equal to eighty-five percent of the Fair Market Value of the Common Stock on the Offering Date; or
(ii) An amount equal to eighty-five percent of the Fair Market Value of the Common Stock on the Purchase Date.
For the purposes of the Plan, unless otherwise defined by the Committee for any particular Offering, the "Fair Market Value" of the Common Stock on any date means the closing price on that date on the NASDAQ National Market, the principal stock exchange or other market on which the Common Stock is traded. If the Common Stock is not traded on a particular date, the Fair Market Value of this stock will be determined from the closing price on the immediately preceding date when the stock is traded. If the Common Stock price is not reported on any securities exchange or national market system, the "Fair Market Value" of the stock for the purposes of the Plan will be the value determined by the Committee.
7. PARTICIPATION IN THE PLAN.
(a) An eligible employee may become a Plan participant pursuant to an Offering by delivering a Plan participation agreement to the Company within the time specified by the Offering, in such form as the Committee provides. Each such agreement will authorize payroll deductions of up to the maximum percentage specified by the Committee of such eligible employee's Compensation during the Offering. For the purposes of the Plan, "Compensation" is defined as an employee's regular salary or wages. "Compensation" does not include overtime, bonuses, commissions, severance pay, incentive pay, shift premium differentials, pay in lieu of vacation, imputed income for income tax purposes, patent fees, awards and prizes, back pay awards,
A participant may prospectively reduce (including to zero) or increase his authorized payroll deductions for any Offering, and an eligible employee may prospectively begin such payroll deductions, after the beginning of any Offering only as provided for in the Offering. A participant may make payments to be credited to his nominal account under the Plan, in addition to his payroll deductions, only if specifically provided in the Offering and only if the participant has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may completely terminate his payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Committee provides. Such a withdrawal may be made at any time prior to the end of the Offering, except as provided by the Committee in the Offering. Upon a participant's withdrawal from the Offering, the Company will distribute to the participant without interest all of his accumulated payroll deductions (to the extent they have not been used to acquire Common Stock for the participant) under the Offering. Immediately upon such distribution, the participant's interest in the Offering will automatically terminate. A participant's withdrawal from an Offering will have no effect upon his eligibility to participate in any subsequent Offering under the Plan; provided, however, that any such participant will be required to deliver a new participation agreement in order to participate in a subsequent Offering.
(c) If the Fair Market Value of the Common Stock on any Purchase Date is lower than the Fair Market Value of the Common Stock on the Offering Date for the Offering in which such Purchase Date occurs, then all participants in such Offering will be automatically withdrawn from such Offering immediately after the exercise of their right to purchase Common Stock on such Purchase Date and automatically re-enrolled in the next Offering, which Offering will commence on the day immediately following such Purchase Date.
(d) Any stock purchase right granted pursuant to any Offering under the Plan to an eligible employee will terminate immediately upon his separation from service with the Company and any Affiliate, for any reason. Within an administratively practicable time thereafter, the Company will distribute to a terminated employee who is a participant all of his accumulated payroll deductions without interest (to the extent they have not been used to acquire Common Stock for the participant) under the Offering. A certificate for all whole shares purchased by the terminated
(e) Rights granted under the Plan will not be transferable by a participant other than by will or the laws of descent and distribution, or by a beneficiary designation as provided in Plan Section 14. During his lifetime, a stock purchase right under the Plan will be exercisable only by the participant to whom it is granted.
8. EXERCISE OF STOCK PURCHASE RIGHTS.
(a) On each Purchase Date specified in the relevant Offering, each participant's accumulated payroll deductions and other additional payments specifically permitted in the Offering (without any increase for interest) will be applied to the purchase of whole shares of Common Stock, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares will be issued upon the exercise of a stock purchase right granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's nominal account after the purchase of shares which is less than the amount required to purchase one share of Common Stock on the final Purchase Date of an Offering will be held in each such participant's nominal account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in Plan Section 7(b), or is no longer eligible to be granted a stock purchase right under the Plan, as provided in Plan Section 5, in which case such amount will be distributed without interest to the participant after such final Purchase Date. The amount, if any, of accumulated payroll deductions remaining in any participant's nominal account after the purchase of shares which is equal to the amount required to purchase whole shares of Common Stock on the final Purchase Date of an Offering will be distributed in full without interest to the participant after such Purchase Date.
(b) On each Purchase Date during an Offering, the Plan custodian designated by the Committee will receive from the Company at the price provided in Plan Section 6(c), as many whole shares of Common Stock as may be purchased with the funds withheld from participants since the immediately preceding Purchase Date, or the Offering Date as the case may be, plus any excess funds accumulated as provided in Section 8(a). Upon the receipt of the Common Stock so purchased, the Plan custodian will allocate to the credit of each participant the number of whole shares of Common Stock to which he is entitled under the Offering. Subject to any restriction imposed by the Committee as provided in this Section 8, and any other restriction imposed by the Committee, a certificate representing the number of whole shares of Common Stock purchased by a participant under this Plan will be issued to the participant upon his request and at his expense. No such certificate will be issued with respect to any Common Stock share prior to the last day of the sixth month following the Purchase Date for that share. Unless otherwise requested by the participant, and if permitted by this Section 8, Common Stock shares purchased under the Plan will
(c) A participant will have no right to sell, encumber, or otherwise transfer a Common Stock share purchased under the Plan until after the last day of the sixth calendar month following the month when the share was purchased, unless the Committee in its sole discretion waives or modifies this restriction. Any attempt to sell, encumber or otherwise transfer a Common Stock share in violation of this Section 8(c) will be null and void. The Committee will enforce the restriction provided in this Section 8(c) by requiring that the Company or the Plan custodian hold the certificate for any share of Common Stock while the restriction is in effect for that share. The Committee in its sole discretion may enforce this restriction through different or additional means as it deems necessary or appropriate.
(d) No stock purchase right granted under the Plan may be exercised to any extent unless the Common Stock shares to be issued upon such exercise under the Plan (including rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act of 1933, as amended ("Securities Act") and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no stock purchase right granted under the Plan or any Offering will be exercised on such Purchase Date, and the Purchase Date will be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date will not be delayed more than twelve months and the Purchase Date will in no event be more than twenty-seven months from the Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no stock purchase right granted under the Plan or any Offering will be exercised and all payroll deductions accumulated during the Offering (to the extent they have not been used to acquire Common Stock for participants) will be distributed without interest to the participants.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the stock purchase rights granted under the Plan, the Company will keep available at all times the number of shares of Common Stock required to satisfy such rights.
(b) The Company will seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of Common Stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained.
Proceeds from the sale of stock pursuant to rights granted under the Plan will constitute general funds of the Company.
11. RIGHTS AS A SHAREHOLDER.
A participant will not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Common Stock share subject to any right granted under the Plan unless and until the participant's shareholdings acquired upon exercise of rights under the Plan are recorded in the books of the Company. Subject to the provisions of Plan Section 8(c), a share of Common Stock issued to a participant under the Plan will be transferable in accordance with the applicable securities laws.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Common Stock subject to the Plan, or subject to any right granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and any outstanding rights will be appropriately adjusted in the class and maximum number of shares subject to the Plan and in the class, number of shares, and price per share of stock subject to outstanding rights. Such adjustments will be made by the Board, the determination of which will be final, binding and conclusive. (The conversion of any convertible securities of the Company will not be treated as an above-described "transaction not involving the receipt of consideration by the Company.")
(b) In the event of (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
the acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any
Affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent of the combined
voting power entitled to vote in the election of directors, then, as
determined by the Board in its sole discretion (1) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for
those under the Plan, (2) such rights may continue in full force and effect,
or (3) the participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to the transaction described above
and all participants' rights under the ongoing Offering terminated.
(a) The Board at any time, and from time to time, may amend the Plan; provided, that, except as provided in Plan Section 12 relating to adjustments upon changes in stock, no amendment will be effective unless approved by the shareholders of the Company within twelve months before or after the adoption of the amendment by the Board, where the amendment will:
(i) Increase the number of shares reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Code Section 423, and the related Treasury regulations, or to comply with the requirements of Rule 16b-3 under the Exchange Act, as amended ("Rule 16b-3")); or
(iii) Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Code Section 423 of the Code, and the related Treasury regulations, or to comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect that the Board deems necessary or advisable to bring the Plan and any stock purchase right granted under the Plan into compliance with the Code and the related Treasury regulations.
(b) Rights and obligations under any stock purchase right granted before a Plan amendment will not be impaired by any amendment of the Plan, except with the consent of the eligible employee or participant to whom such rights were granted, or as necessary to comply with any laws or governmental regulations, or as necessary to ensure that the Plan and any stock purchase right granted under the Plan comply with the requirements of Code Section 423 and the related Treasury regulations.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to receive any Common Stock shares and cash, if any, from the participant's nominal account under the Plan in the event of such participant's death during or after the end of an Offering but prior to delivery to the participant of such shares and cash.
(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company will deliver such Common Stock shares and cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any time. No right may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any stock purchase right granted while the Plan is in effect will not be impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such right was granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and rights granted under the Plan comply with the requirements of Code Section 423 and the related Treasury regulations.
16. EMPLOYMENT RIGHTS.
The Plan and any stock purchase right granted under the Plan will neither confer on any employee any right with respect to continuation of employment by the Company or any Affiliate, nor will it interfere in any way with the right of the Company or any Affiliate to terminate such employment at any time.
17. MISCELLANEOUS.
(a) As used in this Plan the term "and" means "and/or", the singular includes the plural, and the masculine includes the feminine and neuter. Headings of articles are not to be considered in the construction of the Plan.
(b) In the event that any provision of this Plan is held to be contrary to any statute or law, or otherwise unenforceable, the remaining provisions of this Plan will be enforced to the fullest extent practicable.
(c) The expenses of administering the Plan, including any expense incurred to purchase Common Stock to be issued under the Plan will be paid by the Company. Except as provided in Plan Section 7(d), a participant will be responsible for any expense incurred to certify or sell shares purchased by him under the Plan.
(d) All rights and obligations under the Plan will be construed and interpreted in accordance with the laws of the State of Colorado, without giving effect to the conflict of laws principles of such laws.
18. EFFECTIVE DATE.
By: /s/ Jeffery S. Fraser
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Title: Chief Executive Officer
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THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of July 1998, by and between JEFFERY S. FRASER ("Executive") and NATIONAL INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal services to the Company and to the Company's subsidiaries, and wishes to provide Executive with certain compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary of the Company, agrees to employ Executive in the position of President and Executive hereby accepts such employment effective as of the date first written above. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods and reasonable periods of illness or other incapacity's permitted by the Company's general employment policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in
2. COMPENSATION
2.1 SALARY. Executive shall receive for services to be rendered hereunder an annualized base salary of $249,000, payable in equal installments (prorated for portions of a pay period) on the Company's regular pay days and the Company will withhold from such compensation all applicable federal and state income, social security and disability and other taxes as required by applicable laws.
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard Company benefits and compensation practices which may be in effect from time to time and provided by the Company to its employees generally.
3. PROPRIETARY INFORMATION OBLIGATIONS
3.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A (the "Proprietary Information Agreement").
4. TERMINATION OF EMPLOYMENT
4.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause.
(b) In the event Executive's employment is terminated without cause before July 1st, 2001, the Company shall pay Executive one year's base compensation in a single lump sum distribution on the first regular Company pay period after said termination; PROVIDED, HOWEVER, if Executive is terminated without cause during the final twelve months of his Employment Agreement, he shall only be entitled to the equivalent of his base compensation in a single lump sum distribution on the first regular Company pay period after said termination for the remaining number of months until expiration of Employment Agreement,
(c) In the event Executive's employment is terminated without cause on or after July 1st, 2001, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation, except as provided in the
4.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time for cause. Written notification of termination and specific cause of termination shall be provided to the Executive at the time of termination.
(b) "Cause" for termination shall mean: (a) indictment or conviction of any felony or of any crime involving dishonesty; (b) willful participation in any fraud against the Company; (c) willful breach of Executive's duties to the Company, including persistent unsatisfactory performance of job duties; (d) intentional damage to any property of the Company; or (e) conduct by Executive which in the good faith and reasonable determination of the Board demonstrates gross unfitness to serve.
(c) In the event the Executive is notified in writing that his employment is to be terminated for cause, the Executive shall be given thirty days from date of notification to cure the specific cause(s) set forth in the notification.
(d) In the event Executive's employment is terminated at any time with cause, the executive will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, Executive is entitled and shall receive all compensation earned prior to and including the date of termination.
4.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment in writing with the Company at any time, after which no further compensation will be paid to Executive.
(b) In the event Executive voluntarily terminates his employment, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, Executive is entitled and shall receive all compensation earned prior to and including the date of termination.
5. NON-INTERFERENCE; NON-COMPETITION.
(i) soliciting, attempting to solicit, inducing, or otherwise causing any employee of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of any customer of the Company which at the time of termination or one year immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the Non-Competition Agreement attached hereto as EXHIBIT B.
6. GENERAL PROVISION.
6.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll.
6.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
6.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
6.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to the material terms of executive employment, compensation, and duration. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by Executive and an officer of the Company.
6.6 HEADINGS. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
6.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
6.8 ATTORNEY FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action.
6.9 CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee Agreement on the day and year first above written.
By: /s/ Ross C. Hartley
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Name: Ross C. Hartley
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Title: Vice President
/s/ Jeffery S. Fraser
--------------------------------
Name: Jeffery S. Fraser
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THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 24 day of July 1998, by and between WILLIAM F. BRADLEY JR. ("Executive") and NATIONAL INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal services to the Company and to the Company's subsidiaries, and desires to provide Executive with certain compensation and benefits in return for his services; and
WHEREAS, Executive desires to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary of the Company, agrees to employ Executive in the position of Subsidiary President and Executive hereby accepts such employment effective as of the date first written above. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods and reasonable periods of illness or other incapacities permitted by the Company's general employment policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered hereunder an annualized base salary of $140,000, payable in equal installments (prorated for portions of a pay
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard Company benefits and compensation practices which may be in effect from time to time and provided by the Company to its employees generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A (the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of Directors, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder.
4.2 Except as permitted my Section 4.3, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by him to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever which were known by him to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, he may own, as a passive investor, shares of a publicly-held corporation that is competitive with the Company, if such shares are actively traded on an established national securities market, so long as the number of shares of such corporation's capital stock that are owned beneficially (directly or indirectly) by Executive shall not in the aggregate constitute more than 5% of the outstanding voting stock of such corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause.
(c) In the event Executive's employment is terminated without cause on or after July 1st, 2001, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation, except as provided in the Company's Severance Benefit Plan, if any, in effect on the termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time for cause. Written notification of termination and specific cause of termination shall be provided to the Executive at the time of termination.
(b) "Cause" for termination shall mean: (i) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any time with cause, the executive will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, that Executive is entitled and shall receive all compensation earned prior to and including the date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the Company in writing at any time, after which no further compensation will be paid to Executive.
(b) In the event Executive voluntarily terminates his employment, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, that Executive shall receive all compensation earned prior to and including the date of termination.
(a) While employed by the Company, and for three (3) years immediately following the Termination Date, Executive agrees not to interfere with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or otherwise causing any employee of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of any customer of the Company which at the time of termination or one year immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISION.
7.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
7.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by Executive and an officer of the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee Agreement on the day and year first above written.
By:/s/ Jeff Fraser
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Name: Jeff Fraser
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Title: President
By: /s/ William F. Bradley, Jr.
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Name: William F. Bradley, Jr.
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THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 24th day of July 1998, by and between SAMUEL SOMERHALDER ("Executive") and NATIONAL INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal services to the Company and to the Company's subsidiaries, and desires to provide Executive with certain compensation and benefits in return for his services; and
WHEREAS, Executive desires to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary of the Company agrees to employ Executive in the position of Subsidiary President and Executive hereby accepts such employment effective as of the date first written above. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods and reasonable periods of illness or other incapacities permitted by the Company's general employment policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered hereunder an annualized base salary of $115,000, payable in equal installments (prorated for portions of a pay
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard Company benefits and compensation practices which may be in effect from time to time and provided by the Company to its employees generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A (the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of Directors, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder.
4.2 Except as permitted my Section 4.3, Executive agrees not to acquire, assume or participate in, directly, any position, investment or interest known by him to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with ant other person, corporation, firm, partnership or other entity whatsoever which were known by him to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, he may own, as a passive investor, shares of a publicly-held corporation that is competitive with the Company, if such shares are actively traded on an established national securities market, so long as the number of shares of such corporation's capital stock that are owned beneficially (directly or indirectly) by Executive shall not in the aggregate constitute more than 5% of the outstanding voting stock of such corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause.
(c) In the event Executive's employment is terminated without cause on or after July 1, 2001, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation, except as provided in the Company's Severance Benefit Plan, if any, in effect on the termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time for cause. Written notification of termination and specific cause of termination shall be provided to the Executive at the time of termination.
(b) "Cause" for termination shall mean: (i) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any time with cause, the executive will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, that Executive shall receive all compensation earned prior to and including the date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the Company in writing at any time, after which no further compensation will be paid to Executive.
(b) In the event Executive voluntarily terminates his employment, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, Executive is entitled and shall receive all compensation earned prior to and including the date of termination.
(a) While employed by the Company, and for three (3) years immediately following the Termination Date, Executive agrees not to interfere with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or otherwise causing any employee of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of any customer of the Company which at the time of termination or one year immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISION.
7.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
7.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by Executive and an officer of the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee Agreement on the day and year first above written.
By:/s/ Jeff Fraser -------------------- Name: Jeff Fraser |
Title: President
/s/ Samuel Somerhalder
-----------------------
Name:Samuel Somerhalder
-------------------
|
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 24 day of July 1998, by and between HARRY H. HERINGTON ("Executive") and NATIONAL INFORMATION CONSORTIUM, INC. a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal services to the Company and to the Company's subsidiaries, and desires to provide Executive with certain compensation and benefits in return for his services; and
WHEREAS, Executive desires to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary of the Company agrees to employ Executive in the position of Subsidiary President and Executive hereby accepts such employment effective as of the date first written above. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods and reasonable periods of illness or other incapacities permitted by the Company's general employment policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered hereunder an annualized base salary of $125,000, payable in equal installments (prorated for portions of a pay period) on the Company's regular pay days and the Company will
2.2 STANDARD COMPANY BENEFITS. Executive shall be entitled to all rights and benefits for which he is eligible under the terms and conditions of the standard Company benefits and compensation practices which may be in effect from time to time and provided by the Company to its employees generally.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 AGREEMENT. Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A (the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of Directors, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder.
4.2 Except as permitted my Section 4.3, Executive agrees not to acquire, assume or participate in, directly, any position, investment or interest known by him to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever which were known by him to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, he may own, as a passive investor, shares of a publicly-held corporation that is competitive with the Company, if such shares are actively traded on an established national securities market, so long as the number of shares of such corporation's capital stock that are owned beneficially (directly or indirectly) by Executive shall not in the aggregate constitute more than 5% of the outstanding voting stock of such corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause.
(c) In the event Executive's employment is terminated without cause on or after July 1, 2001, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation, except as provided in the Company's Severance Benefit Plan, if any, in effect on the termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time for cause. Written notification of termination and specific cause of termination shall be provided to the Executive at the time of termination.
(b) "Cause" for termination shall mean: (i) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any time with cause, the executive will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, Executive is entitled and shall receive all compensation earned prior to and including the date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the Company in writing at any time, after which no further compensation will be paid to Executive.
(b) In the event Executive voluntarily terminates his employment, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, that Executive shall receive all compensation earned prior to and including the date of termination.
(a) While employed by the Company, and for three (3) years immediately following the Termination Date, Executive agrees not to interfere with the business of the Company by:
(i) soliciting, attempting to solicit, inducing, or otherwise causing any employee of the Company to terminate his or her employment in order to become an employee, consultant or independent contractor to or for any competitor of the Company; or
(ii) directly or indirectly soliciting the business of any customer of the Company which at the time of termination or one year immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISION.
7.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
7.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by Executive and an officer of the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
7.7 SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
7.8 ATTORNEY FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee Agreement on the day and year first above written.
By:/s/ Jeff Fraser
--------------------
Name:Jeff Fraser
------------------
|
Title:President
/s/ Harry H. Herington
------------------------
Name:Harry H. Herington
-------------------
|
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1 day of January 1999, by and between James B. Dodd ("Executive") and NATIONAL INFORMATION CONSORTIUM, INC., a Delaware corporation (the "Company").
WHEREAS, the Company desires to employ Executive to provide personal services to the Company and to the Company's subsidiaries, and desires to provide Executive with certain compensation and benefits in return for his services; and
WHEREAS, Executive desires to be employed by the Company and provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE, the parties hereto agree as follows:
1. EMPLOYMENT BY THE COMPANY.
1.1 Subject to terms set forth herein, the Company or a subsidiary of the Company agrees to employ Executive in the position of President & Chief Operating Officer and Executive hereby accepts such employment effective as of the date first written above. During the term of his employment with the Company, Executive will devote his best efforts and substantially all of his business time and attention (except for vacation periods and reasonable periods of illness or other incapacities permitted by the Company's general employment policies) to the business of the Company.
1.2 Executive will serve in an executive capacity and shall perform such duties as are customarily associated with his then current title, consistent with the Bylaws of the Company and as required by the Company's Board of Directors (the "Board").
1.3 The employment relationship between the parties shall also be governed by the general employment policies and practices of the Company, including those relating to protection of confidential information and assignment of inventions, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall control.
2. COMPENSATION.
2.1 SALARY. Executive shall receive for services to be rendered hereunder an annualized base salary of $200,000, payable in equal installments (prorated for portions of a pay period) on the Company's regular pay days and the Company will withhold from such compensation all applicable federal and state income, social security and disability and other taxes as required by applicable laws.
3. PROPRIETARY INFORMATION OBLIGATIONS.
3.1 Agreement. Executive agrees to execute and abide by the Proprietary Information and Inventions Agreement attached hereto as EXHIBIT A (the "Proprietary Information Agreement").
4. OUTSIDE ACTIVITIES.
4.1 Except with the prior written consent of the Company's Board of Directors, Executive will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties hereunder.
4.2 Except as permitted by Section 4.3, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by him to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
4.3 During the term of his employment by the Company, except on behalf of the Company, Executive will not directly or indirectly, whether as an officer, director, stock-holder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever which were known by him to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, he may own, as a passive investor, shares of a publicly-held corporation that is competitive with the Company, if such shares are actively traded on an established national securities market, so long as the number of shares of such corporation's capital stock that are owned beneficially (directly or indirectly) by Executive shall not in the aggregate constitute more than 5% of the outstanding voting stock of such corporation.
5. TERMINATION OF EMPLOYMENT.
5.1 TERMINATION WITHOUT CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time without cause.
(b) In the event Executive's employment is terminated without cause before January 1, 2002, the Company shall pay Executive severance equal to
(c) In the event Executive's employment is terminated without cause on or after January 1, 2002, Executive will not be entitled to severance pay, pay in lieu of notice or any other such compensation, except as provided in the Company's Severance Benefit Plan, if any, in effect on the termination date.
5.2 TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate Executive's employment with the Company at any time for cause. Written notification of termination and specific cause of termination shall be provided to Executive at the time of termination.
(b) "Cause" for termination shall mean: (1) indictment or
conviction of any felony or of any crime involving dishonesty; (ii) willful
participation in any fraud against the Company; (iii) breach of Executive's
duties to the Company, including persistent unsatisfactory performance of job
duties; (iv) intentional damage to any property of the Company; or (v)
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve. With respect to clause
(iii) above, Executive shall be given written notice of such unsatisfactory
performance and 30 days from the date of such notice to cure the causes set
forth therein.
(c) In the event Executive's employment is terminated at any time with cause, Executive will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, that Executive shall receive all compensation earned prior to and including the date of termination.
5.3 VOLUNTARY OR MUTUAL TERMINATION.
(a) Executive may voluntarily terminate his employment with the Company in writing at any time, after which no further compensation will be paid to Executive.
(b) In the event Executive voluntarily terminates his employment, he will not be entitled to severance pay, pay in lieu of notice or any other such compensation; PROVIDED, HOWEVER, that Executive shall receive all compensation earned prior to and including the date of termination.
6. NON-INTERFERENCE; NON-COMPETITION.
(a) While employed by the Company, and for three (3) years immediately following the Termination Date, Executive agrees not to interfere with the business of the Company by:
(ii) directly or indirectly soliciting the business of any customer of the Company which at the time of termination or one year immediately prior thereto was listed on the Company's customer list.
(b) Executive agrees to execute and abide by the Non-Competition Agreement attached hereto as EXHIBIT B.
7. GENERAL PROVISIONS.
7.1 NOTICES. Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed on the Company payroll.
7.2 SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.
7.3 WAIVER. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
7.4 COMPLETE AGREEMENT. This Agreement and its Exhibits, constitute the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in a writing signed by Executive and an officer of the Company.
7.5 COUNTERPARTS. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
7.6 HEADINGS. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
7.8 ATTORNEY FEES. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action.
7.9 CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Kansas.
IN WITNESS WHEREOF, the parties have executed this Key Employee Agreement on the day and year first above written.
By:/s/ William F. Bradley, Jr.
---------------------------
Name: William F. Bradley, Jr.
-------------------------
Title: Secretary
------------------------
|
/s/ James B. Dodd
-------------------------------
Name: James B. Dodd
------------------------
|
THIS CONTRACT is between the Information Network of Kansas, a public instrumentality created by K.S.A. 1990 Supp. 74-9303, hereinafter referred to as INK, and the Kansas Information Consortium, a for-profit Kansas corporation, hereinafter referred to as KIC.
WHEREAS, INK issued a request for proposals for a network manager, dated June 18, 1991, and addenda thereto dated June 28, 1991 and July 25, 1991. The request and addenda are hereinafter collectively referred to as the RFP.
WHEREAS, KIC submitted a 117 page proposal in response to the RFP. The proposal is hereinafter referred to as the KIC Proposal.
WHEREAS, INK is desirous of entering into a contract with KIC to serve as network manager to develop, operate, maintain and expand a network for electronic access to public information as contemplated by K.S.A. 1990 Supp. 74-9301, et seq., and amendments thereto, hereinafter referred to as the Network.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF NETWORK.
The purposes of the Network and this Contract are expressed by statute and in INK's general policies and principles, which may be summarized as follows:
a. To provide a public service to the citizens and businesses of Kansas by increasing accessibility to public information and other useful information services through electronic means.
2. HARDWARE, SOFTWARE AND ACCESS LINES.
KIC will provide hardware and provide or develop software as enumerated in the KIC proposal and such other hardware and software as may be necessary to make the Network operational. Copies of application software, documentation and source code, together with all updates and revisions, shall be provided to INK as they are prepared or developed. Upon termination or expiration of this Contract, all Network and manager records, work papers and operations documentation shall be delivered to INK within thirty (30) days after termination or expiration and shall become the property of INK, if not already such.
Copies of application software, documentation and source code, together with all updates and revisions developed by KIC, shall be the intellectual and tangible property of KIC. However, such application software, documentation and source code, together with all updates and revisions made during the term of this Contract, are considered during the life of this Contract and perpetually thereafter, to be licensed for use to the State of Kansas through INK or any successor to be used in operation and expansion of the Network or any successor Network. Such license is provided to the State of Kansas in consideration for the opportunity to develop such application software, documentation and source code, together with all updates and revisions thereof, which may have application in other states.
3. CONNECTIONS BETWEEN NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state facilities to KIC facilities for Network purposes shall be the responsibility of KIC.
4. NETWORK SERVICE.
KIC on behalf of INK shall negotiate with and obtain written contracts from each separate state agency from which electronic access is desired. Such contracts shall provide for the costs state agencies will charge KIC for information to be provided, the time period and means by which KIC will pay state agencies for access, the criteria the state agency and KIC will utilize for system development, testing and acceptance in order to assure the reliability of the Network, protection of data, Network security and any other reasonable special requirement for access to agency data. Payments to state agencies for state agency information shall be due from KIC and paid within 60 days from the usage or sale date unless a shorter period is specified in the agreement between KIC and a state agency.
INK will cooperate in assisting electronic access, which may be funded by INK in appropriate circumstances. After negotiating an agency agreement, the agreement shall be presented to INK for final approval. When an agreement is presented to INK, KIC shall also present to INK a recommendation for prices to be charged users for the applicable Network service.
5. REGULATION OF RATES BY INK.
All charges to Network users shall be subject to the final approval of INK for fairness, reasonableness and appropriateness. In setting such rates INK shall consider the following factors:
a. The need to reward innovation and efficiency in management.
b. A commitment to the public policy requirement to provide electronic access to public records at the most reasonable rate possible.
c. That the provider of such access has a virtually sole source monopolistic control of such access.
d. The fact that some batch records are already provided electronically by the State.
e. The entrepreneurial and start-up nature of the business and attendant risk of capital for KIC.
f. The need to invest in expansion of and improvement in services.
g. Any other reasonable factor which in the opinion of INK should be considered.
Such services will thereafter be subject to periodic review and adjustment by INK. Recommendations for amended rates shall be made by KIC in the annual business plan submitted to INK.
In the event that costs which KIC pays state agencies for data or data access are reduced as a result of legislation or administrative changes, such reductions shall be passed on directly to subscribers and users of the Network unless otherwise approved in writing by INK.
6. NETWORK MANAGER REMUNERATION.
Within the framework of the rate setting procedure addressed in section 5 above, the disbursement of all funds received by KIC/INK as a result of the operation of this Contract will be as follows:
a. INK will receive before all other payments 2% of gross revenue per annum, payable monthly, which INK may use to support Board operations and to pay audit and other expenses. Such funds shall be deposited in the Information Network of Kansas fund.
b. KIC shall receive a 25% rate of return per annum on its risk capital from net income before taxes. This 25% rate of return on risk capital shall be cumulative and no net income before taxes on income shall be returned to INK, per paragraph c below, until prior year(s) net losses, if any, are subtracted from current net income and the 25% rate of return on risk capital has been paid.
For purpose of this paragraph, "risk capital" is defined as and limited to the following:
1. PAID-IN CAPITAL. Paid-in capital means the amount of money or other consideration actually paid for stock issued by KIC. Paid-in capital for purposes of this section does not include retained earnings.
2. CORPORATE LOANS. Corporate loans are defined as those which are in furtherance of the purpose of the Network as expressed in section 1 above, which have a payback period exceeding one year, and which are memorialized by written agreement. Operating loans, which are defined as loans in furtherance of the purpose of the Network as expressed in section 1 above, but have a payback period of one year or less and tax obligations, accounts payable or other operating credits of less than one year's duration are specifically excluded from the definition of risk capital. For the purpose of computing return on investment of a corporate loan, the value of the corporate loan will be based on the amount of remaining obligation.
3. CORPORATE LEASES. A corporate lease is a written contractual obligation of KIC which is entered into for a purpose in furtherance of Network operations. For a corporate lease to qualify for risk capital treatment, it must be a written obligation for a set non-negotiable period of time with no provision for termination at will within the period of set obligation. For the purpose of computing return on
All risk capital of KIC in excess of $500,000 total shall be subject to the express written approval of INK.
c. INK will receive one-third of the net income before taxes, if any, which is in excess of the 25% rate of return on risk capital, referenced in paragraph b above. This one-third will be paid to INK annually by June 15, following the close of each year. This payment is separate and distinct from the payment specified in paragraph a above. Such funds shall be deposited in the Information Network of Kansas fund and used as the Board shall determine in furtherance of the general purpose of the Network.
d. KIC will be entitled to retain the sums remaining after payment of the amounts specified in paragraphs a, b and c above.
7. CHANGES IN NETWORK.
A planned material change in Network operations cannot be made by KIC without the prior written consent of INK. A "material change" is defined as a change which increases response time to inquiries, adds to the complexity of system use, diminishes services provided, or results in a comparable impact on operations.
KIC will provide to INK at least 30 days prior written notice of a planned material change in Network operations.
8. NOTICES.
The INK contact person shall be the Chairperson of the INK Board of Directors. The KIC contact person shall be Jeff Fraser, Manager. These designations may be changed following written notice to the other party to this Contract.
Such notices shall be effective on the date of receipt if sent by U.S. first-class mail, postpaid, or by overnight delivery, prepaid.
9. FINANCES AND RECORDS.
All KIC documents and records will be available for inspection, auditing and copying by INK, the Legislative Division of Post Audit or other authorized representatives designated by INK. Monthly income statements and balance sheets will be provided to INK by KIC.
KIC also agrees to make other changes requested by INK to comply with recommendations made in any audit, which are agreed to by both INK and KIC.
To the extent the audit report discloses any discrepancies in the KIC charges, billings or financial records, and following a period for review and verification of the amount by KIC, KIC will adjust the next monthly bill as soon as reasonably possible but not to exceed 90 days. KIC shall cooperate to assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books of original entry of all transactions, appropriate subsidiary ledgers, a general ledger which includes to-date postings and an audit trail through financial statements. KIC shall from the beginning of this Contract adopt the calendar year ending December 31, for reporting purposes.
10. MANAGEMENT REPORTS AND BUSINESS PLAN.
11. KIC SHAREHOLDERS.
KIC agrees to provide and continually update a list of names and addresses of stockholders of KIC and the percentage of ownership of each stockholder.
As a basic policy all shareholders of KIC shall be natural persons; however, exceptions to this requirement may be approved by INK on a case by case basis. Such approval is not to be unreasonably withheld. The intent of this section is that INK shall know the identity of all KIC investors back to natural persons.
12. PROHIBITION ON INTERESTED PARTY PAYMENTS.
"Interested party" means any KIC officer, director, stockholder and any family member of the foregoing. No payments shall be made to an interested party or a business entity controlled by an interested party except for the fair value of lawful goods or services actually rendered to the Network.
This requirement shall not be applicable to shareholder dividends.
13. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED EMPLOYER EXPENSES.
The hiring, firing, recruitment, management, and training of KIC employees will not be the responsibility of INK. INK's involvement in the personnel affairs of KIC shall be limited to disclosure of the maximum total compensation in terms of employment (including benefits and required employer contributions) to officers and employees of KIC.
Attachment A also sets forth the maximum compensation payable during the current fiscal year for each officer, or director or employee of KIC and indicates what such compensation equates to on an annual basis. No officer, employee, director or shareholder of KIC shall receive a salary, except as and for services performed by such officer, employee, or director or shareholder for KIC on behalf of the Network.
KIC shall be responsible for all required employer costs attributable to its officers and employees, including but not limited to, workers' compensation premiums and deductible, unemployment compensation tax withholding contributions and similar items.
14. REVENUE ACCOUNT AND PAYMENTS THEREFROM.
a. GENERAL PROVISIONS. The initial capital investment of KIC shall be $250,000, plus capital equipment previously acquired, which shall be deposited in the
b. PAYMENTS FROM ACCOUNTS. Payments from the accounts are authorized as follows:
1. Payments to state agencies for electronic access to information.
2. Payment of ordinary, necessary and reasonable operating expenses for operation of the Network.
3. System development costs, including programming (to the extent not covered by regular salary under ordinary operating expenses) and one time purchases or upgrades of software or hardware.
4. Payment of dividends.
5. Payment to INK.
15. INCORPORATION BY REFERENCE.
The provisions of the RFP are hereby incorporated into this contract and made a part hereof. If there is any conflict between the terms of the RFP and the provisions of this Contract, the terms of the Contract shall control over the terms of the RFP. The KIC proposal shall not be controlling between the parties. KIC acknowledges and agrees to all terms and conditions of the RFP, except those modified by this Contract.
16. INSURANCE AND BONDS.
a. A $100,000 performance bond for this Contract.
b. Proof of a general comprehensive liability insurance policy in the amount of at least $500,000 and a deductible of not more than $5,000.
c. Employment Dishonesty Bond covering all KIC officers and employees in an amount of at least $100,000 per employee.
17. TERMINATION OF CONTRACT.
INK shall have the right to terminate this Contract for cause by providing written notice of termination to KIC. Such notice shall specify the time, parameters of this Contract, or "for cause" reason that gives rise to the termination and shall specify action that can be taken by KIC to avoid termination of the Contract. INK shall provide a period of time of up to one hundred eighty (180) days, unless otherwise specified in this Contract, for KIC to cure breaches and deficiencies of its performance obligations under this Contract.
INK may terminate this Contract at any time and without cause if directed to do so by statute.
18. TERMINATION FOR CAUSE.
For purposes of this Contract, the phrase "for cause" shall mean:
a. Any material breach or evasion by KIC of the terms or conditions of this Contract and its amendments if any.
b. Ownership in KIC by a shareholder unacceptable to INK.
d. Fraud, misappropriation, embezzlement, malfeasance, significant misfeasance, or illegal conduct by KIC, its officers, directors or shareholders.
e. Substantial failure to comply with the Business Plan.
f. Dissolution of KIC or forfeiture of its corporate existence.
g. Repeal of the INK enabling statute. This is cause for immediate termination.
h. Amendment of the INK enabling statute so that network operations are no longer feasible.
i. Insolvency of KIC.
j. Breach of an agreement with any state agency.
k. Disclosure of any confidential information.
19. CONTRACTUAL PROVISIONS ATTACHMENT.
The provisions found in Contractual Provisions Attachment (Form DA-146a), which is attached hereto, are hereby incorporated in this Contract and made a part hereof.
20. STANDARD USE MESSAGES.
KIC shall display a standard use message to all subscribers upon initial log-on the Network and such subscriber shall be required to verify compliance to said message terms. Upon subsequent log-ons, message shall be displayed only without verification if prior verification is logged in user file. All messages must contain language that is at least as restrictive as the following:
a. Use any list of names or addresses contained in or derived from public records or information for the purpose of selling or offering for sale any property or service to any persons listed or to any persons who reside at any address listed; or
b. Sell, give or otherwise make available to any person any list of names or addresses contained in or derived from records or information for the purpose of allowing that person to sell or offer for sale any property or service to any person listed or to any persons who reside at any address listed. I understand that my Network privileges may be terminated for violations of the certification and further that such violations are violations of State law for which I may be prosecuted."
KIC shall provide record custodial agencies the opportunity to include additional wording if determined necessary by the custodial agency. The standard use message shall be compliant with any amendments to the law.
21. STATE AGENCY ACCESS.
a. Data owning agencies must have terminal (read) access to KIC'S computerized log of subscribers and their security status, without access cost to the data supplying agency. The agencies will be responsible for the cost of terminal(s) and the cost of a dial-up or lease line, whichever is used.
b. Data owners must be able to sign on to the KIC'S system to audit the dissemination of records. On-line audit capability must be available for 18 months after transaction processing. After the initial 18 month period, KIC shall maintain this
At a minimum, KIC shall retain the following data: name of subscriber, transaction data and time, type of inquiry and access keys.
c. KIC shall notify agencies within two hours of unauthorized attempts to gain access to classified data. The notice shall contain detailed information to aid the agency supplier to examine the matter.
22. LIMITATION OF PURPOSE.
KIC shall engage solely in the business or businesses expressly approved by INK which shall initially be only and solely the start-up, operation, maintenance and expansion of the Network. KIC shall furnish INK with certified copies of Articles of Incorporation reflecting this limitation of purpose.
23. PATENT, COPYRIGHT, TRADEMARKAND TRADE SECRET INDEMNITY.
KIC warrants that its proposed operations of the Network does not and shall not infringe on the United States patent, copyright, trademark or trade secret rights of any person or entity. INK shall be provided with prompt notice of any such claim of infringement and KIC shall have the exclusive right to defend or settle such claim at KIC's option. INK shall cooperate with KIC in its defense or settlement of such claim at no expense to INK. If KIC determines that the right of users to use the Network is likely to be abridged, KIC shall (a) take all reasonable steps necessary to procure for users the right to continue to use the Network; or (b) modify the network so that no such abridgment will occur and correspondingly reduce charges if the modified Network is not
24. LIABILITY.
INK and the State of Kansas, its agents and employees shall not be legally responsible to KIC for errors due to Network problems.
KIC agrees for itself, its agents, employees and assigns to hold harmless, indemnify and, if necessary, defend INK and the State of Kansas, its agents and employees from any actions arising out of KIC's negligence or failure to perform under the terms of this Contract.
25. ASSIGNMENT AND SUBCONTRACTING.
KIC may not assign any of its rights or delegate any of its duties hereunder unless done pursuant to prior written consent of INK.
KIC may subcontract portions of work to be performed by it under this Contract with the written consent of INK.
26. TERM OF CONTRACT.
This Contract shall be for a term of 5 years, commencing January 1, 1992 and expiring at 12:00 a.m., December 31, 1996, unless earlier terminated by the Board for cause.
Subject to the agreement in writing of the parties, this Contract may be renewed or amended and renewed.
27. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly agreed that KIC is an independent contractor in the performance of each and every part of this
KIC may become an agent of INK only by the expressed written consent of
INK.
KIC will not pledge any assets of INK in its care, custody or control or cause any type of lien to attach to such.
28. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated or upon expiration of the Contract, KIC shall, at the option of INK, continue to operate under this Contract as network manager in accordance with all terms and conditions of this Contract, together with any amendments or modifications in existence at such time, for a period of up to 12 months from the time of expiration or notification of termination from INK to KIC. The intent of this provision is to insure continuation of network operations while a successor network manager is chosen and installed.
29. AGREEMENT NOT TO COMPETE.
As a condition to commencing operations as network manager under the terms of this Contract, KIC shall deliver to INK signed statements by KIC (which also binds its successors and assigns) and its shareholders, officers, and directors, in substantially the following form:
In consideration for the award of the contract for providing electronic access to state information and other information services by the Information Network of Kansas to the Kansas Information Consortium, and my continuing association with the Kansas Information Consortium in the capacity of
Any substitute or new employees, shareholders or directors shall be required to execute such an agreement not to compete, as a condition of assuming their duties.
30. ENTIRE CONTRACT.
This Contract constitutes the entire contract of the parties and supersedes all other prior written or oral contracts between the parties with respect to the subject matter hereof. This Contract may be amended only by a writing signed by the parties hereto.
/s/William F. Bradley, Jr. ------------------
-------------------------------------------- Date
William F. Bradley, Jr.
Chairperson
ATTEST
/s/Charlotte Shawver
--------------------------------------------
Charlotte Shawver, Secretary 12-18-91
--------------------
Date
|
/s/Ross Hartley -------------------------------------------- --------------------- Ross Hartley Date President |
/s/Jeff Fraser
--------------------------------------------
Jeff Fraser, Secretary 12-18-91
---------------------
Date
|
WHEREAS, the Information Network of Kansas, Inc. (hereinafter "INK") made and entered into a Contract for Network Manager Services (hereinafter "the Contract") with the Kansas Information Consortium (hereinafter "KIC") on December 18, 1991; and
WHEREAS, Section 16, subparagraph a, of the Contract states:
"a. A $100,000 performance bond for this Contract." and
WHEREAS, compliance with Section 16, subparagraph a of the Contract is a prerequisite, according to the terms of the Contract, to the Contract becoming effective; and,
WHEREAS, KIC and INK have otherwise operated under the Contract for nine months without performance problems; and,
WHEREAS, KIC has attempted to obtain such performance bond, but has been unable to do so, due to the insurers being unsure when a default would be deemed to occur under the Contract, how damages under such default would be determined, and for what they would be liable; and,
WHEREAS, a committee of the INK Board of Directors, after study, has recommended deletion of subparagraph a of Section 16, which recommendation was adopted unanimously by a quorum of the Board of Directors at their regular meeting September 17, 1992;
NOW THEREFORE, KIC and INK do hereby AMEND the Contract by deleting subparagraph a. of Section 16 of the Contract, the performance bond requirement.
IN WITNESS to their agreement to all of the above and foregoing, the parties have authorized their respective officers to execute this AMENDMENT on the date below written, by subscribing their signatures thereto.
/s/William F. Bradley, Jr. 10-15-92
------------------------------------------------- -----------------
William F. Bradley, Jr. Date
Chairperson
ATTEST
/s/Charlotte Shawver
--------------------------------------------------
Charlotte Shawver, Secretary 10-15-92
-----------------
Date
1
|
KANSAS INFORMATION CONSORTIUM
/s/Ross C. Hartley 10-15-92
------------------------------------------------ -------------------------
Ross C. Hartley, Chairman Date
ATTEST
/s/Jeff S. Fraser
------------------------------------------------
Jeff S. Fraser, Secretary 10-15-92
--------------------------
Date
|
WHEREAS, the Information Network of Kansas, Inc. (hereinafter "INK") made and entered into a Contract for Network Manager Services (hereinafter "the Contract") with the Kansas Information Consortium (hereinafter "KIC") on December 18, 1991; and
WHEREAS, Section 21, subparagraph b, of the Contract states:
"b. Data owners must be able to sign on to the KIC's system to audit the dissemination of records. On-line audit capability must be available for 18 months after transaction processing. After the initial 18 month period, KIC shall maintain this information either on-line or off-line. The retention period shall never be less than that approved by the State Records Board.
At a minimum, KIC shall retain the following data: name of subscriber, transaction data and time, type of inquiry, and access keys."; and
WHEREAS, the INK Board of Directors, after study, has recommended replacement of subparagraph b of Section 21, which recommendation was adopted unanimously by a quorum of the Board of Directors at their regular meeting July 15, 1993; with language as follows:
"b. Data owners must be able to sign on to the KIC's system to audit the dissemination of records. On-line audit capability must be available for the length of time specified by the data owners. After the on-line retention period has expired, KIC shall as specified in a contract between the data owners and KIC, retain, destroy, or provide the record information to the data owners without cost."
At a minimum, KIC shall retain the following data: name of subscriber, transaction data and time, type of inquiry, and access keys."; and
WHEREAS, KIC's Board of Directors have similarly agreed to the adoption of the same language in amendment to the Contract, by a quorum of the Board of Directors at a regularly scheduled meeting;
NOW THEREFORE, KIC and INK do hereby AMEND the Contract at subparagraph b of Section 21 of the Contract, the State Agency Access, access as indicated above.
/s/William F. Bradley, Jr. 8-19-93 ---------------------------------------------- -------------------------- William F. Bradley, Jr. Date Chairperson ATTEST /s/Charlotte Shawver 8-19-93 ---------------------------------------------- --------------------------- Charlotte Shawver, Secretary Date |
/s/Jeffrey S. Fraser 8-19-93 --------------------------------------------- -------------------------- Jeffrey S. Fraser Date President ATTEST /s/Chris Shults 8-19-93 --------------------------------------------- -------------------------- Chris Shults, Secretary Date |
WHEREAS, the Information Network of Kansas, Inc. (hereinafter "INK") made and entered into a contract (hereinafter "the Contract") for network manager services with the Kansas Information Consortium (hereinafter "KIC") on December 18, 1991, with addendums on October 15, 1992 and August 19, 1993, respectively; and
WHEREAS, Section 26, of the Contract states, in part: "This Contract shall be for a term of 5 years, commencing January 1, 1992 and expiring at 12:00 A.M., December 31, 1996. . . . . ." and
WHEREAS, the INK Board of Directors, after study, has recommended the
extension of the Contract as adopted unanimously by a quorum of the Board of
Directors at their regular meeting May 18, 1995; with language as follows:
"This Contract shall now be for a term of eight (8) years, commencing January
1, 1992 and expiring at 12:00 a.m., December 31, 1999 . . . . . ."
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged by each party, the parties hereto agree to AMEND Section 26 of the Contract, as indicated above.
IN WITNESS to their agreement to all of the above and foregoing, the parties have authorized their respective officers to execute this AMENDMENT #1 on the date below written by subscribing their signatures thereto.
/s/Charles R. Warren 5-26-95 ------------------------------------------------- ------------------------- Charles R. Warren Date President ATTEST /s/Don Morris 5-26-95 ------------------------------------------------- ------------------------- Don Morris Date Secretary |
/s/Jeffrey S. Fraser 5-26-96
--------------------- ------------------------
Jeffrey S. Fraser Date
President
ATTEST:
5-26-96
/s/Chris Shults
------------------------------------------------- -------------------------
Chris Shults Date
Secretary
|
WHEREAS, the Information Network of Kansas, Inc. (Hereinafter "INK") made and entered into a contract for Network Manager services (hereinafter "the Contract') with the Kansas Information Consortium (hereinafter "KIC') on December 18, 1991, with addendums on October 15, 1992, August 19, 1993 and May 26, 1995, respectfully; and
WHEREAS, Section 6, subparagraph a, of the contract states:
"a. INK will receive before all other payments 2% of gross revenue per annum, payable monthly, which INK may use to support Board operations and to pay audit and other expenses. Such funds shall be deposited in the Information Network of Kansas fund."; and
WHEREAS, the INK Board of Directors, after study, has recommended replacement of subparagraph a of Section 6, which recommendation was adopted unanimously By a quorum of the Board of Directors at a properly held special meeting on May 28, 1996; with the language as follows:
"a. Except as stated below, INK will receive before all other payments 2% of gross revenue per annum, payable monthly, which INK may use to support Board operations and to pay audit and other expenses. Such funds shall be deposited in the Information Network of Kansas fund.
INK shall receive before all other payments 2% of $3.00 for each Batch Driver License Record and 2% of $2.50 for each Batch Title and Registration Record sold by KIC. The remainder of any revenue generated by the sale of Batch Driver License Records and Batch Title and Registration Records shall not be included in the 2% of gross revenue per annum which is paid to INK."; and
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged by each party, INK, and KIC hereto agree to AMEND subparagraph a of Section 6 of the contract, Network Manager Remuneration, as indicated above.
IN WITNESS to their agreement to all of the above and foregoing, the parties have authorized their respective officers to execute this AMENDMENT on the date below written by subscribing their signatures thereto.
/s/Charles R. Warren 6-13-96
-------------------------------------------- ----------------------------
Charles R. Warren Date
Chairman
1
|
ATTEST: /s/Charlotte Shawver 6-13-96 -------------------------------------------- ---------------------------- Charlotte Shawver Date Secretary |
/s/Jeffrey S. Fraser 6-13-96 -------------------------------------------- ---------------------------- Jeffrey S. Fraser Date President ATTEST: /s/Chris Shults 6-13-96 -------------------------------------------- ---------------------------- Chris Shults Date Secretary |
This amendment is entered into and executed this 2nd day of March 1998, between Information Network of Kansas, Inc. (INK), and Kansas Information Consortium (KIC) for the purpose of amending the Contract for Network Manager Services, dated December 18, 1991, as subsequently modified by addendums executed October 15, 1992, August 19, 1993, May 26, 1995, and June 13, 1996, (the Contract).
WHEREAS, KIC has requested approval of a transfer of all of its issued and outstanding common to a corporate entity, International Information Consortium, Inc., not a natural person; and
WHEREAS, INK has agreed to approve IIC as the sole Stockholder of KIC, in accordance with Section 11. Of the Contract, provided Section 11. is amended, as provided below, and other conditions are met.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged by the parties, it is agreed:
1. Section 11. of the contract is hereby deleted and in lieu thereof the following is inserted:
"11. SHAREHOLDERS. KIC has provided to INK a current list of the names, addresses, and percentage of ownership interest of each KIC stockholder. KIC shall continue to update that list so that INK shall always have a current list of the persons holding one hundred percent (100%) of the ownership interest in KIC. In addition thereto, KIC shall deliver, or shall cause International Information Consortium, Inc., a Delaware, for profit corporation (IIC), to deliver to INK a list showing the names, addresses, and percentage of ownership interest in IIC of all of its stockholders, and shall further cause IIC to update that list on an annual basis to provide INK with a current list of the owners of one hundred percent (100%) of the interest in IIC.
INK has approved a stock exchange transaction whereby IIC will become the holder of one hundred percent (100 %) of the issued and outstanding stock of KIC. If, after the completion of that transaction, IIC contemplates any change in the ownership interest it holds in KIC, IIC shall give notice of the proposed change to INK, not less than forty-five (45) days before that change is to become effective. The proposed change shall not become effective unless KIC and IIC have received the prior written consent of INK, authorized by action of the INK board of directors. The intent of this section is that INK shall know the identity of all KIC investors back to natural persons and, further, that INK shall have the right to approve any change in the ownership of KIC.
2. The contract, as modified above, is hereby ratified and confirmed, as modified by this Amendment and the prior addendums described above.
KANSAS INFORMATION INFORMATION NETWORK OF
CONSORTIUM, INC KANSAS, INC.
By: /s/ Jeffrey S. Fraser By: /s/ Leroy Gattin
----------------------------- ----------------------------
Jeffrey S. Fraser, President Leroy Gattin, Chairman
ATTEST:
/s/ Ross Hartley /s/ James W. Mcbride, Jr.
--------------------------------- -------------------------------
, Secretary , Secretary
|
WHEREAS, pursuant to that certain Contract for Network Manager Services, dated as of December 18, 1991, between Kansas Information Consortium, Inc., a Kansas corporation ("KIC"), and the Information Network of Kansas, a public instrumentality created by K.S.A. 74-9303 ("INK"), as amended (the "Contract"), KIC has requested that INK approve a corporate reorganization (the "Reorganization") pursuant to which KIC will become a wholly owned subsidiary of International Information Consortium, Inc., a Delaware Corporation(" IIC
WHEREAS, INK'S approval of the Reorganization is conditioned upon IIC'S undertaking of the following conditions;
NOW, THEREFORE, for good and sufficient consideration IIC hereby agrees as follows:
1. IIC shall cause KIC to continue to perform its obligations under the Contract;
2. IIC shall give notice to INK in the event the Board of Directors of IIC determines that IIC will: (a) undertake an initial public offering of its stock; (b) make a substantial change in the stock ownership of IIC; and (c) sell, dispose, merge or dissolve KIC.
3. IIC shall cause the operations of KIC to be limited to providing those certain services which are required for KIC to comply with the terms of the Contract.
By: /s/ Jeffrey S. Fraser
----------------------------
Name: Jeffrey S. Fraser
Title: President
|
THIS CONTRACT is between the State of Indiana, by and through the Intelenet Commission, a body corporate and politic created pursuant to Indiana Code 5-21-1-1 ET. SEQ. by the Indiana General Assembly, hereinafter referred to as the Commission, and Indiana Interactive, Inc., a for-profit Indiana corporation, without seal, hereinafter referred to as I@I.
WHEREAS, the Access Indiana Committee worked diligently on the Access Indiana project on behalf of the various state funded governmental entities and all state governmental offices to create this opportunity for providing electronic (enhanced) access to public information for Indiana citizens in the most cost-effective, progressive, and cooperative means possible; and
WHEREAS, the Access Indiana project is poised to become a significant public access, economic development and educational tool for the State and its residents; and
WHEREAS, the Access Indiana project will significantly benefit the State through:
a. Increased public services with minimal use of tax dollars;
b. Electronic (enhanced) public access to State governmental data;
c. Equality of access to State government data regardless of geographic location;
d. Increased efficiency of State government agencies and offices without budget increases;
e. Providing additional resources to State agencies and offices as the Access Indiana project grows;
f. Providing additional resources for the State to assist in its information management and access functions; and
g. Providing a base of Network services, as determined by the Governing Body, for which no access fee will be charged; and
WHEREAS, I@I submitted a proposal in response to the BAA, and such proposal was determined by the Access Indiana Committee to be the one best-suited to the goals of the State and the needs of the Access Indiana project. The proposal is hereinafter referred to as the I@I Proposal; and
WHEREAS, the State desires to enter into a contract with I@I for I@I to serve as the network services manager to establish, develop, operate, maintain and fulfill the electronic gateway service component of the Access Indiana project (which is hereinafter referred to as the Network) as mutually agreed to by I@I and the Commission for increased electronic access by Indiana residents, businesses, and other state government agencies to public and other useful and relevant information;
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF NETWORK.
The purpose of the Network and this Contract may be summarized as follows:
a. To create and provide a significant and diligently promoted public service to Indiana citizens and businesses by: (1) increasing accessibility to government data and other useful information and services through electronic means; and (2) promoting economic development by increasing ease of access to government data and other useful information and by promoting the sharing of that information.
b. To provide such public service without increasing the tax burden on the citizens of Indiana, through utilization of private capital and management and appropriate payment for the same.
I@I shall engage solely in the business or businesses expressly approved by the Network Governing Body established by the Commission (hereinafter, 'Governing Body') which shall initially be only and solely the start-up, operation, maintenance and expansion of the Network. I@I shall furnish the Governing Body with certified copies of Articles of Incorporation reflecting this limitation of purpose at the time of presenting this Contract for state of Indiana approvals.
3. TERM OF CONTRACT.
This Contract shall be for a term of five (5) years, commencing August ___, 1995 and expiring at 12:00 a.m., August ___, 2000, unless earlier terminated by the Commission for cause.
This Contract may be renewed, or amended and renewed, for up to an additional five (5) years. The Commission shall give written notice of the renewal to I@I no later than July 31, 1999 unless otherwise mutually agreed to by the parties in writing.
The term "Contract" as used in this Agreement shall mean the initial term, together with any renewal term(s) which are approved.
Prior to the end of the Contract term or renewal as is applicable, I@I covenants to the State to make an orderly transition of the Network and to perform any and all tasks in good faith which are necessary to preserve the integrity of the Network operations. I@I shall make every reasonable effort to ensure that any such Network transition shall be performed in a professional and business like manner, and shall comply with the reasonable requests and requirements of the Commission, Governing Body, data-providing state governmental entities (hereinafter DPE's) and the successor network services manager, if any, to guarantee a successful, unhindered transfer.
4. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, both parties
hereto, in the performance of this Contract, will be acting in an individual
capacity and not as agents, employees, partners, joint venturers or
associates of one another. The employees or agents of one party shall not be
deemed or construed to be the employees or agents of the other party for any
purpose whatsoever. Neither party will assume any liability for any injury
(including death)
I@I is solely liable for all labor and expenses in furtherance of such performance.
I@I may become an agent of the Commission or a DPE only by the expressed written consent of the Commission or a DPE.
I@I will not pledge any assets of the State in its care, custody or control, or cause any type of lien to attach to such.
5. HARDWARE, SOFTWARE AND ACCESS LINES.
I@I will provide hardware, and provide or develop software as enumerated
and described in the I@I proposal, and such other hardware and software
necessary to make the Network fully operational in accord with this Contract
and all other agreements between I@I and the DPE's. In accordance with the
BAA, the State shall be entitled to obtain a perpetual right to use only
license and a complete copy of all application and network software,
documentation and source code related thereto and utilized in operating the
Network, (whether originally developed by I@I, or one of its 'Sister Network
Companies' including, but not necessarily limited to, the Kansas Information
Consortium and Nebrask@ Interactive, Inc.), but not software or documentation
created by third parties and purchased by I@I together with any software
updates or upgrades made by I@I or one of its Sister Network Companies while
I@I operates the Network, to any software used to operate the Network
(hereinafter collectively "The Software") upon completion of the initial five
(5) year term, August ___, 2000. The Software shall be delivered to the
Governing Body no later than August ___, 2000 or as otherwise agreed to
mutually by the parties.
Upon termination or expiration of this Contract all Network and manager records, work papers, plans, correspondence, operations documentation, customer lists, customer account information, financial information and any other records or documentation of any kind (hereinafter collectively 'records') shall be delivered to the Governing Body within thirty (30) days after termination or expiration and shall become the exclusive property of the State, if not already such.
6. CONNECTIONS BETWEEN NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state facilities to I@I facilities for Network purposes, including but not limited to leased circuits from telephone or cable companies, shall be paid as expenses from the Network revenue account. Communication links from state facilities to I@I facilities shall be procured from the Commission's preferred providers except as otherwise agreed to by the Commission.
7. NETWORK SERVICE.
I@I, on behalf of the Commission and as directed by the Governing Body, shall use best efforts to negotiate with DPE's and obtain their approval through written interagency agreements (hereinafter, agreement) to implement electronic access for the public. The terms of this Contract, and the documents and exhibits incorporated herein by reference, shall be deemed as included in any DPE agreement whether or not specific reference is made. The terms of this Contract shall govern any DPE agreement in the event of a conflict unless there is an express written waiver from the Governing Body to deviate from the Contract in the DPE agreement.
Through the separate DPE agreements, the DPE and the Governing Body, in full consideration of the DPE's statutory limitations and the DPE's stated operational requirements, shall establish charges for and other conditions of implementing electronic access. I@I shall direct payments for such access to the DPE and/or the Commission but only as instructed by the Governing Body in writing.
The DPE agreement shall at a minimum address the following issues: the costs the DPE will charge for access, and which will be paid as expenses from the Network revenue account for information access to be provided, the time period and means by which DPE's will be paid from the Network revenue account for access, the criteria which the DPE and I@I will utilize for system development, testing and acceptance in order to assure the reliability of the Network,
Payments to the Governing Body or to DPE's for DPE access shall be due from the Network revenue account and paid within sixty (60) calendar days from the usage or sale date unless a shorter period is specified in Indiana statutes or in the DPE agreement. The Governing Body will reasonably cooperate in assisting electronic access to DPE's, which may, in the sole discretion of the Governing Body, be funded by the State in appropriate circumstances. After negotiating any DPE agreement, the DPE agreement shall be presented by I@I to the Governing Body for its approval. When a DPE agreement is presented to the Governing Body, I@I shall also present to the Governing Body a recommendation for prices to be charged users for the applicable Network service. The DPE shall be responsible for obtaining any and all other State approvals as may be required under Indiana law to enter into the interagency agreement following Governing Body approval.
I@I shall be authorized to execute subscription contracts on behalf of the Commission. The basic form shall be approved by the Governing Body.
8. REGULATION OF RATES BY THE STATE.
Any charges for Network services shall be subject to the final approval of the Governing Body for fairness, reasonableness and appropriateness. THE SUGGESTED RATES SET FORTH IN I@I'S PROPOSAL SHALL IN NO WAY BE BINDING ON THE GOVERNING BODY IN SETTING RATES IN THIS CONTRACT OR IN A DPE AGREEMENT. In setting rates the Governing Body shall consider the following factors:
a. A commitment to the public policy requirement to provide electronic access to public records at the most reasonable rate possible.
b. That the rates to be charged may be adjusted to permit funding of special projects and enhancement of public service.
d. The need to invest in the reasonable expansion of and improvement in network and information services.
e. The need of I@I to earn a reasonable profit on Network operations.
f. Any other reasonable factor which in the opinion of the Governing Body should be considered.
Such rates will thereafter be subject to periodic review and adjustment by the Governing Body. Recommendations for amended rates shall be made by I@I to the Governing Body as deemed necessary or desirable.
The maximum fees that users shall pay will be approved by the Governing Body. These fees may be reduced at the discretion of I@I as an inducement to increase usage of the Network, but any such reduction is subject to review and approval of the Governing Body.
In the event that costs which I@I pays DPE's for data or data access are reduced or increased as result of legislation or administrative changes, such reductions or increases shall be passed on directly to Network users unless otherwise approved in writing by the Governing Body or unless to do so would otherwise violate applicable Indiana law.
9. NETWORK MANAGER REMUNERATION.
Within the framework of the rate-setting procedure addressed in section 8 above, the disbursement of all funds received by I@I as a result of the operation of this Contract will be as follows unless otherwise mutually agreed to between I@I and the Governing Body in writing:
a. 2% of gross revenue to the Commission as determined by the Governing Body for electronic access to information.
b. Payments to DPE's in accordance with interagency agreements.
d. In addition to amounts paid and to be paid from the Network revenue account for Network expansion and improvement, the Governing Body may direct I@I to expend up to 25% of net earnings, if there are net earnings, of the Network on special projects for Network enhancements, at the Governing Body's sole discretion.
10. CHANGES IN NETWORK.
A planned material change in Network operations cannot be made by I@I without the prior written consent of the Governing Body. A "material change" includes, but is not limited to, a change which increases response time to inquiries, adds to the complexity of system use, diminishes services provided to users, or results in a comparable impact on operations noticeable by users. I@I will provide to the Governing Body at least thirty (30) days, prior written notice of a planned material change in Network operations.
11. NOTICES.
The Executive Director of the Commission is hereby designated by the Commission as the person to receive legal notices hereunder. The I@I contact person shall be the President of I@I. Each party may change its designation for notice following written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to the persons identified above or to such other persons as may be subsequently identified in a written notice. Such notices shall be effective on the date of receipt if sent by U.S. first-class or restricted delivery mail, postpaid, or by any reputable overnight delivery service, prepaid. However, notices pertaining to legal matters including, but not necessarily limited to, termination, default or liability, shall be sent in compliance with applicable law and via prepaid, certified mail, return receipt requested.
12. FINANCES AND RECORDS.
All I@I documents and records (as defined in section 5 above), by whatever name and in whatever form, pertaining to operation of the Network will be available for inspection, auditing
I@I also agrees to make other changes requested by the Governing Body to comply with recommendations made in any audit, which changes are agreed to by both the Governing Body and I@I. Any such audit will be performed by a competent and reputable CPA licensed in Indiana and with the consent of the State Board of Accounts.
To the extent the audit report discloses any discrepancies in the I@I charges, billings or financial records, and following a period for review and verification of the amount by I@I, I@I will adjust the next monthly bill as soon as reasonably possible, but not to exceed ninety (90) calendar days. I@I shall cooperate to assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books of original entry of all transactions, appropriate subsidiary ledgers, a general ledger which includes to-date postings and an audit trail through financial statements. Such books may either be maintained on paper or on computer with appropriate backup. I@I shall from the beginning of this Contract adopt the calendar year ending December 31, for reporting purposes.
13. MANAGEMENT REPORTS AND BUSINESS PLAN.
Network operations and development shall generally be in accordance with the I@I proposal, and in particular in compliance with the DPE agreement and incorporated project plan. As deemed necessary or desirable, I@I may depart from such proposal or DPE project plan regarding non-material issues; however, in the event of any material departure, I@I must obtain the approval of the Governing Body and DPE in advance. I@I shall timely provide to the Governing Body all management, financial and operational and network reports as the Governing Body may reasonably request or as is provided for in the DPE agreement to implement the electronic access.
I@I agrees to provide and continually keep updated a list of names and addresses of stockholders of I@I and the percentage of ownership of each stockholder.
As a basic policy all shareholders of I@I shall be natural persons; however, exceptions to this requirement may be approved by the Governing Body on a case by case basis. Such approval is not to be unreasonably withheld. The intent of this section is that the Governing Body shall know the identity of all I@I investors, back to natural persons.
15. STATE TO DESIGNATE SUPERVISORY AGENCY
The Governing Body shall have oversight of the Network. Oversight shall include, but not be limited to:
a. Establishing Network pricing upon recommendation from I@I and the DPE.
b. Establishing Network policy, with input from I@I.
16. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED EMPLOYER EXPENSES.
I@I agrees to attain a staffing level during the first fiscal year of at least twelve full-time equivalent employee positions, based on an eight-hour work day per position, five days per working week unless the I@I and the Governing Body agree that such a staffing level is not necessary based on the level of DPE commitments.
I@I employee salaries shall be reasonable in comparison with salaries for persons with like employment responsibilities, education and experience in this field and employed in the midwestern United States.
The hiring, firing, recruitment, management, and training of I@I employees will not be the responsibility of the State. The State's involvement in the personnel affairs of I@I shall be limited to disclosure of the names and positions of officers and employees of I@I.
I@I shall be responsible for all required employer costs attributable to its officers and employees, including but not limited to, workers' compensation premiums and deductible, unemployment compensation tax withholding contributions, tax withholding contributions, and similar items.
17. BANK ACCOUNT FOR REVENUE AND PAYMENTS THEREFROM.
a. General Provisions. The initial capital investment of I@I shall be $500,000. I@I shall establish one or more accounts in Indiana financial institutions which are federally insured, for deposit of revenue from network operations and shall furnish the Governing Body with the names of the institutions, the account numbers and the names of those persons having signatory authority. Any funds deemed by I@I to be "idle" or "excess" funds, (defined as those not required to meet immediate needs) may be deposited at I@I's discretion in money market accounts, treasury bills, or other suitable investment vehicles until needed.
b. Payments from Accounts. Payments from the Network revenue accounts are authorized as follows:
1. Payments to DPE's and/or the Commission for electronic access to information.
2. Payment of ordinary, necessary and reasonable operating expenses for operation of the Network.
3. Payment of reasonable system development costs, including programming (to the extent not covered by regular salary under ordinary operating expenses) and purchases or upgrades of software or hardware.
4. Payments to I@I, its shareholders or directors.
18. INCORPORATION BY REFERENCE.
The entire BAA and the amendments thereto dated January 10 (A-1), February 17 (A-2) and March 1 (A-3), all in 1995, and the I@I proposal are attached hereto and incorporated into this Contract and made a part hereof. If there is any conflict between the terms of the BAA and the provisions of this Contract, the terms of the contract shall control. If there is any conflict between the BAA and the I@I proposal, the BAA shall control. If there is any conflict between the terms of the I@I proposal and this Contract, the terms of the Contract shall control. In the event situations arise which were not contemplated by the parties, or in the event that provisions herein are determined mutually by the parties to be unworkable or in the event that a change in terms would be mutually advantageous, this contract may be amended by mutual expressed written consent.
19. INSURANCE AND BONDS.
I@I shall provide the Governing Body written proof, at the time of presenting this Contract for State approvals, of the following to be provided by a qualified firm authorized and admitted to do business in the state of Indiana:
a. Proof of a general comprehensive liability insurance policy in the amount of at least $500,000 and a deductible of not more than $5,000. The State of Indiana shall be listed as an additional insured.
b. Employment Dishonesty Bond covering all I@I officers and employees in an amount of at least $100,000 per employee. The State shall be listed as obligee.
c. I@I shall maintain all workers' compensation insurance coverage as required by law.
The State shall have the right to terminate this Contract for cause,
subject to cure, by providing written notice of termination to I@I. Such
notice shall specify the time, the specific provision of this Contract or
"for cause" reason that gives rise to the termination, and shall specify
reasonable appropriate action that can be taken by I@I to avoid termination
of the Contract. The State shall provide a period of time of up to sixty
(60) calendar days, unless otherwise specified in this Contract, for I@I to
cure breaches and deficiencies of its performance obligations under this
Contract.
The State may terminate this Contract at any time and without cause if directed to do so by statute.
21. TERMINATION FOR CAUSE.
For purposes of this Contract, the phrase "for cause" shall mean:
a. Any material breach or evasion by I@I of the terms or conditions of this Contract and its amendments, if any.
b. Ownership in I@I by a shareholder unacceptable to the State (for example, but not limited to, ownership by a multinational corporation).
c. Substantial cessation or material degradation of Network services by I@I shall be cause for immediate termination of this Contract.
d. Fraud, misappropriation, embezzlement, malfeasance, significant misfeasance, or illegal conduct by I@I, its officers, directors or shareholders.
e. Dissolution of I@I or forfeiture of its corporate existence.
f. Repeal of the Commission's or a DPE's enabling statutes. This is cause for immediate termination, unless another agency is designated for such oversight within a reasonable time thereafter.
h. Insolvency of I@I
i. Material breach of an agreement with any DPE.
j. Intentional or negligent act or omission by I@I resulting in the disclosure of any information clearly indicated as being confidential.
22. MULTI-TERM FUNDING CANCELLATION CLAUSE
When the Director of the State Budget Agency makes a written determination that funds are not appropriated or otherwise available to support continuation of this Contract or of a DPE agreement, the Contract or the DPE agreement shall be immediately cancelled. A determination by the State Budget Director that funds are not appropriated or otherwise available to support continuation of the Contract or DPE agreement shall be final and conclusive.
23. FORCE MAJEURE
In the event that either party is unable to perform any of its obligations under this contract or to enjoy any of its benefits because of (or if failure to perform the services is caused by) natural disaster, actions or decrees of governmental bodies, or other event or failure not the fault of the affected party (hereinafter referred to as a "Force Majeure Event"), the party who has been so affected shall immediately give notice to the other party and shall use reasonable efforts to resume performance. Upon receipt of such notice, all obligations under this Contract shall be immediately suspended. If the period of nonperformance exceeds sixty (60) calendar days from the receipt of notice of the Force Majeure event, the party whose ability to perform has not been so affected may, by giving written notice, terminate this Contract without incurring any liability, liquidated damages or termination charges whatsoever.
24. STANDARD USE MESSAGES.
If necessary or required by law, I@I shall cause the Network to display a standard use message upon initial log-on to the Network, and each Network user shall be required to verify
25. DATA PROVIDING ENTITY ACCESS.
a. DPE's must have terminal (read) access to the computerized log of Network users accessing DPE data and their security status, without access cost to the DPE's. The DPE's will be responsible for the cost of terminal(s) and the cost of a dial-up or lease line, whichever is used.
b. DPE's must be able to sign on to I@I's system to audit the dissemination of its records. On-line audit capability must be available for the length of time specified by the data owning agencies after transaction processing. After the on-line retention period has expired, I@I shall, as specified between I@I and the DPE's, retain, destroy, or provide the record information to the data owning agencies without cost.
At a minimum, the Network shall retain the following data: name of Network user, transaction data and time, type of inquiry and access keys.
c. I@I shall notify affected DPE's and the Governing Board within two
(2) hours of unauthorized attempts to bypass Network security. The notice
shall contain detailed information to aid the affected DPE in examining the
matter.
26. PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET INDEMNITY.
I@I shall indemnify, defend and hold harmless the State against any claim that any programming or operation provided by or to be provided by I@I infringes a U.S. patent or
The State shall be provided with prompt notice of any claim of infringement, and I@I shall have the exclusive right to defend or settle such claim at I@I's option except that the State shall have the right to participate in the defense when issues of State law or policy are involved. The State shall cooperate with I@I in its defense or settlement of such claim at no expense to the State.
If I@I determines that, as a result of such claim the right of users to use the Network is likely to be abridged, I@I shall (a) take all reasonable steps necessary to procure for the State the right to continue to use programming or operation; or (b) modify the Network so that no such abridgment will occur and correspondingly reduce charges if the modified Network is not substantially comparable to what it was before the modification. If (a) and (b) fail, then I@I may discontinue such service without liability.
27. LIABILITY.
The State of Indiana, its agents and employees shall not be legally responsible to I@I for errors due to Network problems.
I@I agrees for itself, its agents, employees and assigns to hold indemnify, defend and hold harmless the Commission and the State, its agents and employees from any and all loss, damage or liability caused by I@I's intentional acts, negligent acts or omissions or material failure to perform under the terms of this Contract.
I@I agrees that it has no right of subrogation or contribution from the State of Indiana for any judgment rendered against I@I or any claim settled by I@I.
The Commission warrants through its representative's signature hereto that it has the legal authority to enter into this Contract with I@I.
28. ASSIGNMENT AND SUBCONTRACTING.
I@I may not assign any of its rights or delegate any of its duties hereunder unless done pursuant to prior written consent of the Governing Body.
I@I shall be fully responsible for all performance activities, compliance with this Contract and all DPE agreements and compliance with all federal, state and local laws including, but not limited to, any equal employment opportunity and affirmative action statutes and regulations, for all subcontractors, if used.
29. COMPLIANCE WITH LAWS
I@I agrees to comply with all applicable federal, state and local laws, rules, regulations, or ordinances, and all provisions required thereby to be included herein are hereby incorporated by reference. I@I hereby agrees to indemnify and hold the State harmless from any and all loss, damage or liability resulting from a violation on the part of I@I of such laws, rules, regulations or ordinances except such as is caused or induced by the Commission, the Governing Body or any DPE. The enactment of any state or federal statute or the promulgation of regulations thereunder after execution of this Contract shall be reviewed by the Indiana Attorney General and I@I to determine whether the Contract requires a formal amendment.
30. NONDISCRIMINATION
Pursuant to IC 22-9-1-10, I@I and its subcontractors, if any, shall not discriminate against any employee or applicant for employment, to be employed in the performance of this Contract, with regard to the person's hire, tenure, terms, conditions or privileges of employment or any matter directly or indirectly related to employment, because of that person's race, color, religion, sex, handicap, national origin, ancestry or status as a veteran. I@I understands that the State is a recipient of federal funds. Pursuant to that understanding, I@I, and its subcontractors, if any, agree that if the I@I at any time employs fifty (50) or more employees and generates at least $50,000 worth of business and is not exempt, I@I will comply with the affirmative action reporting requirements of 41 CFR 60-1.7, as amended. Breach of this covenant may be regarded as a material breach of the Contract. The State shall comply with Section 202 of Executive Order 11246, as amended, 41 CFR 60-250, and 41 CFR 60-741, as amended, which are incorporated herein by specific reference.
This Contract shall be construed in accordance with and governed by the laws of state of Indiana, and suit, if any, must be brought in the state of Indiana.
32. SEVERABILITY
Should any section of this Contract be found invalid, ineffective or unenforceable under present or future law, the remainder of the sections shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
33. TAXES
The State is exempt from all federal, state, and local taxes. The State will not be responsible for any taxes levied on I@I in performing hereunder.
34. WAIVER OF BREACH
No waiver of a breach of any section of this Contract shall constitute a waiver of any other breach, or of such section. Failure of the State to enforce at any time, any section of this Contract shall not be construed as a waiver thereof.
35. MAINTAINING A DRUG FREE-WORKPLACE
a. I@I hereby covenants and agrees to make a good faith effort to provide and maintain during the term of this Contract a drug-free workplace, and that it will give written notice to the Governing Body and the Indiana Department of Administration within ten (10) working days after receiving actual notice that an employee of I@I has been convicted of a criminal drug violation occurring in I@I's workplace.
b. In addition to the requirements in subsection a. above, if the total Contract value is in excess of $25,000.00, I@I hereby further agrees that this Contract is expressly subject to the terms, conditions, and representations obtained in the Drug-Free Workplace Certification executed by I@I in conjunction with this Contract, which is appended to this Contract and incorporated herein by reference.
36. NON-COLLUSION AFFIDAVIT
I@I, by the signature of its duly authorized representative to the attached non-collusion affidavit, swears, affirms, and gives assurance that there has been no collusion between I@I and any State employee, officer or agent in the awarding of this Contract, and that I@I has, prior to the execution of the affidavit, caused an inquiry to be made of all interested employees, agents, or representatives of I@I to ensure compliance.
37. PENALTIES/INTEREST/ATTORNEY'S FEES
The State will in good faith perform its required obligations under this
Contract and does not agree to pay any penalties, liquidated damages,
interest, or attorney's fees, except as required specifically by Indiana law,
in part, IC 5-17-5-1 ET. SEQ., IC 34-2-22-1 ET. SEQ., and IC 34-4-16-1.1 ET.
SEQ.
38. PROHIBITION AGAINST HIRING STATE EMPLOYEES
Throughout the entire term of this Contract, including any renewal period(s) and for six (6) months following the termination of the Contract, I@I covenants and hereby agrees that it shall not hire or represent, or assist in any way, any existing or future Sister Network Company in the hiring of any State employee to work for I@I or any existing or future Sister Network Company unless otherwise agreed to by the State.
39. FAITHFUL PERFORMANCE BOND
Within ninety (90) days following the execution of this Contract by both parties, I@I shall deliver a faithful performance bond or a certified or cashier's check in the amount of Fifty Thousand U.S. Dollars and No Cents ($50,000) to the Commission. The performance bond may be forfeited upon the Governing Body's determination that a material breach of Contract exists.
40. WARRANTY
I@I warrants, represents and assures that during the entire term of the Contract, and any renewal period, that the Network, and I@I's related management services thereof, shall comply with all the requirements set forth in the BAA as well as the responses provided in I@I's proposal and the requirements and performance standards mutually agreed to in writing in the individual DPE agreements.
I@I further warrants that it will perform all of its personal services to the State at all times in a workmanlike manner, with a professional degree of skill and in a timely fashion consistent with schedules and work plans.
41. DISASTER RECOVERY
I@I shall deliver to the Governing Body a copy of I@I's written disaster recovery plan (hereafter, DRP) no later than six (6) months after Contract execution or ninety (90) days following public access to the first commercial offering made available hereunder. The DRP shall indicate in detail how I@I will meet its proposal representation that I@I shall make a good faith effort to recover all ongoing network management services within twenty-four (24) hours from the time of a disaster declaration. The DRP shall at a minimum establish that I@I has made all the necessary and binding arrangements to secure alternative facilities, equipment, software, services necessary to meet I@I's disaster recovery commitments. The DRP shall also include a testing process to validate the probable success of the DRP and such results shall be shared with the Governing Body. A failure of I@I to establish a DRP acceptable to the Governing Body or a failure of I@I to have in place the necessary binding arrangements to implement a sound and orderly DRP or a failure of testing to show that the DRP will be reasonably successful shall be
42. COUNTERPARTS
This Contract shall be executed simultaneously in two counterparts, each of which will be deemed an original, but all of which together will constitute one in the same instrument.
43. ENTIRE AGREEMENT
This Contract constitutes the entire understanding between the parties and supersedes all other prior written or oral agreements between the parties with respect to the subject matter hereof. This Contract may be amended only by a writing signed by the parties thereto.
The parties having read and understood the foregoing sections of the Contract including all documents and exhibits incorporated therein by reference, expressly agree to these terms and conditions as evidenced by their respective dated signatures below:
/s/William F. Bradley, Jr., President 7-18-95
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ATTEST:
/s/Jeffery S. Fraser 7-18-95
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Intelenet Commission: Attested by:
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Signature of Commission Chair Jerry Sullivan
Executive Director
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Printed Name Date:
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Date:
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Department of Administration: State Budget Agency:
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William Shrewsberry Katherine L. Davis
Commissioner Director
Date: Date:
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Approved as to form and legality:
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Pamela Carter
Attorney General
Date:
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This certification is required by Executive Order No. 90-5, April 12, 1990, issued by the Governor of Indiana. Pursuant to its delegated authority, the Indiana Department of Administration is requiring the inclusion of this certification in all contracts with and grants from the State of Indiana in excess of $25,000. No award of a contract or grant shall be made, and no contract, purchase order or agreement, the total amount of which exceeds $25,000, shall be valid unless and until this certification has been fully executed by the Contractor or Grantee and attached to the contract or agreement as part of the contract documents. False certification or violation of the certification may result in sanctions including, but not limited to, suspension of contract payments, termination of the contract or agreement and/or debarment of contracting opportunities with the State for up to three (3) years.
The Contractor/Grantee certifies and agrees that it will provide a drug-free workplace by:
(a) Publishing and providing to all of its employees a statement notifying employees that the unlawful manufacture, distribution, dispensing, possession or use of a controlled substance is prohibited in the Contractor's workplace and specifying the actions that will be taken against employees for violations of such prohibition; and
(b) Establishing a drug-free awareness program to inform employees about (1) the dangers of drug abuse in the workplace; (2) the Contractor's policy of maintaining a drug-free workplace; (3) any available drug counseling, rehabilitation, and employee assistance programs; and (4) the penalties that may be imposed upon an employee for drug abuse violations occurring in the workplace;
(c) Notifying all employees in the statement required by subparagraph
(a) above that as a condition of continued employment the employee will (1)
abide by the terms of the statement; and (2) notify the employer of any
criminal drug statute conviction for a violation occurring in the workplace
no Later than five (5) days after such conviction;
(d) Notifying in writing contracting state Agency and the Indiana Department of Administration within ten (10) days after receiving notice from an employee under subdivision (c)(2) above, or otherwise receiving actual notice of such conviction;
(e) within thirty (30) days after receiving notice under subdivision
(c)(2) above of a conviction, imposing the following sanctions or remedial
measures on any employee who is convicted of drug abuse violations occurring
in the workplace: (1) take appropriate personnel action against the employee,
up to and including termination; or (2) require such employee to
satisfactorily participate in a drug abuse assistance or rehabilitation
program approved for such purposes by a Federal, State or Local health, law
enforcement, or other appropriate agency; and
(f) Making a good faith effort to maintain a drug-free workplace through the implementation of subparagraphs (a) through (e) above.
THE UNDERSIGNED AFFIRMS, UNDER PENALTIES OF PERJURY, THAT HE OR SHE IS AUTHORIZED TO EXECUTE THIS CERTIFICATION ON BEHALF OF THE DESIGNATED ORGANIZATION.
Indian@Interactive, Inc. ------------------------ ------------------------ Contract/Grant ID Number Printed Name of Organization /s/William F. Bradley, Jr., ------------------------ President Date Signature of Authorized Representative William F. Bradley, Jr. ----------------------- Printed Name and Title |
SERVICES CONTRACT--NATIONAL INFORMATION CONSORTIUM
Agreement made this 15th day of September, 1996, by and between the National Information Consortium, Inc. hereinafter referred to as NIC, and the GeorgiaNet Authority, an agency of the State of Georgia, hereinafter referred to as GANET.
WHEREAS, the GeorgiaNet Authority has identified a need for certain data processing and marketing services to enable it to carry out its functions; and
WHEREAS, NIC is in the business of providing services to users such as GANET in order to fulfill the need for such services;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:
1. SCOPE OF WORK: NIC agrees to provide all goods, services and other deliverables as required and set forth in Exhibit "A" attached hereto (hereinafter collectively referred to as the "Services"). The payments made hereunder shall in no event exceed the contracted amount. As used in this Contract, the term "the State" shall mean and refer to the State of Georgia.
2. NIC'S EMPLOYEES: NIC shall provide personnel in such numbers and at such levels of experience as may be necessary to perform the Services required under this Contract.
NIC shall provide a minimum of 5 full time employees, dedicated to fulfilling the obligations of the provisions of this contract. In the event that additional full time employees are deemed necessary, by mutual consent of NIC and GANET, NIC shall supply those employees under the terms and conditions as set forth in this contract and as stated in "Exhibit A."
NIC reserves the right to use, in addition to the five employees dedicated full time to GANET, employees from any of its sister companies on a temporary basis to satisfy any obligation as set forth in this contract. All expenses associated with the temporary use of said employee, including but not limited to travel expenses, salary and appropriate employment taxes, shall be borne entirely by NIC.
Neither NIC nor any of its agents, servants, or employees shall become or be deemed to become agents, servants, or employees of the State of Georgia or GANET. NIC and all such agents, servants, and employees shall for all purposes be deemed to be independent contractors; and this Contract shall not be construed so as to create partnership or joint venture between NIC, GANET and/or the State of Georgia or any of its agencies. NIC acknowledges that any individuals supplied to GANET hereunder are employees of NIC and it shall be responsible for all FICA, federal and state withholding taxes, for Worker's Compensation coverage, and for any and all employment benefits due such employees.
3. REMUNERATION: GANET shall be obligated to pay NIC for Services as are actually performed hereunder. The amount to be paid by GANET is set forth in Exhibit "A."
5. ORIGINALITY:
a. NIC warrants all materials produced by its employees hereunder will be of original development by NIC and/or its sister companies and will be specifically developed for fulfillment of this contract and will not infringe upon or violate any patent, copyright, trade secret, or other property right of any third party. In the event NIC shall elect to use or incorporate any components of a system already existing, NIC shall first notify GANET who, after whatever investigation GANET may elect to make, may direct NIC not to so use any such components. GANET's investigation and subsequent notification of NIC shall be completed within five business days of GANET's being notified by NIC of its election to use components of a system already existing. If GANET shall not object, NIC may use such components at NIC's expense after obtaining the written consent of the party owning the same and furnishing a copy thereof to GANET; in all events such components shall be similarly warranted (except for originality) by NIC, and NIC will arrange to transfer a perpetual license to use such components to GANET for the purposes of this Contract and shall indemnify GANET in the manner aforesaid with respect thereto.
b. NIC shall, at its expense, be entitled to and shall have the duty to
participate in the defense of any suit instituted against GANET or the
State (hereinafter "Indemnities") and indemnify Indemnities against
any award of damages or costs made against Indemnities by a final
judgment of a court of last resort in such suit insofar as the same is
based upon any claim that any of the work performed, materials used,
or goods, services and equipment furnished by NIC in connection with
this Contract (hereafter collectively referred to as the "Contract
Deliverables") constitute an infringement of any United States Letters
of Patent, copyright, trade secret, or other proprietary interest;
provided Indemnities gives NIC immediate notice in writing of the
institution of such suit, permits NIC to fully participate in the
defense of the same, and gives NIC all available information,
assistance and authority to enable NIC to do so. NIC shall not be
liable for any award or judgment against Indemnities reached by
compromise or settlement unless NIC accepts the compromise or
settlement. NIC shall have the right to enter into negotiations for
and the right to effect settlement or compromise of any such action,
but no such settlement shall be binding upon Indemnities unless
approved by Indemnities. In case any portion of the Contract
Deliverables is in any suit held to constitute infringement in its use
enjoined, NIC shall, at its option and expense: (1) procure for
Indemnities the right to continue using the Contract Deliverables; or
(2) replace or modify the same so that it becomes non-infringing.
a. Upon the signing of this contract, funds for the tasks defined in Exhibit "A" will be encumbered for the full amount of the initial term of this Contract.
b. The total obligation established hereunder is payable by GANET solely from fees received by GANET from its customers. In no event shall the sum paid out in any fiscal year of GANET exceed the sum of the fees so received by GANET during such fiscal year.
c. In the event that the source of payment for the total obligation no longer exists or is insufficient with respect to the services, then this Contract as to all services or, as the case may be, as to any services included under this contract, shall terminate without further obligation of GANET as of that moment. The certification by GANET of the events stated above shall be conclusive.
7. INDEMNIFICATION: NIC hereby waives, releases, relinquishes, discharges and agrees to indemnify, protect and save harmless the State of Georgia (including the State Tort Claims Trust Fund), and GANET, their officers and employees (hereinafter collectively referred to as "Indemnities"), of and from any and all claims, demands, liabilities, loss, costs or expenses for any loss or damage (including but not limited to bodily injury or personal injury including death, property damage, workers' compensation benefits, employment benefits, libel, slander, defamation of character, and invasion of privacy) and attorneys' fees, caused by, growing out of, or otherwise happening in connection with this Contract, due to any act or omission (whether intentional or negligent, through theft or otherwise) on the part of NIC, its agents, employees, subcontractors, or others working at the direction of NIC or on its behalf; or due to any breach of this Contract by NIC; or due to the application or violation of any pertinent Federal, State or local law, rule or regulation by NIC, its agents, employees, subcontractors, or others working at the direction of NIC or on its behalf; or caused by any other person.
This indemnification applies whether: (i) the activities involve third parties or employees or agents of NIC or Indemnities; or (ii) a claim results in a monetary obligation that exceeds any contractual commitment.
This indemnification extends to the successors and assigns of NIC, and this indemnification and release survives the termination of this Contract and the dissolution or, to the extent allowed by law, the bankruptcy of NIC.
The indemnification does not apply to the extent of the willful or wanton misconduct of the Indemnities, their officers or employees. This indemnification does not apply to the extent of the sole negligence of the Indemnities, their officers or employees, concerning activities within the scope of O.C.G.A. Section 13-8-2 (b) relative to the construction, alteration, repair, or maintenance of a building structure, appurtenances, and appliances, including moving, demolition, and excavating connected therewith.
If and to the extent such damage or loss as covered by this indemnification is covered by the State Tort Claims Fund (the "Fund") established and maintained by DOAS, NIC agrees to reimburse the Fund for such funds paid out by the Fund. To the full extent permitted by the
NIC shall, at its expense, procure a Commercial General Liability Insurance Policy, including personal and advertising liability (or a Comprehensive General Liability Policy with endorsement to insure contractual liability, broad form property damage, personal injury, personal and advertising liability), and the other insurance policies in coverage amounts as specified in this Contract, with endorsement waiving right of subornation against the State, the Indemnities, the Fund and insurers participating thereunder.
NIC shall, at its expense, be entitled to and shall have the duty to participate in the defense of any suit against the Indemnities. No settlement or compromise of any claim, loss or damage asserted against Indemnities shall be binding upon Indemnities unless expressly approved by the Indemnities.
8. INSURANCE: The following requirements shall be adhered to by CONTRACTORS throughout the term of the Contract, any renewal thereof, and as may otherwise be specified herein:
a. Insurance Certificate:
NIC certifies that they shall procure and maintain insurance which shall protect NIC and the State from any claims for bodily injury, property damage, or personal injury which may arise out of operations under the Contract. NIC shall procure the insurance policies at NIC's own expense and submit certificates to GANET. The insurance certificate must document that the liability insurance coverage purchased by NIC includes contractual liability coverage to protect the State. In addition, the insurance certificate must provide the following information:
(1) Name and address of authorized agent,
(2) Name and address of insured,
(3) Name of insurance company (licensed to operate in Georgia),
(4) Description of coverage in standard terminology,
(5) Policy period,
(6) Limits of liability,
(7) Name and address of certificate holder,
(8) Acknowledgment of notice of cancellation to the State,
(9) Signature of authorized agent,
(10) Telephone number of authorized agent
(11) Details of policy exclusions in comments section of Insurance
Certificate.
b. NIC also certifies that the following types of insurance coverages have been purchased by NIC:
(1) Workers' Compensation Insurance:
To insure the statutory limits as established by the General
Assembly of the State of Georgia (NOTE: A self-insurer must
submit a certificate from
Bodily Injury by Accident: $ 500,000 each accident
Bodily Injury by Disease: $ 500,000 each employee
$1,000,000 policy limits
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NIC shall require all subcontractors performing work under this Contract to obtain an insurance certificate showing proof of Workers' Compensation Coverage.
(2) Commercial General Liability Policy:*
Combined Single Limits: $1,,000,000 per person $3,000,000 per occurrence
The Commercial General Liability Policy must be on an "occurrence" basis, and include coverage for premises operations (including, but not limited to explosion, collapse and underground coverage) elevators, independent CONTRACTORS and completed operations.
* A Comprehensive General Liability Policy may be substituted for the Commercial General Liability Policy if the Comprehensive General Liability Policy has been endorsed to insure contractual liability, broad form property damage, and personal injury liability.
All policies must be on an "occurrence" basis, unless expressly otherwise stated, and include coverage for premises operations, elevators, independent CONTRACTORS and completed operations.
The foregoing policies shall contain a provision that coverages afforded under the policies will not be canceled or not renewed until at least thirty (30) days prior written notice has been given to the GANET. NIC certifies Certificates of Insurance showing such coverages to be in force prior to commencement of any work under this Contract. The foregoing policies shall be obtained from insurance companies licensed to do business in Georgia and shall be with companies acceptable to GANET. It shall be the responsibility of NIC to require any subcontractors to secure the same insurance coverage as prescribed herein for NIC, and to obtain a certificate or certificates evidencing that such insurance is in effect. All such coverages shall remain in full force and effect during the initial term of the Contract and any renewal thereof.
9. CONFIDENTIALITY: NIC acknowledges that much of the data, information, plans, and strategies it will become privy to in the performance of this Contract is of a confidential nature, and NIC shall not disclose such confidential information to anyone other than its employees, who have a reasonable need to know same in connection with the performance of this contract. Provided,
10. TERMINATION:
(A ) GANET may, in its sole discretion, terminate this Contract for any reason upon giving ninety (90) days written notice to NIC. In the event that the written notice of termination pursuant to this section states that termination is for the convenience of GANET, NIC shall be entitled to payment for work performed through the date of the notice of termination (not the date of termination) to the extent that there exists adequate funds available to make payment.
(B) In the event that NIC breaches the Contract, GANET may terminate this Contract upon providing NIC with 20 days written notice-, provided, however, NIC may avoid termination of the Contract pursuant to this subparagraph (B) by curing, to the satisfaction of GANET, the breach(es) identified in the written notice within the 20 day period.
(C) This Contract may be immediately terminated in the event that any of
the following occurs:
1. NIC becomes insolvent or liquidation or dissolution of NIC
begins;
2. A voluntary or involuntary bankruptcy petition is filed by or
against NIC under the U.S. Bankruptcy Code or any similar
petition under any state insolvency law;
3. An assignment is made by NIC for the benefit of creditors; or
4. A proceeding for the appointment of a receiver, custodian,
trustee or similar agent are initiated with respect to NIC.
Upon termination or other expiration of this Contract, each party shall forthwith return to the other all papers, materials, and other properties of the other held by each for purposes of execution of this Contract. In addition, each party will assist the other party in the orderly termination of this contract and the transfer of all aspects hereof, tangible or intangible, as may be necessary for the orderly, nondisruptive business continuation of each party.
11. QUALITY OF WORK: NIC shall perform all Services hereunder in accordance with specific directions from GANET, to meet the requirements of GANET. All application components developed by NIC subsequent to this agreement shall be of superior quality and employ a standard outward appearance so that all graphical interfaces shall display commonality in screen layout and flow of information across applications.
12. SURVIVAL: The terms, provisions, and representations contained in this Contract shall survive the termination or expiration of this Contract and the payment of any and all sums due NIC.
13. FORCE MAJEURE: Neither party shall be responsible for delays or failure in performance resulting from acts beyond the control of such party. Such acts shall include, but are not limited to, acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, power failures, earthquakes or other disasters.
15. FINANCIAL STATEMENTS: Upon request by GANET, NIC shall supply a certified copy of its annual report and financial statements.
16. ASSIGNMENT: Performance under this contract shall not be assigned or subcontracted by NIC without the prior written consent of GANET. GANET hereby reserves the right to reject any subcontractors suggested by NIC at its sole option.
17. NON-HIRE OF EMPLOYEES: For the term of this contract and for six months after its termination, NIC agrees not to employ any employee of GANET, in any capacity, without the prior approval of GANET.
18. AUDIT RIGHTS: GANET shall have the right, exercisable at any reasonable time during normal business hours, to inspect and audit any records concerning the development of this software package including, but not limited to, books, records, documents and other evidence pertaining to work done and/or the cost and expenses incurred by NIC in performing this contract. Information made available to GANET as a result of such audit shall be treated as proprietary information by GANET, shall be utilized solely for the purposes of review/evaluation of NIC's performance under this contract and shall not be released to any parties other than those within GANET possessing a valid "need to know;" provided, however, nothing in this paragraph shall prohibit or limit GANET's ability to disclose information made available to GANET under this paragraph to others for purposes of enforcing GANET's rights and remedies under this contract.
19. TIME OF THE ESSENCE: GANET and NIC will use all reasonable effort to ensure that all project schedules are met.
20. TRADING WITH STATE EMPLOYEES: The provisions of Official Code of Georgia Annotated, Sections 45-10-20 et. seq., have not and will not be violated under the terms of this agreement.
21. GOVERNING LAW: This contract is deemed to be made under and shall be construed according to the laws of the State of Georgia.
22. TAXES: NIC shall forthwith pay all taxes lawfully imposed upon it with respect to this agreement or any product delivered in accordance herewith. GANET makes no representation whatsoever as to the liability or exemption from liability of the NIC to any tax imposed by any governmental entity.
23. CONSENT TO BREACH NOT WAIVER: The waiver by GANET or NIC of any breach of any provision contained in this agreement shall not be deemed to be a waiver of such provision on any subsequent breach of the same or any other provision contained in this agreement and shall not establish a course of performance between the parties contradictory to the terms hereof.
25. HEADINGS NOT CONTROLLING: The headings used in this agreement are for reference purposes only and shall not be deemed to be a part of this agreement
26. NOTICES: All notices provided for herein shall be deemed duly given upon delivery if delivered by hand, or on three days after posting if sent by certified mail, return receipt requested. Notice shall only be given to the following persons or officials at the following addresses:
A. NIC: Address notice to:
Mr. Jeffery S. Fraser
Chairman, CEO
National Information Consortium, Inc.
400 SW 8th Ave
Suite 106
Topeka, KS 66603
B. GANET: Address notice to:
Mr. Thomas M. Bostick
Executive Director
GeorgiaNet Authority
100 Peachtree Street
Suite 1440
Atlanta, GA 30303-3404
27. DRUG FREE WORKPLACE:
a. NIC hereby certifies that:
1. A drug-free workplace will be provided for NIC's employees
during the performance of this Contract; and
2. It will secure from any subcontractors hired to work in a
drug-free workplace the following written certification:
"As part of the subcontracting agreement with (NIC's Name),
(Subcontractor's Name) certifies to NIC that a drug-free
workplace will be provided for the subcontractor's employees
during the performance of this Contract pursuant to
paragraph 7 of subsection B of Code Section 50-24-3."
b. NTC may be suspended, terminated, or debarred if it is determined
that:
1. NIC has made false certification herein above; or
2. NIC has violated such certification by failure to carry out
the requirements of O.C.G.A. 50-24-3.
28. AUTHORITY: The parties hereto warrant that each has full power and authority to enter into and perform this Contract, and the person signing on behalf of each respective party has been properly authorized and empowered to enter into this Contract. Each party further acknowledges that it has read this Contract, understands it and agrees to be bound by it.
30. PARTIES BOUND: This Contract shall be binding on and inure to the benefit of the parties to this Contract and their respective heirs, executors, administrators, legal representatives, successors, and assigns as permitted by this Contract.
31. COMPLIANCE WITH STATUTES: NIC shall perform its obligations hereunder in accordance with all applicable federal and state laws and regulations now or hereafter in effect.
32. LIMITATION OF LIABILITY: Notwithstanding anything to the contrary, in no event will NIC or GANET be liable for any special incidental or consequential damages. Further, neither party hereto will be liable for any damages resulting from a breach of the contract requirements outlined in Exhibit "A" in excess of the amount specified in Exhibit "A." Provided, however, the limitation of NIC's liability for special, incidental, and consequential damages, or damages resulting from a breach of the contract requirements outlined in Exhibit "A" as set forth in this paragraph, shall not apply if and to the extent said damages would be covered losses, occurrences, or events under the insurance coverages required to be purchased by NIC pursuant to paragraph 8 of this contract.
33. ENTIRE AGREEMENT: This agreement embodies the entire agreement between the parties. If any provision herein is held to be invalid, it shall be considered deleted and shall not invalidate the remaining provisions.
SCOPE: NIC shall assist GANET in creating and providing a significant and diligently promoted public service to Georgian citizens and businesses by increasing accessibility to government data and other useful information and services through the GeorgiaNet network. NIC shall provide this service utilizing its own employees and GANET employees in conjunction with NIC application and network software. NIC will develop a description of the tasks that NIC's employees will perform during the term of the contract and a work plan for completing these tasks. The work plan must be completed and agreed to by GANET prior to October 31,1996. Prior to renewal each year, a revised work plan must be presented to GANET for approval.
NIC SOFTWARE APPLICATIONS AND TECHNOLOGY ADVANCES: GANET shall be entitled to obtain a perpetual right to a "use only" license and a complete copy of all application and network software, documentation and source code related thereto and utilized in operating of the GANET network, (whether originally developed by NIC, or one of its 'Sister Network Companies' including, but not necessarily limited to, the Kansas Information Consortium, Nebrask@ Interactive, Inc., and Indian@ Interactive, Inc.), but not software or documentation created by third parties and purchased by NIC, together with any software updates or upgrades made by NIC or one of its Sister Network Companies while NIC contracts to perform services for GANET.
Upon GANET's election to maintain a perpetual right to a "use only" license of NIC software applications and technology after termination or other expiration of this contract prior to the anticipated five (5) year term of this contract, GANET shall pay NIC within thirty (30) days of said termination the following amount for the software applications and technology incorporated into GANET:
a. If GANET fails to renew after the initial term of the contract or otherwise terminates the contract within the first year of the contract, GANET may, at it's option, pay NIC $1,000,000.00. Upon receipt of the entire fee, GANET shall be entitled to obtain a perpetual right to "use only" license and a complete copy of all application and network software, documentation and source code related thereto.
b. If GANET fails to renew after the second one year term of the contract or otherwise terminates the contract within the second year of the contract, GANET may, at it's option pay NIC $750,000.00. Upon receipt of the entire fee, GANET shall be entitled to obtain a perpetual right to "use only" license and a complete copy of all application and network software, documentation and source code related thereto.
c. If GANET fails to renew after the third or fourth one year term of the contract or otherwise terminates the contract within the third, fourth year or fifth year of the contract, GANET may, at it's option pay NIC $500,000.00. Upon receipt of the entire fee, GANET shall be entitled to obtain a perpetual right to "use only"
d. At the end of the fifth term of the contract, GANET shall be entitled to obtain a perpetual right to "use only" license and a complete copy of all application and network software, documentation and source code related thereto at no cost.
The perpetual right to "use only" license does not authorize GANET to distribute the software applications or technology to any entity outside of GANET. In addition, GANET is prohibited with sharing the software applications, technology, documentation and/or source code with any current or future contractor of GANET without the prior written approval of NIC.
NIC will provide to GANET a list of specific software applications, network software, and intellectual properties which will be subject to a "use only" license agreement upon non-renewal or termination of the contract with-in ninety (90) days of the signing of this contract. This list will be continuously updated during the term of the contract.
FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED EXPENSES:
NIC shall dedicate qualified and experienced personnel to work with current
GANET staff in order to enhance the products and services offered by GANET.
NIC shall attain a staffing level during the term of this contract of at least five (5) full-time equivalent employee positions, based on an eight-hour work day per position, five days per working week. NIC shall have two (2) full time employees on site within thirty (30) days of the commencement of this contract. The remaining three (3) full time employees will be on site within sixty (60) days of the commencement of this contract.
NIC shall be responsible for providing NIC employees with all necessary workstations and personal equipment. GANET shall be responsible for supplying appropriate office space, network connections, necessary third party network software and reasonable office supplies.
NIC shall be responsible for all required employer costs attributable to its officers and employees, including but not limited to, workers' compensation premiums and deductible, unemployment compensation tax withholding contributions, tax withholding contributions, and similar items.
In the event that both parties mutually agree that NIC should employ additional full time employees in order to further the development and success of GeorgiaNet, GANET shall pay a $50,000 fee annually for each additional employee. This fee will be subject to a maximum 5% yearly increase as mutually agreed upon by NIC and GeorgiaNet. Both parties shall be subject to the same expenses as set forth for existing NIC employees under this contract and Exhibit "A".
TRAVEL AND MARKETING EXPENSES: NIC shall be responsible for all travel and meeting related expenses of NIC employees. GANET shall be responsible for all travel and meeting related expenses of GANET employees. NIC understands the importance of marketing GANET and shall reasonably furnish related marketing expenses associated with promoting GANET.
a. $800,000 per year, in equal amounts of $200,000 every consecutive three month period beginning October 1, 1996 until the expiration or other termination of this contract. This fee may be subject to a maximum 5% yearly increase as mutually agreed upon by NIC and GeorgiaNet. NIC shall provide a performance bond equal to one quarterly payment prior to October 1, 1996; and
b. 5% of gross GANET revenue per annual quarter, excluding all current bulk products, payable within 30 days of the end of each annual quarter. The first payment will be based upon revenue received from October 1, 1996 through December 31,1996.
WITNESS WHEREOF the parties have executed this agreement on the date first written above.
NATIONAL INFORMATION CONSORTIUM, INC.
By: /s/Jeff Fraser
----------------------------
Jeff Fraser
Chairman, CEO
FEI No.
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GEORGIANET AUTHORITY
By: /s/ Thomas M. Bostick
----------------------------
Thomas M. Bostick
Executive Director
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THIS CONTRACT is between the Information Network of Arkansas, by and through the Information Network of Arkansas Board, hereinafter referred to as the "INA", a public instrumentality carrying out an essential government function, and the Arkansas Information Consortium, Inc., a for-profit Arkansas corporation, without seal, hereinafter referred to as AIC.
The INA issued RFP 97-0140 seeking proposals for a network manager, dated August 5, 1996. The request is hereinafter referred to as the RFP.
AIC submitted a proposal dated May 9, 1997, in response to the RFP, and such proposal was determined by the INA to meet the requirements of the RFP. The proposal is hereinafter referred to as the AIC Proposal.
The INA enters into a contract with AIC for AIC to serve as network manager to establish, develop, operate, maintain and expand the information network, as defined in the RFP and this contract, for increased electronic access to public and other useful and relevant information as contemplated by the grant of authority by the Arkansas General Assembly to the Information Network of Arkansas.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF INFORMATION NETWORK.
The purpose of the information network and this Contract may be summarized as follows:
a. To create and provide a significant and aggressively promoted public service to the citizens and businesses of Arkansas by (1) increasing accessibility to public information and other useful information and services through electronic means, and (2) promoting economic development by increasing ease of access to public information and other useful information, and by promoting the sharing of that information.
b. To provide such public service without increasing the tax burden on the citizens of Arkansas, through utilization of private capital and management.
2. HARDWARE AND SOFTWARE AGREEMENTS.
AIC will provide hardware, and provide or develop software as enumerated in the AIC Proposal, and such other hardware and software as may be necessary to make the information network operational.
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3. CONNECTIONS BETWEEN INFORMATION NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state facilities to AIC facilities for information network purposes, including but not limited to leased circuits from telephone or cable companies, shall be paid as expenses from the information network revenue account.
4. INFORMATION NETWORK SERVICE.
AIC on behalf of the INA shall negotiate with and obtain written contracts for each separate data-providing entity (hereinafter, DPE) from which electronic access is desired.
All subscribers will be required to execute a contract for services.
All contracts with subscribers and agencies shall be subject to approval and continuing monitoring of the INA.
5. REGULATION OF RATES BY THE INA.
All rates and fees charged to information network users shall be subject to the final approval of the INA. The INA may on its own motion review and regulate any and all rates and fees for fairness, reasonableness and appropriateness. The AIC may at any time recommend changes in rates and fees to the INA.
The maximum initial annual subscription fee that mainframe bulk and interactive subscribers and PC/modem interactive subscribers shall pay is $50.00.
In the event that costs which AIC pays state agencies for data or data access are reduced or increased as a result of legislation or state regulatory administrative changes, such reductions or increases shall be passed on directly to subscribers and users of the information network unless otherwise approved in writing by the INA.
6. NETWORK MANAGER REMUNERATION.
General Provisions: The initial cash investment of AIC shall be $300,000. AIC shall establish one or more accounts in Arkansas financial institutions which are federally insured, for deposit of revenue from information network operations and shall furnish the INA with the names of the institutions, the account numbers and the names of those persons having signatory authority. Any funds deemed
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Within the framework of the rate-setting procedure addressed in section 5 above, the disbursement of all funds received by the information network as a result of the operation of this Contract will be as follows:
a. For information network operating expenses, including disbursement to DPEs for electronic and administrative expenses.
b. 5% of the difference between gross network revenues and the amount payable to state agencies.
c. AIC will be entitled to retain any sums remaining after payment of the amounts specified in paragraphs a. and b. above.
Accounts receivable and proceeds therefrom not yet disbursed by the information network, which are generated from information network operations conducted by AIC, are the sole property of AIC until disbursed.
7. CHANGES IN INFORMATION NETWORK.
Information network operations and development shall be in accordance with the AIC Proposal and the RFP.
A planned material change in the information network operations cannot be made by AIC without the prior written consent of the INA. A "material change" includes, but is not limited to, a change which increases response time to inquiries, adds to the complexity of information network use, diminishes services provided to users, or results in a comparable impact on operations noticeable by users.
AIC will provide to the INA at least thirty (30) days prior written notice of a planned material change in information network operations.
AIC shall timely provide to the INA such management reports as the INA may reasonably request.
8. NOTICES.
The INA contact person shall be designated by the INA in writing no later than upon the execution of this Agreement. The AIC contact person shall be the President of AIC. Each party may change its designation for notice following written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to the persons identified above or to such other persons as may be subsequently
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9. FINANCES AND RECORDS.
All AIC documents and records pertaining to operation of the information network will be available for inspection, auditing and copying by the INA, or other authorized representatives designated by the INA. Monthly income statements and balance sheets for the information network will be provided to the INA by AIC.
AIC also agrees to comply with any recommendations made in any audit, unless AIC and INA otherwise mutually agree. Any such audit will be performed by a competent and reputable CPA licensed in Arkansas.
To the extent the audit report discloses any discrepancies in the AIC charges, billings or financial records, and following a period for review and verification of the amount by AIC, AIC will adjust the next monthly bill as soon as reasonably possible, but not to exceed 90 days. AIC shall cooperate to assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books of original entry of all transactions, appropriate subsidiary ledgers, a general ledger which includes to-date postings and an audit trail through financial statements. Such books may either be maintained on paper or on computer with appropriate backup. AIC shall from the beginning of this Contract adopt the calendar year ending December 31, for reporting purposes.
10. AIC SHAREHOLDERS.
AIC agrees to provide and continually keep updated a list of names and addresses of stockholders of AIC for those shareholders holding five percent (5%) or more of any class of stock and the percentage of ownership of each stockholder.
As a basic policy all shareholders of AIC shall be natural persons; however, exceptions to this requirement may be approved by the INA on a case by case basis. Such approval is not to be unreasonably withheld. The intent of this section is that the INA shall know the identity of AIC investors, back to natural persons.
11. THE INFORMATION NETWORK OF ARKANSAS AND THE NETWORK MANAGER.
The duties of the INA and the network manager are as set forth in A.C.A. 25-27-101 et seq.
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AIC agrees to attain a staffing level during the first fiscal year of at least eight (8) full-time equivalent employee positions, based on an eight-hour work day per position, five days per working week.
The hiring, firing, recruitment, management, and training of AIC employees will not be the responsibility of the INA. The INA's involvement in the personnel affairs of AIC shall be limited to disclosure of the names and positions of officers and employees of AIC.
No officer, employee, director or shareholder of AIC shall receive a salary, except as and for services performed by such officer, employee, or director or shareholder for AIC on behalf of the information network.
AIC shall be responsible for all required employer costs attributable to its officers and employees, including but not limited to, workers' compensation premiums and deductible, unemployment compensation tax withholding contributions, tax withholding contributions, and similar items.
13. INCORPORATION BY REFERENCE.
The provisions of the RFP and the AIC Proposal are hereby incorporated into this Contract and made a part hereof. If there is any conflict among the provisions of the RFP, the AIC proposal, this Contract and state law then those conflicts will be resolved in the following order of precedence:
a. State law
b. This Contract
c. The RFP and addenda
d. The AIC proposal
This Contract may be amended only by mutual expressed written consent.
14. INSURANCE AND BONDS.
AIC shall provide the INA written proof of the following provided by a qualified firm authorized / admitted to do business in Arkansas:
a. Proof of a general comprehensive liability insurance policy in the amount of at least $1,000,000.
b. AIC shall maintain all workers' compensation insurance coverage as required by law.
c. AIC shall maintain an Employers' Liability Insurance - Coverage B, as required by law.
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e. AIC shall maintain a fidelity bond in the amount of at least $100,000 per employee.
15. TERMINATION OF CONTRACT.
The INA shall have the right to terminate this Contract for cause, subject to cure, by providing written notice of termination to AIC. Such notice shall specify the time, the specific provision of this Contract or "for cause" reason that gives rise to the termination, and shall specify reasonable appropriate action that can be taken by AIC to avoid termination of the Contract. The INA shall provide a period of up to thirty (30) days, unless otherwise specified in this Contract, for AIC to cure breaches and deficiencies of its performance obligations under this Contract.
The INA may terminate this Contract at any time and without cause if directed to do so by statute.
If the State decides to extend the Contract through June 30, 2003, or at anytime thereafter, the INA shall be entitled to a perpetual for-use-only license with the right to modify, along with application software documentation and source code, for no additional compensation to AIC. Prior to June 30, 2003, the INA reserves the right to negotiate terms for licensure of software, which may include perpetual for-use-only license with a right to modify software application documentation and source code, notwithstanding the terms set forth in the section of this Contract concerning Continuation of Operations During Transition Period.
16. TERMINATION FOR CAUSE
For purposes of this Contract, the phrase "for cause" shall mean, but not be limited to:
a. Any material breach or evasion by AIC of the terms or conditions of this Contract and its amendments, if any;
b. Ownership in AIC by a shareholder unacceptable to the INA.
c. Substantial cessation of information network services by AIC shall be cause for immediate termination of this Contract.
d. Fraud, misappropriation, embezzlement, malfeasance, significant misfeasance, or illegal conduct by AIC, its officers, directors or shareholders.
e. Dissolution of AIC or forfeiture of its corporate existence.
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g. Amendment of the INA's enabling statue or an adverse judicial decision by a court of competent jurisdiction, which has the effect of rendering information network operations no longer feasible.
h. Insolvency of AIC.
I. Material breach of an agreement with any state agency.
j. Intentional disclosure of any confidential information.
17. APPROPRIATE USE MESSAGES.
The information network shall display an appropriate use message to all subscribers upon initial log-on to the information network. Each subscriber shall be required to verify compliance with said message terms. Upon subsequent log-ons, such message shall be displayed, without verification, only if prior verification is logged in the user file.
The information network shall provide DPEs the opportunity to include additional wording if determined necessary by the DPE. The appropriate use message shall be approved by the INA and updated to comply with any amendments to the law, or as required by the INA.
18. ACCESS TO INFORMATION NETWORK BY DATA PROVIDING ENTITY.
a. DPEs must have terminal (read) access to the information network's computerized log of subscribers using the DPEs' data and their security status, without access cost to the DPEs. The DPEs will be responsible for the cost of terminal(s) and the cost of a dial-up or lease line, whichever is used.
b. DPEs must be able to sign on to AIC's information network to audit the dissemination of its records. On-line audit capability must be available for the length of time specified by the data owning agencies after transaction processing. After the on-line retention period has expired, AIC shall, as specified between AIC and the DPEs, retain, destroy, or provide the record information to the data owning agencies without cost. At a minimum, the information network shall retain the following data: name of subscriber, transaction date and time, type of inquiry and access keys.
c. AIC shall notify affected DPEs and the INA within two (2) hours of unauthorized attempts to gain access to classified data. The notice shall contain detailed information to aid the affected DPE in examining the matter.
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AIC shall engage solely in the business or businesses expressly approved by the INA which shall initially be only and solely the start-up, operation, maintenance and expansion of the information network. AIC shall furnish the INA with certified copies of Articles of Incorporation reflecting this limitation of purpose.
20. PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET INDEMNITY.
AIC warrants that its proposed operation of the information network does not and shall not infringe on the United States patent, copyright, trademark or trade secret right of any person or entity. The INA shall be provided with prompt notice of any such claim of infringement and AIC shall have the exclusive right to defend or settle such claim at AIC's option. The INA shall cooperate with AIC in its defense or settlement of such claim at no expense to the INA.
21. LIABILITY.
The State of Arkansas, its agents and employees shall not be legally responsible for errors due to information network problems.
AIC agrees for itself, its agents, employees and assigns to hold harmless, indemnify and defend the INA and the State of Arkansas, its agents and employees from any actions arising out of AIC's negligence or material failure to perform under the terms of this Contract.
AIC agrees that it has no right of subrogation or contribution from the State of Arkansas for any judgment rendered against AIC.
AIC agrees to indemnify, defend, and save harmless the State and INA board members, its officers, agents and employees from the claims enumerated in RFP 60.14.1 through 60.14.4.
22. APPROPRIATION AND LEGISLATION.
The INA may cancel this Contract to the extent funds or regulatory or statutory fees are no longer legally available for expenditures under this Contract. In the event legislation alters the authority or duties of INA, the legislation controls the terms and conditions of this Contract.
23. ASSIGNMENT AND SUBCONTRACTING.
AIC may not assign any of its rights or delegate any of its duties hereunder unless done pursuant to prior written consent of the INA.
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24. TERM OF CONTRACT.
This Contract shall be for a term of three (3) years, commencing July 1, 1997, and expiring at 12:00 a.m., June 30, 2000, unless earlier terminated by the INA.
a. By March 31, 2000, the INA will inform AIC of the INA's decision on whether or not to extend the contract period through June 30, 2001.
b. By March 31, 2001, the INA will inform AIC of the INA's decision on whether or not to extend the contract period through June 30, 2002.
c. By March 31, 2002, the INA will inform AIC of the INA's decision on whether or not to extend the contract period through June 30, 2003.
d. By March 31, 2003, the INA will inform AIC of the INA's decision on whether or not to extend the contract period through June 30, 2004.
Upon termination or expiration of this Contract all information network and manager records, work papers and operations documentation shall be delivered to the INA within thirty (30) days after termination or expiration and shall become the property of the INA, if not already such.
AIC will be responsible during the term of this Contract for maintaining information network hardware and software.
25. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly agreed that AIC is an independent contractor in the performance of each and every part of this Contract. As such, AIC is solely liable for all labor and expenses in furtherance of such performance and for any and all damages which may be occasioned on account of its performance hereunder.
AIC may become an agent of the INA only by the expressed written consent of the INA.
AIC will not pledge any assets of the INA or State of Arkansas in its care, custody or control, or cause any type of lien to attach to such.
It is expressly agreed that the contractor and any subcontractors and agents, officers, and employees of the contractor or any subcontractors in the performance of this Contract shall act in an independent capacity and not as officers or employees of the State. It is further expressly agreed that this
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26. CLAIMS.
This Contract shall be construed according to the laws of the State of Arkansas. Any legal proceedings against the INA regarding this request for proposals or any resultant contract shall be brought in the State of Arkansas' administrative, legislative or judicial forums. Venue will be in Pulaski County.
27. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated or upon expiration of the Contract without extension, or at the end of any extension, AIC shall, at the option of the INA, continue to operate under this Contract as network manager in accordance with all terms and conditions of this Contract, together with any amendments or modifications in existence at such time, for a period of up to twelve (12) months from the time of expiration or notification of termination from the INA to AIC. The intent of this provision is to insure continuation of information network operations while a successor network manager is chosen and installed.
28. ENTIRE AGREEMENT.
This Contract, including any documents incorporated by reference, constitutes the entire agreement of the parties and supersedes all other prior written or oral contracts between the parties with respect to the subject matter hereof. This Contract may be amended only by a writing signed by the parties thereto.
IN WITNESS to the agreement of the Information Network of Arkansas and the Arkansas Information Consortium, Inc., to all of the above terms and conditions, the respective governing bodies or Boards of Directors of the two organizations have approved the same and have authorized their chief executive officers and secretaries to affix their signatures below indicating such upon this 2 day of JULY, 1997.
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/s/ Joseph Nemelka 7/2/97
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Joseph Nemelka, President/CEO Date
ATTEST:
/s/ Sharon Priest 7/2/97
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Date
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/s/ Sharon Priest 7/2/97
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Date
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THIS CONTRACT is between the Nebraska State Records Board, established under the Records Management Act (84-1204 R.R.S. 1943), hereinafter referred to as "NSRB" and Nebrask@ Interactive, Inc., a for-profit Nebraska corporation, without seal, hereinafter referred to as "NII".
WHEREAS, NSRB, under the authority granted by the Records Management Act, is interested in furthering access by Nebraskans to public information and for transactions with the public in the most cost-effective, progressive, and cooperative means possible; and
WHEREAS, the NSRB desires to operate Nebrask@ Online as an electronic network (synonymous with the term "gateway" for purposes of this contract) access service in furtherance of this goal, and has concluded the network must continue to be enhanced; and
WHEREAS, Nebrask@ Online is poised to become one of the most significant economic development and educational tools in the country; and
WHEREAS, an enhanced Nebrask@ Online will significantly benefit the state through:
a. Compensation to The State for electronic access to certain information;
b. A reduced burden for public access and data collection upon data providing and collecting entities, including state agencies;
c. Increased efficiency of data providing and collecting entities, including state agencies, without budget increases;
d. Additional resources to data providing and collecting entities as Nebrask@ Online grows;
e. Additional and leveraged resources for NSRB to assist in its records management, information management, data collection, and access functions; and
WHEREAS, in order to effectuate this enhancement, NSRB, as the Nebraska Online network authority, issued a request for proposals for a public-private partnership with a private network manager, dated September 8, 1997. The request is hereinafter referred to as "the RFP"; and
WHEREAS, NII submitted a proposal in response to the RFP, and such proposal was determined by the NSRB to be the one best-suited to the goals of NSRB and the needs of an enhanced Nebrask@ Online. The proposal is hereinafter referred to as the "NII Proposal"; and
WHEREAS, NSRB desires to enter into a contract with NII for NII to serve as network manager in a public-private partnership to enhance, develop, operate, maintain and expand Nebrask@ Online (hereinafter referred to as the Network) for increased electronic access to and collection of public and other useful and relevant information as contemplated by the grant of authority to NSRB, in Section 84-1204 R. R. S. 1943, which provides in part that NSRB shall develop and maintain a gateway or electronic network
for accessing public records.
WHEREAS, pursuant to Section 84-1204 R.R.S. 1943, the NSRB also supports and advises the Nebraska Records Management Division and the State Records Administrator in accomplishing their legislative purposes, and for which the Network will furnish further valuable support.
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF NETWORK.
The purpose of the Network and this Contract may be summarized as follows:
a. To provide a significantly expanded and aggressively enhanced public service to the citizens and businesses of Nebraska by (1) increasing accessibility to and collection of public information and other useful information and services through various means, including electronic means, and (2) promoting economic development by increasing ease of access to and collection of public information and other useful information, and by promoting the sharing of that information.
b. To provide such public service without increasing the tax burden on the citizens of Nebraska, through utilization of private capital and management and appropriate payment for the same.
2. HARDWARE, SOFTWARE AND ACCESS LINES.
NII will provide hardware, and provide or develop software as enumerated in
the NII proposal (dated 10-30-97), and such other hardware and software as may be necessary to make the Network operational. In accordance with the RFP, NSRB shall be entitled to a perpetual right-to-use only license to all application software, documentation and source code utilized in operating the Network which is developed or utilized by NII (but not software or documentation created by third parties and purchased by or licensed to NII, hereinafter "Third Party Software") together with any amendments thereto made by NII while NII operates the Network, (hereinafter collectively "The Software") upon the following terms and conditions:
a. By January 31, 2002, NSRB shall be entitled to a non-exclusive perpetual right-to-use-only license with rights to make derivative works as it desires, for no additional compensation.
b. The Software, or such portion as NSRB may elect to license, shall be delivered to NSRB upon January 31, 2002, or the end of any renewal periods, beyond that date, exercised by NSRB.
c. NII shall deposit, on a quarterly basis, the most recent version of all network application source code in escrow with a neutral third party to be mutually chosen by NII and NSRB. Over the term of the contract NII will have the authority to remove superseded source code. Upon notice of termination or expiration of this contract, which shall be transmitted to the escrow agent, neither party shall have authority to remove any source code held in escrow.
Upon termination or expiration of this Contract all other Network and manager records, work papers and operations documentation pertaining to network operations shall be delivered to NSRB within thirty (30) days after termination or expiration and shall become the property of NSRB, if not already such.
NII will be responsible during the term of this Contract for maintaining Network hardware and software (including items provided to the Department of Administrative Services, Division of Central Data Processing, hereafter referred to as "CDP", as allowed by CDP).
3. CONNECTIONS BETWEEN NETWORK AND STATE AGENCIES.
Costs associated with and maintenance of communication links from state facilities to NII facilities for Network purposes, including but not limited to leased circuits from telephone or cable companies, shall be paid as expenses from the Network revenue account.
4. NETWORK SERVICES.
a. NII on behalf of NSRB shall negotiate with and obtain written agreements from each separate data providing/collecting entity (hereinafter, "DP/CE") with which electronic communication is desired, but only if such agreements are needed to supplement the broad grant of authority to access public records or collect information data from the public which has already been granted to NSRB. In the absence of any specific separate agreement, this Contract, together with any addenda, shall serve as the
document granting NII access to or the authority to electronically collect any such data.
b. Through addenda to this Contract or through the separate DP/CE contracts, NII and NSRB shall, by mutual agreement, establish charges for, if appropriate, and other conditions of such access or collection with each DP/CE. In the case of addenda, NSRB shall be responsible for any payments to other DP/CEs whose information is so accessed or collected, and NII shall either pay to NSRB directly, or direct payments to the DP/CE as instructed by NSRB.
c. Such agreements, if any, or addenda to this Contract, shall provide for the costs DP/CEs will charge, and which will be paid as expenses from the Network revenue account for information access or collection, the time period and means by which DP/CEs will be paid from the Network revenue account for access or collection, the criteria the DP/CE and NII will utilize for system development, testing and acceptance in order to assure the reliability of the Network, protection of data, Network security, and any other reasonable special requirement (such as---providing credit card authorization service for State's Credit Card Payment Program with regard to certain services made available via the Internet) for access to and collection of DP/CE data. (NSRB will cooperate in obtaining electronic access to DP/CEs for Nebrask@ Online which may be funded by NSRB in appropriate circumstances).
d. Payments to NSRB or to DP/CEs for DP/CE access or collection shall be due from the Network revenue account and paid within 60 days from the usage or
sale of data unless a shorter period is specified in Nebraska statutes, in the agreement between the Network and a DP/CE, or in any Contract addendum between NII and NSRB. Specific terms of payment shall be specified in additional agreements or addenda to current agreements/contracts between NSRB and DP/CEs and NSRB and NII; such payment terms shall include two monthly payments, one at or near the 15th of the month and one on the last business day of the month with such payments to be made by electronic means. NSRB will cooperate in assisting electronic access to DP/CEs, which may be funded by NSRB in appropriate circumstances.
e. After negotiating any separate DP/CE agreement, the agreement shall be presented by the Network to NSRB for final approval. When an agreement is presented to NSRB, the Network and respective DP/CE shall also present to NSRB a recommendation for prices, if appropriate, to be charged users for the applicable Network service.
f. All subscribers will be required to execute a contract for services. NII shall be authorized to execute such contracts on behalf of NSRB and the Network. The basic form shall be approved by NSRB.
g. NII on behalf of NSRB, shall provide continued and uninterrupted network manager services to any state agency which has an existing contract or contracts with NSRB, or has an existing contract or contracts which were originally executed between the agency and the Nebraska Library Commission and subsequently assigned to
the NSRB, obligating NSRB to provide electronic access to agency records on Nebrask@ Online through NSRB's private network manager.
5. REGULATION OF RATES BY NSRB.
All charges to Network users shall be subject to, after mutual agreement between NII and NSRB, the final approval of NSRB for fairness, reasonableness and appropriateness. In establishing such Network prices NII and NSRB shall consider the following factors:
a. The need to reward innovation and efficiency in Network management.
b. A commitment to the public policy requirement to provide electronic access to public records or electronic transactions with the public at the most reasonable prices possible.
c. That the prices to be charged may be adjusted to permit funding of special projects and enhancement of public service.
d. The fact that some public records may already be provided electronically by the State.
e. The entrepreneurial and start-up nature of the business and attendant risk of capital for NII and the need for them to earn an acceptable rate of return.
f. The need to invest in expansion of and improvement in The Network and its information services.
g. The need of NII to earn a reasonable profit on Network operations.
h. The need to comply with Legislative requirements.
I. Any other reasonable factor which in the opinion of NSRB should be considered.
Such services will thereafter be subject to periodic review and adjustment by NSRB, in conformance with the appropriate Reissue Revised Statutes of Nebraska. Recommendations for amended rates shall be made by NII to NSRB as deemed necessary or desirable.
The maximum initial subscription fee that mainframe bulk and interactive subscribers shall pay is $50.00, which will be used to cover NII costs of account management, licensing communication software, if any, and providing 1-800 technical support. The maximum annual renewal fee shall be approved by NSRB. These fees may be reduced at the discretion of NII as an inducement to further increase the number of subscribers and with the intent of increasing the overall billed usage of the Network. Should NII provide appropriate justification, NSRB may increase the initial or the annual renewal subscription fees. In addition, subscribers utilizing Network provided dial-in modem bank will pay NII a per minute connect time fee to cover the telecommunications costs of providing 800 and Internet service to these subscribers.
In the event that costs which NII pays state agencies for data or data access are reduced or increased as result of legislation or administrative changes, such reductions or increases shall be passed on directly to subscribers and users of the Network unless
otherwise mutually approved in writing by NSRB and NII.
6. NETWORK MANAGER REMUNERATION.
Within the framework of the pricing approval procedure addressed in section 5 above, the disbursement of all funds received by the Network as a result of the operation of this Contract will be as follows:
a. NSRB will operate the Network within the records management cash fund allocation allowed by the Reissue Revised Statutes of Nebraska, and revenue generated from electronic access fees generated from new services implemented during and/or between Legislative Sessions.
b. NSRB will receive 4.5% of Gross Profit (Gross Revenue less Internet and 800 service costs and amounts to be remitted to state agencies other than the NSRB) of the first $89,900 and 2.0% on any Gross Profit over that amount, computed and payable monthly,
c. NII shall be entitled to retain all revenue generated from subscription fees, and connect time charges, and shall be paid the revenue generated from electronic access fees for currently existing services, after payment of the fees specified in the respective DP/CE agreements, payments specified in paragraph b. above, and all other network operating costs. Revenue from electronic access fees for new services shall be divided as agreed upon at the time the NSRB approves the fees for services.
7. CHANGES IN NETWORK.
A planned material change in Network operations cannot be made by NII without the prior consent of NSRB. A "material change" includes, but is not limited to, a change which materially increases on-line response time to user inquiries; significantly adds to the complexity of system use; materially diminishes on-line services provided to users; or results in a significant detrimental impact on operations noticeable by users.
NII will provide to NSRB at least 30 days' prior written notice of a planned material change in Network operations, to allow time for NSRB review.
8. NOTICES.
The NSRB contact person shall be the NSRB Chairman. The NII contact person shall be the President of NII. Each party may change its designation for notice by written notice to the other party to this Contract.
Notices by the parties to one another shall be given in writing to the persons identified above or to such other persons as may be subsequently identified in a written notice. Such notices shall be effective on the date of receipt if sent by U.S. restricted delivery mail, postpaid, or by any reputable overnight delivery service, prepaid.
9. FINANCES AND RECORDS.
All NII documents and records pertaining to Network operations will be available for compliance auditing and inspection by NSRB, or other authorized representatives designated by NSRB. Monthly income statement and balance sheet
information will be provided to NSRB by NII.
NII also agrees to make other changes requested by NSRB to comply with recommendations made in any compliance audit, which changes are agreed to by both NSRB and NII. Any such compliance audit will be performed by a competent and reputable CPA licensed in Nebraska.
To the extent the compliance audit report discloses any discrepancies in the NII charges, billings or financial records, and following a period for review and verification of the amount by NII, NII will adjust the next monthly bill as soon as reasonably possible, but not to exceed 90 days. NII shall cooperate to assure that verification is completed in a timely manner.
The accounting system is to include a numbered chart of accounts, books of original entry of all transactions, appropriate subsidiary ledgers, a general ledger which includes to-date postings and an audit trail through financial statements. Such books may either be maintained on paper or on computer with appropriate backup. NII shall adopt the calendar year ending December 31, for reporting purposes.
On an annual basis, NII will provide audited financial statements to the NSRB.
10. MANAGEMENT REPORTS AND BUSINESS PLAN.
Network operations and development shall generally be in accordance with the NII proposal, which shall be considered the Network business plan. As deemed
necessary or desirable, NII may depart from such proposal, but in the event of any material departure NII shall notify NSRB in advance. NII shall timely provide to NSRB such management reports as NSRB may reasonably request. NII shall update the business plan annually.
11. PROHIBITION ON CERTAIN PAYMENTS TO INTERESTED PARTIES
"Interested party" means any NII officer, director, stockholder and any state employee directly involved in negotiation of the Contract, and any immediate family member of the foregoing.
No payments shall be made to an interested party or a business entity controlled by an interested party except for the fair value of lawful goods or services actually rendered to the Network.
This requirement shall not be applicable to shareholder distributions.
12. FULL-TIME EQUIVALENT POSITIONS AND SALARIES, BENEFITS AND RELATED EMPLOYER EXPENSES.
NII agrees to provide a staffing level during each fiscal year of at least six full-time equivalent employees positions, based on an eight-hour work day per position, five days per working week.
The hiring, firing, recruitment, management, and training of NII employees will not be the responsibility of NSRB. NSRB's involvement in the personnel affairs of NII shall be limited to disclosure of the names and positions of officers and
employees of NII.
NII shall be responsible for all required employer costs attributable to its officers and employees, including but not limited to workers' compensation premiums and deductible, unemployment compensation tax withholding contributions, tax withholding contributions, and similar items.
13. BANK ACCOUNT FOR REVENUE AND PAYMENTS THEREFROM.
a. General Provisions. The initial capital and debt infusion of NII will be greater than $340,000. Additional working capital shall be added whenever necessary. NII shall establish one or more accounts in Nebraska financial institutions which are federally insured, for deposit of revenue from network operations (the "Network revenue account(s)") and shall furnish NSRB, if requested, with the names of the institutions, the account numbers and the names of those persons having signatory authority. Any funds deemed by NII to be "idle" or "excess" funds, (defined as those not required to meet immediate needs) may be deposited at NII's discretion in money market accounts, treasury bills, or other suitable investment vehicles until needed.
b. Payments from Accounts. Payments from the Network revenue accounts are authorized as follows:
1. Payments to DP/CEs or NSRB for electronic access to or collection of information.
2. Payment of ordinary, necessary and reasonable operating
expenses for the Network.
3. System development costs, including programming (to the extent not covered by regular salary under ordinary operating expenses) and purchases or upgrades of software or hardware.
4. Payment of Shareholder distributions.
5. Any other payments to NSRB.
14. INCORPORATION BY REFERENCE.
The provisions of the RFP and the NII proposal are hereby incorporated into this Contract and made a part hereof. If there is any conflict between the terms of the RFP and the provisions of this Contract, the terms of the Contract shall control over the terms of the RFP. If there is any conflict between the terms of the NII proposal and this Contract, the terms of the Contract shall control. This contract may be amended by mutual expressed written consent of the parties.
15. INSURANCE AND BONDS.
NII shall provide NSRB written proof of the following provided by a qualified firm authorized/admitted to do business in Nebraska:
a. Proof of a general comprehensive liability insurance policy in the amount of at least $500,000 with a deductible of not more than $5,000. NSRB and the State of Nebraska shall be listed as additional insureds.
b. Employment Dishonesty Bond covering all NII officers and
employees in an amount of at least $100,000 per employee. NSRB and the State of Nebraska shall be listed as additional obligees.
c. NII shall maintain all workers' compensation insurance coverage as required by law.
16. TERMINATION OF CONTRACT.
NSRB shall have the right to terminate this Contract for cause as defined in Section 17 herein, subject to cure, by providing written notice of intent to terminate for cause to NII. Such notice shall specify the time for termination if not cured, the specific "for cause" reason that gives rise to the intent to terminate, and shall specify reasonable appropriate action that can be taken by NII to avoid termination of the Contract. NSRB shall provide a period of time of not less than 60 nor more than one hundred eighty (180) days, unless otherwise specified in this Contract, for NII to cure such "causes" under this Contract of which it receives written notice.
NSRB may terminate this Contract at any time and without cause if directed to do so by statute; if there is a substantial cessation of Network services by NII; failure of appropriation by the Legislature as found in section 5.26 of the RFP (SCA-0099); or if there is a repeal of the NSRB enabling statutes unless other statutory provisions allow continuation of the Network.
17. TERMINATION FOR CAUSE.
For purposes of this Contract, the phrase "for cause" shall mean:
a. Any material breach or evasion by NII of the terms or conditions of this Contract and its amendments, if any.
b. Fraud, misappropriation, embezzlement, malfeasance, significant misfeasance, or illegal conduct by NII, its officers, directors or shareholders.
c. Dissolution of NII or forfeiture of its corporate existence.
d. Amendment of the NSRB enabling statute or an adverse judicial decision by a court of competent jurisdiction, which has the effect of rendering network operations no longer feasible.
e. Insolvency of NII.
f. Breach of an agreement with any state agency.
g. Intentional disclosure of any confidential information.
18. STANDARD USE MESSAGES.
The Network shall display such standard use message(s) to all subscribers upon initial access to the Network or a part thereof as may from time to time be appropriate, and a subscriber shall be required to indicate the subscriber's compliance with said message terms. Upon subsequent accesses, such message shall be displayed only, without compliance indication, if prior compliance indication is logged in the user's session log. All messages must contain language that is at least as restrictive as the following:
"As a requester of public information, I do hereby certify by making
inquiry that I do not intend to and will not (the Network will include any such language or restriction as is required by Nebraska law.)"
The Network shall provide DP/CEs the opportunity to include additional wording if determined necessary by the DP/CE. The standard use message shall comply with any amendments to the law.
19. DATA PROVIDING ENTITY ACCESS.
a. DP/CEs may, if they desire and if approved by NSRB, have terminal (read) access to the Network's computerized log of subscribers and each user's security status, without access cost to the DP/CEs. The DP/CEs will be responsible for the cost of terminal (s) and the cost of a dial-up or lease line, whichever is used.
b. DP/CEs must be able to sign on to NII's system to audit the dissemination of "premium service" records (records with an associated fee). On-line audit capability must be available for the length of time specified by the particular DP/CE after transaction processing. After the on-line retention period has expired, NII shall, as specified between NII and the DP/CEs, retain, destroy, or provide the record information to the DP/CE without cost.
c. At a minimum, the Network shall retain the following data:
name of subscriber, transaction date and time, type of inquiry and access
keys.
d. NII shall notify affected DP/CEs and NSRB within two hours of unauthorized attempts to gain access to password protected data. The notice shall contain
detailed information to aid the DP/CE to examine the matter.
20. PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET INDEMNITY.
NII warrants that its proposed operation of the Network does not and shall not infringe on the United States patent, copyright, trademark or trade secret rights of any person or entity. NSRB shall be provided with prompt notice of any such claim of infringement and NII shall have the exclusive right to defend or settle such claim at NII's option. NSRB shall cooperate with NII in its defense or settlement of such claim at no expense to NSRB. If NII determines that, as a result of such claim the right of users to use the Network is likely to be abridged, NII shall (a) take all reasonable steps necessary to procure for users the right to continue to use the Network; or (b) modify the Network so that no such abridgment will occur and correspondingly reduce charges if the modified Network is not substantially equivalent or better than what it was before the modification. If (a) and (b) fail, then NII may discontinue such service without liability.
21. LIABILITY.
NSRB and the State of Nebraska, its agents and employees shall not be legally responsible to NII for errors due to Network problems.
NII agrees for itself, its agents, employees and assigns to hold harmless, indemnify and defend NSRB and the State of Nebraska, its agents and employees from any actions by third parties arising out of NII's negligence or material failure to perform under the terms of this Contract.
NII agrees that it has no right of subrogation or contribution from the NSRB or the State of Nebraska for any judgment rendered against NII under such circumstances.
22. ASSIGNMENT AND SUBCONTRACTING.
NII may not assign any of its rights or delegate any of its duties hereunder unless done pursuant to the prior written consent of NSRB.
NII may subcontract portions of work to be performed by it under this Contract with the written consent of NSRB.
23. TERM OF CONTRACT.
This Contract shall be for a term of 4 years, commencing February 1, 1998 and expiring at 12:00 a.m., January 31, 2002, unless earlier terminated by the Board for cause.
Subject to the agreement in writing of the parties, this Contract may be renewed, or amended and renewed, for additional terms. Notification by NSRB for additional renewal terms of one year each shall be given by NSRB at least 1 year before the expiration of the initial term and of any renewal term. The term "this Contract" as used in this Agreement shall mean the initial term, together with any renewal terms which are approved. NSRB acknowledges that the length of this Contract and the length of any renewal term or terms, has a material effect on the capital invested in the Network considering the potential profit margin hereunder.
24. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly agreed that NII is an independent contractor in the performance of each and every part of this Contract. As such, NII is solely and personally liable for all labor and expenses in furtherance of such performance and for any and all damages which may be occasioned on account of its performance hereunder.
NII may become an agent of NSRB only by the expressed written consent of NSRB.
NII will not pledge any assets of NSRB in its care, custody or control, or cause any type of lien to attach to such.
25. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated or upon expiration of the Contract without extension, or at the end of any extension, NII shall, at the option of NSRB, continue to operate under this Contract as Network Manager in accordance with all terms and conditions of this Contract, together with any amendments or modifications in existence at such time, for a period of up to 12 months from the time of expiration or notification of termination from NSRB to NII, whichever occurs earlier. The intent of this provision is to insure continuation of Network operations while a successor Network Manager is chosen and contracted.
26. ENTIRE AGREEMENT.
This Contract constitutes the entire agreement of the parties and supersedes all other prior written or oral contracts between the parties with respect to the subject matter hereof. This Contract may be amended only bya writing signed by the parties thereto.
IN WITNESS to the agreement of the Nebraska State Records Board and Nebrask@ Interactive, Inc. to all of the above terms and conditions, the respective governing bodies or Boards of Directors of the two organizations have approved the same and have authorized their chief executive officers, chairman or secretaries to affix their signatures below indicating such upon this 3rd day of December, 1997.
/s/Samuel R. Somerhalder 12-3-97 ------------------------------------------- ---------------------- PRESIDENT/CEO Date NEBRASKA STATE RECORDS BOARD /s/Scott Moore 12-3-97 ------------------------------------------- ---------------------- CHAIRMAN Date |
This addendum to the contract for network manager services dated December 3, 1997 (hereinafter master contract), is made between the Nebraska State Records Board (hereinafter "NSRB") and Nebrask@ Interactive, Inc. (hereinafter "NII"), to clarify and define provisions found in the master contract, including provisions related to payment and disbursement of network revenue.
WHEREAS, pursuant to the public bidding process NSRB and NII have entered into an agreement for network manager services whereby NII shall provide the means for public electronic access to government information;
WHEREAS, electronic access fees are charged for with certain types of information;
WHEREAS, Neb. Rev. Stat. 84-1205.02 specifically provides that all electronic access fees be deposited in the Records Management Cash Fund;
WHEREAS, the master contract contemplates the details of the receipt and disbursement of electronic access fees through an addendum to that contract;
NOW THEREFORE, the parties agree to the following terms and conditions of this addendum to the master contract:
1. Unless otherwise specifically provided in statute or existing agreement, all electronic access fees for state government information collected by NII shall be deposited in the Records Management Cash Fund by NII by electronic means. Deposits by NII shall be made as follows:
a. On the 15th day of each month, or the next following business day to the 15th of the month if the fifteenth does not fall on a business day NII shall deposit in the Records Management Cash Fund by electronic means payment for the estimated portion of funds received for services rendered in the prior month ultimately retained by NSRB and data providing contracting entities (hereinafter "DP/CE") under all agreements for such payment in effect between the NSRB and DP/CE's and NSRB and NII.
c. At least seven days prior to the last business day of the month NII shall provide an itemized statement of all payments to be deposited for that month including a breakdown by data type (i.e. driver's license records, UCC searches) and volume activity and amount of revenue by data type.
d. On the last business day of the month NSRB shall transfer to NII by electronic means all amounts due under agreements in effect at that time for services, to include the $1.00 per Department of Motor Vehicles driver's license record and $1.00 for each interactive Secretary of State Uniform Commercial Code and Effective Financing Statement Search processed through the network, rendered in the month prior to payment.
2. This addendum is hereby incorporated and made part of the RFP (SCA-0099) issued by the State of Nebraska and Proposal received from NII in response to that proposal and the master contract referenced above. The purpose of this addendum is to clarify and outline procedures for existing provisions relating to transfer of funds under the contract.
NEBRASK@ INTERACTIVE, INC.
/s/ Samuel D. Somerhalder 12-3-97
------------------------------ -----------
President/CEO Date
Page 2 of 3
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/s/ Scott D. Moore 12-3-97 -------------------- -------- Chairman Date |
This Contract is between the Commonwealth of Virginia, hereinafter referred to as the "Commonwealth", operating by and through the Virginia Information Providers Network Authority, hereinafter referred to as the "Authority", a political subdivision created pursuant to Chapter 46, Code of Virginia, by the Virginia General Assembly for the purpose of carrying out an essential government function and matters of public necessity, and Virginia Interactive, LLC, a Virginia limited liability company of which the National Information Consortium, Inc., is the controlling member.
WHEREAS, on May 15, 1997, the Authority issued a request, hereinafter referred to as the "Solicitation", to all interested vendors advising vendors of the Authority's desire to execute its responsibilities through the services of a Network Manager and seeking proposals that would help the Authority structure a mutually advantageous relationship with a Network Manager; and
WHEREAS, the National Information Consortium, Inc., submitted a proposal, dated June 16, 1997, and a proposal addendum, dated July 16, 1997, hereinafter referred to as the "Proposal", in response to the Solicitation, and such Proposal was determined by the Authority to meet the requirements of the Solicitation; and
WHEREAS, the Authority desires to enter into a contract with Virginia Interactive, LLC., hereinafter referred to as "VI", for VI to serve as Network Manager to establish, develop, operate, maintain, and expand the Virginia Information Providers Network, hereinafter referred to as the "Network", as outlined in the Code of Virginia, in the Solicitation, and in this Contract, for the purpose of providing increased electronic access to public and other useful and relevant information and electronic transactions with government as
NOW THEREFORE, the parties agree as follows:
1. PURPOSE OF THE INFORMATION NETWORK.
The purpose of the Virginia Information Providers Network and this Contract may be summarized as follows:
a. To create and provide a significant and aggressively promoted public service to the citizens and businesses of Virginia by (1) increasing accessibility to public information and other useful information and services through electronic means, and (2) promoting economic development by increasing ease of access to public information and other useful information, and by promoting the sharing of that information through electronic transactions.
b. To provide such public service through private capital and management.
2. TERM OF CONTRACT.
The term "Contract" as used in this document shall mean the initial term, together with any renewal term which is approved.
This Contract shall be for a term of five (5) years, commencing September 1, 1997, and expiring at 12:00 a.m., August 31, 2002, unless earlier terminated by the Authority. At the option of the Authority, the Contract may be renewed for a period of five (5) additional years. By March 31, 2001, the Authority will inform VI of the Authority's decision on whether or not to extend the contract period through August 31, 2007.
VI will be responsible during the term of this Contract for procurement, installation, maintenance and testing, and production operation of Network hardware and software.
If the Authority decides to extend the Contract through August 31, 2007, the Authority shall be entitled to a perpetual for-use-only software license with the right to modify, along with application software documentation and source code, for no additional compensation to VI. The latest production version of documentation and source code will be maintained in escrow by VI, to the benefit of the Authority, throughout the life of this contract.
3. INCORPORATION BY REFERENCE.
The provisions of the Solicitation and the Proposal are hereby
incorporated into this Contract and made a part hereof. If there is any
conflict among the provisions of the Solicitation, the Proposal, this
Contract, and the laws of the Commonwealth, then those conflicts will be
resolved in the following order of precedence:
a. Virginia law
b. This Contract
c. The Solicitation
d. The Proposal
This Contract may be amended only by mutual expressed written consent.
4. RELATIONSHIP OF PARTIES.
Notwithstanding any other provisions contained herein, it is expressly agreed that VI is an independent contractor in the performance of each and every part of this Contract. As such, VI is solely liable for all labor and expenses in furtherance of such performance and for any and all damages which may be occasioned on account of its performance hereunder.
VI may become an agent of the Authority only by the expressed written consent of the Authority.
VI understands the role of the Authority in the policy making process and agrees to be responsive to policy decisions of the Authority.
VI will not pledge any assets of the Authority or the Commonwealth in its care, custody or control, or cause any type of lien to attach to such, except with the express written permission of the Authority.
It is expressly agreed that VI and any subcontractors and agents, officers, and employees of VI or any subcontractors in the performance of this Contract shall act in an independent capacity and not as officers or employees of the Commonwealth. It is further expressly agreed that this Contract shall not be
5. HARDWARE AND SOFTWARE AGREEMENTS.
VI will provide hardware, and provide or develop software as enumerated in the Proposal, and such other hardware and software as may be necessary to make the Network operational.
All Network trademarks, tradenames, logos and other Network identifiers (e.g. VIPNet), Internet uniform resource locators, Internet addresses, and e-mail addresses obtained or developed pursuant to this Contract shall be the property of the Authority. VI is hereby granted a full license to the same for the duration of this Contract and any extensions thereof.
6. CONNECTIONS WITH STATE AGENCIES.
Costs associated with and maintenance of communication links from state facilities to VI facilities for Network purposes, including but not limited to leased circuits from telephone or cable companies, shall be paid as expenses by VI.
7. INFORMATION NETWORK SERVICE.
On behalf of the Authority, VI shall negotiate with and obtain written contracts from each separate data-providing entity, hereinafter referred to as DPE, from which electronic access is desired.
All subscribers will be required to execute a contract for services.
All contracts with DPEs shall be subject to the approval of and review by the Authority.
8. REGULATION OF RATES BY THE AUTHORITY
All rates and fees charged to Network users shall be subject to the final approval of the Authority. The Authority may on its own motion review and regulate any and all rates and fees for fairness, reasonableness, and appropriateness. VI may at any time recommend changes in rates and fees to the Authority.
9. FINANCIAL MANAGEMENT.
VI shall establish one or more accounts in Virginia financial institutions which are federally insured for deposit of revenue from Network operations and shall furnish the Authority with the names of the institutions, the account numbers, and the names of those persons having signatory authority.
The disbursement of funds received by the Network Manager as a result of the operation of this Contract will be as follows:
a. Payment of all Network operating expenses.
b. Transfer of funds to the Authority in accordance with (i) Interagency Agreements between the Authority and respective data providing entities, and (ii) amounts for the reasonable and necessary expenses of the Authority as determined by the Authority and stated in the budget plan.
c. All remaining funds will be retained by VI.
10. FINANCE INFORMATION AND RECORDS.
All VI documents and records pertaining to operation of the Network will be available for inspection, auditing, and copying by the Authority, or other authorized representatives designated by the Authority, at any reasonable time. Monthly income statements and balance sheets for the Network will be provided to the Authority by VI.
VI also agrees to comply with any recommendations made in any audit, unless VI and the Authority otherwise mutually agree. Any such audit will be performed by a competent and reputable CPA licensed in Virginia.
To the extent an audit report discloses any discrepancies in the VI charges, billings, or financial records, and following a period for review and verification of the amount by VI, VI will adjust the monthly bill as soon as reasonably possible, but not to exceed 90 days. VI shall cooperate to assure that verification is completed in a timely manner.
11. PERSONNEL PRACTICES.
The hiring, recruitment, management, training, and firing of VI employees will be the responsibility of VI. The Authority's only involvement in the personnel affairs of VI shall be limited to disclosure of the names and positions of officers and employees of VI.
No officer, employee, director, or member of VI shall receive a salary, except as and for services performed by such officer, employee, or director, or member for VI on behalf of the Virginia Information Providers Network.
VI shall be responsible for all required employer costs attributable to its officers and employees, including but not limited to, workers' compensation premiums and deductible, unemployment compensation tax withholding contributions, tax withholding contributions, and similar items.
12. CHANGES IN INFORMATION NETWORK.
Network operations and development shall be in accordance with the Proposal, the Solicitation, and this Contract.
A planned material change in Network operations cannot be made by VI without the prior written consent of the Authority. A "material change" includes, but is not limited to, a change which is substantial and which increases response time to inquiries, adds to the complexity of Network use, diminishes services provided to users, or results in a comparable impact on operations noticeable by users.
VI will provide to the Authority at least thirty (30) days prior written notice of a planned material change in Network operations.
VI shall timely provide to the Authority such other management reports as the Authority may reasonably request.
13. NOTICES.
Notices by the parties to one another shall be given in writing to the persons identified above or to such other persons as may be subsequently identified in a written notice. Such notices shall be effective on the date of receipt if sent by U. S. first-class or restricted delivery mail, postpaid, or by any reputable overnight delivery service, prepaid.
14. APPROPRIATE USE MESSAGES.
Where appropriate within the website, the Network Manager shall display an appropriate use message to all Network subscribers on a screen prior to accessing the affected information. Each subscriber shall be required to verify compliance with said message terms. Upon subsequent log-ons, such message shall be displayed, without verification, only if prior verification is logged in the user file.
The Network Manager shall provide DPEs the opportunity to include additional wording if determined necessary by the DPE. The appropriate use message may be approved by the Authority and updated to comply with any amendments to the law, or as required by the Authority.
15. ACCESS BY DATA PROVIDING ENTITY.
a. DPEs furnishing information for which Network fees are charged shall have terminal (read) access to the Network's computerized log of subscribers using that DPE's data and their security status, without access cost to the DPEs. The DPEs will be responsible for the cost of terminal(s) and the cost of a dial-up or lease line, or Internet access, whichever is used.
b. Each respective DPE shall be able to sign on to the Network to audit the dissemination of its records. On-line audit capability must be available for the length of time specified by the data owning agencies after transaction processing. At a minimum, the Network shall retain the following data: name of subscriber, transaction date and time, type of inquiry and access keys. After the on-line retention period has expired, VI shall, as specified between VI and the DPEs, retain, destroy, or provide the record information to the data owning agencies without cost.
d. Only information that is legally distributable will be included on the Network. The DPE will remain the legal custodian of any data placed on the Network. In accessing data on any DPE's host platform, the Network Manager will comply with the DPE's security requirements or work with the DPE to improve security procedures, if such action is deemed appropriate.
16. INSURANCE AND BONDS.
VI shall provide the Authority written proof of the following provided by a qualified firm authorized/admitted to do business in Virginia:
a. Proof of a general comprehensive liability insurance policy in the amount of at least $1,000,000.
b. VI shall maintain all workers' compensation insurance coverage as required by law.
c. VI shall maintain Employers' Liability Insurance - Coverage B, as required by law.
d. VI shall maintain a commercial automobile policy in the amount of at least $1,000,000.
e. VI shall maintain a fidelity bond in the amount of at least $100,000 per employee.
17. TERMINATION OF CONTRACT.
The Authority shall have the right to terminate this Contract for cause, subject to cure, by providing written notice of termination to VI. Such notice shall specify the time, the specific provision of this Contract or "for cause" reason that gives rise to the termination, and shall specify reasonable appropriate action that can be taken by VI to avoid termination of the Contract. The Authority shall provide a period of up to sixty (60) days, unless otherwise specified in this Contract, for VI to cure breaches and deficiencies of its performance obligations under this Contract.
18. TERMINATION FOR CAUSE
For purposes of this Contract, the phrase "for cause" shall mean, but not be limited to:
a. Any material breach or evasion by VI of the terms or conditions of this Contract and its amendments, if any;
b. Ownership in VI by a member unacceptable to the Authority.
c. Substantial cessation of Network services by the Network.
d. Fraud, misappropriation, embezzlement, malfeasance, significant misfeasance, or illegal conduct by VI, its officers, directors, or members.
e. Dissolution of VI or forfeiture of its company's existence.
f. Repeal of the Authority's enabling statutes. This is cause for immediate termination, unless another agency is designated for oversight of the Network within a reasonable time prior thereto.
g. Amendment of the Authority's enabling statue or an adverse judicial decision by a court of competent jurisdiction, which has the effect of rendering Network operations no longer feasible.
h. Insolvency of VI.
I. Material breach of an agreement with any DPE.
j. Intentional disclosure of any confidential information.
19. LIMITATION OF PURPOSE.
VI shall engage solely in the business or businesses expressly approved by the Authority which shall initially be only and solely the start-up, operation, maintenance and expansion of the Network.
20. PATENT, COPYRIGHT, TRADEMARK,TRADE SECRET INDEMNITY.
21. LIABILITY.
The Commonwealth, its agents, and employees shall not be legally responsible for errors due to Network problems.
VI agrees for itself, its agents, employees, and assigns to hold harmless, indemnify and defend the Authority and the Commonwealth, its agents and employees from any actions arising out of VI's negligence or material failure to perform under the terms of this Contract.
VI agrees that it has no right of subrogation or contribution from the Commonwealth for any judgment rendered against VI.
VI agrees to indemnify, defend, and hold harmless the Commonwealth and Authority board members, its officers, agents and employees from claims against VI.
22. APPROPRIATION AND LEGISLATION.
The Authority may cancel this Contract to the extent funds or regulatory or statutory fees are no longer legally available for expenditures under this Contract. In the event legislation alters the authority or duties of the Authority, that legislation controls the terms and conditions of this Contract.
VI may cancel this Contract in the event that (a) legislation
materially alters the authority or duties of the Authority to the extent that
operation of the Network, as currently envisioned, cannot be supported, or
(b) the financial base for the Network does not materialize or is removed in
the future.
23. ASSIGNMENT AND SUBCONTRACTING.
VI may not assign any of its rights or delegate any of its duties hereunder unless done pursuant to prior written consent of the Authority.
24. CLAIMS.
This Contract shall be construed according to the laws of the Commonwealth. Any legal proceedings against the Authority regarding this solicitation or any resultant contract shall be brought in the Commonwealth's administrative, legislative, or judicial forums.
25. CONTINUATION OF OPERATIONS DURING TRANSITION PERIOD.
If for any reason this Contract shall be terminated, or upon expiration of the Contract without extension, or at the end of the extension, VI shall, at the option of the Authority, continue to operate under this Contract as Network Manager in accordance with all terms and conditions of this Contract, together with any amendments or modifications in existence at such time, for a period of up to twelve (12) months from the time of expiration or notification of termination from the Authority to VI.
The intent of this provision is to insure continuation of Network operations while a successor Network Manager is chosen and installed.
26. ENTIRE AGREEMENT.
This Contract, including any documents incorporated by reference, constitutes the entire agreement of the parties and supersedes all other prior written or oral contracts between the parties with respect to the subject matter hereof. This Contract may be amended only by a writing signed by the parties thereto.