<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999.
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
HIE, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2112366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 PARKWAY PLACE, SUITE 1100
MARIETTA, GEORGIA 30067
(770) 423-8450
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------------
ROBERT I. MURRIE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HIE, INC.
1850 PARKWAY PLACE, SUITE 1100
MARIETTA, GEORGIA 30067
(770) 423-8450
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
With a copy to:
PATRICIA A. WILSON, ESQ.
TROUTMAN SANDERS LLP
BANK OF AMERICA PLAZA
SUITE 5200
600 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308-2216
(404) 885-3000
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
----------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE PER AGGREGATE REGISTRATION FEE
REGISTERED (1) SHARE(2) OFFERING PRICE(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share (together with
associated preferred stock
purchase rights) 302,458 shares $1.875 $567,109 $157.66
=====================================================================================================================
</TABLE>
(1) In accordance with Rule 416 under the Securities Act of 1933, this
Registration Statement also covers such indeterminable number of
shares of common stock as may become issuable upon conversion of the
8.5% Series B Cumulative Convertible Exchangeable Preferred Stock to
prevent dilution resulting from stock splits, stock dividends and
similar transactions.
(2) Estimated solely for the purpose of determining the registration fee
and calculated in accordance with Rule 457(c) under the Securities Act
on the basis of the average of the high and low prices of HIE's common
stock on November 9, 1999 as quoted on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR A SOLICITATION OF AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999
PROSPECTUS
302,458 SHARES
[HIE LOGO]
COMMON STOCK
------------------
The selling shareholders are offering for resale up to 302,458 shares
of our common stock. These shares may be acquired by the selling shareholders
upon their conversion of 65,000 shares of our 8.5% Series B cumulative
convertible exchangeable preferred stock, which we issued in a private
placement on September 29, 1999.
We expect that the selling shareholders using this prospectus may sell
the shares in ordinary brokers' transactions, transactions directly with market
makers, privately negotiated sales or otherwise.
We will not receive any of the proceeds from the offering of the
shares of our common stock with this prospectus. The registration of the shares
pursuant to this prospectus does not necessarily mean that any shares will be
offered or sold.
The sale price of the shares offered with this prospectus will be
determined by the selling shareholders at the time of sale and may be based on
the market price of the shares, negotiated prices or by formula.
Our common stock is currently traded on the Nasdaq National Market
under the symbol "HDIE." On November 9, 1999, the last reported sales price
of the common stock was $1.875 per share.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 3
BEFORE PURCHASING ANY SHARES OF COMMON STOCK OFFERED BY THE SELLING
SHAREHOLDERS.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
------------------
November ___, 1999
<PAGE> 3
TABLE OF CONTENTS
About this Prospectus.......................................................iii
Special Note Regarding Forward-Looking Statements...........................iii
Prospectus Summary............................................................1
Risk Factors..................................................................3
Use of Proceeds..............................................................17
Selling Shareholders.........................................................17
Plan of Distribution.........................................................19
Legal Matters................................................................21
Experts......................................................................21
Where You Can Find More Information..........................................21
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ABOUT THIS PROSPECTUS
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT THAT WE HAVE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") USING A "SHELF"
REGISTRATION PROCESS. UNDER THIS PROCESS, THE SELLING SHAREHOLDERS MAY, FROM
TIME TO TIME, SELL THEIR SHARES OF OUR COMMON STOCK IN ONE OR MORE OFFERINGS.
PLEASE CAREFULLY READ BOTH THIS PROSPECTUS AND ANY APPLICABLE PROSPECTUS
SUPPLEMENT TOGETHER WITH ADDITIONAL INFORMATION DESCRIBED UNDER THE HEADING
"WHERE YOU CAN FIND MORE INFORMATION."
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS
IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS DOCUMENT
AND NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF SECURITIES
HEREUNDER SHALL CREATE AN IMPLICATION TO THE CONTRARY.
IN THIS PROSPECTUS, THE "COMPANY," "HIE," "WE," "US," AND "OUR" REFER
TO HIE, INC. AND ITS SUBSIDIARIES.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in or incorporated by reference into this
prospectus are considered "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These statements involve known and unknown risks and relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"intends," "seeks," "predicts," "potential" or "continue" or the negative of
such terms or other comparable terminology.
Forward-looking statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including those outlined under the
section entitled "Risk Factors." The risks, uncertainties and factors that may
cause our actual results to differ materially from any forward-looking
statement include:
- the effect of changing economic and business conditions
- risks associated with product demand and market acceptance
- changes in our business strategy and development plans
- changes in government regulation
- the loss of significant distributors or customers
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<PAGE> 5
- delays in new product development and technological risks
- other risk factors identified in this prospectus
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
events, levels of activity, performance or achievements. We do not assume
responsibility for the accuracy and completeness of forward-looking statements.
We do not intend to update or revise any forward-looking statement after the
date of this prospectus to reflect any change in our expectations with regard
to such statement or any change in events, conditions or circumstances on which
the forward-looking statement is based.
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PROSPECTUS SUMMARY
ABOUT HIE, INC.
We develop, market and support enterprise application integration
("EAI") software products and provide related services. Our products enable
organizations to connect multiple, disparate Information Technology ("IT")
systems, including applications and databases, thus allowing such systems to
share data in real time. Since 1994, we have been providing solutions to
healthcare companies and have recently begun providing our solutions to
financial/banking institutions.
We offer the Cloverleaf EAI Suite, which helps companies to speed the
process of connecting disparate applications and databases by using pre-made
integration engines and adapters, among other components. These products seek
to simplify the problem of programmers being forced to recreate new integration
software every time they need to link systems together. Furthermore, we believe
industry-specific solutions are important because companies within an industry
often adhere to standardized protocols and formats that require EAI solutions
to be tailored to account for such circumstances. Our products are currently
available to customers in versions specifically designed to meet the needs of
companies in the healthcare and financial/banking vertical markets.
In addition, EMerge, our Enterprise Master Person Index ("EMPI")
product, is a process-oriented implementation of EAI specifically designed to
enable healthcare companies to continuously track patients, physicians,
insurance plan members and records across different organizations and
information systems. EMPIs are enablers for clinical data repositories,
enterprise-wide data warehouses and electronic medical records.
Our Cloverleaf EAI Suite and EMerge products are sold through
third-party distributors and directly to end-users.
We offer an array of professional services, including a variety of
short-term, project-based technical services, extensive training programs,
long-term integration management services and Solution Sourcing, our family of
outsourcing solutions.
We were organized as a Georgia corporation on June 15, 1994. Our
principal executive offices are located at 1850 Parkway Place, Suite 1100,
Marietta, Georgia 30067, and our telephone number is (770) 423-8450. We
maintain a web site at http://www.hie.com. The reference to our web address
does not constitute incorporation by reference of the information contained at
that site.
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THE OFFERING
In September 1999 we issued and sold 65,000 shares of a newly
designated 8.5% Series B Cumulative Convertible Exchangeable Preferred Stock
(the "Series B Preferred Stock") to the selling shareholders in a private
offering for gross proceeds of $650,000. On behalf of the selling shareholders,
we are registering for resale up to 302,458 shares of our common stock that are
issuable upon conversion of the Series B Preferred Stock, based upon the
current conversion price.
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not the
only ones that we face. Additional risks and uncertainties that we do not yet
know of or that we currently consider immaterial may also impair our business
operations or financial condition.
If any of the following risks occur, our business, financial condition
or results of operations could be materially harmed. In that case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
This prospectus also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
OUR OPERATING RESULTS VARY SIGNIFICANTLY AND OUR PAST OPERATING RESULTS MAY NOT
BE INDICATIVE OF OUR FUTURE PERFORMANCE
Although we experienced revenue growth in 1998, such growth may not be
sustainable, as evidenced by the fact that our revenue declined 1% for the
nine-month period ended September 30, 1999, compared to the same period in the
prior year. You should not use our past results to predict future operating
margins and results. Additionally, we have a limited operating history upon
which you can base your evaluation of our business and prospects. Prior to 1998
and in the first nine months of 1999, we experienced a history of losses and we
have not yet been consistently profitable on an annual basis. At September 30,
1999, we had an accumulated deficit of approximately $24.7 million. Our future
operating results will depend on many factors, including the following:
- the growth of the EAI software market
- the continued growth of demand for our EMerge product
- the size and timing of orders for our products and the collection of
the related accounts receivable, especially from major distributors
- the amount and timing of services revenue
- the impact of the Year 2000 issue on sales of our products (See "--
Year 2000 Risks May Result in Material Adverse Effects on Our
Business.")
- the length of the sales cycle for our products
- potential delays in our implementations at customer sites
- continued development of distribution channels
- changes in demand for our products
- introduction of new products or product enhancements by us or our
competitors
- changes in prices of our products and those of our competitors
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- the effects of global economic conditions on capital expenditures
for software
- amount, availability and timing of expenditures relating to
expansion of our business
- variability in the mix of services that we perform versus those
performed by our third-party service providers
WE HAVE INCURRED LOSSES AND THERE CAN BE NO ASSURANCES REGARDING IF AND WHEN WE
WILL AGAIN GENERATE POSITIVE EARNINGS
Prior to 1998 and in the first nine months of 1999, we experienced a
history of losses, and we have not yet been consistently profitable on an annual
basis. We believe this is primarily due to the fact that we have experienced a
shift in the composition of our overall revenue from relatively high-margin
software license fees to the lower-margin service component of our business.
Therefore, our overall gross profit has been reduced, contributing significantly
to the overall losses that we have incurred. Unless we are able to generate
increased unit sales of our Cloverleaf EAI Suite in the healthcare and
financial/banking markets or generate significant sales from our EMerge software
product, as well as develop and market new enhancements and new products, we may
continue to see our lower-margin service business dominate our overall revenue
composition. If this trend continues, unless we are able to continue to make
cost cutting measures, including improvements to the gross profit of the service
business, such losses may continue to occur. In addition, such losses have
contributed to our inability to satisfy certain financial covenants of our
revolving line of credit, which defaults have been waived by the lender. See
"--We Have Incurred A Technical Default In Our Line Of Credit." We are unable to
assure you that we will be able to remedy this situation in the near future, if
at all, and therefore, there can be no assurance if and when we will return to
profitability. See "--We Depend on Services Revenue."
WE HAVE INCURRED A TECHNICAL DEFAULT IN OUR LINE OF CREDIT
In August 1998, we entered into a $5.0 million line of credit
facility (the "Credit Facility") with Silicon Valley Bank (the "Bank"). We were
in default of two of the financial covenants under the Credit Facility at March
31, 1999: (1) quarterly profitability; and (2) the minimum Quick Ratio, as
defined therein. Subsequent to March 31, 1999, HIE and the Bank amended the
Credit Facility whereby the Bank waived these defaults, increased the interest
rate by 0.5% annually (to 1.5% over prime) and secured the line of credit with
the Company's intellectual property.
At June 30, 1999, HIE was in default of the same two financial
covenants under the Credit Facility. Subsequent to June 30, 1999, HIE and the
Bank amended the Credit Facility whereby the Bank waived the defaults,
increased the interest rate by 0.5% (to 2% over prime), and extended the term
of the Credit Facility to September 30, 1999.
On September 30, 1999, HIE and the Bank again amended the Credit
Facility to extend the term until November 30, 1999. Under the borrowing base
limitation, $4.5 million was available for borrowing under the Credit Facility
at September 30, 1999. The balance outstanding under the Credit Facility was
$4.0 million on September 30, 1999. The Credit Facility currently bears interest
at the Bank's prime rate (8.25% at September 30, 1999) plus 2%.
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<PAGE> 10
The increases in our interest rate charged by the Bank reduced our
earnings and contributed to our operating losses.
We are engaged in discussions with the Bank regarding an extension or
replacement of the Credit Facility as well as with other potential financing
sources to provide additional capital for our ongoing and future operations.
There can be no assurance that we will be successful in our negotiations with
the Bank or in attracting additional capital on terms acceptable to us, if at
all.
FACTORS AFFECTING FLUCTUATIONS IN OUR QUARTERLY RESULTS
Our quarterly operating results have fluctuated significantly in the
past and may vary significantly in the future. Quarterly revenue and operating
results depend upon, among other things, the volume and timing of customer
contracts and service orders received, as well as the amount of each contract
that we are able to recognize as revenue. These factors are difficult to
forecast. In addition, as is common in the software industry, a significant
portion of our license revenue in a given quarter historically has been
recorded in the last month of that quarter. Our expense levels for each
quarter, however, are based primarily on our estimates of future revenue and
are largely fixed. As a result, we may be unable to adjust spending rapidly
enough to compensate for any unexpected revenue shortfall. Any significant
shortfall in revenue in relation to our planned expenditures would seriously
harm our business, financial condition and results of operations.
Our Dependence On Sales To Distributors May Impact Our Quarterly
Results
We use distributors to sell EAI solutions in our targeted markets.
Sales of our products to a limited number of distributors may account for a
significant amount of revenue for a particular quarter. For example, one
distributor, Trace Financial LTD, accounted for 29% and 58% of our software
revenue for the three months ended March 31, 1999 and June 30, 1999,
respectively. One customer, Columbia/HCA Healthcare Corporation, accounted for
69% of our software revenue and 23% of our total revenue for the three months
ended September 30, 1999. Additionally, in the fourth quarter of 1998, sales to
a major distributor, McKesson HBOC, Inc., accounted for almost one half of our
total revenue and substantially all of our software revenue. Our distributors
may not purchase significant amounts of our products in a particular quarter,
if at all. Further, changes or delays in distributor orders may cause
significant variability in our revenue for any particular quarter.
Collection Of Accounts Receivable From Our Major Customers May Impact
Our Quarterly Results
At September 30, 1999, the accounts receivable balance of one
distributor, McKesson HBOC, Inc., comprised approximately 30% of our total
accounts receivable balance. Also, three customers, Trace Financial LTD,
Columbia/HCA Healthcare Corporation and McKesson HBOC, Inc., comprised
approximately 45% of our total accounts receivable balance at September 30,
1999. A downturn in the software market generally or other financial problems
of these customers could affect our ability to collect outstanding accounts
receivable. Our failure to collect accounts receivable owed to us by our major
customers on a timely basis could have a material adverse effect on our
business, financial condition and cash flow and could cause significant
variability in our revenue for any particular quarter.
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Seasonality May Impact Our Quarterly Results
Our operating results have also experienced certain seasonal
fluctuations. Historically, our revenue has been higher in the fourth quarter
and lower in the first quarter of each year. We believe that our seasonality is
due in part to the calendar year budgeting cycles of many of our customers and
our incentive compensation policies, which tend to reward our sales personnel
for achieving annual rather than quarterly revenue quotas. In future periods,
we expect that these seasonal trends may continue to cause first quarter
license revenue to decrease from the level achieved in the preceding quarter.
As a result of these and other factors, our quarterly revenue may
fluctuate significantly, and we cannot predict with certainty our quarterly
revenue and operating results. Further, we believe that period-to-period
comparisons of our operating results are not necessarily a meaningful
indication of future performance. It is likely that in one or more future
quarters our results may fall below the expectations of securities analysts and
investors. If this occurs, the trading price of our common stock would likely
decline.
OUR REVENUE IS PRIMARILY GENERATED IN THE HEALTHCARE AND FINANCIAL/BANKING
MARKETS
Substantially all of our revenue comes from customers in the
healthcare and the financial/banking markets. Sales to healthcare organizations
accounted for substantially all of our total revenue for the year ended
December 31, 1998 and the nine months ended September 30, 1999. As a result,
our business, financial condition and results of operations are influenced by
conditions affecting these industries. Our distributors and customers may not
continue to purchase our products and services. Consequently, our failure to
maintain our relationships with our current distributors and customers or to
add new distributors or customers that make significant purchases of our
products and services would seriously harm our business, financial condition
and results of operations.
Many healthcare organizations are consolidating to create integrated
healthcare delivery systems with greater market power. These organizations may
try to use their market power to negotiate price reductions for our
applications and services. As the healthcare industry consolidates, competition
for customers will become more intense and the importance of acquiring each
customer will become greater. If we were forced to reduce prices for our
products or services, our operating results would suffer.
The healthcare market itself is highly regulated and is subject to
changing political, economic and regulatory influences. These factors affect
the purchasing practices and operations of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could cause us to make
unplanned enhancements of software applications or services, or result in
delays or cancellations of orders or in the revocation of endorsement of our
applications and services by healthcare participants. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
market participants operate. Healthcare market participants may respond by
reducing their investments
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or postponing investment decisions, including investments in our applications
and services. We do not know what effect any proposals would have on our
business.
We have been selling in the financial/banking market for less than 18
months with a limited amount of success. Prior to 1999, we generated little
revenue from the financial/banking market. We cannot reasonably predict future
revenue from this market due to our limited experience and sales success in
this market.
OUR SOFTWARE LICENSE REVENUE IS SUBSTANTIALLY DEPENDENT ON ONE PRODUCT SUITE
Substantially all of our software license revenue in 1998 and the nine
months ended September 30, 1999, was derived from sales of our Cloverleaf EAI
Suite. Our future success will depend on continued market acceptance of our
Cloverleaf EAI Suite and enhancements to these products. Competition,
technological change or other factors could reduce demand for, or market
acceptance of, our Cloverleaf EAI Suite. A decline in demand for our Cloverleaf
EAI Suite would seriously harm our business, financial condition and results of
operations. To date, EMerge has only a limited sales history upon which you can
base your evaluation of its prospects. If we are unable to achieve significant
sales of our software products, the composition of our revenue may continue to
be dominated by our lower-margin services business, which may contribute to
ongoing losses.
WE DEPEND ON SERVICES REVENUE
Services revenue represented a majority of our total revenue for the
first nine months of 1999 and for each of 1998, 1997 and 1996. We anticipate
that services revenue will continue to account for a substantial amount of our
total revenue for the foreseeable future.
- Because services revenue has lower gross margins than software
license revenue, an increase in the percentage of total revenue
represented by services revenue or an unexpected decrease in
software license revenue could have a detrimental effect on our
overall gross profit and our operating results
- We subcontract certain product implementation, customer support and
training services to third-party service providers. Revenue from
these third-party service providers generally carries lower gross
margins than our service business overall; as a result, our services
revenue and related margins may vary from period to period,
depending on the mix of revenue from third-party service providers
- Services revenue depends in part on ongoing renewals of support
contracts by our customers, some of which may not renew their
support contracts
If our services revenue is lower than anticipated, our business,
financial condition and results of operations could be seriously harmed. Our
ability to increase services revenue will depend in large part on our ability
to increase the scale of our professional services organization. We may not be
able to do so. In addition, we believe our success depends in part on
introducing new service offerings.
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OUR GROWTH IS DEPENDENT UPON THE DEVELOPMENT OF OUR DISTRIBUTOR SALES MODEL
We believe that our future growth depends heavily on developing and
maintaining successful strategic relationships with third-party distributors.
Currently, we are focusing on sales to distributors in the healthcare and
financial/banking markets as opposed to direct sales to end-users for our
Cloverleaf EAI Suite. As such, we place a strong emphasis on developing and
maintaining relationships with entities in a position to distribute our
products. Approximately 9%, 34%, 16% and 16% of our total revenue in the first
nine months of 1999 and for the years ended December 31, 1998, 1997 and 1996
were generated by third-party distributors of our products.
Although we have entered into written distribution agreements with all
of our significant distributors, these agreements typically do not restrict
them from distributing our competitors' products and do not require them to
purchase any minimum amount of our products. Additionally, many of our
distributors pre-purchase our products in volume and, consequently, may not
make purchases of our products every quarter. We cannot assure you that we will
be able to maintain existing relationships, develop new relationships or that
any such relationships will prove to be effective in distributing our products.
If we lose any of our distributor relationships or fail to establish new
relationships or if our distributors fail to successfully sell our products, we
would not be able to execute our business strategy and our business would
suffer significantly.
WE MAY BE UNABLE TO EXPAND OUR DIRECT SALES AND PROFESSIONAL SERVICES
ORGANIZATIONS
Currently, we market our products to distributors and end-users in
certain vertical markets through our internal sales force. Additionally,
clients that license our products often engage our professional services
organization to assist with support, training, consulting and implementation of
our EAI solutions. Our ability to achieve significant revenue growth in the
future will greatly depend on our ability to recruit and train sufficient
technical, customer support and direct sales personnel. Any new professional
services personnel will require training and education and take time to reach
full productivity. We have in the past and may in the future experience
difficulty in recruiting qualified sales, technical and support personnel. To
meet our needs for such personnel, we may need to use more costly third-party
consultants and independent contractors to supplement our own professional
services organization. Our inability to maintain an adequate direct sales force
and professional services organization could seriously harm our business,
financial condition and results of operations.
OUR FAILURE TO MANAGE GROWTH OF OPERATIONS MAY ADVERSELY AFFECT US
Our current information systems, procedures and controls may not
continue to support any growth in our operations and may hinder our ability to
exploit the market for EAI and EMPI products and services. We cannot be certain
that we will continue to experience or successfully manage growth. Our
inability to sustain or manage our growth could seriously harm our business,
financial condition and results of operations. To manage any growth, we must
continue to:
- expand our sales, marketing and customer support organizations
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- invest in the development of enhancements to existing products and
new products that meet changing customer needs
- further develop our technical and marketing expertise in our
targeted vertical markets so that we can influence and respond to
emerging industry standards
- improve our operational processes and management controls
- further develop our EAI and EMPI service offerings
SALES AND IMPLEMENTATION CYCLES FOR OUR EAI AND EMPI SOLUTIONS CAN BE LENGTHY
Sales cycles for our EAI and EMPI solutions can be lengthy. Our
typical sales cycle to customers in the healthcare and financial/banking
markets ranges between three to nine months from our initial contact with a
potential customer to the sales of our solutions. We are unable to control many
factors that will influence our customers' buying decisions. The sales and
implementation process involves a significant technical evaluation and
commitment of capital and other resources by our customers. The sale and
implementation of our solutions are subject to delays due to our customers'
internal budgets and procedures for approving large capital expenditures and
deploying new technologies.
OUR MARKETS ARE HIGHLY COMPETITIVE
We compete in markets that are intensely competitive. We will be
required to devote a significant amount of resources to expand our presence in
our targeted markets. Additionally, in order to maintain our market share in
the healthcare market, we must preserve our relationships with our current
customers as well as establish relationships with new customers. We expect the
markets for our products and services to become more competitive as current
competitors expand their product offerings and new competitors enter the
market. Increased competition could result in price reductions, reduced gross
margins and loss of market share, any of which could seriously harm our
business, financial condition and results of operations. Our principal
competitors include:
Internal IT Departments
We face competition and sales resistance from the internal IT
departments of potential customers that have developed or may develop in-house
systems that may substitute for our products. We expect that internally
developed application integration systems will continue to be a principal
source of competition for the foreseeable future. In particular, we may face
difficulties making sales to organizations whose internal development groups
have already progressed significantly toward completion of systems that our
products might replace, or where the underlying technologies used by such
groups differ fundamentally from our products.
Software and Middleware Vendors
We face competition from a variety of software and middleware vendors
that provide EAI and EMPI products in different vertical markets. These
competitors include:
- companies offering EAI products
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<PAGE> 15
- companies offering EMPI products
- IT consulting firms
- application vendors
Systems Integrators and Professional Service Organizations
We also may face competition from systems integrators and professional
service organizations that design and develop custom systems and perform custom
integration of systems and applications. Certain of these firms may possess
industry specific expertise or reputations among our potential customers. These
systems integrators and consulting firms can resell our products, and we may
engage in joint marketing and sales efforts with them. We may rely upon these
firms for recommendations of our products during the evaluation stage of the
purchase process, as well as for implementation and customer support services.
These systems integrators and consulting firms may have similar, and often more
established, relationships with our competitors, and there can be no assurance
that these firms will not market or recommend software products that are
competitive with our products.
Many of these companies have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition, and a larger installed base of customers than we do.
Many of our competitors also may have well-established relationships with our
current and potential customers in our targeted markets. In addition, many of
these competitors have extensive knowledge of EAI and EMPI solutions generally
and in our targeted markets, and may be in a better position than we are to
devote significant resources toward the development, promotion and sale of
their products generally or in specific vertical markets.
Current and potential competitors may also respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
They may have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address customer needs. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. We also expect that competition will increase as a result of software
industry consolidations. We cannot assure you that we will be able to compete
successfully against current and future competitors, or that competitive
pressure we face will not significantly harm our business, financial condition
and results of operations.
WE MUST KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY TO REMAIN COMPETITIVE
The market for our products is characterized by rapid technological
change, frequent new product introductions and enhancements, changes in
customer demands and evolving industry standards. Our existing products could
be rendered obsolete if we fail to keep up in any of these ways. We have also
found that the technological life cycles of our products are difficult to
estimate, partially because they may vary according to the particular
application or vertical market segment. We believe that our future success will
depend upon our ability to continue to enhance our current product line while
we concurrently develop and introduce new products that
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<PAGE> 16
keep pace with competitive and technological developments. These developments
require us to continue to make substantial product development investments.
Existing Products
We currently serve a customer base with a wide variety of hardware,
software, database and networking platforms. To gain broad market acceptance,
we believe that we will have to support our products on a variety of platforms.
Our success will depend on, among others, the following factors:
- our ability to integrate our products with multiple platforms,
especially relative to our competition in our targeted markets
- the portability of our products, particularly the number of hardware
platforms, operating systems and databases that our products can
source or target
- the integration of additional software modules under development
with existing products
- our management of technical personnel and sub-contractors
Future Products
We cannot assure you that we will be successful in developing and
marketing future product enhancements or new products that respond to
technological changes, shifting customer preferences or evolving industry
standards. We may experience difficulties that could delay product enhancements
or new products or increase our costs to develop these products. If we are
unable to develop and introduce new products or enhancements of existing
products in a timely and affordable manner or if we experience delays in the
commencement of commercial shipments of new products and enhancements, then
customers may forego purchases of our products and purchase those of our
competitors.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY
Our success depends upon our ability to maintain the proprietary and
confidential technology incorporated in our products. We rely on a combination
of copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect our proprietary
rights. We presently have no patents. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade secret laws afford
only limited protection. In addition, the laws of certain foreign countries do
not protect our rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. We cannot assure you
that we will be able to protect our proprietary rights against unauthorized
third-party copying or use. Furthermore, policing the unauthorized use of our
products is difficult, and litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets or to determine
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of our resources.
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INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS CAN BE COSTLY AND RESULT IN THE LOSS
OF SIGNIFICANT RIGHTS
It is possible that third parties will claim that we have infringed
their current or future intellectual property rights. We expect that EAI
software developers may increasingly be subject to infringement claims as the
number of products in different industry segments overlap. Any claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays, or require us to enter into royalty or licensing
agreements, any of which could seriously harm our business, financial condition
and results of operations. We cannot assure you that such royalty or licensing
agreements, if required, would be available on terms acceptable to us, if at
all. Additionally, we cannot assure you that legal action claiming intellectual
property infringement will not be commenced against us, or that we would
prevail in such litigation given the complex technical issues and inherent
uncertainties in litigation. In the event an intellectual property claim
against us was successful and we could not obtain a license on acceptable terms
or license a substitute technology or redesign to avoid infringement, our
business, financial condition and results of operations would be seriously
harmed. Even if we prevail in litigation, the expense of litigation could be
significant and could seriously harm our business, financial condition and
results of operation.
WE RELY ON THIRD PARTIES FOR TECHNOLOGY IN OUR PRODUCTS
We depend upon third-party suppliers to provide software that is
incorporated in certain of our products. We do not have control over the
scheduling and quality of work of such third-party software suppliers.
Additionally, the third-party software may not continue to be available to us
on commercially reasonable terms, if at all. Our agreements to license certain
third-party software will terminate after specified dates unless they are
renewed. If we cannot maintain licenses to key third-party software, shipments
of our products could be delayed until equivalent software could be developed
or licensed and integrated into our products.
THERE ARE MANY RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
While approximately 90% of our revenue in the first nine months of
1999 and for the year ended December 31, 1998 was generated within the United
States, we have customers in several countries worldwide. International sales
in certain foreign markets are subject to a variety of risks, including
- difficulties in establishing and managing international distribution
channels
- localizing software products for sales in foreign markets and
enforcing intellectual property rights
- fluctuations in the value of foreign currencies, including the Euro
- changes in duties and quotas
- introduction of tariff or non-tariff barriers
- economic, political and regulatory changes
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In addition, to the extent profit is generated or losses are incurred in
foreign countries, our effective income tax rate may be materially affected. We
do not currently engage in hedging transactions, but we may do so in the
future. We cannot assure you that any of the factors described above will not
seriously harm our business, financial condition and results of operations.
FAILURE TO RECRUIT AND RETAIN KEY EMPLOYEES WILL SERIOUSLY HARM OUR BUSINESS
Our success is highly dependent upon the continued service and skills
of our executive officers and other key technical, sales and marketing
employees. We do not maintain key man life insurance on any of our employees,
and we have not entered into employment agreements with any key employees that
provide for any fixed term of service. In addition, our future success will
depend considerably on our ability to attract and retain highly skilled
employees and management personnel. Competition for such personnel is intense.
We cannot assure you that we will be successful in attracting and retaining
highly skilled employees and management personnel. Further, we anticipate
growth and expansion into areas and activities which may require the addition
of new highly skilled employees and the development of additional expertise by
existing management personnel. Any new highly skilled personnel may require
training and education and take time to reach full productivity. The failure to
attract and retain such employees or to develop such expertise could seriously
harm our business, financial condition or operating results.
OUR PRODUCTS MAY BE AFFECTED BY UNKNOWN SOFTWARE DEFECTS
Our products depend on complex software, both internally developed and
licensed from third parties. Complex software often contains defects,
particularly when first introduced or when enhancements or new versions are
released. Although we conduct extensive testing, we may not discover software
defects that affect our new or current products or enhancements until after
they are deployed. Although we have not experienced any material software
defects to date, it is possible that, despite testing by us, defects may occur
in our software. These defects could cause performance interruptions, which
could damage our reputation with existing or potential customers, increase our
service costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could cause our business to suffer.
WE MAY INCUR MATERIAL COSTS IN CONNECTION WITH PRODUCT LIABILITY CLAIMS
Because many of our clients use our products to integrate important
applications in their organizations, any errors, defects or other performance
problems of our products could result in financial or other damages to our
clients. Additionally, we provide services to assist certain customers in
identifying and correcting potential Year 2000 problems. In the event of any
errors, defects or other performance problems in our products or services, our
clients could seek damages for losses from us, which, if successful, could
seriously harm our business, financial condition or results of operations.
Although our license agreements typically contain provisions designed to limit
our exposure to product liability claims, existing or future laws or
unfavorable judicial decisions could negate such limitation of liability
provisions. We have not experienced any product liability claims to date,
however, a product liability claim brought against us, even if not successful,
would likely be time consuming and costly.
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YEAR 2000 RISKS MAY RESULT IN MATERIAL ADVERSE EFFECTS ON OUR BUSINESS
The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information when the year changes to 2000. As a result, within
the next month or so, IT and non-IT systems used by many companies may need to
be upgraded to address Year 2000 problems. We formed a Year 2000 task force
that has systematically evaluated all existing systems, products and key
external relationships to ascertain material Year 2000 issues and solutions.
The Year 2000 issue could result in the following risks for us:
- we may not be able to modify our products, services offerings, IT
and non-IT systems in a timely and successful manner to comply with
the Year 2000 requirements, which could have a material adverse
effect on our operating results
- the system failures due to Year 2000 problems of third parties with
whom we have a material relationship may have a material adverse
effect on our operating results
- our customers may reallocate capital expenditures to fix Year 2000
problems and defer purchases of our software
- we may be subject to a claim involving our products or Year 2000
assessment services that could have a material adverse effect on our
business, results of operations and financial condition
- the spending and purchasing patterns of customers or potential
customers may be affected by the Year 2000 issue as companies expend
significant resources to correct or update their current systems for
Year 2000 compliance or delay purchases of new software until after
the Year 2000 in order to avoid implementing a formal Year 2000
compliance program with respect to the new software
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
Our business is subject to government regulation. Existing as well as
new laws and regulations could adversely affect our business. Some computer
applications and software are considered medical devices and are subject to
regulation by the United States Food and Drug Administration (the "FDA"). We do
not believe that our current products or services provided to the healthcare
industry are subject to FDA regulation. However, we may expand our application
and service offerings into areas that subject us to FDA regulation. We have no
experience in complying with FDA regulations. We believe that complying with
FDA regulations would be time consuming, burdensome and expensive and could
delay our introduction of new applications or services.
By virtue of our products and services provided to the healthcare
industry, we are subject to extensive regulation relating to the
confidentiality and release of patient records, which are included in our
databases. Federal and state regulations govern both the disclosure and the use
of confidential patient medical record information. Although compliance with
these laws and regulations is at present principally the responsibility of the
hospital, physician or other healthcare provider, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the distribution of medical records has been proposed at both
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the state and federal level. This legislation may require holders of such
information to implement security measures. It may be expensive to implement
security or other measures designed to comply with any new legislation. We
cannot assure you that changes to state or federal laws will not materially
restrict the ability of healthcare organizations to submit information from
patient records using our software products.
OUR COMMON STOCK PRICE MAY BE HIGHLY VOLATILE
The trading price of our common stock may be volatile. The stock
market in general, and the market for technology and software companies in
particular, has, from time to time, experienced extreme volatility that often
has been unrelated to the operating performance of particular companies. These
broad market and industry fluctuations may significantly affect the trading
price of our common stock, regardless of our actual operating performance. The
trading price of our common stock could be affected by a number of factors,
including:
- changes in expectations of our future financial performance
- changes in securities analysts' estimates (or the failures to meet
such estimates)
- announcements of technological innovations
- customer and distributor relationship developments
- conditions affecting our targeted markets in general
- quarterly fluctuations in our revenue and financial results
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to us, litigation would be expensive and
would divert management's attention.
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS COULD HAVE ANTI-TAKEOVER
EFFECTS
Our articles of incorporation and bylaws, as well as our shareholder
rights plan, contain certain provisions that could have the effect of delaying
or preventing a change in control. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of our
common stock. Certain of these provisions authorize the issuance of preferred
stock with rights senior to those of common stock and impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions.
FUTURE SALES BY EXISTING SHAREHOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK AND MAKE IT MORE DIFFICULT FOR US TO SELL STOCK IN THE FUTURE
After this registration statement becomes effective, the shares
registered hereunder will be eligible for resale in the market without
restriction. Sales of any substantial number of shares of our common stock in
the public market may have an adverse effect on the market price of our common
stock. The average daily trading volume of our common stock has been low. Any
sustained sales of shares by our existing or future shareholders or any
increase in the average volume of shares traded in the public market may
adversely affect the market price of our
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common stock. These sales also may make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. This shelf registration will remain effective until September 29,
2000 or such earlier time as all of the shares of the common stock issued upon
conversion of the Series B Preferred Stock have been sold.
OUR BUSINESS OR OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY THE ISSUANCE OF
ADDITIONAL PREFERRED STOCK
Our board of directors is authorized to designate and issue up to an
additional 18,950,000 shares of preferred stock with such dividend rates,
liquidation preferences, voting rights, redemption and conversion terms and
privileges as our board of directors, in its sole discretion, may determine. The
issuance of additional shares of preferred stock may result in a decrease in the
value or market price of our common stock. The issuance of additional shares of
preferred stock could adversely affect the voting and other rights of the
holders of common stock.
LOW STOCK PRICE COULD RESULT IN OUR BEING DELISTED FROM NASDAQ, WHICH COULD
REDUCE OUR ABILITY TO RAISE FUNDS
If our stock price were to drop below $1.00 per share and remain below
$1.00 per share for an extended period of time, certain Nasdaq regulations
would require the delisting of our shares. Accordingly, our common stock could
no longer be traded on Nasdaq. In such an event, our shares could only be
traded on over-the-counter bulletin board systems. If our stock were to be
delisted, then we may face significant difficulties in raising additional
capital on favorable terms, if at all. Delisting would also negatively affect
shareholder liquidity.
THERE WILL BE A DILUTIVE EFFECT IF THE CONVERSION PRICE OF THE SERIES B
PREFERRED STOCK IS RESET
We may be obligated to issue additional shares of common stock upon
conversion of the Series B Preferred Stock. The conversion price will be reset
on June 20, 2000, if the average of the closing prices of our common stock on
the preceding five business days is less than $2.1491 per share. To the extent
that additional shares of our common stock are issuable upon conversion of the
Series B Preferred Stock, our shareholders will experience dilution of their
ownership percentages.
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USE OF PROCEEDS
The selling shareholders will receive all of the proceeds from the
sale of the common stock offered with this prospectus.
SELLING SHAREHOLDERS
This prospectus relates to shares of our common stock that may be
acquired by the selling shareholders named below upon conversion of the shares
of Series B Preferred Stock held by the selling shareholders.
The outstanding shares of the Series B Preferred Stock were acquired
by the selling shareholders on September 29, 1999, pursuant to Subscription
Agreements between us and each of the selling shareholders. A total of 65,000
shares of Series B Preferred Stock were issued. Each share of Series B
Preferred Stock, valued at its liquidation preference of $10 per share, is
convertible into that number of shares of our common stock determined by
dividing (i) $10.00 by (ii) $2.1491 (115% of the average closing bid prices of
the common stock for the five business days prior to the closing date). Each
share of Series B Preferred Stock is currently convertible into approximately
4.6532 shares of common stock. This conversion price will be reset on June 20,
2000 if the average of the closing bid prices of the common stock for the five
business days prior to June 20, 2000 (the "Reset Price") is less than $2.1491.
The number of shares of common stock into which a share of the Series B
Preferred Stock is convertible will be determined by dividing (i) $10.00 by
(ii) the Reset Price. The applicable conversion rate is subject to adjustments
for stock splits, stock dividends and recapitalizations.
As of November 1, 1999, we had 25,454,658 shares of common stock and
65,000 shares of Series B Preferred Stock issued and outstanding.
Under the rules of the SEC, a person is deemed to be a beneficial
owner of a security if he or she has or shares the power to vote or to direct
the voting of such security, or the power to dispose or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities which that person has the right to acquire within 60 days, as
well as any securities owned by such person's spouse, children or relatives
living in the same house. Accordingly, more than one person may be deemed to be
a beneficial owner of the same securities.
The following table sets forth, to our knowledge, the number and
percentage of the outstanding shares of our common stock beneficially owned by
each selling shareholder as of the date of this prospectus and the number of
shares of our common stock that may be offered by each selling shareholder
pursuant to this prospectus. Unless otherwise indicated, each person has sole
investment and voting power with respect to the shares set forth in the
following table. No selling shareholder has held any position or office or had
any other material relationship with us in the past three years. The selling
shareholders may offer all, some or none of their shares of our common stock;
we are thus unable to determine the exact number of shares that will
actually be sold. The table assumes that the selling shareholders sell all of
their shares that are registered on this prospectus.
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
-------------------------- SHARES -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED(1) NUMBER PERCENTAGE
- ------------------------ ------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Robert L. Abelman 11,633 * 11,633 -- *
Joe T. and Frances E. Bates 34,899 * 34,899 -- *
Edward & Barbara Cornell 11,633 * 11,633 -- *
Frank H. DiCristina, III (2) 28,266 * 23,266 5,000 *
Cecil Franseen 11,633 * 11,633 -- *
F. Marion & Ann Frazier 11,633 * 11,633 -- *
Gregory R. Herrell 11,633 * 11,633 -- *
Kenneth & Sherry Higgins (3) 27,633 * 11,633 16,000 *
Arthur James Hook 11,633 * 11,633 -- *
Herbert Jacobs 23,266 * 23,266 -- *
Joseph R. Kasperski 11,633 * 11,633 -- *
John Madfis 23,266 * 23,266 -- *
E. Pat Manuel 46,532 * 46,532 -- *
John E. & Noriko Ragan 11,633 * 11,633 -- *
Eugene P. & Mary H. Schumacher(4) 24,133 * 11,633 12,500 *
William Vasey 11,633 * 11,633 -- *
Rusty Vest 23,266 * 23,266 -- *
</TABLE>
- ---------------
* Less than 1% of our outstanding common stock.
(1) This amount reflects shares of our common stock issuable upon
conversion of the Series B Preferred Stock (assuming a conversion rate
of approximately 4.6532 shares of common stock for each share of
Series B Preferred Stock).
(2) This amount includes 5,000 shares of our common stock beneficially
owned by Mr. DiCristina and not issuable conversion of the
Series B Preferred Stock.
(3) This amount includes 16,000 shares of our common stock beneficially
owned by Mr. and Mrs. Higgins and not issuable upon conversion of the
Series B Preferred Stock.
(4) This amount includes 12,500 shares of our common stock beneficially
owned by Mr. and Mrs. Schumacher and not issuable upon conversion of
the Series B Preferred Stock.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the common
stock offered with this prospectus. We have agreed to pay substantially all of
the expenses incidental to the registration, offering and sale of the common
stock to the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. The shares of common stock offered with this
prospectus may be sold from time to time by the selling shareholders, or to the
extent permitted, by pledgees, donees, transferees or other successors in
interest. Such successors in interest will be named as a selling shareholder in
a supplement or post-effective amendment to this prospectus. The selling
shareholders may dispose of their shares through the following transactions:
- privately negotiated sales in the over-the-counter market or any
exchange on which the securities are listed
- by selling the shares through a broker/dealer, including
circumstances in which brokers or dealers attempt to sell the shares
to third parties, but, if they are initially unable to do so, they
may purchase the shares themselves and resell the shares as
principal
- an underwritten offering on a firm commitment or best efforts basis
Sales of selling shareholders' shares may also be made pursuant to
Rule 144 under the Securities Act, where applicable, rather than pursuant to
this prospectus.
Such sales may be made from time to time at
- negotiated prices
- fixed prices that may be changed
- market prices prevailing at the time of sale
- prices related to prevailing market prices
A selling shareholder may also use this prospectus in the following
ways:
- to enter into options or other transactions with broker/dealers that
involve the delivery of the shares to the broker/dealers who may
then resell or otherwise transfer those shares
- to pledge the common stock as security for any loan or obligation,
including pledges to brokers or dealers who may, from time to time,
themselves effect distributions of the common stock
The selling shareholders or their successors in interest, and any
underwriters, brokers, dealers or agents that participate in the distribution
of the common stock, may be deemed to be "underwriters" within the meaning of
the Securities Act, and any profit on the sale of the common stock by them and
any discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting commissions or
discounts under the Securities Act. To the extent the selling shareholders may
be deemed to be underwriters, the selling shareholders may be subject to
certain statutory liabilities of the
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Securities Act, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.
At any time a particular offer of the common stock is made, a revised
prospectus or prospectus supplement, if required, will be distributed. To the
extent required under the Securities Act, the following information will be set
forth in a post-effective amendment to this prospectus:
- the aggregate amount of selling shareholders' shares being offered
and the terms of the offering
- the names of any agents, brokers, dealers, transferees or
underwriters
- any applicable fee or commission with respect to a particular offer
Such prospectus supplement and, if necessary, a post-effective
amendment to the registration statement of which this prospectus is a part,
will be filed with the SEC to reflect the disclosure of additional information
with respect to the distribution of the common stock.
The selling shareholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may limit
the timing of purchases and sales of any of the common stock by the selling
shareholders and any other such person. Furthermore, under Regulation M under
the Exchange Act, any person engaged in the distribution of the common stock
may not simultaneously engage in market-making activities with respect to the
particular common stock being distributed for certain periods prior to the
commencement of such distribution. All of the foregoing may affect the
marketability of the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common stock.
To comply with securities laws of certain states, if applicable, the
shares will be sold in those jurisdictions only through registered or licensed
brokers or dealers.
Pursuant to the Subscription Agreements, including Annex I attached to
each agreement, entered into in connection with the offer and sale of our
Series B Preferred Stock, each of HIE and the selling shareholders will be
indemnified by the other against certain liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution. We
have agreed to keep the registration statement of which this prospectus is a
part continuously effective until the earlier of September 29, 2000 or the date
that all of the shares of common stock covered by this prospectus have been
resold.
To our best knowledge, there are currently no plans, arrangements or
understandings between any selling shareholders and any broker, dealer, agent
or underwriter regarding the sale of the common stock by the selling
shareholders. There is no assurance that any selling shareholder will sell any
or all of the common stock offered by it under this prospectus or that any such
selling shareholder will not transfer, devise or gift such common stock by
other means not described in this prospectus.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for HIE by Troutman Sanders LLP, Atlanta, Georgia. Carl E. Sanders,
a partner in Troutman Sanders LLP, is a director of HIE and at October 31, 1999
was the beneficial owner of 82,950 shares of common stock.
EXPERTS
The consolidated financial statements and schedule of HIE, Inc. as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998 have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG LLP, independent
certified public accountants, incorporated by reference herein and in the
registration statement, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms at:
- Judiciary Plaza
450 5th Street, N.W.
Room 1024
Washington, D.C. 20549
- 500 West Madison Street
Suite 1400
Chicago, Illinois 60606
- 7 World Trade Center
Suite 1300
New York, New York 10048
You can request copies of these documents by contacting the SEC and paying a
fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information
contained in documents that we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus. Information in this prospectus supersedes information incorporated
by reference that we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will automatically update and
supersede prior information. We
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incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act:
(1) our Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
(2) our Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999;
(3) our Current Report on Form 8-K dated August 26, 1999; and
(4) the descriptions of our common stock and associated preferred
stock purchase rights contained in the Registration Statement on
Form 8-A dated October 24, 1995.
You may request a copy of these filings, at no cost, by writing or
telephoning us at:
HIE, Inc.
Attention: Investor Relations
1850 Parkway Place, Suite 1100
Marietta, Georgia 30067
Telephone (770) 423-8450
22
<PAGE> 28
[HIE LOGO]
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PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid in connection with the issuance and
distribution of the securities being registered are as follows:
SEC registration fee............................. $ 157.66
Nasdaq National Market listing fee............... $ 6,050.00
Accounting fees and expenses..................... $ 6,000.00
Legal fees and expenses.......................... $20,000.00
Miscellaneous.................................... $ 5,000.34
Total............................................ $37,208.00
All of the above items are estimates except the SEC registration fee. We will
bear all of such estimated expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code
provides that a corporation's Articles of Incorporation may include a provision
that eliminates or limits the personal liability of directors for monetary
damages to the corporation or its shareholders for breach of their duty of care
and other duties as directors; provided, however, that the Section does not
permit a corporation to eliminate or limit the liability of a director for
appropriating, in violation of his duties, any business opportunity of the
corporation, engaging in intentional misconduct or a knowing violation of law,
obtaining an improper personal benefit, or voting for or assenting to an
unlawful distribution (whether as a dividend, stock repurchase or redemption or
otherwise) as provided in Section 14-2-832 of the Georgia Business Corporation
Code. Section 14-2-202(b)(4) also does not eliminate or limit the rights of a
corporation or any shareholder to seek an injunction or other non-monetary
relief in the event of a breach of a director's fiduciary duty. In addition,
Section 14-2-202(b)(4) applies only to claims against a director arising out of
his role as a director and does not relieve a director from liability arising
from his role as an officer or in any other capacity. The provisions of HIE's
Articles of Incorporation, as amended, are similar in all substantive respects
to those contained in Section 14-2-202(b)(4) of the Georgia Business
Corporation Code outlined above, and provide that the liability of directors of
HIE shall be limited to the fullest extent permitted by Georgia law, as the
same may from time to time be amended.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Business
Corporation Code govern the indemnification of directors, officers, employees
and agents. Section 14-2-851 of the Georgia Business Corporation Code provides
for indemnification of a director of HIE for liability incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
civil actions brought as derivative actions by or in the right of HIE) in which
he may become involved by reason of being a director of HIE. Section 14-2-851
also provides such indemnity for directors who, at the request of HIE, act as
directors, officers, partners, trustees, employees or agents of
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another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or another enterprise. The Section permits
indemnification if the director acted in a manner he believed in good faith to
be in or not opposed to the best interest of HIE and, in addition, in criminal
proceedings, if he had no reasonable cause to believe his conduct was unlawful.
If the required standard of conduct is met, indemnification may include
judgments, settlements, penalties, fines or reasonable expenses (including
attorneys' fees) incurred with respect to a proceeding. However, if the
director is adjudged liable to HIE in a derivative action or on the basis that
personal benefit was improperly received by him, the director will only be
entitled to such indemnification for reasonable expenses as a court finds to be
proper in accordance with the provisions of Section 14-2-854.
Section 14-2-852 of the Georgia Business Corporation Code provides
that directors who are successful with respect to any claim brought against
them, which claim is brought because they are or were directors of HIE, are
entitled to indemnification against reasonable expenses as of right.
Conversely, if the charges made in any action are sustained, the determination
of whether the required standard of conduct has been met will be made, in
accordance with the provisions of Section 14-2-855 of the Georgia Business
Corporation Code, as follows: (i) by the majority vote of a quorum of the
disinterested members of the board of directors, (ii) if a quorum cannot be
obtained, by a committee thereof duly designated by the board of directors,
consisting of two or more disinterested directors, (iii) by special legal
counsel, or (iv) by the shareholders, but, in such event, the shares owned by
or voted under the control of directors seeking indemnification may not be
voted.
Section 14-2-857 of the Georgia Business Corporation Code provides
that an officer of HIE (but not an employee or agent generally) who is not a
director has the mandatory right of indemnification granted to directors under
Section 14-2-852, as described above. In addition, HIE may, as provided by its
Articles, By-laws, general or specific actions by its board of directors, or by
contract, indemnify and advance expenses to an officer, employee or agent who
is not a director to the extent that such indemnification is consistent with
public policy.
HIE's By-laws provide that HIE will indemnify its directors and
officers to the fullest extent permitted by the foregoing provisions of the
Georgia Business Corporation Code outlined above.
Reference is made to Section 5 of Revised Annex 1 - Registration
Rights to the Revised Subscription Agreement, the form of which is filed as
Exhibit 4.1 hereto, in which the Holders (as defined therein) agree to
indemnify the directors and officers of the Company and certain other persons
against certain civil liabilities.
Officers and directors of HIE are presently covered by insurance which
(with certain exceptions and within certain limitations) indemnifies them
against any losses or liabilities arising from any alleged "wrongful act"
including any alleged breach of duty, neglect, error, misstatement, misleading
statement, omissions or other act done or wrongfully attempted. The cost of
such insurance is borne by HIE as permitted by the By-laws of HIE and the laws
of the State of Georgia. At present, there is no pending litigation or
proceeding involving a director or officer of HIE as to which indemnification
is being sought nor is HIE aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
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ITEM 16. EXHIBITS.
Exhibit
Number Description
- ------ -----------
2.1 Amended and Restated Articles of Incorporation.*
4.1 Form of Revised Subscription Agreement for Series B Preferred Stock
(with Revised Annex I - Registration Rights).
5 Opinion of Troutman Sanders LLP.
23.1 Consent of Troutman Sanders LLP (contained in Exhibit 5).
23.2 Consent of KPMG LLP.
24 Powers of Attorney (included in the signature page to the
registration statement).
- ---------------
* (Filed as Exhibit 3(i) to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated by reference herein.)
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes: (1) to file, during
any period in which offers or sales are being made, a post-effective amendment
to this registration statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement; (iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change in such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement; (2) that, for the purpose of
determining any liability under the Securities Act, each such post-effective
amendment 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; and (3) to remove
from registration by
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means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement 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.
(c) 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on November 12, 1999.
HIE, INC.
By: /s/ Joseph A. Blankenship
-----------------------------------
Joseph A. Blankenship
Senior Vice President - Finance
and Chief Financial Officer
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POWER OF ATTORNEY
We, the undersigned officers and directors of HIE, Inc., hereby
severally constitute and appoint Robert I. Murrie and Joseph A. Blankenship,
and each of them singly, our true and lawful attorneys with full power to them,
and each of them singly, to sign for us and in our names in the capacities
indicated below, the registration statement on Form S-3 filed herewith and any
and all pre-effective and post-effective amendments to said registration
statement, and generally to do all such things in our names and on our behalf
in our capacities as officers and directors to enable HIE, Inc. to comply with
the provisions of the Securities Act, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys or any of them, to said registration
statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities indicated
below and as of the date indicated above.
SIGNATURE TITLE
- --------- -----
/s/ Parker H. Petit Chairman of the Board of Directors
- ----------------------------------
Parker H. Petit
/s/ Robert I. Murrie Director, President and Chief Executive
- ---------------------------------- Officer (Principal Executive Officer)
Robert I. Murrie
/s/ Joseph A. Blankenship Senior Vice President - Finance, Chief
- ---------------------------------- Financial Officer, Treasurer and
Joseph A. Blankenship Secretary (Principal Financial Officer
and Principal Accounting Officer)
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SIGNATURE TITLE
- --------- -----
/s/ Joseph G. Bleser Director
- ----------------------------------
Joseph G. Bleser
/s/ J. Terry Dewberry Director
- ----------------------------------
J. Terry Dewberry
/s/ William J. Gresham, Jr. Director
- ----------------------------------
William J. Gresham, Jr.
/s/ Charles R. Hatcher, Jr. Director
- ----------------------------------
Charles R. Hatcher, Jr.
/s/ John W. Lawless Director
- ----------------------------------
John W. Lawless
/s/ Carl E. Sanders Director
- ----------------------------------
Carl E. Sanders
/s/ Mark D. Shary Director
- ----------------------------------
Mark D. Shary
/s/ Donald W. Weber Director
- ----------------------------------
Donald W. Weber
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1 Amended and Restated Articles of Incorporation (filed as Exhibit
3(i) to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated herein by reference).
4.1 Form of Revised Subscription Agreement for Series B Preferred Stock
(with Revised Annex I - Registration Rights).
5 Opinion of Troutman Sanders LLP.
23.1 Consent of Troutman Sanders LLP (contained in Exhibit 5).
23.2 Consent of KPMG LLP.
24 Powers of Attorney (included in the signature page to the
registration statement).
<PAGE> 1
EXHIBIT 4.1
HIE, INC.
REVISED SUBSCRIPTION AGREEMENT
SUBSCRIBER:
---------------------------------------
SECURITIES SUBSCRIBED FOR: _____ Shares of 8.5% Series B Cumulative
Convertible Exchangeable Preferred Stock,
no par value
AGGREGATE PURCHASE PRICE: $
------------
- --------------------------------------------------------------------------------
THE SECURITIES ISSUED HEREUNDER HAVE NOT BEEN REGISTERED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY OTHER SECURITIES AUTHORITIES IN ANY COUNTRY. THEY
ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES DESCRIBED HEREIN BY OR TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY U.S. OR OTHER
SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES REVIEWED OR DETERMINED THE
ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SUBSCRIPTION OF THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. INVESTORS
MUST RELY ON THEIR OWN ANALYSIS OF THE SUBSCRIPTION AND ASSESSMENT OF THE
BUSINESS, TAX, AND OTHER RISKS INVOLVED.
SUBSCRIPTION AGREEMENT, dated as of ___________, 1999 (the
"Agreement"), by and between HIE, Inc., a Georgia corporation (the "Company"),
and ________________ [NAME OF INVESTOR], a ___________________ [STATE WHETHER AN
INDIVIDUAL OR ENTITY, AND IF ENTITY, PLEASE DESCRIBE] (the "Investor").
W I T N E S S E T H:
The Company desires to sell, and the Investor desires to buy, an
aggregate of __________ shares (the "Shares") of the Company's 8.5% Series B
Cumulative Convertible Exchangeable
<PAGE> 2
Preferred Stock, no par value (the "Series B Preferred Stock"), at a purchase
price of $10.00 per Share.
The Company is described in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, its Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, its Proxy Statement for its 1999 Annual Meeting of
Shareholders, and its Confidential Private Placement Memorandum and exhibits
thereto dated August 14, 1999, as supplemented and amended on September 14, 1999
(as so supplemented and amended, the "Memorandum") (collectively, the
"Disclosure Documents"), each of which has been provided to the Investor.
NOW, THEREFORE, the parties hereto agree as follows:
1. Subscription.
(a) Subject to the terms and conditions of this Agreement, the
Investor agrees to subscribe, and the Company agrees to issue to the Investor,
the number of shares of Series B Preferred Stock as set forth above. The Series
B Preferred Stock, the shares of the Company's common stock, par value $.01 per
share, together with associated preferred stock purchase rights (the "Common
Stock"), into which it may be converted, and the subordinated notes for which it
may be exchanged (the "Convertible Debentures") are sometimes referred to
collectively herein as the "Securities".
(b) The Investor agrees to deliver to American Fronteer Financial
Corporation, as placement agent ("AFFC"), (i) $_________ , representing the
aggregate purchase price of the Shares (the "Purchase Price"), by wire transfer
or by the Investor's check and (ii) a completed and duly executed Accredited
Investor Questionnaire, in the form attached to the Memorandum. Funds shall be
deposited in escrow and shall be released only upon satisfactory evidence of
completion of all conditions referred to herein.
(c) The minimum purchase for any Investor is 2,500 Shares.
(d) The Investor hereby acknowledges and agrees that this Agreement
is irrevocable and that, except as provided under applicable state securities
laws, the Investor is not entitled to cancel, terminate, or revoke this
Agreement, and this Agreement shall survive the death or disability of the
Investor and shall be binding upon and inure to the benefit of the Investor's
heirs, executors, administrators, successors, legal representatives, and
assigns. If the Investor is more than one person, the obligations of such
Investors hereunder shall be joint and several, and the agreements,
representations, warranties, and acknowledgments herein contained shall be
deemed to be made by and be binding upon each such person and each such person's
heirs, executors, administrators, successors, legal representatives, and
assigns.
(e) The Investor acknowledges that this subscription shall not be
effective until accepted by the Company. The Investor hereby confirms that the
Company has full right in its sole discretion to accept or reject the
subscription of the Investor, provided that, if the Company decides to reject
such subscription, the Company must do so promptly and in writing.
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<PAGE> 3
In the case of a rejection, any payments and copies of all executed subscription
documents (including this Agreement) will be promptly returned to the Investor
(without interest).
2. Closing. The closing (the "Closing") of the purchase and sale of the
Shares subscribed for hereby (the "Offering") shall occur on or about September
24, 1999 or, if AFFC elects in its sole discretion, and gives two days prior
written notice to the Company, such earlier date on which the closing conditions
specified in Sections 10 and 11 of this Agreement shall have been satisfied or
waived, or, if the subscription period is extended as set forth below, such
later date as shall be mutually agreed to by the Company and the placement agent
(any such date, the "Closing Date"). At the Closing, the Company will deliver to
the Investor: (a) one executed copy of this Agreement; (b) a stock certificate
representing the Investor's ownership of the Shares subscribed for hereby; and
(c) such other certificates, instruments, and documents as are otherwise set
forth herein or contemplated hereby.
3. Expiration of the Subscription Period.
(a) The subscription period will expire on September 22, 1999, unless
(i) the Company elects, in its sole discretion, to terminate the Offering
earlier, (ii) AFFC elects an earlier Closing Date as set forth in Section 2, or
(iii) extended by mutual agreement of the Company and AFFC for an additional
period not to exceed five calendar days from September 22, 1999 (each an
"Expiration Date").
(b) If the Offering is terminated by the Company pursuant to Section
3(a)(i) or if the closing conditions specified in Sections 10 and 11 of this
Agreement are not satisfied by the applicable Expiration Date, the Offering will
be terminated and the Company will not issue the Shares, the Company will not be
entitled to payment of the Purchase Price for the Shares, and all escrowed funds
representing the Purchase Price will be returned to the Investor[s] without
interest.
4. Placement Agent. The Series B Preferred Stock is being offered and
sold by the Company with the assistance of AFFC acting as the exclusive
placement agent. As a part of its fees for such services, AFFC will receive
substantial compensation in the form of cash.
5. Representations and Warranties by the Investor. The Investor hereby
represents and warrants to the Company that:
(a) It is an "accredited investor" as that term is defined in Rule
501(a) under the Act.
(b) The information contained in the Investor's Accredited Investor
Questionnaire is true and complete.
(c) It has received and read the Disclosure Documents and has
evaluated the risks of investing in the Company.
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<PAGE> 4
(d) It has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of the
Offering, and to obtain additional information necessary to verify the accuracy
of the information contained in the Disclosure Documents or such other
information as it desired in order to evaluate its investment in the Shares.
(e) In making the decision to purchase the Shares herein subscribed
for, it has relied solely upon the Disclosure Documents, the representations,
warranties, agreements, undertakings, and acknowledgments of the Company in this
Agreement and independent investigations made by such Investor.
(f) It understands that an investment in the Company involves
certain risks and the Investor has taken full cognizance of and understands such
risks, including those set forth in the Disclosure Documents, the Risk Factors
section of the Memorandum, and the footnotes to the Company's financial
statements in its 10-K and 10-Q.
(g) It understands that none of the Securities has been registered
under the Act, and agrees that none of the Securities may be sold, offered for
sale, transferred, pledged, hypothecated, or otherwise disposed of except in
compliance with the Act and subject to the terms of this Agreement.
(h) It understands that no federal or state agency has made any
finding or determination as to the fairness of the investment in, or any
recommendation or endorsement of, the Shares.
(i) The Securities herein subscribed for are being acquired by the
Investor in good faith solely for the account of the Investor, for investment
purposes, and not with a view of subdivision, distribution, or resale.
(j) The Investor understands that the Securities are "restricted
securities" within the meaning of the Act, and certificates representing the
Securities are legended with certain restrictions on the resale of the
Securities and that the Securities may not be resold without a valid exemption
from registration under the Act, or until a registration statement is filed with
respect thereto under the Act. Accordingly, the Investor is aware that there are
legal and practical limits on its ability to sell or dispose of the Securities,
and therefore that the Investor must bear the economic risk of the investment
for an indefinite period of time. The Investor has adequate means of providing
for the Investor's current needs and possible personal contingencies and has
need for only limited liquidity of this investment. The Investor's commitment to
illiquid investments is reasonable in relation to the Investor's net worth.
(k) If the Investor is not a natural person, that (i) the individual
executing this Agreement has appropriate authority to act on behalf of the
Investor and (ii) the Investor is not an Investment Company, as defined under
the Investment Company Act of 1940, as amended. If the Investor is a natural
person, that he is a citizen of the United States of America, is at least 21
years old, and has the mental capacity to execute, deliver, and perform this
Agreement. This Agreement has been duly executed and delivered by and on behalf
of the Investor and constitutes
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<PAGE> 5
the valid and binding agreement of the Investor enforceable against the Investor
in accordance with its terms.
(l) The Investor has not distributed the Memorandum to any person,
other than his investor representative or advisors, and no person other than the
Investor and his investor representative or advisors have used the Memorandum.
(m) The Investor certifies that (i) the social security or Federal
taxpayer identification number shown on the signature page of this Agreement is
true and complete and (ii) the Investor is not subject to backup withholding
either because the Investor has not been notified that he is subject to backup
withholding as a result of a failure to report all interest or dividends, or the
Internal Revenue Service has notified the Investor that he is no longer subject
to backup withholding.
(n) The Investor understands that the Securities are being
offered and sold hereby in reliance on specific exemptions from the registration
requirements of the Act and that the Company is relying on the foregoing
representations, warranties, agreements, undertakings, and acknowledgments in
determining the availability of such exemptions and the Investor's suitability
as the purchaser of the Securities.
6. Representations and Warranties of the Company. The Company
represents and warrants to the Investor that:
(a) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Georgia, with
requisite power and authority to own its properties and conduct its business as
described in the Disclosure Documents, and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
character of the business conducted by it or the nature of the properties owned
or leased by it makes such qualification necessary for the conduct of its
business as described in the Disclosure Documents, except where the failure to
be so qualified would not have a material adverse effect on the Company.
(b) The Company has all requisite power and authority to issue,
sell, and deliver the Shares in accordance with and upon the terms and
conditions set forth in this Agreement; and all corporate action required to be
taken by the Company for the due and proper authorization, issuance, sale, and
delivery of the Shares has been validly and sufficiently taken. The shares of
Common Stock issuable upon conversion of the Series B Preferred Stock when
issued in accordance with its terms will be duly authorized, validly issued,
fully paid, and nonassessable.
(c) The Company is not in violation of any provision of its Articles
of Incorporation or Bylaws or in default in the performance of any material
obligation contained in any material agreement, indenture, or other instrument.
The performance by the Company of its obligations under this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach of the Articles of Incorporation or Bylaws of the Company, or
any material agreement, indenture, or other instrument to which the Company is a
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<PAGE> 6
party or by which it is bound, or (assuming the accuracy of the Investor's
representations and warranties herein) any law, rule, administrative regulation,
or decree of any court or governmental authority having jurisdiction over the
Company or its properties, or result in the creation or imposition of any
material lien, charge, claim, or encumbrance upon any property or asset of the
Company. Except as required by the Act and applicable state securities or blue
sky laws and except for the filing of the Amended and Restated Articles of
Incorporation with the Secretary of State of the State of Georgia, no consent,
approval, authorization, or order of any court or governmental authority is
required in connection with the consummation of the transactions contemplated by
this Agreement. The rights granted to the Investor hereunder do not in any way
conflict with and are not inconsistent with any rights granted to the holders of
the Company's securities or debt instruments.
(d) The Common Stock and the Convertible Debentures issuable
upon conversion or exchange of the Series B Preferred Stock, as the case may be,
upon such issuance, will conform to the description thereof contained in the
Disclosure Documents. Except as described in the Disclosure Documents, there are
no preemptive rights or other rights to subscribe for or to purchase, or any
restrictions upon the voting or transfer of, any shares of Common Stock pursuant
to the Company's Articles of Incorporation or Bylaws or any agreement or other
instrument to which the Company is a party. Except as set forth in the
Memorandum, neither the Offering nor the sale of the Shares as contemplated in
this Agreement gives rise to any rights for or relating to the registration of
any of the Securities.
(e) The Company has full right, power, and authority to enter into
this Agreement and this Agreement has been duly authorized, executed, and
delivered by the Company and (assuming the accuracy of the Investor's
representations and warranties herein) constitutes the legal, valid, and binding
agreement of the Company enforceable against the Company in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).
(f) Except as set forth in the Disclosure Documents, there are no
actions, suits, or proceedings pending before or by any court or governmental
agency or authority, or any arbitrator, that seek to restrain or prohibit the
consummation of the transactions contemplated hereby or that might reasonably be
expected to result in any material adverse change in the financial condition,
business, or results of operations of the Company and, to the best of the
Company's knowledge, no such action, suit, or proceeding has been threatened.
(g) The Company is not in violation of any law, ordinance,
governmental rule or regulation, or court decree to which it may be subject and
the Company has not failed to obtain any license, permit, franchise, or other
governmental authorization necessary to the ownership of its property or to the
conduct of its business, which violation or failure to obtain is likely to have
a material adverse effect on the financial condition, business, or results of
operations of the Company.
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<PAGE> 7
7. Covenants of the Investor.
(a) The Investor will not sell or otherwise dispose of any
Securities, unless:
(i) the Investor shall have advised the Company in writing that
it intends to dispose of such Securities in a manner to be described in such
advice, and counsel reasonably acceptable to the Company shall have delivered to
the Company an opinion reasonably acceptable to the Company and its counsel that
registration is not required under the Act or under any applicable securities
laws of any jurisdiction; or
(ii) a registration statement on an appropriate form under the
Act, or a post-effective amendment to such registration statement, covering the
proposed sale or other disposition of such Securities shall be in effect under
the Act and such Securities or the proposed sale or other disposition thereof
shall have been registered or qualified under applicable securities laws of any
jurisdiction.
The Investor acknowledges and agrees that the certificates representing
the Securities shall bear the following legend (unless subsequently registered
under the Act):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED, OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS THAT HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER
COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED
DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE
SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAWS."
The Investor also acknowledges that the Company may place a stop
transfer order against the transfer of any of the Securities, if necessary in
the Company's reasonable judgment, in order to assure compliance by the Investor
with the terms of this Agreement.
(b) The Investor will not engage in any activity that would
jeopardize the status of the Offering as an exempt transaction under the Act or
under the laws of any state in which the Offering is made.
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<PAGE> 8
(c) The Investor acknowledges that the representations, warranties,
agreements, undertakings, and acknowledgments are made by the Investor with the
intent that they be relied upon by the Company in determining whether to issue
the Securities.
8. Covenants of the Company. The Company covenants with the Investor
that:
(a) The Company will apply the net proceeds from the sale of the
Shares to corporate purposes as more fully described in the Memorandum.
(b) The Company will, so long as the Investor shall be the holder of
any Securities, furnish to the Investor, as soon as practicable after the end of
each fiscal year, an annual report with respect to such year (including
financial statements audited by independent public accountants) and, as soon as
practicable after the end of each quarterly period (other than the last
quarterly period) of each fiscal year, a statement (which need not be audited),
of the results of operations of the Company for such period, and, to the extent
not otherwise furnished, promptly upon the filing thereof, copies of all reports
filed by the Company with the Commission pursuant to the Securities and Exchange
Act of 1934, as amended (the "Exchange Act").
(c) The Company shall at all times keep in reserve the number of
shares of its Common Stock issuable from time to time upon the conversion of all
outstanding shares of Series B Preferred Stock.
(d) Neither the Company nor any of its officers, directors, or
employees will engage in any activity that would jeopardize the status of the
Offering as an exempt transaction under the Act or under the laws of any state
in which the Offering is made.
(e) The Company acknowledges that the representations, warranties,
agreements, undertakings, and acknowledgments are made by the Company with the
intent that they be relied upon by the Investor in determining whether to
subscribe for the Shares.
9. Registration Rights. The Company grants the Investor such
registration rights with respect to shares of the Common Stock issuable upon
conversion of the Series B Preferred Stock as are outlined in Annex I to this
Agreement.
10. Conditions to Obligations of the Investor. The obligations of the
Investor under this Agreement are subject to the accuracy of the representations
and warranties of the Company made in Section 6 hereof in all material respects,
and to the performance by the Company of its other obligations under this
Agreement to be performed at or prior to the Closing.
11. Conditions to Obligations of the Company. The obligations of the
Company under this Agreement are subject to the accuracy of the representations
and warranties of the Investor made in Section 5 hereof, and the performance by
the Investor of its other obligations under this Agreement to be performed at or
prior to the Closing.
-8-
<PAGE> 9
12. Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if it ceases to be
required to file such reports, it will, upon the request of the Investor, make
publicly available other information that fulfills the information requirements
set forth in Rule 144(c)(2)), and it will take such further action as the
Investor may reasonably request, all to the extent required from time to time to
enable the Investor to sell the Common Stock issuable upon conversion of the
Series B Preferred Stock without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 under the Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of the Investor, the
Company will deliver to it a written statement as to whether the Company has
complied with such information disclosure and other requirements.
13. Amendment of the Terms of the Offering or of the Securities.
(a) The Company expressly reserves the right to amend at any time
before the issuance of the Series B Preferred Stock the terms of this Agreement
or the conditions that apply to the Series B Preferred Stock so that they comply
with the requirements under the rules of the NASD or the Commission. The
Investor shall be given written notice of any such amendment.
(b) In the event that a material amendment, as reasonably
determined by the Company, is made pursuant to this Section, the Investor shall
have no more than two days from receipt of such notice to notify the Company, in
writing, of its decision not to continue as a subscriber of the Series B
Preferred Stock. If after two days the Investor has not expressed its decision
in writing to the Company, it will be automatically understood that the
obligations of the Investor under this Agreement shall remain in full force and
effect.
14. Liability of the Company. The Company shall not be liable to the
Investor, for any reason, if the Series B Preferred Stock is not issued due to
(a) a fortuitous event or force majeure or (b) the amendment of the terms and
conditions of this Agreement or the Series B Preferred Stock pursuant to Section
13 of this Agreement. Therefore, the damages caused to the Investor as a result
of any of the aforementioned events shall not be compensated.
15. Expenses. The Company agrees that it will pay all costs and
expenses incurred in connection with the Offering.
16. Notices.
(a) Any notice required to be given or delivered to the Investor
shall be mailed first class, postage prepaid, return receipt requested, or hand
delivered to the Investor's address shown on the signature page hereof or sent
by facsimile to the Investor.
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<PAGE> 10
(b) Any notice required to be given or delivered to the Company
shall be mailed first class, postage prepaid, return receipt requested, to:
HIE, Inc.
1850 Parkway Place
Suite 1100
Marietta, Georgia 30067
Attn: Joseph A. Blankenship,
Chief Financial Officer
17. Survival of Representations and Warranties. All representations,
warranties, and agreements hereunder shall survive execution of this Agreement
and delivery of the Securities.
18. Governing Law. This Agreement and the rights and obligations of the
parties shall be governed by and construed in accordance with the laws of the
State of Georgia applicable to contracts made and to be performed wholly within
that State.
[SIGNATURES CONTAINED ON NEXT PAGE]
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<PAGE> 11
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the date first above written.
The terms of the foregoing including IF THE PURCHASER IS ONE OR MORE
the subscription described therein are INDIVIDUALS (ALL INDIVIDUALS MUST
agreed to and accepted this ____ day SIGN):
of ___________, 1999:
--------------------------------------
HIE, INC. (Type or print name of beneficial
owner)
--------------------------------------
Signature of prospective purchaser
By:
----------------------------------
Joseph A. Blankenship, Chief --------------------------------------
Financial Officer Social Security Number
--------------------------------------
(Type or print name of additional
purchaser)
--------------------------------------
Signature of spouse, joint tenant,
tenant in common, or other signature,
if required
--------------------------------------
Social Security Number
--------------------------------------
--------------------------------------
Address
IF PURCHASER IS A CORPORATION,
PARTNERSHIP OR OTHER ENTITY:
--------------------------------------
(Name of Entity - Please Print)
--------------------------------------
Taxpayer Identification Number
--------------------------------------
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
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<PAGE> 12
REVISED ANNEX I
REGISTRATION RIGHTS
Holders of the Series B Preferred Stock (the "Holders") will be granted
registration rights, as described below, for the shares of Common Stock
underlying the Series B Preferred Stock.
1. Shelf Registration by the Company. The Company agrees to file
with the Securities and Exchange Commission (the "Commission"), no later than
the date of the filing by the Company of its quarterly report on Form 10-Q for
the fiscal quarter ended September 30, 1999, a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
resales by the Holders of the underlying shares of the Company's Common Stock
issued to such Holders upon conversion of the Series B Preferred Stock (such
underlying shares of Common Stock referred to herein as the "Underlying
Shares"). The registration provided by this Section shall be effected by the
filing of a Registration Statement on Form S-3 or such other form as the Company
in its sole discretion determines to be available and appropriate for the
registration of resales of the Underlying Shares by the Holders, which shall
provide for sales to be made on a continuous basis pursuant to Rule 415 under
the Securities Act (or any similar rule that may be adopted by the Commission)
in accordance with the intended method or methods of disposition designated by
the Holders; provided, however, that not more than one underwritten offering
shall be made pursuant to such registration statement. The Company agrees to
keep the registration statement filed pursuant to this Section 1 effective and
current for a period to expire upon the earlier of (a) one year following the
date of initial issuance of the Series B Preferred Stock or (b) the date that
all of the Underlying Shares covered by the registration statement have been
sold by the Holders.
2. Piggyback Registration.
(a) If the Company shall propose the registration under the
Securities Act of an offering of any of its Common Stock to be sold for cash,
whether or not for its own account, pursuant to a firm commitment underwritten
offering (other than a registration relating to either (1) a dividend
reinvestment, stock option, stock purchase or similar plan, (2) a transaction
pursuant to Rule 145 under the Securities Act, or (3) a merger, consolidation or
reorganization), the Company, on each such occasion, shall as promptly as
practicable but in no event later than ten (10) days prior to the proposed
filing date of the registration statement give written notice (the "Notice") to
the Holders of its intention to effect such registration, and the Holders shall
be entitled, on each such occasion, to request to have all or a portion of the
Underlying Shares included in such registration statement. Upon the written
request of the Holders that the Company include any Underlying Shares in such
registration statement (which request shall state the number of the Underlying
Shares for which registration is sought), given within ten (10) days after the
giving of the Company's Notice, the Company shall use its reasonable efforts to
cause such Underlying Shares to be so included in the offering covered by such
registration statement, subject to the limitations hereinafter set forth.
Subject to the provisions of Section 2(b), a Holder
<PAGE> 13
may request registration of some or all of its Underlying Shares pursuant to
this Section 2(a) on not more than two occasions.
(b) The registration of some or all of such Underlying Shares
pursuant to this Section 2 may be conditioned or restricted if, in the case of a
registration statement which also includes shares to be sold for the account of
the Company in an underwritten offering, in the judgment of the managing
underwriter of such proposed offering, inclusion thereof in such registration
statement will have an adverse impact on the marketing of the securities to be
offered by the Company (provided that such conditions or restrictions apply on a
proportional basis not only to the Underlying Shares but also to all other
securities to be included other than those to be offered for the Company's own
account). If such managing underwriter shall require that the number of
Underlying Shares to be offered by the Holders be reduced or eliminated, the
Holder shall have the right to withdraw its request for registration pursuant to
this Section 2, and such request shall not be counted for purposes of
determining, pursuant to Section 2(a), the number of registration requests which
a Holder is entitled to make.
(c) The Company shall not be obligated to honor any request by
a Holder under this Section 2 if (i) the Holder could then sell under Rule 144
promulgated under the Securities Act the number of Underlying Shares the Holder
proposes to have registered under Section 2 or (ii) the request is made more
than two years following the date of initial issuance by the Company of the
Series B Preferred Stock.
3. Registration Procedures and Obligations.
(a) If and whenever the Company is obligated by the provisions
of this Annex to effect the registration of any Underlying Shares under the
Securities Act, the Company shall:
(i) Prepare and file with the Commission a
registration statement with respect to such securities on such
form as the Company deems appropriate and is permitted or
qualified to use and shall use all reasonable efforts to cause
such registration statement to become and remain effective as
provided herein; provided, that in the case of any
registration pursuant to Section 2, such preparation and
filing may be delayed in the sole discretion of the Company,
without prejudice to the rights of the Holders pursuant to
Section 2.
(ii) Furnish to the Holders at a reasonable time
prior to the filing thereof with the Commission a copy of the
registration statement in the form in which the Company
proposes to file the same; not later than one day prior to the
filing thereof, a copy of any amendment (including any
post-effective amendment) to such registration statement; and
promptly following the effectiveness thereof, a conformed copy
of the registration statement as declared effective by the
Commission and of each post-effective amendment thereto,
including financial statements and all exhibits and reports
incorporated therein by reference.
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<PAGE> 14
(iii) Furnish to the Holders such number of copies of
such registration statement, each amendment thereto, the
prospectus included in such registration statement (including
each preliminary prospectus), each supplement thereto and such
other documents as they may reasonably request in order to
facilitate the disposition of the Underlying Shares owned by
them.
(iv) Use all reasonable efforts to register and
qualify the Underlying Shares covered by the registration
statement under such other securities laws of such
jurisdictions as shall be reasonably requested by the Holders
and do any and all other acts and things which may be
reasonably necessary or advisable to enable the Holders to
consummate the disposition of the Underlying Shares owned by
the Holders in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a
general consent to service of process in any such states or
jurisdictions, or to maintain the effectiveness of any such
registration or qualification for any period during which it
is not required to maintain the effectiveness of the related
registration statement under the Securities Act.
(v) Promptly notify the Holders of the happening of
any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the
statements therein not misleading and, at the request of the
Holders, and subject to the further provisions of Section
4(b), the Company will prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of such Underlying Shares, such prospectus will not
contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Enter into such customary agreements in form and
substance satisfactory to the Company and take such other
customary actions as may be reasonably requested in order to
expedite or facilitate the disposition of such Underlying
Shares.
(vii) Make reasonably available for inspection by the
Holders pursuant to such registration statement and any
attorney or accountant retained by the Holders, all financial
and other records, pertinent corporate documents and
properties of the Company, and use all reasonable efforts to
cause the officers, directors, employees and independent
accountants of the Company to supply all information
reasonably requested by the Holders, its attorney or its
accountant in connection with such registration statement, in
each case as and to the extent necessary to permit the Holders
to conduct a reasonable investigation within the meaning of
the Securities Act. To minimize disruption and expense to the
Company during the course of the registration process, the
Holders and any transferee(s) of the Holders hereunder shall,
to the extent practicable, coordinate investigation and due
diligence efforts hereunder and, to the extent practicable,
will act through a single set of counsel and a single set of
accountants and will
-3-
<PAGE> 15
enter into confidentiality agreements with the Company in form
and substance reasonably satisfactory to the Company and the
Holders prior to receiving any confidential or proprietary
information of the Company.
(viii) Promptly notify the Holders of the following
events and (if requested by the Holders) confirm such
notification in writing: (w) the filing of the prospectus or
any prospectus supplement and the registration statement and
any amendment or post-effective amendment thereto and, with
respect to the registration statement or any post-effective
amendment thereto, the declaration of the effectiveness of
such documents, (x) any requests by the Commission for
amendments or supplements to the registration statement or the
prospectus or for additional information, (y) the issuance or
threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or
the initiation of any proceedings for that purpose, and (z)
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Underlying Shares
for sale in any jurisdiction or the initiation or threat of
initiation of any proceeding for such purpose.
(ix) Cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing
the Underlying Shares to be sold and not bearing any
restrictive legends, and enable such Underlying Shares to be
in such lots and registered in such names as the Holders may
request at least two (2) business days prior to any delivery
of the Underlying Shares to the purchaser.
(x) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto, (A) make
such representations and warranties to the Holders and the
underwriters, if any, with respect to the Underlying Shares
and the registration statement as are customarily made by
issuers in similar underwritten offerings; (B) deliver such
documents and certificates as may be reasonably requested (1)
by the Holders, and (2) by the underwriters, if any, to
evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; and (C) obtain
opinions of counsel to the Company (which counsel and which
opinions shall be reasonably satisfactory to the underwriters,
if any), covering the matters customarily covered in opinions
requested in underwritten offerings.
(xi) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than forty-five (45) days after the
end of any fiscal quarter (or ninety (90) days, if such fiscal
quarter end is a fiscal year end) beginning with the first
fiscal quarter of the Company commencing after the effective
date of the registration statement.
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<PAGE> 16
(b) The Company's obligations with respect to and compliance
with the registration statement provisions set forth herein shall be
expressly conditioned upon the Holder's compliance with the following:
(i) the Holders shall cooperate with the Company in
connection with the preparation of the registration statement,
and for so long as the Company is obligated to keep the
registration statement effective, shall provide to the
Company, in writing, for use in the registration statement,
all such information regarding the Holders and the plan(s) of
distribution of the Underlying Shares as may be necessary to
enable the Company to prepare the registration statement and
prospectus covering the Underlying Shares, to maintain the
currency and effectiveness thereof and otherwise to comply
with all applicable requirements of law in connection
therewith.
(ii) During such time as the Holders may be engaged in
a distribution of the Underlying Shares, the Holders shall
comply with Regulation M promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and
pursuant thereto, shall, among other things: (w) not engage in
any stabilization activity in connection with the securities
of the Company in contravention of the rules comprising
Regulation M; (x) distribute the Underlying Shares solely in
the manner described in the registration statement; (y) cause
to be furnished to each broker through whom the Underlying
Shares may be offered, or to the offeree if an offer is not
made through a broker, such copies of the prospectus and any
amendment or supplement thereto and documents incorporated by
reference therein as may be required by law; and (z) not bid
for or purchase any securities of the Company or attempt to
induce any person to purchase any securities of the Company
other than as permitted under the Exchange Act.
(c) The Company shall bear the expenses of registration of the
Underlying Shares pursuant to Sections 1 and 2; provided, however, that each of
the Holders shall be responsible for the fees and expenses of its own counsel,
its own accountants and other experts retained by it with respect to such
registration and resales, all underwriting discounts or brokerage fees or
commissions relating to the sale of the Underlying Shares, and all transfer
taxes and other similar expenses of the sale of the Underlying Shares.
4. Holdback Agreements.
(a) Notwithstanding any provision of this Agreement to the
contrary, in the event the Company notifies the Holders, in writing and no later
than ten (10) days prior to the proposed filing date that the Company intends to
file a registration statement in connection with an underwritten offering of any
of its capital stock, the Holders shall refrain from selling or otherwise
distributing, except in accordance with the provisions of Section 2 hereunder,
any Underlying Shares within the period beginning up to seven days prior to the
effective date of such registration statement (or on such later date that the
Company notifies the Holders, in writing, that such period has begun) and ending
up to 120 days after such effective date (or on
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<PAGE> 17
such earlier date that the Company notifies the Holders that such period has
ended) (the "Offering Restricted Period"). In the event the Holder's Underlying
Shares are not included in such a registered underwritten offering pursuant to
Section 2 hereof, the Company's obligation under Section 1 to keep the
registration statement filed pursuant to Section 1 current and effective shall
be extended for a number of days equal to the Offering Restricted Period, or, if
earlier, until the date on which all of the Underlying Shares have been disposed
of.
(b) Notwithstanding anything set forth herein to the contrary,
each of the Holders agrees that it will give the Company prior oral notice,
directed to its Chief Executive Officer or its Chief Financial Officer,
confirmed immediately in writing by facsimile transmission, of its intention to
sell any Underlying Shares under the shelf registration statement to be filed by
the Company pursuant to Section 1 hereof, which notice shall be given not less
than two (2) days in advance of any such proposed sale. In the event that the
Company thereafter informs the Holders that there exist bona fide financing,
acquisition or other plans of the Company or other matters which would require
disclosure by the Company of information, the premature disclosure of any of
which would adversely affect or otherwise be detrimental to the Company, or that
the Company desires to amend the registration statement or to supplement the
prospectus in order to disclose material information required to be disclosed in
the prospectus in order to correct an untrue statement of a material fact or to
disclose an omitted fact that is required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, the Holders shall refrain from selling Underlying Shares until the
earlier to occur of the date (x) the Company notifies the Holders that it has
filed with the Commission an amendment or supplement to the prospectus included
in the shelf registration statement, or (y) the Company notifies the Holders
that the potentially disclosable event no longer exists and that the prospectus
included in the shelf registration statement does not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading (each of which is a "Disclosure Restricted
Period"). The Company's obligation under Section 1 to keep the registration
statement filed pursuant to Section 1 current and effective shall be extended
for a number of days equal to the Disclosure Restricted Period, or, if earlier,
until the date on which all of the Underlying Shares have been disposed of.
5. Indemnification and Contribution.
(a) By the Company. In connection with the registration under
the Securities Act of the Underlying Shares pursuant to this Annex, the Company
shall indemnify and hold harmless the Holder(s) and each other person, if any,
who controls any of the Holder(s) within the meaning of Section 15 of the
Securities Act ("controlling persons"), against any expenses, losses, claims,
damages, liabilities or costs (including without limitation court costs and
attorneys' fees), joint or several (or actions in respect thereof) ("Losses"),
to which each such indemnified party may become subject, under the Securities
Act or otherwise, but only to the extent such Losses arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which the Underlying Shares were registered under the Securities Act, in any
preliminary prospectus (if used prior to the effective date of such registration
statement) or in any final Prospectus or in any post-effective amendment or
supplement thereto (if used during the period the Company is required to keep
the registration statement effective) (the "Disclosure
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<PAGE> 18
Documents"), or (ii) any omission or alleged omission to state in any of the
Disclosure Documents a material fact required to be stated therein or necessary
to make the statements made therein not misleading, or (iii) any violation of
any federal or state securities laws or rules or regulations thereunder
committed by the Company in connection with the performance of its obligations
under this Annex; and the Company will reimburse each such indemnified party for
all legal and other expenses reasonably incurred by such party in investigating
or defending against any such claims, whether or not resulting in any liability,
or in connection with any investigation or proceeding by any governmental agency
or instrumentality with respect to any offering of securities pursuant to this
Annex; provided, however, that the Company shall not be liable to an indemnified
party or any other Holder(s) or controlling person of any other Holder(s) in any
such case to the extent that any such Losses arise out of or are based upon (i)
an untrue statement or omission or alleged omission (x) made in any such
Disclosure Documents in reliance upon and in conformity with written information
furnished to the Company by such indemnified party for use therein, or (y) made
in any preliminary prospectus if a copy of the final prospectus was not
delivered to the person alleging any loss, claim, damage or liability for which
Losses arise at or prior to the written confirmation of the sale of the
Underlying Shares to such person and the untrue statement or omission concerned
had been corrected in such final Prospectus and copies thereof had timely been
delivered by the Company to such indemnified party, or (z) made in any
prospectus used by such indemnified party if a court of competent jurisdiction
finally determines that at the time of such use such indemnified party had
actual knowledge of such untrue statement or omission; or (ii) the use of any
prospectus after such time as the Company has advised such indemnified party in
writing that the filing of a post-effective amendment or supplement thereto is
required, except the Prospectus as so amended or supplemented, or the use of any
prospectus after such time as the obligation of the Company to keep the same
current and effective has expired. In determining the actual knowledge of an
indemnified party for purposes of clause (i)(z) above, the actual knowledge
(without any requirement of due inquiry) of a controlling person of the
Holder(s) who is also a director of the Company shall be imputed to the
Holder(s) (and its other controlling persons).
(b) By the Holder(s). In connection with the registration
under the Securities Act of the Underlying Shares of the Holder(s) pursuant to
this Annex, the Holder(s) receiving the Underlying Shares shall, severally,
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed such registration statement and each other person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, and each other Holder(s) and each controlling person of such Holder(s)
against any Losses to which such indemnified party may become subject under the
Securities Act or otherwise, but only to the extent such Losses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any of the Disclosure Documents or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by such indemnifying party for use therein; (ii) the
use by such indemnifying party of any prospectus after such time as the Company
has advised such indemnifying party in writing that the filing of a
post-effective amendment or supplement thereto is required, except the
prospectus as so amended or supplemented, or after such time as the obligation
of the Company to keep the registration statement effective and current has
expired, or (iii) any information given or representation made
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<PAGE> 19
by such indemnifying party in connection with the sale of the Underlying Shares
which is not contained in and not in conformity with the prospectus (as amended
or supplemented at the time of the giving of such information or making of such
representation); and such indemnifying party shall reimburse each such
indemnified party for all legal and other expenses reasonably incurred by such
party in investigating or defending against any such claims, whether or not
resulting in any liability, or in connection with any investigation or
proceeding by any governmental agency or instrumentality relating to any such
claims with respect to any offering of securities pursuant to this Annex.
(c) Actions Commenced. If a third party commences any action
or proceeding against an indemnified party related to any of the matters subject
to indemnification under subsections (a) or (b) hereof, such indemnified party
shall promptly give notice to the indemnifying party in writing of the
commencement thereof, but failure so to give notice shall not relieve the
indemnifying party from any liability which it may have hereunder unless the
indemnifying party is prejudiced thereby.
The indemnifying party shall be entitled to control the
defense or prosecution of such claim or demand in the name of the indemnified
party, with counsel satisfactory to the indemnified party, if it notifies the
indemnified party in writing of its intention to do so within 20 days of its
receipt of the notice from the indemnified party without prejudice, however, to
the right of the indemnified party to participate therein through counsel of its
own choosing, which participation shall be at the indemnified party's expense
unless (i) the indemnified party shall have been advised by its counsel that use
of the same counsel to represent both the indemnifying party and the indemnified
party would represent a conflict of interest (which shall be deemed to include
any case where there may be a legal defense or claim available to the
indemnified party which is different from or additional to those available to
the indemnifying party), in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party,
or (ii) the indemnifying party shall fail vigorously to defend or prosecute such
claim or demand within a reasonable time. Whether or not the indemnifying party
chooses to defend or prosecute such claim, the parties hereto shall cooperate in
the prosecution or defense of such claim and shall furnish such records,
information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be requested in connection therewith. The
indemnifying party shall not, in the defense of such claim or any litigation
resulting therefrom, consent to entry of any judgment against the indemnified
party (or settle any claim involving an admission of fault on the part of the
indemnified party), except with the consent of the indemnified party (which
consent shall not be unreasonably withheld).
(d) Contribution. If the indemnification provided for in
subsections (a) or (b) is unavailable to or insufficient to hold the indemnified
party harmless under subsections (a) or (b) above in respect of any Losses
referred to therein for any reason other than as specified therein, then the
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and such indemnified party on the other in connection with the statements
or omissions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to,
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<PAGE> 20
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by (or omitted to be supplied by) the Company or the
Holder(s) and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by an indemnified party as a result of the Losses referred to above in
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE> 1
EXHIBIT 5
TROUTMAN SANDERS LLP
ATTORNEYS AT LAW
A LIMITED LIABILITY PARTNERSHIP
BANK OF AMERICA PLAZA
600 PEACHTREE STREET, N.E. - SUITE 5200
ATLANTA, GEORGIA 30308-2216
www.troutmansanders.com
TELEPHONE 404-885-3000
FACSIMILE 404-885-3900
Patricia A. Wilson Direct Dial: 404-885-3242
[email protected] Direct Fax: 404-962-6725
November 12, 1999
HIE, Inc.
1850 Parkway Place
Suite 1100
Marietta, Georgia 30067
Gentlemen:
We have acted as counsel to HIE, Inc., a Georgia corporation (the
"Company"), in connection with the registration for resale of 302,458 shares
(the "Shares") of the Company's Common Stock, par value $.01 per share,
including associated preferred stock purchase rights (the "Common Stock"). The
Shares are issuable upon conversion of certain outstanding shares of the
Company's 8.5% Series B Cumulative Convertible Exchangeable Preferred Stock (the
"Preferred Stock"), as described in the Company's Registration Statement on Form
S-3 (the "Registration Statement") with respect to the secondary public offering
of the Shares by certain selling shareholders.
In the capacity described above, we have examined originals (or copies
certified or otherwise identified to our satisfaction) of the Registration
Statement, the form of Common Stock certificate, the Restated and Amended
Articles of Incorporation (the "Articles") and the Bylaws of the Company as in
effect on the date hereof, the form of Revised Subscription Agreement and Annex
thereto with respect to the issuance and sale of the Preferred Stock and the
registration of the Shares, corporate and other documents, records and papers
and certificates of officers of the Company and public officials. In such
examination, we have also assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the genuineness
and conformity to original documents of documents submitted to us as certified
or photostatic copies.
<PAGE> 2
HIE, Inc.
Page -2-
November 12, 1999
On the basis of such examination, it is our opinion that the Shares,
if, as and when issued upon conversion of the Preferred Stock in accordance with
the relevant provisions of the Articles, will be duly and validly issued and
outstanding, fully paid and non-assessable shares of Common Stock of the
Company.
We are members of the State Bar of Georgia. In expressing the opinions
set forth above, we are not passing on the laws of any jurisdiction other than
the laws of the State of Georgia and the Federal law of the United States of
America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the related prospectus. In giving the foregoing consent, we
do not hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Troutman Sanders LLP
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
HIE, Inc.
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Atlanta, Georgia
November 11, 1999
