<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
REGISTRATION NO. 333-47197
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE INTERCEPT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
GEORGIA 6099 58-2237359
STATE(OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
JOHN W. COLLINS
CHIEF EXECUTIVE OFFICER
THE INTERCEPT GROUP, INC.
3150 HOLCOMB BRIDGE ROAD, SUITE 200
NORCROSS, GEORGIA 30071
(770) 248-9600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT D. PANNELL, ESQ. M. HILL JEFFRIES, ESQ.
SUSAN L. SPENCER, ESQ. R. BRANDON ASBILL, ESQ.
JONATHAN R. COE, ESQ. R. DAVID PATTON, ESQ.
NELSON MULLINS RILEY & SCARBOROUGH,
L.L.P. ALSTON & BIRD LLP
FIRST UNION PLAZA, SUITE 1400 ONE ATLANTIC CENTER
999 PEACHTREE STREET, N.E. 1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309 ATLANTA, GEORGIA 30309
(404) 817-6000 (404) 881-7000
(404) 817-6050 (FAX) (404) 881-4777 (FAX)
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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. [_]
---------------
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 THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 29, 1998
PROSPECTUS
2,525,000 SHARES
THE INTERCEPT GROUP, INC.
[LOGO]
COMMON STOCK
Of the 2,525,000 shares of Common Stock offered hereby (the "Offering"),
2,250,000 shares are being offered by The InterCept Group, Inc. ("InterCept" or
the "Company") and 275,000 shares are being offered by certain shareholders of
the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. See "Use of Proceeds."
Prior to the Offering there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price for the
Common Stock will be between $10.00 and $12.00 per share. See "Underwriting"
for information relating to the determination of the initial public offering
price.
The Common Stock has been approved for listing on The Nasdaq Stock Market's
National Market under the symbol "ICPT."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- --------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated Offering expenses of $1,400,000, payable by the
Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 337,500 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ , the total Proceeds to Company will be
$ and the total Proceeds to Selling Shareholders will be $ . See
"Underwriting."
-----------
The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale, and to the Underwriters' right to
reject orders in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about , 1998.
-----------
J.C. Bradford & Co. Wheat First Union
, 1998
<PAGE>
ARTWORK (Inside Front Cover):
(1) Color map of the United States reflecting the outlines of the states and
the Company's point of presence locations within each state, including the
name of the city. The following heading is above the graphic: "The InterCept
Group Communications Network LATA Map."
(2) Color map of the United States reflecting the outlines of the states. The
states where the Company has customers or alliances with bankers banks are
highlighted in yellow. The following heading is above the graphic: "States
with customers or bankers bank alliances."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and the related Notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information contained in this Prospectus assumes an initial public offering
price per share of $11.00 and no exercise of the Underwriters' over-allotment
option. All Common Stock share numbers in this Prospectus reflect a 2.1053-for-
1 stock split on February 28, 1998. The terms "InterCept" and "Company" as used
in this Prospectus mean The InterCept Group, Inc. and its subsidiaries on a
consolidated basis. Industry information presented in this Prospectus is based
upon sources which the Company believes to be reliable but has not
independently verified.
THE COMPANY
The InterCept Group, Inc. ("InterCept" or the "Company") designs, develops,
markets and implements a suite of fully integrated electronic commerce products
and services primarily for community financial institutions in the United
States. The Company's products and services include electronic funds transfer
("EFT"), data communications management, client/server enterprise software and
other processing solutions. InterCept currently serves over 580 financial
institutions and is the largest third-party processor of financial
institutions' automated teller machines ("ATMs") in the southeastern United
States. The Company has established marketing relationships with 9 of the 17
bankers' banks, which provide the Company access to over 4,500 of the
approximately 11,000 community financial institutions nationwide. The Company's
revenues increased from $14.5 million for the year ended December 31, 1996 to
$23.3 million for the year ended December 31, 1997. Revenues for the three
months ended March 31, 1998 were $6.3 million. Recurring revenues accounted for
approximately 69.3%, 76.3% and 78.2%, respectively, of the Company's revenues
for these three periods.
InterCept is a single source provider of a broad range of flexible electronic
commerce solutions and supporting value-added products and services. The
Company provides numerous EFT products and services, including ATM, point-of-
sale ("POS") and scrip debit services, debit card processing, funds transfer
and remote banking services. The Company licenses PC BancPAC(TM), a
client/server enterprise software system that operates in a personal computing
environment and (since October 1997) in a Windows NT(R) environment. Community
financial institutions can implement PC BancPAC(TM) on both a service bureau
and in-house basis, providing them with two alternatives for utilizing the
Company's technologies and processing expertise to improve operating efficiency
for their institutions. The Company also provides maintenance and technical
support services, supplies banking related equipment and offers numerous
ancillary products and services to its financial institution customers.
As part of its integrated suite of electronic commerce products and services,
the Company provides end-to-end data communications management solutions to its
customers. The Company maintains nationwide data communications coverage and
has one of the largest private frame relay networks in the southeastern United
States (the "InterCept Frame Relay Network"). The InterCept Frame Relay Network
is the principal conduit through which the Company processes EFT transactions
and manages the data communications needs of its customers. The InterCept Frame
Relay Network contains approximately 1,300 drops which are located in 14
states, 41 local access transport areas ("LATAs") and all five markets of the
Regional Bell Operating Companies ("RBOCs"). The design of the InterCept Frame
Relay Network provides for efficient switching capabilities, which results in
rapid response time, as well as secure and reliable transmission and processing
of electronic commerce transactions conducted across the network. The Company
believes the InterCept Frame Relay Network enables it to provide its electronic
commerce products and services efficiently and on a more cost-effective basis
for its customers.
InterCept's top 9 senior officers have an average of over 22 years of
industry experience and have expertise in multiple areas of electronic commerce
(including EFT and data communications management), enterprise
3
<PAGE>
software and transaction processing for financial institutions. The Company's
current market focus is on community financial institutions, which the Company
believes rely heavily on third-party providers for a majority of their EFT,
data communications management, enterprise software and transaction processing
solutions, including the products and services offered by the Company. As a
result of rapid technological, financial and other changes that have occurred
over the past several years, InterCept believes that the demand of community
financial institutions and their customers for technologically advanced
solutions has increased substantially and that such demand will continue to
grow in the future. The Company believes that its integrated suite of
electronic commerce solutions enables its community financial institution
customers to compete with larger financial institutions by allowing them to
offer similar products and services on a cost-competitive basis.
The Company believes it is one of the largest providers of fully integrated
electronic commerce products and services for community financial institutions
in the southeastern United States, and its goal is to become one of the largest
such providers in the United States. To attain this goal, the Company plans to
grow significantly by implementing the following key strategies:
(i) Cross-Market to Existing Customer Base and Maximize Recurring
Revenues. InterCept plans to cross-market its EFT, data communications
management, client/server enterprise software and numerous ancillary
products and services to its existing customers, most of which already use
the Company's EFT services. The Company seeks to develop and maintain long-
term customer relationships by providing multiple electronic commerce
products and services to community financial institutions pursuant to
contracts with renewable terms. The Company intends to maximize its
recurring revenues through these relationships by enhancing and increasing
the use of its various products and services. The Company also plans to
create and acquire additional sources of recurring revenues to meet the
evolving needs of its customers.
(ii) Increase Data Communications Management and Optimize the InterCept
Frame Relay Network. InterCept intends to increase the use of its data
communications management services by offering customized, cost-competitive
telecommunications connectivity to its customers and by managing their data
traffic in a reliable and secure manner across the InterCept Frame Relay
Network. The Company intends to optimize the InterCept Frame Relay Network
by selling additional communications services to its customers, thereby
increasing network utilization with minimal additional cost to the Company.
InterCept plans to improve the speed and efficiency of transaction
processing across the network by selectively enhancing and upgrading its
processing and switching equipment and telecommunications lines. In
addition, the Company will attempt to expand the InterCept Frame Relay
Network into new geographic areas as business warrants. The Company
believes that the strategic development of the InterCept Frame Relay
Network will continue to provide for more efficient network utilization,
allow it to reduce transmission and other operating costs, and support its
current and future products and services.
(iii) Complete Strategic Acquisitions. InterCept intends to acquire other
companies with complementary technologies or services that will enhance and
expand the products and services offered to existing customers, increase
its market share, expand its geographic presence or optimize the InterCept
Frame Relay Network. Since the beginning of 1996, the Company has completed
several acquisitions of providers of complementary products and services.
On April 28, 1998, the Company entered into a $20 million revolving line of
credit agreement with First Union National Bank, the proceeds of which will
be available to fund acquisitions upon completion of this Offering and the
satisfaction of certain other conditions set forth in such agreement.
(iv) Expand Sales Force and Strategic Marketing Relationships. The
Company plans to expand its customer base and penetrate new geographic
markets by hiring sales personnel with expertise in community financial
institutions' operations and/or electronic commerce products and services
similar to those offered by the Company. InterCept currently has
established relationships with several banking related business
organizations, including strategic marketing relationships with 9 of the 17
bankers' banks, which provide the Company access to over 4,500 of the
approximately 11,000 community financial institutions nationwide. InterCept
intends to use its expanded sales force to market its products and services
directly to these
4
<PAGE>
institutions and to enhance its indirect marketing efforts by developing
additional strategic marketing relationships with bankers' banks and
various other business organizations.
(v) Expand and Enhance its Products and Services. The Company has devoted
and will continue to devote resources to developing and enhancing its suite
of products and services. The Company plans to continue to combine its
enhanced and expanded electronic commerce solutions with sophisticated
technology to help its community financial institution customers remain
competitive with other financial service providers. The Company continually
strives to anticipate the most recent trends in the financial services
industry and to develop and provide leading edge products and services.
The Company is a Georgia corporation whose principal offices are located at
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia 30071, and its telephone
number is (770) 248-9600.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company........ 2,250,000 shares
Common Stock offered by the
Selling Shareholders...................... 275,000 shares(1)
Common Stock to be outstanding
after the Offering........................ 9,000,114 shares(2)
Use of proceeds by the Company............. To repay certain indebtedness and
an amount owed to an officer;
enhance marketing efforts;
upgrade, enhance and expand the
InterCept Frame Relay Network;
redeem outstanding preferred
stock; and for working capital
and general corporate purposes,
including acquisitions. See "Use
of Proceeds."
Nasdaq National Market symbol.............. ICPT
</TABLE>
- --------
(1) See "Principal and Selling Shareholders."
(2) Excludes 595,853 shares issuable upon exercise of outstanding options
granted pursuant to the Company's stock option plans. See "Management--
Stock Option Plans."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------- ---------------------------------
AS ADJUSTED
1995(1) 1996(2)(3) 1997 1997 1998 1998(4)
--------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $ 8,223 $ 14,511 $ 23,260 $ 5,116 $ 6,257 $ 6,257
Costs of services....... 4,607 7,859 10,223 2,274 2,634 2,634
Selling, general and
administrative
expenses............... 2,213 6,852 10,105 2,316 2,532 2,532
Depreciation and
amortization........... 242 351 1,323 308 285 285
Loss on impairment of
intangibles............ 0 0 728 0 0 0
Writeoff of purchased
research and
development costs...... 0 810 0 0 0 0
--------- --------- --------- ---------- ---------- ----------
Total operating
expenses............... 7,062 15,873 22,379 4,898 5,451 5,451
--------- --------- --------- ---------- ---------- ----------
Operating income
(loss)................. 1,161 (1,362) 881 218 806 806
Income (loss) before
provision for income
taxes and minority
interest............... 1,098 (1,641) 232 55 646 814
Net income (loss)
attributable to common
shareholders........... $ 681 $ (1,427) $ (427) $ 29 $ 376 $ 476
========= ========= ========= ========== ========== ==========
Net income (loss) per
common share(5)........ $ 0.12 $ (0.24) $ (0.06) $ 0.00 $ 0.06 $ 0.05
========= ========= ========= ========== ========== ==========
Weighted average common
shares outstanding..... 5,867,400 5,851,347 6,750,114 6,750,114 6,750,114 9,000,114
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED(6)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 940 $15,925
Working capital.......................................... 604 16,044
Total assets............................................. 9,885 24,871
Long-term debt........................................... 4,221 284
Shareholders' (deficit) equity........................... (408) 21,169
</TABLE>
- --------
(1) On June 4, 1996, Intercept Systems, Inc. ("Systems") merged with the
Company in a share exchange combination by which Systems became a wholly-
owned subsidiary of the Company. The results of operations of Systems have
been included for the periods shown. See Note 3 of Notes to Consolidated
Financial Statements.
(2) On June 4, 1996, the Company acquired Data Services Corp. ("Data Services")
in a transaction accounted for as a purchase and the results of operations
of Data Services have been included since the date of acquisition. On
November 27, 1996, the Company acquired ProVesa, Inc. ("ProVesa") in a
merger transaction accounted for as a purchase, and the results of
operations of ProVesa have been included since the date of acquisition. On
December 17, 1996, InterCept acquired FiNet, Inc. ("FiNet") in a merger
transaction accounted for as a purchase, and the results of operations of
FiNet have been included since the date of acquisition. On December 31,
1996, InterCept acquired Bank Services Corporation ("Bank Services") in a
merger transaction accounted for as a purchase, and the results of
operations of Bank Services have been included since the date of
acquisition. See Note 3 of Notes to Consolidated Financial Statements.
(3) On January 30, 1998, the Company acquired Technologies in a transaction
accounted for as a pooling of interests, and the results of operations of
Technologies have been included since its inception on January 1, 1996.
(4) The statements of operations data have been adjusted to reflect (i) the
sale of 2,250,000 shares of Common Stock offered by the Company, (ii) the
elimination of interest expense related to the Company's credit facilities,
(iii) the elimination of interest expense related to a deferred
compensation agreement with an officer of the Company and (iv) the
elimination of preferred stock dividends related to preferred stock to be
repurchased with proceeds of the Offering. See "Use of Proceeds."
(5) See Notes 2 and 10 of Notes to the Consolidated Financial Statements for a
discussion of the historical computations of net income (loss) per common
share. Pursuant to Staff Accounting Bulletin No. 98, the impact of any
options are excluded as the issuances are not considered nominal.
Accordingly, basic and fully diluted net income (loss) per common share are
the same.
(6) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered by
the Company and the application of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the Common Stock offered hereby. This Prospectus contains "forward-looking
statements" relating to, without limitation, future economic performance,
plans and objectives of management for future operations, projections of
revenue composition and other financial items that are based on the beliefs
of, as well as assumptions made by and information currently known to, the
Company's management. The words "may," "would," "could," "will," "expect,"
"estimate," "anticipate," "believe," "intends," "plans" and similar
expressions and variations thereof are intended to identify forward-looking
statements. The cautionary statements set forth in this "Risk Factors" section
and elsewhere in this Prospectus identify important factors with respect to
such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
ABILITY TO CONTINUE AND MANAGE GROWTH; ACQUISITION RISKS
The Company's failure or inability to continue and manage its growth
successfully may have a material adverse effect on the Company's business,
financial condition and results of operations. The expansion of the Company's
operations has placed and will continue to place significant demands on its
administrative, operational and financial personnel and systems. The Company
intends to continue to grow through strategic business combinations and
through internal growth, including expanding its sales and marketing forces,
cross-marketing its suite of products and services to existing customers,
opening new data communications and item processing centers and expanding the
InterCept Frame Relay Network. The Company's ability to grow also will depend
on a number of factors beyond the Company's control, including general
economic and industry conditions, existing and emerging competition and the
strength of demand for the products and services provided by the Company.
There can be no assurance that the Company will be able to generate or obtain
capital sufficient to fund mergers and acquisitions and the enhancement and
expansion of its products and services, manage costs, adapt its infrastructure
and modify its operating systems to accommodate growth and attract and train
additional qualified sales and marketing personnel. Implementing the Company's
business strategies, including integrating other companies, introducing new
products and services and opening new data communications and item processing
centers, may divert management's attention from normal operating activities,
which, in addition to the costs associated with such activities, may
materially and adversely affect the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The inability to identify, acquire and integrate additional businesses,
products and services may have a material adverse effect on the Company's
business, financial condition and results of operations. An element of the
Company's strategy is the pursuit of business combinations that either
increase or enhance the products and services currently offered by the
Company. There can be no assurance that the Company will be able to identify
suitable acquisition candidates, establish favorable consideration and other
terms, arrange adequate financing on acceptable terms, consummate any
transaction, or successfully integrate the operations, products, personnel and
culture of any acquired business into those of the Company, nor can there be
any assurance that the Company will be able to expand its market share. Future
acquisitions may also result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the loss of key employees, the
writeoff of in-process product development and capitalized product costs,
integration costs, the amortization of expenses related to goodwill and other
intangible assets, and the incurrence of unforeseen liabilities, all of which
could have a material adverse effect on the Company. In addition, the Company
competes with other electronic commerce providers for acquisition candidates,
and consolidation in the financial services industry in the United States has
resulted in fewer opportunities for acquisitions.
ABILITY TO EXPAND SALES AND MARKETING FORCES AND STRATEGIC MARKETING
RELATIONSHIPS
If InterCept is unable to locate and hire experienced sales and marketing
personnel or establish and maintain key marketing relationships on a timely
basis, the Company's business, financial condition and results of
7
<PAGE>
operations would likely be materially adversely affected. An integral part of
the Company's strategy is to expand its sales and marketing forces and its
strategic marketing relationships. Competition for experienced sales and
marketing personnel is intense, and there can be no assurance that the Company
will be able to retain existing personnel or to attract, integrate or keep
additional qualified personnel in the future. In addition, the Company has
relationships with various banking related organizations for the marketing and
endorsement of the Company's products and services that management believes
are important to its sales and marketing efforts and geographic expansion of
the Company's business. The loss of any of these marketing relationships or
the failure to enter into additional strategic marketing alliances could
impact the Company's ability to implement its business strategies and could
have a material adverse effect on its business, financial condition and
results of operations. See "Business--Business Strategy" and "--Sales and
Marketing."
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
There can be no assurance that the Company will be successful in developing,
acquiring or marketing new or enhanced products or services that respond to
technological change or evolving customer needs, that the Company will not
experience difficulties that could delay or prevent the successful
introduction of such products or services, that its new or enhanced products
and services will satisfy the requirements of the marketplace and be accepted
by its customers or that incorporating new developments in data communications
or information processing technology or employing new technologies will not
involve substantial cost. Electronic commerce, including EFT, data
communications and enterprise software, has been characterized by rapid
technological change, and the introduction of new communications technologies
and new financial products and services can render existing technologies,
products and services obsolete in a short period of time. The Company believes
that its future success will depend in large part upon its ability to maintain
and enhance its current product and service offerings and to continually
develop and introduce new products and services that will keep pace with
technological advances and satisfy evolving customer requirements.
In addition, telephone companies and media companies are likely to increase
communications services through the Internet, and if the Internet becomes an
accepted method of electronic commerce, the Company could lose customers,
which would reduce revenues from EFT and data communications management
services. Use of the Internet for electronic commerce services raises numerous
issues, including reliability, data security and data integrity, timely
transmission, and pricing of products and services. It is impossible to
predict whether the Internet will prove to be a viable commercial marketplace
or whether the Company will continue to design, develop and offer Internet
products and services which will be accepted in the marketplace.
Delays or failures in the development and provision of new or enhanced
products or services, or the failure of such products or services to achieve
market acceptance, could have a material adverse effect on the business,
financial condition and results of operations of the Company. The Company
expects other vendors to continually introduce new products and services, as
well as enhancements to their existing products and services, which will
compete with the products and services offered by the Company. The Company's
success will depend significantly on its ability to anticipate evolving
industry trends, continue to apply advances in electronic commerce, enhance
existing products and services, and develop, acquire and introduce new
products and services on a timely basis to address technological developments
and meet increasing demands of its customers.
DEPENDENCE ON MANAGEMENT
The loss of the services of one or more of the Company's senior officers or
key management personnel would likely have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's success depends on the abilities of John W. Collins, its Chief
Executive Officer, Donny R. Jackson, its President and Chief Operating
Officer, and a number of other senior officers and key management personnel
who have substantial experience with the Company's operations, the rapidly
changing electronic commerce industry and the particular community financial
institutions on which the Company focuses. The relationships established
between the Company and its customers and marketing partners would be impaired
8
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if the Company lost the services of one or more of its senior officers, which
would likely have a material adverse effect on the Company's business,
financial condition and results of operations. As the Company implements its
business strategies, its success will depend on its ability to continue to
attract, manage and retain other qualified management and technical personnel,
and there can be no assurance that the Company will be able to attract or
retain such personnel. The Company is the beneficiary of key man life
insurance policies on Mr. Collins and Mr. Jackson. See "Management."
COMPETITION
The EFT, data communications management, enterprise software and transaction
processing industries are intensely competitive and highly fragmented, and the
Company expects increased competition from both existing competitors and
entrants into the Company's existing or future markets. Such competition could
materially and adversely affect the Company's business, financial condition
and results of operations. The Company believes that its ability to compete
depends in part on a number of factors, including the development by others of
competing products and services, the price at which others offer competitive
products and services, the extent of competing competitors' responsiveness to
customer needs and the ability of the Company's competitors to hire, retain
and motivate key personnel. Numerous companies supply competing products and
services, and many of these companies specialize in one or more of the
services that the Company offers or intends to offer to its customers. The
Company believes that existing competitors are likely to expand their product
and service offerings and that new competitors are likely to enter the market
and attempt to integrate various electronic commerce products and services,
resulting in greater competition for the Company which could materially and
adversely affect its business, financial condition and results of operations.
Current and potential competitors have established, and may establish in the
future, cooperative relationships among themselves or with third parties to
increase their ability to address the needs of the Company's prospective
customers. Accordingly, new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. Many of the Company's
current and potential competitors have longer operating histories, greater
name recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. As a result of these and other factors, the Company's competitors may
be able to adapt more quickly than the Company to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products. There can be no assurance that the
Company will be able to compete successfully with existing or new competitors.
Failure by the Company to adapt to emerging market demands and to compete
successfully with existing and new competitors would have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's principal EFT competitors include regional ATM networks,
regional and local processing banks, non-bank processors and other independent
electronic commerce and data communications organizations. There can be no
assurance that the Company will be able to compete effectively with such
competitors. The Company's EFT services and its customers' outsourced core
processing data are transmitted to its customers over telephone lines, and the
Telecommunications Act of 1996 (the "Act") lifted certain restrictions on
regional telephone companies and others competing with the Company, which will
likely lead to these companies competing with the Company by packaging
information service offerings with other services and providing them on a
wider geographic scale. The competitive pricing pressures that would result
from any such increase in competition could have a material adverse effect on
the Company's business, financial condition and results of operations. See "--
Government and Network Regulation," "Business--Competition" and "Business--
Government Regulation."
DEPENDENCE ON PROCESSING CENTERS AND COMMUNICATIONS
Damage or destruction that interrupts the Company's processing services
could cause the Company to lose customers and may cause the Company to incur
substantial additional expense to repair or replace damaged
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equipment or to avoid interruption of communications services, any of which
would likely have a material adverse effect on the Company's business,
financial condition and results of operations. The processing centers and
communications network operations of the Company depend upon its ability to
protect computer equipment and the information stored in the Company's data
centers against damage or destruction that may be caused by natural disasters,
human causes, fire, power loss, telecommunication failures, unauthorized
intrusion, computer viruses and disabling devices and other similar causes and
events. The Company's electronic commerce products and services depend upon
long-distance and local telecommunications carriers and access to
telecommunications facilities on a 24-hour basis. The Company maintains a
single EFT processing and communications switching facility and has
established a limited disaster recovery plan with certain telecommunications
providers to provide alternative communications capabilities in the event the
Company experiences a natural disaster or other interruption at such facility,
rather than maintaining a "hot site" backup location for its EFT processing
and InterCept Frame Relay Network switching hardware. There can be no
assurance that a natural disaster, telecommunications failure or other event,
including national, regional or local telecommunications outages, would not
result in a prolonged interruption of the Company's transaction processing
services. In the event of a disaster, and depending on the nature of any such
disaster, several hours to several days may pass before the Company's systems
can become operational for all of its customers. In the event that an
interruption of the Company's network extends for more than several hours, the
Company may experience data loss or a reduction in revenues by reason of such
interruption. See "Business--The InterCept Solution--Data Communications
Management and The InterCept Frame Relay Network."
RISKS ASSOCIATED WITH NEW PRODUCTS AND SERVICES
There can be no assurance that any new products and services offered by the
Company will not have undetected errors or failures that could have a material
adverse effect upon the Company's business, financial condition and results of
operations. Electronic commerce products and services as complex as those
offered by the Company may contain undetected errors or failures when first
introduced or when new versions are released. If errors are discovered after
introduction to the marketplace, the Company could experience delayed or lost
revenues during the period required to correct these errors. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
introduction to the market, resulting in loss of or delay in market
acceptance, additional and unexpected expenses to fund further product
development or to add programming personnel to complete a development project,
and loss of revenue because of the inability to sell the new product on a
timely basis, any one or more of which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's agreements with its customers generally contain provisions designed
to limit the Company's exposure to potential product liability claims, such as
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. It is possible, however, that the
limitation of liability provisions contained in such agreements may not be
effective as a result of existing or future federal, state or local laws or
ordinances or unfavorable judicial decisions. The sale and support of products
by the Company may result in the Company's being subject to product liability
claims, and a successful product liability claim brought against the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's ability to successfully
develop new products and services depends on a number of factors, including
its ability to identify and effectively integrate new services into the
Company's suite of integrated electronic commerce solutions. The
identification and offering of new services in which the Company has little or
no experience or expertise could divert management's attention and place
significant demands on the Company's operational, administrative and financial
resources. See "Business--Business Strategy."
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS
The market for EFT, data communications management, client/server software
and other processing products and services is rapidly evolving and the
Company's revenues in any period may be affected by many factors, including
the introduction of new products and services by the Company's competitors as
well as alternative data communications technologies. The Company's expense
levels are based, in part, on its
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expectations as to future revenues. If revenue levels are below expectations,
the Company may be unable or unwilling to reduce expenses proportionately and
the Company's business, financial condition and results of operations are
likely to be adversely affected. Customers may be lost at the expiration of a
contract due to conversion to a competing processor or to an in-house system.
Prior to contract expiration, customers may be lost due to business failure or
acquisition by financial institutions using other third party service
providers. The Company's quarterly operating results have varied in the past
and will likely vary significantly in the future. Factors that may cause the
Company's future operating results to vary include, without limitation, the
timing of new product and service announcements, changes in pricing policies
by the Company and its competitors, market acceptance of new and enhanced
versions of the Company's products and services, the lengthening of sales
cycles for new or existing customers, customer attrition, changes in operating
expenses, changes in Company strategy, personnel changes, the introduction of
alternative technologies, the Company's products becoming obsolete, the
failure, delay and expense in making software, systems and networks utilized
in the Company's business Year 2000 compliant, the effect of acquisitions and
general economic factors. The Company has limited or no control over many of
these factors. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indicative of future performance. Due to all of
the foregoing factors, it is likely that in some future quarter or quarters
the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's
Common Stock will likely be adversely affected.
CONSOLIDATION IN THE FINANCIAL INSTITUTIONS INDUSTRY
Any significant increase in the level of consolidation in the financial
institutions industry could adversely affect the Company's business, results
of operations and financial condition. Merger and acquisition activity has
been widespread in the financial institutions industry in recent years and is
expected to continue in future years. As a result, the industry has
experienced consolidation on a large scale, and this consolidation has had the
effect of reducing the number of customers of the Company and will continue to
have the effect of reducing the number of potential customers of the Company.
BRIEF COMBINED OPERATING HISTORY; PRIOR LOSSES
The Company was incorporated in May 1996 and has acquired six companies in
transactions that occurred from June 1996 through January 1998. The members of
the Company's senior management have worked together to manage the Company as
a combined business for only a short time. Although the Company has generated
net income for the three months ended March 31, 1998 and other historical
operating periods, the Company has had net losses in each of the years ended
December 31, 1996 and 1997 and for several historical interim periods. See
Consolidated Financial Statements and the related Notes thereto. There can be
no assurance that management will be able to effectively manage the combined
enterprise or implement the Company's growth strategies or that the Company
will be able to achieve any cost savings or generate net income in future
periods. The Company's historical financial results cover periods when the
Company was not operating as a combined entity and, therefore, may not be
indicative of the Company's future operating results or financial condition.
See "The Company," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions."
GOVERNMENT AND NETWORK REGULATION
As a provider of services to financial institutions, the Company's data
processing operations are examined from time to time by various state and
federal regulatory agencies. These agencies can make findings or
recommendations regarding various aspects of operations, and the Company
generally must follow such recommendations to continue its data processing
operations. As part of its compliance efforts, the Company arranges for an
annual independent examination of certain of its data processing facilities.
The Company's ATM network operations are subject to federal regulations
governing consumers' rights with respect to ATM transactions. Certain fees
charged by ATM owners are currently regulated in several states, and
legislation regulating ATM fees has been proposed in several other states. It
is impossible to predict whether such legislation will continue to be proposed
and enacted in the future or whether existing consumer protection laws will be
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expanded to apply to fees charged in connection with ATM transactions. If the
number of ATMs deployed decreases, then revenues from the Company's EFT
business may decline. Furthermore, the Company is subject to the regulations
and policies of various ATM and debit card associations and networks. If the
Company lost its privileges to provide transaction processing services across
these networks, the Company's revenues from ATM and POS transaction processing
might decrease significantly. The Clinton administration has announced an
initiative to establish a framework for global electronic commerce. Also,
there are a number of bills currently being considered in the United States at
the federal and state levels involving encryption and digital signatures, all
of which may impact the Company. No assurance can be given that such laws,
regulations and policies will not be amended or interpreted differently by
regulatory authorities, associations and networks, or that new laws,
regulations and policies will not be adopted, the effect of which could
materially and adversely affect the Company's business, financial condition
and results of operations. See "Business--Government Regulation."
RISKS ASSOCIATED WITH YEAR 2000
The Company's business and relationships with its customers depend
significantly on a number of computer software programs, internal operating
systems and connections to other networks, and the failure of any of these
programs, systems or networks to successfully address the Year 2000 data
rollover problem could have a material adverse effect on the Company's
business, financial condition and results of operations. Many installed
computer software and network processing systems currently accept only two-
digit entries in the date code field and may need to be upgraded or replaced
in order to accurately record and process information and transactions on and
after January 1, 2000. The Company believes that its internal systems and
software and the network connections it maintains are adequately programmed to
address the Year 2000 issue. The Company currently provides service bureau
processing services to certain customers using a processing system that is not
Year 2000 compliant, and the Company is in the process of converting those
customers to its PC BancPAC(TM) software, which the Company believes is Year
2000 compliant. The Company currently anticipates that such conversion process
will be completed before the end of September 1999. The Company currently
anticipates that the cost of such conversion will total approximately
$200,000; however, it is difficult to predict with any certainty the costs the
Company will incur to implement this conversion and there can be no assurance
that the costs necessary to convert its customers to PC BancPAC(TM) will not
have a material adverse effect on the Company's business, financial condition
and results of operations. Further, any failure by the Company to complete the
conversion of any of its service bureau customers in a timely manner could
significantly interrupt the business operations of such customers, which could
have material adverse effect on the business, financial condition and results
of operations of both the affected customers and the Company.
Other companies interact electronically with the Company and its customers,
and the Company must coordinate its EFT, data communications and enterprise
software processing with such companies, including interfacing and exchanging
information with customers, financial institutions' network processors and
other participants in the electronic commerce process. If such other companies
do not successfully address Year 2000 issues in their operations, and if the
Company or its customers cannot successfully transfer their processing
operations to another provider that is Year 2000 compliant, the Company's
processing operations may be impeded, hindered or delayed, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company believes that many financial institutions
and third party vendors and network processors are still in the preliminary
stages of analyzing their software and network applications for Year 2000
compliance and that it is impossible to estimate the potential expenses
involved or delays that may result as these institutions transition their
operations to resolve the Year 2000 issue. There can be no assurance that the
failure or delay of third parties in addressing the Year 2000 issue or the
costs involved in such process will not have a material adverse effect on the
Company's business, financial condition and results of operations.
STATE TAXATION
Transaction processing companies such as the Company may be subject to state
taxation of certain portions of the fees charged for their services.
Application of this tax is an emerging issue in the industry, and the states
have not yet adopted uniform guidelines implementing these regulations. In the
event the Company is required
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to bear all or a portion of these costs, and is unable to pass such costs
through to its customers, the financial condition and results of operations of
the Company could be adversely affected.
VOTING CONTROL BY MANAGEMENT
After the Offering, the executive officers and directors of the Company will
own approximately 59.2% of the outstanding Common Stock (approximately 57.1%
if the Underwriters' over-allotment option is exercised in full). As a result,
the officers and directors of the Company, voting together, will be able to
control or, at a minimum, significantly impact the outcome of matters
requiring a shareholder vote, including the election of directors, adopting or
amending provisions of the Company's Articles of Incorporation and Bylaws, and
approving certain mergers or other similar transactions, such as sales of
substantially all the Company's assets. Purchasers in this Offering will
become minority shareholders of the Company and will be unable to control the
management or policies of the Company. Moreover, the Company is not prohibited
from engaging in transactions with its management and principal shareholders,
or with entities in which such persons are interested, as long as such
transactions are on terms that are no less favorable to the Company than could
be obtained from an unaffiliated third party in an arm's length transaction.
See "Management," "Principal and Selling Shareholders" and "Certain
Transactions."
DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS
The Company expects to use approximately $9.3 million of the net proceeds of
the Offering for specific, identified purposes, with the remaining net
proceeds to be used for working capital and general corporate purposes
including possible acquisitions. Accordingly, management will have substantial
discretion in spending a large part of the net proceeds to be received by the
Company. See "Use of Proceeds."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The Company attempts to protect its software, documentation and other
written materials principally under trade secret and copyright laws,
confidentiality procedures and contractual provisions, which afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology. The Company does not believe
that any of its products infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not claim
infringement by the Company with respect to current or future products, and
the Company has agreed to indemnify many of its customers against such claims.
The Company anticipates that the number of infringement claims will increase
as the number of electronic commerce products and services increase and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, and may not be resolved on terms acceptable to the Company, or at
all, which could have a material adverse effect on the Company's business,
financial condition or results of operations.
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Before this Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or
continue following the Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price for the Common Stock was determined by negotiation between the
Company and the Underwriters based on several factors and may not be
indicative of the market price for the Common Stock after this Offering. The
Company believes that various factors such as general economic conditions and
changes or volatility in the financial markets, changing conditions in the
Company's market and quarterly or annual variations in the Company's financial
results, some of which are unrelated to the Company's performance, could cause
the market price of the Common Stock to fluctuate substantially. See
"Underwriting."
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IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will experience immediate dilution
in the pro forma net tangible book value per share of Common Stock of $8.84
per share. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
A substantial number of outstanding shares of Common Stock, as well as
shares of Common Stock issuable on exercise of stock options granted or to be
granted under the Company's stock option plans, are or will be eligible for
future sale in the public market at prescribed times pursuant to Rule 144 or
Rule 701 under the Securities Act of 1933, as amended (the "Securities Act").
Sales of such shares in the public market, or the perception that such sales
may occur, could adversely affect the market price of the Common Stock or
impair the Company's ability to raise additional capital in the future through
the sale of equity securities. Upon completion of this Offering, there will be
9,000,114 outstanding shares of Common Stock (9,337,614 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares,
the 2,525,000 shares of Common Stock sold in the Offering (2,862,500 shares if
the Underwriters' over-allotment option is exercised in full) will be freely
tradable by persons other than "affiliates" of the Company without restriction
under the Securities Act. The remaining 6,475,114 outstanding shares of Common
Stock will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
the exemptions contained in Rule 144. In addition, prior to the Offering, the
Company had outstanding options to purchase 595,853 shares of Common Stock.
All executive officers, directors and current shareholders of the Company
have entered into contractual agreements with the Underwriters (the "Lock-up
Agreements") pursuant to which they have agreed, subject to certain
exceptions, not to sell, contract to sell, or otherwise dispose of any shares
of the Common Stock currently owned by them for a period of 180 days after the
date of this Prospectus (the "Lock-up Period") without the prior written
consent of J.C. Bradford & Co. Upon the expiration of the Lock-up Period,
4,009,085 shares of Common Stock that are "restricted securities" will be
eligible for sale in the public market subject to the limitations of Rule 144.
The Company intends to register on a registration statement on Form S-8 the
shares of Common Stock issuable upon exercise of options granted or reserved
for issuance under the 1996 Stock Option Plan and the ProVesa Plan, including
the 595,853 shares subject to options which are currently outstanding. In
addition, as soon as practical after the closing of this Offering, the Company
intends to register up to 2,000,000 shares of its Common Stock under the
Securities Act for use by the Company in connection with future acquisitions,
and it will be a condition to the issuance of any of these shares that the
holders agree similarly not to sell, contract to sell or otherwise dispose of
such shares for the remaining portion, if any, of the Lock-up Period.
Thereafter, these shares will generally be freely tradable after their
issuance, unless the sale thereof is contractually restricted. See
"Management--Stock Option Plans," "Shares Eligible for Future Sales" and
"Underwriting."
Upon expiration of the Lock-up Agreements, Mr. Collins and Mr. Jackson, who
will beneficially hold approximately 2,472,113 and 605,625 shares of Common
Stock, respectively, upon completion of this Offering, will be entitled to
certain demand registration rights with respect to such shares if their
employment is terminated for any reason or if they are no longer directors of
the Company. If the exercise of their demand registration rights causes a
large number of shares to be registered and sold in the public market, such
sales could have a material adverse effect on the market price for the Common
Stock. See "Shares Eligible for Future Sale--Registration Rights."
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES AND BYLAWS PROVISIONS AND
EMPLOYMENT AGREEMENTS
The Company's Articles of Incorporation and Bylaws, as well as employment
agreements between the Company and certain of its executive officers, contain
provisions that could have the effect of delaying, deferring or preventing an
unsolicited change in the control of the Company, which may adversely affect
the market price of the Common Stock or the ability of shareholders to
participate in a transaction in which they might otherwise receive a premium
for their shares over the then-current market price. The Company's Articles of
Incorporation authorize the Board of Directors to issue preferred stock
("Preferred Stock") without shareholder approval and
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on such terms as the Board of Directors may determine. Following closing of
this Offering and the application of a portion of the net proceeds therefrom
to redeem the Company's Series A Preferred Stock, the Company will have no
shares of Preferred Stock outstanding. Although the Company has no present
plans to issue any shares of Preferred Stock, the rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of holders of any shares of Preferred Stock that may be issued in the future.
See "Description of Capital Stock--Preferred Stock." The Bylaws provide that
special meetings of shareholders may be called by shareholders only upon a
written request made by the holders of a majority of the votes entitled to be
cast on an issue and require compliance with certain advance notice procedures
to bring business before an annual meeting of shareholders and to nominate
directors.
Certain of the Company's executive officers have entered into employment
agreements with the Company that contain change in control provisions. The
change in control provisions may hinder, delay, deter or prevent a tender
offer, proxy contest or other attempted takeover because the covered employees
can terminate their employment and receive one-twelfth of their annual base
salary and bonus for a varying number of consecutive 30-day periods following
the termination and, in some cases, the employees' options would vest and
become immediately exercisable. See "Management--Employment Agreements."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT
The Company currently anticipates that after completion of this Offering all
of its earnings will be retained for development and expansion of its
business. The Company does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's current loan facilities
prohibit the payment of cash dividends without the lenders' consent, and the
Company may in the future obtain loan or credit facilities containing similar
restrictions. See "Dividend Policy."
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THE COMPANY
InterCept designs, develops, markets and implements a suite of fully
integrated electronic commerce products and services primarily for community
financial institutions in the United States, including EFT, data
communications management, client/server enterprise software solutions,
maintenance and technical support services and banking related equipment. John
W. Collins, the Company's Chairman and Chief Executive Officer, co-founded
InterCept Systems, Inc. ("Systems") in 1986 to provide EFT transaction
services to financial institutions. Mr. Collins, together with certain of the
Company's other senior officers, formed Data Services Corp. ("Data Services")
in 1989 to supply maintenance and technical support services and certain
banking related equipment required by financial institutions, and also formed
ProVesa, Inc. ("ProVesa") in 1994 to provide core bank processing services,
item processing, check imaging and related products and services to financial
institutions.
The Company was incorporated in May 1996 to be a holding company for
Systems, Data Services and ProVesa. The Company acquired FiNet, Inc.
("FiNet"), a provider of merchant credit card portfolio management services,
and Bank Services Corporation ("Bank Services"), a provider of client/server
enterprise software and data processing solutions, in December 1996 to create
a single-source provider of electronic commerce solutions for community
financial institutions.
In 1996, Mr. Collins and certain other members of the Company's management
formed Intercept Communications Technologies, L.L.C. ("Technologies") to
develop the InterCept Frame Relay Network and to offer data communications
management services to financial institutions on a more cost-effective basis
than previously available for its customers. On January 30, 1998, the Company
merged with certain of its wholly-owned subsidiaries, Systems, Data Services,
Bank Services and FiNet, to consolidate its corporate structure, and acquired
Technologies in a transaction accounted for as a pooling of interests. For a
description of the transactions pursuant to which these businesses were
acquired, see "Certain Transactions--Acquisitions."
Prior to the merger of Bank Services with the Company on January 30, 1998,
Bank Services transferred all of its service bureau operations and related
assets to ProVesa, which the Company will continue to operate as a wholly-
owned subsidiary. ProVesa includes, on a consolidated basis, its wholly-owned
subsidiary, ProVesa Services, Inc., and ProImage, Inc. ("Pro Image"), 33.3% of
which is owned by ProVesa. The Company's other remaining subsidiary is
InterCept Switch, Inc. ("InterCept Switch"), which maintains the Company's
surcharge-free ATM network.
The Company is a Georgia corporation whose principal offices are located at
3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia, 30071, and its
telephone number is (770) 248-9600. InterCept maintains a site on the
Internet's World Wide Web. Information contained in the Company's website
shall not be deemed to be a part of this Prospectus.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company in this Offering are estimated to be
approximately $21.6 million (approximately $25.1 million if the Underwriters'
over-allotment is exercised in full), after deducting estimated underwriting
discounts and other offering expenses payable by the Company. The Company will
not receive any proceeds from the sale of the shares offered by the Selling
Shareholders. See "Principal and Selling Shareholders."
The Company intends to use a total of approximately $9.3 million of the net
proceeds of this Offering as follows: (i) approximately $2.7 million to repay
the indebtedness outstanding under the Company's loan facility with Georgia
State Bank (the "GSB Loan Facility"); (ii) approximately $1.3 million to repay
the indebtedness outstanding under the Company's loan facility with First
National Bank of Commerce (the "FNBC Loan Facility"); (iii) approximately
$400,000 to repay the indebtedness outstanding under the Company's loan
facility with Allied Bank of Georgia (the "Allied Loan Facility");
(iv) approximately $1.8 million to pay an amount owed to J. Ronnie Henderson,
an officer of the Company, for services previously rendered to the Company;
(v) approximately $1.6 million to upgrade, enhance and expand the InterCept
Frame Relay Network, the majority of which will be used to purchase currently
leased network equipment; (vi) approximately $1.0 million to enhance its
marketing efforts; and (vii) approximately $450,000 to redeem the outstanding
shares of the Company's Series A Preferred Stock. The GSB Loan Facility
matures on July 20, 2006 and bears interest at the lender's prime rate plus
2.5%. The FNBC Loan Facility matures on June 1, 2003 and bears interest at the
lender's prime rate plus 2.0%. The Allied Loan Facility matures on December
31, 1999 and bears interest at the lender's prime rate. The deferred
compensation amount owed to an officer is due on or before June 4, 2001 and
bears interest at an annual rate of approximately 10.0%. The Company's
Series A Preferred Stock accrues dividends, which are payable quarterly, at an
annual rate of 8.0% and is redeemable at any time by the Company upon 10 days'
notice. See "Certain Transactions--Acquisitions" and "Description of Capital
Stock."
The Company intends to use the balance of the net proceeds, expected to be
approximately $12.3 million, for working capital and general corporate
purposes, including possible acquisitions. The Company continues to evaluate
potential strategic acquisitions of providers of complementary technologies
and services and to carry on discussions with several potential acquisition
candidates. The Company is not currently a party to any binding agreements or
commitments with respect to any such acquisitions. There can be no assurance
that any acquisitions will be consummated on terms favorable to the Company,
if at all. Pending application of the net proceeds as described above, the
Company intends to invest the net proceeds in short-term, interest-bearing,
investment grade securities. See "Risk Factors--Discretion of Management
Concerning Use of Proceeds" and "Business--Business Strategy."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes, including future acquisitions. Unless waived in writing by the
lender, the GSB Loan Facility and the FNBC Loan Facility restrict the
declaration and payment of dividends. Any payment of future dividends on the
Common Stock will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other factors that the Company's Board
of Directors deems relevant. See "Description of Capital Stock."
17
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1998 was
$(2,110,555), or $(0.31) per share. The net tangible book value per share
represents the amount by which the Company's net tangible assets exceed the
Company's total liabilities divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,250,000 shares of Common
Stock offered by the Company in this Offering and the application of the
estimated net proceeds as set forth under "Use of Proceeds," the Company's pro
forma net tangible book value as of December 31, 1997 would have been $19.5
million, or $2.16 per share, representing an immediate increase of $2.47 in
pro forma net tangible book value per share to existing shareholders and an
immediate dilution of $8.84 in pro forma net tangible book value per share to
persons purchasing shares in the Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price............................... $11.00
Net tangible book value at December 31, 1997.............. $(0.31)
Increase attributable to the sale of shares offered
hereby................................................... 2.47
------
Pro forma net tangible book value after the Offering........ 2.16
------
Dilution per share to new investors(1)...................... $ 8.84
======
</TABLE>
- --------
(1) If the underwriters' over-allotment option is exercised in full, pro forma
net tangible book value of the Company would be $2.45 per share,
representing an increase in pro forma net tangible book value of $2.76 per
share and dilution to new investors of $8.55 per share.
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing shareholders and to be paid by the new investors
purchasing shares of Common Stock offered hereby.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 6,750,114 75.0% $ 2,519,775 9.2% $ 0.37
New investors................... 2,250,000 25.0 24,750,000 90.8 11.00
--------- ----- ----------- -----
Total......................... 9,000,114 100.0% $27,269,775 100.0%
========= ===== =========== =====
</TABLE>
Sales by Selling Shareholders in the Offering will reduce the number of
shares of Common Stock held by existing shareholders to 6,475,114, or 71.9%,
and will increase the number of shares to be held by new investors to
2,525,000, or 28.1%, of the total number of shares of Common Stock to be
outstanding after this Offering (2,862,500 shares, or 30.7%, if the
Underwriters' over-allotment option is exercised in full). See "Principal and
Selling Shareholders."
The foregoing table assumes no exercise of outstanding stock options. At
March 31, 1998 there were outstanding options to purchase 595,853 shares of
Common Stock at a weighted average exercise price of $5.12 per share. See
"Management" and Note 10 of Notes to Consolidated Financial Statements.
18
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at March 31,
1998 (i) on a historical basis and (ii) as adjusted to give effect to the sale
by the Company of 2,250,000 shares of Common Stock offered hereby and the
application of the net proceeds therefrom. See "Selected Consolidated
Financial Data" and "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements and the
related Notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
<S> <C> <C>
Long-term debt, including current maturities....... $4,765,863 $ 373,727
---------- -----------
Series A Preferred Stock, 30,000 shares authorized,
4,000 shares issued and outstanding (actual and
pro forma), and none outstanding (pro forma as
adjusted)......................................... 400,000 0
---------- -----------
Shareholders' equity(2):
Preferred Stock, 1,000,000 shares (including
Series A) authorized, none outstanding.......... 0 0
Common Stock, 50,000,000 shares authorized,
6,750,114 shares issued and outstanding
(actual), and 9,000,114 shares (as adjusted).... 2,764,405 24,341,905
Accumulated deficit.............................. (3,172,636) (3,172,636)
---------- -----------
Total shareholders' (deficit) equity............ (408,231) 21,169,269
---------- -----------
Total capitalization........................... $4,757,632 $21,542,996
========== ===========
</TABLE>
- --------
(1) Excludes an aggregate of 1,263,180 shares reserved for issuance pursuant
to the Company's stock option plans. At March 31, 1998, there were
outstanding options to purchase 595,853 shares of Common Stock with a
weighted average exercise price of $5.12 per share. See "Management" and
Note 10 of Notes to Consolidated Financial Statements.
(2) On April 29,1998, the Company filed Amended and Restated Articles of
Incorporation to reflect 1,000,000 shares of authorized Preferred Stock
and 50,000,000 shares of authorized Common Stock. See "Description of
Capital Stock."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, the Consolidated
Financial Statements and the related Notes thereto and other financial
information included elsewhere in this Prospectus, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected consolidated financial data of the Company for the years ended
December 31, 1995, 1996 and 1997 were derived from the Company's Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected consolidated financial data for
the years ended December 31, 1993 and 1994 and the three months ended
March 31, 1997 and 1998 were derived from unaudited consolidated financial
statements which, in the opinion of management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's financial condition and results of operations.
These results may not be indicative of future results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ ---------------------------------
AS ADJUSTED
1993(1) 1994 1995 1996(2)(3) 1997 1997 1998 1998(4)
--------- --------- --------- ---------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $ 5,504 $ 6,076 $ 8,223 $ 14,511 $ 23,260 $ 5,116 $ 6,257 $ 6,257
Costs of services....... 2,179 2,374 4,607 7,859 10,223 2,274 2,634 2,634
Selling, general and
administrative
expenses............... 2,727 3,490 2,213 6,852 10,105 2,316 2,532 2,532
Depreciation and
amortization........... 172 172 242 351 1,323 308 285 285
Loss on impairment of
intangibles............ 0 0 0 0 728 0 0 0
Writeoff of purchased
research and
development costs...... 0 0 0 810 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating
expenses............... 5,078 6,036 7,062 15,873 22,379 4,898 5,451 5,451
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income
(loss)................. 426 40 1,161 (1,362) 881 218 806 806
Other income (expense),
net.................... (87) (86) (63) 279 (649) (163) (160) 8
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
provision for income
taxes and minority
interest............... 339 (46) 1,098 (1,641) 232 55 646 814
Provision (benefit) for
income taxes........... 129 (17) 417 (236) 666 43 258 326
Minority interest
(income) loss.......... 0 0 0 (14) 39 25 (4) (4)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... 210 (29) 681 (1,419) (395) 37 384 484
Preferred stock
dividends.............. 0 0 0 (8) (32) (8) (8) (8)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)
attributable to common
shareholders........... $ 210 $ (29) $ 681 $ (1,427) $ (427) $ 29 $ 376 $ 476
========= ========= ========= ========= ========= ========= ========= =========
Basic and diluted net
income (loss) per
common share(5)........ $ 0.04 $ (0.01) $ 0.12 $ (0.24) $ (0.06) $ 0.00 $ 0.06 $ 0.05
========= ========= ========= ========= ========= ========= ========= =========
Weighted average common
shares outstanding..... 5,867,400 5,867,400 5,867,400 5,851,347 6,750,114 6,750,114 6,750,114 9,000,114
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
AS OF DECEMBER 31, 1998
------------------------------------- -------------------
AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(6)
------ ------ ------ ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 206 $ 63 $ 356 $ 1,398 $ 2,010 $ 940 $15,925
Working capital......... 341 334 825 1,509 992 604 16,044
Total assets............ 1,431 1,155 1,980 10,941 10,156 9,885 24,871
Long-term debt.......... 903 746 589 5,212 4,717 4,221 284
Shareholders' (deficit)
equity................. 185 (89) 767 82 (784) (408) 21,169
</TABLE>
20
<PAGE>
- --------
(1) On June 4, 1996, Intercept Systems, Inc. ("Systems") merged with the
Company in a share exchange combination by which Systems became a wholly-
owned subsidiary of the Company. The results of operations of Systems have
been included for the periods shown. See Note 3 of Notes to Consolidated
Financial Statements.
(2) On June 4, 1996, the Company acquired Data Services in a transaction
accounted for as a purchase and the results of operations of Data Services
have been included since the date of acquisition. On November 27, 1996,
the Company acquired ProVesa in a merger transaction accounted for as a
purchase and the results of operations of ProVesa have been included since
the date of acquisition. On December 17, 1996, InterCept acquired FiNet in
a merger transaction accounted for as a purchase and the results of
operations of FiNet have been included since the date of acquisition. On
December 31, 1996, InterCept acquired Bank Services in a merger
transaction accounted for as a purchase and the results of operations of
Bank Services have been included since the date of acquisition. See Note 3
of Notes to Consolidated Financial Statements.
(3) On January 30, 1998, the Company acquired Technologies in a transaction
accounted for as a pooling of interests, and the results of operations of
Technologies have been included since January 1, 1996.
(4) The statements of operations data have been adjusted to reflect (i) the
sale of 2,250,000 shares of Common Stock offered by the Company, (ii) the
elimination of interest expense related to certain of the Company's credit
facilities (iii) the elimination of interest expense related to a deferred
compensation agreement with an officer of the Company and (iv) preferred
stock to be repurchased with proceeds of the Offering. See "Use of
Proceeds."
(5) See Notes 2 and 10 of Notes to the Consolidated Financial Statements for a
discussion of the historical computations of net income (loss) per common
share. Pursuant to Staff Accounting Bulletin No. 98, the impact of any
options are excluded as the issuances are not considered nominal.
Accordingly, basic and fully diluted net income (loss) per common share
are the same.
(6) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered
by the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains "forward-looking statements" relating to, without
limitation, the Company's future economic performance, plans and objectives of
management for future operations, projections of revenue mix and other
financial items that are based on the beliefs of, as well as assumptions made
by and information currently known to, the Company's management. The words
"may," "could," "would," "will," "expect," "estimate," "anticipate,"
"believe," "intends," "plans" and similar expressions and variations thereof
are intended to identify forward-looking statements. The cautionary statements
set forth in this section, in "Risk Factors" and elsewhere in this Prospectus
identify important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements. The following
discussion should be read in conjunction with the Company's Consolidated
Financial Statements and the related Notes thereto and other financial
information appearing elsewhere in this Prospectus. The dollar amounts and
percentages provided below have been rounded to simplify presentations.
OVERVIEW
The Company designs, develops, markets and implements a suite of fully
integrated electronic commerce products and services, including EFT, data
communications management, enterprise software solutions, maintenance and
technical support services and banking related equipment primarily for
community financial institutions in the United States. John W. Collins, the
Company's Chairman and Chief Executive Officer, co-founded Systems in 1986,
Data Services in 1989 and ProVesa in 1994. The Company was incorporated in May
1996 to become a holding company for these three related entities and acquired
FiNet and Bank Services in December 1996 to create a single-source provider of
electronic commerce solutions for community financial institutions. In 1996,
Mr. Collins and certain other members of the Company's management formed
Technologies, and on January 30, 1998, the Company merged with its
subsidiaries Systems, Data Services, Bank Services and FiNet, and merged with
Technologies. See "The Company."
The acquisitions of Data Services, ProVesa, FiNet and Bank Services have
been accounted for as purchases, and the results of operations of each entity
have been included since June 1, December 1, December 17 and December 31,
1996, respectively. As a result, historical combined results may not be
comparable to or indicative of future performance. The transaction with
Technologies has been accounted for as a pooling of interests and all results
of operations have been included since its inception on January 1, 1996. The
Company's revenues and expenses may be significantly affected by the number
and timing of future acquisitions or the introduction of new products and
services. The timing of such expansion activities may also affect period-to-
period comparisons.
A substantial portion of the Company's revenues are derived from recurring
monthly charges to its customers under service agreements that generally have
terms of from one to five years. Recurring revenues are defined by the Company
as revenues derived from services that are used by the Company's customers
each year in connection with their ongoing businesses, and accordingly exclude
such items as conversion and deconversion fees, initial software license fees,
data communications line installation fees and hardware sales. For the years
ended December 31, 1996 and 1997 and the three months ended March 31, 1998,
approximately 69.3%, 76.3% and 78.2%, respectively, of the Company's
consolidated revenues were recurring revenues.
The Company derives revenues primarily from the following sources: (i) EFT
processing services; (ii) data communications management; (iii) client/server
enterprise software support, maintenance and related services; and (iv)
maintenance and technical support services, sales of banking related equipment
and complementary products and customer services. For the year ended December
31, 1997, the Company generated total pro forma revenues of $23.3 million, of
which $9.3 million, or 39.9%, was derived from EFT processing services; $3.1
million, or 13.4%, was derived from data communications management; $5.6
million, or 24.2%, was derived from client/server enterprise software support
and maintenance and related services; and $5.2 million, or 22.5%, was derived
from maintenance and technical support services, sales of banking related
equipment and complementary products and customer services. For the three
months ended March 31, 1998, the Company
22
<PAGE>
generated total revenues of $6.3 million, of which $2.6 million, or 41.9%, was
derived from EFT processing services; $850,000, or 13.6%, was derived from
data communications management; $1.3 million, or 20.9%, was derived from
client/server enterprise software support and maintenance and related
services; and $1.5 million, or 23.6%, was derived from maintenance and
technical support services, sales of banking related equipment and
complementary products and customer services.
The Company derives EFT revenues principally from processing ATM, POS and
debit card transactions. The Company receives a base fee for providing its ATM
processing services and an additional fee for each ATM serviced. Once the
number of transactions exceeds established levels (typically between 2,000 and
3,000 transactions), the Company charges additional fees for the extra
transactions processed. The Company also receives fees for installation,
maintenance and support of the ATMs it supplies to its customers. For its POS
services, the Company generally receives a portion of the interchange fees
charged by its community financial institution customers that issue debit
cards and charges a monthly fee if its customers do not meet a certain minimum
dollar amount of transactions for a particular month. Most charges due under
the Company's EFT service agreements are paid monthly. The Company generally
is permitted to raise prices on an annual basis subject to certain maximum
limits. Generally, the Company's EFT contracts automatically renew for varying
periods at the end of the initial or any renewal term unless either party
elects to cancel the agreement 180 days prior to its expiration.
The Company's data communications management service revenues are
principally derived from network management services, data packet
transportation services across the InterCept Frame Relay Network, consulting,
and equipment configuration, installation and sales. The Company charges a
flat monthly fee for providing telecommunications connectivity and network
management as well as an initial installation charge.
The Company licenses PC BancPAC(TM), the Company's proprietary Windows NT(R)
based client/server software system, on both a service bureau and in-house
basis. On a service bureau basis, the Company derives revenues from license
fees and service and item processing fees based on the volume of transactions
processed. If a customer chooses to implement the software on an in-house
basis, the Company derives revenues from software licensing, maintenance
contracts and certain consulting services. The Company recognizes service
revenues as the services are provided. It is the Company's policy to recognize
revenues for licensing of PC BancPAC(TM) in accordance with Statement of
Position 97-2 on "Software Revenue Recognition" issued by the American
Institute of Certified Public Accountants. Software license fees are
recognized when a non-cancelable license agreement has been signed, the
product has been shipped and all significant obligations to the customer have
been satisfied. Revenues for implementation, conversion, installation,
training, interface and consulting services are recognized when the services
are performed. Service revenues for ongoing customer and software support,
product updates and disaster recovery services provide recurring revenues as
they are recognized ratably over each year of the license agreement, the term
of which is typically five years.
The Company's maintenance, support and equipment revenues consist primarily
of revenues from the Company's maintenance and technical support services,
which generate recurring revenues, as well as sales of specialized equipment
including ATMs, proof machines, teller equipment, personal computers, vaults
and other security equipment. Equipment revenues are recognized at the time of
shipment while maintenance and technical support service revenues are
recognized as the service period elapses.
Costs of services consists primarily of network lines and leased router
equipment related to telecommunication transmission, the direct cost of the
Company's service bureau operations and the direct cost of equipment sales.
Historically, the Company's EFT customers directly bore the data
communications costs.
Selling, general and administrative expenses consist of commissions to the
Company's strategic marketing partners, direct sales force salaries,
commissions and benefits, research and development, a deferred compensation
agreement with an officer in 1996 and other corporate administration expenses.
Historically, the Company has marketed its products and services primarily
through a direct sales force. Although the Company intends to increase both
its direct sales forces and indirect marketing relationships, it believes that
future revenues from products and services sold through indirect marketing
channels may become an increasingly significant
23
<PAGE>
source of the Company's total revenues. Composition of revenues and expenses
will vary depending on whether a sale is made directly by the Company or
through an indirect marketing relationship. However, the Company believes that
the difference in the net revenues obtained from direct and indirect sales
should not have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has entered into employment
agreements with certain officers of the Company providing for the payment of
bonuses. See "Management--Employment Agreements" and Note 12 of Notes to the
Company's Consolidated Financial Statements.
Depreciation and amortization includes depreciation of computer and network
operations equipment, furniture and office equipment, buildings and leasehold
improvements and amortization of intangible assets. The Company provides for
depreciation using the straight-line method of depreciation over the estimated
useful lives of the assets, which range from 3 to 31 years. The Company's
amortization expense relates primarily to intangible assets allocated to
contracts, software purchased and goodwill associated with the Company's
acquisitions. The contracts, purchased software and goodwill are amortized
over a period of 18 months, 3 to 5 years, and 15 to 40 years, respectively.
In accordance with generally accepted accounting principles, the Company
capitalizes both costs to develop software for internal use as well as costs
to develop software for sale to third parties upon reaching technological
feasibility and expenses all such costs prior to reaching this point. Costs
incurred to develop computer software are charged to product development
expense when incurred until technological feasibility has been established for
the product. Thereafter, all software production costs are capitalized and
recorded at the lower of unamortized cost or net realizable value.
Capitalization ceases upon internal software use or general release of the
software to customers. After general release, capitalized costs are amortized
using the straight-line method over the estimated useful life of three to five
years.
In the quarter ended December 31, 1996, the Company purchased FiNet, a
merchant portfolio management company, for consideration of approximately
$570,000 of the Company's Common Stock. The purchase price of FiNet was
allocated to goodwill as of the acquisition date and written off as a
nonrecurring charge in the fourth quarter of 1997 due to uncertainties
regarding its recoverability. Additionally, during the quarter ended December
31, 1997, the Company wrote off approximately $190,000 related to purchased
software which was deemed to be impaired upon review under SFAS No. 121.
ProImage, a corporation in which ProVesa has a 33.3% ownership interest, has
been consolidated in the accompanying consolidated financial statements since
its inception, due to ProVesa's management and control of ProImage's day-to-
day operations and limitations on the ability of the other investors to have
losses allocated to their capital accounts. All significant intercompany
accounts and transactions have been eliminated in consolidation. Minority
interest represents the minority shareholders' proportionate share of the
equity and earnings of ProImage in all periods.
Provision for income taxes is a function of pretax earnings and the combined
effective rate of federal and state income taxes. Prior to June 4, 1996,
Systems and Data Services had elected to be taxed as S corporations and,
accordingly, a pro forma income tax provision (benefit) has been recorded.
The Company's business and relationships with its customers depend
significantly on a number of computer software programs, internal operating
systems and connections to other networks, and the failure of any of these
programs, systems or networks to successfully address the Year 2000 data
rollover problem could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that its internal systems and software and the network connections it
maintains are adequately programmed to address the Year 2000 issue. The
Company currently anticipates that such conversion process will be completed
to address the Year 2000 issue. The Company currently provides service bureau
processing services to certain customers using a processing system that is not
Year 2000 compliant, and the Company is in the process of converting those
customers to its PC BancPAC(TM) software, which the Company believes is Year
2000 compliant, before the end of September 1999. The Company currently
estimates that the cost of such conversion will total
24
<PAGE>
approximately $200,000; however, it is difficult to predict such costs with
any certainty, and there can be no assurance that the costs necessary to
convert its customers to PC BancPAC(TM) will not have a material adverse
effect on the Company's business, financial condition and results of
operations. Further, any failure by the Company to complete the conversion of
any of its service bureau customers in a timely manner could significantly
interrupt the business operations of such customers, which could have material
adverse effect on the business, financial condition and results of operations
of both the affected customers and the Company. See "Risk Factors--Risks
Associated With Year 2000."
The Company's quarterly operating results have varied in the past and will
likely vary significantly in the future. Factors that may cause the Company's
future operating results to vary include, without limitation, the timing of
new product and service announcements, changes in pricing policies by the
Company and its competitors, market acceptance of new and enhanced versions of
the Company's products and services, the lengthening of sales cycles for new
or existing customers, customer attrition, changes in operating expenses,
changes in Company strategy, personnel changes, the introduction of
alternative technologies, the Company's products becoming obsolete, failure,
delay and expense in making software, systems and networks utilized in the
Company's business Year 2000 compliant, the effect of acquisitions and general
economic factors. Product and service revenues are difficult to forecast
because the market for electronic commerce products and services is rapidly
evolving, and the Company's sales cycle generally covers an extended period
but varies substantially from customer to customer. InterCept believes that
quarter to quarter comparisons of its results of operations should not be
relied upon as indications of future performance. See "Risk Factors--Factors
Affecting Operating Results; Potential Fluctuations in Quarterly Results."
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's consolidated statements of operations for the
indicated periods.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of services........................ 56.0 54.2 44.0 44.4 42.1
Selling, general and administrative
expenses................................ 26.9 47.2 43.4 45.3 40.5
Depreciation and amortization............ 3.0 2.4 5.7 6.0 4.5
Loss on impairment of intangibles........ 0 0 3.1 0 0
Writeoff of purchased research and
development costs....................... 0 5.6 0 0 0
----- ----- ----- ----- -----
Total operating expenses................. 85.9 109.4 96.2 95.7 87.1
----- ----- ----- ----- -----
Operating income (loss).................. 14.1 (9.4) 3.8 4.3 12.9
Other income (expense), net.............. (0.8) (1.9) (2.8) (3.2) (2.6)
----- ----- ----- ----- -----
Income (loss) before minority interest
and provision for income taxes.......... 13.3 (11.3) 1.0 1.1 10.3
Minority interest (income) loss.......... 0 (0.1) 0.2 0.5 (0.1)
Provision (benefit) for income taxes..... (5.0) 1.6 (2.9) (0.9) (4.1)
----- ----- ----- ----- -----
Net income............................... 8.3% (9.8)% (1.7)% 0.7% 6.1%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997
Revenues. Revenues increased 22.3%, or $1.1 million, to $6.3 million for the
three months ended March 31, 1998 from $5.1 million for the three months ended
March 31, 1997. The $1.1 million increase was primarily attributable to (i)
$620,000 generated by an increase in EFT processing services, (ii) $210,000
generated by an increase in data communications management services, (iii)
$230,000 generated by an increase in equipment sales and (iv) other net
increases of $80,000.
25
<PAGE>
Costs of Services. Costs of services increased 15.9%, or $360,000, to $2.6
million for the three months ended March 31, 1998 from $2.3 million for the
three months ended March 31, 1997. The $360,000 increase was primarily
attributable to (i) $270,000 generated by an increase in equipment sales, (ii)
$80,000 generated by an increase in data communications management and (iii)
other net increases of $10,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 9.3%, or $220,000 to $2.5 million for the
three months ended March 31, 1998 from $2.3 million for the three months ended
March 31, 1997. The $220,000 increase was primarily attributable to additional
sales and administrative personnel to support the Company's growth.
Depreciation and Amortization. Depreciation and amortization decreased 7.8%,
or $30,000 to $280,000 for the three months ended March 31, 1998 from $310,000
for the three months ended March 31, 1997. The $30,000 decrease was primarily
attributable to reduced amortization related to fully amortized intangibles
related to the Company's acquisitions in 1996.
Other Income (Expense). Other expense decreased 1.7% to $160,000 for the
three months ended March 31, 1998 from $160,000 for the three months ended
March 31, 1997. The decrease was primarily attributable to payments of long-
term debt.
Minority Interest Income (Loss). Minority interest income decreased 117.0%,
or $30,000, to a loss of $5,000 for the three months ended March 31, 1998 from
$25,000 for the three months ended March 31, 1997. The decrease was
attributable to profits in ProImage's operations.
Provision (Benefit) for Income Taxes. Provision for income taxes increased
$220,000 to $260,000 for the three months ended March 31, 1998 from $40,000
for the three months ended March 31, 1997. The increase was attributable to
increased profits partially offset by a reduction in nondeductible
amortization.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased 60.3%, or $8.7 million, to $23.3 million for
the year ended December 31, 1997 from $14.5 million for the year ended
December 31, 1996. The $8.7 million increase was primarily attributable to (i)
$4.0 million generated by ProVesa as it was included for the full year in 1997
as compared to one month in 1996, (ii) $1.3 million generated by an increase
in EFT processing services, (iii) $1.3 million generated by Bank Services
since its acquisition on December 31, 1996, (iv) $1.2 million generated by
Data Services as it has been included for a full year in 1997 and (v) $930,000
generated by additional data communications management services.
Costs of Services. Costs of services increased 30.0%, or $2.3 million, to
$10.2 million for the year ended December 31, 1997 from $7.9 million for the
year ended December 31, 1996. The $2.3 million increase was primarily due to
(i) an increase of $1.1 million related to the service bureau operations at
ProVesa as the operations were included for the full year in 1997 as compared
to one month in 1996, (ii) an increase of $570,000 related to data
communications management services, (iii) an increase of $310,000 related to
service bureau operations at Bank Services which were included for the full
year in 1997 and (iv) $320,000 related to additional equipment sales and
maintenance. Costs of services as a percentage of sales decreased from 54.2%
to 44.0% from 1996 to 1997, primarily due to additional higher margin EFT
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 47.5%, or $3.3 million, to $10.1 million for
the year ended December 31, 1997 from $6.8 million for the year ended December
31, 1996. The $3.3 million increase was primarily attributable to (i) $1.3
million related to ProVesa as a full year of operations was included in 1997
as compared to one month in 1996, (ii) $980,000 related to Bank Services since
its acquisition on December 31, 1996, of which approximately $500,000 was
related to research and development activities, (iii) $840,000 related to Data
Services as a full year of operations was included in 1997, (iv) $520,000
related to FiNet as a full year of operations was included in 1997 as compared
to one month in 1996, (v) $1.3 million related to additional personnel and
facilities to support the Company's growth and (vi) other expenses of $120,000
partially offset by a $1.8 million nonrecurring charge in 1996 related to a
deferred compensation agreement with an officer of the Company.
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Depreciation and Amortization. Depreciation and amortization increased
$970,000 to $1.3 million for the year ended December 31, 1997 from $350,000
for the year ended December 31, 1996. This increase was primarily due to (i)
the amortization of $620,000 of goodwill and contracts related to the
Company's purchase of ProVesa which was included for a full year in 1997 as
opposed to one month in 1996, (ii) amortization of $90,000 of goodwill and
contracts related to the Company's purchase of Data Services which was
included for a full year in 1997, (iii) an increase in depreciation expense of
$160,000 related primarily to acquisition and (iv) other net increases of
$100,000.
Loss on Impairment of Intangibles. Loss on impairment of intangibles totaled
$730,000 for the year ended December 31, 1997. This was due to (i) the
writeoff of $540,000 of goodwill assumed in the Company's acquisition of FiNet
and (ii) the writeoff of $190,000 in purchased software assumed in the
Company's acquisition of ProVesa. These writeoffs were due to permanent
impairment in the related long term assets.
Writeoff of Purchased Research and Development Costs. The $810,000 in
writeoff of purchased research and development costs in 1996 was due to
allocation of a component of the purchase price of Bank Services to incomplete
research and development costs at the time of purchase as the development of
certain projects had not yet reached technological feasibility and the
technology had no alternative use and required substantial additional
development.
Operating Income (Loss). For the foregoing reasons, operating income
increased $2.2 million to $880,000 for the year ended December 31, 1997 from
an operating loss of $1.4 million for the year ended December 31, 1996.
Exclusive of the nonrecurring loss on impairment of intangibles, operating
income would have been $1.6 million in 1997.
Other Income (Expense). Other expense increased $370,000 to $650,000 for the
year ended December 31, 1997 from $280,000 for the year ended December 31,
1996. This increase was primarily due to interest on new debt to fund the
Company's acquisitions during 1996 which was recorded for a full year in 1997.
Minority Interest Income (Loss). Minority interest income decreased $50,000
to $(40,000) for the year ended December 31, 1997 from income of $10,000 for
the year ended December 31, 1996. The increase was primarily due to losses in
ProImage's operations.
Provision (Benefit) For Income Taxes. Provision for income taxes increased
$900,000 to $670,000 for the year ended December 31, 1997 from a benefit of
$(230,000) for the year ended December 31, 1996. The increase was primarily
due to increased pre-tax income partially offset by deductible losses in 1996
primarily related to a deferred compensation agreement with an officer of the
Company.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased 76.5%, or $6.3 million, to $14.5 million for
the year ended December 31, 1996 from $8.2 million for the year ended December
31, 1995. The $6.3 million increase was primarily related to (i) $2.8 million
generated by additional equipment sales, (ii) $1.1 million generated by an
increase in EFT processing services, (iii) $1.3 million related to additional
maintenance services, (iv) $720,000 generated by an increase in data
communications management services and (v) $360,000 generated by ProVesa for
the one month of activity since its acquisition.
Costs of Services. Costs of services increased 70.6%, or $3.3 million, to
$7.9 million for the year ended December 31, 1996 from $4.6 million for the
year ended December 31, 1995. The $3.3 million increase was primarily
attributable to (i) an increase of $2.6 million related to equipment sales and
maintenance services, (ii) an increase of $370,000 related to data
communications management services, (iii) an increase of $160,000 in network
operating expenses and (iv) other costs of $170,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 209.7%, or $4.6 million, to $6.9 million for
the year ended December 31, 1996 from $2.2 million for the year ended December
31, 1995. The $4.6 million increase was primarily due to (i) a $1.8 million
nonrecurring charge related to a deferred compensation agreement with an
officer of the Company, (ii) $1.7 million related to the acquisitions of Data
Services and ProVesa in 1996 and (iii) $1.1 million related to additional
personnel to support the Company's growth.
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Depreciation and Amortization. Depreciation and amortization increased
44.9%, or $110,000, to $350,000 for the year ended December 31, 1996 from
$240,000 for the year ended December 31, 1995. The decrease was primarily due
to an increase in amortization of intangibles related to the Company's
acquisitions in 1996.
Writeoff of Purchased Research and Development Costs. The $810,000 in
writeoff of purchased research and development costs in the year ended
December 31, 1996 was due to allocation of a component of the purchase price
of Bank Services to incomplete research and development costs at the time of
purchase as the development of certain projects had not yet reached
technological feasibility and the technology had no alternative use and
required substantial additional developments.
Operating Income (Loss). For the foregoing reasons, operating income
decreased $2.5 million to an operating loss of $1.4 million for the year ended
December 31, 1996 from an operating income of $1.1 million for the year ended
December 31, 1995. Exclusive of the writeoff of purchased research and
development and the $1.8 million nonrecurring charge related to a deferred
compensation agreement with an officer of the Company, operating income would
have been $1.2 million for the year ended December 31, 1996.
Other Income (Expense). Other expense increased $220,000 to $280,000 for the
year ended December 31, 1996 from $60,000 for the year ended December 31,
1995. The increase was due to interest on new debt to fund the Company's
acquisitions as well as interest expense related to the repurchase of stock
from a shareholder.
Minority Interest Income (Loss). The $10,000 in minority interest income
related primarily to the earnings of ProImage for the year ended December 31,
1996.
Provision (Benefit) For Income Taxes. Benefit for income taxes decreased
$650,000 to $(230,000) for the year ended December 31, 1996 from $420,000 for
the year ended December 31, 1995. The decrease was primarily attributable to
deductible losses in 1996 related to a deferred compensation agreement with an
officer of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated positive cash flow from operations,
but has historically relied upon the proceeds of several loan facilities (the
"Loan Facilities") to refinance debt assumed in connection with its
acquisitions. Borrowings under the Loan Facilities were available for use in
connection with certain acquisitions and other general corporate purposes. The
$3.0 million GSB Loan Facility matures on July 20, 2006 and bears interest at
the lender's prime rate plus 2.5%. The $1.7 million FNBC Loan Facility matures
on June 1, 2003 and bears interest at the lender's prime rate plus 2.0%. The
$598,995 Allied Loan Facility matures on December 31, 1999 and bears interest
at the lender's prime rate. At March 31, 1998, the Company owed an aggregate
of approximately $4.2 million in principal on the outstanding Loan Facilities.
See "Use of Proceeds." The Loan Facilities contain covenants with respect to
the maintenance of certain financial ratios and specified net worth and limit
the incurrence of additional indebtedness, the sale of substantial assets, the
sale of Common Stock by the Company (including through this Offering),
consolidations or mergers by the Company and the declaration and payment of
dividends. Any past or potential defaults or breaches of the provisions of the
Loan Facilities as a result of the Offering and the Company's business
combination transactions have been waived in writing by the lenders (such
waivers being conditioned upon the Offering), but there can be no assurance
that similar waivers can be obtained, if needed, in the future. The Loan
Facilities are secured by all assets of the Company and a pledge of 100% of
the stock of certain subsidiaries, which have guaranteed the repayment of
indebtedness under the Loan Facilities. The Company currently is negotiating
with certain other financial institutions to establish a credit facility for
future working capital and acquisition financing, but there can be no
assurance that such negotiations will be successful.
Net cash provided by operating activities was $2.1 million, $1.8 million,
and $1.1 million for the years ended December 31, 1997, 1996 and 1995,
respectively, and $110,000 and $200,000 for the three months ended March 31,
1998 and 1997, respectively. The increase in net cash provided by operating
activities for the three months ended March 31, 1998 as compared to the three
months ended March 31, 1997 was attributable to
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increased earnings offset by a reduction in accounts payable. The increase in
net cash provided by operating activities in 1997 as compared to 1996 was due
primarily to a decrease in accounts receivable. The reduction in net cash
provided by operating activities in 1996 as compared to 1995 was primarily due
to an increase in deferred tax assets related to the payment of a deferred
compensation agreement with an officer of the Company that is not currently
deductible.
Net cash (used in) provided by investing activities was $(630,000),
$(300,000) and $(190,000) in 1997, 1996 and 1995, respectively, and $(440,000)
and $380,000 for the three months ended March 31, 1998 and 1997, respectively.
The increase in net cash used in investing activities for the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997 was
due to additional capital expenditures in 1998 and collection of a note
receivable in 1997. The increase in net cash used in investing activities in
1997 as compared to 1996 was primarily due to increased fixed asset purchases,
partially offset by the collection of a related party receivable. The increase
in net cash used in investing activities in 1996 as compared to 1995 was
primarily related to an increase in a related party note receivable.
Net cash used in financing activities was $860,000, $470,000 and $580,000
for the years ended December 31, 1997, 1996 and 1995, respectively, and
$740,000 and $130,000 for the three months ended March 31, 1998 and 1997,
respectively. The increase for the three months ended March 31, 1998 as
compared to March 31, 1997 is attributable to increased payments on the
Company's long-term debt. In 1997, this amount was related primarily to net
payments on long term debt while the amounts in 1996 and 1995 were related
primarily to S corporation distributions to certain shareholders of Systems
and Data Services.
On April 28, 1998, the Company entered into a Loan and Security Agreement
with First Union National Bank for a revolving line of credit of up to $20
million, $2 million of which may be available for working capital purposes. As
a condition to the loan, InterCept shall have successfully completed an
initial public offering of its Common Stock, shall have received gross
offering proceeds of $20 million and shall have satisfied certain other
conditions set forth in the loan agreement. This loan matures on April 28,
2001 and outstanding principal amounts accrue interest, at the Company's
option, at an annual rate equal to either (i) a floating rate equal to the
lender's prime rate minus one quarter of one percent or (ii) a fixed rate
based upon the 30-day LIBOR rate plus applicable margins.
The net proceeds from the Offering remaining after deducting (i)
underwriting discounts, (ii) Offering expenses, (iii) the repayment of the
indebtedness outstanding under the Company's Loan Facilities, (iv) the payment
of deferred compensation amounts owed to an officer of the Company and (v) the
redemption of the outstanding shares of the Company's Series A Preferred Stock
are expected to total approximately $15.0 million. The Company plans to use
these remaining net proceeds to expand and enhance the Company's marketing
efforts and the InterCept Frame Relay Network, and for working capital and
general corporate purposes, including possible acquisitions. Pending such
uses, the Company plans to invest the net proceeds in short-term, interest
bearing, investment grade securities. The Company also plans to register up to
an additional 2,000,000 shares of its Common Stock as soon as practicable
after completion of this Offering for use by the Company as consideration in
connection with future acquisitions. See "Shares Eligible for Future Sale."
While there can be no assurance, management believes that the proceeds of
this Offering, funds currently on hand, funds to be provided by operations,
and funds available through the Company's credit facility, together with the
issuance of Common Stock or other securities, will be sufficient to meet the
Company's anticipated needs for working capital, capital expenditures and
future acquisitions for the forseeable future.
EFFECTS OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
issued by the Financial Accounting Standards Board requires the Company to
review for impairment, and potentially write down, the carrying values of
long-lived assets and certain identifiable intangibles (including goodwill) to
be held and used by the Company. The
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Company adopted SFAS No. 121, effective January 1, 1996, with no material
impact on the consolidated financial statements. The Company periodically
reviews the values assigned to long-lived assets to determine if any
impairments are other than temporary. Management believes that the long-lived
assets in the accompanying balance sheets are appropriately valued.
SFAS No. 123, "Accounting for Stock Based Compensation" establishes a fair
value based method for financial accounting and reporting stock-based employee
compensation plans. Companies may elect to adopt the measurement criteria of
SFAS No. 123 for accounting purposes, thereby recognizing compensation expense
in results of operations on a prospective basis, or to disclose the pro forma
effects of the new measurement criteria. The Company has elected to disclose
the pro forma effects of the new measurement criteria. See Note 10 of Notes to
the Consolidated Financial Statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"). It replaces the presentation of basic
and diluted EPS on the face of the statement of operations for all entities
with complex capital structures and requires a reconciliation of a numerator
and denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of shares of common stock outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if convertible securities or other
contracts to issue common stock were exercised or converted into common stock,
resulting in the issuance of common stock that would then share in the earnings
of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant
to APB Opinion No. 15. The statement is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. This statement requires restatement of
all prior-period EPS data presented.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards
for reporting and presentation of comprehensive income and its components in a
full set of general purpose financial statements. This statement is effective
for periods beginning after December 15, 1997. The adoption of SFAS 130 is not
expected to have an impact on the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to stockholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. This Statement is effective for
financial statements for periods beginning after December 15, 1997. The
adoption of SFAS 131 is not expected to have a material impact on the Company's
financial statements.
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INDUSTRY
OVERVIEW
The financial services industry has changed dramatically over the past
several years, causing the Company's community financial institution customers
to compete directly with diversified financial service providers offering a
wide array of sophisticated financial products and services, including
electronic commerce services. Electronic commerce involves the transaction of
business through the use of telecommunications networks and computer systems
that transmit and process commercial information and business documents
electronically. Electronic commerce for the financial services industry
includes value-added EFT services such as ATM, POS, funds transfer, scrip debit
services, remote banking and universal access to funds.
The Company believes that the demand of community financial institutions and
their customers for third-party electronic commerce solutions has increased
substantially in recent years and will continue to grow in the future as a
result of numerous financial, strategic and technological factors. These
factors include: (i) the desire by these financial institutions to remain
competitive with larger institutions by using sophisticated technologies in
their operations without the expense and resource commitment required to
maintain an in-house system; (ii) the need for rapid and secure processing and
transmission of large amounts of data to multiple locations; (iii) the need to
accommodate the Year 2000 data rollover problem; (iv) the efforts of financial
institutions to control costs and improve operating efficiencies through the
use of service bureau outsourcing alternatives; and (v) the desire of financial
service providers to focus on their primary product and service offerings.
InterCept believes that, in order to stay competitive in the changing
marketplace, community financial institutions will continue to require
electronic commerce products and services, including the EFT, data
communications management, enterprise software and transaction processing
alternatives offered by the Company
EFT PROCESSING SERVICES
EFT transaction processing enables financial institutions and their customers
to conduct numerous business transactions conveniently and quickly, reduces
operating costs and facilitates more accurate settlement of payments. Although
larger financial institutions typically process their EFT transactions in-
house, many community financial institutions have outsourced EFT transaction
processing to third-party processors. By aggregating the EFT transaction
processing of numerous community financial institutions, third party processors
create economies of scale, which allow them to price their services
competitively. According to an industry report, transaction volume for general
purpose electronic commerce cards totaled $1.8 trillion worldwide in 1996
(which translates approximately into a $27 billion market for processing
services) and is projected to grow to $6.5 trillion by the year 2005.
EFT transaction processing involves the on-line processing of transactions
initiated by a consumer at a terminal using a debit or credit card issued by
the consumer's financial institution. Various transactions, including cash
withdrawals, transfers and balance inquiries, are initialized, authorized,
completed and recorded against the consumer's accounts. According to industry
reports, there were over 175,000 ATMs and 1.3 million POS terminals in the
United States in 1997. Transaction volume has grown in recent years due to an
increase in the number of ATMs and POS terminals deployed, the number of
cardholders and the frequency of use by cardholders. Rapid technological
advances in data communications and transaction processing, particularly the
transition from paper-based to electronic processing, have contributed greatly
to wider acceptance and increased consumer use of EFT services. The number of
debit card transactions increased approximately 50.0% in 1996 and is projected
to increase 32.0% annually through the year 2005. The Company believes that
increased card acceptance and usage, coupled with technological advances in
electronic transaction processing, have created a need for financial service
providers to offer a variety of EFT solutions and value-added services to their
customers.
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DATA COMMUNICATIONS MANAGEMENT
EFT transaction processing mandates dependable and automated data
communications connectivity in a secure environment. Financial institutions
therefore require sophisticated technologies and value-added services to
perform critical functions and to facilitate rapid and accurate transaction
communications by and between different institutions. Electronic data
communications systems have dramatically changed in recent years from low
speed, inflexible analog circuits supporting legacy communications protocols to
high speed dynamic and flexible communications topologies based upon frame
relay, asynchronous transfer mode and other advanced technologies. These
technologies are now deployed widely in publicly available communications
platforms, including online services, the Internet (including the World Wide
Web) and interactive telephone information systems (such as those provided by
many banks). These communications resources enable individuals to locate and
retrieve large amounts of information from a remote location using standard
devices such as telephones and personal computers. Personal computers are now
commonly employed in businesses and homes, and many have various communications
devices (e.g., modems, ISDN terminal adaptors and network interface cards) that
allow remote communication with other computers. These changes in the
telecommunications marketplace are evidenced by the multitude of communications
devices and information services available today. The growth in the number and
types of communications devices has created a large market in data
communications and information exchange.
Many large transaction processors provide data communications using
mainframe-based legacy systems that are difficult and expensive to maintain and
modify. Transaction processors that maintain these systems for their data
communications and transaction processing needs often find it difficult to meet
the increasing demands of financial institutions for reliable high speed
networking capabilities tailored to their specific and changing needs. Recent
advances in less costly, flexible and integrated computer software systems,
including client/server systems, afford transaction processors improved
capabilities and responsiveness in providing data and transaction processing
services. In addition, the use of fiber optic cables and advanced switching
technology in telecommunications networks, as well as competition among
telecommunications providers, enables third-party processors to provide faster
and more reliable service at lower per-transaction costs than previously
available. As a result of continued technological changes, the Company
anticipates increased demand for third-party data communications management and
transaction processing services.
ENTERPRISE SOFTWARE
Changing technologies, business practices and financial products have
resulted in software-related issues of compatibility, scalability and increased
complexity for many financial institutions. The shift toward the client/server
processing environment has created the need for more user-friendly applications
and on-line support mechanisms and the integration of highly complex systems
and software with various telephony applications. The technology surrounding
the transmission, storage and retrieval of massive amounts of data has further
increased the complexity of data processing for financial institutions. In
addition, many existing software systems have a Year 2000 data rollover problem
because they do not store dates and process data using codes which are written
for four-digit years. These older systems may produce inaccurate information or
may even become inoperable at the turn of the century, and may not otherwise
offer the advanced technological capabilities provided by newer systems. As a
result, financial institutions are demanding more complete and flexible data
communications, information technology, enterprise software and processing
solutions, as well as complementary products and services. According to a
published market research report, the size of the U.S. financial institutions
information technology outsourcing market was estimated to be approximately
$2.8 billion in 1997 and is projected to increase to $3.7 billion by the year
2000.
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BUSINESS
GENERAL
The Company designs, develops, markets and implements a suite of fully
integrated electronic commerce products and services primarily for community
financial institutions in the United States. The Company's products and
services include EFT, data communications management, client/server enterprise
software and other processing solutions. InterCept currently serves over 580
financial institutions and is the largest third-party processor of financial
institutions' ATMs in the southeastern United States. The Company has
established marketing relationships with 9 of the 17 bankers' banks, which
provide the Company access to over 4,500 of the approximately 11,000 financial
institutions nationwide. The Company's revenues increased from $14.5 million in
the year ended December 31, 1996 to $23.3 million in the year ended December
31, 1997. Revenues for the three months ended March 31, 1998 were $6.3 million.
Recurring revenues accounted for approximately 69.3%, 76.3% and 78.2%,
respectively, of the Company's revenues for these three periods.
InterCept is a single source provider of a broad range of flexible electronic
commerce solutions and supporting value-added products and services. The
Company provides numerous EFT products and services, including ATM, POS and
scrip debit services, debit card transactions including both MasterMoney(TM)
and Visa(R) Check cards, funds transfer and remote banking services. The
Company licenses its PC-based client/server enterprise software, PC
BancPAC(TM), which operates in a personal computing environment and (since
October 1997) in a Windows NT(R) environment. Community financial institutions
can implement PC BancPAC(TM) on both an in-house and service bureau basis,
providing them with two alternatives for utilizing the Company's technologies
and processing expertise to improve operating efficiency for their
institutions. The Company offers its financial institution customers numerous
value-added products and services, including branch automation, optical disk
record storage and retrieval, check imaging and on-line signature verification.
The Company also provides maintenance and technical support services, supplies
ATMs, proof machines and other banking related equipment, and offers numerous
ancillary products and services to community financial institutions.
As part of its integrated suite of electronic commerce products and services,
the Company provides end-to-end data communications management solutions for
its customers. The Company maintains nationwide data communications coverage
and has the InterCept Frame Relay Network, one of the largest private frame
relay networks in the southeastern United States. The InterCept Frame Relay
Network is the principal conduit through which the Company processes EFT
transactions and manages the data communications needs of its customers.
Through the InterCept Frame Relay Network and its telecommunications
connectivity to various other networks, the Company manages data communications
and, in some instances, voice-over-frame communications, which eliminates
certain long distance charges for its customers. The Company also designs and
manages various local and wide area data communications networks for its
customers. The Company offers internet services, including managed firewall and
email services, to the desktop of its customers' personnel across the InterCept
Frame Relay Network.
The InterCept Frame Relay Network contains approximately 1,300 drops which
are located in 14 states, 41 LATAs and all five of the RBOCs' markets. The
design of the InterCept Frame Relay Network provides for efficient switching
capabilities, which results in rapid response time, and secure and reliable
transmission and processing of electronic commerce transactions conducted
across the network. The Company believes the InterCept Frame Relay Network
enables it to provide its electronic commerce products and services more
efficiently and on a more cost-effective basis for its customers. The
attributes of the InterCept Frame Relay Network result in rapid response time,
and its considerable bandwidth facilitates the delivery of the Company's
numerous EFT, processing and ancillary services.
InterCept's top 9 senior officers have an average of over 22 years of
industry experience and have expertise in multiple areas of electronic commerce
(including EFT and data communications management), enterprise software and
transaction processing for financial institutions. The Company's current market
focus is on community financial institutions, which the Company believes rely
heavily on third-party providers for a majority
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of their EFT, data communications management, enterprise software and
transaction processing solutions, including the products and services offered
by the Company. InterCept believes that as a result of rapid technological,
financial and other changes that have occurred over the past several years
that the demand of community financial institutions and their customers for
technologically advanced solutions has increased substantially and that such
demand will continue to grow in the future. The Company believes that its
integrated suite of electronic commerce solutions enables its community
financial institution customers to compete with larger financial institutions
by allowing them to offer their customers similar products and services on a
cost-competitive basis.
BUSINESS STRATEGY
The Company believes it is one of the largest providers of fully integrated
electronic commerce products and services for community financial institutions
in the southeastern United States, and its goal is to become one of the
largest such providers in the United States. To attain this goal, the Company
plans to grow significantly by implementing the following key strategies:
(i) Cross-Market to Existing Customer Base and Maximize Recurring
Revenues. InterCept plans to cross-market its EFT, data communications
management, client/server enterprise software and numerous ancillary
products and services to its existing customers, most of which already use
the Company's EFT services. The Company seeks to develop and maintain long-
term customer relationships by providing multiple electronic commerce
products and services to community financial institutions pursuant to
contracts with renewable terms. Many of the Company's products and services
generate recurring revenues, which the Company defines as revenues from
services used by customers each month and year in connection with their
ongoing business. The Company intends to maximize its recurring revenues
through these relationships by enhancing and increasing the use of its
various products and services. The Company also plans to create and acquire
additional sources of recurring revenues to meet the evolving needs of its
customers.
(ii) Increase Data Communications Management and Optimize the InterCept
Frame Relay Network. InterCept intends to increase its data communications
management services by offering customized, cost-competitive
telecommunications connectivity to its customers and managing their data
traffic in a reliable and secure manner across the InterCept Frame Relay
Network. The Company intends to optimize the InterCept Frame Relay Network
by selling additional communications services to its customers, thereby
increasing network utilization with minimal additional cost to the Company.
In addition, the Company will attempt to expand the InterCept Frame Relay
Network into new geographic areas as business warrants. InterCept plans to
improve the speed and efficiency of transaction processing across the
network by enhancing and selectively upgrading its processing and switching
equipment and telecommunications lines. In addition, the Company will
attempt to expand the InterCept Frame Relay Network into new geographic
areas as business warrants. The Company believes that the strategic
development of the InterCept Frame Relay Network will continue to provide
for more efficient network utilization, allow it to reduce transmission and
other operating costs, and support its current and future products and
services.
(iii) Complete Strategic Acquisitions. InterCept intends to acquire other
companies with complementary technologies or services that will enhance and
expand the products and services offered to existing customers, increase
its market share, expand its geographic presence or optimize the InterCept
Frame Relay Network. Since the beginning of 1996, the Company has completed
several acquisitions of providers of complementary products and services.
See "The Company." The Company believes that its previous acquisitions of
providers of complementary technologies and services has strengthened its
suite of products and services and expanded its geographic presence into
new markets. The Company plans to continue to integrate and enhance the
products and services it has acquired, pursue strategic acquisitions of
additional products and services and cross-market its expanded suite of
solutions to existing and future customers. On April 28, 1998, the Company
entered into a $20 million revolving line of credit agreement with First
Union National Bank, the proceeds of which will be available to fund
acquisitions upon completion of this Offering and the satisfaction of
certain other conditions set forth in such agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
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(iv) Expand Sales Force and Strategic Marketing Relationships. The
Company plans to expand its customer base and penetrate new geographic
markets by hiring sales personnel with expertise in community financial
institutions' operations and/or electronic commerce products and services
similar to those offered by the Company. InterCept currently has
established relationships with several banking related business
organizations, including strategic marketing relationships with 9 of the 17
bankers' banks, which provide the Company access to over 4,500 of the
approximately 11,000 community financial institutions nationwide. Bankers'
banks are local or regional business organizations that provide
correspondent banking products and services to financial institutions that
could not provide them in an efficient manner themselves due to cost,
location, lack of resources or other circumstances. In addition, bankers'
banks provide financial support and business advice to financial
institutions with respect to various critical areas such as operations,
profitability and federal and state regulation. The Company believes that
the essential nature of the relationship between bankers' banks and
community financial institutions makes the Company's alliances with
bankers' banks an important part of its marketing strategy. InterCept
intends to use its expanded sales force to market its products and services
directly to community financial institutions and to enhance its indirect
marketing efforts by developing additional strategic marketing
relationships with bankers' banks and various other business organizations.
(v) Expand and Enhance its Products and Services. The Company has devoted
and will continue to devote resources to developing and enhancing its suite
of products and services. The Company plans to continue to combine its
enhanced and expanded electronic commerce solutions with sophisticated
technology to help its community financial institution customers remain
competitive with other financial service providers. The Company continually
strives to anticipate the most recent trends in the financial services
industry and to develop and provide leading edge products and services.
THE INTERCEPT SOLUTION
The InterCept solution to addressing the complex and evolving needs of
community financial institutions is to continue to develop, enhance and provide
a comprehensive and flexible suite of fully integrated electronic commerce
products and services. These products and services include: (i) EFT transaction
services, including ATM, POS, scrip services, debit card transactions, funds
transfer, remote banking and universal access to funds; (ii) data
communications management services across the InterCept Frame Relay Network;
(iii) client/server enterprise software solutions to handle the core processing
needs of community financial institutions; (iv) other value-added products and
services, including item processing, branch automation and optical disk storage
products; and (v) equipment, maintenance and technical support and merchant
credit card portfolio management services.
The Company maintains nationwide data communications coverage and uses the
InterCept Frame Relay Network to support the complex electronic commerce
transaction requirements of its community financial institution customers. The
Company seeks to maximize the benefits of available technologies to enable it
to deliver highly reliable data communications, client/server enterprise
software and transaction processing solutions and related products and services
on a cost-effective basis. The Company attempts to establish long-term business
relationships with its customers to maximize the Company's recurring revenues
and optimize the InterCept Frame Relay Network. The Company believes that each
of its products and services efficiently and effectively supports the various
needs of community financial institutions and that, when combined, its
integrated electronic commerce products and services offer community financial
institutions a single source for comprehensive electronic commerce solutions
and allow its community financial institution customers to remain competitive
with larger financial service providers.
EFT Processing Services
InterCept offers a wide range of EFT transaction services, including ATM,
POS, scrip services, debit card transactions including MasterMoney(TM) and
VISA(R) Check cards, funds transfer, remote banking and universal access to
funds. The Company's EFT transaction processing business is conducted primarily
through its network connections to most regional and all national ATM and POS
switch networks, including HONOR(TM), PULSE(TM), Cirrus(R), PLUS(R), Maestro(R)
and INTERLINK(R). Based on the number of financial institutions that use third
parties
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to process their ATM transactions, the Company is the largest third-party
processor of financial institutions' ATM transactions in the southeastern
United States. As of March 31, 1998, the Company provided EFT services to
approximately 400 customers. Revenues from these activities were $9.3 million,
or 39.9%, of the Company's revenues for the year ended December 31, 1997 and
$2.6 million or 41.9% of revenues, for the three months ended March 31, 1998.
Historically, the national ATM switching networks prohibited member
institutions from charging fees for ATM usage on their networks. In April 1996,
national switching networks Cirrus(R) and PLUS(R) voted to lift the ban on
these ATM surcharges. After the ban lifted, several financial institutions
began charging fees to non-customers for using their ATMs to conduct
transactions across their switching networks. The Company's community financial
institution customers became concerned that their customers would migrate to
institutions with a larger number of ATMs for the availability of a larger
number of surcharge-free ATMs. In response to this concern, the Company formed
a wholly-owned subsidiary, InterCept Switch, Inc., and introduced InterCept
Switch, a surcharge-free ATM network designed to keep its community financial
institution customers competitive with larger banks by allowing them to waive
ATM surcharges for customers of InterCept Switch members, while retaining the
ability to surcharge non-member customers that use their ATMs. The InterCept
Switch ATM network is run by PULSE(TM) for a fee based on the number of ATM
transactions conducted through the InterCept Switch network.
InterCept gives its financial institution customers the flexibility to design
the exact ATM program they wish to offer by providing full functional support
of all major ATM hardware. The Company provides necessary ATM support services
and products, including terminal processing, network support, POS and ATM
equipment, and maintenance services. The Company's customers may elect to
forego the purchase of ATM hardware by choosing the Company's card issue only
service option, which permits institutions to offer ATM services to their
customers without the expense of purchasing and maintaining ATM hardware.
The ATM transactions processed by the Company begin when a cardholder inserts
a card issued by a financial institution (a "Card Issuer") into an ATM to
withdraw funds, obtain a balance, make other account inquiries or transfer
funds. The transaction is routed from the ATM across the InterCept Frame Relay
Network to the Company's data communications and processing center. The
Company's computer identifies the Card Issuer by the financial institution
identification number contained within the card's magnetic strip. The Company
then either (i) authorizes or denies the requested transaction or (ii) switches
the transaction to the Card Issuer or its designated processor for
authorization. Once authorization is received, the authorization message is
routed back to the ATM almost immediately and the transaction is completed. For
its customers' clients, the Company updates the cardholder's account
information on a daily basis.
Throughout these steps, the Company charges various fees to the financial
institutions that are in addition to any fees that the Card Issuer might charge
the ATM user. The Company receives a base fee for providing its ATM processing
services and an additional fee for each ATM serviced. Once the number of
transactions exceeds established maximums (typically between 2,000 and 3,000
transactions), the Company charges additional fees for the extra transactions
processed. The Company also receives fees for installation, maintenance and
support of the ATMs it supplies to its customers.
The Company processes debit card transactions for banks issuing such cards,
including MasterMoney(TM) and Visa(R) Check cards, which permit direct payment
debit from POS terminals at over 13 million locations worldwide against the
cardholder's deposit account. InterCept's POS and scrip services provide
instant access to funds without the expense of installing a traditional ATM.
With a small initial investment in a POS or scrip terminal, the Company's
financial institution customers can support EFT transactions from virtually any
merchant location.
The electronic debit card transaction process begins when a consumer presents
a debit card to the merchant who then "swipes" the card at a POS terminal and
enters the transaction amount. The transaction data is transmitted from the POS
terminal through the applicable credit and debit processing networks to the
InterCept Frame Relay Network. The Company then compares the purchase
transaction against the authorization data
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accessed through the Company's system, places a hold for the transaction
amount, authorizes the transaction and transmits the authorization response
almost immediately back through the network to the POS terminal. The
appropriate processing network settles the payment and credits the merchant
with the transaction amount less any discounts. The merchant delivers final
transaction information to the credit processing network and the network
submits the transaction to the Company, which facilitates posting and reporting
of the transaction with the issuing bank. To complete the transaction, the
issuing bank debits its customer's account for the transaction amount. For its
POS services, the Company generally receives a portion of the interchange fees
charged by its community financial institution customers that issue debit cards
and charges a monthly fee if its customers do not meet a certain minimum dollar
amount of transactions for a particular month.
A scrip transaction requires a customer to obtain a cash voucher, using an
ATM card, at a self-service terminal located within the store but not at the
check-out. The customer purchases goods with the voucher and receives any
overage from the transaction in cash (if permitted by the merchant) or in the
form of a voucher from the cashier. InterCept's scrip and POS services include
access to multiple networks, settlement reports, card management support and
administrative terminal support.
The Company markets its EFT services primarily to community financial
institutions in the southeastern and central United States. The Company's EFT
service contracts generally provide for an initial term of three to five years
and automatically renew for similar terms unless notice of non-renewal is given
prior to expiration. Most charges due under these agreements are paid monthly.
The Company generally is permitted to raise prices on an annual basis subject
to certain maximum limits. The Company provides ATM and various other banking
equipment and maintenance services to approximately 250 customers in Georgia,
Alabama, Florida, Tennessee and South Carolina. Where applicable, the Company
enters into standard ATM and other equipment maintenance contracts with its
customers that generally provide for a term of between one and three years.
Generally, these contracts automatically renew for varying periods at the end
of the initial or any renewal term unless either party elects to cancel the
agreement 180 days prior to its expiration.
Data Communications Management and The InterCept Frame Relay Network
In response to the relatively high cost and low efficiency of the data
communications operations of many of its community financial institution
customers, the Company developed the InterCept Frame Relay Network and began to
offer end-to-end data communications management services to financial
institutions on a more cost-effective basis than previously available. Through
the InterCept Frame Relay Network and its telecommunications connectivity to
various other networks, the Company manages data communications and, in some
instances, voice-over-frame communications, which eliminates certain long
distance charges for its customers. The Company also designs and manages
various local and wide area data communications networks for its customers. The
Company offers internet services, including managed firewall and email
services, to the desktop of its customers' personnel across the InterCept Frame
Relay Network. By providing end-to-end data communications management services
across the InterCept Frame Relay Network, the Company believes it will have
greater success in cross-marketing its fully integrated suite of electronic
commerce products and services and that it is able to better monitor and
maintain the quality of these products and services to help ensure continued
customer satisfaction. As of March 31, 1998, the Company provided data
communications services to 339 customers. Revenues from these activities were
$3.1 million, or 13.4%, of the Company's revenues for the year ended December
31, 1997 and $850,000, or 13.6% of revenues for the three months ended March
31, 1998.
The Company maintains nationwide data communications coverage and uses the
InterCept Frame Relay Network, the Company's private frame relay
telecommunications network with approximately 1,300 drops which are located in
14 states, 41 LATAs and all five RBOCs' markets. According to industry data,
based upon the number of drops, the InterCept Frame Relay Network is one of the
largest private frame relay networks in the southeastern United States. The
InterCept Frame Relay Network is the principal conduit through which the
Company provides its end-to-end data communications management services. The
key advantages of frame relay versus legacy protocols include: (i) the ability
to accommodate data packets of various sizes; and (ii) protocol independence--
not only can any set of data be accepted, switched and transported across a
network, but the
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specific data is undisturbed in the process of encapsulation. The design of the
InterCept Frame Relay Network provides efficient switching capabilities, which
results in rapid response time, as well as secure and reliable transmission and
processing for electronic commerce transactions conducted across the network.
The InterCept Frame Relay Network uses the fiber optic networks of WorldCom,
Inc. and BellSouth Telecommunications, Inc. to provide the substantial
bandwidth capable of supporting the transaction-intensive services offered by
the Company. The InterCept Frame Relay Network is linked to the Company's
customer operations by T-1 and fractional T-1 communication lines to ensure
adequate bandwidth for rapid processing of electronically transmitted data. As
customer needs change and as technology improves, management believes that it
will be able to adapt and customize the InterCept Frame Relay Network as
necessary to achieve the processing speeds and functionality it desires.
The InterCept Frame Relay Network implements advanced satellite technology
provided by GE Capital SpaceNet Services, Inc. ("GE SpaceNet") and
sophisticated telecommunications equipment supplied by Motorola, Inc.
("Motorola"). Further, the InterCept Frame Relay Network topology gives the
Company the ability to acquire telecommunications access from providers other
than WorldCom. Management believes that, if necessary or desirable, the Company
could utilize the networks of any major telecommunications access provider to
operate the InterCept Frame Relay Network. Management believes that
transferring the InterCept Frame Relay Network to another telecommunications
access provider could be accomplished without significant service interruption
or delay, although such a transfer may increase the Company's expenses for its
telecommunications services.
The Company's relationship with GE SpaceNet augments the InterCept Frame
Relay Network in areas where frame relay connectivity is either unavailable or
not economically feasible. Because GE SpaceNet builds, launches and maintains
its own private satellites rather than leasing such services from third
parties, the Company is able to provide a high level of reliability in its
network services and provide better customer service. The Company maintains an
automated backup system for the most critical data circuits in the InterCept
Frame Relay Network in the event of a network outage or other similar
occurrence. The Company also provides shared hub satellite transmission
services as well as multi-drop and point-to-point hard line telecommunication
networks. The Company uses Motorola telecommunications equipment and processing
hardware to enable the InterCept Frame Relay Network to support the various
data communications protocols most commonly used by its customers.
The Company monitors and maintains the InterCept Frame Relay Network's lines,
circuits and equipment functions on a seven-day, 24-hour basis from a central
computer location in Norcross, Georgia. The Company maintains this EFT
processing and data communications switching facility and has established a
limited disaster recovery plan with certain telecommunications providers to
provide alternative communications capabilities in the event the Company
experiences a natural disaster or other interruption at its Norcross facility,
rather than maintaining a "hot site" backup location for its EFT processing and
InterCept Frame Relay Network switching hardware.
Client/Server Enterprise Software and Services
The Company offers client/server enterprise software processing and related
products and services on both an in-house and service bureau basis primarily to
community financial institutions. The Company satisfies its service bureau
customers' core processing requirements, including general ledger and financial
management, customer information file maintenance, loan and deposit processing,
financial accounting and reporting and ATM and automated clearing house ("ACH")
interfaces, through on-line data communications utilizing the InterCept Frame
Relay Network. Historically, InterCept delivered its core data processing
solutions on a service bureau basis using legacy computer system technology.
However, in December 1996 the Company acquired PC BancPAC(TM) and has since
licensed this client/server accounting software system on an in-house basis and
implemented this software in its service bureau operations. Revenues from the
Company's enterprise software and related services were $5.6 million, or 24.2%,
of the Company's revenues, for the year ended December 31, 1997 and $1.3
million, or 20.9% of revenues, for the three months ended March 31, 1998.
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PC BancPAC(TM) consists of a series of integrated software modules which,
together, accommodate the core data processing needs of the Company's financial
institution customers, including general ledger and financial management,
customer information file maintenance, loan and deposit processing, financial
accounting and reporting and ATM and ACH interfaces. PC BancPAC(TM) and related
products operate in a Windows NT(R) environment and the Company believes they
are well-suited for both in-house and service bureau core processing for
financial institutions. The Company believes PC BancPAC(TM) is Year 2000
compliant and permits the Company to offer flexible alternatives to its
existing customers and to pursue other segments of the financial institution
processing market. Processing in a client/server environment provides superior
flexibility in tailoring procedures and improves customer service throughout
the institution. Using personal computers as workstations (the "client") and
connecting them via a network to another personal computer containing the
database (the "server"), client/server computing offers fast and easy
processing on economical computer hardware. The Company believes PC BancPAC(TM)
is a user-friendly product with easy-to-learn "point and click" and "drag and
drop" features.
As part of its software processing services, the Company also provides item
processing and back office services including proofing and encoding, bulk
filing, statement preparation and check imaging to accommodate the additional
needs of its financial institution customers. The Company's data processing and
item processing services are typically priced on the basis of account or item
volume. The Company delivers its check imaging and item processing services
from five service centers located in Georgia and Colorado. Fees for check
imaging services are generally based upon the volume of information and images
(document pages) processed, stored or retrieved. The Company also offers a
variety of owned and licensed complementary value-added services and products
to its customers to enable them to compete with larger financial institutions
that offer a broad array of services and products to their customers. These
services and products include an integrated voice response banking system, safe
deposit box accounting, cash management services, check imaging services and
optical disk storage.
The Company's data communications, EFT and outsourced client/server
enterprise processing services utilize the InterCept Frame Relay Network and
are coordinated through the Company's two host data centers located in Georgia
and Colorado and five check imaging and item processing facilities located in
those states. The Company's data centers have a combined processing capacity of
over 820 RPMs (relative performance measure units). The Company continually
plans for testing and implementation of new technology and emphasizes
flexibility in structuring the services it offers using new technology. The
Company's data centers, together with its remote check imaging and item
processing centers, provide the comprehensive and customized data processing
services required by InterCept's service bureau customers. The Company's data
processing centers in Macon, Georgia and Colorado Springs and Denver, Colorado
each act as a back-up facility for the others in the event another site
experiences a natural disaster, destruction or other similar event which
eliminates or diminishes its processing capabilities.
As of March 31, 1998, the Company provided data processing and/or item
processing services to over 50 financial institutions pursuant to contracts
which generally provide for three year renewable terms. The Company also
provides account processing software support and maintenance to nine financial
institution customers that implement its products in-house.
Complementary Products and Customer Services
To complement its integrated suite of electronic commerce solutions, the
Company provides maintenance and technical support services, which generate
recurring revenues, and supplies specialized equipment including ATMs, proof
machines, teller equipment, personal computers, vaults and other security
equipment. Revenues from these activities were $5.2 million, or 22.5%, of the
Company's revenues, for the year ended December 31, 1997 and $1.5 million, or
23.6% of revenues, for the three months ended March 31, 1998. The Company
anticipates that, as revenues from its other operations increase, revenues from
supplying equipment and maintenance and technical support services will
decrease as a percentage of total revenues.
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In December 1996, InterCept expanded its product offerings to include
merchant portfolio management services. The Company's merchant credit card
portfolio management services are tailored to help its customers meet day-to-
day challenges and satisfy their needs for portfolio growth and increased
revenue in today's competitive marketplace. By partnering with InterCept, the
Company's financial institution customers retain ownership and control of their
merchant credit card portfolio accounts while benefiting from economies of
scale and the ability to select flexible processes for product delivery.
The Company offers extensive customer services and technical support for its
electronic commerce products and services. InterCept believes that well-trained
support personnel are essential to attract and retain financial institution
customers. InterCept's trained customer service and technical support personnel
employ methodologies to enhance the Company's ability to offer reliable, secure
and automated solutions. The Company's customer service departments are
responsible for educating and assisting its customers in the use of the
Company's integrated services, for resolving billing related issues and, in
consultation with InterCept's technical support personnel, for solving any
technical problems customers may experience. As of March 31, 1998, the Company
employed 14 people in its customer service departments, which are available 24
hours per day, seven days per week. Customer service representatives who
support vital processing functions are also accessible by a toll-free telephone
number.
The Company employs separate personnel who are responsible for technical
support functions. These employees are generally responsible for consulting
with InterCept's financial institution customers regarding technical issues,
and for solving any technical issues brought to their attention by the customer
service department. The Company's technical support department is also
responsible for maintaining the Company's backup systems and for coordinating
the disaster recovery services maintained by certain of the Company's
information processing customers. As of March 31, 1998, the Company employed 25
technical support representatives who are available 24 hours a day, seven days
per week. Technical support representatives who support vital processing
functions are also accessible by a toll-free telephone number.
CUSTOMER BASE AND RECURRING REVENUES
The Company achieves growth in its recurring revenues and customer base
primarily through cross-marketing its integrated products and services. The
Company's customer base consists of more than 580 financial institutions in 20
states which primarily are community financial institutions located in the
southeastern United States and Colorado. As of March 31, 1998, the Company
provided EFT products and services to more than 400 customers, 315 of which are
full-service EFT customers. The Company also had 251 maintenance customers,
some of which also use the Company's EFT services. In addition, the Company had
61 customers using its enterprise software, processing solutions and ancillary
products and services, including 51 service bureau customers and 10 customers
processing on an in-house basis. Of these customers, 22 use check imaging and
item processing services. The Company also has approximately 14 merchant
portfolio management customers as of March 31, 1998.
Approximately 69.3%, 76.3% and 78.2% of the Company's revenues for the years
ended December 31, 1996 and December 31, 1997 and the three months ended
March 31, 1998, respectively, were recurring. Recurring revenues are defined by
the Company as revenues derived from services that are used by the Company's
customers each year in connection with their ongoing businesses, and
accordingly exclude such items as conversion and deconversion fees, initial
software license fees, data communications line installation fees and hardware
sales revenues.
SALES AND MARKETING
The Company's sales force is made up of nine sales representatives for EFT
transaction processing products and services, one sales representative for data
communications management services and two sales representatives for
client/server enterprise software and related services as of March 31, 1998.
Maintaining separate sales forces for its various service lines allows the
Company's sales representatives to concentrate on
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particular services, product technology and customer markets, thereby keeping
them informed of developments in these areas. Sales representatives in the
various groups are, however, informed as to the full suite of the Company's
products and services and are encouraged to market the full suite of products
and services to customers and to refer prospects to the appropriate
professionals. The Company offers its products and services on a stand-alone
basis and combined with one or more other products and services to create
customized solutions for each community financial institution.
The Company markets its EFT and processing services by designing custom-
tailored solutions that it believes are attractive to its community financial
institution customers in terms of features, quality of service and price. The
Company markets its services and products through direct sales forces located
in the southeastern United States, Colorado and Texas. InterCept intends to
expand its existing customer base and penetrate new geographic markets by
hiring sales personnel with expertise in community financial institutions'
operations and/or the Company's electronic commerce products and services. The
Company cross-markets its data communications management, client/server
enterprise processing and other value-added products and services to its
existing customers, most of which already use the Company's EFT services.
The Company's indirect marketing efforts include obtaining referrals and
endorsements from its financial institution customers and various banking
related organizations. InterCept currently has written marketing agreements
with 6 of the 17 bankers' banks and has other relationships with 3 additional
bankers' banks. Bankers' banks are local or regional business organizations
that provide correspondent banking products and services to financial
institutions that could not provide them in an efficient manner themselves due
to cost, location, lack of resources or other similar circumstances. In
addition, bankers' banks provide financial support and business advice to
financial institutions with respect to various critical areas such as
operations, profitability and federal and state regulation. The Company
believes that the essential nature of the relationship between bankers' banks
and community financial institutions makes the Company's alliances with
bankers' banks an important part of its marketing strategy. Through its
relationship with these bankers' banks, the Company has a referral source to
over 4,500 financial institutions nationwide. The Company seeks to enter into
additional strategic marketing arrangements to augment its indirect marketing
efforts and increase the number of its referral sources.
COMPETITION
The data communications, enterprise software and transaction processing
industries are intensely competitive and highly fragmented, and the Company
expects increased competition from both existing competitors and companies that
enter the Company's existing or future markets. Many of the Company's current
and potential competitors have longer operating histories, greater name
recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. Numerous companies supply competing products and services, and many of
these companies specialize in one or more of the services which the Company
offers or intends to offer to its customers. The Company's market share
represents a small percentage of the total information processing market. The
Company believes that existing competitors are likely to expand their product
and service offerings and that new competitors are likely to enter the market
and attempt to integrate electronic commerce, information processing and other
services, resulting in greater competition for the Company. Such competition
could materially adversely affect the Company's business, financial condition
and results of operations.
Although the Company is not aware of any major competitor that is marketing
an integrated suite of solutions identical to that marketed by the Company,
many of the Company's competitors have substantial resources and technical
expertise, and could likely develop such comprehensive solutions if they chose
to expend sufficient resources. The Company believes that the principal
competitive factors affecting the market for its services generally are price,
quality and reliability of service, degree of service integration, ease of use
and service features. Generally, the Company believes that it competes
effectively in these areas.
The Company's principal EFT competitors include major regional ATM networks,
regional and local processing banks, non-bank processors and other independent
electronic commerce and data communications
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organizations, many of which have substantially greater capital, management,
marketing and technological resources than those of the Company. There can be
no assurance that the Company will continue to be able to compete effectively
with such competitors. The Company's EFT and outsourced core bank processing
services are transmitted to its customers over telephone lines and the
Telecommunications Act of 1996 (the "Act") lifted certain restrictions on
regional telephone companies and others competing with the Company, which will
likely lead to these companies competing with the Company by packaging
information service offerings with other services and providing them on a wider
geographic scale. The competitive pricing pressures that would result from any
increase in competition could have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Government
Regulation".
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect its
proprietary rights. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology. The Company does not believe that
any of its products infringe the proprietary rights of third parties. There can
be no assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products, and the Company has agreed
to indemnify many of its customers against such claims. The Company anticipates
that the number of infringement claims will increase as the number of
electronic commerce and information technology products and services increase
and the functionality of products in different industry segments overlaps. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, and may not be resolved on terms acceptable to the Company, or at
all, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
At March 31, 1998, the Company had 170 full-time employees, of which 25 were
in sales and marketing, 104 were in operations and 41 were corporate and
general administrative employees. Of these employees, 105 were based in
Norcross, Georgia, 23 were based in Thomson, Georgia at the Company's
operations center, nine were based in Macon, Georgia, 17 were based in Colorado
Springs and Denver, Colorado, 1 was based in New Jersey, 5 were based in Texas,
2 were based in Florida, and 8 were based in Tennessee. None of the Company's
employees is represented by a collective bargaining agreement nor has the
Company ever experienced any work stoppage. Management believes that the
Company's relationship with its employees is satisfactory.
GOVERNMENT REGULATION
The Company's network services are transmitted to its customers over
dedicated and public telephone lines. These lines are governed by federal and
state regulations establishing the rates, terms and conditions for their use.
Changes in the legislative and regulatory environment relating to online
services, electronic commerce or the Internet access industry, including
regulatory or legislative changes which directly or indirectly affect
telecommunication costs, restrict content or increase the likelihood of
competition from regional telephone companies or others, could have an adverse
effect on the Company's business. The Act amended the federal
telecommunications laws by lifting restrictions on regional telephone companies
and others competing with the Company. The Act set in motion certain events
that will lead to the elimination of restrictions on regional telephone
companies providing transport between defined geographic boundaries associated
with the provision of their own information services. This will enable regional
telephone companies to compete more readily with the Company by packaging
information service offerings with other services and providing them on a wider
geographic scale. The Clinton administration has announced an initiative to
establish a framework for global electronic commerce. Also, there are a number
of bills currently being considered in the United States at the federal and
state levels involving encryption and digital signatures, all of which may
impact the Company. The
42
<PAGE>
Company cannot predict the impact, if any, that the Act and future court
opinions, legislation, regulations or regulatory changes in the United States
may have on its business.
The Company is not directly subject to federal or state regulations
specifically applicable to financial institutions. As a provider of services to
banking institutions, however, the Company's service bureau processing
operations are examined from time to time by various state and federal
regulatory agencies. These agencies make recommendations to the Company
regarding various aspects of outsourcing operations and the Company generally
implements such recommendations. The Company also arranges for an annual
independent examination of its service bureau processing facilities.
The Company's ATM network operations are subject to federal regulations
governing consumers' rights with respect to ATM transactions. Fees charged by
ATM owners are currently regulated in several states and legislation has been
proposed in several other states, and there can be no assurance that such
regulations or legislation will not continue to be enacted in the future or
that existing consumer protection laws will not be expanded to apply to fees
charged in connection with ATM transactions.
PROPERTY AND FACILITIES
The Company's principal office consists of 14,641 square feet of leased space
located in Norcross, Georgia. The Company leases two additional offices in
Norcross that are used for item processing and operations. The Company owns a
facility in Thomson, Georgia that is used as a data and item processing center
for the Company's service bureau operations. A leased facility in Macon,
Georgia serves as an item and image processing center. The Company also leases
two locations in Colorado related to its service bureau operations, including
one in Colorado Springs which serves as a data and item processing center, and
another in Denver used for item processing. The Colorado leases are due to
expire in the next several months, and the Company is negotiating new leases
for these locations. The Company believes these facilities are adequate for its
needs and does not anticipate any material difficulty in replacing such
facilities or securing facilities for new offices.
LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceedings.
43
<PAGE>
MANAGEMENT
The executive and certain other key officers and directors of the Company and
their ages and positions as of March 31, 1998, are as follows.
<TABLE>
<CAPTION>
NAME AGE CLASS(1) POSITION
---- --- -------- --------
<C> <C> <C> <S>
Chief Executive Officer and Chairman of
John W. Collins......... 50 III the Board
President, Chief Operating Officer and
Donny R. Jackson........ 48 III Director
Scott R. Meyerhoff...... 29 -- Chief Financial Officer and Secretary
Executive Vice President of Sales and
Michael R. Boian........ 58 -- Marketing
Executive Vice President of Network
Michael D. Sulpy........ 37 -- Communications
Senior Vice President of Merchant
Paul D. England......... 47 -- Portfolio Management
Farrell S. Mashburn..... 51 -- Senior Vice President of Data Services
Senior Vice President of Service Bureau
Philip R. Meinert....... 56 -- Operations
Vir A. Nanda............ 55 -- Senior Vice President of Technology
Jon R. Burke............ 50 I Director
Boone A. Knox........... 61 II Director
Bruce P. Leonard........ 44 II Director
Glenn W. Sturm.......... 44 I Director
</TABLE>
- --------
(1) Class I term expires in 1999; Class II term expires in 2000; and Class III
term expires in 2001.
BIOGRAPHICAL INFORMATION FOR EXECUTIVE AND CERTAIN OTHER KEY OFFICERS AND
DIRECTORS
John W. Collins, a co-founder of the Company, has served as its Chief
Executive Officer and Chairman of the Board of Directors since its formation.
Mr. Collins also has served as the Chairman and Chief Executive Officer of
InterCept Switch since its formation in 1996. Mr. Collins co-founded Systems in
1986, Data Services in 1989, ProVesa in 1994 and Technologies in 1996. He
served as the Chief Executive Officer of Systems prior to its merger with
InterCept in January 1998. Mr. Collins also served as Chairman of the boards of
Systems, Data Services, Bank Services, FiNet and Technologies prior to their
merger with the Company in January 1998. Mr. Collins has over 25 years of
experience in multiple areas of electronic commerce for community financial
institutions.
Donny R. Jackson, a co-founder of the Company, has served as President, Chief
Operating Officer and director of the Company since its formation. Mr. Jackson
also has served as the President and Chief Operating Officer of InterCept
Switch since its formation in 1996. Mr. Jackson was President and Chief
Operating Officer and director of Systems from July 1996 until its merger with
the Company. He has also served as the President and Chief Executive Officer
and director of ProVesa since July 1994 and the President of ProImage, Inc.
since July 1996. Mr. Jackson also served as President and a member of the board
of managers of Technologies from March 1996 until its merger with the Company.
From January 1993 to June 1994, Mr. Jackson was the Chief Financial Officer of
Systems. Prior to joining the Company, Mr. Jackson was the President of Bank
Atlanta from 1991 to 1992. Mr. Jackson has over 23 years of experience working
with community financial institutions, including in service bureau, enterprise
software and other processing and accounting operations.
Scott R. Meyerhoff has served as Chief Financial Officer and Secretary of the
Company since January 1998. For the seven years prior to joining the Company,
Mr. Meyerhoff was employed by Arthur Andersen LLP, most recently as an audit
manager. Mr. Meyerhoff received his B.S. degree, with honors, in accounting
from The Pennsylvania State University, where he was a member of The
University's Scholars Program, and is a Certified Public Accountant.
Michael R. Boian has been Executive Vice President of Sales and Marketing for
the Company since January 1998. From February 1997 to January 1998, Mr. Boian
served as Vice President of Sales and Marketing of the Company. Prior to
joining the Company, he was Regional Vice President of Debit Services for
MasterCard
44
<PAGE>
International from May 1992 to November 1996. Mr. Boian has over 32 years of
financial technology experience, primarily in electronic funds transfer and
authorization systems, including debit and credit authorization systems.
Michael D. Sulpy has served as Executive Vice President of Network
Communications for the Company since January 1998. Mr. Sulpy co-founded
Technologies in March 1996 and served as its Vice President of Communications
until its merger with the Company in January 1998. He joined Systems in 1987,
and from January 1993 to January 1996, he served as its network manager,
responsible for data network design and maintenance and personnel training. Mr.
Sulpy has over 15 years of data communications management and
telecommunications network experience.
Paul D. England has served as Senior Vice President of Merchant Banking for
the Company since January 1998. He co-founded FiNet in June 1996 and served as
its President and Chief Executive Officer until its merger with the Company. He
also served as a director of the Company from December 1996 to January 1998.
Prior to co-founding FiNet, Mr. England was Senior Vice President of First
American National Bank, where he had worked since 1989. Mr. England has over 23
years of experience working with financial institutions, including merchant
credit card portfolio management.
Farrell S. Mashburn has served as Senior Vice President of Data Services for
the Company since January 1998 and Secretary of the Company since June 1996. He
served as the President of Data Services from May 1990 until its merger with
the Company in January 1998. Mr. Mashburn also served as a director of the
Company from May 1996 to January 1998. Mr. Mashburn has over 31 years of
experience in providing banking related equipment, maintenance and technical
support services, primarily to community financial institutions.
Philip R. Meinert has served as Senior Vice President of Service Bureau
Operations for the Company since January 1998. From December 1996 to January
1998, Mr. Meinert was President of Bank Services. Mr. Meinert also served as a
director of the Company from December 1996 to January 1998. Mr. Meinert was the
President of Bank Services until its acquisition by the Company in December
1996. He had been with Bank Services since 1977, managing its service bureau
and software operations and monitoring the development of PC BancPAC(TM). Mr.
Meinert has over 28 years of financial institution core data processing
experience, including client/server enterprise software development and service
bureau processing.
Vir A. Nanda has served as Senior Vice President of Technology for the
Company since January 1998. From June 1996 to January 1998, Mr. Nanda was the
Director of Technology for the Company. Mr. Nanda served as a director of the
Company from May 1996 to January 1998. He co-founded Systems in 1986 and prior
to its merger with the Company, served Systems in several capacities, most
recently as the Executive Vice President of Technology. Mr. Nanda has over 23
years of experience in EFT transaction processing and technology, primarily for
community financial institutions.
Jon R. Burke has served as a director of the Company since February 1998. He
is presently the managing member of Capital Appreciation Management Company,
L.L.C., which is the managing general partner of an Atlanta-based merchant
banking fund specializing in acquiring controlling interests in companies
located in the southeastern United States. Mr. Burke is also a principal with
Brown, Burke Capital Partners, Inc., which provides financial advisory services
to middle market corporations in connection with mergers and acquisitions and
financing. He also is a director of United Companies Financial Corporation, a
financial services holding company engaged in consumer lending. From 1973 to
1996, Mr. Burke was employed by The Robinson-Humphrey Company, Inc., most
recently serving as a Senior Vice President and the head of its financial
institutions/banking research.
Boone A. Knox has served as a director of the Company since February 1998. He
is Chairman of the board of Merry Land & Investment Co., Inc., a publicly held
real estate investment trust, and is also a director of Cousins Properties,
Inc., a publicly-held Atlanta-based real estate development company. He serves
as chairman of the board of directors of Allied Bank of Georgia, Inc.
("Allied"), a subsidiary of Regions Financial Corp., and served as Allied's
President and Chief Executive Officer from 1975 through 1986. He was Chairman
of the board of directors and Chief Executive Officer of Allied Bankshares,
Inc., the holding company of Allied, from its formation in 1984 until January
1997.
45
<PAGE>
Bruce P. Leonard has served as a director of the Company since May 1997. Mr.
Leonard has been the President and Chief Executive Officer of The Bankers Bank
in Atlanta, Georgia, and its holding company, Community Financial Services,
Inc., since 1990.
Glenn W. Sturm has served as a director of the Company since May 1997. Mr.
Sturm is a partner in the law firm of Nelson Mullins Riley & Scarborough,
L.L.P, where he serves as Corporate Chairman and as a member of the executive
committee. Since 1996, Mr. Sturm has been a director of Phoenix International
Ltd., Inc., a publicly-held provider of client/server application software for
the financial services industry. Mr. Sturm is also a principal in the Javelin
Management Company, a recently established investor in and advisor to
electronic commerce and computer telephony companies.
DIRECTOR COMPENSATION
Upon initial election to the Board of Directors, certain non-employee
directors receive options to acquire 35,000 shares of Common Stock each, 11,667
of which vest immediately and the remainder of which vest ratably on the first
and second anniversaries of such initial election. In addition, on each
anniversary date of a director's initial election to the Board of Directors,
each will receive an automatic grant of options to acquire 5,000 additional
shares of Common Stock which vest on the date of grant. The exercise price of
these options is equal to the fair market value of the Common Stock on the date
of grant. See "--Stock Option Plans." Directors of the Company may be
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or its committees and for other expenses incurred in their
capacity as directors. Directors do not receive cash fees for their services as
directors of the Company.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company for services rendered by the Company's Chief Executive Officer and the
four most highly compensated other executive officers whose total salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers") during
the year ended December 31, 1997. The Company did not grant any stock
appreciation rights or make any long-term incentive plan payouts during the
periods shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ ---------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John W. Collins......... 1997 240,000 10,000 -- 7,059(1)
Chief Executive Officer
Donny R. Jackson........ 1997 172,500 7,500 75,000 7,059(1)
President and Chief
Operating Officer
Michael R. Boian........ 1997 106,570 5,000 10,000 1,094(2)
Executive Vice
President of Sales and
Marketing
Vir A. Nanda............ 1997 204,167 -- -- 7,059(1)
Senior Vice President
of Technology
Farrell S. Mashburn..... 1997 125,000 7,500 -- 2,965(3)
Senior Vice President
of Data Services
</TABLE>
- --------
(1)Includes for each executive (i) $6,109 for health insurance premiums paid by
the Company and (ii) $950 for contributions made by the Company on behalf of
the executive to the Company's 401(k) plan.
(2)Represents health insurance premiums paid by the Company.
(3)Includes (i) $2,015 for health insurance premiums paid by the Company and
(ii) $950 for contributions made by the Company on behalf of the executive
to the Company's 401(k) plan.
46
<PAGE>
EMPLOYMENT AGREEMENTS
Collins and Jackson Agreements. Mr. Collins and the Company entered into an
employment agreement effective as of January 30, 1998 (the "Collins Agreement")
pursuant to which he will serve as the Chief Executive Officer of the Company.
The Collins Agreement provides that Mr. Collins will receive a base salary of
not less than $265,000 per year. Mr. Jackson and the Company entered into an
employment agreement effective as of January 30, 1998 (the "Jackson Agreement")
pursuant to which he will serve as the President and Chief Operating Officer of
the Company. The Jackson Agreement provides that Mr. Jackson will receive a
base salary of not less than $190,000 per year. Mr. Collins' and Mr. Jackson's
base salaries may be increased upon a periodic review by the Board of Directors
or a committee thereof. In addition, each of Mr. Collins and Mr. Jackson are
entitled to incentive compensation as determined by the Board of Directors or a
committee thereof based upon achievement of targeted levels of performance and
such other criteria as the Board of Directors or a committee thereof shall
establish from time to time, and an additional annual bonus as determined by
the Board of Directors or a committee thereof. Each of Mr. Collins and Mr.
Jackson may participate in the Company's Amended and Restated 1996 Stock Option
Plan (the "1996 Stock Option Plan") and will receive health insurance for
himself and his dependents, long-term disability insurance, civic and social
club dues, use of an automobile owned or leased by the Company and other
benefits.
The Collins Agreement and the Jackson Agreement each have terms of three
years and renew daily until either party fixes the remaining term at three
years by giving written notice. The Company can terminate the Collins Agreement
and the Jackson Agreement upon the executive's death or disability or for
cause, and the executive can terminate his employment for any reason within a
90-day period beginning on the 30th day after any occurrence of a change in
control or within a 90-day period beginning on the one-year anniversary of the
occurrence of any change in control. If Mr. Collins' or Mr. Jackson's
employment is terminated after a change in control (i) by the Company without
cause or otherwise in breach of the Collins Agreement or the Jackson Agreement,
as applicable, or (ii) by Mr. Collins or Mr. Jackson for any reason, the
Company must pay the executive all accrued compensation and bonus amounts and
one-twelfth of his annual base salary and bonus for each of 36 consecutive 30-
day periods following the termination. In addition, the Company must continue
life and health insurance for the executive until he reaches age 65, and the
executive's outstanding options to purchase Common Stock would vest and become
immediately exercisable.
In the event Mr. Collins ceases to be Chief Executive Officer of the Company
for any reason other than by voluntary resignation, the Company must offer to
repurchase all of the Common Stock owned by Mr. Collins at a purchase price
equal to Fair Market Value (as defined in the Collins Agreement). Also, in the
Collins Agreement and the Jackson Agreement, the Company granted, with respect
to their shares of Common Stock, piggyback and, after any termination of
employment, demand registration rights to each of Mr. Collins and Mr. Jackson.
See "Shares Eligible for Future Sale." Under the Collins Agreement and the
Jackson Agreement, Mr. Collins and Mr. Jackson agree to maintain the
confidentiality of the Company's trade secrets and for a period of one year, if
terminated for cause, not to solicit employees or customers of the Company.
Other Employment Agreements. The Company and Mr. Nanda entered into an
employment agreement dated June 4, 1996 pursuant to which Mr. Nanda receives an
annual salary of not less than $200,000. Mr. Nanda's employment agreement
permits the Company to terminate the agreement upon the completion of an
initial public offering. The Company and Mr. Nanda have agreed to negotiate a
new employment arrangement upon the closing of the Offering. On February 1,
1998, Mr. Meyerhoff and the Company entered into an employment agreement (the
"Meyerhoff Agreement") pursuant to which he will serve as the Chief Financial
Officer of the Company. The Meyerhoff Agreement has a term of one year which
renews automatically at the end of each term unless earlier terminated by the
Company or Mr. Meyerhoff. The Company can terminate the Meyerhoff Agreement
upon his death or disability or for cause, and Mr. Meyerhoff can terminate his
employment for any reason within a 90-day period beginning on the 30th day
after any occurrence of a change in control or within a 90-day period beginning
on the one-year anniversary of the occurrence of any change in control. If
Mr. Meyerhoff's employment is terminated for any reason after a change in
control, the Company must pay Mr. Meyerhoff a lump sum cash payment equal to
three-fourths of his annual base salary and bonus.
47
<PAGE>
OPTION GRANTS
The following table sets forth information concerning each grant of stock
options to the Named Executive Officers during the year ended December 31,
1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
---------------------------------------------------- ----------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN OR BASE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
- ---- --------------- ------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Donny R. Jackson........ 157,898 88.2% $2.16(2) 1/14/07 2,488,132 4,163,955
Michael R. Boian........ 21,053 11.8% $2.16(2) 2/24/07 331,750 552,192
</TABLE>
- --------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the term will
be at the assumed 5% and 10% levels or at any other defined level. Unless
the market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the Named Executive
Officers.
(2) Options were granted at the fair market value of the Common Stock on the
date of grant as determined by the Board of Directors, based upon the
purchase price established in arms-length negotiations with unrelated third
parties with respect to the Common Stock issued in the December 1996
acquisitions of Bank Services and FiNet and other information available to
the Company at or about that time. These options vest ratably over five
years beginning with the date of the grant.
The following table sets forth certain information regarding the exercise of
options and the number of options held by the Named Executive Officers who have
been granted stock options, as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
OPTIONS AT DATE OF THE-MONEY OPTIONS AT DATE
OFFERING(#) OF OFFERING($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John W. Collins............. 16,843 -- 145,355 --
Donny R. Jackson............ 40,001 126,318 351,840 1,116,651
Michael R. Boian............ 8,421 12,632 37,225 148,883
Farrell S. Mashburn......... 8,421 -- 72,673 --
</TABLE>
- --------
(1)Based upon the price of the Common Stock to be sold in this Offering, which
is assumed to be $11.00 per share.
STOCK OPTION PLANS
1996 Stock Option Plan
The Board of Directors and the Company's shareholders have approved the
Company's 1996 Stock Option Plan, effective as of November 12, 1996. The
purpose of the 1996 Stock Option Plan is to advance the interests of the
Company, its subsidiaries and its shareholders by affording certain employees
and directors of the Company, as well as key consultants and advisors to the
Company or any subsidiary, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the issuance of stock
options and grants of restricted stock under the Plan is to promote the growth
and profitability of the Company and its subsidiaries because the optionees and
grantees will be provided with an additional incentive to achieve the Company's
objectives through participation in its success and growth and by encouraging
their continued association with or service to the Company.
Awards under the 1996 Stock Option Plan are currently granted by the Board of
Directors but, after this Offering, will be granted by a committee composed of
at least two independent directors (the "Committee") when it is established.
Awards issued under the 1996 Stock Option Plan may include incentive stock
options ("ISOs") and/or non-qualified stock options ("NQSOs") and/or grants of
restricted stock. The Committee will
48
<PAGE>
administer the 1996 Stock Option Plan and generally has discretion to determine
the terms of an option grant, including the number of option shares, option
price, term, vesting schedule, the post-termination exercise period and whether
the grant will be an ISO or NQSO. Notwithstanding this discretion: (i) the
number of shares subject to options granted to any individual in any fiscal
year may not exceed 315,795 shares (subject to certain adjustments); (ii) if an
option is intended to be an ISO and is granted to a shareholder holding more
than 10% of the combined voting power of all classes of the Company's stock or
the stock of its parent or subsidiary on the date of the grant of the option,
the option price per share of Common Stock may not be less than 110% of the
fair market value of such share at the time of grant; and (iii) the term of an
ISO may not exceed 10 years, or 5 years if granted to a shareholder owning more
than 10% of the total combined voting power of all classes of stock on the date
of the grant of the option.
The Stock Option Plan provides for the granting of non-qualified stock
options to the directors of the Company ("Director Grants"). The Board of
Directors has authorized the issuance of up to 175,000 shares of Common Stock
under the Stock Option Plan pursuant to options having an exercise price equal
to the fair market value of the Common Stock on the date the options are
granted. The Board of Directors has approved Director Grants of (i) options to
purchase 35,000 shares to each non-employee director of the Company who
beneficially owns less than 4% of the Company's outstanding Common Stock on the
date of such director's election to the Board of Directors, and (ii) options to
purchase 5,000 shares to each director on each anniversary date of such
director's election to the Board at an exercise price equal to the fair market
value of the Common Stock on the date the options are granted. Each initial
Director Grant option vests over the director's three year term of service and
each annual grant vests on the date of grant. Each Director Grant expires five
years after the date of grant, unless canceled sooner as a result of
termination of service or death, or unless such option is fully exercised prior
to the end of the option period.
The maximum number of shares of Common Stock that currently may be subject to
outstanding options, determined immediately after the grant of any option, is
1,263,180 shares (subject to certain adjustments). The 1996 Stock Option Plan
provides that the number of shares of Common Stock available for issuance
thereunder shall be automatically increased on the first trading day of each
calendar year beginning January 1, 1999 by the lesser of (i) three percent of
the number of shares outstanding on the preceding trading day or (ii) 315,795
shares (subject to certain adjustments). Shares of Common Stock that are
attributable to awards which have expired, terminated or been canceled or
forfeited during any calendar year are available for issuance or use in
connection with future awards.
The 1996 Stock Option Plan will remain in effect until terminated by the
Board of Directors. The 1996 Stock Option Plan may be amended by the Board of
Directors without the consent of the shareholders of the Company, except that
any amendment, although effective when made, will be subject to shareholder
approval within one year after approval by the Board of Directors if the
amendment increases the total number of shares issuable pursuant to ISOs (other
than the permitted annual increase), changes the class of employees eligible to
receive ISOs that may participate in the 1996 Stock Option Plan, or otherwise
materially increases the benefits accruing to recipients of ISOs.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended. Section 162(m) generally disallows a
public company's tax deduction for compensation to the chief executive officer
and four other most highly compensated executive officers in excess of
$1,000,000 in any tax year beginning on or after January 1, 1994. Compensation
that qualifies as "performance-based compensation" is excluded from the
$1,000,000 deductibility cap, and therefore remains fully deductible by the
company that pays it. The Company intends that options granted with an exercise
price at least equal to 100% of fair market value of the underlying stock at
the date of grant will qualify as such "performance-based compensation,"
although other awards under the 1996 Stock Option Plan may not so qualify.
ProVesa, Inc. 1994 Stock Option Plan
In November 1996, as part of the ProVesa Merger, the Company executed a Stock
Option Plan Assumption Agreement, pursuant to which 20,000 options outstanding
under the ProVesa, Inc. 1994 Stock Option Plan (the
49
<PAGE>
"ProVesa Plan") were converted into options to acquire 42,106 shares of Common
Stock. The Company assumed the rights and obligations of ProVesa under the
ProVesa Plan.
The purpose of the ProVesa Plan is to advance the interests of the Company,
its subsidiaries, and its shareholders by affording certain employees and
directors of the Company and its subsidiaries, as well as key consultants and
employees of the Company's suppliers and contractors, an opportunity to acquire
or increase their proprietary interests in the Company. The objective of the
issuance of stock options and grants of restricted stock under the ProVesa Plan
is to promote the growth and profitability of the Company and its subsidiaries
because the optionees and grantees will be provided with an additional
incentive to achieve the Company's objectives through participation in its
success and growth and by encouraging their continued association with or
service to the Company.
Awards under the ProVesa Plan are granted by the Board of Directors but may
be granted by a committee of at least two directors appointed by the Board of
Directors. Awards under the ProVesa Plan may include ISOs, NQSOs or restricted
stock. The committee that administers the ProVesa Plan generally has discretion
to determine the terms of an option grant, including the number of option
shares, option price, term, vesting schedule, the post-termination exercise
period and whether the grant will be an ISO or NQSO. Notwithstanding this
discretion, if an option is intended to be an ISO and is granted to a
shareholder holding more than 10% of the combined voting power of all classes
of the Company's stock or of its parent or subsidiary on the date of the grant
of the option, the option price per share of Common Stock may not be less than
110% of the fair market value of such shares and the term of any option may not
exceed 10 years, or 5 years if the option is intended to be an ISO and is
granted to a shareholder owning more than 10% of total combined voting power of
all classes of stock on the date of the grant of the option.
The ProVesa Plan may be amended by the Board of Directors without the consent
of the shareholders of the Company, except that any amendment, although
effective when made, will be subject to shareholder approval within one year
after approval by the Board of Directors if the amendment increases the total
number of shares issuable pursuant to ISOs or changes the class of employees
eligible to receive ISOs that may participate in the ProVesa Plan or otherwise
materially increases the benefits accruing to recipients of ISOs. Effective
February 24, 1998, the Board of Directors determined that the Company will not
issue any additional options under the ProVesa Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish an Audit Committee, a
Compensation Committee and an Executive Committee. The members of each
committee are expected to be determined at the first meeting of the Board of
Directors following the closing of the Offering. The members of the Audit and
Compensation Committees will consist of a majority of outside directors.
50
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 and as adjusted to
reflect the sale of the Common Stock offered hereby with respect to: (i) each
of the Company's directors and Named Executive Officers; (ii) each person known
by the Company to own beneficially more than 5% of the Common Stock; (iii) each
Selling Shareholder; and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the holders listed
below has sole voting power and investment power over the shares beneficially
owned and each person known by the Company to beneficially own more than 5% of
the Common Stock has an address in care of the Company's principal office.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THIS OWNED AFTER THIS
STOCK OFFERING(1) NUMBER OF STOCK OFFERING(1)
-------------------- SHARES --------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
John W. Collins(2)......... 4,161,896 61.7% 2,472,113 27.4%
Donny R. Jackson(3)........ 605,625 8.9 605,625 6.7
Michael R. Boian(4)........ 8,421 * 8,421 *
Michael D. Sulpy........... 497,202 7.4 497,202 5.5
Farrell S. Mashburn(5)..... 212,635 3.1 212,635 2.4
Vir A. Nanda(6)............ 1,038,544 15.4 137,500 901,044 10.0
Jon R. Burke(7)............ 11,667 * 11,667 *
Boone A. Knox(8)........... 11,667 * 11,667 *
Bruce P. Leonard(9)........ 11,667 * 11,667 *
Glenn W. Sturm(10)......... 373,865 5.5 373,865 4.2
James R. Henderson(11)..... 385,270 5.7 137,500 247,770 2.8
All directors and executive
officers as
a group (13 persons)...... 5,468,468 80.8% 5,353,005 59.2%
</TABLE>
- --------
(1) Shares Beneficially Owned is calculated assuming 6,750,114 shares of
Common Stock were outstanding on March 31, 1998 and 9,000,114 shares will
be outstanding immediately after this Offering. This percentage also
includes Common Stock of which such individual or group has the right to
acquire beneficial ownership within 60 days of March 31, 1998, including
but not limited to the exercise of an option; however, such Common Stock
is not deemed outstanding for the purpose of computing the percentage
owned by any other individual or group. See "Underwriting."
(2) Includes (i) 2,455,270 shares of Common Stock owned by Mr. Collins, (ii)
currently exercisable options held by Mr. Collins to purchase a total of
16,843 shares of Common Stock, (iii) prior to completion of this Offering,
594,131 outstanding shares of Common Stock and 57,108 shares of Common
Stock issuable upon the exercise of currently outstanding options which
are subject to a voting trust for which Mr. Collins is the trustee with
the sole power to vote and (iv) prior to completion of this Offering,
1,038,544 shares of Common Stock owned by Mr. Nanda and subject to a
voting agreement which provides that such shares will be voted as Mr.
Collins directs through May 1998. The voting trust automatically expires
upon completion of this Offering and the agreement with Mr. Nanda
terminates in May 1998. See "Certain Transactions."
(3) Includes currently exercisable options held by Mr. Jackson to purchase a
total of 71,580 shares of Common Stock.
(4) Includes currently exercisable options held by Mr. Boian to purchase a
total of 8,421 shares of Common Stock.
(5) Includes currently exercisable options held by Mr. Mashburn to purchase a
total of 8,421 shares of Common Stock.
(6) The 1,038,544 shares owned by Mr. Nanda are subject to a voting agreement
which provides that such shares will be voted as Mr. Collins directs
through May 1998.
(7) Includes options held by Mr. Burke to purchase a total of 11,667 shares of
Common Stock which are vested but not currently exercisable.
(8) Includes options held by Mr. Knox to purchase a total of 11,667 shares of
Common Stock which are vested but not currently exercisable.
(9) Includes options held by Mr. Leonard to purchase a total of 11,667 shares
of Common Stock which are vested but not currently exercisable.
(10) Mr. Sturm's address is Nelson Mullins Riley & Scarborough, L.L.P., 999
Peachtree Street, N.E., Suite 1400, Atlanta, Georgia 30309. The 373,865
shares owned by Mr. Sturm are subject to a voting trust agreement pursuant
to which Mr. Collins has the right to vote such shares. Such voting trust
expires, by its terms, upon completion of the Offering.
(11) Includes currently exercisable options held by Mr. Henderson to purchase a
total of 8,421 shares of Common Stock. From June 4, 1996 to January 30,
1998, Mr. Henderson served as a director and officer of the Company. Prior
to June 1996, Mr. Henderson was an officer and director of Systems.
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CERTAIN TRANSACTIONS
ACQUISITIONS
The Company was incorporated in 1996 to be a holding company for Systems,
Data Services and ProVesa and has since acquired three other companies to
create a single-source provider of electronic commerce solutions for community
financial institutions. Historically, the Company operated the acquired
companies as wholly-owned subsidiaries. On January 30, 1998, the Company
acquired Technologies, consolidated its corporate structure and now operates
two wholly-owned subsidiaries, ProVesa and InterCept Switch. See "The Company."
In certain of these transactions, persons who were previously officers,
directors and/or shareholders of the acquired companies became executive
officers, directors or holders of at least 5% of the outstanding Common Stock
("Interested Persons") and may have received other consideration from the
Company. The following table summarizes the total number of shares of Common
Stock issued by the Company to Interested Persons in those acquisitions:
<TABLE>
<CAPTION>
SHARES OF
ACQUIRED COMPANY COMMON STOCK
---------------- ------------
<S> <C>
Systems..................................................... 2,431,622
Data Services............................................... 610,537
ProVesa..................................................... 221,056
Bank Services............................................... 501,129
FiNet....................................................... 244,741
Technologies................................................ 2,741,029
---------
Total................................................... 6,750,114
=========
</TABLE>
Intercept Systems, Inc. and Data Services Corp.
On June 4, 1996, pursuant to an Agreement of Share Exchange by and between
the Company, Systems, Data Services, John W. Collins, Vir A. Nanda, James R.
Henderson, and Farrell S. Mashburn, the Company acquired all of the outstanding
capital stock of Systems and Data Services. In exchange for substantially all
of the capital stock of Systems, the Company issued the following shares of
Common Stock: John W. Collins--1,042,124 shares; Vir A. Nanda--1,042,124 shares
and J. Ronney Henderson--347,375 shares. The Company and The Ronney Henderson
Charitable Remainder Trust (the "Henderson Trust"), for which J. Ronney
Henderson is the trustee, entered into a Share Purchase Agreement dated June 4,
1996, pursuant to which the Company purchased 206 shares of the common stock of
Systems for the purchase price of $1.0 million. In exchange for all of the
capital stock of Data Services, the Company issued 427,376 shares of Common
Stock to Mr. Collins and 183,161 shares of Common Stock to Mr. Mashburn. Based
upon the price at which the Henderson Trust sold its shares to the Company, the
value of the shares of Common Stock issued in exchange for the capital stock of
Systems and Data Services was approximately $1.44 per share. Pursuant to a
voting agreement, Mr. Nanda has agreed to vote his 1,038,544 shares as Mr.
Collins directs through May 1998.
The Company entered into an employment agreement with Mr. Henderson dated
June 4, 1996, pursuant to which Mr. Henderson receives an annual salary of not
less than $60,000. In addition, pursuant to his employment agreement, the
Company is required to pay Mr. Henderson (x) $15,000 per month until the
earlier of (i) the completion of 60 consecutive months, or (ii) the payment of
$1.8 million on or, at the Company's discretion, at any time prior to June 4,
2001. The Company also entered into an employment agreement with Mr. Nanda
dated June 4, 1996, pursuant to which Mr. Nanda receives an annual salary of
not less than $200,000. See "Management--Employment Agreements."
Also in connection with the acquisition of Systems and Data Services, the
Company entered into the GSB Loan Facility on June 17, 1996, pursuant to which
it borrowed $3.0 million from the Georgia State Bank. The proceeds of the loan
were used to acquire the stock of Data Services and Systems and to satisfy
existing indebtedness in the amount of $686,421 owed to The Bankers Bank,
Atlanta, Georgia ("The Bankers Bank"). Data Services, Systems and Mr. Collins
guaranteed the GSB Loan Facility. The stock of Data Services and Systems was
pledged to secure the GSB Loan Facility, and, as additional security, Mr.
Collins assigned to the
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<PAGE>
lender a life insurance policy on his life in the amount of $1.0 million. In
connection with the GSB Loan Facility, Mr. Henderson agreed to subordinate his
rights to payments from the Company pursuant to his employment agreement dated
June 4, 1996 to the rights of the lender.
On June 17, 1996, The Bankers Bank purchased an 83.0% interest in the GSB
Loan Facility. Bruce P. Leonard, a director of the Company, is the President
and Chief Executive Officer of The Bankers Bank. As of January 31, 1998, the
outstanding balance owed under the GSB Loan Facility was $2,717,182. See "Use
of Proceeds."
ProVesa Inc.
Pursuant to an Agreement and Plan of Merger effective November 27, 1996,
among the Company, PV Acquisition Corp., a wholly-owned subsidiary of the
Company ("PVAC"), and ProVesa, Inc., ProVesa, Inc. merged with and into PVAC,
which then changed its name to ProVesa Inc. In connection with the merger, all
outstanding shares of capital stock of ProVesa, Inc. were converted into an
equal number of shares of the capital stock of the Company. Based upon
information available to the Company at the time, the value of the shares of
Common Stock issued in this transaction was approximately $2.29 per share. As a
result of such conversion, the Company issued a total of 221,057 shares of
Common Stock and 4,000 shares of Series A Preferred Stock. Interested Persons
receiving shares of Common Stock in connection with this transaction included:
John W. Collins--58,948 shares; Donny R. Jackson--36,843 shares; Farrell S.
Mashburn--21,053 shares; J. Ronney Henderson--29,474 shares; Michael D. Sulpy--
4,211 shares; Vir A. Nanda--4,211 shares; and Glenn W. Sturm--4,211 shares.
FiNet, Inc.
On December 17, 1996, pursuant to an Acquisition and Merger Agreement dated
as of November 30, 1996, Intercept Acquisitions II, Inc., a wholly-owned
subsidiary of the Company, acquired by merger all of the capital stock of FiNet
in exchange for 244,741 shares of Common Stock and changed its name to FiNet,
Inc. Paul D. England, an officer and shareholder of the acquired company,
received 73,422 shares of Common Stock and options to acquire 171,319 shares of
Common Stock (which options have been canceled). Based upon information
available to the Company at the time, the value of the Shares of Common Stock
issued in exchange for the Capital Stock of FiNet was $2.35 per share. F
ollowing the acquisition, Mr. England remained the President of FiNet and
entered into an employment agreement with the Company which provides for a
current annual salary of $120,000. Glenn W. Sturm, a director of the Company,
exchanged options to acquire 333 shares of common stock of FiNet for 12,236
shares of Common Stock of the Company in connection with this transaction. On
December 31, 1996, Mr. Sturm was granted options to acquire 28,554 shares of
Common Stock at an exercise price of $2.16 per share.
The Company, John W. Collins, Glenn W. Sturm, Salem Capital Corporation, Paul
D. England, Jack L. Lance and Jerry McKamey entered into a Voting Trust
Agreement dated as of December 31, 1996 (the "Voting Trust"), Pursuant to the
Voting Trust, Messrs. England, Lance, Sturm and McKamey and Salem Capital
Corporation agreed to place into a voting trust all shares of Common Stock
received upon exercise of options granted to them by the Company and all other
securities of the Company acquired or held by them at any future time in
connection with the performance of employment and consulting services to FiNet.
The options to acquire 513,956 shares of Common Stock held by Messrs. England,
Lance and McKamey were terminated in January 1998. However, in connection with
their continued employment by the Company following the merger of the Company
and FiNet in January 1998, Messrs. England, Lance and McKamey agreed to subject
the shares of Common Stock owned by them to the Voting Trust. John W. Collins
is the trustee of the trust and has the right to vote shares subject to the
Voting Trust. The Voting Trust terminates automatically upon completion of this
Offering. The options owned by Mr. Sturm and Salem Capital Corporation are not
currently exercisable.
Bank Services Corporation
On December 31, 1996, pursuant to an Acquisition and Merger Agreement dated
as of November 26, 1996, Intercept Acquisitions, Inc., a wholly-owned
subsidiary of the Company, acquired by merger all of the capital
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<PAGE>
stock of Bank Services in exchange for 501,129 shares of Common Stock. Based
upon information available to the Company at the time, the value of the shares
of Common Stock issued in exchange for the capital stock of Bank Services was
approximately $2.16 per share. Philip R. Meinert, an officer of the Company,
received 129,602 shares of Common Stock in exchange for his shares of Bank
Services owned prior to the merger.
In connection with the acquisition, Bank Services entered into a Loan
Agreement dated December 27, 1996 with Community Bank of Georgia, pursuant to
which it borrowed $450,000. The Company pledged all of the stock of Bank
Services it received in the transaction as security for the loan. Messrs.
Collins and Jackson and Data Services were guarantors of the loan. In addition,
life insurance policies on the lives of Messrs. Collins and Jackson with a face
value of $200,000 were pledged as additional collateral. On January 26, 1998,
Bank Services paid $406,336 to Community Bank of Georgia in full satisfaction
of the loan. As a result of such repayment, the Bank Services stock was
released from the pledge, Messrs. Collins and Jackson were released from their
guaranties and the life insurance policies previously pledged as collateral for
the loan were also released.
Intercept Communications Technologies, Inc.
Pursuant to an Agreement and Plan of Merger dated as of January 30, 1998, the
Company merged with Technologies. In exchange for the membership units of
Technologies, the Company issued a total of 2,741,029 shares of Common Stock to
17 individuals, including the following Interested Persons: John W. Collins--
926,823 shares; Donny R. Jackson--492,990 shares; Glenn W. Sturm--357,419
shares; Michael D. Sulpy--492,992 shares and a total of 470,804 shares to
certain family members of John W. Collins, some of whom work for the Company.
Based upon information available to the Company at the time, the value of the
shares of Common Stock issued in this transaction was approximately $7.40 per
share. Pursuant to agreements dated July and August of 1997, Messrs. Jackson,
Sturm and Sulpy granted Mr. Collins the right to vote their interests in
Technologies.
OTHER TRANSACTIONS AND RELATIONSHIPS
In connection with a $3.5 million loan from Sirrom Investments, Inc. to Dyad
Corporation ("Dyad"), Mr. Collins guaranteed the loan and pledged 1,222,758
shares of Common Stock to secure his guaranty. The shares of Common Stock
pledged by Mr. Collins will be released upon completion of the Offering.
Messrs. Collins, Jackson and Sturm are directors and shareholders of Dyad.
On December 31, 1997, the Company received $1,254,121 from Dyad for repayment
of a loan to Dyad from the Company. The shareholders of Dyad include: the
Company; John W. Collins; Donny R. Jackson; Glenn W. Sturm; Michael D. Sulpy;
JCB Venture Partnership III, an affiliate of J.C. Bradford & Co.; and Phoenix
International Ltd., Inc. ("Phoenix"), of which Mr. Sturm is a director.
Prior to their acquisition by the Company, Data Services and Systems were S
corporations. As a result, Messrs. Collins and Mashburn received distributions
in amounts (totaling $40,000) necessary to pay their personal taxes
attributable to the income of Data Services and Messrs. Collins, Henderson and
Nanda received distributions of $532,479, $526,122 and $520,446, respectively,
necessary to pay their personal taxes attributable to the income of Systems.
From its inception in March 1996 until October 1997, Technologies was taxed as
a partnership. Upon its election in October 1997 to be taxed as a C
corporation, Technologies made distributions of $385,811, of which $12,773
remains unpaid after the January 15, 1998 distribution to its members,
including Messrs. Collins, Jackson, Sulpy and Sturm.
During the period from January 1, 1996 to May 31, 1996, the Company incurred
costs of $119,400 and $44,775, respectively, for equipment maintenance services
from Data Services.
During 1995, the Company incurred costs of $102,821 for transportation
services provided by Javiar, Inc. ("Javiar" ), a corporation owned by Messrs.
Collins, Henderson and Nanda, In May 1996, Javiar was merged into Systems, and
each of the shareholders of Javiar received nine shares of stock of Systems as
part of the
54
<PAGE>
merger. The Company had a note receivable from Javiar in the amount of
$182,179, which was extinguished upon the merger.
The Company incurred costs of $168,018 and $125,296 in 1995 and 1996,
respectively, for supplies and services from ATM Source, a corporation wholly-
owned by Mr. Collins. There were no transactions between these entities in
1997.
The Company and Phoenix have entered into Software License and Development
Agreements dated December 31, 1997 (the "December Agreement"). Under the
December Agreement, the Company licensed ATM and voice response software from
Phoenix and obtained the rights to develop the software and integrate it with
the Company's existing software programs. On January 15, 1998, Phoenix and the
Company entered into an agreement (the "January Agreement") whereby Phoenix
licensed EFT software from the Company and obtained the rights to develop the
software and integrate it with Phoenix's existing programs. Glenn W. Sturm, a
director of the Company, is also a director of Phoenix. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ProVesa paid Systems a total of $174,774 and $166,572 for the year ended
December 31, 1995 and the eleven month period ended November 30, 1996 for ATM
processing and card supplies.
COMPANY POLICY
Following the closing of this Offering, all transactions with the Company's
shareholders, officers and directors or their affiliates, if any, will be
subject to the approval of a majority of the independent and disinterested
outside directors and will be conducted on terms no less favorable than could
be obtained from unaffiliated third parties on an arm's length basis.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is only a
summary and is subject to the provisions of the Articles of Incorporation and
Bylaws, which are included as exhibits to the Registration Statement of which
this Prospectus forms a part, and the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The Company's Amended and Restated Articles of Incorporation (the "Articles
of Incorporation"), filed on April 29, 1998, authorize the Board of Directors
to issue 50,000,000 shares of Common Stock without par value and 1,000,000
shares of Preferred Stock without par value, in one or more classes or series
and, within certain limitations, to determine the voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and in liquidation, and conversion and other rights of such series. The rights
of the holders of the Common Stock are subject to the rights of the Company's
Series A 8% Cumulative Preferred Stock (the "Series A Preferred Stock")
(discussed below) and such other rights as the Board of Directors may hereafter
confer on the holders of preferred stock; accordingly, such rights conferred on
holders of any additional preferred stock that may be issued in the future
under the Articles of Incorporation may adversely affect the rights of holders
of the Common Stock. As of March 31, 1998, there were 6,750,114 shares of
Common Stock outstanding.
COMMON STOCK
Under the Articles of Incorporation, holders of Common Stock are entitled to
receive such dividends as may be legally declared by the Board of Directors.
Each shareholder is entitled to one vote per share on all matters to be voted
upon and will not be entitled to cumulate votes for the election of directors.
Holders of Common Stock will not have preemptive, redemption or conversion
rights and, upon liquidation, dissolution or winding up of the Company, will be
entitled to share ratably in the net assets of the Company available for
distribution to common shareholders. All outstanding shares prior to the
Offering are, and all shares to be issued in this Offering will be, validly
issued, fully paid and non-assessable. The rights, preferences and privileges
of holders of Common Stock are subject to the rights, preferences and
privileges of holders of the Series A Preferred Stock, as well as any
additional classes or series of preferred stock that the Company may issue in
the future.
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue,
without further action by the holders of the Common Stock, shares of preferred
stock in one or more series and to fix any preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as shall be set forth in resolutions adopted by the
Board of Directors. Articles of amendment must be filed with the Georgia
Secretary of State prior to the issuance of any shares of preferred stock of
the applicable series. Any preferred stock so issued may rank senior to the
Common Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding-up, or both. In addition, any such shares
of preferred stock may have class or series voting rights. Issuances of
preferred stock, while providing the Company with flexibility in connection
with general corporate purposes, may, among other things, have an adverse
effect on the rights of holders of Common Stock and, in certain circumstances,
could have the effect of making it more difficult for a third party to acquire
a majority of the outstanding voting stock of the Company or the effect of
decreasing the market price of the Common Stock. The Company has no present
plan to issue any additional shares of preferred stock.
Series A Preferred Stock
On November 27, 1996, the Company filed Articles of Amendment to its Articles
of Incorporation for the designation of 30,000 shares of Series A Preferred
Stock. The stated value of the Series A is $100 per share. Holders of Series A
Preferred Stock are entitled to receive dividends at the annual rate of 8% of
the stated value
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<PAGE>
per share, or $8.00 per share, payable quarterly. Dividends are cumulative from
the date of issue. The Company may not declare or pay cash dividends on any
other series of Preferred Stock that is junior to or on parity with the Series
A Preferred Stock, or on the Common Stock, nor may it redeem, purchase or
otherwise acquire any of such stock, unless full cumulative dividends have been
or are contemporaneously declared and paid on the Series A Preferred Stock. In
the event of any liquidation or dissolution of the Company, the holders of
shares of Series A Preferred Stock are entitled to receive out of assets of the
Company available for distribution to shareholders, before any distributions
are made to holders of Common Stock or of any other shares of stock of the
Company ranking junior to the Series A Preferred Stock, liquidating
distributions in the amount of $100 per share, plus accrued and unpaid
dividends.
The Series A Preferred Stock is redeemable at the option of the Company for
cash at any time, in whole or in part, on at least 10 days' notice. The price
payable upon redemption is 110% of stated value per share, or $110 per share,
plus accrued but unpaid dividends. At any time after the third anniversary of
the initial issuance of shares of Series A Preferred Stock, any holder of
Series A Preferred Stock may tender all or part of such holder's Series A
Preferred Stock for redemption at a price equal to 100% of stated value, or
$100 per share, plus accrued and unpaid dividends. The holders of the Series A
Preferred Stock have no voting rights except as otherwise required by the
Georgia Business Corporation Code (the "Georgia Code") and applicable law. The
holders of shares of Series A Preferred Stock have no preemptive or other
rights to subscribe for any other shares or securities, nor do they have any
conversion rights. The Series A Preferred Stock ranks prior to the Common Stock
as to dividends and upon liquidation of the Company.
As of March 31, 1998, there were 4,000 shares of Series A Preferred Stock
outstanding. The Company will redeem all of the 4,000 shares of Series A
Preferred Stock using net proceeds of the Offering. See "Use of Proceeds."
CLASSIFIED BOARD OF DIRECTORS
The Articles of Incorporation provide that the Board of Directors shall
consist of not less than four nor more than 12 members. The Board of Directors
is divided into three classes of directors serving staggered three-year terms.
As a result, approximately one-third of the Board of Directors are elected at
each annual meeting of shareholders. The classification of directors, together
with other provisions in the Articles of Incorporation and Bylaws that limit
the removal of directors and permit the remaining directors to fill any
vacancies on the Board of Directors, has the effect of making it more difficult
for shareholders to change the composition of the Board of Directors. As a
result, at least two annual meetings of shareholders may be required for the
shareholders to change a majority of the directors, whether or not such change
in the Board of Directors would be beneficial to the Company and its
shareholders and whether or not a majority of the Company's shareholders
believes that such a change would be desirable. The Company believes, however,
that the longer time required to elect a majority of a classified Board of
Directors will help to ensure the continuity and stability of the Company's
management and policies. Currently, the terms of Class I directors expire in
1999, the terms of Class II directors expire in 2000 and the terms of Class III
directors expire in 2001.
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The Bylaws provide that, unless the Board of Directors otherwise determines,
any vacancies, including vacancies resulting from an increase in the number of
directors, will be filled by the affirmative vote of a majority of the
remaining directors, even if less than a quorum. A director may be removed only
with cause by the vote of the holders of 66 2/3% of the shares entitled to vote
for the election of directors at a meeting of shareholders called for the
purpose of removing such director.
ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The Bylaws provide that with respect to an annual meeting of shareholders,
the proposal of business to be considered by shareholders and nominations of
persons for election to the Board of Directors may be made only
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(i) by or at the direction of the Board of Directors, the Chairman of the Board
of Directors or the President, or (ii) by a shareholder who has complied with
the advance notice procedures set forth in the Bylaws.
The purpose of requiring shareholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the Board of Directors, to inform shareholders and make
recommendations about such qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of shareholders. Although the
Bylaws do not give the Board of Directors any power to disapprove timely
shareholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of shareholder proposals if the proper procedures are not
followed and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal.
SPECIAL MEETINGS
Under the Bylaws, provided that the Company has more than 100 beneficial
owners (as defined by the Georgia Code) of its shares, special meetings of the
shareholders may be called by shareholders only if such shareholders hold
outstanding shares representing a majority of all votes entitled to be cast on
any issue proposed to be considered at any such special meeting. If the Company
has less than 100 beneficial owners, the holders of shares representing 25% or
more of the votes entitled to be cast may call a special meeting.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Articles of Incorporation eliminate, subject to certain exceptions, the
personal liability of a director to the Company or its shareholders for
monetary damage for breaches of such director's duty of care or other duties as
a director. The Articles do not provide for the elimination of or any
limitation on the personal liability of a director for (i) any appropriation,
in violation of the director's duties, of any business opportunity of the
Company, (ii) acts or omissions that involve intentional misconduct or a
knowing violation of law, (iii) unlawful corporate distributions, or (iv) any
transactions from which the director derived an improper personal benefit. The
Articles of Incorporation of the Company further provide that if the Georgia
Code is amended to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
Georgia Code, as amended, without further action by the shareholders. These
provisions of the Articles of Incorporation will limit the remedies available
to a shareholder in the event of breaches of any director's duties to such
shareholder or the Company.
The Company's Bylaws require the Company to indemnify and hold harmless any
director who was or is a party or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including any action or suit by or
in the right of the Company) because he or she is or was a director of the
Company, against expenses (including, but not limited to, attorney's fees and
disbursements, court costs and expert witness fees), and against judgments,
fines, penalties, and amounts paid in settlement incurred by him or her in
connection with the action, suit or proceeding. Indemnification would be
disallowed under any circumstances where indemnification may not be authorized
by action of the Board of Directors, the shareholders or otherwise.
The Company has entered into separate indemnification agreements with each of
its directors and executive officers, whereby the Company agreed, among other
things, to provide for indemnification and advancement of expenses in a manner
and subject to terms and conditions similar to those set forth in the Bylaws.
These agreements also provide that the Company shall purchase and maintain
liability insurance for the benefit of its directors and executive officers.
These agreements may not be abrogated by action of the shareholders. There is
no pending litigation or proceeding involving a director, officer, employee or
other agent of the Company as to
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<PAGE>
which indemnification is being sought, nor is the Company aware of any pending
or threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
REGISTRATION RIGHTS
Upon expiration of the Lock-up Agreements, Mr. Collins and Mr. Jackson, who
will beneficially hold approximately 2,472,113 and 605,625 shares of Common
Stock, respectively, upon completion of this Offering, will be entitled to
certain demand registration rights with respect to such shares, if their
employment is terminated for any reason or if they are no longer directors of
the Company. If the exercise of their demand registration rights causes a large
number of shares to be registered and sold in the public market, such sales
could have a material adverse effect on the market price for the Common Stock.
See "Shares Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS AND GEORGIA LAW
Board and Shareholder Action Required for Certain Transactions. The Articles
of Incorporation require the affirmative vote of at least 66 2/3% of the
directors for the following actions by the Company to be submitted to a vote of
the shareholders: (i) a sale of all or substantially all of the assets of the
Company; (ii) a liquidation or dissolution of the Company; (iii) the merger,
consolidation or reorganization of the Company, unless the shareholders of the
Company immediately prior to such transaction own at least a majority of the
combined voting power of the Company resulting from such merger, consolidation
or reorganization; or (iv) any increase in the number of directors above 12
directors. In addition, the affirmative vote of 66 2/3% of the holders of the
Common Stock is required for shareholder approval of any such actions.
Issuance of Preferred Stock. The Board of Directors has the power to issue
1,000,000 shares of preferred stock, in one or more classes or series and with
such rights and preferences as determined by the Board of Directors, all
without shareholder approval. Because the Board of Directors has the power to
establish the preferences and rights of each class or series of preferred
stock, it may afford the holders in any series of preferred stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
Common Stock. The Board of Directors has no present plans to issue any
additional shares of preferred stock.
Georgia Anti-Takeover Statutes. The Georgia Code generally restricts a
company from entering into certain business combinations with an interested
shareholder (which is defined as any person or entity that is the beneficial
owner of at least 10% of the company's voting stock) or its affiliates for a
period of five years after the date on which such shareholder became an
interested shareholder, unless (i) the transaction is approved by the Board of
Directors of the Company prior to the date such person became an interested
shareholder, (ii) the interested shareholder acquires 90% of the company's
voting stock in the same transaction in which it exceeds 10%, or (iii)
subsequent to becoming an interested shareholder, such shareholder acquires 90%
of the company's voting stock and the business combination is approved by the
holders of a majority of the voting stock entitled to vote thereon (the
"Business Combination Statute"). The Georgia Code provides that the Business
Combination Statute will not apply unless the bylaws of the corporation
specifically provide that the Business Combination Statute is applicable to the
corporation. The Company has not elected to be covered by such statute, but it
could do so by action of the Board of Directors at any time.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 9,000,114 shares of
Common Stock outstanding. The 2,525,000 shares sold in this Offering
(2,862,500 shares if the Underwriters over-allotment option is exercised in
full) will be freely tradable by persons other than affiliates of the Company,
without restriction. The remaining 6,475,114 shares of Common Stock will be
"restricted" securities within the meaning of Rule 144 under the Securities
Act and may be sold pursuant to a registration under the Securities Act or
pursuant to an exemption from registration, including exemptions contained in
Rule 144 discussed below. In addition, prior to the Offering, the Company had
outstanding options to purchase 595,853 shares of Common Stock. Of the shares
of Common Stock outstanding after the Offering, 5,353,005 shares will be
beneficially owned by persons who are affiliates of the Company and,
commencing 90 days after the date of this Prospectus, would be eligible for
public sale pursuant to Rule 144 or Rule 701, subject to the volume
restrictions discussed below. The officers, directors and current shareholders
of the Company, however, have agreed, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock for a period of 180
days (the "Lock-up Period") after the date of this Prospectus without the
prior written consent of J.C. Bradford & Co., Inc. See "Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares of
Common Stock for at least one year (including the prior holding period of any
prior owner other than an affiliate) is entitled to sell within any three-
month period that number of shares which does not exceed the greater of 1% of
the outstanding shares of Common Stock and the average weekly trading volume
during the four calendar weeks preceding each such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company for at least three months and who has beneficially owned shares for at
least two years (including the holding period of any prior owner other than an
affiliate) would be entitled to sell such shares under Rule 144 without regard
to the limitations described above. Rule 144 defines "affiliate" of a company
as a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such company.
Affiliates of a company generally include its directors, officers and
principal shareholders. Upon the expiration of the Lock-up Period, 4,009,085
shares of Common Stock that are "restricted" securities will be eligible for
sale in the public market subject to the limitations of Rule 144.
The Company intends to register on a registration statement on Form S-8 the
shares of Common Stock issuable upon exercise of options granted or reserved
for issuance under the 1996 Stock Option Plan and the ProVesa Plan including
the 595,853 shares subject to options which are currently outstanding. Upon
such registration, such shares will be eligible for resale in the public
market without restrictions by persons who are not affiliates of the Company,
and to the extent they are held by affiliates, pursuant to Rule 144 without
observance of the holding period requirements.
As soon as practical after the closing of this Offering, the Company intends
to register up to 2,000,000 shares of its Common Stock under the Securities
Act for use in connection with future acquisitions, and it will be a condition
to the issuance of any of these shares that the holders agree similarly not to
sell, contract to sell or otherwise dispose of such shares for the remaining
portion, if any, of the Lock-up Period. Thereafter, these shares will
generally be freely tradable after their issuance, unless the sale thereof is
contractually restricted.
The Company has also granted Mr. Collins and Mr. Jackson, with respect to
their shares of Common Stock, piggyback and, after any termination of
employment or if no longer a director of the Company, demand registration
rights. The Company generally is required to bear the expense relating to the
sale of the shareholders' securities under these registration rights, except
for underwriting discounts and commissions, and in certain cases the fees and
expenses of the shareholders' counsel and filing fees related to the
registration statement. The Company also is obligated to indemnify the
shareholders whose shares are included in any of the Company's registrations
against certain losses and liabilities, including liabilities under the
Securities Act and state securities laws.
60
<PAGE>
Prior to this Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock
in the public market could adversely affect prevailing market prices and the
ability of the Company to raise equity capital in the future.
61
<PAGE>
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters listed below, who are represented by J.C.
Bradford & Co. and Wheat First Union, a division of Wheat First Securities,
Inc. (the "Representatives"), have agreed, severally, to purchase from the
Company and the Selling Shareholders the number of shares of Common Stock set
forth below opposite their respective names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
J.C. Bradford & Co.
Wheat First Securities, Inc. ..................................
---------
Total........................................................ 2,525,000
=========
</TABLE>
The Underwriters have committed to purchase all of such shares if any are
purchased, subject to the terms of the Underwriting Agreement. The Company and
the Selling Shareholders have been advised by the Representatives that the
Underwriters propose initially to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering, the public offering price and such
concessions may be changed. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The offering of the shares of Common Stock is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.
The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 337,500
additional shares of Common Stock to cover over-allotments, if any, on the
same terms as those on which the 2,525,000 shares of Common Stock are being
offered. To the extent that the Underwriters exercise such option, each of
them will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the table above bears to the total number of shares in such table, and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the Offering.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to make sales to any accounts over which
they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price has been determined by negotiation among the
Company, the Selling Shareholders and the Representatives. In determining such
price, consideration was given to, among other things, the financial and
operating history and trends of the Company, the experience of its management,
the position of the Company in its industry, the Company's prospects and the
Company's financial results. In addition, consideration was given to the
status of the securities markets, market conditions for new offerings of
securities and the prices of similar securities of comparable companies.
The Company's executive officers and directors and all of its current
shareholders, have agreed with the Representatives not to offer, sell or
otherwise dispose of any shares of Common Stock, any securities exercisable
for or convertible into Common Stock or any options to acquire Common Stock
owned by them prior to the expiration of the Lock-up Period, without the prior
written consent of the J.C. Bradford & Co. See "Shares Eligible for Future
Sale."
As soon as practical after the closing of this Offering, the Company intends
to register up to 2,000,000 shares of its Common Stock under the Securities
Act for use in connection with future acquisitions, and it will
62
<PAGE>
be a condition to the issuance of any of these shares that the holders agree
similarly not to sell, contract to sell or otherwise dispose of such shares
for the remaining portion, if any, of the Lock-up Period. Thereafter, these
shares will generally be freely tradable after their issuance, unless the sale
thereof is contractually restricted.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and controlling persons, if any,
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments that the Underwriters or any such
controlling persons may be required to make in respect thereof.
In connection with this Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in the Common Stock for their own account. To cover over-allotments
or to stabilize the price of the Common Stock, the Underwriters may bid for,
and purchase, shares of Common Stock in the open market. The Underwriters may
also impose a penalty bid whereby they may reclaim selling concessions allowed
to an underwriter or a dealer for distributing Common Stock in the Offering,
if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short position, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, shares of
Common Stock in market making transactions. These activities may stabilize or
maintain the market price of Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
On April 28, 1998, the Company entered into a $20 million revolving line of
credit agreement with First Union National Bank, the proceeds of which will be
available to fund acquisitions upon completion of this Offering and the
satisfaction of certain other conditions set forth in such agreement. Wheat
First Union, one of the Representatives, is a division of Wheat First
Securities, Inc. First Union National Bank owns 100% of the capital stock of
Wheat First Securities, Inc.
LEGAL MATTERS
The validity of shares of Common Stock offered hereby is being passed upon
for the Company by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta,
Georgia. Glenn W. Sturm, a partner in Nelson Mullins Riley & Scarborough,
L.L.P., is a director of the Company, and certain members of the firm,
including Mr. Sturm, own an aggregate of 380,181 shares of Common Stock and
options to acquire 28,554 shares of Common Stock. See "Management" and
"Principal and Selling Shareholders." Certain legal matters related to this
Offering will be passed upon for the Underwriters by Alston & Bird LLP,
Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements for the years ended December 31, 1995,
1996 and 1997, included elsewhere in this Prospectus, have been audited by
Arthur Andersen LLP ("Andersen"), independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving such reports.
On January 16, 1998, the Company's Board of Directors decided to retain
Arthur Andersen LLP as the Company's independent public accountants and
dismissed the Company's former auditors. The former auditors' report on the
Company's consolidated financial statements for the two years ended December
31, 1996 does not cover the consolidated financial statements of the Company
included in this Prospectus. Such report did not contain an adverse opinion or
disclaimer of opinion and was not modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with the former auditors on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure at the time of the change or with
respect to the Company's consolidated financial statements for the years ended
December 31, 1995 and 1996 which, if not resolved to the former auditors'
satisfaction, would have caused them to make reference to
63
<PAGE>
the subject matter of the disagreement in connection with their report. Prior
to retaining Arthur Andersen LLP, the Company had consulted with Arthur
Andersen LLP regarding accounting principles in connection with the acquisition
of FiNet. Arthur Andersen LLP issued a report in connection with this
engagement regarding the poolability of FiNet. The engagement did not include a
review of the poolability of the Company. The Company ultimately determined
that the acquisition of FiNet should be accounted for as a purchase due to
treasury stock transactions of the Company.
ADDITIONAL INFORMATION
The Company has filed with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system a registration statement on Form S-1
(together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered by this Prospectus. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are necessarily summaries and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. For further information, reference is made to such registration
statement, including the exhibits thereto, which may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; and at the following Regional Offices of the
Commission, except that copies of the exhibits may not be available at certain
of the Regional Offices: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part
of such material may be obtained from the Commission at 450 Fifth Street, N.W.
Room 1024, Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission. The Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxies, information statements,
and registration statements and other information filed with the Commission
through the EDGAR system.
The Company is not presently a reporting company and does not file reports or
other information with the Commission. On the effective date of the
Registration Statement, however, the Company will register its Common Stock
under the Exchange Act. Accordingly, the Company will become subject to the
reporting requirements of the Exchange Act and in accordance therewith will
file reports, proxy statements and other information with the Commission. In
addition, after the completion of this Offering, the Company intends to furnish
its shareholders with annual reports containing audited financial statements
and with quarterly reports containing unaudited summary financial information
for each of the first three quarters of each fiscal year.
64
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
The InterCept Group, Inc. and Subsidiaries
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets--December 31, 1996 and 1997 and March 31,
1998 (unaudited)....................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1997 and
1998 (unaudited)....................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for
the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited)....................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the three months ended March 31, 1997 and
1998 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
ProVesa, Inc. and Subsidiaries
Report of Independent Public Accountants................................ F-24
Consolidated Balance Sheets--June 30, 1995 and 1996 and November 27,
1996................................................................... F-25
Consolidated Statements of Operations for the years ended June 30, 1995
and 1996 and the period from July 1, 1996 to November 27, 1996......... F-26
Consolidated Statements of Shareholders' Equity for the years ended June
30, 1995 and 1996 and the period from July 1, 1996 to November 27,
1996................................................................... F-27
Consolidated Statements of Cash Flows for the years ended June 30, 1995
and 1996 and the period from July 1, 1996 to November 27, 1996......... F-28
Notes to Consolidated Financial Statements.............................. F-29
FiNet, Inc.
Report of Independent Public Accountants................................ F-37
Balance Sheet--December 17, 1996........................................ F-38
Statement of Operations for the period from June 21, 1996 to December
17, 1996 .............................................................. F-39
Statement of Shareholders' Deficit for the period from June 21, 1996 to
December 17, 1996 ..................................................... F-40
Statement of Cash Flows for the period from June 21, 1996 to December
17, 1997 .............................................................. F-41
Notes to Financial Statements........................................... F-42
Bank Services Corporation
Report of Independent Public Accountants................................ F-43
Balance Sheets--December 31, 1995 and 1996.............................. F-44
Statements of Operations for the years ended December 31, 1995 and
1996................................................................... F-45
Statements of Shareholders' Equity (Deficit) for the years ended Decem-
ber 31, 1995 and 1996.................................................. F-46
Statements of Cash Flows for the years ended December 31, 1995 and 199-
6...................................................................... F-47
Notes to Financial Statements........................................... F-48
Data Services Corporation
Report of Independent Public Accountants................................ F-51
Balance Sheets--December 31, 1995 and June 4, 1996...................... F-52
Statements of Operations for the year ended December 31, 1995 and the
period from January 1, 1996 to June 4, 1996............................ F-53
Statements of Shareholders' Deficit for the year ended December 31, 1995
and the period from January 1, 1996 to June 4, 1996.................... F-54
Statements of Cash Flows for the year ended December 31, 1995 and the
period from January 1, 1996 to June 4, 1996............................ F-55
Notes to Financial Statements........................................... F-56
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The InterCept Group, Inc.:
We have audited the accompanying consolidated balance sheets of THE
INTERCEPT GROUP, INC. (a Georgia corporation) AND SUBSIDIARIES as of December
31, 1996 and 1997 and the related consolidated statements of operations,
changes in shareholders' deficit, and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
InterCept Group, Inc. and subsidiaries as of December 31, 1996 and 1997 and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 27, 1998 (except with respect
to the matter discussed in Note 14 for
which the date is April 28, 1998)
F-2
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
A S S E T S (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents.............. $ 1,398,118 $ 2,010,236 $ 939,770
Accounts receivable, less allowance for
doubtful accounts of $157,772 and
$156,616 in 1996 and 1997, respective-
ly.................................... 2,835,964 2,775,608 2,439,710
Related party note receivable.......... 466,941 0 0
Inventory, prepaid expenses and other.. 216,132 229,969 1,093,115
----------- ----------- -----------
Total current assets................. 4,917,155 5,015,813 4,472,595
PROPERTY AND EQUIPMENT, net............ 2,091,298 2,515,868 2,780,908
DEFERRED TAX ASSETS.................... 653,236 668,331 663,875
NOTES RECEIVABLE....................... 0 45,408 42,698
INTANGIBLE ASSETS, net of accumulated
amortization of $216,879 and $824,588
in 1996 and 1997, respectively........ 3,166,606 1,683,097 1,702,324
OTHER NONCURRENT ASSETS................ 112,530 227,945 222,934
----------- ----------- -----------
$10,940,825 $10,156,462 $ 9,885,334
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current maturities of notes payable... $ 518,883 $ 580,590 $ 544,829
Line of credit........................ 0 200,000 0
Accounts payable and accrued liabili-
ties................................. 1,771,911 1,871,209 1,352,856
Accrued income taxes.................. 45,285 232,359 251,311
Deferred revenue...................... 1,071,753 1,139,614 1,719,110
----------- ----------- -----------
Total current liabilities............ 3,407,832 4,023,772 3,868,106
----------- ----------- -----------
NOTES PAYABLE, less current portion.... 5,212,208 4,716,511 4,221,034
----------- ----------- -----------
DEFERRED COMPENSATION.................. 1,800,000 1,800,000 1,800,000
----------- ----------- -----------
Total liabilities.................... 10,420,040 10,540,283 9,889,140
----------- ----------- -----------
MINORITY INTEREST...................... 38,563 0 4,425
COMMITMENTS AND CONTINGENCIES..........
SERIES A REDEEMABLE PREFERRED STOCK 8%
CUMULATIVE, NO PAR VALUE; 30,000
SHARES AUTHORIZED; 4,000 SHARES ISSUED
AND OUTSTANDING....................... 400,000 400,000 400,000
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value; 50,000
shares authorized; Series A reported
above................................ 0 0 0
Common stock, no par value; 10,000,000
shares authorized; 6,750,114 shares
issued and outstanding............... 2,770,522 2,764,405 2,764,405
Accumulated deficit................... (2,688,300) (3,548,226) (3,172,636)
----------- ----------- -----------
Total shareholders' equity (defi-
cit)................................ 82,222 (783,821) (408,231)
----------- ----------- -----------
$10,940,825 $10,156,462 $ 9,885,334
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ ----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Service fee income..... $6,480,607 $ 9,215,549 $16,633,276 $3,832,122 $4,573,235
Equipment product
sales, services and
other................. 262,131 3,100,380 3,299,488 602,557 835,271
Data communications
management income..... 1,479,908 2,194,766 3,327,318 681,383 848,709
---------- ----------- ----------- ---------- ----------
Total revenues........ 8,222,646 14,510,695 23,260,082 5,116,062 6,257,215
---------- ----------- ----------- ---------- ----------
COSTS OF SERVICES:
Cost of service fee in-
come.................. 2,886,698 3,196,893 5,145,251 1,285,610 1,292,363
Cost of equipment and
product sales......... 182,344 2,753,891 2,595,892 442,354 712,925
Cost of data
communications
management income..... 1,538,061 1,908,551 2,481,508 545,705 629,335
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSE................ 2,212,724 6,852,444 10,105,317 2,315,745 2,532,034
DEPRECIATION AND AMORTI-
ZATION................. 242,202 350,991 1,323,771 308,849 284,661
LOSS ON IMPAIRMENT OF
INTANGIBLES............ 0 0 727,500 0 0
WRITEOFF OF PURCHASED
RESEARCH AND
DEVELOPMENT COSTS...... 0 810,000 0 0 0
---------- ----------- ----------- ---------- ----------
Total operating ex-
penses............... 7,062,029 15,872,770 22,379,239 4,898,263 5,451,318
---------- ----------- ----------- ---------- ----------
OPERATING INCOME
(LOSS)................. 1,160,617 (1,362,075) 880,843 217,799 805,897
INTEREST EXPENSE........ (86,516) (320,431) (770,175) (189,855) (175,669)
INTEREST AND OTHER
INCOME, net............ 23,993 41,686 121,535 27,386 15,980
---------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES AND
MINORITY INTEREST...... 1,098,094 (1,640,820) 232,203 55,330 646,208
PROVISION (BENEFIT) FOR
INCOME TAXES........... 417,276 (236,379) 666,125 (43,613) (258,193)
MINORITY INTEREST IN
(INCOME) LOSS OF
CONSOLIDATED
SUBSIDIARY............. 0 (14,558) 38,564 25,415 (4,425)
---------- ----------- ----------- ---------- ----------
NET INCOME (LOSS) BEFORE
PREFERRED DIVIDENDS.... 680,818 (1,418,999) (395,358) 37,132 383,590
PREFERRED DIVIDENDS..... 0 (8,000) (32,000) (8,000) (8,000)
---------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
SHAREHOLDERS........... $ 680,818 $(1,426,999) $ (427,358) $ 29,132 $ 375,590
========== =========== =========== ========== ==========
NET INCOME (LOSS) PER
COMMON SHARE:
Basic.................. $ 0.12 $ (0.24) $ (0.06) $ 0.00 $ 0.06
========== =========== =========== ========== ==========
Diluted................ $ 0.12 $ (0.24) $ (0.06) $ 0.00 $ 0.06
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
RETAINED
EARNINGS
(ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
--------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994..... 5,867,400 $ 106,128 $ (16,863) $ 89,265
Distributions for taxes to
shareholders of pass through
entities..................... 0 0 (420,600) (420,600)
Net income attributable to
common shareholders.......... 0 0 680,818 680,818
Pro forma tax provision....... 0 0 417,276 417,276
--------- ---------- ----------- ----------
BALANCE, December 31, 1995..... 5,867,400 106,128 660,631 766,759
Distributions for taxes to
shareholders of pass through
entities..................... 0 0 (1,579,045) (1,579,045)
Reclassification of
accumulated deficit upon
conversion to a C
corporation.................. 0 (369,969) 369,969 0
Acquisition and retirement of
treasury stock............... (694,750) (8,916) (991,084) (1,000,000)
Issuance of common stock in
connection with the
acquisition of Data Services
Corporation.................. 610,537 878,700 0 878,700
Issuance of common stock in
connection with the
acquisition of ProVesa....... 221,057 505,303 0 505,303
Issuance of common stock in
connection with the
acquisition of FiNet......... 244,741 576,000 0 576,000
Issuance of common stock in
connection with the
acquisition of Bank Services
Corporation.................. 501,129 1,083,276 0 1,083,276
Net loss attributable to
common shareholders.......... 0 0 (1,426,999) (1,426,999)
Pro forma tax provision....... 0 0 278,228 278,228
--------- ---------- ----------- ----------
BALANCE, December 31, 1996..... 6,750,114 2,770,522 (2,688,300) 82,222
Distributions for taxes to
shareholders of pass through
entities..................... 0 0 (596,796) (596,796)
Reclassification of
accumulated deficit upon
conversion to a C
corporation.................. 0 (11,717) 11,717 0
Issuance of common stock...... 0 5,600 0 5,600
Net loss attributable to
common shareholders.......... 0 0 (427,358) (427,358)
Pro forma tax provision....... 0 0 152,511 152,511
--------- ---------- ----------- ----------
BALANCE, December 31, 1997..... 6,750,114 2,764,405 (3,548,226) (783,821)
Net income attributable to
common shareholders
(unaudited).................. 0 0 375,590 375,590
--------- ---------- ----------- ----------
BALANCE, March 31, 1998
(unaudited)................... 6,750,114 $2,764,405 $(3,172,636) $ (408,231)
========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income (loss)...... $ 680,818 $(1,418,999) $ (395,358) $ 37,132 $ 383,590
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and amor-
tization............. 242,202 350,991 1,323,771 308,849 284,661
Writeoff of purchased
research and
development.......... 0 810,000 0 0 0
Loss on impairment of
intangibles.......... 0 0 727,500 0 0
Minority interest in
income (loss) of con-
solidated subsidi-
ary.................. 0 14,558 (38,564) (25,415) 4,425
Deferred income tax
provision (benefit).. 0 (706,075) (15,095) (4,676) 4,451
Pro forma tax ex-
pense................ 417,276 278,228 152,511 0 0
Changes in operating
assets and
liabilities, net of
effects of purchase
acquisitions:
Accounts receivable... (476,210) (790,494) 60,356 478,633 335,898
Inventory, prepaid ex-
penses, and other.... (6,190) 234,049 (4,992) (39,020) (868,652)
Other assets.......... (102,930) (25,968) (65,415) (72,805) (118,502)
Accounts payable and
accrued expenses..... 304,729 941,754 286,372 (483,587) (494,945)
Deferred revenue...... 0 331,899 67,861 358 579,496
Deferred compensa-
tion................. 0 1,800,000 0 0 0
--------- ----------- ---------- ---------- ----------
Net cash provided by
operating activi-
ties................ 1,059,695 1,819,943 2,098,947 199,469 110,422
--------- ----------- ---------- ---------- ----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES, net of
effects of purchase ac-
quisitions:
(Decrease) increase in
note receivable....... (92,794) (556,326) 412,688 477,977 8,216
Purchases of property
and equipment......... (96,716) (137,124) (992,331) (101,437) (449,866)
Purchase of businesses,
net of cash acquired.. 0 388,751 0 0 0
Increase in invest-
ments................. 0 0 (50,000) 0 0
--------- ----------- ---------- ---------- ----------
Net cash (used in)
provided by
investing
activities.......... (189,510) (304,699) (629,643) 376,540 (441,650)
--------- ----------- ---------- ---------- ----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES, net of
effect of purchase ac-
quisitions:
Proceeds from notes
payable and line of
credit................ 0 3,000,000 280,000 0 0
Payments on notes pay-
able and line of cred-
it.................... (157,000) (860,639) (513,990) (126,514) (731,238)
Distributions for taxes
to shareholders of
pass through enti-
ties.................. (420,600) (1,579,045) (596,796) 0 0
Issuance of common
stock................. 0 0 5,600 5,600 0
Retirement of preferred
stock................. 0 (25,000) 0 0 0
Payment of preferred
dividends............. 0 (8,000) (32,000) (8,000) (8,000)
Purchase and retirement
of treasury stock..... 0 (1,000,000) 0 0 0
--------- ----------- ---------- ---------- ----------
Net cash used by fi-
nancing activities.. (577,600) (472,684) (857,186) (128,914) (739,238)
--------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN CASH................ 292,585 1,042,560 612,118 447,095 (1,070,466)
CASH, AT BEGINNING OF
YEAR................... 62,973 355,558 1,398,118 1,398,118 2,010,236
--------- ----------- ---------- ---------- ----------
CASH, AT END OF YEAR.... $ 355,558 $ 1,398,118 $2,010,236 $1,845,213 $ 939,770
========= =========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMA-
TION:
Cash paid for inter-
est................... $ 87,131 $ 382,240 $ 725,923 $ 191,481 $ 177,450
========= =========== ========== ========== ==========
Cash paid for income
taxes................. $ 0 $ 146,184 $ 341,604 $ 59,750 $ 227,000
========= =========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997, AND MARCH 31, 1997 AND 1998 (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
The InterCept Group, Inc. ("Intercept" or the "Company") (a Georgia
corporation) designs, develops, markets, and implements a suite of fully
integrated electronic commerce products and services primarily for community
financial institutions in the United States. The Company's products and
services include electronic funds transfer ("EFT"), data communications
management, client/server enterprise software, and other processing solutions.
The Company is a single source provider of a broad range of flexible
electronic commerce solutions supporting value-added products and services.
The Company provides numerous EFT products and services, including automated
teller machine ("ATM"), point-of-sale ("POS") and script debit services, debit
card transactions, funds transfer services, and remote banking services. The
Company licenses client/server enterprise software, which operates in a
Windows NT(R) environment, to community financial institutions on both a
service bureau and in-house basis. The Company also supplies banking related
equipment, provides related maintenance and technical support and offers
numerous ancillary products and services to its financial institution
customers.
The Company was incorporated on April 30, 1996 as a shell entity. On June 4,
1996, InterCept Systems, Inc. ("Systems") was combined with the Company.
Systems provides electronic funds transfer services through multi-year
contracts.
On June 4, 1996, the Company acquired Data Services Corporation ("Data
Services"), which is engaged in providing maintenance and repair on computer-
related equipment primarily through annual service contracts, and equipment
sales.
On November 27, 1996, the Company acquired ProVesa, Inc. and its subsidiary,
ProVesa Services, Inc. (collectively, "ProVesa"), which provide information
technology and data processing services to financial institutions through the
operation of an on-line service bureau serving community banks.
On December 17, 1996, the Company acquired FiNet, Inc. ("FiNet"), a merchant
portfolio management company that provides a complete outsourcing solution for
banks and merchants.
On December 31, 1996, the Company acquired Bank Services Corporation ("Bank
Services"), which is engaged in providing data processing services and
developing core accounting software for internal use and sale.
On January 30, 1998, the Company acquired Intercept Communication
Technologies, L.L.C. ("Technologies"), which provides end to end
communications management solutions to its customers and maintains nationwide
data communications coverage.
See Note 3 where acquisitions are discussed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries Systems, Data Services, ProVesa, FiNet, Bank
Services and Technologies. Additionally, ProImage, Inc. ("ProImage"), a
corporation in which ProVesa has a 33.3% ownership interest, has been
consolidated in the accompanying consolidated financial statements since its
inception, due to InterCept's control of ProImage. Management of InterCept
retains responsibility for all day to day operations of ProImage, and has and
will
F-7
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
continue to provide complete financial support for ProImage subsequent to its
formation due to legal limitations on the other investors' ability to fund
losses. All significant intercompany accounts and transactions have been
eliminated in consolidation. Minority interest represents the minority
shareholders' proportionate share of the equity and earnings of ProImage.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets
for financial reporting purposes. Major additions and improvements are charged
to the property accounts while replacements, maintenance, and repairs which do
not improve or extend the lives of respective assets are expensed in the
current period. Estimated useful lives for the Company's assets are as
follows:
<TABLE>
<S> <C>
Computer equipment....................... 5 to 7 years
Furniture and office equipment........... 5 to 10 years
Software................................. 3 to 5 years
Building and improvements................ 31 years
Transportation equipment................. 3 to 5 years
</TABLE>
Software Development Costs
The Company capitalizes software development costs incurred from the time
that technological feasibility of the software is established until the
software is saleable. These costs are amortized on a straight-line basis over
three years, the estimated economic life of the software. Research and
development costs and maintenance costs related to software development are
expensed as incurred.
Intangible Assets
Intangible assets include goodwill, customer contracts, capitalized product
technology, and organizational costs. The Company evaluates the realizability
of intangible assets based on estimates of undiscounted future cash flows over
the remaining useful life of the related asset. If the amount of such
estimated undiscounted future cash flow is less than the net book value of the
asset, the asset is written down to the amount of the estimated undiscounted
cash flows.
Goodwill
Goodwill represents the excess of the purchase price over the net
tangible and identifiable intangible assets of acquired businesses.
Goodwill is amortized on a straight-line basis over periods of 15 to 40
years.
Customer Contracts
In connection with the Company's acquisitions of Data Services, ProVesa,
and Bank Services, the Company allocated a portion of the purchase price to
customer contracts acquired based upon a discounted
F-8
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cash flow analysis of the applicable contracts. The estimated fair values
attributed to the contracts are being amortized over periods of 18 months,
which represents the estimated average remaining life of the contracts.
Product Technology
Product technology represents internally developed software acquired as a
result of the ProVesa and Bank Services acquisitions for the processing of
data transactions. Product technology is amortized on a straight-line basis
over periods of three to five years.
Organizational Costs
Organizational costs are amortized on a straight-line basis over a period
of five years.
Revenue Recognition
Revenues include service fee income, data processing fees, data
communications management fees, equipment sales, installation and maintenance,
software license fees, and software maintenance. Service fee income, data
processing fees, data communications management fees, and installation
revenues are recognized as services are performed. Revenue from software and
equipment sales are recognized upon shipment of the product to customers,
provided that there are no significant obligations remaining and
collectibility of the revenue is probable. Any postcontract support included
in the contract is separately priced and deferred and recognized over the
period of the postcontract support in accordance with AICPA Statement of
Position No. 97-2. The Company recognizes revenue from software license fees,
services and maintenance ratably over the period or as the applicable services
or maintenance are performed.
Deferred Revenue
Deferred revenues represent the liability for advanced billings to customers
primarily related to maintenance contracts. Such amounts are recognized as
revenue when the related services are performed.
Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121 established
accounting standards for the impairment of long-lived assets and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangible assets to be disposed of. The effect of
adopting SFAS No. 121 was not material to the Company's consolidated financial
statements.
The Company reviews its long-lived assets for impairment at each balance
sheet date or whenever events or changes in circumstances indicate that the
carrying amount of an asset should be assessed. Management evaluates the
intangible assets related to each acquisition individually to determine
whether an impairment has occurred. An impairment is recognized when the
discounted future cash flows estimated to be generated by the acquired
business are not sufficient to recover the unamortized balance of the
intangible asset with the amount of any such deficiency charged to income in
the current year. Estimates of future cash flows are based on many factors,
including current operating results, expected market trends, and competitive
influences.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-9
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, an evaluation of the probability of
being able to realize the future benefits indicated by such asset is required.
A valuation allowance is provided for a portion of the deferred tax asset when
it is more likely than not that some portion or all of the deferred tax asset
will not be realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies.
Through May 15, 1996, Systems had elected by consent of its shareholders to
be taxed under the provisions of Subchapter S of the Internal Revenue Code.
Under those provisions, the shareholders included their respective shares of
the company's earnings or losses in their individual income tax returns.
From January 1, 1996 to October 31, 1997, in accordance with the provisions
of the Internal Revenue Code, the income or loss of Technologies is included
in the income tax returns of the members of the limited liability corporation.
The income tax provision reflects pro forma income taxes as if Systems and
Technologies had been C corporations for all periods presented. The provision
includes pro forma taxes of $417,276, $278,228, and $152,511 for the years
ended December 31, 1995, 1996, and 1997, respectively.
In connection with the change in tax status of Systems, in 1996, and
Technologies, in 1997, to C corporations, accumulated deficits of $369,969 and
$11,717 were reclassified from accumulated deficit to common stock in the
accompanying statement of shareholders' equity (deficit).
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable and
accounts payable, approximate carrying value due to the short-term maturity of
the instruments. The fair value of short-term and long-term debt, and deferred
compensation amounts approximate carrying value and are based on their
effective interest rates compared to current market rates.
Advertising Costs
The Company expenses all advertising costs as incurred.
Sources of Supplies
The Company voluntarily uses a single vendor for routing equipment issued in
the Company's network. However, if this vendor were unable to meet the
Company's needs, management believes that other sources for this equipment
exist on commensurate terms and that operating results would not be affected.
Net Income (Loss) Per Common Share
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128 effective December 31, 1997. Basic earnings per share is computed based on
the weighted average number of total common shares outstanding during the
respective years. Diluted earnings per share is computed based on the weighted
average number of total shares of common stock outstanding, adjusted for
common stock equivalents.
On February 4, 1998, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 98 "Computation of Earnings Per Share." SAB
No. 98 requires the retroactive inclusion of nominal issuances of common stock
and common stock equivalents in earnings per share calculations for all
periods presented and precludes the use of the treasury stock method for these
issuances. Management believes that all issuances of common stock and stock
options have been made at the current market value at the time of issuance and
that there have been no nominal issuances.
F-10
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
On June 4, 1996, Systems merged into the Company in a share exchange
combination whereby Systems became a wholly-owned subsidiary of the Company.
The merger was effected by the exchange of 721 out of the 927 outstanding
shares of common stock of Systems for 2,431,622 shares of common stock of the
Company. The remaining 206 common shares of Systems (equivalent to 694,750
shares of the Company) were acquired for $1,000,000 and retired.
On June 4, 1996, the Company acquired all of the outstanding shares of
common stock of Data Services for 610,537 shares of common stock of the
Company with a total value of $878,700. The transaction was accounted for as a
purchase. This consideration exceeded the net tangible asset value of Data
Services by approximately $917,750. Of this excess, $360,000 was allocated to
customer contracts based upon a discounted cash flow analysis and amortized
over a period of 18 months and the remaining $468,000 was allocated to
goodwill and amortized over a period of 20 years. The results of operations of
the acquired business have been included in the Company's consolidated
financial statements from the date of acquisition.
On November 27, 1996, the Company acquired all of the outstanding shares of
common and Series A preferred stock of ProVesa in exchange for 221,057 shares
of common stock and 4,250 shares of Series A preferred stock of the Company
with a total fair value of approximately $905,303. The transaction was
accounted for as a purchase. The consideration exchanged exceeded the net
tangible asset value of ProVesa by approximately $1,304,700. Of this excess,
$441,600 was allocated to customer contracts based upon a discounted cash flow
analysis and amortized over a period of 18 months, $300,000 was allocated to
existing product technology and amortized over a period of 3 years, and the
remaining $563,100 was allocated to goodwill and amortized over a period of 40
years. The results of operations of the acquired business have been included
in the Company's consolidated financial statements from the date of
acquisition. In December 1997, the Company made a decision to write off the
costs allocated to product technology as the software was not Year 2000
compliant, and the Company made a decision not to further develop or support
the software. The Company took a charge of $191,000 in arriving at operating
income in its accompanying financial statements during the fourth quarter of
1997. Customers using the software are being migrated to other software
products of the Company which are year 2000 compliant.
On December 17, 1996, the Company acquired all of the outstanding shares of
FiNet in exchange for 244,741 shares of common stock of the Company with a
total fair value of approximately $576,000. The transaction was accounted for
as a purchase. The consideration exchanged exceeded the net tangible asset
value of FiNet by approximately $575,800. This amount was allocated to
goodwill and amortized over a period of 15 years. The results of operations of
the acquired business have been included in the Company's consolidated
financial statements from the date of acquisition.
During 1997, the operating losses of FiNet significantly exceeded budgeted
amounts. In addition, FiNet was not successful in implementing its sales plan
to targeted customers, and the Company anticipates that FiNet will continue to
incur operating losses for the foreseeable future. The Company is currently
evaluating its future plans with regard to FiNet. Based upon the current and
projected losses, the Company determined in December 1997 that the goodwill
recorded on the purchase of FiNet was impaired, and accordingly recorded a
$536,000 charge to operating income. In addition, in January 1998, the Company
canceled certain performance stock options which had been granted to the
officers of FiNet.
On December 31, 1996, the Company acquired all of the outstanding shares of
Bank Services in exchange for 501,129 shares of common stock of the Company
with a total fair value of approximately $1,087,300. The transaction was
accounted for as a purchase. The consideration exchanged exceeded the net
tangible asset value of Bank Services by approximately $1,310,000. Of this
excess, $810,000 was allocated to incomplete research and development projects
based upon a third party appraisal report, and expensed in the statement of
operations
F-11
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
on the acquisition date. The incomplete research and development projects had
not reached technological feasibility, had no alternative use, and required
substantial additional development by the Company. Of the remaining excess,
$150,000 was allocated to product technology and amortized over a period of 3
years and the remaining $350,000 was allocated to goodwill and amortized over
a period of 20 years. The results of operations of the acquired business have
been included in the consolidated financial statements from the date of
acquisition.
On January 31, 1998, the Company acquired all of the outstanding shares of
Technologies in exchange for 2,741,029 shares of common stock of the Company.
The transaction was accounted for as a pooling of interests. The results of
operations of Technologies have been included in the accompanying financial
statements for all periods presented.
The following table summarizes the shares issued and the value of the
consideration exchanged for each of the purchase acquisitions during the
periods presented.
<TABLE>
<CAPTION>
DATE OF SHARE AMOUNT OF
ENTITY ACQUIRED ACQUISITION NUMBER OF SHARES VALUE CONSIDERATION
- --------------- ----------------- ------------------------ ------ -------------
<S> <C> <C> <C> <C> <C>
Data Services June 4, 1996 610,537 common shares $ 1.44 $ 878,700
ProVesa November 27, 1996 221,057 common shares 2.29 505,303
4,000 preferred shares 100.00 400,000
FiNet December 17, 1996 244,741 common shares 2.35 576,000
Bank Services December 31, 1996 501,129 common shares 2.16 1,087,300
</TABLE>
The following unaudited pro forma consolidated financial information for the
years ended December 31, 1995 and 1996 assume the acquisitions of Data
Services, ProVesa, FiNet, and Bank Services had occurred as of January 1,
1995.
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenues....................................... $15,131,938 $21,556,149
Net income (loss) before income taxes and
minority interest............................. 936,009 (227,480)
Net income (loss) per common share............. $ 0.16 $ (0.04)
</TABLE>
Pro forma net loss before income taxes and minority interest for the year
ended December 31, 1996 excludes the charge of $810,000 for incomplete
research and development projects acquired in the Bank Services acquisition.
The unaudited pro forma consolidated financial information is not
necessarily indicative of the actual results that would have occurred had the
acquisitions been consummated at the beginning of the periods presented or of
the future operations of the combined entities.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land and building................................. $ 624,514 $ 629,404
Leasehold improvements............................ 82,255 87,182
Computer equipment................................ 1,621,416 1,780,449
Furniture and office equipment.................... 986,727 1,467,510
Software.......................................... 263,837 484,697
Transportation equipment.......................... 312,641 392,280
---------- ----------
3,891,390 4,841,522
Less accumulated depreciation..................... (1,800,092) (2,325,654)
---------- ----------
$2,091,298 $2,515,868
========== ==========
</TABLE>
F-12
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INTANGIBLES
Intangibles at December 31, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Goodwill.......................................... $2,111,885 $1,536,085
Product technology................................ 450,000 150,000
Customer contracts................................ 801,600 801,600
Organizational costs.............................. 20,000 20,000
---------- ----------
3,383,485 2,507,685
Less accumulated amortization..................... (216,879) (824,588)
---------- ----------
$3,166,606 $1,683,097
========== ==========
</TABLE>
6. NOTES PAYABLE AND LINE OF CREDIT
Notes payable and line of credit consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Note payable to Georgia State Bank, in-
terest payable monthly at prime plus
2.5%; monthly principal and interest
payments (with adjustments for changes
in prime) beginning July 20, 1996
through June 20, 2006; the note is col-
lateralized by common stock and assets
of the Company, and a life insurance
policy and personal guarantee of a ma-
jor shareholder........................ $2,917,601 $2,732,974 $2,682,714
Note payable to FNB Commerce, interest
payable monthly at prime plus 2%;
monthly principal and interest payments
(with adjustments for changes of prime)
beginning July 1, 1996 through June 1,
2003; the note is collateralized by
common stock and assets of the Company,
and a life insurance policy and per-
sonal guarantee of a shareholder....... 1,553,907 1,377,522 1,329,720
Note payable to Community Bank of Geor-
gia, all outstanding amounts repaid in
1998................................... 450,000 402,963 0
Mortgage note payable to Allied Bank,
interest payable at prime, in monthly
principal and interest payments through
December 1, 1999, with remaining prin-
cipal due December 31, 1999; the note
is collateralized by land and build-
ing.................................... 426,437 389,493 379,705
Note payable to First Macon Bank &
Trust interest payable at prime;
monthly principal and interest pay-
ments, payable in full on September 15,
2001; the note is collateralized by as-
sets of the Company, and a corporate
guarantee by ProVesa of one-third of
the balance of the debt................ 383,146 316,123 298,941
Note payable to First Macon Bank &
Trust, interest payable at prime,
monthly principal and interest pay-
ments, the note is collateralized by
assets of the Company, and a corporate
guarantee by ProVesa of one-third of
the balance of the debt................ 0 78,026 74,783
---------- ---------- ----------
5,731,091 5,297,101 4,765,863
Less current maturities................ (518,883) (580,590) (544,829)
---------- ---------- ----------
$5,212,208 $4,716,511 $4,221,034
========== ========== ==========
</TABLE>
F-13
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future maturities of notes payable and line of credit at December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998........................................................... $ 580,590
1999........................................................... 1,245,348
2000........................................................... 603,266
2001........................................................... 648,837
2002........................................................... 637,565
Thereafter..................................................... 1,581,495
----------
$5,297,101
==========
</TABLE>
Certain loan agreements contain covenants with respect to the maintenance of
certain financial ratios and specified net worth and limit the incurrence of
additional indebtedness, the sale of substantial assets, the sale of common
stock by the Company, consolidations or mergers by the Company and the
declaration and payment of dividends. Any past or potential defaults or
breaches of the provisions of the above loan agreements as a result of the
Company's business combination transactions or potentially as a result of the
planned initial public offering of common stock (Note 13) have been waived in
writing by the lenders (such waivers being conditioned upon the initial public
offering), but there can be no assurance that similar waivers can be obtained,
if needed, in the future. The loans are secured by all assets of the Company
and a pledge of 100% of the stock of certain subsidiaries, which have
guaranteed the repayment of indebtedness under the loans.
Line of Credit
On February 5, 1997, the Company entered into a $200,000 line of credit
agreement with The Bank of Gwinnett County. Interest was payable monthly at
the bank's prime rate plus 1.5%. At December 31, 1997, $200,000 of this line
of credit was outstanding. The balance was repaid in full in 1998.
7. INCOME TAXES
The components of income tax (benefit) provision in the consolidated
statements of operations for the years ended December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Current expense................................... $ 0 $ 191,468 $528,709
Deferred benefit.................................. 0 (706,075) (15,095)
Pro forma tax expense............................. 417,276 278,228 152,511
-------- --------- --------
Provision (benefit) for income taxes.......... $417,276 $(236,379) $666,125
======== ========= ========
</TABLE>
The income tax provision reflects pro forma income taxes as if Systems and
Technologies had been C corporations for all periods presented. The provision
includes pro forma taxes of $417,276, $278,228, and $152,511 for the years
ended December 31, 1995, 1996, and 1997, respectively.
The income tax (benefit) provision, as reported in the statements of income,
differs from the amounts computed by applying federal statutory rates due to
the following for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Federal income tax (benefit) expense at statutory
rate............................................ $373,352 $(557,879) $ 78,949
Nondeductible amortization of goodwill........... 0 62,411 493,671
Purchased research and development............... 0 275,400 0
Meals and entertainment.......................... 0 5,613 16,562
State tax (benefit) provision, net of federal ef-
fect............................................ 43,924 (59,825) 72,594
Net effect of an S corporation conversion to a
C corporation................................... 0 36,563 0
Other............................................ 0 1,338 4,349
-------- --------- --------
$417,276 $(236,379) $666,125
======== ========= ========
</TABLE>
F-14
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In May 1996, Systems converted from S Corporation status to C Corporation
status. On the conversion date, the Company recorded an expense through its
tax provision to record the effect of cumulative temporary differences through
such date. In November 1997, Technologies converted from L.L.C. status to C
corporation status. The effect of recording cumulative temporary differences
was immaterial.
Deferred income tax assets and liabilities for 1996 and 1997 reflect the
impact of temporary differences between the amounts of assets and liabilities
for financial reporting and income tax reporting purposes. Temporary
differences that give rise to deferred tax assets and liabilities at December
31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred compensation................................ $683,281 $683,281
Accounts receivable reserves......................... 59,890 59,451
Other................................................ 14,561 40,338
-------- --------
Deferred tax assets............................... 757,732 783,070
-------- --------
Deferred tax liabilities:
Accelerated depreciation............................. (104,496) (114,739)
-------- --------
Deferred tax liabilities.......................... (104,496) (114,739)
-------- --------
Net deferred asset................................ $653,236 $668,331
======== ========
</TABLE>
8. PREFERRED STOCK
Shares of preferred stock may be issued from time to time in one or more
series as may be established by resolution of the board of directors of the
Company. Each resolution shall include the number of shares issued,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as determined by the board.
The Articles of Incorporation authorize the Board of Directors to issue,
without further action by the holders of the common stock, shares of preferred
stock in one or more series and to fix any preferences, conversion and other
rights, voting powers, restrictions, limitations, qualifications and terms and
conditions of redemption as shall be set forth in resolutions adopted by the
Board of Directors. Articles of amendment must be filed with the Georgia
Secretary of State prior to the issuance of any shares of preferred stock of
the applicable series. Any preferred stock so issued may rank senior to the
common stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding-up, or both. In addition, any such shares
of preferred stock may have class or series voting rights.
Series A Preferred Stock
On November 27, 1996, the Company filed Articles of Amendment to its
Articles of Incorporation for the designation of 30,000 shares of Series A
preferred stock. The stated value of the Series A preferred stock is $100 per
share. Holders of Series A preferred stock are entitled to receive dividends
at the annual rate of 8% of the stated value per share, or $8.00 per share,
payable quarterly. Dividends are cumulative from the date of issue. The
Company may not declare or pay cash dividends on any other series of preferred
stock that is junior or on parity with the Series A preferred stock, or on
common stock, nor may it redeem, purchase, or otherwise acquire
F-15
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
any of such stock, unless full cumulative dividends have been or are
contemporaneously declared and paid on the Series A preferred stock. In the
event of any liquidation or dissolution of the Company, the holders of shares
of Series A preferred stock are entitled to receive out of assets of the
Company available for distribution to shareholders, before any distributions
are made to holders of common stock or of any other shares of stock of the
Company ranking junior to the Series A preferred stock, liquidating
distributions in the amount of $100 per share, plus accrued and unpaid
dividends.
The Series A preferred stock is redeemable at the option of the Company for
cash at any time, in whole or in part, on at least 10 days' notice. The price
payable upon redemption is 110% of stated value per share, or $110 per share,
plus accrued but unpaid dividends. At any time after the third anniversary of
the initial issuance of shares of Series A preferred stock, any holder of
Series A preferred stock may tender all or part of such holder's Series A
preferred stock for redemption at a price equal to 100% of stated value, or
$100 per share, plus accrued and unpaid dividends. The holders of the Series A
preferred stock have no voting rights except as otherwise required by the
Georgia Business Corporation Code and applicable law. The holders of shares of
Series A preferred stock have no preemptive or other rights to subscribe for
any other shares of securities, nor do they have any conversion rights. The
Series A preferred stock ranks prior to the common stock as to dividends and
upon liquidation of the Company.
9. SHAREHOLDERS' EQUITY
Under the Articles of Incorporation, the Board of Directors has the
authority to issue 10,000,000 shares of common stock without par value and
50,000 shares of preferred stock without par value in one or more classes or
series and, within certain limitations, to determine the voting rights,
preferences as to dividends and in liquidation, and conversion or other rights
of such series.
Pursuant to a voting agreement, the Chief Executive Officer of the Company
has voting control over approximately 62% of the common stock of the Company.
The voting agreement expires in May 1998.
10. STOCK OPTION PLANS
1996 Stock Option Plan
The Board of Directors and the Company's shareholders approved the Company's
1996 Stock Option Plan effective as of November 12, 1996. Awards under the
1996 Stock Option Plan are currently granted by the Board of Directors, but
will be granted by a committee composed of at least two independent directors
(the "Committee") of the Board of Directors when it is established. Awards
issued under the 1996 Stock Option Plan may include incentive stock options
("ISOs") and/or non-qualified stock options ("NQSOs") and/or grants of
restricted stock. The Committee will administer the 1996 Stock Option Plan and
generally has discretion to determine the terms of an option grant, including
the number of option shares, option price, term, vesting schedule, the post-
termination exercise period and whether the grant will be an ISO or NQSO.
Notwithstanding this discretion: (i) the number of shares subject to options
granted to any individual in any fiscal year may not exceed 315,795 shares
(subject to certain adjustments); (ii) if an option is intended to be an ISO
and is granted to a shareholder holding more than 10% of the combined voting
power of all classes of the Company's stock or the stock of its parent or
subsidiary on the date of the grant of the option, the option price per share
of common stock may not be less than 110% of the fair market value of such
share at the time of grant; and (iii) the term of an ISO may not exceed 10
years, or 5 years if granted to a shareholder owning more than 10% of the
total combined voting power of all classes of stock on the date of the grant
of the option.
The Stock Option Plan provides for the granting of non-qualified stock
options to the directors of the Company ("Director Grants"). The Board of
Directors has authorized the issuance of up to 175,000 shares of
F-16
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
common stock under the Stock Option Plan pursuant to options having an
exercise price equal to the fair market value of the common stock on the date
the options are granted. The Board of Directors has approved Director Grants
of (i) options to purchase 35,000 shares to each non-employee director of the
Company who beneficially owns less than 4% of the Company's outstanding common
stock on the date of such directors' initial election to the Board of
Directors, and (ii) options to purchase 5,000 shares to each director on each
anniversary date of such director's election to the Board at an exercise price
equal to the fair market value of the common stock on the date the options are
granted. Each Director Grant option vests ratably over the remaining term of
service and shall expire five years after the date of grant, unless canceled
sooner as a result of termination of service or death, or unless such option
is fully exercised prior to the end of the option period.
The maximum number of shares of common stock that currently may be subject
to outstanding options, determined immediately after the grant of any option,
is 1,263,180 shares (subject to certain adjustments). The 1996 Stock Option
Plan provides that the number of shares of common stock available for issuance
thereunder shall be automatically increased on the first trading day of each
calendar year beginning January 1, 1999 by the lesser of (i) three percent of
the number of shares outstanding on the preceding trading day or (ii) 315,795
shares (subject to certain adjustments). Shares of common stock that are
attributable to awards which have expired, terminated or been canceled or
forfeited during any calendar year are available for issuance or use in
connection with future awards during such calendar year.
The 1996 Stock Option Plan will remain in effect until terminated by the
Board of Directors. The 1996 Stock Option Plan may be amended by the Board of
Directors without the consent of the shareholders of the Company, except that
any amendment, although effective when made, will be subject to shareholder
approval within one year after approval by the Board of Directors if the
amendment increases the total number of shares issuable pursuant to ISOs
(other than the permitted annual increase), changes the class of employees
eligible to receive ISOs that may participant in the 1996 Stock Option Plan,
or otherwise materially increases the benefits accruing to recipients of ISOs.
ProVesa, Inc. 1994 Stock Option Plan
In November 1996, as part of the ProVesa Acquisition, the Company executed a
Stock Option Plan Assumption Agreement, pursuant to which 20,000 options
outstanding under the ProVesa, Inc. 1994 Stock Option Plan (the "ProVesa
Plan") were converted into options to acquire 42,106 shares of common stock of
the Company. The Company assumed the rights and obligations of ProVesa under
the ProVesa Plan.
Awards under the ProVesa Plan are granted by the Board of Directors but may
be granted by a committee of at least two directors appointed by the Board of
Directors. Awards under the ProVesa Plan may include ISOs, NQSOs or restricted
stock. The committee that administers the ProVesa Plan generally has
discretion to determine the terms of an option grant, including the number of
option shares, option price, term, vesting schedule, the post-termination
exercise period and whether the grant will be an ISO or NQSO. Notwithstanding
this discretion, if an option is intended to be an ISO and is granted to a
shareholder holding more than 10% of the combined voting power of all classes
of the Company's stock or of its parent or subsidiary on the date of the grant
of the option, the option price per share of common stock may not be less than
110% of the fair market value of such shares and the term of any option may
not exceed 10 years, or 5 years if the option is intended to be an ISO and is
granted to a shareholder owning more than 10% of total combined voting power
of all classes of stock on the date of the grant of the option.
The ProVesa Plan may be amended by the Board of Directors without the
consent of the shareholders of the Company, except that any amendment,
although effective when made, will be subject to shareholder approval within
one year after approval by the Board of Directors if the amendment increases
the total number of shares issuable pursuant to ISOs or changes the class of
employees eligible to receive ISOs that may participate in the
F-17
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ProVesa plan or otherwise materially increases the benefits accruing to
recipients of IPOs. Effective February 24, 1998, the Board of Directors
determined that the Company will not issue any additional options under the
ProVesa Plan.
A summary status of the Company's stock option plans as of December 31,
1995, 1996, 1997, and changes during the year, is presented below:
<TABLE>
<CAPTION>
PRICE
SHARES RANGE
------- ---------
<S> <C> <C>
Outstanding at December 31, 1995....................... 0 $ --
Granted............................................... 571,065 2.16
Assumed in ProVesa Acquisition........................ 42,106 2.37
------- ---------
Outstanding at December 31, 1996....................... 613,171 2.16-2.37
Granted............................................... 178,951 2.16
------- ---------
Outstanding at December 31, 1997....................... 792,122 2.16-2.37
======= =========
</TABLE>
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with
the accounting methodology required by APB Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock based compensation plans
under APB Opinion No. 25, under which no compensation cost has been recognized
by the Company. However, the Company has computed, for pro forma disclosure
purposes, the value of all options for shares of its common stock granted
since January 1, 1995 to employees of the Company using the Black-Scholes
option pricing model prescribed by SFAS No. 123 and the following weighted
average assumptions:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Risk-free interest rate............................ 6.22% 6.15%-6.29%
Expected dividend yield............................ 0% 0%
Expected lives..................................... Five years Five years
Expected volatility................................ 0% 0%
</TABLE>
The weighted average fair value of options for the stock granted to
employees of the Company in 1996 and 1997 was $1.19 per share. The total value
of options granted to employees of the Company during 1996 and 1997 was
computed as approximately $321,432 and $101,447, respectively, which would be
amortized on a pro forma basis over the five-year vesting period of the
options. If the Company had accounted for these plans in accordance with SFAS
No. 123, the Company's net loss for the years ended December 31, 1996 and 1997
would have decreased as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- -----------
<S> <C> <C>
Net loss attributable to common shareholders
for the year ended December 31, 1996........ $(1,426,999) $(1,426,999)
Net loss attributable to common shareholders
for the year ended December 31, 1997........ (427,358) (473,302)
</TABLE>
F-18
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the number of shares, exercise price, and
weighted average contractual lives by groups of similar price and grant date:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE CONTRACTUAL
OF SHARES PRICE LIFE
--------- -------- -----------
(IN YEARS)
<S> <C> <C>
750,015 $2.16 5.2
42,106 2.37 7
</TABLE>
At December 31, 1997, 77,896 options for the Company's common stock with a
weighted average exercise price of $2.27 per share were exercisable by
employees of the Company. At December 31, 1996, 42,106 options for the
Company's common stock with a weighted average exercise price of $2.37 per
share were exercisable by employees of the Company.
Net Income (Loss) Per Common Share
Net income (loss) per common share at December 31, 1995, 1996 and 1997 were
as follows:
<TABLE>
<CAPTION>
1995
--------------------------------
PER SHARE
INCOME SHARES AMOUNT
----------- --------- ---------
<S> <C> <C> <C>
Net income............................. $ 680,818
Less preferred stock dividends........ 0
-----------
Net income available to common share-
holders............................... $ 680,818
===========
Basic net income per common share...... 5,867,400 $ 0.12
========= ======
Diluted net income per common share.... 5,867,400 $ 0.12
========= ======
<CAPTION>
1996
--------------------------------
PER SHARE
LOSS SHARES AMOUNT
----------- --------- ---------
<S> <C> <C> <C>
Net loss............................... $(1,418,999)
Less preferred stock dividends........ (8,000)
-----------
Net loss attributable to common share-
holders............................... $(1,426,999)
===========
Basic net loss per common share........ 5,851,347 $(0.24)
========= ======
Diluted net loss per common share...... 5,851,347 $(0.24)
========= ======
<CAPTION>
1997
--------------------------------
PER SHARE
LOSS SHARES AMOUNT
----------- --------- ---------
<S> <C> <C> <C>
Net loss............................... $ (395,358)
Less preferred stock dividends........ (32,000)
-----------
Net loss attributable to common share-
holders............................... $ (427,358)
===========
Basic net loss per common share........ 6,750,114 $(0.06)
========= ======
Diluted net loss per common share...... 6,750,114 $(0.06)
========= ======
</TABLE>
F-19
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Basic and diluted earnings per common share were computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the year. Outstanding stock options were anti-dilutive in each of the
three years ended December 31, 1995, 1996 and 1997.
11. EMPLOYEE BENEFITS
The Company maintains a separate defined contribution 401(k) savings plan,
which covers substantially all employees subject to certain minimum age and
service requirements. Contributions to this plan by employees are voluntary;
however, the Company matches a percentage of the employees' contributions.
This percentage is determined annually by the Company. The Company's
contributions approximated $115,000, $13,000 and $38,000 in 1995, 1996 and
1997, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment and facilities under operating lease
agreements. Future minimum annual obligations under these leases as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................ $1,131,000
1999........................................ 854,000
2000........................................ 634,000
2001........................................ 480,000
2002........................................ 103,000
----------
$3,202,000
==========
</TABLE>
Net rental expense was approximately $68,000, $621,000 and $1,030,000 during
1995, 1996 and 1997, respectively.
Employment Agreements
The Company entered into an employment agreement with the Chief Executive
Officer (the "CEO") effective as of January 30, 1998 (the "CEO Agreement").
The CEO Agreement provides that the CEO will receive a base salary of not less
than $265,000 per year. The Company entered into an employment agreement with
the President and Chief Operating Officer (the "President") effective as of
January 30, 1998 (the "President Agreement"). The President Agreement provides
that the President will receive a base salary of not less than $190,000 per
year. In addition, each of the President and the CEO are entitled to incentive
compensation as determined by the Board of Directors or a committee thereof
based upon achievement of targeted levels of performance and such other
criteria as the Board of Directors or a committee thereof shall establish from
time to time, and an additional annual bonus as determined by the Board of
Directors or a committee thereof. In addition, each of the President and the
CEO may participate in the Company's Amended and Restated 1996 Stock Option
Plan (the "1996 Stock Option Plan") and will receive health insurance for
himself and his dependents, long-term disability insurance, civic and social
club dues, use of an automobile owned or leased by the Company, and other
benefits. Base salaries may be increased upon a periodic review by the Board
of Directors or a committee thereof. The CEO Agreement and the President
Agreement have terms of three years and renew daily until either party fixes
the remaining term at three years by giving written notice. The Company can
terminate the CEO Agreement and the President Agreement upon the executive's
death or disability or for cause, and the executive can terminate his
employment for any reason within a 90-day period beginning on the 30th day
after any occurrence of a change in control or within a 90-day period
beginning on the one-year anniversary of the occurrence of any change in
control. If the President's or the CEO's employment is terminated after a
change in control (i) by the Company without cause or (ii) by the CEO or
President for any reason, the Company must pay the executive all
F-20
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accrued compensation and bonus amounts and one-twelfth of his annual base
salary and bonus for each of 36 consecutive 30-day periods following the
termination. In addition, the Company must continue life and health insurance
for the executive until he reaches age 65, and the executive's outstanding
options to purchase common stock would vest and become immediately
exercisable.
The Company and another executive who is also a shareholder entered into an
employment agreement dated June 4, 1996 pursuant to which such person receives
an annual salary of not less than $200,000. On February 2, 1998, the Company
entered into an employment agreement with its Chief Financial Officer (the
"CFO") (the "CFO Agreement"). The CFO Agreement has a term of one year which
renews automatically at the end of each term unless earlier terminated by the
Company or the CFO. The Company can terminate the CFO Agreement upon
disability or for cause, and the CFO can terminate his employment for any
reason within a 90-day period beginning on the 30th day after any occurrence
of a change in control or within a 90-day period beginning on the one-year
anniversary of the occurrence of any change in control. If the CFO's
employment is terminated by the Company in breach of the CFO Agreement or if
the CFO terminates the CFO Agreement for any reason after a change in control,
the Company must pay the CFO a lump sum cash payment equal to three-fourths of
his annual base salary and bonus.
In June 1996, the Company entered into an employment agreement with an
employee and stockholder in connection with a significant reduction in the
individual's employment responsibilities with the Company. Under the
agreement, the employee's salary was set at an amount of not less than $60,000
per year for the 60 month term of the agreement. In addition, the agreement
requires the Company to pay to the employee in consideration of past services
the sum of $1,800,000, and $15,000 per month until the principal amount of
$1,800,000 is paid for a maximum of 60 months, at which time the principal
amount is due if not paid earlier. The Company has recorded the $1,800,000 as
a non-current liability in the accompanying financial statements, with a
corresponding compensation expense charge as of the date of the agreement. The
$15,000 monthly payments are recorded as interest expense as due, resulting in
an effective interest rate on the obligation of approximately 10% per year,
which approximates the Company's incremental borrowing rate.
State Taxation
Transaction processing companies like the Company may be subject to state
taxation of certain portions of the fees charged for their services.
Application of this tax is an emerging issue in the industry, and the states
have not yet adopted uniform guidelines implementing these regulations. In the
event the Company is required to bear all or a portion of these costs, and is
unable to pass such costs through to its customers, the financial condition
and results of operations of the Company could be adversely affected.
Limitation of Liability Provisions
The Company's agreements with its customers generally contain provisions
designed to limit the Company's exposure to potential product liability
claims, such as disclaimers of warranties and limitations on liability for
special, consequential and incidental damages. It is possible, however, that
the limitation of liability provisions contained in such agreements may not be
effective as a result of existing or future federal, state or local laws or
ordinances or unfavorable judicial decisions. The sale and support of products
by the Company may result in the Company's being subject to product liability
claims, and a successful product liability claim brought against the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations.
F-21
<PAGE>
THE INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RELATED PARTY TRANSACTIONS
During 1995, the Company incurred costs of $102,800 for transportation
services provided by Javiar, Inc. ("Javiar"), a corporation owned by certain
of the Company's shareholders.
During the years ended December 31, 1995 and 1996, the Company incurred
costs for supplies and services in the amount of $168,018 and $125,296,
respectively, with ATM Source, a corporation owned 100% by a shareholder of
the Company.
During the years ended December 31, 1996 and 1997, the Company incurred fees
of $137,967 and $31,489 respectively, for legal services to a law firm in
which one of its partners is also a director of ProVesa and a director and
shareholder of the Company.
During the year ended December 31, 1995 and the period from January 1, 1996
to May 31, 1996, the Company incurred costs of $119,400 and $44,775 from Data
Services related to equipment maintenance services. Such amounts are included
in selling, general and administrative expenses in the accompanying income
statements.
The Company provided EFT services to ProVesa, a company partially owned by
certain shareholders of the Company prior to its acquisition on November 27,
1996, totaling $174,774 and $166,572 for the year ended December 31, 1995 and
the period from January 1, 1996 to November 27, 1996. Such amounts are
included in service fee income in the accompanying consolidated statements of
operations.
The Company and Phoenix International Ltd., Inc. ("Phoenix") have entered
into software license and development agreements dated December 31, 1997 (the
"December Agreement") and January 15, 1998 (the "January Agreement"). Under
the December Agreement, the Company licensed ATM and voice response software
from Phoenix and obtained the rights to develop the software and integrate it
with the Company's existing software programs. Under the January Agreement,
Phoenix licensed EFT software from the Company and obtained the rights to
develop the software and integrate it with Phoenix's existing programs. A
director and shareholder of the Company, is also a director of Phoenix.
The Company had a note receivable of $466,941 at December 31, 1996 from Dyad
Corporation, a company partially owned by certain shareholders of the Company.
During 1997, the loan increased to $1,254,122. This note was paid in full on
December 31, 1997. The Company also owns 2% of the outstanding common stock of
Dyad, which is reflected at its cost of $50,000 and included in other assets
in the accompanying consolidated balance sheets.
14. SUBSEQUENT EVENTS
Proposed Initial Public Offering of Common Stock
The Company plans to offer 2,250,000 shares of its common stock (2,587,500
shares if the underwriters' overallotment option is exercised in full) for
sale to the public at a proposed price range of $10 to $12 per share during
the second quarter of 1998 (the "Equity Offering"). There can be, however, no
assurance that the Equity Offering will be completed at a per share price
within the estimated range, or at all. There are significant potential risks
associated with the Equity Offering, as well as with the Companies' ability to
compete profitably in this industry.
F-22
<PAGE>
INTERCEPT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock Split
On February 25, 1998, the Board of Directors declared a stock split on the
Company's common stock. The stock split was effected in the form of a stock
dividend of 1.1053 shares of common stock issued for each share of common
stock held by shareholders of record on February 28, 1998. The effect of the
stock split has been retroactively reflected as of December 31, 1994 in the
statement of changes in shareholder equity and for all periods presented. All
references to the per share amounts and elsewhere in consolidated financial
statements and related footnotes have been restated as appropriate to reflect
the effect of the stock split.
Credit Facility
On April 28, 1998, the Company entered into a loan and security agreement
with a third party lender for a three year revolving line of credit of up to
$20,000,000 for permitted acquisitions ($2,000,000 of which may become
available for working capital and capital expenditures). Obligations under the
facility will be guaranteed by substantially all assets of the Company.
Certain financial covenants include maintenance of (i) funded debt/EBITDA;
(ii) funded debt/total capitalization and (iii) consolidated tangible net
worth, as defined. As a condition to the loan, InterCept shall (i) have
successfully completed an initial public offering of its common stock and
shall have received gross proceeds of at least $20,000,000 and (ii) repaid
certain long term debt instruments.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ProVesa, Inc.:
We have audited the accompanying consolidated balance sheets of PROVESA,
INC. (a Georgia corporation) AND SUBSIDIARIES as of June 30, 1995 and 1996 and
November 27, 1996 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended June 30, 1995 and
1996 and the period from July 1, 1996 to November 27, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ProVesa,
Inc. and subsidiaries as of June 30, 1995 and 1996 and November 27, 1996 and
the results of their operations and their cash flows for the years ended June
30, 1995 and 1996 and the period from July 1, 1996 to November 27, 1996 then
ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 27, 1998
F-24
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996 AND NOVEMBER 27, 1996
ASSETS
<TABLE>
<CAPTION>
JUNE 30
----------------------- NOVEMBER 27,
1995 1996 1996
---------- ----------- ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............... $ 219,721 $ 180,031 $ 286,036
Accounts receivable..................... 81,653 447,365 508,786
Inventory, prepaid expenses and other... 113,685 142,979 92,683
---------- ----------- ----------
Total current assets............... 415,059 770,375 887,505
PROPERTY AND EQUIPMENT, net.............. 1,131,909 1,004,021 1,377,970
DEFERRED TAX ASSET....................... 0 63,298 0
OTHER ASSETS, net........................ 1,581,890 1,325,082 1,282,678
---------- ----------- ----------
$3,128,858 $ 3,162,776 $3,548,153
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C> <C>
Current maturities of notes payable and
capital lease obligations.............. $ 219,483 $ 207,936 $ 283,288
Accounts payable........................ 155,753 139,740 135,879
Accrued liabilities..................... 57,892 85,908 26,295
---------- ----------- ----------
Total current liabilities.......... 433,128 433,584 445,462
LONG-TERM LIABILITIES:
Long-term debt and capital lease
obligations, net of current
obligations............................ 2,097,673 1,873,643 2,102,692
Deferred income taxes................... 49,455 34,996 36,493
---------- ----------- ----------
Total liabilities.................. 2,580,256 2,342,223 2,584,647
---------- ----------- ----------
MINORITY INTEREST........................ 0 50,000 24,005
COMMITMENTS AND CONTINGENCIES
SERIES A PREFERRED STOCK 8% CUMULATIVE,
NO PAR VALUE; 30,000 SHARES AUTHORIZED;
4,250 SHARES ISSUED AND OUTSTANDING..... 425,000 425,000 425,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 1,000,000
shares authorized; Series A reported
above.................................. 0 0 0
Common stock, no par value, 9,000,000
shares authorized; 105,000 shares is-
sued and outstanding................... 390,895 390,895 390,895
Accumulated (deficit) earnings.......... (267,293) (45,342) 123,606
---------- ----------- ----------
Total shareholders' equity......... 123,602 345,553 514,501
---------- ----------- ----------
$3,128,858 $ 3,162,776 $3,548,153
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-25
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
AND THE PERIOD FROM JULY 1, 1996 TO NOVEMBER 27, 1996
<TABLE>
<CAPTION>
PERIOD
YEARS ENDED JUNE 30 ENDED
---------------------- NOVEMBER 27,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
REVENUES................................. $3,423,037 $3,998,055 $1,870,893
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of service fee income.............. 175,846 330,009 164,693
Cost of equipment and product sales..... 354,650 208,534 40,061
Cost of data communications income...... 177,398 282,403 129,767
Selling, general and administrative...... 1,949,830 2,101,041 1,074,670
Depreciation and amortization............ 741,238 674,474 141,340
---------- ---------- ----------
Total operating expense ............... 3,398,962 3,596,461 1,550,531
---------- ---------- ----------
OPERATING INCOME......................... 24,075 401,594 320,362
INTEREST EXPENSE......................... (292,738) (223,948) (90,564)
INTEREST INCOME.......................... 7,526 7,698 5,038
---------- ---------- ----------
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT)
PROVISION............................... (261,137) 185,344 234,836
INCOME TAX (BENEFIT) PROVISION........... 0 (77,757) 83,383
MINORITY INTEREST IN NET LOSS OF SUBSIDI-
ARY..................................... 0 0 (25,995)
---------- ---------- ----------
NET (LOSS) INCOME BEFORE PREFERRED DIVI-
DENDS................................... $ (261,137) $ 263,101 $ 177,448
PREFERRED DIVIDENDS...................... 6,156 41,150 8,500
---------- ---------- ----------
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS............................ $ (267,293) $ 221,951 $ 168,948
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-26
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
AND THE PERIOD FROM JULY 1, 1996 TO NOVEMBER 27, 1996
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------- (DEFICIT)
SHARES AMOUNT EARNINGS TOTAL
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1994................. 22,000 $ 11,000 $ 0 $ 11,000
Proceeds from issuance of common
stock, net........................... 83,000 379,895 0 379,895
Net loss attributable to common
shareholders......................... 0 0 (267,293) (267,293)
------- -------- --------- ---------
BALANCE, June 30, 1995................. 105,000 390,895 (267,293) 123,602
Net income attributable to common
shareholders......................... 0 0 221,951 221,951
------- -------- --------- ---------
BALANCE, June 30, 1996................. 105,000 390,895 (45,342) 345,553
Net income attributable to common
shareholders......................... 0 0 168,948 168,948
------- -------- --------- ---------
BALANCE, November 27, 1996............. 105,000 $390,895 $ 123,606 $ 514,501
======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-27
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
AND THE PERIOD FROM JULY 1, 1996 TO NOVEMBER 27, 1996
<TABLE>
<CAPTION>
PERIOD
YEARS ENDED JUNE 30 ENDED
-------------------- NOVEMBER 27,
1995 1996 1996
---------- -------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (261,137) $263,101 $177,448
Adjustments to reconcile net income (loss)
to net cash provided by operating activi-
ties:
Minority interest in ProImage............. 0 0 (25,995)
Deferred income tax benefit............... 0 (77,757) 64,795
Depreciation and amortization............. 741,238 674,474 141,340
Change in operating assets and
liabilities, net of effects of
acquisition:
Accounts receivable...................... 36,967 (365,712) (61,421)
Inventory and prepaids................... (85,044) (29,294) 50,296
Other assets............................. 0 (3,217)
Accounts payable and accrued expenses.... 77,025 12,003 (63,474)
---------- -------- --------
Net cash provided by operating activi-
ties................................... 509,049 476,815 279,772
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment on notes receivable................ 100,000 0 0
Purchase of property and equipment, net.... (138,462) (289,778) (469,668)
Contributions from minority investors...... 0 50,000 0
Payments for business acquired............. (2,240,000) 0 0
Organizational costs....................... (47,979) 0 0
---------- -------- --------
Net cash provided by (used in) investing
activities............................. (2,326,441) (239,778) (469,668)
---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) long-term debt,
net....................................... 1,153,473 (235,577) 304,401
Issuance of preferred stock................ 425,000 0 0
Issuance of common stock, net of issuance
costs..................................... 390,895 0 0
Payment of preferred dividends............. (6,156) (41,150) (8,500)
---------- -------- --------
Net cash provided by (used in) financing
activities............................. 1,963,212 (276,727) 295,901
---------- -------- --------
NET INCREASE (DECREASE) IN CASH............. 145,820 (39,690) 106,005
CASH, beginning of period................... 73,901 219,721 180,031
---------- -------- --------
CASH, end of period......................... $ 219,721 $180,031 $286,036
========== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest..................... $ 292,738 $223,948 $ 90,564
========== ======== ========
Cash paid for income tax................... 0 0 23,200
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-28
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996 AND NOVEMBER 27, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
ProVesa, Inc. (the "Company") (a Georgia corporation) was incorporated on
June 30, 1994 for the purpose of providing information technology and data
processing services to financial institutions, primarily community banks. On
July 8, 1994, the Company acquired all of the stock of Data Bank Solutions,
Inc. ("DBS") for $2,240,000 with the proceeds of a loan provided by a
commercial bank. The Company is continuing the business of DBS, which operates
a data processing service bureau serving community banks, primarily in
Georgia. The name of DBS was subsequently changed to ProVesa Services, Inc.
The acquisition was accounted for using the purchase method of accounting,
with the excess of the purchase price over the net assets acquired recorded as
goodwill, which is being amortized using the straight-line method over a 40-
year period.
In May 1996, the Company purchased a one-third ownership of ProImage, Inc.,
a check imaging corporation ("ProImage"). The remaining two-thirds of ProImage
are owned equally by two community banks. The Company is a one-third guarantor
of a $400,000 note obtained in September 1996, the proceeds of which were used
to start the corporation. Consideration for the Company's interest was
$25,000. As the Company maintains control over ProImage, ProImage is included
in the consolidated financial statements of the Company since beginning
operations. The remaining two-thirds interest is treated as minority
interests. As of June 30, 1996, ProImage had no operations or assets other
than receivables from its shareholders.
On November 27, 1996, the Company's Board of Directors approved a share for
share exchange with The InterCept Group, Inc. ("InterCept") making the Company
a wholly-owned subsidiary of InterCept. InterCept currently has operating
subsidiaries in equipment sales and maintenance services as well as electronic
funds transfer support services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiary, ProVesa Services, Inc. and its one third owned
subsidiary, ProImage, Inc. ("ProImage"). ProImage has been consolidated in the
accompanying consolidated financial statements since its inception, due to
ProVesa's control of ProImage and limitations on the ability of the other
investors to have losses allocated to their capital accounts. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term highly liquid investments with an
original maturity date of three months or less to be cash equivalents.
F-29
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. For
financial reporting purposes, major additions and improvements are charged to
property accounts while replacements, maintenance, and repairs which do not
improve or extend the lives of respective assets are expensed in the current
period. Estimated useful lives for the Company's assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements................. 10-30 years
Computer equipment......................... 5 years
Furniture and fixtures..................... 7 years
Software................................... 3 years
Vehicles................................... 5 years
</TABLE>
Computer Software Licenses
Acquired software and licensing rights are capitalized and amortized using
the straight-line method over an estimated useful life of three to five years.
Software Development Costs
The Company capitalizes software development costs incurred from the time
technological feasibility of the software is established until the software is
sold. These costs are amortized on a straight-line basis over three years, the
estimated economic life of the software. Research and development costs and
maintenance costs related to software development are expensed as incurred.
Intangible Assets
Intangible assets include goodwill and organizational costs.
Goodwill
Goodwill represents the excess of the purchase price over the net
tangible and identifiable intangible assets of acquired businesses.
Goodwill is amortized on a straight-line basis over 40 years.
Organizational Costs
Organizational costs are amortized on a straight-line basis over a period
of five years.
Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," on July 1, 1995. SFAS No. 121 established
accounting standards for the impairment of long-lived assets and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangible assets to be disposed of. The effect of
adopting SFAS No. 121 was not material to the Company's consolidated financial
statements.
The Company reviews its long-lived assets for impairment at each balance
sheet date or whenever events or changes in circumstances indicate that the
carrying amount of an asset should be assessed. Management evaluates the
intangible assets related to each acquisition individually to determine
whether an impairment has
F-30
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
occurred. An impairment is recognized when the discounted future cash flows
estimated to be generated by the acquired business are not sufficient to
recover the unamortized balance of the intangible asset with the amount of any
such deficiency charged to income in the current year. Estimates of future
cash flows are based on many factors, including current operating results,
expected market trends, and competitive influences.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the probability
of being able to realize the future benefits indicated by such asset is
required. A valuation allowance is provided for a portion of the deferred tax
asset when it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In assessing the realizability of the deferred
tax assets, management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies.
Revenue Recognition
Revenues are recognized as services are provided.
Concentration of Credit Risk
During the years ended June 30, 1995 and 1996 and the period ended November
27, 1996, revenues from one customer constituted approximately 28%, 20% and
18% of total revenues, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1995 and 1996, and November 27, 1996
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
---------------------- NOVEMBER 27,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
Land.................................... $ 67,157 $ 67,157 $ 67,157
Building and improvements............... 557,357 557,357 566,544
Computer equipment...................... 1,963,930 647,082 988,935
Furniture and fixtures.................. 111,630 118,331 118,331
Software................................ 123,643 131,083 249,711
Vehicles................................ 25,304 25,304 25,304
---------- ---------- ----------
2,849,021 1,546,314 2,015,982
Less accumulated depreciation........... (1,717,112) (542,293) (638,012)
---------- ---------- ----------
$1,131,909 $1,004,021 $1,377,970
========== ========== ==========
</TABLE>
F-31
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. OTHER ASSETS
Other assets at June 30, 1995 and 1996 and November 27, 1996 consisted of the
following:
<TABLE>
<CAPTION>
JUNE 30
---------------------- NOVEMBER 27,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
Goodwill................................ $1,494,533 $1,494,533 $1,494,533
Noncompete agreement.................... 400,000 0 0
Organizational costs.................... 47,979 47,979 51,196
Software licensing rights............... 123,002 0 0
---------- ---------- ----------
2,065,514 1,542,512 1,545,729
Less accumulated amortization........... (483,624) (217,430) (263,051)
---------- ---------- ----------
$1,581,890 $1,325,082 $1,282,678
========== ========== ==========
</TABLE>
5. LONG-TERM DEBT
Long-term debt at June 30, 1995 and 1996 and November 27, 1996 consisted of
the following:
<TABLE>
<CAPTION>
JUNE 30
---------------------- NOVEMBER 27,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
Note payable to Allied Bank, interest at
prime (8.25% at June 30, 1996), monthly
principal and interest installments of
$6,000 through December 1, 1999, with
remaining principal due December 31,
1999; the note is collateralized by land
and building............................ $ 475,973 $ 444,020 $ 429,385
Note payable to FNB Commerce, interest
at prime plus 2%; monthly principal and
interest payments of $28,434 (with
adjustments for changes of prime)
beginning July 1, 1996, payable in full
on June 1, 2003; the note is
collateralized by 674 shares of common
stock of ProVesa Services, Inc., a life
insurance policy and personal guarantee
of a major stockholder.................. 1,687,500 1,637,559 1,567,799
Note payable to First Macon Bank and
Trust, interest at prime (8.25% at
loan's inception at September 13, 1996),
monthly principal and interest payments
of $8,185.72 until the maturity date of
September 15, 2001; the note is
collateralized by all furnitures,
fixtures, equipment, inventory and
accounts receivables and guarantees from
all shareholders of ProImage, Inc. ..... 0 0 388,796
Capital Lease obligations, computer
equipment............................... 153,683 0 0
---------- ---------- ----------
2,317,156 2,081,579 2,385,980
Less current portion...................... (219,483) (207,936) (283,288)
---------- ---------- ----------
Long-term debt and capital lease
obligations net of current portion....... $2,097,673 $1,873,643 $2,102,692
========== ========== ==========
</TABLE>
Maturities of long-term debt at November 30, 1996 are as follows:
<TABLE>
<CAPTION>
1997........................................ $ 283,288
<S> <C>
1998........................................ 310,365
1999........................................ 341,500
2000........................................ 635,116
2001........................................ 348,040
Thereafter.................................. 467,671
----------
$2,385,980
==========
</TABLE>
F-32
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The loan agreement with FNB Commerce contains restrictions on the payment of
dividends on common stock and restrictions on capital expenditures.
6. INCOME TAXES
The components of income tax expense provision (benefit) for the years ended
June 30, 1995 and 1996 and the period ended November 27, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30
-------------------- NOVEMBER 27,
1995 1996 1996
--------- --------- ------------
<S> <C> <C> <C>
Current...................................... $ 0 $ 0 $18,588
Deferred..................................... (107,411) 29,654 64,795
Change in valuation allowance................ 107,411 (107,411) 0
--------- --------- -------
Total.................................. $ 0 $ (77,757) $83,383
========= ========= =======
</TABLE>
The differences between the income tax benefit and the amount computed by
applying the statutory federal income tax rate to the net income (loss) for
the years ended June 30, 1995 and 1996 are due to unrecorded net operating
loss carryforwards.
The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
basis, which give rise to deferred tax assets and liabilities, as of June
30,1995 and 1996 and November 27, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30
----------------- NOVEMBER 27,
1995 1996 1996
-------- ------- ------------
<S> <C> <C> <C>
Current deferred tax asset:
Deferred tax asset:
Accrued vacation pay...................... $ 1,509 $ 2,057 $ 0
Net operating loss carryforwards.......... 143,141 61,241 0
-------- ------- -------
Deferred tax assets..................... 144,650 63,298 0
-------- ------- -------
Less valuation allowance.................. (144,650) 0 0
-------- ------- -------
Net deferred tax assets................. $ 0 $63,298 $ 0
======== ======= =======
Noncurrent deferred tax liability,
consisting of accelerated depreciation..... $ 49,455 $34,996 $36,493
======== ======= =======
</TABLE>
7. PREFERRED STOCK
Shares of preferred stock may be issued from time to time in one or more
series as may be established by resolution of the board of directors of the
Company. Each resolution shall include the number of shares issued,
F-33
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as determined by the board.
Series A Preferred Stock
On June 30, 1994, the Company filed Articles of Amendments to its Articles
of Incorporation for the designation of 30,000 shares of Series A preferred
stock. The stated value of the Series A is $100 per share. Holders of Series A
preferred stock are entitled to receive dividends at the annual rate of 8% of
the stated value per share, or $8.00 per share, payable quarterly. Dividends
are cumulative from the date of issue. The Company may not declare or pay cash
dividends on any other series of preferred stock that is junior or on parity
with the Series A preferred stock, or on common stock, nor may it redeem,
purchase, or otherwise acquire any of such stock, unless full cumulative
dividends have been or are contemporaneously declared and paid on the Series A
preferred stock. In the event of any liquidation or dissolution of the
Company, the holders of shares of Series A preferred stock are entitled to
receive out of assets of the Company available for distribution to
shareholders, before any distributions are made to holders of common stock or
of any other shares of stock of the Company ranking junior to the Series A
preferred stock, liquidating distributions in the amount of $100 per share,
plus accrued and unpaid dividends.
The Series A preferred stock is redeemable at the option of the Company for
cash at any time, in whole or in part, on at least 10 days' notice. The price
payable upon redemption is 110% of stated value per share, or $110 per share,
plus accrued but unpaid dividends. At any time after the fifth anniversary of
the initial issuance of shares of Series A preferred stock, any holder of
Series A preferred stock may tender all or part of such holder's Series A
preferred stock for redemption at a price equal to 100% of stated value, or
$100 per share, plus accrued and unpaid dividends. The holders of the Series A
preferred stock have no voting rights except as otherwise required by the
Georgia Business Corporation Code (the "Georgia Code") and applicable law. The
holders of shares of Series A preferred stock have no preemptive or other
rights to subscribe for any other shares of securities, nor do they have any
conversion rights. The Series A preferred stock ranks prior to the common
stock as to dividends and upon liquidation of the Company.
8.STOCK OPTION PLAN
The Company adopted a Stock Option Plan covering up to 25,000 shares of its
common stock. This plan is administered by a committee of the Board of
Directors and provides that restricted stock and stock options may be granted.
The Plan is intended as an incentive for and as a means of encouraging stock
ownership by persons who are employees or directors of the Company. Options
may be granted either as incentive stock options or as nonqualified stock
options. The exercise price of each option granted under the Plan will not be
less than the fair market value of the shares of common stock subject to the
option on the date of grant as determined by the Board of Directors. Options
will be exercisable in whole or in part upon such terms as may be determined
by the committee. During 1995, options for 20,000 shares were granted. The
options granted are nonqualified stock
options with an exercise price of $5.00 per share and exercise period up to 10
years. None of the options had been exercised as of November 27, 1996.
F-34
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1994, the board of directors adopted a stock option plan under which
25,000 shares of common stock were reserved for grant. During 1995, options to
purchase 20,000 shares of the Company's common stock were granted at an
exercise price of $5.00 per share. At November 27, 1996, 20,000 shares were
vested of which none had been exercised.
A summary status of the Company's stock option plan as of June 30, 1995 and
1996, and November 27, 1996 and changes during the year, is presented below:
<TABLE>
<CAPTION>
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at June 30, 1995............................... 20,000 $5.00
Granted................................................... 0 --
------
Outstanding at June 30, 1996............................... 20,000 5.00
Granted................................................... 0 --
------
Outstanding at November 27, 1996........................... 20,000 5.00
======
</TABLE>
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with
the accounting methodology required by APB Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock based compensation plans
under APB Opinion No. 25, under which no compensation cost has been recognized
by the Company. Under SFAS No. 123 the value of all options for shares of the
Company's common stock granted in fiscal years beginning after December 15,
1996 must be computed for pro forma disclosure purposes. The Company has
granted no options during this period, and no disclosures have been made.
The following table sets forth the number of shares, exercise price and
weighted average contractual lives by groups of similar price and grant date:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE CONTRACTUAL
OF SHARES PRICE LIFE
--------- -------- -----------
(IN YEARS)
<S> <C> <C>
20,000 $5.00 8.2
</TABLE>
At June 30, 1996, 20,000 options for the Company's stock with a weighted
average exercise price of $5.00 per share were exercisable by employees of the
Companies. At November 27, 1996, 20,000 options for the Company's stock with a
weighted average exercise price of $5.00 per share were exercisable by
employees. At November 27, 1996, all 20,000 options outstanding under the plan
were converted into options to acquire an equal number of shares of InterCept
common stock.
F-35
<PAGE>
PROVESA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS
The Company leases various equipment and facilities under operating lease
agreements. Future minimum payments on these leases at November 27, 1996 are
summarized as follows:
<TABLE>
<S> <C>
1997........................................... $31,200
1998........................................... 31,200
1999........................................... 26,000
-------
$88,400
=======
</TABLE>
Rent expense for all operating leases was $17,757, $55,506 and $27,151 for
the years ended June 30, 1995 and 1996 and the period from July 1, 1996 to
November 27, 1996, respectively.
10. RELATED-PARTY TRANSACTIONS
During the years ended June 30, 1995 and 1996, the Company incurred costs of
$5,953 and $4,888, respectively, for transportation services provided by
Javiar, Inc., a corporation owned by certain shareholders of the Company.
The Company purchased equipment and services during the years ended June 30,
1995, 1996 and the period from July 1, 1996 to November 27, 1996 in the
amounts of $177,761, $261,231, and $93,931 respectively, from Data Services
Corporation, a corporation owned by certain shareholders of the Company.
During the years ended June 30, 1995, 1996 and the period from July 1, 1996
to November 27, 1996 the Company incurred costs for supplies and services in
the amounts of $19,383, $29,456, and $1,769 respectively, with ATM Source, a
corporation owned by one of the shareholders of the Company.
The Company incurred costs of $66,962, $195,070, and $112,011 during the
years ended June 30, 1995, 1996 and the period from July 1, 1996 to November
27, 1996, respectively, for supplies and services provided by InterCept
Systems, Inc., a corporation owned by certain shareholders of the Company.
During the years ended June 30, 1995, 1996 and the period from July 1, 1996
to November 27, 1996, the Company paid $58,164, $2,879, and $120 respectively,
for legal services to Nelson, Mullins, Riley & Scarborough. One of the
partners in the law firm is also a director and shareholder of the Company.
The Company incurred costs of $52,268 and $41,737 during the year ended June
30, 1995 and for the period from July 1, 1996 to November 27, 1996
respectively for data line services provided by InterCept Communications
Technologies, L.L.C., a corporation owned by certain shareholders of the
Company.
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FiNet, Inc.:
We have audited the accompanying balance sheet of FiNet, Inc. (a Tennessee
corporation) as of December 17, 1996 and the related statements of operations,
shareholders' deficit, and cash flows for the period from Inception (June 21,
1996) to December 17, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FiNet, Inc. as of December
17, 1996 and the results of its operations and its cash flows for the period
from Inception (June 21, 1996) through December 17, 1996 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 27, 1998
F-37
<PAGE>
FINET, INC.
BALANCE SHEET
DECEMBER 17, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash................................................................... $10,200
-------
Total Assets....................................................... $10,200
=======
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES
Note payable, current................................................. $10,000
Accrued liabilities................................................... 44,795
-------
Total liabilities..................................................... 54,795
Shareholders' Equity:
Common Stock.......................................................... 60
Paid in capital....................................................... 140
Accumulated deficit................................................... (44,795)
-------
Total shareholders' deficit........................................ (44,595)
-------
Total liabilities & shareholders' deficit........................ $10,200
=======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-38
<PAGE>
FINET INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JUNE 21, 1996) TO DECEMBER 17, 1996
<TABLE>
<S> <C>
GENERAL AND ADMINISTRATIVE EXPENSES..................................... $44,795
-------
OPERATING LOSS.......................................................... 44,795
-------
LOSS BEFORE PROVISION FOR INCOME TAXES.................................. 44,795
PROVISION FOR INCOME TAXES.............................................. --
-------
NET LOSS................................................................ $44,795
=======
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
FINET, INC.
STATEMENT OF SHAREHOLDER'S DEFICIT
FOR THE PERIOD FROM INCEPTION (JUNE 21, 1996) TO DECEMBER 17, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN ACCUMULATED
STOCK AMOUNT CAPITAL DEFICIT TOTAL
----- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
INCEPTION, June 21, 1996......... 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock......... 6,000 60 140 0 200
Net loss......................... 0 0 0 (44,795) (44,795)
----- --- ---- -------- --------
Balance, December 17, 1996....... 6,000 $60 $140 $(44,795) $(44,595)
----- --- ---- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
FINET, INC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION TO DECEMBER 17, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $(44,795)
Adjustments to reconcile net loss to cash provided by operating
activities:
Change in:
Accrued liabilities............................................ 44,795
--------
Net cash provided by operating activities.................... 0
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party note payable........................... 10,000
Issuance of common stock........................................... 200
--------
Net cash provided by financing activities........................ 10,200
--------
NET INCREASE IN CASH................................................. 10,200
CASH, AT INCEPTION................................................... 0
--------
CASH, AT END OF PERIOD............................................... $ 10,200
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-41
<PAGE>
FINET, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
FiNet, Inc. (a Tennessee corporation) (the "Company") was incorporated on
June 21, 1996 under the Tennessee Business Corporation Act. FiNet, Inc. is in
the business of providing merchant portfolio management services to community
banks.
Effective December 17, 1996, the Company was merged with and into InterCept
Acquisitions II, Inc., a wholly owned subsidiary of The InterCept Group Inc.
("InterCept"), whereby shareholders of the Company received 116,250 shares of
no par value InterCept common stock in exchange for all of the issued and
outstanding shares of common stock of the Company as of December 17, 1996 (the
"Merger"). The accompanying financial statements of the Company are exclusive
of the effects of the Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of asset and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Note Payable
The note payable represents an advance made by InterCept to fund FiNet's
general working capital needs.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bank Services Corporation:
We have audited the accompanying balance sheets of BANK SERVICES CORPORATION
(a Colorado corporation) as of December 31, 1995 and 1996 and the related
statements of operations, shareholders' equity (deficit), and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bank Services Corporation
as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia February 27, 1998
F-43
<PAGE>
BANK SERVICES CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash....................................................... $144,453 $ 39,088
Accounts receivable........................................ 76,442 83,735
Prepaid expenses........................................... 14,429 25,493
-------- --------
Total current assets.................................. 235,324 148,316
-------- --------
PROPERTY AND EQUIPMENT:
Office equipment........................................... 31,177 23,674
Computer equipment and software............................ 853,329 641,331
Vehicles................................................... 13,500 13,500
-------- --------
898,006 678,505
Less accumulated depreciation.............................. (766,450) (562,189)
-------- --------
Net property and equipment............................ 131,556 116,316
-------- --------
SOFTWARE DEVELOPMENT, net................................... 30,000 45,600
-------- --------
$396,880 $310,232
======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
<TABLE>
<S> <C> <C>
Accounts payable...................................................... $ 5,930 $ 23,814
Accrued expenses...................................................... 15,116 22,155
Accrued income tax.................................................... 6,000 0
Current portion of long-term debt..................................... 0 47,850
-------- --------
Total current liabilities........................................ 27,046 93,819
DEFERRED TAX LIABILITY................................................. 4,500 4,500
LONG-TERM DEBT, less current portion................................... 0 402,150
-------- --------
Total liabilities................................................ 31,546 500,469
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value; 50,000 shares authorized at December
31, 1996; no shares issued or outstanding............................ 0 0
Common stock, no par value, 400,000 and 1,000,000 shares authorized
in 1995 and 1996, respectively; 162,857 and 177,857 shares issued
and 162,857 and 87,000 shares outstanding in 1995 and 1996,
respectively....................................................... 267,600 341,850
Treasury stock, 90,857 shares as of December 31, 1996, at cost........ 0 (450,000)
Additional paid-in capital............................................ 43,045 43,045
Deferred compensation................................................. 0 (56,875)
Retained earnings (accumulated deficit)............................... 54,689 (68,257)
-------- --------
Total shareholders' equity (deficit)........................ 365,334 (190,237)
-------- --------
$396,880 $310,232
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-44
<PAGE>
BANK SERVICES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
REVENUES:
Data processing fees..................................... $853,067 $ 825,055
Software sales and maintenance........................... 93,845 60,475
Consulting and other..................................... 33,012 60,821
-------- ---------
Total revenues...................................... 979,924 946,351
-------- ---------
COSTS OF SERVICES......................................... 281,150 284,274
SELLING, GENERAL AND ADMINISTRATIVE....................... 640,563 786,660
-------- ---------
Total operating expenses............................ 921,713 1,070,934
-------- ---------
OPERATING INCOME (LOSS)................................... 58,211 (124,583)
INTEREST INCOME........................................... 2,233 1,637
-------- ---------
INCOME (LOSS) BEFORE PROVISION FOR TAXES.................. 60,444 (122,946)
PROVISION FOR INCOME TAXES................................ (8,165) 0
-------- ---------
NET INCOME (LOSS)......................................... $ 52,279 $(122,946)
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
BANK SERVICES CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------- TREASURY PAID-IN DEFERRED EARNINGS
STOCK AMOUNT STOCK CAPITAL COMPENSATION (DEFICIT) TOTAL
------- -------- --------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 162,857 $267,600 $ 0 $43,045 $ 0 $ 2,410 $ 313,055
Net income............. 0 0 0 0 0 52,279 52,279
------- -------- --------- ------- -------- -------- ---------
BALANCE, December 31,
1995................... 162,857 267,600 0 43,045 0 54,689 365,334
Issuance of common
stock.................. 15,000 74,250 0 0 (68,250) 0 6,000
Stock compensation ex-
pense.................. 0 0 0 0 11,375 0 11,375
Repurchase of common
stock.................. 0 0 (450,000) 0 0 0 (450,000)
Net loss............... 0 0 0 0 0 (122,946) (122,946)
------- -------- --------- ------- -------- -------- ---------
BALANCE, December 31,
1996................... 177,857 $341,850 $(450,000) $43,045 $(56,875) $(68,257) $(190,237)
======= ======== ========= ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
BANK SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 52,279 $(122,946)
Adjustments to reconcile net income (loss) to net cash
provided by
(used in) operating activities:
Depreciation and amortization........................... 48,830 46,667
Stock compensation expense ............................. 0 11,375
Changes in operating assets and liabilities:
Accounts receivable.................................... 10,762 (7,293)
Prepaid expenses....................................... 3,976 (11,064)
Accounts payable....................................... 2,396 17,884
Accrued expenses....................................... 2,049 7,039
Accrued income taxes .................................. 6,000 (6,000)
Deferred income taxes.................................. 3,500 0
-------- ---------
Net cash provided by (used in) operating activities... 129,792 (64,338)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs............................... (13,500) (15,600)
Purchase of equipment.................................... (96,766) (31,427)
Proceeds from sale of assets............................. 3,000 0
-------- ---------
Net cash used in investing activities................. (107,266) (47,027)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................. 0 6,000
Repurchase of common stock............................... 0 (450,000)
(Payments on) proceeds from long-term debt............... (40,332) 450,000
-------- ---------
Net cash (used in) provided by financing activities... (40,332) 6,000
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................. (17,806) (105,365)
CASH AND CASH EQUIVALENTS, beginning of year.............. 162,259 144,453
-------- ---------
CASH AND CASH EQUIVALENTS, end of year.................... $144,453 $ 39,088
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes............................... $ 0 $ 6,000
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
BANK SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND NATURE OF BUSINESS
Bank Services Corporation (the "Company"), provides data processing,
software, and support services to independent community banks which utilize the
Company's software. The Company also licenses its software and offers system
maintenance contracts.
Effective December 31, 1996, the Company was merged with and into InterCept
Acquisitions, Inc., a wholly owned subsidiary of The InterCept Group Inc.
("InterCept"), whereby shareholders of the Company received 221,429 shares of
no par value InterCept common stock in exchange for the 87,000 shares of
outstanding common stock of the Company (the "Merger"). The accompanying
financial statements of the Company are exclusive of the effects of the Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of asset and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets for
financial reporting purposes. Major additions and improvements are charged to
the property accounts while replacements, maintenance, and repairs which do not
improve or extend the lives of respective assets are expensed in the current
period. The estimated useful life of the property and equipment is five to ten
years.
Software Development Costs
The Company capitalizes software development costs incurred from the time
technological feasibility of the software is established until the software is
ready for use. These costs are amortized on the straight-line basis over three
years, the estimated economic life of the software. Research and development
costs and maintenance costs related to software development are expensed as
incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
In the event that the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the probability of
being able to realize the future benefits indicated by such asset is required.
A valuation allowance is provided for a portion of the deferred tax asset when
it is more likely than not that some portion or all of the deferred tax
F-48
<PAGE>
BANK SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
asset will not be realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies.
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable and
accounts payable, approximates carrying value due to the short-term maturity of
the instruments. The fair value of short-term and long-term debt amounts is
based on their effective interest rates compared to current market rates.
Revenue Recognition
Data processing fees are recognized as the services are provided. Software
sales are recognized as the systems are installed and training is complete.
Maintenance fees are recognized ratably over the contract term.
3. INCOME TAXES
The components of the provision for income taxes for the years ended December
31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Current............................ $ 4,665 $ 0
Deferred........................... 3,500 0
------- --------
Total.......................... $ 8,165 $ 0
======= ========
The differences between the provision for income taxes and the amounts
computed by applying the statutory federal income tax rate to the net earnings
(loss) for the years ended December 31, 1995 and 1996 consist of the following:
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Federal income taxes (benefit) at
statutory rate.................... $ 9,067 $(41,800)
State taxes (benefit), net of
federal benefit................... 3,000 (4,900)
Change in valuation allowance...... 0 49,000
Other, net......................... (3,902) (2,300)
------- --------
$ 8,165 $ 0
======= ========
The following summarizes the sources and expected tax consequences of future
taxable deductions (income), which comprise the deferred tax accounts at
December 31, 1995 and 1996.
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Current deferred tax asset:
Deferred tax asset:
Accrued vacation pay............. $ 1,000 $ 1,000
Net operating loss
carryforwards................... 0 49,000
------- --------
Total deferred assets.......... 1,000 50,000
Less valuation allowance......... 0 (49,000)
------- --------
Net deferred tax asset......... $ 1,000 $ 1,000
======= ========
Noncurrent deferred tax liability,
consisting of accelerated
depreciation...................... $ 4,500 $ 4,500
======= ========
</TABLE>
F-49
<PAGE>
BANK SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
In anticipation of the merger with InterCept, the Company entered into a
$450,000 loan agreement with a bank in December 1996. The proceeds of the loan
were used to repurchase common stock of the Company (Note 6). This loan bears
interest at the prime rate (8.25% at December 31, 1996) plus 1% and is due in
full in December 1999. Future principal payments of debt as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997.......................................... $ 47,850
1998.......................................... 52,409
1999.......................................... 349,741
--------
$450,000
========
</TABLE>
The debt is secured by substantially all assets of the Company, as well as
the Company's common stock and life insurance policies of board members. The
debt is guaranteed by a company related through common ownership with InterCept
(Note 1) and by certain members of the board of directors.
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases two facilities under operating lease agreements. Future
minimum payments on these leases at December 31, 1996 are summarized as
follows:
<TABLE>
<S> <C>
1997........................................... $54,492
1998........................................... 18,680
-------
$73,172
=======
</TABLE>
Rental expense was $47,868 and $51,828 for the years ended December 31, 1995
and 1996, respectively.
Sales Agreement
Pursuant to various agreements between the Company and certain banks, the
Company is obligated to pay up to $40,000 in the aggregate for certain sales of
software made by the Company. The Company has accrued $6,154 and $9,231 at
December 31, 1995 and 1996, respectively, related to this obligation.
6. SHAREHOLDERS' EQUITY
In June 1996, the Company issued 15,000 shares of common stock to an employee
for $6,000 cash. These shares are subject to repurchase by the Company for a
period of three years at a price of $7,392 plus interest if the employee leaves
the Company or is terminated for just cause. The difference of $68,250 between
the amount paid and the estimated fair market value of the stock at the date of
issuance has been recorded as deferred compensation and will be amortized over
the restricted period. The Company recognized $11,375 in compensation expense
during 1996.
In December 1996, the Company repurchased 90,857 shares of common stock from
a shareholder for $450,000. This amount has been recorded as treasury stock, at
cost.
Effective December 31, 1996, the Company amended the Articles of
Incorporation, authorizing 50,000 shares of preferred stock and 1,000,000
shares of voting common stock. As of December 31, 1996, there were no issued or
outstanding preferred shares and 87,000 outstanding common shares.
7. CONCENTRATION OF CREDIT RISK
The Company's three largest customers accounted for approximately 38% and 39%
of total revenues for the years ended December 31, 1995 and 1996, respectively.
F-50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Data Services Corporation:
We have audited the accompanying balance sheets of DATA SERVICES CORPORATION
(a Georgia corporation) as of December 31, 1995 and June 4, 1996 and the
related statements of operations, shareholders' deficit, and cash flows for
the year ended December 31, 1995 and the period from January 1, 1996 to June
4, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Data Services Corporation
as of December 31, 1995 and June 4, 1996 and the results of its operations and
its cash flows for the year ended December 31, 1995 and the period from
January 1, 1996 to June 4, 1996 in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
April 27, 1998
F-51
<PAGE>
DATA SERVICES CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 4, 1996
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 4,
1995 1996
------------ --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 268,095 $ 53,427
Accounts receivable.................................... 492,559 343,676
Inventory.............................................. 82,249 115,775
Prepaid expenses and other receivables................. 123,437 173,131
---------- --------
Total current assets................................ 966,340 686,009
---------- --------
PROPERTY AND EQUIPMENT:
Office equipment....................................... 16,443 16,443
Machinery and equipment................................ 100,239 103,950
Vehicles............................................... 10,500 10,500
---------- --------
127,182 130,893
Less accumulated depreciation.......................... (54,672) (63,554)
---------- --------
Net property and equipment.......................... 72,510 67,339
---------- --------
$1,038,850 $753,348
========== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable....................................... $ 360,413 $ 36,828
Accrued expenses....................................... 5,947 13,536
Deferred revenues...................................... 875,017 739,854
---------- --------
Total current liabilities........................... 1,241,377 790,218
---------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Common stock, $1 par value 1,000,000 shares authorized
in 1995 and 1996; 500 shares issued and outstanding in
1995 and 1996......................................... 500 500
Accumulated deficit.................................... (203,027) (37,370)
---------- --------
Total shareholders' deficit......................... (202,527) (36,870)
---------- --------
$1,038,850 $753,348
========== ========
</TABLE>
Accompanying notes are an integral part of these balance sheets.
F-52
<PAGE>
DATA SERVICES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 1, 1996 TO JUNE 4, 1996
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
1995 JUNE 4, 1996
------------ ------------
<S> <C> <C>
REVENUES:
Maintenance fees..................................... $1,921,538 $ 938,516
Equipment sales and other............................ 2,279,209 1,148,446
---------- ----------
Total revenues.................................... 4,200,747 2,086,962
---------- ----------
COSTS AND EXPENSES:
Cost of maintenance fee income....................... 175,000 72,317
Cost of equipment sales.............................. 1,761,751 818,514
Selling, general, and administrative................. 2,007,746 986,731
Depreciation......................................... 15,582 8,882
---------- ----------
Total costs and expenses.......................... 3,960,079 1,886,444
---------- ----------
OPERATING INCOME...................................... 240,668 200,518
OTHER INCOME.......................................... 5,279 5,139
---------- ----------
NET INCOME............................................ 245,947 205,657
========== ==========
</TABLE>
Accompanying notes are an integral part of these balance sheets.
F-53
<PAGE>
DATA SERVICES CORPORATION
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 1, 1996 TO JUNE 4, 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------ ACCUMULATED
STOCK AMOUNT DEFICIT TOTAL
----- ------ ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994................. 500 $500 $(448,974) $(448,474)
Net income................................ 0 0 245,947 245,947
--- ---- --------- ---------
BALANCE, DECEMBER 31, 1995................. 500 500 (203,027) (202,527)
Net income................................ 0 0 205,657 205,657
Distributions to shareholders............. 0 0 (40,000) (40,000)
--- ---- --------- ---------
BALANCE, JUNE 4, 1996...................... 500 $500 $ (37,370) $ (36,870)
=== ==== ========= =========
</TABLE>
Accompanying notes are an integral part of these balance sheets.
F-54
<PAGE>
DATA SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE PERIOD FROM
JANUARY 1, 1996 TO JUNE 4, 1996
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 JUNE 4, 1996
----------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 245,947 $ 205,657
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation................................. 15,582 8,882
Changes in operating assets and liabilities:
Accounts receivable......................... (93,225) 148,883
Inventory................................... (63,301) (33,526)
Prepaid expenses and other receivables...... (121,472) (49,694)
Accounts payable............................ 255,807 (323,585)
Accrued expenses............................ (3,091) 7,589
Deferred revenues........................... 65,212 (135,163)
--------- ---------
Net cash provided by (used in) operating
activities................................ 301,459 (170,957)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.......................... (42,366) (3,711)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable..................... (89,033) 0
Distributions to shareholders.................. 0 (40,000)
--------- ---------
Net cash used in financing activities...... (89,033) (40,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 170,060 (214,668)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.. 98,035 268,095
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 268,095 $ 53,427
========= =========
</TABLE>
F-55
<PAGE>
DATA SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 4, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
Data Services Corporation (the "Company") (a Georgia corporation) provides
maintenance and technical support services and supplies, and specialized
equipment, including ATMs, proof machines, teller equipment, vaults, and other
security equipment.
Effective June 4, 1996, the Company was merged with and into InterCept
Holdings, Inc., subsequently renamed as The InterCept Group, Inc.
("InterCept"), whereby shareholders of the Company received 290,000 shares of
no par value InterCept common stock in exchange for all the issued and
outstanding shares of common stock of the Company as of June 4, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of asset and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets for
financial reporting purposes. Major additions and improvements are charged to
the property accounts while replacements, maintenance, and repairs which do
not improve or extend the lives of respective assets are expensed in the
current period. The estimated useful lives of the property and equipment range
from five to ten years.
Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," on January 1, 1995. SFAS No. 121 established
accounting standards for the impairment of long-lived assets to be held and
used and for long-lived assets and certain identifiable intangible assets to
be disposed of. The effect of adopting SFAS No. 121 was not material to the
Company's consolidated financial statements.
The Company reviews its long-lived assets for impairment at each balance
sheet date or whenever events or changes in circumstances indicate that the
carrying amount of an asset should be assessed. Management has determined that
no impairment exists at June 4, 1996.
INCOME TAXES
The Company is an S corporation for federal and state tax reporting
purposes. As such, all taxable income and loss of the Company is included in
the shareholders' tax returns. Distributions consist of recurring amounts to
allow shareholders to satisfy their tax obligations. Accordingly, the Company
has not recorded any provision for income taxes in the accompanying financial
statements.
F-56
<PAGE>
DATA SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable, and
accounts payable, approximates carrying value due to the short-term maturity
of the instruments. The fair value of short-term and long-term debt amounts is
based on their effective interest rates compared to current market rates.
REVENUE RECOGNITION
Maintenance fees are recognized ratably over the contract term. Equipment
sales are recognized upon shipment of the product to customers, provided that
there are no significant obligations remaining and collectibility of the
revenue is probable.
3. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under operating lease
agreements. Future minimum payments on these leases at June 4, 1996 are
summarized as follows:
<TABLE>
<S> <C>
1997............................................................. $ 54,000
1998............................................................. 58,000
1999............................................................. 19,000
--------
$131,000
========
</TABLE>
Rental expense was approximately $57,000 and $25,000 for the year ended
December 31, 1995 and the period ended June 4, 1996, respectively.
4. RELATED-PARTY TRANSACTIONS
During the year ended December 31, 1995 and the period from January 1, 1996
to June 4, 1996, the Company provided equipment maintenance services to The
InterCept Group, a company related through common ownership. Revenues were
$119,400 and $44,775 for these periods, respectively.
F-57
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
OR AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Dilution................................................................. 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Industry................................................................. 31
Business................................................................. 33
Management............................................................... 44
Principal and Selling Shareholders....................................... 51
Certain Transactions..................................................... 52
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 63
Experts.................................................................. 63
Additional Information................................................... 64
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,525,000 SHARES
THE INTERCEPT
GROUP, INC.
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
J.C. Bradford & Co.
Wheat First Union
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
Offering described in the Registration Statement:
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 10,134
NASD Fees........................................................ $ 3,935
Nasdaq Fees...................................................... $ 40,001
Blue Sky Fees and Expenses....................................... $ 3,000
Printing and Engraving........................................... $ 200,000
Legal Fees and Expenses.......................................... $ 600,000
Accounting Fees and Expenses..................................... $ 500,000
Transfer Agent Fees.............................................. $ 15,000
Miscellaneous Expenses........................................... $ 27,930
----------
Total:........................................................... $1,400,000
==========
</TABLE>
- --------
* All amounts other than the SEC Registration Fee and NASD Fees reflect
Company estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation eliminate, subject to certain
limited exceptions, the personal liability of a director to the Company or its
shareholders for monetary damage for any breach of duty as a director. There
is no elimination of liability for (i) a breach of duty involving
appropriation of a business opportunity of the Company; (ii) an act or
omission which involves intentional misconduct or a knowing violation of law;
(iii) any transaction from which the director derives an improper personal
benefit; or (iv) as to any payments of a dividend or any other type of
distribution that is illegal under Section 14-2-832 of the Georgia Business
Corporation Code (the "Code"). In addition, if at any time the Code is amended
to authorize further elimination or limitation of the personal liability of a
director, then the liability of each director of the Company shall be
eliminated or limited to the fullest extent permitted by such provisions, as
so amended, without further action by the shareholders, unless the provisions
of the Code require such action. The provision does not limit the right of the
Company or its shareholders to seek injunctive or other equitable relief not
involving payments in the nature of monetary damages.
The Company's bylaws contain certain provisions which provide
indemnification to directors of the Company that is broader than the
protection expressly mandated in Sections 14-2-852 and 14-2-857 of the Code.
To the extent that a director or officer of the Company has been successful,
on the merits or otherwise, in the defense of any action or proceeding brought
by reason of the fact that such person was a director or officer of the
Company, Sections 14-2-852 and 14-2-857 of the Code would require the Company
to indemnify such persons against expenses (including attorney's fees)
actually and reasonably incurred in connection therewith. The Code expressly
allows the Company to provide for greater indemnification rights to its
officers and directors, subject to shareholder approval.
The indemnification provisions in the Company's bylaws require the Company
to indemnify and hold harmless any director who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the Company) because he or
she is or was a director of the Company, against expenses (including, but not
limited to, attorney's fees and disbursements, court costs and expert witness
fees), and against judgments, fines, penalties, and amounts paid in settlement
incurred by him or her in connection with the action, suit or proceeding.
Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the Board of Directors, the
shareholders or otherwise. The Board of Directors of the Company also has the
authority to extend to officers, employees and agents the same indemnification
rights
II-1
<PAGE>
held by directors, subject to all the accompanying conditions and obligations.
Indemnified persons would also be entitled to have the Company advance
expenses prior to the final disposition of the proceeding. If it is ultimately
determined that they are not entitled to indemnification, however, such
amounts would be repaid. Insofar as indemnification for liability arising
under the Securities Act may be permitted to officers and directors of the
Company pursuant to the foregoing provisions, the Company has been informed
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.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among
other things, to provide for indemnification and advancement of expenses in a
manner and subject to terms and conditions similar to those set forth in the
Bylaws. These agreements also provide that the Company shall purchase and
maintain liability insurance for the benefit of its directors and executive
officers. These agreements may not be abrogated by action of the shareholders.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities which were not registered under the Securities Act have been
sold by the Company within the past three years except for those indicated
below. Share numbers do not reflect the 2.1053-for-1 stock split with respect
to the Company's common stock effected on February 28, 1998.
(i) Pursuant to that certain Agreement of Share Exchange dated as of June 4,
1996 by and among the Company, Intercept Systems, Inc. ("ISI"), Data Services
Corp. ("Data"), John W. Collins ("Collins"), Vir A. Nanda ("Nanda"), James E.
Henderson ("Henderson") and Farrell S. Mashburn ("Mashburn"), the Company
acquired all of the outstanding capital stock of Data and ISI. In exchange for
all of the capital stock of Data and ISI, the Company issued 698,000 shares of
Common Stock to Collins, 87,000 shares of Common Stock to Mashburn, 495,000
shares to Nanda and 165,000 shares to Henderson.
(ii) Pursuant to that certain Agreement and Plan of Merger effective as of
November 27, 1996 by and among the Company, PV Acquisition Corp. ("PVAC") and
Provesa, Inc. ("ProVesa"), PVAC, a wholly-owned subsidiary of the Company,
merged with ProVesa. Upon the effectiveness of the merger, all of the issued
and outstanding shares of capital stock of ProVesa was converted into an equal
number of shares of the capital stock of the Company, and the Company issued
an aggregate of 105,000 shares of Common Stock and 4,250 shares of Series A
Preferred Stock to the shareholders of ProVesa. Also pursuant to such
agreement, the Company issued options to acquire an aggregate of 20,000 shares
of Common Stock to holders of options to acquire 20,000 shares of ProVesa
common stock.
(iii) Pursuant to that certain Acquisition and Merger Agreement dated as of
November 30, 1996 by and among the Company, Intercept Acquisition II, Inc.,
FiNet, Inc. ("FiNet") and the shareholders of FiNet, Intercept Acquisitions
II, a wholly-owned subsidiary of the Company, merged with FiNet. Upon the
effectiveness of the merger on December 17, 1996, all of the issued and
outstanding stock of FiNet was converted into stock of the Company, and the
Company issued an aggregate of 116,250 shares of Common Stock to the
shareholders of FiNet.
(iv) Pursuant to that certain Acquisition and Merger Agreement dated as of
November 26, 1996 by and among the Company, Intercept Acquisitions, Inc., Bank
Services Corporation ("Bank Services"), and the shareholders of Bank Services,
Intercept Acquisitions, a wholly-owned subsidiary of the Company, merged with
Bank Services. Upon the effectiveness of the merger on December 31, 1996, all
of the issued and outstanding stock of Bank Services was converted into stock
of the Company, and the Company issued an aggregate of 238,032 shares of
Common Stock to the shareholders of Bank Services.
II-2
<PAGE>
(v) On December 31, 1996, the Company issued options to acquire an aggregate
of 271,251 shares of Common Stock to certain officers of and consultants to
the Company and one of its subsidiaries at an exercise price of $4.55 per
share. In January 1997, the Company issued options to acquire 75,000 shares of
Common Stock at an exercise price of $4.55 per share to an executive officer
of the Company. In February 1997, the Company issued options to acquire 10,000
shares of Common Stock at an exercise price of $4.55 per share to another
executive officer of the Company.
(vi) Pursuant to that certain Agreement and Plan of Merger dated as of
January 30, 1998 by and between the Company and Intercept Communications
Technologies, L.L.C. ("ICT"), ICT merged with and into the Company. Upon the
effectiveness of the merger, all of the membership units of ICT were converted
into stock of the Company, and the Company issued an aggregate of 1,301,966
shares of Common Stock to the members of ICT.
(vii) Effective as of February, 1998, the Company granted options to acquire
150,899 shares of Common Stock at an exercise price of $7.70 per share to
certain employees, consultants and directors pursuant to one of the Company's
stock option plans.
The issuances of securities described above were made in reliance on one or
more of the exemptions from registration, including those provided for by
Section 4(2) (for those issuances described in (i) through (vi) above and for
the grant of options to the Company's directors described in (vii) above),
Regulation D for those issuances described in (i) through (vi) above and for
the grant of options to the Company's directors described in (vii) above) and
Rule 701 (for those issuances described in (vii) above) of the Securities Act.
The recipients of the securities in the above transactions represented their
intention to acquire the securities for investment purposes only and not with
a view to or for the sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. The recipients of these securities had adequate access, through
their relationship with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Agreement of Share Exchange dated as of June 4, 1996 by and between
the Company, Intercept Systems, Inc., Data Services Corporation, John
Collins, Vir A. Nanda, J. Ronney Henderson and Farrell Mashburn*
2.2 Acquisition and Merger Agreement dated as of November 30, 1996 by and
among the Company, Intercept Acquisitions II, Inc., FiNet, Inc., and
the shareholders named therein*
2.3 Acquisition and Merger Agreement dated as of November 26, 1996 by and
among the Company, Intercept Acquisitions, Inc., Bank Services
Corporation and the shareholders named therein*
2.4 Agreement and Plan of Merger dated as of November 25, 1996 by and
among the Company, PV Acquisition Corp. and ProVesa, Inc.*
2.5 Agreement and Plan of Merger dated as of January 30, 1998 by and
between the Company and Intercept Communications Technologies, L.L.C.*
2.6 Plan of Merger dated as of January 30, 1998 by and between the Company
and Bank Services Corporation*
2.7 Plan of Merger dated as of January 30, 1998 by and among the Company,
Data Services Corp., FiNet, Inc. and Intercept Systems, Inc.*
3.1 Amended and Restated Articles of Incorporation of the Company (as
filed with the Secretary of State of Georgia on April 29, 1998)*
3.2 Bylaws (Amended and Restated) of the Company*
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws defining the rights of the holders of Common
Stock of the Registrant
4.2 Specimen Common Stock Certificate
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
9.1 Voting Trust Agreement dated as of December 31, 1996 by and between
the Company, John W. Collins, Glenn W. Sturm, Salem Capital
Corporation, Paul D. England, Jack K. Lance and Jerry McKamey*
10.1 The InterCept Group, Inc. Amended and Restated 1996 Stock Option Plan*
10.2 Form of Stock Option Agreement under The InterCept Group, Inc. Amended
and Restated 1996 Stock Option Plan*
10.3 ProVesa, Inc. 1994 Stock Option Plan*
10.4 Employment Agreement by and between the Company and John W. Collins
dated as of January 30, 1998*
10.5 Employment Agreement by and between the Company and Donny R. Jackson
dated as of January 30, 1998*
10.6 Employment Agreement by and between the Company and Scott R. Meyerhoff
dated as of February 1, 1998*
10.7 Employment Agreement by and between the Company, Vir Nanda and
Intercept Systems, Inc. dated June 4, 1996*
10.8 Stock Option Agreement by and between the Company and Donny R. Jackson
dated January 14, 1997
10.9 Stock Option Agreement dated as of February 1, 1998 by and between the
Company and Scott R. Meyerhoff
10.10 Stock Option Agreement dated as of February 24, 1997 by and between
the Company and Michael R. Boian
10.11 Form of Indemnification Agreement entered into between the Company and
its directors and officers
10.12 Form of General Marketing Agent Agreement*
10.13 Form of Master Electronic Funds Transfer Services Agreement*
10.14 Form of Data Processing Agreement*
10.15 Form of Service Agreement for Data Communications*
10.16 Form of Software License Agreement for PC BancPAC(TM)*
10.17 Loan Agreement dated as of June 17, 1996 by and between the Company,
Georgia State Bank, John W. Collins, Data Services Corp. and Intercept
Systems, Inc.*
10.18 Loan Agreement dated as of May 2, 1995 by and between ProVesa, Inc.
and First National Bank of Commerce*
10.19 Channel Services Payment Plan Agreement dated December 22, 1993
between Intercept Systems, Inc. and BellSouth Communications, Inc.*
10.20 Form of Special Service Arrangement Agreement with BellSouth
Telecommunications, Inc. for frame relay services*
10.21 Form of SynchroNet Service Agreement with Southern Bell Telephone and
Telegraph Company*
10.22 Service Agreement dated as of February 25, 1998 by and between GE
Capital Spacenet Services, Inc. and Intercept Communications
Technologies, L.L.C.*
10.23 WorldCom Data Services Agreement dated as of February 27, 1998 by and
between WorldCom, Inc. and Intercept Communications Technologies,
L.L.C.+
10.24 Form of Stock Option Agreement for Directors under The InterCept
Group, Inc. Amended and Restated 1996 Stock Option Plan
10.25 Loan and Security Agreement dated April 28, 1998 by and among the
Company, its wholly-owned subsidiaries and First Union National Bank
21.1 Subsidiaries of the Company*
23.1 Consent of Arthur Andersen LLP
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.3 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed as part
of Exhibit 5.1)
24.1 Power of Attorney (contained on the signature page hereof)*
27.1 Financial Data Schedule for the period ending December 31, 1997 (for
SEC use only)
27.2 Financial Data Schedule for period ending March 31, 1998 (for SEC use
only)
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Act. In accordance with Rule
406, these confidential portions have been omitted from this exhibit and
filed separately with the Commission.
(b) Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company 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 Company 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 Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4),
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, State of Georgia, on April 29, 1998.
THE INTERCEPT GROUP, INC.
By: /s/ John W. Collins
___________________________________
JOHN W. COLLINS
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities listed and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John W. Collins Chairman of the Board of April 29, 1998
____________________________________ Directors and Chief
John W. Collins Executive Officer
(Principal Executive Officer)
* President, Chief Operating April 29, 1998
____________________________________ Officer and Director
Donny R. Jackson
/s/ Scott R. Meyerhoff Chief Financial Officer April 29, 1998
____________________________________ (Principal Financial and
Scott R. Meyerhoff Accounting Officer)
* Director April 29, 1998
____________________________________
Jon R. Burke
* Director April 29, 1998
____________________________________
Boone A. Knox
* Director April 29, 1998
____________________________________
Bruce P. Leonard
* Director April 29, 1998
____________________________________
Glenn W. Sturm
</TABLE>
*By:
/s/ John W. Collins
---------------------------
ATTORNEY-IN-FACT PURSUANT
TO POWER OF ATTORNEY
GRANTED IN REGISTRATION
STATEMENT FILED ON MARCH
2, 1998
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To The InterCept Group, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of The InterCept Group, Inc. and
Subsidiaries included in this Registration Statement and have issued our
report thereon dated February 27, 1998. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in Item 16(b) of the Registration Statement is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
February 27, 1998
Atlanta, Georgia
S-1
<PAGE>
THE INTERCEPT GROUP
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31,
1995, 1996, AND 1997
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS ENDING
DESCRIPTION AND BALANCE EXPENSE WRITEOFFS BALANCE
----------- --------------- ------- --------- -------
<S> <C> <C> <C> <C>
1994 Allowance for doubtful ac-
counts............................. 25,201 4,376 -- 29,577
1995 Allowance for doubtful ac-
counts............................. 29,577 69,210 (14,000) 84,787
1996 Allowance for doubtful ac-
counts............................. 84,787 134,153 (61,168) 157,772
1997 Allowance for doubtful ac-
counts............................. 157,772 (1,156) -- 156,616
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Agreement of Share Exchange dated as of June 4, 1996 by and between
the Company, Intercept Systems, Inc., Data Services Corporation, John
Collins, Vir A. Nanda, J. Ronney Henderson and Farrell Mashburn*
2.2 Acquisition and Merger Agreement dated as of November 30, 1996 by and
among the Company, Intercept Acquisitions II, Inc., FiNet, Inc., and
the shareholders named therein*
2.3 Acquisition and Merger Agreement dated as of November 26, 1996 by and
among the Company, Intercept Acquisitions, Inc., Bank Services
Corporation and the shareholders named therein*
2.4 Agreement and Plan of Merger dated as of November 25, 1996 by and
among the Company, PV Acquisition Corp. and ProVesa, Inc.*
2.5 Agreement and Plan of Merger dated as of January 30, 1998 by and
between the Company and Intercept Communications Technologies, L.L.C.*
2.6 Plan of Merger dated as of January 30, 1998 by and between the Company
and Bank Services Corporation*
2.7 Plan of Merger dated as of January 30, 1998 by and among the Company,
Data Services Corp., FiNet, Inc. and Intercept Systems, Inc.*
3.1 Amended and Restated Articles of Incorporation of the Company (as
filed with the Secretary of State of Georgia on April 29, 1998)*
3.2 Bylaws (Amended and Restated) of the Company*
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws defining the rights of the holders of Common
Stock of the Registrant
4.2 Specimen Common Stock Certificate
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
9.1 Voting Trust Agreement dated as of December 31, 1996 by and between
the Company, John W. Collins, Glenn W. Sturm, Salem Capital
Corporation, Paul D. England, Jack K. Lance and Jerry McKamey*
10.1 The InterCept Group, Inc. Amended and Restated 1996 Stock Option Plan*
10.2 Form of Stock Option Agreement under The InterCept Group, Inc. Amended
and Restated 1996 Stock Option Plan*
10.3 ProVesa, Inc. 1994 Stock Option Plan*
10.4 Employment Agreement by and between the Company and John W. Collins
dated as of January 30, 1998*
10.5 Employment Agreement by and between the Company and Donny R. Jackson
dated as of January 30, 1998*
10.6 Employment Agreement by and between the Company and Scott R. Meyerhoff
dated as of February 1, 1998*
10.7 Employment Agreement by and between the Company, Vir Nanda and
Intercept Systems, Inc. dated June 4, 1996*
10.8 Stock Option Agreement by and between the Company and Donny R. Jackson
dated January 14, 1997
10.9 Stock Option Agreement dated as of February 1, 1998 by and between the
Company and Scott R. Meyerhoff
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.10 Stock Option Agreement dated as of February 24, 1997 by and between
the Company and Michael R. Boian
10.11 Form of Indemnification Agreement entered into between the Company and
its directors and officers
10.12 Form of General Marketing Agent Agreement*
10.13 Form of Master Electronic Funds Transfer Services Agreement*
10.14 Form of Data Processing Agreement*
10.15 Form of Service Agreement for Data Communications*
10.16 Form of Software License Agreement for PC BancPAC(TM)*
10.17 Loan Agreement dated as of June 17, 1996 by and between the Company,
Georgia State Bank, John W. Collins, Data Services Corp. and Intercept
Systems, Inc.*
10.18 Loan Agreement dated as of May 2, 1995 by and between ProVesa, Inc.
and First National Bank of Commerce*
10.19 Channel Services Payment Plan Agreement dated December 22, 1993
between Intercept Systems, Inc. and BellSouth Communications, Inc.*
10.20 Form of Special Service Arrangement Agreement with BellSouth
Telecommunications, Inc. for frame relay services*
10.21 Form of SynchroNet Service Agreement with Southern Bell Telephone and
Telegraph Company*
10.22 Service Agreement dated as of February 25, 1988 by and between GE
Capital Spacenet Services, Inc. and Intercept Communications
Technologies, L.L.C.*
10.23 WorldCom Data Services Agreement dated as of February 27, 1998 by and
between WorldCom, Inc. and Intercept Communications Technologies,
L.L.C.+
10.24 Form of Stock Option Agreement for Directors under The InterCept
Group, Inc. Amended and Restated 1996 Stock Option Plan
10.25 Loan and Security Agreement dated April 28, 1998 by and among the
Company, its wholly-owned subsidiaries and First Union National Bank
21.1 Subsidiaries of the Company*
23.1 Consent of Arthur Andersen LLP
23.3 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed as part
of Exhibit 5.1)
24.1 Power of Attorney (contained on the signature page hereof)*
27.1 Financial Data Schedule for the period ending December 31, 1997 (for
SEC use only)
27.2 Financial Data Schedule for period ending March 31, 1998 (for SEC use
only)
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406 under the Act. In accordance with Rule
406, these confidential portions have been omitted from this exhibit and
filed separately with the Commission.
<PAGE>
EXHIBIT 1.1
THE INTERCEPT GROUP, INC.
2,525,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
_________, 1998
J. C. BRADFORD & CO.
WHEAT FIRST SECURITIES, INC.
As Representatives of the Several Underwriters
c/o J. C. Bradford & Co.
J. C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
The Intercept Group, Inc., a Georgia corporation (the "Company"),
proposes to sell to the underwriters named in SCHEDULE I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") 2,250,000 shares of the common stock, no par value ("Common
Stock"), of the Company (the "Company Shares"), and the shareholders of the
Company named in Schedule II hereto (the "Selling Shareholders") propose to sell
to the Underwriters 275,000 shares of Common Stock (the "Selling Shareholder
Shares"). The Company Shares and the Selling Shareholder Shares are hereinafter
referred to as the "Firm Shares". The Firm Shares are to be sold to the
Underwriters, acting severally and not jointly, in such amounts as are set forth
in SCHEDULE I hereto opposite the name of each Underwriter. The Company also
proposes to grant to the Underwriters an option to purchase up to 337,500
additional shares of Common Stock (the "Option Shares") as provided for in
Section 3 of this Agreement for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares. The Firm Shares
and the Option Shares are herein called the "Shares."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter and agrees as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a registration statement on Form S-1
(Registration No. 333-47197), including the related preliminary
prospectus relating to the Shares, and has filed one or more amendments
thereto. Copies of such registration statement and any amendments,
including any post-effective amendments, and all forms of the related
prospectuses contained therein and any supplements thereto, have been
delivered to you. Such registration statement, together with any
registration statement filed by the Company
<PAGE>
pursuant to Rule 462(b) of the Securities Act, including the
prospectus, Part II, all financial schedules and exhibits thereto, and
all information deemed to be a part of such registration statement
pursuant to Rule 430A under the Securities Act, as amended, at the time
when it shall become effective, is herein referred to as the
"Registration Statement." The prospectus included as part of the
Registration Statement on file with the Commission that discloses all
the information that was omitted from the prospectus on the effective
date pursuant to Rule 430A of the Rules and Regulations (as defined
below) and in the form filed pursuant to Rule 424(b) under the
Securities Act is herein referred to as the "Final Prospectus." The
prospectus included as part of the Registration Statement on the date
when the Registration Statement became effective (including the
information deemed to be a part thereof pursuant to Rule 430A) is
referred to herein as the "Effective Prospectus." Any prospectus
included in the Registration Statement and in any amendment thereto
prior to the effective date of the Registration Statement is referred
to herein as a "Preliminary Prospectus." For purposes of this
Agreement, "Rules and Regulations" mean the rules and regulations
promulgated by the Commission under either the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable.
(b) The Company has not received and has no knowledge of any
order preventing or suspending the use of any Preliminary Prospectus,
and each Preliminary Prospectus, at the time of filing thereof,
complied with the requirements of the Securities Act and the Rules and
Regulations, and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that
the foregoing does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to
the Company by any Underwriter specifically for use therein (it being
understood that the only information so provided is the information
included in the last paragraph on the cover page, the paragraph
relating to stabilization practices on the inside front cover and the
first five paragraphs and the last paragraph under the caption
"Underwriting" in the Final Prospectus). When the Registration
Statement becomes effective and at all times subsequent thereto up to
and including the later of (X) the First Closing Date (as hereinafter
defined) and (Y) the Option Closing Date (as hereinafter defined), (i)
the Registration Statement, the Effective Prospectus and Final
Prospectus and any amendments or supplements thereto will contain all
statements which are required to be stated therein in accordance with
the Securities Act, the Exchange Act and the Rules and Regulations and
will comply with the requirements of the Securities Act, the Exchange
Act and the Rules and Regulations, and (ii) neither the Registration
Statement nor any amendment thereto will include any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading and neither the Effective Prospectus nor the Final
Prospectus nor any supplement thereto will contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
except that the foregoing does not apply to statements or omissions
made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter specifically for use
therein (it being understood that the only information so provided is
the information included in the last paragraph on the cover page, the
paragraph relating to stabilization practices on the inside front cover
and the first five paragraphs and the last paragraph under the caption
"Underwriting" in the Final Prospectus).
(c) The Company and each subsidiary of the Company (as used
herein, the term "subsidiary" includes any corporation, joint venture
or partnership in which the Company or any subsidiary of the Company
has an ownership interest in excess of 30%) is duly organized and
-2-
<PAGE>
validly existing and in good standing under the laws of the respective
jurisdictions of their organization or incorporation, as the case may
be, with full corporate power and authority to own their properties and
conduct their businesses as now conducted and described in the Final
Prospectus and the Registration Statement, and are duly qualified or
authorized to do business and are in good standing in all jurisdictions
wherein the nature of their business or the character of property owned
or leased may require them to be qualified or authorized to do business
except where the failure to be so qualified or authorized would not
have a material adverse effect on the Company's and its subsidiaries'
business, financial condition and results of operations taken as a
whole and would not materially hinder or delay the consummation of the
transactions contemplated by this Agreement and the performance of the
Company's obligations hereunder (a "Material Adverse Effect"). The
Company and its subsidiaries hold all licenses, consents and approvals,
and have satisfied all eligibility and other similar requirements
imposed by federal and state regulatory bodies, administrative agencies
or other governmental bodies, agencies or officials, except where any
failure to hold any such license, consent or approval or to satisfy any
such requirement would not have a Material Adverse Effect. Each of the
Company's subsidiaries is set forth on Exhibit 21.1 to the Registration
Statement. There are no other corporations, joint ventures or
partnerships in which the Company or any subsidiary of the Company has
an ownership interest in excess of 5%.
(d) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. Other than as disclosed in the Effective Prospectus and
the Final Prospectus, all of the outstanding stock of each of the
Company's subsidiaries is owned by the Company, free and clear of any
lien, encumbrance, pledge, equity or claim of any kind, and was issued
and sold in compliance with all applicable federal and state securities
laws. No shares of capital stock of any of the Company's subsidiaries
have been issued in violation of any preemptive or similar rights.
Other than as disclosed in the Effective Prospectus and the Final
Prospectus, no options or warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests
in any of the Company's subsidiaries are outstanding. Other than as
disclosed in the Effective Prospectus and the Final Prospectus, neither
the Company nor any of its subsidiaries is a partner or joint venturer
in any partnership or joint venture.
(e) The historical capitalization of the Company as of
December 31, 1997 is as set forth under the caption "Capitalization" in
the Effective Prospectus and the Final Prospectus, and the Company's
capital stock conforms to the description thereof contained in the
Effective Prospectus and the Final Prospectus, including under the
caption "Description of Capital Stock." All of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
None of the issued shares of capital stock of the Company have been
issued in violation of any preemptive or similar rights. The Company
Shares have been duly and validly authorized and, upon issuance and
delivery and payment therefor in the manner herein described, will be
validly issued, fully paid and nonassessable. There are no preemptive
rights or other rights to subscribe for or to purchase, or any
restriction upon the transfer of, any shares of Common Stock pursuant
to the Company's articles of incorporation, bylaws or other governing
documents or any agreement or other instrument to which the Company is
a party or by which it is bound except as described in the Effective
Prospectus and the Final Prospectus and except for restrictions on
transfer imposed under applicable securities laws. Neither the filing
of the Registration Statement nor the offer or sale of the Shares as
contemplated by this Agreement gives rise to any rights for or relating
to the registration of any shares of
-3-
<PAGE>
Common Stock or any other securities of the Company, other than rights
relating to shares included in the Firm Shares or the Option Shares and
such other rights as have been waived by the holder or holders thereof
prior to the date hereof. The Underwriters will receive good and
marketable title to the Shares to be issued and delivered by the
Company hereunder, free and clear of all liens, encumbrances, claims,
security interests, restrictions, shareholders' agreements and voting
trusts whatsoever. Except as disclosed in the Effective Prospectus and
the Final Prospectus, there are no outstanding warrants, options,
convertible securities or other rights to purchase or commitments of
sale related to or entitling any person to purchase or otherwise
acquire any securities or interest in the Company or any subsidiary.
(f) All offers and sales of the Company's securities by the
Company prior to the date hereof were at all relevant times exempt from
the registration requirements of the Securities Act and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue
Sky laws.
(g) The Company has full legal right, power and authority to
enter into this Agreement and to issue, sell and deliver the Shares to
the Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and constitutes a
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except as may be limited by
bankruptcy and other creditor rights laws and general principles of
equity, including the availability of the equitable remedy of specific
performance. No consent, approval, authorization or order of any court
or governmental agency or body or third party is required for the
performance of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except such as have
been obtained and such as may be required by the National Association
of Securities Dealers, Inc. ("NASD") or under the Securities Act, or
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters. The issue and sale of
the Shares by the Company, the Company's performance of this Agreement
and the consummation of the transactions contemplated hereby will not
result in a breach or violation of, or conflict with, any of the terms
and provisions of, or constitute a default by the Company or any of its
subsidiaries under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company
or any of its subsidiaries is a party or to which the Company or any of
its subsidiaries or any of their respective properties is subject, the
articles of incorporation or bylaws of the Company or any of its
subsidiaries or any statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to
the Company or any subsidiary or any of their respective properties.
Neither the Company nor any subsidiary is in violation of its articles
of incorporation, bylaws or other governing instrument or any law,
administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or, except as would not have a Material
Adverse Effect, in violation or default (there being no existing state
of facts known to the Company which with notice or lapse of time or
both would constitute a default) in the performance or observance of
any obligation, agreement, covenant or condition contained in any
material contract, indenture, deed of trust, mortgage, loan agreement,
note, lease, agreement or other instrument or permit to which it is a
party or by which it or any of its properties is bound.
(h) The consolidated financial statements and the related
notes of the Company, together with related notes and schedules,
included in the Registration Statement, the Effective Prospectus and
the Final Prospectus present fairly the financial position, results of
operations and changes in financial position and cash flow of the
Company and its subsidiaries at the dates and for the periods to which
they relate and have been prepared in accordance with generally
accepted
-4-
<PAGE>
accounting principles applied on a consistent basis throughout the
periods indicated (except as may otherwise be indicated in the notes
thereto), and all adjustments necessary for a fair presentation of
results for such periods have been made. The other financial statements
and schedules included in or as schedules to the Registration Statement
conform to the requirements of the Securities Act, the Exchange Act and
the Rules and Regulations and present fairly the information presented
therein for the periods shown. The financial and statistical data set
forth in the Effective Prospectus and the Final Prospectus, including
such data under the captions "Prospectus Summary," "Use of Proceeds,"
"Dilution," "Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Industry," "Business," "Management,"
"Principal and Selling Shareholders," and "Certain Transactions,"
present fairly the information set forth therein, and such data has
been compiled and presented on a basis consistent with the financial
statements presented therein and in the books and records of the
Company. The Company and its subsidiaries have no material contingent
obligations that are required to be disclosed in the Company's
financial statements in accordance with generally accepted accounting
principles which have not been so disclosed in the financial statements
included in the Registration Statement. Arthur Andersen LLP, who have
certified the financial statements of the Company, are independent
public accountants as required by the Securities Act and the Rules and
Regulations.
(i) Subsequent to December 31, 1997, neither the Company nor
any subsidiary has sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, which is not
disclosed in the Effective Prospectus and the Final Prospectus; and
subsequent to the respective dates as of which information is given in
the Registration Statement, the Effective Prospectus and the Final
Prospectus, (i) neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions other than in the ordinary
course of business, and (ii) there has not been any change in the
capital stock, partnership interests, joint venture interests,
long-term debt, obligations under capital leases or short-term
borrowings of the Company and its subsidiaries or any issuance of
options, warrants or rights to purchase the capital stock of the
Company, or any adverse change, or any development known to the Company
involving a prospective adverse change, in the general affairs,
management, business, prospects, financial position, net worth or
results of operations of the Company or its subsidiaries, except in
each case as described in or contemplated by the Effective Prospectus
and the Final Prospectus or as would not have a Material Adverse
Effect.
(j) Except as described in the Effective Prospectus and the
Final Prospectus, there is not pending or, to the knowledge of the
Company, threatened, any action, suit, proceeding, inquiry or
investigation to which the Company, any of its subsidiaries or any of
their officers or directors is a party, or to which the property of the
Company or any subsidiary is subject, before or brought by any court,
administrative agency, governmental agency, body or otherwise, wherein
an unfavorable decision, ruling or finding could result in a Material
Adverse Effect.
(k) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
-5-
<PAGE>
(l) Except as described in the Effective Prospectus and the
Final Prospectus, the Company and each of its subsidiaries have good
and marketable title to all real and material personal property owned
by them, free and clear of all liens, charges, encumbrances or defects,
except those reflected in the financial statements hereinabove
described. The real and personal property and buildings referred to in
the Effective Prospectus and the Final Prospectus which are leased from
others by the Company are held under valid, subsisting and enforceable
leases. The Company or its subsidiaries owns or leases all such
properties as are necessary to its operations as now conducted.
(m) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences and (v) such controls would prevent or detect errors or
irregularities in amounts that would be material in relation to the
Company's financial statements. Neither the Company nor any of its
subsidiaries, nor any director, officer, agent, employee or other
person acting, with the Company's knowledge, on behalf of the Company
or any such subsidiary, has, directly or indirectly used any funds of
the Company or any of its subsidiaries for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from funds of the Company or any of its subsidiaries;
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback
or other payment, or received or retained any funds, in violation of
any law, rule or regulation.
(n) The Company and its subsidiaries have filed all federal,
state and local tax returns required to be filed through the date
hereof and have paid all taxes shown as due therefrom; and there is no
tax deficiency, assessment, fine or penalty that has been, nor does the
Company or any subsidiary have knowledge of any tax deficiency,
assessment, fine or penalty which is likely to be, asserted against the
Company or its subsidiaries, which if determined adversely could have a
Material Adverse Effect. All tax liabilities incurred as of the
respective dates of the financial statements have been adequately
provided for in the financial statements of the Company.
(o) The Company and its subsidiaries operate their business in
each jurisdiction in which the Company or any of its subsidiaries is
doing business in conformity with all applicable statutes, ordinances,
decrees, orders, rules and regulations of all applicable governmental
bodies, including federal, state and local governing bodies in the
United States and all foreign governments in areas outside of the
United States. The Company and its subsidiaries have all material
licenses, approvals or consents necessary to operate their respective
businesses in all locations in which such businesses are currently
being operated, and the Company and its subsidiaries are not aware of
any existing or imminent matter which may adversely impact their
operations or business prospects other than as specifically disclosed
in the Effective Prospectus and the Final Prospectus. The Company has
not engaged in any activity, whether alone or in concert with one of
its customers, creating exposure to civil or criminal monetary
liability or other material sanctions under federal or state laws
regulating consumer credit transactions, debt collection practices or
other violations of law.
-6-
<PAGE>
(p) Neither the Company nor any of its subsidiaries have
failed to file with the applicable regulatory authorities any
statement, report, information or form required by any applicable law,
regulation or order; all such filings or submissions were in compliance
with applicable laws when filed and no deficiencies have been asserted
by any regulatory commission, agency or authority with respect to such
filings or submissions. Neither the Company nor any of its subsidiaries
have failed to maintain in full force and effect any license or permit
necessary for the conduct of its business, or received any notification
that any revocation or limitation thereof is threatened or pending,
and, to the knowledge of the Company, there is not pending any change
under any law, regulation, license or permit which could have a
Material Adverse Effect. Neither the Company nor any of its
subsidiaries have received any notice of violation of or been
threatened with a charge of violating, and, to the knowledge of the
Company, are not under investigation with respect to a possible
violation of, any provision of any law, regulation or order.
(q) No labor dispute exists with the Company's employees or
with employees of its subsidiaries or is imminent which could have a
Material Adverse Effect. The Company is not aware of any existing or
imminent labor disturbance by its employees or by any employees of its
subsidiaries which could be expected to have a Material Adverse Effect.
(r) The Company and its subsidiaries own or possess the
licenses, patents, patent rights, copyrights, trademarks, service
marks, trade names and proprietary and other confidential information
and trade secrets presently employed by them in connection with the
businesses now operated by them, and neither the Company nor any of its
subsidiaries have received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, alone or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
(s) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and adequate for the conduct
of their respective businesses and the value of their respective
properties and is customary for companies engaged in similar
industries; and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a comparable cost.
(t) Except as described in the Effective Prospectus and the
Final Prospectus, no subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distributions on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary or
from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company.
(u) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act").
(v) Neither the Company nor any of its subsidiaries nor, to
the Company's knowledge, any of the directors, officers, employees or
agents of the Company and its subsidiaries have taken, and the Company
and its subsidiaries will not take, directly or indirectly, any action
designed to
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cause or result in, or which has constituted or which might be expected
to constitute, stabilization or manipulation of the price of the Common
Stock.
(w) The Shares have been approved for listing on the Nasdaq
Stock Market's National Market upon notice of issuance.
(x) The Company has previously disclosed and delivered or made
available to the Underwriters or their representatives prior to the
date the Registration Statement was declared effective copies of all
pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or
other incentive plans, all other written employee programs,
arrangements or agreements, all medical, vision, dental or other health
plans, all life insurance plans and all other employee benefit plans or
fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), adopted,
maintained, sponsored in whole or in part or contributed to by the
Company, its predecessors or any subsidiary of the Company or its
predecessors for the benefit of employees, retirees, dependents,
spouses, directors, independent contractors or other beneficiaries and
under which employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries are eligible to
participate (collectively, the "Company Benefit Plans").
The Company and its subsidiaries (and each predecessor of the
Company or a subsidiary that adopted or contributed to a Company
Benefit Plan) have maintained all Company Benefit Plans (including
filing all reports and returns required to be filed with respect
thereto) in accordance with their terms and in compliance with the
applicable terms of ERISA, the Internal Revenue Code and any other
applicable federal and state laws the breach or violation of which
would have, individually or in the aggregate, a Material Adverse
Effect. Each Company Benefit Plan which is intended to be qualified
under Section 401(a) of the Internal Revenue Code has either received a
favorable determination letter from the Internal Revenue Service or
timely requested such a letter and has at all times been maintained in
accordance with Section 401 of the Internal Revenue Code, except where
any failure to receive or seek such a favorable determination letter or
so maintain such Company Benefit Plan would not have, individually or
in the aggregate, a Material Adverse Effect. Neither the Company nor
its subsidiaries has engaged in a transaction with respect to any
Company Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject the Company or
any subsidiary to a tax or penalty imposed by either Section 4975 of
the Internal Revenue Code or Section 502(i) of ERISA in amounts which
are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect.
Neither the Company nor any subsidiary is obligated to provide
post-retirement medical benefits or any other unfunded post-retirement
welfare benefits (except COBRA continuation coverage required to be
provided by ERISA Section 601), which such liabilities to the Company
would have, individually or in the aggregate, a Material Adverse
Effect. Neither the Company nor any member of a group of trades or
businesses under common control (as defined in ERISA Sections
4001(a)(14) and 4001(b)(1)) with the Company have at any time within
the last six years sponsored, contributed to or been obligated under
Title I or IV of ERISA to contribute to a "defined benefit plan" (as
defined in ERISA Section 3(35)). Within the last six years, neither the
Company nor any member of a group of trades or businesses under common
control (as defined in ERISA Sections 4001(a)(14) and 4001(b)(1)) with
Company have had an "obligation to
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contribute" (as defined in ERISA Section 4212) to a "multiemployer
plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)).
(y) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health, and the Company and its subsidiaries
have received all permits, licenses or other approvals required of them
under applicable federal and state laws and regulations necessary to
conduct their respective businesses, and the Company and each such
subsidiary is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or
regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the
aggregate, result in a Material Adverse Effect.
(z) The Company has not violated any applicable laws relating
to immigration and has employed only individuals authorized to work in
the United States and has never been the subject of any inspection or
investigation relating to its compliance with or violation of the
Immigration Reform and Control Act of 1986 and all Regulations
promulgated thereunder.
(aa) The property, assets and operations of the Company and
its subsidiaries comply in all material respects with all applicable
federal, state or local law, common law, doctrine, rule, order, decree,
judgment, injunction, license, permit or regulation relating to
environmental matters (the "Environmental Laws"), except to the extent
that failure to comply with such Environmental Laws would not have a
Material Adverse Effect. To the knowledge of the Company, none of the
property, assets or operations of the Company and its subsidiaries is
the subject of any foreign, federal, state or local investigation
evaluating whether any remedial action is needed to respond to a
release into the environment of any substance regulated by, or form the
basis of liability under, any Environmental Laws (a "Hazardous
Material"), or is in contravention of any Environmental Law that would
have a material adverse effect on the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and its subsidiaries. Neither
the Company nor the Subsidiary has received any notice or claim, nor
are there pending, reasonably anticipated or, or to the Company's
knowledge, threatened lawsuits against them with respect to violations
of an Environmental Law or in connection with the release of any
Hazardous Material into the environment. Neither the Company nor the
Subsidiary has any material contingent liability in connection with any
release of Hazardous Material into the environment.
(bb) Other than as set forth in the Effective Prospectus and
the Final Prospectus, the Company's internal systems and software and
the network connections it maintains are adequately programmed to
address the Year 2000 issue.
(cc) Neither the Company nor any of its subsidiaries has
received any communication (written or oral) relating to the
termination or modification or threatened termination or modification
of any of the agreements specifically named in the Effective Prospectus
or the Final Prospectus, nor has it received any communication (written
or oral) relating to any determination not to renew or extend any
agreement specifically named in the Effective Prospectus or the Final
Prospectus at the end of the current term of any such agreement, except
where any such termination, modification, non-renewal or non-extension
would not have a Material Adverse Effect.
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(dd) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall
be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING
SHAREHOLDERS. Each of the Selling Shareholders, severally and not jointly,
represents, warrants and covenants to each Underwriter and agrees as follows:
(a) Such Selling Shareholder now has, and at the First Closing
Date will have, or upon the exercise of options for the purchase of
such Shares will have, good and marketable title to the Selling
Shareholder Shares to be sold by such Selling Shareholder, free and
clear of any liens, encumbrances, equities and claims (other than as
imposed by the Securities Act or this Agreement), and full right, power
and authority to effect the sale and delivery of such Selling
Shareholder Shares; and upon the delivery of and payment for the
Selling Shareholder Shares pursuant to this Agreement, good and
marketable title to such Selling Shareholder Shares, free and clear of
any liens, encumbrances, equities, claims, security interests,
restrictions, shareholder agreements or voting trusts, will be
transferred to the Underwriters.
(b) Such Selling Shareholder has duly executed and delivered
the Custody Agreement and Power of Attorney in the form previously
delivered to the Representatives, appointing each of John W. Collins
and Donny R. Jackson as such Selling Shareholder's duly authorized
attorney-in-fact (the "Attorney-in-Fact") and SunTrust Bank, Atlanta as
the duly authorized custodian (the "Custodian") of the Selling
Shareholder Shares. The Attorneys-in-Fact are authorized to execute,
deliver and perform this Agreement on behalf of such Selling
Shareholder, to exercise options relating to Selling Shareholder
Shares, to deliver the Selling Shareholder Shares to be sold by such
Selling Shareholder hereunder, to accept payment therefor and otherwise
to act on behalf of such Selling Shareholder in connection with this
Agreement. Shares of Common Stock, in suitable form for transfer,
representing the Selling Shareholder Shares to be sold by such Selling
Shareholder hereunder have been deposited with the Custodian pursuant
to the Custody Agreement and Power of Attorney for the purpose of
delivery pursuant to this Agreement. Such Selling Shareholder agrees
that its Selling Shareholder Shares on deposit with the Custodian are
subject to the interest of the Underwriters hereunder, that the
arrangements made for such custody and the appointment of the Attorneys
in-Fact are to that extent irrevocable, and that the obligations of
such Selling Shareholder hereunder shall not be terminated by any act
or deed of the Selling Shareholders (or by any other person, firm or
corporation, including the Company or the Custodian) without the prior
written consent of the Underwriters or by operation of law (including
the death of a Selling Shareholder) or by the occurrence of any other
event or events, except as provided in this Agreement and the Custody
Agreement. If such Selling Shareholder should die or become
incapacitated or if any other event should occur before the delivery of
the Shares of such Selling Shareholder hereunder which renders such
Selling Shareholder incapable of acting on his or its own behalf, to
the fullest extent provided by law the Selling Shareholder's
obligations hereunder shall continue and the Selling Shareholder Shares
deposited with the Custodian shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such
death, incapacity, or other event had not occurred, regardless of
whether or not the Custodian or the Attorneys-in-Fact shall have
received notice thereof.
(c) Such Selling Shareholder, acting individually or through
the Attorneys-in-Fact, has duly executed and delivered this Agreement.
This Agreement constitutes a legal, valid and binding obligation of
such Selling Shareholder, enforceable against such Selling Shareholder
in
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accordance with its terms, except as may be limited by bankruptcy and
other creditor rights laws and general principles of equity, including
the availability of the equitable remedy of specific performance. All
authorizations and consents necessary for the execution and delivery of
this Agreement and the Custody Agreement and Power of Attorney on
behalf of such Selling Shareholder and for the sale and delivery of the
Selling Shareholder Shares to be sold by such Selling Shareholder
hereunder have been given. Such Selling Shareholder has the legal
capacity and full right, power and authority to execute this Agreement
and the Custody Agreement and Power of Attorney.
(d) The performance of this Agreement and the Custody
Agreement and Power of Attorney and the consummation of the
transactions contemplated hereby and thereby by such Selling
Shareholder will not result in a breach or violation of, or conflict
with, any of the terms or provisions of, or constitute a default by
such Selling Shareholder under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument to which such Selling
Shareholder or any of such Selling Shareholder's properties is bound,
any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling
Shareholder or any of such Selling Shareholder's properties.
(e) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock. Such Selling Shareholder
has not distributed and will not distribute any prospectus or other
offering material in connection with the offer and sale of the Shares
other than any Preliminary Prospectus filed with the Commission or the
Final Prospectus or other material permitted by the Securities Act.
(f) To the knowledge of such Selling Shareholder, the
representations and warranties of the Company in Section 1 of this
Agreement are true and correct. Such Selling Shareholder has reviewed
and is familiar with the Registration Statement as originally filed
with the Commission, and as amended, and the Preliminary Prospectus. To
the knowledge of such Selling Shareholder, there are no facts,
conditions or information not disclosed in such Preliminary Prospectus
that have adversely affected or could adversely affect the business,
financial position, net worth or results of operations, or could
adversely affect the properties or assets, of the Company or any of its
subsidiaries. To the knowledge of such Selling Shareholder, the
Preliminary Prospectus does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. Such Selling Shareholder
represents that it was not prompted to sell the Selling Shareholder
Shares by any information concerning the Company or any subsidiary that
is not set forth in the Preliminary Prospectus, the Effective
Prospectus or the Final Prospectus.
(g) At the time the Registration Statement became effective
(A) such parts of the Registration Statement and any amendments and
supplements thereto as specifically refer to such Selling Shareholder
did not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) such parts of the Effective
Prospectus and Final Prospectus as specifically refer to such Selling
Shareholder did not and will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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<PAGE>
(h) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Shareholder agrees to deliver to you prior
to or at the First Closing Date (as defined below) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(i) Any certificate signed by or on behalf of such Selling
Shareholder as such and delivered to the Representatives or to counsel
for the Representatives shall be deemed a representation and warranty
by such Selling Shareholder to each Underwriter as to the matters
covered thereby.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to the
Underwriters 2,250,000 Firm Shares; each of the Selling Shareholders
agrees to sell to the Underwriters the number of Firm Shares set forth
opposite such Selling Shareholder's name in Schedule II hereto; and
each of the Underwriters severally and not jointly, agrees to purchase
at a purchase price of $_____ per share, the number of Firm Shares set
forth opposite such Underwriter's name in Schedule I hereto.
(b) The Company also grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares, all or
any portion of the Option Shares at the purchase price per share set
forth above. The option granted hereby may be exercised as to all or
any part of the Option Shares at any time within 30 days after the date
the Registration Statement becomes effective or, if such 30th day shall
be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading. The
Underwriters shall not be under any obligation to purchase any Option
Shares prior to the exercise of such option. The option granted hereby
may be exercised by the Underwriters by the Representatives giving
written notice or notice by telephone (confirmed in writing) to the
Company setting forth the number of Option Shares to be purchased and
the date and time for delivery of and payment for such Option Shares
and stating that the Option Shares referred to in such notice are to be
used for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares. If such notice is given prior
to the First Closing Date (as defined herein), the date set forth
therein for such delivery and payment shall not be earlier than two
full business days thereafter or the First Closing Date, whichever
occurs later. If such notice is given on or after the First Closing
Date, the date set forth therein for such delivery and payment shall
not be earlier than three full business days thereafter. In either
event, the date so set forth shall not be more than 15 full business
days after the date of such notice. The date and time set forth in such
notice is herein called the "Option Closing Date." Upon exercise of the
option, the Company shall become obligated to sell to the Underwriters,
and, subject to the terms and conditions herein set forth, the
Underwriters shall become obligated to purchase, for the account of
each Underwriter, from the Company the number of Option Shares
specified in such notice. Option Shares shall be purchased for the
accounts of the Underwriters in proportion to the number of Firm Shares
set forth opposite such Underwriter's name in Schedule I hereto, except
that the respective purchase obligations of each Underwriter shall be
adjusted so that no Underwriter shall be obligated to purchase
fractional Option Shares. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option
Closing Date in
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same day funds by wire transfer to an account designated by the Company
against delivery of certificates therefor at the offices of J.C.
Bradford & Co., 330 Commerce Street, Nashville, Tennessee 37201, or at
such other place as you, the Company and the Attorneys-in-Fact shall
agree upon.
(c) Certificates in definitive form for the Firm Shares which
each Underwriter has agreed to purchase hereunder shall be delivered by
or on behalf of the Company and the Selling Shareholders to the
Underwriters for the account of such Underwriter against payment by
such Underwriter or on its behalf of the purchase price therefor, in
same day funds by wire transfer to the respective accounts designated
by the Company or the Selling Shareholders, as the case may be, at the
offices of J. C. Bradford & Co., 330 Commerce Street, Nashville,
Tennessee 37201, or at such other place as may be agreed upon by J.C.
Bradford & Co., the Company and the Attorneys-in-Fact, at 10:00 A.M.,
Nashville time, on the third (or if the Firm Shares are priced, as
contemplated by Rule 15c6-1(c) promulgated pursuant to the Exchange
Act, after 4:30 P.M., Washington, D.C. time, the fourth) full business
day after this Agreement becomes effective, or at such other time not
later than the seventh full business day thereafter as the
Representatives, the Company and the Attorneys-in-Fact may determine,
such time of delivery against payment being herein referred to as the
"First Closing Date." The First Closing Date and the Option Closing
Date are herein individually referred to as the "Closing Date" and
collectively referred to as the "Closing Dates." Certificates in
definitive form for the Option Shares which each Underwriter shall have
agreed to purchase hereunder shall be similarly delivered by or on
behalf of the Company on the Option Closing Date. The certificates in
definitive form for the Shares to be delivered will be in good delivery
form and in such denominations and registered in such names as J.C.
Bradford & Co. may request not less than 48 hours prior to the First
Closing Date or the Option Closing Date, as the case may be. Such
certificates will be made available for checking and packaging, at a
location designated by you, at least 24 hours prior to the First
Closing Date or the Option Closing Date, as the case may be. It is
understood that you may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for the Shares to be
purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their
obligations hereunder.
4. OFFERING BY THE UNDERWRITERS. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Shares and any Option Shares which may be sold at the price and
upon the terms set forth in the Final Prospectus.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and to comply with the
provisions of and make all requisite filings with the Commission
pursuant to Rules 424, 430A, 434 and 462(b), if relied upon by the
Company, of the Rules and Regulations and to notify you promptly in
writing of all such filings. The Company shall notify you promptly in
writing of any request by the Commission for any amendment of or
supplement (including any Term Sheet) to the Registration Statement,
the Effective Prospectus or
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<PAGE>
the Final Prospectus or for additional information; the Company shall
prepare and file with the Commission, promptly upon your request, any
amendments of or supplements to the Registration Statement, the
Effective Prospectus or the Final Prospectus which, in your reasonable
opinion, may be necessary or advisable in connection with the
distribution of the Shares; and the Company shall not file any
amendment of or supplement to the Registration Statement, the Effective
Prospectus or the Final Prospectus to which you reasonably object after
reasonable notice thereof. The Company shall advise you promptly after
it receives notice and obtains knowledge of the issuance by the
Commission or any jurisdiction or other regulatory body of any stop
order or other order suspending the effectiveness of the Registration
Statement, suspending or preventing the use of any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or
suspending the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop order
or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company will take or cause to be taken all necessary
action and furnish to whomever you direct such information as may be
reasonably required in qualifying the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in
effect for as long as may be reasonably necessary to complete the
distribution and for a period of not less than one year after the
Effective Date; provided that, in connection therewith, the Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction in which the
Company is not currently so subject.
(c) Within the time during which a Final Prospectus relating
to the Shares is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Shares as
contemplated by the provisions hereof and the Final Prospectus. If
during such period any event occurs as a result of which the Final
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement the Final
Prospectus to comply with the Securities Act, the Company shall
promptly notify you and shall amend the Registration Statement or
supplement the Final Prospectus (at the expense of the Company) so as
to correct such statement or omission or effect such compliance.
(d) The Company will furnish without charge to the
Representatives copies of the Registration Statement (two of which
shall be signed and shall be accompanied by all exhibits thereto) and
will furnish without charge to the Representatives, each Underwriter
and to any dealer in securities each Preliminary Prospectus, the
Effective Prospectus and the Final Prospectus, and all amendments and
supplements thereto, including any prospectus or supplement prepared
after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriters may
reasonably request.
(e) The Company will (i) deliver to you at such office or
offices as you may designate as many copies of the Preliminary
Prospectus and Final Prospectus as you may reasonably request, and (ii)
for a period of not more than nine months after the Registration
Statement becomes effective or such longer period that a Final
Prospectus relating to the Shares is required to be delivered under the
Securities Act, send to the Underwriters as many additional copies of
the Final Prospectus and any supplement thereto as you may reasonably
request.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act as promptly as practicable and in any event
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no later than 45 days after the end of its fiscal quarter in which the
first anniversary of the effective date of the Registration Statement
occurs, an earnings statement satisfying the provisions of Section
11(a) of the Securities Act covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement.
(g) The Company will apply the net proceeds from the sale of
the Company Shares as set forth under the caption "Use of Proceeds" in
the Final Prospectus and will report the use of such proceeds in
accordance with Rule 463 under the Securities Act.
(h) During a period of three years from the effective date of
the Registration Statement, the Company will furnish to the
Representatives, without charge, copies of all reports and other
communications (financial or other) furnished by the Company to its
shareholders and, as soon as available, copies of any reports or
financial statements furnished or filed by the Company to or with the
Commission or any national securities exchange or over-the-counter
market on which any class of securities of the Company may be listed or
traded and such additional information concerning the business and
financial condition of the Company and its subsidiaries as you from
time to time may reasonably request.
(i) The Company will, from time to time, after the effective
date of the Registration Statement file with the Commission such
reports as are required by the Securities Act, the Exchange Act and the
Rules and Regulations, and shall also file with state securities
commissions in states where the Shares have been sold by you (as you
shall have advised us in writing) such reports as are required to be
filed by the securities acts and the regulations of those states.
(j) The Company has provided agreements executed by all of
the Company's executive officers, directors and shareholders providing
that none of them will, for a period of 180 days from the effective
date of the Registration Statement, directly or indirectly, make, agree
to or cause any offer, sale (including short sale), loan, pledge or
other disposition of, or grant any options, rights or warrants to
purchase with respect to, or otherwise transfer or reduce any risk of
ownership of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares
of Common Stock or other capital stock of the Company, or derivatives
thereof, or request the registration of any of the foregoing, except
that the Company's executive officers, directors and shareholders may
acquire shares of Common Stock pursuant to the exercise of stock
options granted pursuant to the Company's stock option plans, and may
gift, pledge or assign shares of Common Stock if the donee, pledgee or
assignee agrees similarly not to sell, contract to sell or otherwise
dispose of such shares for the remaining portion, if any, of the Lock-
up Period. Except with the prior written consent of J.C. Bradford &
Co., the Company will not issue any of the 2,000,000 shares of
Common Stock to be registered under the Securities Act as described
under the caption "Shares Eligible for Future Sale" in the Final
Prospectus unless and until each person or entity to whom or which such
shares are to be issued agrees in writing not to sell, contract to sell
or otherwise dispose of such shares for the remaining portion, if any,
of the Lock-up Period.
(k) If at any time during the 30 day period after the
Registration Statement is declared effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which, in your opinion, the market price for the Shares has been or is
likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a
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supplement to or amendment of the Final Prospectus), the Company will,
after written notice from you advising it to do so, prepare, consult
with you concerning the substance of, and disseminate a press release
or other public statement, reasonably satisfactory to you, responding
to or commenting on such rumor, publication or event.
(l) Neither the Company nor any of its officers, directors or
affiliates will take, directly or indirectly, any action designed to
cause or result in, or which might constitute or be expected to
constitute, stabilization or manipulation of the price of the Common
Stock.
(m) The Company will cause the Shares to be listed on the
Nasdaq Stock Market's National Market at each Closing Date and will use
its reasonable best efforts to cause the Shares to be so listed for at
least one year from the date hereof.
(n) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or any subsidiary to register as an
investment company under the 1940 Act.
(o) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
6. EXPENSES. The Company and the Selling Shareholders agree with the
Underwriters that (a) whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay
all fees and expenses incident to the performance of the obligations of the
Company and the Selling Shareholders, including, but not limited to, (i) the
Commission's registration fee, (ii) the expenses of printing (or reproducing)
and distributing the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), each Preliminary Prospectus,
the Effective Prospectus, the Final Prospectus, any amendments or supplements
thereto, and this Agreement and other underwriting documents, including
Underwriter's Questionnaires, Underwriter's Powers of Attorney, Blue Sky
Memoranda, Agreements Among Underwriters and Selected Dealers Agreements, (iii)
fees and expenses of accountants and counsel for the Company and the Selling
Shareholders, (iv) expenses of registration or qualification of the Shares under
state Blue Sky and securities laws, including the fees and disbursements of
counsel to the Underwriters in connection therewith, (v) filing fees paid or
incurred by the Underwriters and related fees and expenses of counsel to the
Underwriters in connection with filings with the NASD, (vi) expenses of listing
the Shares on the Nasdaq Stock Market's National Market, (vii) any expenses for
travel, lodging and meals incurred by the Company in connection with marketing,
dealer and other meetings attended by the Company and the Underwriters in
marketing the Shares, (viii) the costs and charges of the Company's transfer
agent and registrar and the cost of preparing the certificates for the Shares,
and (ix) all other costs and expenses incident to the performance of its
obligations hereunder not otherwise provided for in this Section; and (b) all
out-of-pocket expenses, including counsel fees, disbursements and expenses,
incurred by the Underwriters in connection with investigating, preparing to
market and marketing the Shares and proposing to purchase and purchasing the
Shares under this Agreement will be borne and paid by the Company if the sale of
the Shares provided for herein is not consummated by reason of the termination
of this Agreement by the Representatives pursuant to Sections 10 or 13(iv) or
pursuant to Section 13(ii) because of any failure or refusal on the part of the
Company or the Selling Shareholders to comply with the terms in all material
respects or fulfill in all material respects any of the conditions of this
Agreement. To the extent, if at all, that any of the Selling Shareholders engage
special legal counsel to represent them in connection with the transactions
contemplated by this Agreement, the fees and expenses of such counsel shall be
borne by such Selling Shareholder. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters
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will be paid by the Company and the Selling Shareholders pro rata. The Company
and the Selling Shareholders have agreed between themselves with regard to the
sharing of fees and expenses. It is understood, however, that except as provided
in this Section 6 and Sections 8 and 10, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel and any advertising
expenses in connection with any offers they may make.
7. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder shall be subject, in their discretion,
to the accuracy of the representations and warranties of the Company and the
Selling Shareholders herein as of the date hereof and as of the Closing Date as
if made on and as of the Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholders of all of their covenants and
agreements hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 4:00
p.m., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Representatives and all filings required by Rule 424, Rule 430A,
Rule 434 or Rule 462(b), if applicable, of the Rules and Regulations
shall have been made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Underwriters, shall be contemplated by
the Commission; any request of the Commission for additional
information (to be included in the Registration Statement or the Final
Prospectus or otherwise) shall have been complied with to your
reasonable satisfaction; and the NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering
or the terms or the Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that the
Registration Statement or any amendment thereto contains an untrue
statement of fact which, in your judgment, is material, or omits to
state a fact which, in your judgment, is material and is required to be
stated therein or necessary to make the statements therein not
misleading, or that any Preliminary Prospectus, the Effective
Prospectus or the Final Prospectus, or any supplement thereto, contains
an untrue statement of fact which, in your judgment, is material, or
omits to state a fact which, in your judgment, is material and is
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(c) The Representatives shall have received an opinion, dated
the Closing Date, from Nelson Mullins Riley & Scarborough, L.L.P.,
counsel for the Company and the Selling Shareholders, to the effect
that:
(i) The Company is a corporation duly organized and
validly existing and in good standing under the laws of the
State of Georgia, with full corporate power and authority to
own its properties and conduct its business as now conducted.
(ii) Each of the Company's subsidiaries (as defined
in this Agreement) is a corporation duly organized and validly
existing and in good standing under the laws of the state of
its incorporation, with full corporate power and authority to
own its properties and conduct its business as now conducted.
The outstanding stock of each of the Company's subsidiaries is
duly authorized, validly issued, fully paid and nonassessable.
Other than as disclosed in the Effective Prospectus and the
Final Prospectus, all of the outstanding stock
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of each of the subsidiaries is owned by the Company, free and
clear of all possessory (and, to the knowledge of such
counsel, other) liens, encumbrances, pledges, equities or
claims of any kind. Other than as disclosed in the Effective
Prospectus and the Final Prospectus, to the knowledge of such
counsel, no options or warrants or other rights to purchase
from the Company or any subsidiary, agreements or other
obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership
interests in any of the Company's subsidiaries are
outstanding.
(iii) The Company and each of its subsidiaries is
duly qualified or authorized to do business as a foreign
corporation in good standing in all jurisdictions where the
nature of its business or character of property owned or
leased by it require it to be so qualified or authorized to do
business, except where the failure to be so qualified or
authorized to do business would not have a Material Adverse
Effect.
(iv) As of the date specified therein, the Company
had historical authorized and issued capital stock as set
forth under the caption "Capitalization" in the Final
Prospectus, and the Company's capital stock conforms to the
description thereof contained under the caption "Description
of Capital Stock" in the Final Prospectus. All of the issued
and outstanding shares of Common Stock (including the Selling
Shareholder Shares and the Option Shares) have been duly
authorized and are validly issued, fully paid and
nonassessable. The Company Shares have been duly and validly
authorized, and upon issuance thereof and payment therefor as
provided in this Agreement, will be validly issued, fully paid
and nonassessable.
(v) None of the issued shares of capital stock of the
Company (including the Selling Shareholder Shares) have been
issued in violation of or subject to any preemptive or similar
rights arising under, and there are no preemptive rights or
other rights to subscribe for or to purchase, or any
restriction upon the transfer of, the Shares or any other
shares of Common Stock pursuant to, the Company's Articles of
Incorporation, Bylaws or, to the knowledge of such counsel,
any agreement (other than this Agreement) or instrument to
which the Company or a Selling Shareholder is a party or by
which it may be bound. To the knowledge of such counsel,
neither the filing of the Registration Statement nor the offer
or sale of the Shares as contemplated thereby gives rise to
any rights for or relating to the registration of any shares
of Common Stock or any other securities of the Company, other
than rights relating to shares included in the Firm Shares and
such other rights as have been waived by the holder or holders
thereof prior to the date hereof. Upon issuance of the Company
Shares and payment therefor as provided in this Agreement, the
Underwriters will receive good and marketable title to the
Company Shares, free and clear of all liens, encumbrances,
claims, security interests, restrictions, shareholders
agreements and voting trusts whatsoever. The form of
certificate for the Shares is in due and proper form.
(vi) To the knowledge of such counsel, all sales of
the Company's securities by the Company prior to the date
hereof were at all relevant times duly registered or exempt
from the registration requirements of the Securities Act and
were duly registered or the subject of an exemption from the
registration requirements of applicable state securities or
blue sky laws, or if not registered or exempt in compliance
with the Securities Act and applicable state securities or
blue sky laws, any private rights of action for rescission or
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damages arising from such failure to register any such
securities are time barred by applicable statutes of
limitations or equitable principles, including laches.
(vii) No consent, approval, authorization or order of
any court, governmental agency or body or, to the knowledge of
such counsel, any third party, is required for the performance
of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except such
as have been obtained under the Securities Act and such as may
be required from the NASD or under state securities or blue
sky laws in connection with the purchase and distribution of
the Shares by the several Underwriters. The performance of
this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby will not
conflict with or result in a breach or violation by the
Company or any of its subsidiaries of any of the terms or
provisions of, or constitute a default by the Company or any
of its subsidiaries under, (a) the Articles of Incorporation
or Bylaws of the Company or any of its subsidiaries, (b) any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which the Company or any of
its subsidiaries is a party or to which the Company or any of
its subsidiaries or their properties are subject and that is
an exhibit to the Registration Statement (each, a "Material
Agreement"), (c) any federal statute or (d) to the knowledge
of such counsel, any judgment, decree, order, rule or
regulation of any court or governmental agency or body
applicable to the Company or any of its subsidiaries or their
properties; provided, however, that such counsel need not
express any opinion under this paragraph (vii) as to
compliance with federal securities laws (certain aspects of
which are covered elsewhere in this Agreement) or as to
compliance with the securities or blue sky laws of any other
jurisdiction.
(viii) This Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms,
and the Company has the full corporate power and authority to
enter into this Agreement and to issue, sell and deliver the
Company Shares to be sold by it to the Underwriters as
provided herein.
(ix) To the knowledge of such counsel, except as
described in the Final Prospectus, there is not pending or
threatened, any action, suit, proceeding, inquiry or
investigation to which the Company or any of its subsidiaries
is a party, or to which the property of the Company or any of
its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, could result in a
Material Adverse Effect.
(x) To the knowledge of such counsel, no default
exists and no event has occurred which, with notice or after
the lapse of time to cure or both, would constitute a default
in the due performance and observance of any term, covenant or
condition of any Material Agreement, which default or event
would have a Material Adverse Effect.
(xi) Neither the Company nor any subsidiary is in
violation of its Articles of Incorporation or Bylaws or, to
the knowledge of such counsel, in violation of any law,
administrative rule or regulation or arbitrators' or
administrative or court decree, judgment or order or, to the
knowledge of such counsel, in violation or default (there
being no existing state of facts, to the knowledge of such
counsel, which with notice or lapse of time or both would
constitute a default) in the performance or observance of any
obligation,
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<PAGE>
agreement, covenant or condition contained in any Material
Agreement where such violation or default could have a
Material Adverse Effect, taking into account any enforceable
and valid indemnity that the Company may have from a third
party.
(xii) The Registration Statement and all
post-effective amendments thereto have become effective under
the Securities Act, no stop order suspending the effectiveness
of the Registration Statement has been issued and, to the
knowledge of such counsel, no proceedings for that purpose
have been instituted or are pending, threatened or
contemplated by the Commission. All filings required by Rules
424, 430A, 434 and 462(b), if relied upon by the Company, of
the Rules and Regulations have been made. The Registration
Statement, the Effective Prospectus and Final Prospectus, and
any amendments or supplements thereto, as of their respective
effective or issue dates, complied as to form with the
requirements of the Securities Act and the Rules and
Regulations (other than the financial statements, data and
schedules which are contained therein, and the first five
paragraphs and the last paragraph of the section captioned
"Underwriting" contained therein, as to which such counsel
need not express any opinion). The descriptions in the
Registration Statement, the Effective Prospectus and the Final
Prospectus of statutes, regulations, legal and governmental
proceedings, and contracts and other documents are accurate in
all material respects and present fairly the information
required to be stated. To the knowledge of such counsel, there
are no pending or threatened legal or governmental
proceedings, statutes or regulations required to be described
in the Final Prospectus which are not described nor are there
any contracts or other documents of a character required to be
described in the Registration Statement or the Final
Prospectus or to be filed as exhibits to the Registration
Statement which are not described and filed as required. The
Shares have been approved for listing on the Nasdaq Stock
Market's National Market upon notice of issuance.
(xiii) The Company is not, and will not be as a
result of the consummation of the transactions contemplated by
this Agreement, an "investment company" within the meaning of
the 1940 Act.
(xiv) This Agreement and the Custody Agreement and
Power of Attorney described herein have been duly executed and
delivered by or on behalf of each of the Selling Shareholders
and constitute valid and binding agreements of such Selling
Shareholders enforceable against such Selling Shareholders. To
the knowledge of such counsel, there are no facts which would
cause any Selling Shareholder to lack the legal capacity and
full right, power and authority to execute this Agreement and
the Custody Agreement and Power of Attorney.
(xv) To the knowledge of such counsel, the
performance of this Agreement and the Custody Agreement and
Power of Attorney and the consummation of the transactions
contemplated thereby by each of the Selling Shareholders will
not result in a breach or violation of, or conflict with, any
of the terms or provisions of, or constitute a default by any
Selling Shareholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease
franchise, license or other agreement or instrument to which
such Selling Shareholder or any of such Selling Shareholder's
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency
or body applicable to such Selling Shareholder; provided,
however, that such counsel need not express any opinion under
this paragraph (xv) as to compliance with
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federal securities laws (certain aspects of which are covered
elsewhere in this Agreement) or as to compliance with the
securities or blue sky laws of any other jurisdiction.
(xvi) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Selling
Shareholders of the transactions contemplated by this
Agreement in connection with the Selling Shareholder Shares to
be sold by each Selling Shareholder hereunder, except such as
have been obtained under the Securities Act and such as may be
required from the NASD or under state securities or blue sky
laws in connection with the purchase and distribution of the
Shares by the several Underwriters.
(xvii) As of the Closing Date, the Selling
Shareholders have made good delivery, duly endorsed, to the
Underwriters or to a financial intermediary designated by the
Underwriters of the Selling Shareholder Shares and, assuming
that the Underwriters constitute bona fide purchasers as
defined in Section 8-302 of the Uniform Commercial Code, the
Selling Shareholders have transferred all rights and interests
therein to the Underwriters free and clear of any and all
liens, pledges, encumbrances, charges, agreements, equities,
claims, security interests, restrictions, shareholder
agreements or voting trusts.
In addition to the matters set forth above, such opinion
letter shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to believe that
the Registration Statement or any amendment thereto contains an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading (except that such counsel need express no view as to
financial statements, schedules and other financial information
included therein) or that the Effective Prospectus or the Final
Prospectus or any supplement thereto contains an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading (except
that such counsel need express no view as to financial statements,
schedules and other financial information included therein).
(d) The Representatives shall have received an opinion or
opinions, dated the Closing Date, of Alston & Bird LLP, counsel for the
Underwriters, with respect to the Registration Statement and the Final
Prospectus and such other related matters as the Underwriters may
require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(e) The Representatives shall have received from Arthur
Andersen, LLP, a letter dated the date hereof and, at the Closing Date,
a second letter dated the Closing Date in form and in substance
satisfactory to the Representatives, stating that they are independent
public accountants with respect to the Company and its subsidiaries
within the meaning of the Securities Act and the applicable Rules and
Regulations, and to the effect that:
(i) In their opinion, the financial statements and
schedules examined by them and included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the published Rules and Regulations and are presented in
accordance with generally accepted accounting principles
consistently applied; and they have made a review in
accordance with standards
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established by the American Institute of Certified Public
Accountants of the consolidated interim financial statements,
selected financial data, and/or condensed financial statements
derived from audited financial statements of the Company;
(ii) The unaudited summary and selected financial
information included in the Preliminary Prospectus and the
Final Prospectus under the captions "Prospectus Summary" and
"Selected Consolidated Financial Data" agrees with the
corresponding amounts in the audited financial statements
included in the Final Prospectus or previously reported on by
them;
(iii) On the basis of a reading of the latest
available interim consolidated financial statements
(unaudited) of the Company and its subsidiaries, a reading of
the minute books of the Company and its subsidiaries,
inquiries of officials of the Company responsible for
financial and accounting matters and other specified
procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused
them to believe that:
(A) the unaudited financial statements
included in the Registration Statement do not comply
as to form in all material respects with the
accounting requirements of the federal securities
laws and the related published rules and regulations
thereunder or are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with the basis for the
audited financial statements contained in the
Registration Statement;
(B) any other unaudited financial statement
data included in the Final Prospectus do not agree
with the corresponding items in the unaudited
consolidated financial statements from which data was
derived and any such unaudited data were not
determined on a basis substantially consistent with
the basis for the corresponding amounts in the
audited financial statements included in the
Prospectus;
(C) at a specified date not more than three
days prior to the date of delivery of such respective
letter, there was any change in the consolidated
capital stock, decline in shareholders' equity or
increase in long-term debt of the Company and its
subsidiaries, or other items specified by the
Underwriters, in each case as compared with amounts
shown in the latest balance sheets included in the
Final Prospectus, except in each case for changes,
decreases or increases which the Final Prospectus
discloses have occurred or may occur or which are
described in such letters; and
(D) for the period from the closing date of
the latest consolidated statements of operations
included in the Effective Prospectus and the Final
Prospectus to a specified date not more than three
days prior to the date of delivery of such respective
letter, there were any decreases in total revenues or
net income of the Company, or other items specified
by the Underwriters, or any increases in any items
specified by the Underwriters, in each case as
compared with the corresponding period of the
preceding year, except in each case for decreases
which the Final Prospectus discloses have occurred or
may occur or which are described in such letter.
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(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by
you which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the
Effective Prospectus and the Final Prospectus and have
compared and agreed such amounts, percentages financial
information with the accounting records of the Company and its
subsidiaries or to analyses and schedules prepared by the
Company and its subsidiaries from its detailed accounting
records.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases, it shall be a
further condition to the obligations of the Underwriters that the
Underwriters shall have determined, after discussions with officers of
the Company responsible for financial and accounting matters and with
Arthur Andersen LLP, that such changes, decreases or increases as are
set forth in such letters do not reflect a material adverse change in
the shareholders' equity or long-term debt of the Company as compared
with the amounts shown in the latest consolidated balance sheets of the
Company included in the Final Prospectus, or a material adverse change
in total revenues or net income, of the Company, in each case as
compared with the corresponding period of the prior year.
(f) There shall have been furnished to you a certificate,
dated the Closing Date and addressed to you, signed by the Chief
Executive Officer and by the Chief Financial Officer of the Company to
the effect that:
(i) the representations and warranties of the Company
in Section 1 of this Agreement are true and correct, as if
made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) the Registration Statement has become effective
under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement has been issued,
and no proceedings for that purpose have been initiated or are
pending or, to their knowledge, threatened under the
Securities Act;
(iii) all filings required by Rules 424, 430A, 434
and 462(b), if relied upon by the Company, of the Rules and
Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus,
and any amendments or supplements thereto, and the
Registration Statement and any amendments thereto do not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and
the Effective Prospectus and the Final Prospectus, and any
supplements thereto, do not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made,
not misleading; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration
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Statement, the Effective Prospectus or the Final Prospectus
which has not been so set forth.
(g) The representations and warranties of the Selling
Shareholders shall be true and correct as if made at and as of the
Closing Date, and each Selling Shareholder shall deliver to you a
certificate to that effect, dated the Closing Date, signed by each
Selling Shareholder or such Selling Shareholder's duly appointed
Attorney-in-Fact.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, and
except as stated therein, the Company and its subsidiaries have not
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any court or governmental action, order or decree, or become
a party to or the subject of any litigation which is material to the
Company or its subsidiaries, nor shall there have been any material
adverse change, or any development involving a prospective material
adverse change, in the business, properties, key personnel,
capitalization, net worth, results of operations or condition
(financial or other) of the Company or its subsidiaries, which loss,
interference, litigation or change, in your judgment shall render it
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the
Prospectus or to proceed with the delivery of the Shares.
(i) The Shares shall have been approved for listing upon
notice of issuance on the Nasdaq Stock Market's National Market.
(j) The Agreements relating to the matters described in
Sections 2(f) and 5(j) hereof shall be in full force and effect.
(k) You shall have been furnished by the Company and the
Selling Shareholders such additional documents and certificates as you
may reasonably request.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company and the Selling Shareholders shall furnish to the Representatives such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for
the Option Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Shares, except that all references to
the "Closing Date" shall be deemed to refer to the Option Closing Date, if it
shall be a date other than the Closing Date.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based in whole or in
part
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upon (i) any inaccuracy in the representations and warranties of the
Company contained herein, (ii) any failure of the Company to perform
their obligations hereunder or under law or (iii) any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
any audio or visual materials supplied by the Company and used in
connection with the marketing of the Shares, including without
limitation, slides, videos, films and tape recordings, or in any Blue
Sky application or other written information furnished by the Company
filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof (a "Blue Sky
Application"), or arise out of or are based upon the omission or
alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or supplement thereto or any Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
and each such controlling person of each Underwriter upon demand for
any legal or other expenses reasonably incurred by such Underwriter or
such controlling person of each Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, or liability arises out of or
is based upon (i) any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
such amendment or such supplement in reliance upon and in conformity
with written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page, the paragraph relating to stabilization
practices on the inside front cover and in the first five paragraphs
and the last paragraph under the caption "Underwriting" in any
Preliminary Prospectus and the Final Prospectus and the Effective
Prospectus) or (ii) the failure of the Underwriters to deliver the
Final Prospectus after the effective date, as required under Section
4(3) of the Securities Act and Rule 174 thereunder (provided, that such
failure to deliver was not the result of the failure of the Company to
timely supply sufficient quantities of the Final Prospectus to the
Underwriters upon the Underwriter's reasonable request).
(b) Each of the Selling Shareholders, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
the Securities Act against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based in whole or in part upon (i) any inaccuracy
in the representations and warranties of such Selling Shareholder
contained herein, (ii) any failure of such Selling Shareholder to
perform his respective obligations hereunder or under law or (iii) any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus,
the Effective Prospectus or Final Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application or arise out of or
are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus or any amendment or supplement thereto
or any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter and each such controlling person of
each Underwriter for any legal or other expenses reasonably incurred by
such Underwriter or such controlling person of each Underwriter in
connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, provided,
however, that a Selling
-25-
<PAGE>
Shareholder shall only be liable in his capacity as a Selling
Shareholder pursuant to clause (iii) to the extent that any statements
in or omissions or alleged omissions to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus, the
Final Prospectus or any amendment or supplement thereto are based upon
written information furnished to the Company by such Selling
Shareholder specifically for use therein or to the extent such Selling
Shareholder has failed to bring to the attention of the Underwriters
anything that has come to the attention of such Selling Shareholder to
cause such Selling Shareholder to believe that there is any untrue
statement relating to the Company of any material fact contained in the
Registration Statement, the Preliminary Prospectus, the Effective
Prospectus, the Final Prospectus, or any amendment or supplement
thereto, or any omission to state therein a material fact relating to
the Company required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Selling
Shareholders shall not be liable pursuant to clause (iii) to the extent
that any such loss, claim, damage, or liability arises out of or is
based upon (a) any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
such amendment or such supplement in reliance upon and in conformity
with written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page, the paragraph relating to stabilization
practices on the inside front cover and the first five paragraphs and
the last paragraph under the caption "Underwriting" in any Preliminary
Prospectus and the Final Prospectus and the Effective Prospectus), (b)
the fourth sentence under the heading "Legal Matters" or (c) the
failure of the Underwriters to deliver the Final Prospectus after the
effective date, as required under Section 4(3) of the Securities Act
and Rule 174 thereunder (provided, that if such failure to deliver was
the result of the failure of the Company to timely supply sufficient
quantities of the Final Prospectus to the Underwriters upon the
Underwriter's reasonable request, then the Company shall indemnify the
Underwriters and other persons set forth in this Section 8(b) with
respect to any associated losses, claims, damages or liabilities
pursuant to Section 8(a) above).
(c) Notwithstanding Section 8(b) above, in no event shall the
liability of any Selling Shareholder under Section 8(b) exceed the net
proceeds received by such Selling Shareholder from the Underwriters
with respect to the sale of the Selling Shareholder Shares.
(d) Neither the Company nor any Selling Shareholder will,
without prior written consent of the Representatives, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of
action or portion thereof) in respect of which indemnification may be
sought hereunder (whether or not such Representative is a party to such
claim, action, suit or proceeding) unless such settlement, compromise
or consent includes an unconditional release of such Representative
from all liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof).
(e) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of the Securities Act and each of the
Selling Shareholders against any losses, claims, damages or liabilities
to which the Company or any such director, officer or controlling
person or the Selling Shareholders may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary
Prospectus, the
-26-
<PAGE>
Effective Prospectus or Final Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or supplement thereto a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page, the paragraph relating to stabilization
practices on the inside front cover and the first five paragraphs and
the last paragraph under the caption "Underwriting" in any Preliminary
Prospectus and in the Effective Prospectus and the Final Prospectus);
(f) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with
any other counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its
election to so assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, except that the indemnified party shall have the right
to employ separate counsel if, in its reasonable judgment, it is
advisable for the indemnified party and any other similarly situated
indemnified party to be represented by separate counsel, and in that
event the fees and expenses of separate counsel shall be paid by the
indemnifying party. However, in no event, shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in
addition to local counsel, if any) separate from their own counsel for
all indemnified parties in connection with any action or separate, but
similar or related, actions arising out of the same general allegations
or circumstances.
(g) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 8 is for any reason held to be
unavailable to the Underwriters, the Company or the Selling
Shareholders or is insufficient to hold harmless an indemnified party,
then the Company and the Selling Shareholders shall contribute to the
damages paid by the Underwriters, and the Underwriters shall contribute
to the damages paid by the Company and the Selling Shareholders;
provided, however, that 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. In determining the
amount of contribution to which the respective parties are entitled,
there shall be considered the relative benefits received by each party
from the offering of the Shares (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent
any statement or omission, and any other equitable considerations
appropriate under the circumstances. The Company and the Selling
Shareholders and the Underwriters agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were
-27-
<PAGE>
treated as one entity for such purpose). No Underwriter or person
controlling such Underwriter shall be obligated to make contribution
hereunder which in the aggregate exceeds the underwriting discount
applicable to the Shares purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages which such
Underwriter and its controlling persons have otherwise been required to
pay in respect of the same or any similar claim. The Underwriters'
obligations to contribute hereunder are several in proportion to their
respective underwriting obligations and not joint. For purposes of this
Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Securities Act shall have the same rights
to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, and the Selling Shareholders shall
have the same rights to contribution as the Company.
(h) The obligations of the Company and the Selling
Shareholders under this Section 8 shall be in addition to any liability
which the Company and the Selling Shareholders may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Securities
Act; and the obligations of the Underwriters under this Section 8 shall
be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to
each officer and director of the Company and to each person, if any,
who controls the Company within the meaning of the Securities Act and
to the Selling Shareholders.
9. DEFAULT OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or less
of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters) the
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter so defaults and the total number of Shares with
respect to which such default or defaults occur is more than ten percent of the
total number of Shares to be sold hereunder, and arrangements satisfactory to
the other Underwriters, the Company and the Selling Shareholders for the
purchase of such Shares by other persons (who may include the non-defaulting
Underwriters) are not made within 36 hours after such default, this Agreement,
insofar as it relates to the sale of the Shares, will terminate without
liability on the part of the non-defaulting Underwriters, the Company or the
Selling Shareholders except for (i) the provisions of Section 8 hereof, and (ii)
the expenses to be paid or reimbursed by the Company pursuant to Section 6
hereof. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 9. Nothing herein shall
relieve a defaulting Underwriter from liability for its default.
10. DEFAULT BY THE SELLING SHAREHOLDERS. If the Selling Shareholders
shall fail to sell the number of Selling Shareholder Shares that the Selling
Shareholders are obligated to sell, the Representatives may, at their option, by
notice to the Company, either (a) require the Company to sell and deliver the
number of Selling Shareholder Shares as to which the Selling Shareholders have
defaulted or such lesser number as may be requested by the Representatives, (b)
elect to purchase the Firm Shares that the Company and the non-defaulting
Selling Shareholders have agreed to sell pursuant to this Agreement, or (c)
terminate this Agreement without liability on the part of the Underwriters or
the Company, except for the provisions of Section 8 hereof and the expenses to
be paid or reimbursed by the Company pursuant to Section 6 hereof.
-28-
<PAGE>
In the event of a default under this Section 10 that does not result in
the termination of this Agreement, the Representatives shall have the right to
postpone the First Closing Date or Option Closing Date for a period not
exceeding ten days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. No action
taken pursuant to this Section shall relieve the Company or the Selling
Shareholder so defaulting from liability, if any, in respect of such default.
11. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers, the Selling Shareholders and the Underwriters set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Shareholders, any Underwriter or any controlling person,
and(ii) delivery of and payment for the Shares. The respective representations,
warranties, agreements, covenants, indemnities and other statements set forth in
Sections 1, 2, 5 (other than paragraphs (c) and (m)), 6 and 8 hereof shall
remain in full force and effect, regardless of any termination of this
Agreement.
12. EFFECTIVE DATE. This Agreement shall become effective at whichever
of the following times shall first occur: (i) at 11:30 a.m., Eastern Time, on
the next full business day following the date on which the Registration
Statement becomes effective or (ii) at such time after the Registration
Statement has become effective as the Representatives shall release the Firm
Shares for sale to the public; provided, however, that the provisions of
Sections 6, 8, 11 and 12 hereof shall at all times be effective. For purposes of
this Section 12, the Firm Shares shall be deemed to have been so released upon
the release by the Representatives for publication, at any time after the
Registration Statement has become effective, of any newspaper advertisement
relating to the Firm Shares or upon the release by the Representatives of
telegrams offering the Firm Shares for sale to securities dealers, whichever may
occur first.
13. TERMINATION.
(a) This Agreement may be terminated by the Company by notice to the
Representatives at any time before it becomes effective in accordance with
Section 12 hereof.
(b) This Agreement may be terminated by the Representatives by notice
to the Company and the Selling Shareholders (i) at any time before it becomes
effective in accordance with Section 12 hereof; (ii) in the event that at or
prior to the First Closing Date the Company or the Selling Shareholders shall
have failed, refused or been unable to perform any agreement on the part of the
Company or the Selling Shareholders to be performed hereunder (or any other
condition to the obligations of the Underwriters hereunder is not fulfilled);
(iii) if at or prior to the Closing Date trading in securities on the New York
Stock Exchange or the Nasdaq National Market shall have been suspended or
materially limited or minimum prices shall have been established on the New York
Stock Exchange or the Nasdaq National Market, or a banking moratorium shall have
been declared by Federal or state authorities; (iv) if at or prior to the
Closing Date trading in securities of the Company shall have been suspended; or
(v) if there shall have been such a material change in general economic,
political or financial conditions or if the effect of international conditions
on the financial markets in the United States shall be such as, in your
reasonable judgment, makes it inadvisable to commence or continue the offering
of the Shares at the offering price to the public set forth on the cover page of
the Prospectus or to proceed with the delivery of the Shares.
-29-
<PAGE>
(c) Termination of this Agreement pursuant to this
Section 13 shall be without liability of any party to any other party other than
as provided in Sections 6 and 8 hereof.
14. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed and
confirmed in writing to the Representatives in care of J. C. Bradford & Co., One
Buckhead Plaza, 3060 Peachtree Rd. NW, Suite 1200, Atlanta, Georgia 30305,
Attention: Kip R. Caffey, or, if sent to the Company, shall be mailed, delivered
or telegraphed and confirmed in writing to the Company at 3150 Holcomb Bridge
Road, Suite 200, Norcross, Georgia 30071, Attention: John W. Collins.
15. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company, the Selling Shareholders and
their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Company, the Selling
Shareholders and the several Underwriters and for the benefit of no other person
except that (i) the representations and warranties of the Company and the
Selling Shareholders contained in this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Securities Act, and (ii) the indemnities by the Underwriters
shall also be for the benefit of the directors of the Company, officers of the
Company who have signed the Registration Statement and any person or persons who
control the Company within the meaning of Section 15 of the Securities Act. No
purchaser of Shares from any Underwriter will be deemed a successor because of
such purchase. The validity and interpretation of this Agreement shall be
governed by the laws of the State of Tennessee. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. You hereby
represent and warrant to the Company that you have authority to act hereunder on
behalf of the several Underwriters, and any action hereunder taken by you will
be binding upon all the Underwriters.
-30-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between the Company, the Selling Shareholders and each of the several
Underwriters.
Very truly yours,
THE INTERCEPT GROUP, INC.
By:
-----------------------------------
Name: John W. Collins
Title: Chairman and CEO
SELLING SHAREHOLDERS
By:
-----------------------------------
Attorney-in-Fact
Confirmed and accepted as of the date first above written.
J. C. BRADFORD & CO.
WHEAT FIRST SECURITIES, INC.
For themselves and as Representatives
of the Several Underwriters
By: J. C. Bradford & Co.
By:
---------------------------------------
(Authorized Representative)
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<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF OPTION
NUMBER OF SHARES TO BE PURCHASED
FIRM SHARES IF MAXIMUM
UNDERWRITER TO BE PURCHASED OPTION EXERCISED
- ----------- --------------- -----------------------
J. C. Bradford & Co.
Wheat First Securities, Inc.
--------- -------
TOTAL 2,525,000 337,500
========= =======
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
FIRM SHARES
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER: TO BE SOLD
- -------------------- ---------------------
James R. Henderson 137,500
Vir A. Nanda 137,500
TOTAL 275,000
=======
<PAGE>
EXHIBIT 4.2
[LOGO]
THE INTERCEPT GROUP, INC.
COMMON STOCK
NO PAR VALUE
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 45845L 10 7
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
THE INTERCEPT GROUP, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney, upon the surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
SUNTRUST BANK, ATLANTA
TRANSFER AGENT
AND REGISTRAR
BY
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
AUTHORIZED SIGNATURE AND CHAIRMAN OF THE BOARD AND SECRETARY
<PAGE>
THE INTERCEPT GROUP, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement or summary of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof which the Corporation is authorized to issue and of the
qualifications, limitations or restrictions of such preferences and/or rights.
Such request may be made to the office of the Secretary of the Corporation or
the Transfer Agent named on the face of this Certificate.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
----------------- ----------------------
(Minor) (Cust)
under Uniform Gifts to Minors Act
----------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and
------------------------------
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------------------
<PAGE>
------------------------------------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. APPEARS HERE]
April 29, 1998
The InterCept Group, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
Gentlemen:
We have acted as counsel to The InterCept Group, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form S-1 (Reg. No.
333-47197) (the "Registration Statement") under the Securities Act of 1933,
covering the offering of up to 2,525,000 shares (the "Shares") of the Company's
Common Stock, no par value per share. In connection therewith, we have examined
such corporate records, certificates of public officials and other documents and
records as we have considered necessary or proper for the purpose of this
opinion.
This opinion is limited by and is in accordance with, the January 1, 1992,
edition of the Interpretive Standards applicable to Legal Opinions to Third
Parties in Corporate Transactions adopted by the Legal Opinion Committee of the
Corporate and Banking Law Section of the State Bar of Georgia.
Based on the foregoing, and having regard to legal considerations which we
deem relevant, we are of the opinion that the Shares, when issued and delivered
as described in the Registration Statement, will be legally issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
<PAGE>
EXHIBIT 10.8
INTERCEPT HOLDINGS INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
14th day of January, 1997, by and between Intercept Holdings Inc., a Georgia
- ----- ------- -----
corporation (the "Company"), and Donny R. Jackson (the "Optionee").
----------------
WHEREAS, on October 15, 1996, the Board of Directors of the Company adopted
a stock option plan known as the "Intercept Holdings Inc. 1996 Stock Option
Plan" (the "Plan"), and recommended that the Plan be approved by the Company's
shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
---------------------
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of
the Plan has been delivered to, and receipt is hereby acknowledged by,
the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
---------------
conditions stated herein, the Company hereby evidences its grant to
the Optionee, not in lieu of salary or other compensation, of the
right and option (the "Option") to purchase all or any part of the
number of shares of the Company's Common Stock, no par value (the
"Stock"), set forth on Schedule A attached hereto and incorporated
herein by reference. The Option shall be exercisable in the amounts
and at the time specified on Schedule A. The Option shall expire and
shall not be exercisable on the date specified on Schedule A or on
such earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to be an
Incentive Stock Option.
<PAGE>
3. Purchase Price. The price per share to be paid by the Optionee for
--------------
the shares subject to this Option (the "Exercise Price") shall be as
specified on Schedule A, which price shall be an amount not less than
the Fair Market Value of a share of Stock as of the Date of Grant (as
defined in Section 11 below) if the Option is an Incentive Stock
Option.
4. Exercise Terms. The Optionee must exercise the Option for at least
--------------
the lesser of 100 shares or the number of shares of Purchasable Stock
as to which the Option remains unexercised. In the event this Option
is not exercised with respect to all or any part of the shares subject
to this Option prior to its expiration, the shares with respect to
which this Option was not exercised shall no longer be subject to this
Option.
5. Option Non-Transferable. No Option shall be transferable by an
-----------------------
Optionee other than by will or the laws of descent and distribution
or, in the case of non-Incentive Stock Options, pursuant to a
Qualified Domestic Relations Order, and no Option shall be
transferable by an Optionee who is a Section 16 Insider prior to
shareholder approval of the Plan. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the
Notice of Exercise attached hereto as Schedule B) signed by the
Optionee, or by such administrators, executors or personal
representatives, and delivered or mailed to the Company as specified
in Section 14 hereof to the attention of the President or such other
officer as the Company may designate. Any such notice shall (a)
specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as
the case may be, then elects to purchase hereunder, (b) contain such
information as may be reasonably required pursuant to Section 12
hereof, and (c) be accompanied by (i) a certified or cashier's check
payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock
owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise
Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of
Stock whose Fair Market Value when added to the amount of the check
equals the total Exercise Price applicable to such shares purchased
hereunder. Upon receipt of any such notice and accompanying payment,
and subject to the terms hereof, the Company agrees to issue to the
Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number
of shares specified in such notice registered in the name of the
person exercising this Option.
<PAGE>
7. Adjustment in Option. The number of shares subject to this Option, the
--------------------
Exercise Price and other matters are subject to adjustment during the
term of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
-------------------------
(a) Except as otherwise specified in Schedule A hereto, in the event
of the termination of the Optionee's employment with the Company
or any of its subsidiaries, other than a termination that is
either (i) for cause, (ii) voluntary on the part of the Optionee
and without written consent of the Company, or (iii) for reasons
of death or disability or retirement, the Optionee may exercise
this Option at any time within 90 days after such termination to
the extent of the number of shares which were Purchasable
hereunder at the date of such termination.
(b) Except as specified in Schedule A attached hereto, in the event
of a termination of the Optionee's employment that is either (i)
for cause or (ii) voluntary on the part of the Optionee and
without the written consent of the Company, this Option, to the
extent not previously exercised, shall terminate immediately and
shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A hereto,
in the event of the retirement of the Optionee at the normal
retirement date as prescribed from time to time by the Company or
any subsidiary, the Optionee shall continue to have the right to
exercise any Options for shares which were Purchasable at the
date of the Optionee's retirement (provided that, on the date
which is three months after the date of retirement, the Options
will become void and unexercisable unless on the date of
retirement the Optionee enters into a noncompete agreement with
Intercept Holdings Inc. and continues to comply with such
noncompete agreement). This Option does not confer upon the
Optionee any right with respect to continuance of employment by
the Company or by any of its subsidiaries. This Option shall not
be affected by any change of employment so long as the Optionee
continues to be an employee of the Company or one of its
subsidiaries.
9. Disabled Optionee. In the event of termination of employment because
-----------------
of the Optionee's becoming a Disabled Optionee, the Optionee (or his
or her personal representative) may exercise this Option, within a
period ending on the earlier of (a) the last day of the one year
period following the Optionee's death or (b) the expiration date of
this Option, to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
-----------------
respect to the rights of the Optionee upon termination of employment
under Section
<PAGE>
8(a) above, in the event of the Optionee's death while employed by the
Company or any of its subsidiaries or within three months after a
termination of such employment (if such termination was neither (i)
for cause nor (ii) voluntary on the part of the Optionee and without
the written consent of the Company), the appropriate persons described
in Section 6 hereof or persons to whom all or a portion of this Option
is transferred in accordance with Section 5 hereof may exercise this
Option at any time within a period ending on the earlier of (a) the
last day of the one year period following the Optionee's death or (b)
the expiration date of this Option. If the Optionee was an employee
of the Company at the time of death, this Option may be so exercised
to the extent of the number of shares that were Purchasable hereunder
at the date of death. If the Optionee's employment terminated prior
to his or her death, this Option may be exercised only to the extent
of the number of shares covered by this Option which were Purchasable
hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board of Directors of
-------------
the Company on the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
----------------------------------
the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that
the Company shall not be obligated to issue any shares of Stock upon
exercise of this Option that would cause the Company to violate law or
any rule, regulation, order or consent decree of any regulatory
authority (including without limitation the Securities and Exchange
Commission) having jurisdiction over the affairs of the Company. The
Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel
to determine whether the issuance of Stock complies with the
provisions described by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased pursuant
------------------------------------
to the exercise of an Incentive Stock Option shall not be transferred
by the Optionee except pursuant to the Optionee's will, or the laws of
descent and distribution, until such date which is the later of two
years after the grant of such Incentive Stock Option or one year after
the transfer of the shares to the Optionee pursuant to the exercise of
such Incentive Stock Option.
14. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia.
<PAGE>
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished, upon actual delivery
thereof to the designated recipient, or three days after deposit
thereof in the United States mail, registered, return receipt
requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the
executive offices of the Company at 3150 Holcomb Bridge Road,
Suite 200, Norcross, Georgia 30071.
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Stock Option Agreement to be executed on behalf of the Company and the Company's
seal to be affixed hereto and attested by the Secretary or an Assistant
Secretary of the Company, and the Optionee has executed this Stock Option
Agreement under seal, all as of the day and year first above written.
INTERCEPT HOLDINGS INC. OPTIONEE
By: /s/ John W. Collins /s/ Donny R. Jackson
-------------------------- -----------------------------
Name: John W. Collins Name: Donny R. Jackson
Title: Chairman of the Board Address: 4562 Bentley PL
Duluth, GA 30136
ATTEST:
/s/ Marie H. Storey
- ------------------------------
Secretary/Assistant Secretary
[SEAL]
<PAGE>
CORRECTED SCHEDULE A TO
STOCK OPTION AGREEMENT
BETWEEN
THE INTERCEPT GROUP, INC.
AND
DONNY R. JACKSON
1. Number of Shares Subject to Option: 75,000 shares.
---------------------------------- ------
2. This Option (Check one) [X] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $4.55 per share.
--------------------- -----
4. Date of Grant: January 14, 1997.
------------- ----------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares on or after the
date hereof
(X) Options are exercisable with respect to the number of shares indicated
below on or after the date indicated next to the number of shares:
<TABLE>
<CAPTION>
No. of Shares Vesting Date
------------- ------------
<S> <C>
15,000 January 14, 1997
15,000 January 14, 1998
15,000 January 14, 1999
15,000 January 14, 2000
15,000 January 14, 2001
</TABLE>
6. Option Exercise Period:
----------------------
Check One:
( ) All options expire and are void unless exercised on or before_______,
199_.
(X) Options expire and are void unless exercised on or before the date
indicated next to the number of shares:
<TABLE>
<CAPTION>
No. of Shares Expiration Date
------------- ---------------
<S> <C>
15,000 January 14, 2003
15,000 January 14, 2004
15,000 January 14, 2005
15,000 January 14, 2006
15,000 January 14, 2007
</TABLE>
<PAGE>
7. Effect of Termination of Employment of Optionee (if different from that set
-----------------------------------------------
forth in Sections 8 and 10 of the Stock Option Agreement):
This corrected Schedule A corrects and replaces the original Schedule A
issued in connection with that certain Stock Option Agreement dated as of
January 14, 1997 between InterCept Holdings, Inc. (n/k/a The InterCept Group,
Inc.) and Donny R. Jackson, which schedule contained typographical errors.
THE INTERCEPT GROUP, INC.
/s/ John W. Collins
-----------------------------
John W. Collins, Chairman and
Chief Executive Officer
ATTEST:
/s/ Marie H. Storey
- --------------------------
Marie Storey, Assistant Secretary
[CORPORATE SEAL]
Date: /s/ Donny R. Jackson
---------- ----------------------------
<PAGE>
EXHIBIT 10.9
THE INTERCEPT GROUP, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of
this 1st day of February, 1998, by and between The Intercept Group, Inc., a
Georgia corporation (the "Company"), and Scott R. Meyerhoff (the "Optionee").
WHEREAS, effective as of November 12, 1996, the Board of Directors of
the Company adopted a stock option plan known as the "The Intercept Group, Inc.
Amended and Restated 1996 Stock Option Plan" (the "Plan"), and recommended that
the Plan be approved by the Company's shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to
purchase the number of shares of the Company's common stock as set forth below,
and in consideration of the granting of that stock option the Optionee intends
to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
---------------------
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of
the Plan has been delivered to, and receipt is hereby acknowledged by,
the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations
---------------
and conditions stated herein, the Company hereby evidences its grant
to the Optionee, not in lieu of salary or other compensation, of the
right and option (the "Option") to purchase all or any part of the
number of shares of the Company's Common Stock, no par value (the
"Stock"), set forth on Schedule A attached hereto and incorporated
herein by reference. The Option shall be exercisable in the amounts
and at the time specified on Schedule A. The Option shall expire and
shall not be exercisable on the date specified on Schedule A or on
such earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to be an
Incentive Stock Option.
3. Purchase Price. The price per share to be paid by the Optionee for
--------------
the shares subject to this Option (the "Exercise Price") shall be as
specified on Schedule A, which price shall be an amount not less than
the Fair Market Value of a
<PAGE>
a share of Stock as of the Date of Grant (as defined in Section 11
below) if the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least
--------------
the lesser of 100 shares or the number of shares of Purchasable Stock
as to which the Option remains unexercised. In the event this Option
is not exercised with respect to all or any part of the shares subject
to this Option prior to its expiration, the shares with respect to
which this Option was not exercised shall no longer be subject to this
Option.
5. Option Non-Transferable. No Option shall be transferable by an
-----------------------
Optionee other than by will or the laws of descent and distribution
or, in the case of non-Incentive Stock Options, pursuant to a
Qualified Domestic Relations Order, and no Option shall be
transferable by an Optionee who is a Section 16 Insider prior to
shareholder approval of the Plan. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the
Notice of Exercise attached hereto as Schedule B) signed by the
Optionee, or by such administrators, executors or personal
representatives, and delivered or mailed to the Company as specified
in Section 14 hereof to the attention of the President or such other
officer as the Company may designate. Any such notice shall (a)
specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as
the case may be, then elects to purchase hereunder, (b) contain such
information as may be reasonably required pursuant to Section 12
hereof, and (c) be accompanied by (i) a certified or cashier's check
payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock
owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise
Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of
Stock whose Fair Market Value when added to the amount of the check
equals the total Exercise Price applicable to such shares purchased
hereunder. Upon receipt of any such notice and accompanying payment,
and subject to the terms hereof, the Company agrees to issue to the
Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number
of shares specified in such notice registered in the name of the
person exercising this Option.
2
<PAGE>
7. Adjustment in Option. The number of shares subject to this Option,
--------------------
the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
-------------------------
(a) Except as otherwise specified in Schedule A hereto, in the
event of the termination of the Optionee's employment with the
Company or any of its subsidiaries, other than a termination that
is either (i) for Cause, (ii) voluntary on the part of the
Optionee and without written consent of the Company, or (iii) for
reasons of death or disability or retirement, the Optionee may
exercise this Option at any time within 90 days after such
termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
(b) Except as specified in Schedule A attached hereto, in the
event of a termination of the Optionee's employment that is
either (i) for Cause or (ii) voluntary on the part of the
Optionee and without the written consent of the Company, this
Option, to the extent not previously exercised, shall terminate
immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A
hereto, in the event of the retirement of the Optionee at the
normal retirement date as prescribed from time to time by the
Company or any subsidiary, the Optionee shall continue to have
the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement (provided
that, on the date which is three months after the date of
retirement, the Options will become void and unexercisable unless
on the date of retirement the Optionee enters into a noncompete
agreement with The Intercept Group, Inc. and continues to comply
with such noncompete agreement). This Option does not confer
upon the Optionee any right with respect to continuance of
employment by the Company or by any of its subsidiaries. This
Option shall not be affected by any change of employment so long
as the Optionee continues to be an employee of the Company or one
of its subsidiaries.
9. Disabled Optionee. In the event of termination of employment
-----------------
because of the Optionee's becoming a Disabled Optionee, the Optionee
(or his or her personal representative) may exercise this Option,
within a period ending on the earlier of (a) the last day of the one
year period following the Optionee's death or (b) the expiration date
of this Option, to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
3
<PAGE>
10. Death of Optionee. Except as otherwise set forth in Schedule A
-----------------
with respect to the rights of the Optionee upon termination of
employment under Section 8(a) above, in the event of the Optionee's
death while employed by the Company or any of its subsidiaries or
within three months after a termination of such employment (if such
termination was neither (i) for cause nor (ii) voluntary on the part
of the Optionee and without the written consent of the Company), the
appropriate persons described in Section 6 hereof or persons to whom
all or a portion of this Option is transferred in accordance with
Section 5 hereof may exercise this Option at any time within a period
ending on the earlier of (a) the last day of the one year period
following the Optionee's death or (b) the expiration date of this
Option. If the Optionee was an employee of the Company at the time of
death, this Option may be so exercised to the extent of the number of
shares that were Purchasable hereunder at the date of death. If the
Optionee's employment terminated prior to his or her death, this
Option may be exercised only to the extent of the number of shares
covered by this Option which were Purchasable hereunder at the date of
such termination.
11. Date of Grant. This Option was granted by the Board of Directors
-------------
of the Company on the date set forth in Schedule A (the "Date of
Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges
----------------------------------
that the issuance of capital stock of the Company is subject to
limitations imposed by federal and state law and the Optionee hereby
agrees that the Company shall not be obligated to issue any shares of
Stock upon exercise of this Option that would cause the Company to
violate law or any rule, regulation, order or consent decree of any
regulatory authority (including without limitation the Securities and
Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company
with such information as is reasonably requested by the Company or its
counsel to determine whether the issuance of Stock complies with the
provisions described by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased
------------------------------------
pursuant to the exercise of an Incentive Stock Option shall not be
transferred by the Optionee except pursuant to the Optionee's will, or
the laws of descent and distribution, until such date which is the
later of two years after the grant of such Incentive Stock Option or
one year after the transfer of the shares to the Optionee pursuant to
the exercise of such Incentive Stock Option.
14. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
4
<PAGE>
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished, upon actual delivery
thereof to the designated recipient, or three days after deposit
thereof in the United States mail, registered, return receipt
requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the
executive offices of the Company at 3150 Holcomb Bridge Road,
Suite 200, Norcross, Georgia 30071.
(d) This Agreement may not be modified except in writing executed
by each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
THE INTERCEPT GROUP, INC. OPTIONEE
By: /s/ Donny R. Jackson /s/ Scott R. Meyerhoff
----------------------- ------------------------
Name: Donny R. Jackson Name: Scott R. Meyerhoff
Title: President Address:
ATTEST:
/s/ Marie H. Storey
- -------------------
Marie H. Storey
Secretary/Assistant Secretary
[SEAL]
5
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
THE INTERCEPT GROUP, INC.
AND
SCOTT R. MEYERHOFF
Dated: February 1, 1998
1. Number of Shares Subject to Option: 110,187 shares.
----------------------------------
2. This Option (Check one) [ X ] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $ 7.70 per share.
--------------------- -----
4. Date of Grant: February 1, 1998
-------------
5. Option Vesting Schedule:
-----------------------
Check one:
( ) Options are exercisable with respect to all shares on or
after the date hereof
( X ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated next to the
number of shares:
No. of Shares Vesting Date
------------- ------------
20% Date of Grant
20% Upon the closing of the Company's initial public
offering ("IPO")
20% First Anniversary of Date of Grant
20% Second Anniversary of Date of Grant
20% Third Anniversary of Date of Grant
provided, however, that if the Company's IPO fails for any reason to close by
the First Anniversary of the Date of Grant, then the 20% that would have vested
upon the closing of the IPO will vest in equal amounts upon the First, Second
and Third Anniversaries of the Date of Grant.
6
<PAGE>
6. Option Exercise Period:
----------------------
Check One:
( X ) All options expire and are void unless exercised on or before
February 1, 2008.
( ) Options expire and are void unless exercised on or before the
date indicated next to the number of shares:
No. of Shares Expiration Date
------------- ---------------
7. Effect of Termination of Employment of Optionee (if different from that set
-----------------------------------------------
forth in Sections 8, 9 and 10 of the Stock Option Agreement):
7
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies Intercept Holdings Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ______________ shares of the Company's common stock, no par value (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated February 1, 1998. Accompanying
this Notice is (1) a certified or a cashier's check in the amount of $__________
payable to the Company, and/or (2) __________ shares of the Company's Common
Stock presently owned by the undersigned and duly endorsed or accompanied by
stock transfer powers, having an aggregate Fair Market Value (as defined in The
Intercept Group, Inc. Amended and Restated 1996 Stock Option Plan) as of the
date hereof of $____________, such amounts being equal, in the aggregate, to the
purchase price per share set forth in Section 3 of the Agreement multiplied by
the number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 5.2 of the Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_____ day of ______________, _______.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
__________________________________________________
Name:
Position (if other than Optionee):
8
<PAGE>
EXHIBIT 10.10
INTERCEPT HOLDINGS INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
24th day of February, 1997, by and between Intercept Holdings Inc., a Georgia
- ----- -------- -----
corporation (the "Company"), and Mike Boian (the "Optionee").
----------
WHEREAS, on October 15, 1996, the Board of Directors of the Company adopted
a stock option plan known as the "Intercept Holdings Inc. 1996 Stock Option
Plan" (the "Plan"), and recommended that the Plan be approved by the Company's
shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
---------------------
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of
the Plan has been delivered to, and receipt is hereby acknowledged by,
the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
---------------
conditions stated herein, the Company hereby evidences its grant to
the Optionee, not in lieu of salary or other compensation, of the
right and option (the "Option") to purchase all or any part of the
number of shares of the Company's Common Stock, no par value (the
"Stock"), set forth on Schedule A attached hereto and incorporated
herein by reference. The Option shall be exercisable in the amounts
and at the time specified on Schedule A. The Option shall expire and
shall not be exercisable on the date specified on Schedule A or on
such earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to be an
Incentive Stock Option.
<PAGE>
3. Purchase Price. The price per share to be paid by the Optionee for
--------------
the shares subject to this Option (the "Exercise Price") shall be as
specified on Schedule A, which price shall be an amount not less than
the Fair Market Value of a share of Stock as of the Date of Grant (as
defined in Section 11 below) if the Option is an Incentive Stock
Option.
4. Exercise Terms. The Optionee must exercise the Option for at least
--------------
the lesser of 100 shares or the number of shares of Purchasable Stock
as to which the Option remains unexercised. In the event this Option
is not exercised with respect to all or any part of the shares subject
to this Option prior to its expiration, the shares with respect to
which this Option was not exercised shall no longer be subject to this
Option.
5. Option Non-Transferable. No Option shall be transferable by an
-----------------------
Optionee other than by will or the laws of descent and distribution
or, in the case of non-Incentive Stock Options, pursuant to a
Qualified Domestic Relations Order, and no Option shall be
transferable by an Optionee who is a Section 16 Insider prior to
shareholder approval of the Plan. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the
Notice of Exercise attached hereto as Schedule B) signed by the
Optionee, or by such administrators, executors or personal
representatives, and delivered or mailed to the Company as specified
in Section 14 hereof to the attention of the President or such other
officer as the Company may designate. Any such notice shall (a)
specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as
the case may be, then elects to purchase hereunder, (b) contain such
information as may be reasonably required pursuant to Section 12
hereof, and (c) be accompanied by (i) a certified or cashier's check
payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock
owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise
Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied by the number of shares of
Stock whose Fair Market Value when added to the amount of the check
equals the total Exercise Price applicable to such shares purchased
hereunder. Upon receipt of any such notice and accompanying payment,
and subject to the terms hereof, the Company agrees to issue to the
Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number
of shares specified in such notice registered in the name of the
person exercising this Option.
<PAGE>
7. Adjustment in Option. The number of shares subject to this Option,
--------------------
the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
-------------------------
(a) Except as otherwise specified in Schedule A hereto, in the event
of the termination of the Optionee's employment with the Company
or any of its subsidiaries, other than a termination that is
either (i) for cause, (ii) voluntary on the part of the Optionee
and without written consent of the Company, or (iii) for reasons
of death or disability or retirement, the Optionee may exercise
this Option at any time within 90 days after such termination to
the extent of the number of shares which were Purchasable
hereunder at the date of such termination.
(b) Except as specified in Schedule A attached hereto, in the event
of a termination of the Optionee's employment that is either (i)
for cause or (ii) voluntary on the part of the Optionee and
without the written consent of the Company, this Option, to the
extent not previously exercised, shall terminate immediately and
shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A hereto,
in the event of the retirement of the Optionee at the normal
retirement date as prescribed from time to time by the Company or
any subsidiary, the Optionee shall continue to have the right to
exercise any Options for shares which were Purchasable at the
date of the Optionee's retirement (provided that, on the date
which is three months after the date of retirement, the Options
will become void and unexercisable unless on the date of
retirement the Optionee enters into a noncompete agreement with
Intercept Holdings Inc. and continues to comply with such
noncompete agreement). This Option does not confer upon the
Optionee any right with respect to continuance of employment by
the Company or by any of its subsidiaries. This Option shall not
be affected by any change of employment so long as the Optionee
continues to be an employee of the Company or one of its
subsidiaries.
9. Disabled Optionee. In the event of termination of employment because
-----------------
of the Optionee's becoming a Disabled Optionee, the Optionee (or his
or her personal representative) may exercise this Option, within a
period ending on the earlier of (a) the last day of the one year
period following the Optionee's death or (b) the expiration date of
this Option, to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
-----------------
respect to the rights of the Optionee upon termination of employment
under Section
<PAGE>
8(a) above, in the event of the Optionee's death while employed by the
Company or any of its subsidiaries or within three months after a
termination of such employment (if such termination was neither (i)
for cause nor (ii) voluntary on the part of the Optionee and without
the written consent of the Company), the appropriate persons described
in Section 6 hereof or persons to whom all or a portion of this Option
is transferred in accordance with Section 5 hereof may exercise this
Option at any time within a period ending on the earlier of (a) the
last day of the one year period following the Optionee's death or (b)
the expiration date of this Option. If the Optionee was an employee
of the Company at the time of death, this Option may be so exercised
to the extent of the number of shares that were Purchasable hereunder
at the date of death. If the Optionee's employment terminated prior
to his or her death, this Option may be exercised only to the extent
of the number of shares covered by this Option which were Purchasable
hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board of Directors of
-------------
the Company on the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
----------------------------------
the issuance of capital stock of the Company is subject to limitations
imposed by federal and state law and the Optionee hereby agrees that
the Company shall not be obligated to issue any shares of Stock upon
exercise of this Option that would cause the Company to violate law or
any rule, regulation, order or consent decree of any regulatory
authority (including without limitation the Securities and Exchange
Commission) having jurisdiction over the affairs of the Company. The
Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel
to determine whether the issuance of Stock complies with the
provisions described by this Section 12.
13. Restriction on Disposition of Shares. The shares purchased pursuant
------------------------------------
to the exercise of an Incentive Stock Option shall not be transferred
by the Optionee except pursuant to the Optionee's will, or the laws of
descent and distribution, until such date which is the later of two
years after the grant of such Incentive Stock Option or one year after
the transfer of the shares to the Optionee pursuant to the exercise of
such Incentive Stock Option.
14. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia.
<PAGE>
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished, upon actual delivery
thereof to the designated recipient, or three days after deposit
thereof in the United States mail, registered, return receipt
requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the
executive offices of the Company at 3150 Holcomb Bridge Road,
Suite 200, Norcross, Georgia 30071.
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Stock Option Agreement to be executed on behalf of the Company and the Company's
seal to be affixed hereto and attested by the Secretary or an Assistant
Secretary of the Company, and the Optionee has executed this Stock Option
Agreement under seal, all as of the day and year first above written.
INTERCEPT HOLDINGS INC. OPTIONEE
By: /s/ Donny R. Jackson /s/ Mike Boian
-------------------------------- ----------------------------------
Name: Donny R. Jackson Name: Mike Boian
Title: President Address: 5045 Hampshire Ct.
Suwanee, GA 30024
ATTEST:
/s/ Marie H. Storey
- --------------------------------------
Secretary/Assistant Secretary
[SEAL]
<PAGE>
CORRECTED SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
THE INTERCEPT GROUP, INC.
AND
MIKE BOIAN_
1. Number of Shares Subject to Option: 10,000 shares.
---------------------------------- ------
2. This Option (Check one) [X] is [ ] is not an Incentive Stock Option.
----------- -- --------------------------------
3. Option Exercise Price: $4.55 per share.
--------------------- -----
4. Date of Grant: February 24, 1997.
------------- -----------------
5. Option Vesting Schedule:
------------------------
Check one:
( ) Options are exercisable with respect to all shares on or after the
date hereof
(X) Options are exercisable with respect to the number of shares
indicated below on or after the date indicated next to the number of
shares:
<TABLE>
<CAPTION>
No. of Shares Vesting Date
- --------------- --------------------
<C> <S>
2,000 February 24, 1997
2,000 February 24, 1998
2,000 February 24, 1999
2,000 February 24, 2000
2,000 February 24, 2001
</TABLE>
6. Option Exercise Period:
----------------------
Check One:
( ) All options expire and are void unless exercised on or before
________, 199__.
(X) Options expire and are void unless exercised on or before the date
indicated next to the number of shares:
<TABLE>
<CAPTION>
No. of Shares Expiration Date
- --------------- --------------------
<C> <S>
2,000 February 24, 2003
2,000 February 24, 2004
2,000 February 24, 2005
2,000 February 24, 2006
2,000 February 24, 2007
</TABLE>
<PAGE>
7. Effect of Termination of Employment of Optionee (if different from that set
-----------------------------------------------
forth in Sections 8 and 10 of the Stock Option Agreement):
This corrected Schedule A corrects and replaces the original Schedule
A issued in connection with that certain Stock Option Agreement dated as of
February 24, 1997 between InterCept Holdings, Inc. (n/k/a The InterCept Group,
Inc.) and Mike Boian, which schedule contained typographical errors.
THE INTERCEPT GROUP, INC.
/s/ John W. Collins
--------------------------
John W. Collins, Chairman and
Chief Executive Officer
ATTEST:
/s/ Marie H. Storey
- ---------------------------------
Marie Storey, Assistant Secretary
[CORPORATE SEAL]
Date:__________ /s/ Mike Boian
--------------
Optionee
<PAGE>
EXHIBIT 10.11
THE INTERCEPT GROUP, INC.
DIRECTOR'S AND OFFICER'S
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of __________, 1998, by and between The InterCept
Group, Inc., a Georgia corporation (the "Corporation"), and
_____________________________ (the "Executive").
WHEREAS, the Executive is a member of the Board of Directors and/or an
executive officer of the Corporation and in such capacity is performing a
valuable service to the Corporation; and
WHEREAS, the Corporation's Bylaws (the "Bylaws") provide for the
indemnification of the directors and executive officers of the Corporation
pursuant to Sections 14-2-850 through 14-2-856 of the Georgia Business
Corporation Code, as amended to date (the "State Statute"); and
WHEREAS, the Bylaws and the State Statute specifically contemplate that
contracts may be entered into between the Corporation and its executive officers
and members of its Board of Directors with respect to indemnification of such
individuals; and
WHEREAS, in order to provide to the Executive assurances with respect to
the protection provided against liabilities that he may incur in the performance
of his duties to the Corporation, and to thereby induce the Executive to serve
as a member of the Board of Directors or as an executive officer, the
Corporation has determined and agreed to enter into this contract with the
Executive.
NOW, THEREFORE, in consideration of the premises and the Executive's
continued service as a director and/or an executive officer of the Corporation
after the date hereof, the parties hereto agree as follows:
1. BOARD-AUTHORIZED INDEMNIFICATION. The Corporation hereby agrees to hold
harmless and indemnify the Executive to the full extent that the State Statute,
or any amendment thereof or other statutory provision adopted after the date
hereof, authorizes such indemnification by action of the Board of Directors
without shareholder approval. Such indemnification, and the conditions and
limitations thereon set forth in the State Statute, shall not in any respect
limit, condition or otherwise restrict the indemnification set forth in Section
2 hereof.
2. SHAREHOLDER-AUTHORIZED INDEMNIFICATION. Subject only to the exclusions set
forth in Section 3 hereof, and in addition to the indemnity specified in Section
1 hereof (but without
<PAGE>
duplication of payments with respect to indemnified amounts), the Corporation
hereby further agrees to hold harmless and indemnify the Executive against any
and all expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the Executive in connection
with any threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of the Corporation), to which the Executive is, was, or at any time
becomes a party, or is threatened to be made a party, by reason of the fact that
the Executive is, was, or at any time becomes a director, officer, employee or
agent of the Corporation, or is or was serving or at any time serves at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
3. LIMITATIONS ON SHAREHOLDER-AUTHORIZED INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by the Corporation:
(a) With respect to any proceeding in which the Executive is adjudged, by
final judgment not subject to further appeal, liable to the Corporation or
is subjected to injunctive relief in favor of the Corporation:
(i) for any appropriation, in violation of his duties, of any
business opportunity of the Corporation;
(ii) for acts or omissions which involve intentional misconduct or a
knowing violation of law;
(iii) for the types of liabilities set forth in Section 14-2-832 of
the Georgia Business Corporation Code; or
(iv) for any transaction from which the Executive received an improper
personal benefit;
(b) With respect to any suit in which final judgment is rendered against
the Executive for an accounting of profits, made from the purchase or sale
by the Executive of securities of the Corporation, pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 or
similar provisions of any federal, state or local statutory law, or on
account of any payment by the Executive to the Corporation in respect of
any claim for such an accounting; or
(c) If a final decision by a court having jurisdiction in the matter shall
determine that such indemnification is not lawful.
4. CONTRIBUTION. If the indemnification provided in Sections 1 and 2 is
unavailable and may not be paid to the Executive for any reason other than those
set forth in paragraph (a) or (b) of Section 3, then in respect of any
threatened, pending, or completed action, suit or proceeding in which the
Corporation is jointly liable with the Executive (or would be if joined in such
action,
<PAGE>
suit or proceeding), the Corporation shall contribute, to the extent it is not
lawfully prohibited from doing so, to the amount of expenses, judgments, fines
and settlements paid or payable by the Executive in such proportion as is
appropriate to reflect (i) the relative benefits received by the Corporation on
the one hand and the Executive on the other hand from the transaction from which
such action, suit or proceeding arose, and (ii) the relative fault of the
Corporation on the one hand and of the Executive on the other in connection with
the events which resulted in such expenses, judgments, fines or settlement
amounts, as well as any other relevant equitable considerations. The relative
fault of the Corporation on the one hand and of the Executive on the other shall
be determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such expenses, judgments, fines or settlement
amounts. The Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or any other method of allocation that does not take account of the foregoing
equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
Corporation contained herein shall continue during the period the Executive is a
director, officer, employee or agent of the Corporation (or is serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter for so long as the Executive shall be subject to any
possible claim or threatened, pending, or completed action, suit or proceeding,
whether civil, criminal or investigative, by reason of the fact that the
Executive was a director of the Corporation or serving in any other capacity
referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by the Executive
of notice of the commencement of any action, suit or proceeding, the Executive
will, if a claim in respect thereof is to be made against the Corporation under
this Agreement (other than under Section 2 hereof), notify the Corporation of
the commencement thereof, but the omission to so notify the Corporation will not
relieve the Corporation from any liability which it may have to the Executive
otherwise than under this Agreement. With respect to any such action, suit or
proceeding as to which the Executive so notifies the Corporation:
(a) The Corporation will be entitled to participate therein at its own
expense; and
(b) Subject to Section 7 hereof, and if the Executive shall have provided
his written affirmation of his good faith belief that his conduct did not
constitute behavior of the kind described in paragraph 3(a) hereof and that
he is entitled to indemnification hereunder, the Corporation may assume the
defense thereof.
After notice from the Corporation to the Executive of its election so to
assume such defense, the Corporation will not be liable to the Executive under
this Agreement for any legal or other expenses subsequently incurred by the
Executive in connection with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. The Executive shall have the
right to employ its separate counsel in such action, suit or proceeding, but the
fees and
<PAGE>
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Executive
unless (i) the employment of counsel by the Executive has been authorized by the
Corporation, (ii) counsel designated by the Corporation to conduct such defense
shall not be reasonably satisfactory to the Executive or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of such counsel shall be at the
expense of the Corporation. For the purposes of clause (ii) above, the Executive
shall be entitled to determine that counsel designated by the Corporation is not
reasonably satisfactory if, among other reasons, the Executive shall have been
advised by qualified counsel that, because of actual or potential conflicts of
interest in the matter between the Executive, other officers or directors
similarly indemnified by the Corporation, and/or the Corporation, representation
of the Executive by counsel designated by the Corporation is likely to
materially and adversely affect the Executive's interest or would not be
permissible under applicable canons of legal ethics.
The Corporation shall not be liable to indemnify the Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without the Corporation's written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty or limitation on
the Executive without the Executive's written consent. Neither the Corporation
nor the Executive will unreasonably withhold consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES. Upon request therefor accompanied
by reasonably itemized evidence of expenses incurred, and by the Executive's
written affirmation of his good faith belief that his conduct met the standard
applicable to Board-authorized indemnification pursuant to Section 1 hereof or
did not constitute behavior of the kind described in paragraph 3(a) hereof and
that he is entitled to indemnification hereunder, the Corporation shall advance
to the Executive the reasonable expenses (including attorneys' fees and costs of
investigation and defense (including the fees of expert witnesses, other
professional advisors and private investigators)) incurred by him in defending
any civil or criminal suit, action or proceeding for which the Executive is
entitled (assuming an applicable standard of conduct is met) to indemnification
pursuant to this Agreement. The Executive agrees to reimburse the Corporation
for all reasonable expenses paid by the Corporation, whether pursuant to this
Section or Section 6 hereof, in defending any action, suit, or proceeding
against the Executive in the event and to the extent that it shall ultimately be
determined that the Executive is not entitled to be indemnified by the
Corporation for such expenses under either Section 1 or Section 2 of this
Agreement. Any advances and the Executive's agreement to repay shall be
unsecured and interest-free.
8. AGREEMENT TO SERVE. The Executive hereby agrees to continue to serve as a
director and/or an executive officer of the Corporation faithfully and to the
best of his ability so long as he is duly elected and qualified in accordance
with the provisions of the Corporation's bylaws or until such time as he tenders
his resignation in writing.
<PAGE>
9. ENFORCEMENT
(a) The Corporation expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on it hereby in order to
induce the Executive to serve as a director and/or an executive officer of
the Corporation and acknowledges that the Executive will in the future be
relying upon this Agreement in continuing to serve in such capacity.
(b) In the event the Executive is required to bring any action to enforce
rights or to collect money due under this Agreement and is successful in
such action, the Corporation shall reimburse the Executive for all of the
Executive's reasonable fees and expenses in bringing and pursuing such
action.
10. MAINTENANCE OF LIABILITY INSURANCE.
(a) Subject to Section 10(c), the Corporation hereby covenants and agrees
that, so long as Executive shall continue to serve as a director and/or an
executive officer of the Corporation and thereafter so long as the
agreements and obligations of the Corporation shall continue in accordance
with Section 5, the Corporation, in good faith, shall seek to obtain and
maintain in full force and effect a policy of director's and officer's
liability insurance (the "D&O Insurance") in reasonable amounts from an
established and reputable insurer.
(b) In all policies of D&O Insurance, Executive shall be named as an
insured in such manner as to provide Executive the same rights and benefits
as are accorded to the most favorably insured of the Corporation's officers
or directors.
(c) Notwithstanding the foregoing, the Corporation shall have no obligation
to obtain or maintain D&O Insurance if the Corporation determines in good
faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided
or the coverage provided by such insurance is so limited by exclusions that
there is insufficient benefit from such insurance.
11. SEPARABILITY. Each of the provisions of this Agreement is a separate and
distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable in whole or in part for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
12. VESTED RIGHTS, SPECIFIC PERFORMANCE. No amendment to the articles of
incorporation or bylaws of the Corporation or any other corporate action shall
in any way limit the Executive's rights under this Agreement. In any proceeding
brought by or on behalf of the Executive to specifically enforce the provisions
of this Agreement, the Corporation hereby waives the claim or defense therein
that the plaintiff or claimant has an adequate remedy at law, and the
Corporation shall not urge in any such proceeding the claim or defense that such
remedy at law exists. The
<PAGE>
provisions of this Section 12, however, shall not prevent the Executive from
seeking a remedy at law in connection with any breach of this Agreement.
13. LIABILITY INSURANCE. In the event that the Corporation maintains D&O
Insurance, the Executive shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
provided under such policy or policies in effect. Copies of all correspondence
between the Corporation and the company or companies providing such insurance
shall be promptly delivered to the Executive by the Corporation.
14. NON-EXCLUSIVITY, ETC. The rights of the Executive hereunder shall be in
addition to any other rights with respect to indemnification, advancement of
expenses or otherwise that the Executive may have under the Corporation's bylaws
or the Georgia Business Corporation Code or otherwise.
15. SUBROGATION. In the event of payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Executive, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Corporation effectively to bring suit
to enforce such rights.
16. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under this
Agreement to make any payment to the Executive hereunder to the extent the
Executive has otherwise actually received payment (under insurance policy, bylaw
or otherwise) of the amounts otherwise payable hereunder.
17. APPLICABILITY OF AGREEMENT. This Agreement shall apply only with respect
to acts or omissions of the Executive occurring on or after the effective date
hereof, and this Agreement shall continue in effect regardless of whether the
Executive continues to serve in such capacity, but only in respect of acts or
omissions occurring prior to the termination of the Executive's service in such
capacity.
18. GOVERNING LAW; SUCCESSORS; AMENDMENT AND TERMINATION.
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Georgia.
(b) This Agreement shall be binding upon the Executive and the Corporation
and its successors and assigns (including any transferee of all or
substantially all of its assets and any successor by merger or otherwise by
operation of law), and shall inure to the benefit of the Executive, his
heirs, personal representatives and assigns and to the benefit of the
Corporation and its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties
hereto.
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXECUTIVE THE INTERCEPT GROUP, INC.
________________________ By:____________________________
Name: Its: __________________________
<PAGE>
EXHIBIT 10.23
CONFIDENTIAL TREATMENT REQUESTED
WORLDCOM DATA SERVICES
(REVENUE PLAN)
This Application for Data Services (THE "AGREEMENT") is made by INTERCEPT
COMMUNICATIONS TECHNOLOGIES, L.L.C., ("CUSTOMER"), a Georgia corporation with
its principal office at 3150 HOLCOMB BRIDGE ROAD, SUITE 200, NORCROSS, GA 30071,
("CUSTOMER"), and WORLDCOM, INC., a Georgia corporation ("WORLDCOM"), for
service described below.
1. SERVICES: Interexchange telecommunications service (THE "PRIVATE LINE
--------
SERVICE") and frame relay service (THE "FRAME RELAY SERVICE") shall be provided
by WorldCom pursuant to the applicable tariffs of WorldCom Network Services,
Inc., a wholly owned subsidiary of WorldCom, (THE "TARIFFS"). The Tariffs
provide terms and conditions of the Service which include, but are not limited
to, taxes, credit approval procedures, Customer credits, termination liability,
and limitations with respect to the assignment of the Service. The Tariffs may
be modified from time to time by WorldCom in accordance with law and thereby
affect the Service furnished to Customer. For purposes of this Agreement,
Private Line Service and Frame Relay Service shall be collectively referred to
as the "SERVICE".
2. TERMS AND CONDITIONS: The parties agree that the terms and conditions of
--------------------
this Agreement shall supplement, or to the extent they are inconsistent with the
Tariffs, supersede the terms and conditions of the Tariffs.
3. REVENUE PLAN SERVICE TERM/COMMENCEMENT/COMMITMENT:
-------------------------------------------------
CUSTOMER COMMITMENT PERIOD: THIRTY-SIX (36) MONTH(S)
MINIMUM MONTHLY COMMITMENT: $***
(Based on the Customer's monthly Qualifying Charges for Services before the
application of discounts)
COMMENCEMENT DATE: For the purposes of this Agreement, the "Commencement
Date" will be the next billing cycle following the date this Agreement has been
fully executed by both parties and Customer has received a satisfactory credit
review and approval from WorldCom's Credit Department, and all security
documentation, if any, required by WorldCom has been properly executed and
delivered to WorldCom (collectively, the "Credit Review").
COMMITMENT COMMENCING DATE: is to be the same as following the
Commencement Date above.
COMMITMENT ENDING DATE: is to be thirty-six (36) months following the
Commitment Commencement Date above.
4. APPLICATION OF DISCOUNTS: Commencing as of the Commencement Date set forth
------------------------
in Section 3 above and continuing through the Commitment Ending Date, WorldCom
agrees to: Aggregate (i) monthly Qualifying Charges for Private Line Service
(before the application of discounts), and (ii) monthly recurring Network Node
charges for Frame Relay Service (before the application of discounts) in
determining Customer's monthly revenue level and corresponding discount for
domestic Private Line and Frame Relay Service.
5. PROPRIETARY INFORMATION:
-----------------------
(a) Confidential Information: The parties understand and agree that the
------------------------
terms and conditions of this Agreement, all documents referenced and invoices to
Customer for Service provided hereunder, communications between the parties
regarding this Agreement or the Service to be provided hereunder (including
price quotes to Customer for any Service proposed to be provided or actually
provided hereunder), as well as such information relevant to any other agreement
between the parties (collectively "Confidential Information"), are confidential
as between Customer and WorldCom.
- ------------------------
***Omitted pursuant to a request for confidential treatment and filed separately
with the Commission.
<PAGE>
(b) Limited Disclosure: A party shall not disclose Confidential
------------------
Information unless subject to discovery or disclosure pursuant to legal process,
or to any party other than the directors, officers, and employees of a party or
a party's agents including their respective brokers, lenders, insurance carriers
or bona fide prospective purchasers who have specifically agreed in writing to
nondisclosure of the terms and conditions hereof. Any disclosure hereof
required by legal process shall only be made after providing the non-disclosing
party with notice thereof in order to permit the non-disclosing party to seek an
appropriate protective order or exemption. Violation by a party or its agents
of the foregoing provisions shall entitle the non-disclosing party, at its
option, to obtain injunctive relief without a showing of irreparable harm or
injury and without bond.
(c) Press Releases: The parties further agree that any press release,
--------------
advertisement or publication generated by a party regarding this Agreement, the
Service provided hereunder or in which a party desires to mention the name of
the other party or the other party's parent or affiliated company(ies), will be
submitted to the non-publishing party for its written approval prior to
publication.
(d) Survival of Confidentiality: The provisions of this Section 7 [SIC]
---------------------------
will be effective as of the date of this Agreement and remain in full force and
effect for a period which will be the longer of (i) one (1) year following the
date of this Agreement or (ii) one (1) year from the termination of all Service
hereunder.
6. LETTER OF AGENCY ("LOA"): The Undersigned [duly authorized representative
------------------------
of Customer] hereby authorizes WorldCom, if requested by Customer, to provision
Customer's Local Access. This LOA supersedes all previous LOAs and shall remain
in effect until canceled by Customer in writing.
7. PRICING: (a) Rates and discounts for domestic Private Line Service and
-------
domestic Frame Relay Service during the Service Commitment Period are as
described below.
(b) Rates and discounts for International Services shall be as set forth
in WorldCom's Service Orders (THE "SERVICE ORDERS").
A. WORLDCOM PRIVATE LINE - DS-0 PRICE SCHEDULE
-------------------------------------------
(BASED ON THREE (3) YEARS/$*** TOTAL MINIMUM MONTHLY COMMITMENT)
Circuit length: ***
DS-O Price = *** per month + *** per month.
Circuit length: ***
DS-0 Price = *** month + *** per month.
MONTHLY VOLUME DS-0 DISCOUNT SCHEDULE
-------------- ----------------------
*** ***
B. WORLDCOM PRIVATE LINE - FT-1 PRICE SCHEDULE
-------------------------------------------
(BASED ON THREE (3) YEARS/$/*** TOTAL MINIMUM MONTHLY COMMITMENT)
FT-1 Price = *** per month + *** per month.
MONTHLY VOLUME FT-1 DISCOUNT SCHEDULE
-------------- ----------------------
*** ***
MULTICHANNEL DISCOUNTS
----------------------
# CHANNELS DISCOUNT
---------- --------
*** ***
This agreement is valid if executed by Customer and returned to WorldCom within
45 days from 2/27/98.
Mail to: Sales Contract Admin., WorldCom, Inc., 47801-55 North, 5th Floor,
Jackson, MS 39211
- ------------------------
***Omitted pursuant to a request for confidential treatment and filed separately
with the Commission.
<PAGE>
C. WORLDCOM PRIVATE LINE - DS-1 PRICE SCHEDULE
-------------------------------------------
(based on THREE (3) years/$*** Total Minimum Monthly Commitment)
DS-1 Price = *** per month + *** per month.
MONTHLY VOLUME DS-1 DISCOUNT SCHEDULE
-------------- ----------------------
*** ***
D. WORLDCOM FRAME RELAY NETWORK NODE BASE RATES (DOMESTIC U.S. ONLY)
MONTHLY RECURRING
PORT SPEED (KBPS) NETWORK NODE BASE RATES
----------------- -----------------------
*** ***
WORLDCOM FRAME RELAY CIR BASE RATES (DOMESTIC U.S. ONLY)
-----------------------------------
MONTHLY RECURRING
CIR (KBPS) CIR BASE RATES
---------- --------------
*** ***
WORLDCOM FRAME RELAY DISCOUNTS (DOMESTIC U.S. ONLY)
------------------------------
(BASED ON THREE (3) YEARS, $***/ TOTAL MINIMUM MONTHLY COMMITMENT)
MONTHLY VOLUME DISCOUNT
-------------- --------
*** ***
8. WAIVER OF DOMESTIC PRIVATE LINE INSTALLATION CHARGES: Commencing with the
----------------------------------------------------
Commencement Date and continuing through the Commitment Ending Date, WorldCom
agrees to waive WorldCom domestic installation charges and LEC installation
charges (collectively "Installation Waivers") in an amount not to exceed /***/
following the Commencement Date (THE "NEW SERVICE").
9. WAIVER OF DOMESTIC FRAME RELAY INSTALLATION CHARGES: Commencing with the
---------------------------------------------------
Commencement Date and continuing through the Commitment Ending Date, WorldCom
agrees to waive WorldCom domestic installation charges and LEC installation
charges (collectively "INSTALLATION WAIVERS") in an amount not to exceed /***/
following the Commencement Date (THE "NEW SERVICE").
ENTIRE AGREEMENT: This Agreement (including any documents incorporated herein by
- ----------------
reference) constitutes the entire understanding between the parties and
supersedes any prior agreements and proposals between the parties, whether oral
or written, for Service provided hereunder.
WORLDCOM, INC. INTERCEPT COMMUNICATIONS
TECHNOLOGIES, L.L.C.
/s/ Frank Grillo /s/ Mike Sulpy
- ------------------------- ------------------------
(Authorized Signature) (Authorized Signature)
FRANK M. GRILLO MIKE SULPY
- ------------------------- ------------------------
(Print Name) (Print Name)
2/27/98 2/27/98
- ------------------------- ------------------------
(Date Received) (Date Signed)
This agreement is valid if executed by Customer and returned to WorldCom within
45 days from 2/27/98.
Mail to: Sales Contract Admin., WorldCom, Inc., 47801-55 North, 5th Floor,
Jackson, MS 39211
- ------------------------
***Omitted pursuant to a request for confidential treatment and filed separately
with the Commission.
<PAGE>
EXHIBIT 10.24
STOCK OPTION AGREEMENT FOR DIRECTORS
UNDER THE INTERCEPT GROUP, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of the
______ day of ____________________, ______, by and between The Intercept Group,
Inc., a Georgia corporation (the "Company"), and _________________ (the
"Optionee").
WHEREAS, effective as of November 12, 1996, the Board of Directors of the
Company adopted a stock option plan known as the "The Intercept Group, Inc.
Amended and Restated 1996 Stock Option Plan" (the "Plan"), and recommended that
the Plan be approved by the Company's shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an incentive to retain as directors of the Company
persons of training, experience and ability, to encourage the sense of
proprietorship of such persons and to stimulate the active interests of such
persons in the development and financial success of the Company, and also in
consideration of the mutual covenants contained herein, the parties hereto agree
as follows.
1. Incorporation of Plan. This option is granted pursuant to the
---------------------
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of
the Plan has been delivered to, and receipt is hereby acknowledged by,
the Optionee. In the event of any inconsistency between the Plan and
this Agreement, the Plan shall govern.
2. Grant of Option. Subject to the terms of this Agreement and pursuant
---------------
to the Plan, the Company hereby evidences its grant to the Optionee of
the right and option (the "Option") to purchase all or any part of the
number of shares of the Company's Common Stock, no par value (the
"Stock"), set forth below:
[check one]
_____ 35,000 shares (for initial grants only)
_____ 5,000 shares (for annual grants only)
The Option is a Nonqualified Stock Option.
3. Exercise Price. The price per share to be paid by the Optionee for
--------------
the shares subject to this Option (the "Exercise Price") shall be
$____________, which is
<PAGE>
the Fair Market Value of a share of Stock as
of the Date of Grant (as defined in Section 9 below).
4. Exercise Terms. The Option may not be exercised prior to the date it
--------------
is vested, and the Option shall vest as follows:
[check one]
_____ 1/3 on the Date of Grant; 1/3 on the first
anniversary of the Date of Grant; and 1/3 on the second
anniversary of the Date of Grant (for initial grants only)
_____ immediately on the Date of Grant (for annual grants only)
The option may be exercised at any time and from time to time during
the term of the Option, in whole or in part, but only as to those
shares which have met the foregoing vesting requirements.
5. Option Non-Transferable. No Option shall be transferable by an
-----------------------
Optionee other than by will or the laws of descent and distribution or
pursuant to a Qualified Domestic Relations Order, and no Option shall
be transferable by an Optionee who is a Section 16 Insider prior to
shareholder approval of the Plan. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
----------------------------
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the
Notice of Exercise attached hereto as Schedule A) signed by the
Optionee, or by such administrators, executors or personal
representatives, and delivered or mailed to the Company as specified
in Section 11 hereof to the attention of the President or such other
officer as the Company may designate. Any such notice shall:
(a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives,
as the case may be, then elects to purchase hereunder;
(b) contain such information as may be reasonably required pursuant
to Section 10 hereof; and
(c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to
such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer
powers having a Fair Market Value equal to the total Exercise
Price applicable to such shares purchased hereunder, or (iii) a
certified or cashier's check accompanied
2
<PAGE>
by the number of shares of Stock whose Fair Market Value when
added to the amount of the check equals the total Exercise Price
applicable to such shares purchased hereunder; provided, however,
-------- -------
that if the Optionee acquired such stock to be surrendered
directly or indirectly from the Company, he shall have owned such
stock for six months prior to using such stock to exercise an
Option; provided, further, however, that such exercise
-------- ------- -------
transaction does not result in a however, that such exercise
transaction does not result in a violation of Section 16 of the
Exchange Act. For purposes of determining the amount, if any, of
the Exercise Price satisfied by payment in Common Stock, such
Common Stock shall be valued at its Fair Market Value on the date
of exercise. Any Common Stock delivered in satisfaction of all or
a portion of the exercise price shall be appropriately endorsed
for transfer and assignment to the Company.
Upon receipt of any such notice and accompanying payment, and subject
to the terms hereof, the Company agrees to issue to the Optionee or
the Optionee's administrators, executors or personal representatives,
as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person
exercising this Option.
7. Adjustment in Option. The number of shares subject to this Option,
--------------------
the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Option Period. The unexercised portion of an Option
----------------------------
shall automatically and without notice terminate and become null and
void and be forfeited upon the earliest to occur of the following:
(a) if the Optionee's position as a Director of the Company
terminates, other than by reason of such Optionee's death or
disability, 180 days after the date that the Optionee's position
as a Director of the Company terminates;
(b) one year after the death of Optionee;
(c) one year after the date on which the Optionee's position as
Director is terminated by reason of a mental or physical
disability determined by a medical doctor satisfactory to the
Company; or
(d) five years after the Date of Grant of such Option.
9. Date of Grant. This Option was granted by the Board of Directors of
-------------
the Company on the date hereof (the "Date of Grant").
10. Compliance with Regulatory Matters. The Optionee acknowledges that
----------------------------------
the issuance of capital stock of the Company is subject to limitations
imposed by
3
<PAGE>
federal and state law and the Optionee hereby agrees that the Company
shall not be obligated to issue any shares of Stock upon exercise of
this Option that would cause the Company to violate law or any rule,
regulation, order or consent decree of any regulatory authority
(including without limitation the Securities and Exchange Commission)
having jurisdiction over the affairs of the Company. The Optionee
agrees that he or she will provide the Company with such information
as is reasonably requested by the Company or its counsel to determine
whether the issuance of Stock complies with the provisions described
by this Section 10.
11. Miscellaneous.
-------------
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished, upon actual delivery
thereof to the designated recipient, or three days after deposit
thereof in the United States mail, registered, return receipt
requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the
executive offices of the Company at 3150 Holcomb Bridge Road,
Suite 200, Norcross, Georgia 30071.
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
4
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Stock Option Agreement to be executed on behalf of the Company and the Company's
seal to be affixed hereto and attested by the Secretary or an Assistant
Secretary of the Company, and the Optionee has executed this Stock Option
Agreement under seal, all as of the day and year first above written.
THE INTERCEPT GROUP, INC. OPTIONEE
By: --------------------------- ---------------------------
Name: Name:
Title: Address:
ATTEST:
- --------------------------------
Secretary/Assistant Secretary
[SEAL]
5
<PAGE>
SCHEDULE A
NOTICE OF EXERCISE
The undersigned hereby notifies The InterCept Group, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ______________ shares of the Company's common stock, no par value (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated ________________. Accompanying
this Notice is (1) a certified or a cashier's check in the amount of $__________
payable to the Company, and/or (2) __________ shares of the Company's Common
Stock presently owned by the undersigned and duly endorsed or accompanied by
stock transfer powers, having an aggregate Fair Market Value (as defined in The
Intercept Group, Inc. Amended and Restated 1996 Stock Option Plan) as of the
date hereof of $____________, such amounts being equal, in the aggregate, to the
purchase price per share set forth in Section 3 of the Agreement multiplied by
the number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 5.2 of the Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_____ day of ______________, _______.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
-----------------------------------------------
Name:
Position (if other than Optionee):
6
<PAGE>
Exhibit 10.25
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT is made and entered into this 28th day of April, 1998,
by and among THE INTERCEPT GROUP, INC., a Georgia corporation ("INTERCEPT"),
INTERCEPT SWITCH, INC., a Georgia corporation ("ISI"), PROVESA, INC., a Georgia
corporation ("PROVESA"), PROVESA SERVICES, INC., a Georgia corporation ("PSI")
(InterCept, ISI, Provesa and PSI is each individually referred to as a
"BORROWER" and collectively as the "BORROWERS"), and FIRST UNION NATIONAL BANK,
a national banking association (together with its successors and assigns,
hereinafter referred to as "BANK").
W I T N E S S E T H:
WHEREAS, Borrowers desire a revolving line of credit from Bank up to
the maximum principal sum of $20,000,000.00 (the "CREDIT LIMIT"), on terms and
conditions set forth herein; and
WHEREAS, Bank is willing to extend a revolving line of credit to
Borrowers up to the maximum principal sum of $20,000,000.00, on terms and
conditions set forth herein; and
NOW, THEREFORE, for and in consideration of the premises and the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings, unless the context otherwise requires:
1.1 "AFFILIATE" shall mean an (i) individual or entity that, directly
or indirectly, owns, controls, or holds with power to vote, thirty percent (30%)
or more of the outstanding voting interests in a Borrower, (ii) entity, thirty
percent (30%) or more of whose outstanding voting interests are directly or
indirectly owned, controlled, or held with power to vote, by a Borrower, (iii)
entity, thirty percent (30%) or more of whose outstanding voting interests are
directly or indirectly owned, controlled, or held with power to vote, by an
individual or entity that directly or indirectly owns, controls, or holds with
power to vote, thirty percent (30%) or more of the outstanding voting interests
in a Borrower, (iv) individual or entity whose business or substantially all of
whose property is operated under a lease or operating agreement by a Borrower,
(v) individual or entity that operates the
<PAGE>
business or substantially all of the property of a Borrower under a lease or
operating agreement, or (vi) immediate family member of any individual that,
directly or indirectly, owns, controls, or holds with power to vote, thirty
percent (30%) or more of the outstanding voting interests in a
Borrower.
1.2 "APPLICABLE MARGIN" shall mean the percentage per annum set forth
below opposite the ratio of Funded Debt/EBITDA:
FUNDED DEBT/EBITDA APPLICABLE MARGIN
------------------------------------------ -----------------
less than or equal to .50 1.25%
greater than .50 less than or equal to 1.0 1.50%
greater than 1.0 less than or equal to 2.0 1.75%
greater than 2.0 less than or equal to 3.0 2.00%
1.3 "AGREEMENT" shall mean this Loan and Security Agreement, together
with any amendments, modifications or supplements hereto and schedules or
exhibits hereto.
1.4 "AUTHORIZED PERSONNEL" shall mean and refer to (i) the chief
executive officer of each Borrower, (ii) the chief financial officer of each
Borrower, and (iii) those other officers of each Borrower authorized by the
board of directors of such Borrower or by the officers listed in subsections (i)
and (ii) hereof in writing from time to time.
1.5 "AVERAGE DAILY OUTSTANDING BALANCE" shall mean a sum equal to the
quotient of the sum of the Daily Balances for each day during the period of such
calculation, divided by the actual number of days in that period.
1.6 "AVERAGE MONTHLY OUTSTANDING BALANCE" shall mean a sum equal to the
quotient of the sum of the Average Daily Outstanding Balances for each month
during the period of such calculation, divided by the number of months in that
period.
1.7 "BUSINESS DAY" shall mean any day, except Saturday, Sunday and
legal holidays, on which Bank is open for business.
1.8 "CLOSING" or "CLOSING DATE" shall mean the time set forth in
Article XII hereof for the closing of the transactions contemplated hereby.
1.9 "COLLATERAL" shall mean and include the Miscellaneous Property,
Receivables, Inventory, Equipment, Intellectual Property, Records and Proceeds.
1.10 "CONSOLIDATED TANGIBLE NET WORTH" of Borrowers shall mean the
Borrowers' Total Assets (not including any Receivables or indebtedness owing to
such party by any stockholders, officers,
-2-
<PAGE>
subsidiaries or Affiliates or any loans to any stockholders, officers,
subsidiaries or Affiliates) less the Borrowers' Consolidated Total Liabilities.
1.11 "CONSOLIDATED TOTAL LIABILITIES" of Borrowers shall mean the total
of all items and categories of indebtedness, obligations and liabilities of each
Borrower and its subsidiaries and Affiliates which, in accordance with GAAP,
would be included in determining total liabilities as shown on the liabilities
side of each Borrowers' balance sheet at the date as of which total liabilities
are to be determined (including without limitation all indebtedness owed to
officers, shareholders and employees of such entity, all capitalized leases and
all reserves for deferred taxes and other deferred sums).
1.12 "DAILY BALANCE" shall mean a sum equal to the amount of all
Revolving Loans which remain unpaid as of the beginning of the day of such
calculation, plus all Revolving Loans made on the day of such calculation, less
the portion of any payments or credits applied (subject to final collection) on
the day of such calculation against the unpaid balance of the Revolving Loans.
1.13 "DEFAULT" shall mean any of the events or conditions described in
Article X hereof.
1.14 "EBITDA" shall mean and refer to earnings before interest, taxes,
depreciation and amortization, as calculated in accordance with GAAP.
1.15 "EQUIPMENT" shall mean the property described in Section 5.01(d)
of Article V hereof.
1.16 "FUNDED DEBT" shall mean and include all of each Borrower's
current and long term interest bearing debt.
1.17 "GAAP" shall mean generally accepted accounting principles applied
in a consistent manner from period to period.
1.18 "INTELLECTUAL PROPERTY" shall mean the property described in
Section 5.01(e) of Article V hereof.
1.19 "INTERCEPT" shall have the meaning ascribed to such term in the
preamble hereof. InterCept is the one hundred percent (100%) shareholder of ISI,
Provesa and PSI.
1.20 "INVENTORY" shall mean the property described in Section 5.01(c)
of Article V hereof.
1.21 "LIBOR" shall mean the rate per annum for U.S. dollar deposits of
that many months maturity as quoted by Telerate News Service on page 3750 which
is the official British Bankers
-3-
<PAGE>
Association fixing rate recorded at 11:00 a.m. London setting time on the date
two (2) Business Days prior to the first day of such interest period.
1.22 "LIBOR BREAKAGE COSTS" shall mean any loss, cost or expenses
including without limitation lost profit incurred by Bank as a result of the
liquidation or reemployment of deposits or other funds acquired by Bank to fund
or maintain the LIBOR Option for the Revolving Loans in the event the Revolving
Loans are at any time converted (whether upon Default or otherwise) to the Prime
Rate Option.
1.23 "LOAN DOCUMENTS" shall mean and include the Agreement, the Note
and any and all documents, instruments and agreements relating thereto or
executed in connection therewith.
1.24 "MATERIAL ADVERSE EFFECT" shall mean any act, omission, event or
undertaking which would, singly or in the aggregate, have a material adverse
effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of
Borrowers, taken as a whole, (b) the respective ability of any Borrower to
perform any obligations under this Agreement or any other Loan Document to which
it is a party, or (c) the legality, validity, binding effect, enforceability or
admissibility into evidence of any Loan Document or the ability of Bank to
enforce any rights or remedies under or in connection with any Loan Document.
1.25 "MATURITY DATE" shall have the meaning set forth in Section
2.01(d) of Article II hereof.
1.26 "MISCELLANEOUS PROPERTY" shall mean the property described in
Section 5.01(a) of Article V hereof.
1.27 "NET PROFIT" of an entity shall mean the excess of such entity's
total revenues over its total expenses after giving effect to taxes.
1.28 "NOTE" shall mean the Revolving Note.
1.29 "OBLIGATIONS" shall mean any and all indebtedness, liabilities and
obligations of Borrowers to Bank whatsoever, including without limiting the
generality of the foregoing: any and all indebtedness, liabilities and
obligations of Borrowers to Bank arising out of the Note; all Bank's fees,
charges and expenses of or incidental to the preparation, renewal, modification
or enforcement of Borrowers' obligations arising out of the Note, and any and
all extensions or renewals thereof in whole or in part; and any indebtedness,
liability or obligation of any Borrower to Bank under any later or future
advances or loans made by Bank to a Borrower, and any and all extensions or
renewals thereof in whole
-4-
<PAGE>
or in part, joint or several, and in any event whether existing as of the date
hereof or hereafter arising and whether direct, indirect, absolute or
contingent, as maker, endorser, guarantor or otherwise, including without
limitation Bank's participation in others' loans; and all charges, interest,
expenses, and costs of collection in connection with the foregoing, including,
but not limited to, fifteen percent (15%) of the total amount due (including
principal and interest) as attorneys' fees in the event that such amounts are
collected by or through an attorney-at-law, and also other legal and court
costs, which in no event shall exceed actual costs incurred.
1.30 "PRIME RATE" shall mean the interest rate established by Bank from
time to time in its sole discretion as its prime rate, provided that in the
event that Bank shall abolish or abandon the practice of establishing a prime
rate, or should the same become unascertainable, Bank shall designate a
comparable reference rate which shall be deemed to be the Prime Rate hereunder.
The Prime Rate is not the lowest rate available on loans made by Bank. Bank
lends money at interest rates at, above and below the Prime Rate.
1.31 "PROCEEDS" shall mean the property described in Section 5.02 of
Article V hereof.
1.32 "RECEIVABLES" shall mean the property described in Section 5.01(b)
of Article V hereof.
1.33 "RECORDS" shall mean the property described in Section 5.01(f) of
Article V hereof.
1.34 "REVOLVING LOAN" AND "REVOLVING LOANS" shall have the same meaning
ascribed to such terms in Section 2.01(a) of Article II hereof.
1.35 "REVOLVING NOTE" shall mean Borrowers' promissory note to Bank
evidencing the Revolving Loans, as amended from time to time by the execution by
Borrowers and Bank of a written instrument in form and substance satisfactory to
Bank.
1.36 "SEC FILINGS" shall mean all forms, reports and documents filed
and required to be filed by Borrowers with the United States Securities and
Exchange Commission (the "SEC"), including: (i) the Registration Statement on
Form S-1 as filed March 2, 1998 and the prospectus related thereto, as amended
and to be amended, (ii) all proxy statements relating to meetings of
shareholders (whether annual or special), (iii) all Annual Reports on Form 10-K
as filed or to be filed with the SEC, (iv) all Current Reports on Forms 8-K, (v)
all Quarterly Reports on Forms 10-Q, (vi) the exhibits, schedules and documents
attached to any of the foregoing or incorporated by reference therein, and (vii)
all amendments, modifications and replacements of any of the foregoing.
-5-
<PAGE>
1.37 "SUBORDINATED DEBT" shall mean all debt owed by a Borrower to any
officer of any Borrower, any shareholder of any Borrower, any Affiliate of any
Borrower or any subsidiary of any Borrower (each a "RELATED PARTY" and
collectively the "RELATED PARTIES"), which debt has been subordinated by the
applicable Related Party in favor of Bank pursuant to a subordination agreement
in form and substance satisfactory to Bank.
1.38 "SUBORDINATION AGREEMENTS" shall individually and collectively
mean agreements in form and substance satisfactory to Bank, pursuant to which
the Related Parties subordinate in favor of Bank all debt owing by any Borrower
to the Related Parties and all security therefor.
1.39 "TOTAL ASSETS" of an entity shall mean the total of all items and
categories of properties which, in accordance with GAAP, would be included in
determining total assets as shown on the assets side of such entity's balance
sheet (excluding any value for goodwill, trademarks, patents, copyrights,
organization expense, non-competition agreements and other similar intangible
items).
1.40 "TOTAL CAPITALIZATION" shall mean total Funded Debt PLUS Tangible
Net Worth.
ARTICLE II
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<PAGE>
FINANCING
2.01 TERMS AND AMOUNT OF REVOLVING LOANS. (a) Upon the execution of
this Agreement and provided that Borrowers are in compliance with its terms and
conditions, Bank hereby extends a line of credit to Borrowers in the amount of
up to the aggregate principal sum outstanding of TWENTY MILLION AND NO/100THS
DOLLARS ($20,000,000.00), which may be borrowed, repaid and reborrowed, from
time to time in one or more borrowings prior to the maturity date of the
Revolving Note (each advance under such line of credit a "REVOLVING LOAN" and
all advances collectively referred to as "REVOLVING LOANS"), subject to the
terms and conditions of this Agreement. The Revolving Loans shall be evidenced
by the Revolving Note payable to the order of Bank in form and substance
satisfactory to Bank. The unpaid principal balance of the Revolving Loans shall
bear interest, at the option of Borrowers, at either: (i) a floating rate equal
to the Prime Rate MINUS one-quarter of one percent (0.25%) (the "PRIME RATE
OPTION"), or (ii) a fixed rate for interest periods of one-, two- or three-whole
months (the "LIBOR OPTION PERIOD") equal to the reserved adjusted thirty (30)
day LIBOR PLUS the Applicable Margin (the LIBOR OPTION"). Interest on the
Revolving Note will be based on the actual number of days elapsed over a year of
360 days. Any change in such interest rate resulting from a change in the Prime
Rate shall be effective on the Business Day on which such change in the Prime
Rate occurs.
(b) The LIBOR Option may be exercised by Borrowers for all, but not
less than all, of the then outstanding amounts of the Revolving Loans, no later
than the second (2nd) full Business Day preceding the first (1st) day of any
calendar month which commences an interest period selected by Borrowers in
respect of the LIBOR Option. Upon such exercise, the LIBOR Option shall remain
in effect until the expiration of the LIBOR Option Period selected, at which
time, unless an additional LIBOR Option shall have been timely exercised, the
rate upon such expiration shall be the Prime Rate Option, PROVIDED, HOWEVER,
that Bank will permit Borrowers to submit in writing a standing election to
select the LIBOR Option or the Prime Rate Option which will automatically renew
until Bank receives written notice from Borrowers terminating such election.
Borrowers shall not be entitled to select a LIBOR Option for the Revolving Loans
if a Default exists hereunder. Following the exercise of a LIBOR Option (subject
to the foregoing terms) and for and during the LIBOR Option Period selected by
Borrowers, Borrowers may request additional Revolving Loans in any amount at the
LIBOR Option rate of interest applicable at the beginning of the month in which
such additional advance or advances were requested. If a Default shall occur
during a LIBOR Option Period, the Revolving Loans shall, at the option of Bank,
convert to the Prime Rate Option and Borrowers shall be responsible for any and
all LIBOR Breakage Costs. Borrowers shall also be obligated to pay all LIBOR
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<PAGE>
Breakage Costs in the event the Revolving Loans are paid prior to the expiration
of the applicable LIBOR Option Period.
(c) Beginning on the first (1st) day of the first (1st) month after the
date of the Revolving Note and continuing on the first (1st) day of each and
every month thereafter so long as there is any principal balance or accrued and
unpaid interest outstanding under the Revolving Note, accrued and unpaid
interest on the unpaid principal balance of the Revolving Note shall be due and
payable.
(d) The entire unpaid principal balance of the Revolving Note, together
with all accrued and unpaid interest thereon, shall be due and payable on April
28, 2001 (the "MATURITY DATE") or such other date to which the maturity of the
Revolving Note may be extended by written amendment thereto executed by
Borrowers and Bank or by a renewal note executed by Borrowers and delivered to
and accepted by Bank.
(e) In consideration of Bank's agreeing to make Revolving Loans on
terms and conditions set forth in this Agreement, Borrowers shall pay to Bank,
not as interest but as compensation for underwriting and other services rendered
in connection with the Revolving Loans, a quarterly service fee equal to
one-sixteenth of one percent (0.0625%) of (i) the Credit Limit MINUS (ii) the
Average Monthly Outstanding Balance of the Revolving Note during the previous
quarter, which shall be due and payable on the first (1st) day of the third
(3rd) month after the date hereof and continuing on the first (1st) day of each
and every quarter thereafter.
2.02 LATE PAYMENTS. If Borrowers shall fail to pay any installment of
principal or interest within ten (10) days after the date such installment
originally becomes due (excluding any applicable cure period), a late charge
equal to five percent (5%) of the total amount of such past due installment
shall immediately be due and payable to Bank in addition to such past due
installment, not as interest but as compensation for administrative and other
costs incurred by Bank as a result of such late payment.
2.03 PROCEEDS. Proceeds of the Revolving Loans shall be used by
Borrowers solely for the purpose of acquiring the assets or capital stock of an
entity engaged in a similar or compatible line of business as that of Borrowers
and for working capital in accordance with Section 2.04 hereof.
2.04 WORKING CAPITAL LINE. Borrowers shall have the option, during the
term hereof, to request that a certain portion of the Revolving Loans (in an
amount not to exceed $2,000,000 in the aggregate outstanding at any one time)
shall be used as working capital by Borrowers in the ordinary course of their
business and shall be made under substantially the same terms and conditions a
those contained herein. In the event Borrowers choose to exercise
-8-
<PAGE>
such option, amendment documentation shall be prepared by Bank's counsel and
executed by Borrowers and Bank, which documentation shall allow a certain
portion of the Revolving Loans to be used by Borrowers as working capital in the
ordinary course of their business and shall otherwise be in form and substance
satisfactory to Bank in its reasonable discretion.
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<PAGE>
ARTICLE III
CONDITIONS TO INITIAL REVOLVING LOAN
Bank shall not be obligated to make the initial Revolving Loan unless:
3.01 Each of the conditions set forth in Article IV hereof shall have
been satisfied;
3.02 The representations and warranties made by or on behalf of
Borrowers in connection with such Revolving Loan, and the representations and
warranties of Borrowers contained in this Agreement, are true and correct in all
material respects on and as of the date of the request for such Revolving Loan;
3.03 Bank shall have received originals, duplicates, or confirmation
satisfactory to Bank of all insurance policies required to be maintained by
Borrowers pursuant to the terms and conditions hereof;
3.04 Bank shall have received payment in full of all fees, charges, and
expenses due in connection with this Agreement, including without limitation
attorneys' fees and expenses;
3.05 Bank shall have received originals of the Subordination Agreements
from the Related Parties;
3.06 Bank shall have received the original of a favorable opinion
letter from counsel for Borrowers in form and substance reasonably satisfactory
to Bank;
3.07 Bank shall have received an original Conditions Subsequent Rider,
as executed by each Borrower, which Conditions Subsequent Rider shall be in form
and substance reasonably satisfactory to Bank;
3.08 Bank shall have received originals of a landlord's waiver and
consent agreement executed by the record owner of any real property leased to
any Borrower, pursuant to which, among other things, such record owner
subordinates in favor of Bank any interest which it may have in the Collateral,
waives all right of levy, sale or distraint for non-payment of rent, agrees that
any Inventory or Equipment affixed to such real property shall remain personal
property of such Borrower and agrees that Bank shall be permitted to enter such
real property to inspect or, upon a Default, remove the Collateral therefrom,
all in form and substance satisfactory to Bank;
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3.09 Bank shall have received a commitment fee in the amount of
Seventy-Five Thousand and No/100ths Dollars ($75,000.00) in consideration of
Bank's agreement to make Revolving Loans to Borrowers upon the terms and
conditions of this Agreement, not as interest but as compensation for
underwriting and other services rendered in connection with the Revolving Loans
(Bank acknowledges receipt of $37,500.00 of the commitment fee prior to the date
hereof);
3.10 Bank shall have received a copy of each Borrower's federal
corporate income tax returns for its fiscal year last ended and financial
statements for each Borrower, all in form and substance reasonably satisfactory
to Bank; and
3.11 Bank shall have received such other loan documentation as deemed
reasonably necessary by Bank or its counsel, satisfactory in form and substance
to Bank, providing for the Revolving Loans to be extended, secured, and
guaranteed.
ARTICLE IV
CONDITIONS TO ALL REVOLVING LOANS
Bank shall not be obligated to make any Revolving Loan, unless:
4.01 The representations and warranties made by or on behalf of
Borrowers in connection with such Revolving Loan and the representations and
warranties of Borrowers contained in this Agreement are true and correct on and
as of the date of the request for such Revolving Loan;
4.02 The amount of the Revolving Loan requested, when aggregated with
the outstanding principal balance of all Revolving Loans, does not exceed
$20,000,000.00; PROVIDED, HOWEVER, any Revolving Loans in excess of
$6,000,000.00 in the aggregate in any one fiscal year shall only be made with
the prior written consent of Bank;
4.03 The Revolving Loan was requested by any Authorized Personnel
member;
4.04 Borrowers shall have provided Bank with written notice of
Borrowers' request for such Revolving Loan, in form and substance reasonably
satisfactory to Bank;
4.05 At the time of the request for the Revolving Loan, there shall
have been no material adverse change in any Borrower's financial condition from
its financial condition as shown in its last financial statement furnished to
Bank;
4.06 At the time of the request for such Revolving Loan,
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Borrowers shall be in substantial compliance with all of the terms and
provisions of this Agreement;
4.07 At the time of the request for such Revolving Loan, no Default or
an event that upon notice or lapse of time or both would constitute a Default
shall have occurred, and there will be no claim, action, suit or proceeding
pending or threatened against any Borrower that would be reasonably likely to
have a Material Adverse Effect; and
4.08 Bank shall have received a certificate from Borrowers, as executed
by the chief executive officer or chief financial officer of InterCept,
certifying that Borrowers will remain in compliance with Article IX hereof
following the applicable acquisition by Borrowers which certificate shall be
supported by the financial statements of the acquired entity (which financial
statements shall be in the form required to be filed with the SEC Filings
related to such transaction).
ARTICLE V
SECURITY
5.01 COLLATERAL PLEDGED BY BORROWERS. As security for the full payment
and performance of the Obligations, each Borrower hereby grants to Bank a
security interest in the following described personal property:
(a) MISCELLANEOUS PROPERTY. All property of such Borrower now or
hereafter in the possession, custody, or control of Bank, and all monies,
collection items, deposits, savings accounts, certificates, and other amounts
now or hereafter due, owing or issued by or from Bank to such Borrower, whether
matured or not (all of the foregoing hereinafter collectively called
"MISCELLANEOUS PROPERTY").
(b) RECEIVABLES AND OTHER COLLATERAL. All accounts, accounts
receivable, contract rights, general intangibles (including without limitation
the Intellectual Property), notes, documents, chattel paper, instruments,
acceptances, and drafts, whether or not the same is subject to, or defined by,
Article 9 of the Uniform Commercial Code or whether or not the same constitutes
by reason of one or more of the foregoing clauses, a right to the payment of
money or other form of consideration of any kind at any time existing now or
hereafter owing or to be owing to such Borrower, whether or not the same are
listed on any scheduled assignments or reports furnished to Bank from time to
time, whether now existing or created or acquired at any time hereafter; any and
all liens securing the foregoing, any and all guaranties and securities securing
the foregoing and all proceeds thereof (all of the foregoing hereinafter
collectively called "Receivables").
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(c) INVENTORY. All inventory of such Borrower, whether now owned or
hereafter acquired, including, without limitation, all goods held by such
Borrower for sale or lease or to be furnished under contracts of service or so
furnished, and all raw materials, work in process, supplies and finished goods,
and all materials used or consumed in such Borrower's business (all of the
foregoing hereinafter collectively called "INVENTORY").
(d) EQUIPMENT. All equipment, machinery, furniture, leasehold
improvements and fixtures of such Borrower, whether now owned or hereafter
acquired, including, without limitation, all replacements thereof and all
accessions, parts and equipment now or hereafter affixed thereto or used in
connection therewith (all of the foregoing hereinafter collectively called
"EQUIPMENT").
(e) INTELLECTUAL PROPERTY. All presently existing and hereafter issued,
filed, acquired or licensed patents and patent applications, including, without
limitation, divisional, continuations and continuations-in-part, copyrights,
trade names, trademarks and service marks, as well as all registrations and
applications for registration thereof, all income, royalties, damages and
payments now or hereafter due or payable under and with respect to any of the
foregoing, including without limitation damages and payments for past or future
infringements thereof, the right to sue and recover for past, present and future
infringements of any of the foregoing, all rights throughout the world
corresponding to any of the foregoing, whether existing or granted under the
laws of the United States or any other domestic or foreign jurisdiction (all of
the foregoing hereinafter collectively called "INTELLECTUAL PROPERTY").
(f) BOOKS AND RECORDS. All present and future books, records, customer
lists, supplier lists, ledgers, invoices, purchase orders, sales orders, and
other evidence of such Borrower's business records, including, but not limited
to, all cabinets, drawers, files, correspondence, etc., that may hold same;
computer records, lists, software, programs, tapes and disks, all wherever
located and all whether now existing or hereafter arising or acquired (all of
the foregoing hereinafter collectively called "RECORDS").
5.02 PROCEEDS. All proceeds of any of the Miscellaneous Property,
Receivables, Inventory, Equipment, Intellectual Property and Records, including,
but not limited to, accounts, contract rights, chattel paper, notes, drafts,
instruments, general intangibles, inventory, equipment, fixtures, money deposit
accounts, goods, the proceeds of insurance or other tangible or intangible
property, resulting from the sale or other disposition of any of the foregoing
or the rendition of services by such Borrower, and the proceeds thereof (all of
the foregoing hereinafter collectively called "PROCEEDS").
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5.03 NEGATIVE PLEDGE. Each Borrower hereby covenants and agrees not to
encumber, in any manner whatsoever, whether voluntarily or involuntarily, any
real estate now owned or hereafter acquired by such Borrower in favor of any
party other than Bank, except for those encumbrances listed on EXHIBIT "A," as
attached hereto.
5.04 ADDITIONAL COLLATERAL. Each Borrower hereby covenants and agrees
to provide to Bank, no later than two (2) Business Days after its acquisition of
additional Collateral (whether by acquisition of the stock or assets of another
entity or otherwise), a list of such Collateral, which list shall indicate the
physical location of such Collateral. Each Borrower hereby further covenants and
agrees to take any and all actions reasonably requested by Bank in regards to
obtaining and maintaining Bank's first-priority perfected security interest in
such Collateral, which actions shall be at the sole cost and expense of
Borrowers.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce Bank to enter into this Agreement and to make or
extend the Revolving Loans, all as contemplated hereby, each Borrower represents
and warrants to Bank, as to itself and except as disclosed in the SEC Filings
(which SEC Filings have been provided by InterCept to Bank), each of which
representations and warranties is deemed to be material, that:
6.01 ORGANIZATION. Borrower is a corporation duly organized and validly
existing in Georgia and is in good standing under the laws of the State of
Georgia and has full right, power and authority to conduct its business as
currently conducted; Borrower's principal place of business and chief executive
office is located at 3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia
30071.
6.02 POWER AND AUTHORITY OF EACH BORROWER. Borrower has full right,
power and authority to enter into the Loan Documents to which it is a party and
to consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement
and the documents contemplated to be executed and delivered hereby.
6.03 FOREIGN QUALIFICATION. Borrower is qualified to do business in all
states where required by applicable law, except where the failure to be so
qualified would not have a Material Adverse Effect; PROVIDED, HOWEVER, that
Borrower will provide notice to Bank of each and every instance where Borrower
is not qualified to do business in any state where required by applicable law.
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6.04 ENFORCEABILITY. The Loan Documents constitute valid obligations of
the party executing the same, legally binding upon it and enforceable in
accordance with their respective terms, except as the same may be limited by
bankruptcy, insolvency, moratorium or other laws affecting generally the
enforcement of creditor's rights and the availability of equitable remedies. No
consent, license, or approval of any governmental authority, bureau or agency is
required in connection with the execution, delivery, performance, validity or
enforceability of the Loan Documents.
6.05 VIOLATION OF ARTICLES OR BYLAWS. The execution, delivery and
performance of the Loan Documents will not violate the provisions of the
Articles of Incorporation or By-Laws of Borrower.
6.06 CONFLICTS. The execution, delivery and performance of the Loan
Documents will not violate the provisions of any mortgage, indenture, security
agreement, contract, undertaking or other agreement to which Borrower is a
party, or which purports to be binding upon Borrower or any of its respective
properties or assets.
6.07 TITLE. Borrower has full and absolute title to the Collateral
owned by it, except as set forth specifically on EXHIBIT A hereto.
6.08 EXISTENCE OF LIENS. No financing statement, mortgage, notice of
lien, deed of trust, security agreement, deed to secure debt, or any other
agreement or instrument creating or giving notice of a security interest in or
an encumbrance, lien, or charge against any of the Collateral owned by it is in
existence or on file in any public office, except as specifically set forth on
EXHIBIT A hereto.
6.09 FINANCIAL CONDITION. The most recent consolidated financial
statements of Borrower furnished to Bank and in the SEC Filings furnished to
Bank are complete and correct and accurately reflect their respective financial
conditions and the results of operations for the respective periods to which
such statements relate. There are no material liabilities, direct or indirect,
fixed or contingent, of Borrower that are not reflected therein or in the notes
thereto.
6.10 LITIGATION. There is no litigation, proceeding, or investigation
pending or, to the knowledge of Borrower, threatened, that is reasonably likely
to result in a Material Adverse Effect, nor does Borrower know or have any
reasonable grounds to know the basis for the institution of any such litigation,
proceeding or investigation.
6.11 TAX OBLIGATIONS. Borrower has no knowledge of any tax return
required to be filed by it that has not been filed with the
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appropriate governmental agency or for which it has not received an extension
beyond the date hereof; Borrower will not be, as of the Closing, in default with
respect to such filings. Borrower has paid or will have paid as of the Closing
Date all taxes now or then claimed to be due by any federal, state or local
taxing authority, except those disclosed to Bank in writing at Closing and if
the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings, and if it shall have either: (i) set
aside on its books reserves (segregated to the extent required by sound
accounting practice) deemed by Bank adequate with respect thereto, or (ii) if
requested in writing by Bank, established a deposit with Bank sufficient to pay
or discharge such tax, if such proceedings are adversely determined. Neither the
Internal Revenue Service nor any other taxing authority is now asserting, or to
the knowledge of Borrower, has threatened to assert, any deficiency claim for
additional taxes against it; and no waiver of any applicable statute of
limitations has been granted to the Commissioner of Internal Revenue or any
other taxing authority by Borrower.
6.12 STOCK. The authorized capital stock of Borrower is as set forth on
EXHIBIT "B" hereto. There are no outstanding warrants, options or other rights
to acquire the capital stock of Borrower, other than as disclosed on EXHIBIT "B"
hereto and in the SEC Filings furnished by InterCept to Bank.
6.13 MISREPRESENTATIONS. No representation or warranty by Borrower made
herein and no statement or certificate to be furnished to Bank pursuant hereto
in connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein not misleading.
ARTICLE VII
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees with Bank, on its own behalf, that
from and after the date hereof, so long as the Obligations remain outstanding or
this Agreement remains in effect, that:
7.01 LOCATION OF RECORDS. Borrower shall maintain its books and
records, including, without limitation, all books and records evidencing or
relating to the Collateral, at its chief executive office as set forth in this
Agreement, and shall not remove said books and records from such address without
the prior written consent of Bank (which consent shall not be unreasonably
withheld, conditioned or delayed).
7.02 INSPECTION. Borrower shall permit Bank or any persons duly
designated by it to call at its places of business at any
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reasonable time, and without hindrance or delay, to inspect, audit, check and
make extracts from their books, records, journals, orders, receipts and any
correspondence or other data relating to their businesses or any other
transactions between or among the parties hereto. Bank shall endeavor to provide
at least two (2) Business Days notice of any such inspections and shall attempt
to minimize the disruption to Borrower's business.
7.03 FINANCIAL STATEMENTS AND OTHER INFORMATION. Borrower (as a part of
the consolidated financial statements of InterCept) shall furnish to Bank the
following financial information:
(a) Borrower shall furnish to Bank quarterly, within forty-five (45)
days after the end of each quarter, its financial statements (as a part of the
consolidated financial statements of InterCept), including balance sheets,
income and expense statements and detailed statements of profit and loss and
retained earnings, in form and content reasonably acceptable to Bank, all
certified by its chief financial or chief executive officer. After the effective
date of InterCept's initial public offering, all financial statements delivered
to Bank shall be in the same form as filed with the Securities and Exchange
Commission and the SEC Filings. The chief financial or chief executive officer
of such entity shall certify with respect to all such financial statements,
whether delivered prior to or after the effective date of InterCept's initial
public offering, that the financial statements submitted (i) are in accordance
with such entity's books and records; (ii) present fairly the financial position
and results of operations as of and for the periods specified; (iii) set forth
all material claims and liabilities, contingent or otherwise; and (iv) fully
disclose the existence of any Default hereunder, including the nature and period
of existence thereof.
(b) Borrower shall furnish to Bank annually, a copy of its federal
corporate income tax return, not later than ninety (90) days after filing with
the appropriate tax authorities; and Borrower shall furnish to Bank annually its
annual financial statements, including a balance sheet, income and expense
statement and detailed statement of profit and loss and retained earnings, in
form and content reasonably acceptable to Bank, within ninety (90) days after
the end of its fiscal year end, all of which shall be audited by an independent
practicing certified public accountant acceptable to Bank, together with an
unqualified opinion letter of such accountant, all in form and substance
satisfactory to Bank. After the effective date of InterCept's initial public
offering, such financials shall be in the same form as those filed with the
Securities and Exchange Commission.
(c) Borrower will furnish to Bank, no later than sixty (60) days
following the end of each fiscal year, a list of all of the locations of the
Collateral, which list shall clearly reflect all
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additional and changed locations of the Collateral since the last such list was
provided to Bank hereunder.
(d) Borrower will furnish to Bank such other or more frequent data,
information, and reports as Bank may reasonably request from time to time.
7.04 GOVERNMENTAL OBLIGATIONS. Borrower will pay and discharge promptly
or cause to be paid and discharged promptly all taxes, assessments, and
governmental charges for levies imposed upon its income or property, real,
personal, or mixed, or upon any part thereof, as well as all claims of any kind
(including claims for labor, materials and supplies), which, if unpaid, might by
law become a lien or charge against said property; provided, however, that
Borrower shall not be required to pay any such tax, assessment, charge, levy, or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings, and if it shall have either:
(i) set aside on its books reserves (segregated to the extent required by sound
accounting practice) deemed by Bank adequate with respect thereto, or (ii) if
requested in writing by Bank, established a deposit with Bank sufficient to pay
or discharge such tax, assessment, charge, levy or claim, if such proceedings
are adversely determined.
7.05 PROTECTION OF BUSINESS. Borrower shall take all appropriate action
necessary to protect its business and assets consistent with normal practices;
conduct its business in a sound and businesslike manner; and Borrower shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and all its rights necessary to the conduct of
its business.
7.06 MAINTENANCE OF RECORDS. Borrower shall keep adequate records and
books of accounts, in which complete entries will be made, reflecting all its
financial transactions.
7.07 ADVERSE CHANGES. Borrower shall, as soon as possible, and in any
event within five (5) business days after they become aware of the occurrence of
a Material Adverse Effect, which could reasonably be expected to impair
substantially their ability to perform its Obligations pursuant to this
Agreement, furnish to Bank a statement setting forth details of such Material
Adverse Effect and the action that they propose to take with respect thereto.
7.08 NOTICE OF LITIGATION. Borrower shall promptly notify Bank in the
event of any legal action filed against Borrower.
7.09 PAYMENT OF OBLIGATIONS. Borrower shall pay or cause to be paid the
principal of, and, if any, the interest and premium on all indebtedness
heretofore or hereafter incurred or assumed by it when and as the same shall
become due and payable, unless such
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indebtedness be renewed or extended; and faithfully observe, perform and
discharge all the covenants, conditions and obligations that are imposed upon it
by any and all indentures and other agreements securing or evidencing such
indebtedness or pursuant to which such indebtedness is issued, and not permit
the continuance of any act or omission that is, or under the provisions thereof
may be declared to be, a default, whether in the payment of principal and
interest or otherwise, unless waived pursuant to the provisions thereof;
provided, however, that Borrower shall not be required to make any payment or to
take any other action pursuant to this paragraph at any time while it shall be
currently contesting in good faith by appropriate proceedings its obligations to
make such a payment or to take such action, if it shall have either: (i) set
aside on its books, reserves (segregated to the extent required by sound
accounting practices) deemed by Bank adequate with respect thereto, or (ii) if
requested in writing by Bank, established a deposit with Bank sufficient to pay
any such amount if such proceedings are adversely determined.
7.10 FREE OF LIENS. Borrower will at all times hereafter keep the
Collateral owned by it free of all security interests, liens and claims
whatsoever, other than those in favor of Bank and those indicated on EXHIBIT A
hereto.
7.11 ADDITIONAL DOCUMENTATION. Borrower will from time to time, on
request of Bank, execute such financing statements, notices and other documents,
and pay the cost of filing or recording the same in all public offices deemed
necessary by Bank and do such other acts as Bank may request to establish and
maintain a valid and perfected security interest in the Collateral, including,
without limitation, delivery to Bank of any certificate of title or other
instrument issuable with respect to any of the Collateral and notation thereon
of the security interest and security title hereunder.
7.12 RECEIVABLES. The face amount of each Receivable shown on any
account report or aging now or hereafter provided to Bank, and all invoices and
statements now or hereafter delivered to Bank with respect to any such
Receivable, is and will be as it arises actually and absolutely owing without
defense, offset, or counterclaim and will not be contingent for any reason
(unless otherwise stated in such report). Borrower will notify Bank of any
defense, offset or counterclaim which is asserted with respect to any Receivable
within five (5) days of Borrower's receiving notice of the assertion of such
defense, offset or counterclaim.
7.13 ACCOUNTS. Borrower shall maintain all of its primary deposits and
similar transaction accounts with Bank, including without limitation all of its
checking and operating accounts, except for accounts maintained for convenience
at locations of Borrower not maintained in the State of Georgia. Borrower will
make all payments of interest on the Note from accounts maintained
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at Bank.
7.14 BUSINESS AND COLLATERAL INSURANCE. Borrower shall insure the
Collateral owned by it until Bank's security interest is terminated against all
risks to which it is exposed, including without limitation loss, damage, fire,
theft and all other such risks, and shall obtain liability insurance, business
interruption and worker's compensation insurance, all in such amounts, with such
companies, under such policies and in such form as shall be reasonably
satisfactory to Bank, which policies shall provide that loss thereunder shall be
payable to Bank as its interests may appear (upon a New York standard mortgage
clause [long form] acceptable to Bank in its reasonable discretion), and Bank
may apply any proceeds of such insurance which may be received by it for payment
of the Obligations, whether or not due, in such order of application as Bank may
reasonably determine, and such policies or certificates thereon or duplicates
thereof shall immediately be deposited with Bank.
7.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall at all times
keep the Inventory and Equipment at the location of its principal place of
business and chief executive offices, except as set forth on EXHIBIT "C," and
shall give notice of Bank's security interest in the Inventory and Equipment to
the person in possession of each location.
7.16 CONDITION OF EQUIPMENT. Borrower shall at all times keep its
Equipment in good order and repair, excepting normal wear and tear and any loss,
damage or destruction which is fully covered by insurance.
7.17 PERSONAL PROPERTY. The Equipment owned by Borrower is and shall be
maintained as personal property and shall not, by reason of attachment or
connection to any realty, either become or be deemed to be a fixture or
appurtenant to such realty and shall at all times be severable therefrom without
material change or damage to the realty.
ARTICLE VIII
NEGATIVE COVENANTS
Each Borrower covenants and agrees with Bank, on its own behalf, that
from and after the date hereof, and so long as the Obligations remain
outstanding or this Agreement remains in effect, that, without Bank's prior
written consent (which consent shall not be unreasonably withheld, conditioned
or delayed):
8.01 GUARANTIES. Borrower shall not guarantee, endorse, become surety
with respect to, or otherwise become directly or contingently liable for, or in
connection with, the obligations of any other person, firm, or corporation,
except for guaranties in
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favor of Bank and the endorsement of checks in the ordinary course of business.
8.02 MERGER, CONSOLIDATION, ETC. Borrower shall not enter into any
merger, reorganization or consolidation (except for such transactions with other
Borrowers or wherein (i) the consideration paid does not exceed $6,000,000 and
(ii) a Borrower is the surviving entity), nor will Borrower make any substantial
change in the basic type of business now conducted by it.
8.03 SALE OF ASSETS. Borrower shall not sell all or substantially all
of its assets or take any action that would make it impossible for it to carry
out its business as now conducted.
8.04 JUDGMENTS. Borrower shall not allow any single judgment for the
payment of money in excess of $50,000.00 or of any number of judgments for the
payment of money in excess of the aggregate sum of $100,000.00, excluding
amounts in either case with respect to which an insurance carrier admits full
coverage (except for applicable deductibles), to remain unsatisfied against it
for a period of thirty (30) consecutive days, unless execution thereof is
stayed.
8.05 INDEBTEDNESS. Borrower will not obtain from any party other than
from Bank any loans, advances, or other financial accommodations or
arrangements, except for loans or other financial accommodations relating to
trade debt incurred by Borrower in the ordinary course of business.
8.06 ENCUMBRANCES; DISPOSITION OF ASSETS. Borrower will not sell,
transfer, lease, pledge, abandon, or otherwise dispose of any of the Collateral
or any interest therein, except for Inventory, which Borrower may sell in the
ordinary course of its business.
8.07 ADVANCES AND LOANS. Borrower shall not make any loans, advances,
or extensions of credit to any of its stockholders, directors, officers,
executives, employees or any other Affiliate in excess of $500,000 in the
aggregate outstanding at any one time, except for credit extended for goods sold
in the ordinary course of Borrower's business and advances to employees of
Borrower for travel and other expenses incurred in the ordinary course of
Borrower's business.
8.08 CAPITAL EXPENDITURES. Borrowers shall not make net capital
expenditures or incur lease obligations in excess of $1,000,000.00 in the
aggregate for all items in any single fiscal year; PROVIDED, HOWEVER, that
Borrowers may make an additional $1,700,000.00 in capital expenditures during
the term hereof as long as such amounts are used solely by Borrowers to enhance
their frame relay network.
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8.09 DIVIDENDS. Borrower shall not declare or pay any dividends on its
capital stock, nor shall any Borrower redeem, repurchase or otherwise acquire
any of its outstanding capital stock; PROVIDED, HOWEVER, that Borrower may issue
additional stock and declare dividends consisting solely of stock.
8.10 CHANGE OF LOCATION OF BORROWER. Borrower will not change its
principal place of business or chief executive office, unless (i) Borrower is
changing its principal place of business or chief executive office to another
location within the State of Georgia, and (ii) Borrower delivers written notice
to Bank at least thirty (30) days in advance of such change.
ARTICLE IX
FINANCIAL COVENANTS
Borrowers covenant and agree with Bank that from and after the date
hereof, and so long as the Obligations remain outstanding or this Agreement
remains in effect, that:
9.01 FUNDED DEBT/EBITDA. Borrowers shall maintain a ratio of their
consolidated Funded Debt to EBITDA, as calculated on a rolling four-quarter
basis, of less than or equal to 3.0 to 1.0 at each quarter end.
9.02 FUNDED DEBT/TOTAL CAPITALIZATION. Borrowers shall maintain a
ratio of their consolidated Funded Debt to Total Capitalization at all times no
greater than 0.50 to 1.0.
9.03 CONSOLIDATED TANGIBLE NET WORTH. Borrowers shall have a
Consolidated Tangible Net Worth as of the Closing of at least $16,000,000.00,
and such minimum Consolidated Tangible Net worth shall increase by 100% of its
Net Profit for each fiscal year thereafter.
ARTICLE X
DEFAULT
Each of the following shall constitute a Default hereunder:
10.01 Failure of Borrowers to make any payment of principal or interest
on the Note evidencing the Revolving Loans within ten (10) days of its due date;
10.02 Failure of any Borrower to make any payment of principal or
interest on any other Obligations within ten (10) days of its due date;
10.03 Any statement, representation or warranty made orally
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or in writing by any Borrower in this Agreement, or in connection with any
document, certificate, or financial or other statement furnished by a Borrower
at any time under or in connection with this Agreement, is untrue in any
material respect when made or furnished;
10.04 Default by any Borrower under, or in the observance or
performance of any of the covenants or agreements contained in, this Agreement
or in any documents executed in connection with the consummation of the
transactions contemplated hereby, which continues uncured for sixty (60) days
after the occurrence thereof;
10.05 Default by any Borrower under, or in the observance or
performance of any of the covenants contained in, any other agreement or
document now or hereafter effective between such party and Bank, which continues
uncured for thirty (30) days after the occurrence thereof;
10.06 The filing by any Borrower of a petition under any chapter of the
Federal Bankruptcy Code, as amended, or of any proceeding seeking any relief
under any other insolvency or debtor relief act or law, state or federal, now or
hereafter existing;
10.07 The filing against any Borrower of a petition under any chapter
of the Federal Bankruptcy Code, as amended, or of any proceeding seeking any
relief under any other insolvency or debtor relief act or law, state or federal,
now or hereafter existing, which is not dismissed within one hundred twenty
(120) days;
10.08 The application by any Borrower or the consent or acquiescence of
any Borrower in, the appointment of a custodian, receiver, trustee or similar
official for all or a substantial part of any of their respective properties;
10.09 The involuntary appointment of a custodian, receiver, trustee or
similar official for all or a substantial part of any Borrower's property or
assets, or the issuance of a warrant, attachment, execution or similar process
against a substantial part of the property of any Borrower, which is not
dismissed within one hundred twenty (120) days;
10.10 Any Borrower shall become insolvent or unable to pay debts as
they mature, or admits in writing to such effect, makes a conveyance fraudulent
as to creditors under any state or federal law, makes an assignment for the
benefit of creditors, or a proceeding is instituted by or against any Borrower
alleging that any of them is insolvent or unable to pay debts as they mature,
which is not dismissed within one hundred twenty (120) days;
10.11 John W. Collins ceases to be Chief Executive Officer and Chairman
of the Board of Directors of InterCept, without Bank's prior written consent;
-23-
<PAGE>
10.12 Suspension or material alteration of any Borrower's present
business;
10.13 Sale, transfer or exchange of a substantial part of the property
of any Borrower or dissolution, merger or consolidation of any Borrower (other
than as permitted under this Agreement);
10.14 Seizure of the Collateral by any third party;
10.15 Use of the Collateral which constitutes a violation of any law or
governmental rule or regulation applicable to Borrowers; and
10.16 Bank in good faith deems itself insecure, notifies Borrowers in
writing of such insecurity and provides Borrowers at least sixty (60) days to
cure the stated reasons for Bank's insecurity.
ARTICLE XI
RIGHTS AND REMEDIES
11.01 PRIOR TO DEFAULT. Before or after the occurrence of a Default:
Bank may, examine, audit or inspect any Borrower's books and records
constituting, evidencing or otherwise relating to the Collateral, wherever
located, at any time or times, and may enter upon any Borrower's premises for
such purposes consistent with Section 7.02 hereof. Each Borrower shall assist
Bank in a commercially reasonable manner to make each such examination, audit
and inspection.
11.02 SUBSEQUENT TO DEFAULT. Upon the occurrence of any one or more
Defaults (including the lapse of any applicable cure period): Bank may terminate
this Agreement and may declare the Obligations, notwithstanding any provisions
thereof, without demand or notice of any kind, immediately due and payable,
whereupon the Obligations shall become immediately due and payable and may be
collected forthwith; Borrowers shall assemble the Collateral and make it
available to Bank at such time or times and such location or locations as Bank
may designate in its discretion; Bank shall have the right to take immediate
possession of the Collateral without notice or resort to legal process and
without demand or notice of any kind to set off and deduct the outstanding
balance of the Obligations from sums, if any, which now are or hereafter may be
owing by Bank to Borrowers, including without limitation the Miscellaneous
Property; and Bank may exercise from time to time any rights and remedies
available to it under the Uniform Commercial Code and other applicable law in
the State of Georgia; PROVIDED, HOWEVER, that in the event that Bank elects in
its sole discretion not to accelerate the Obligations, or that Bank is
prohibited from
-24-
<PAGE>
accelerating the Obligations during any applicable cure period, upon the
occurrence of a Default, then, notwithstanding the existence of any applicable
cure period, without demand or notice of any kind, interest shall accrue on the
outstanding principal balance of the Note at the then applicable rate thereunder
PLUS two percent (2.0%) per annum commencing from the date such Default occurs
and continuing for so long as such Default continues, whether or not such
Default is cured pursuant to any applicable cure period or otherwise. Without
limiting the generality of the foregoing, upon the occurrence of a Default, Bank
shall have the right to notify the account debtors or obligors on the
Receivables to pay Bank directly, and, at Bank's request, each Borrower agrees
to notify all of its account debtors or obligors on the Receivables to pay Bank
directly. After a Default, Bank, from time to time, at its option, may perform
any agreement of any Borrower hereunder which such party shall fail to perform
and take any other action which Bank deems necessary for the maintenance or
preservation of any of the Collateral or its interest therein, and each Borrower
agrees to reimburse forthwith Bank for all reasonable costs and expenses of Bank
in connection with the foregoing (including without limitation Bank's internal
administrative costs). Without limiting the generality of the foregoing, Bank
shall have the right, without demand or notice of any kind, to set off and
deduct sums due to Bank under this Agreement from sums, if any, which now are or
hereafter may be owing by Bank to any Borrower, including without limitation the
Miscellaneous Property. After a Default, each Borrower hereby constitutes Bank
or its designee as its attorney-in-fact: to receive, open, and dispose of all
mail addressed to such Borrower; to notify the postal authorities to change the
address and delivery of mail addressed to such Borrower to such address as Bank
may designate; to endorse such Borrower's name upon any notes, acceptances,
checks, drafts, money orders and other remittances that may come into Bank's
possession and to deposit or otherwise collect the same; to sign such Borrower's
name on any invoice or bill of lading, on drafts against customers, and notices
to customers; to send verifications of accounts to customers; to execute in such
Borrower's name any affidavits and notices with regard to any and all lien
rights; and to do all other acts and things necessary to carry out this
Agreement. Each Borrower hereby waives notice of presentment, protest and
dishonor of any instrument so endorsed. All acts of said attorney-in-fact or
designee are hereby authorized and ratified, and said attorney-in-fact or
designee shall not be liable for any acts of omission or commission, nor for any
error of judgment or mistake of fact or law, unless resulting from Bank's gross
negligence or intentional misconduct; this power being coupled with an interest
is irrevocable while the Obligations remain outstanding.
ARTICLE XII
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<PAGE>
CLOSING
The transactions contemplated hereby shall be closed at 10:00 a.m., on
April 28, 1998, at the offices of Bank's counsel, 1230 Peachtree Street, N.E.,
Suite 3100, Atlanta, GA 30309, or at such other time and place as the parties
may mutually agree.
ARTICLE XIII
OTHER FEES AND EXPENSES
Each Borrower shall provide, at its expense, to Bank all documents,
instruments, assurances, and certificates as Bank may deem necessary to
consummate the transactions contemplated hereby. Each Borrower shall be
obligated to Bank to pay all fees, expenses and costs reasonably incurred by
Bank, including without limitation attorneys' fees, in connection with the
entering into and negotiation of this Agreement and consummating the
transactions contemplated hereby, notwithstanding whether the transactions
contemplated hereby in fact are consummated.
ARTICLE XIV
TERM
When executed by each of the parties hereto, this Agreement shall be
effective on the date first above written and shall continue in full force and
effect until the maturity (whether by acceleration or otherwise) of the
Obligations, unless sooner terminated by Bank upon Default. Upon termination,
Borrower shall continue to perform all of its obligations hereunder until the
Obligations have been paid and satisfied in full.
ARTICLE XV
MISCELLANEOUS
15.01 Each and every right granted to Bank under this Agreement, or any
document delivered in connection with consummating the transactions contemplated
hereby or in connection herewith, or allowed to it by law or equity shall be
cumulative and may be exercised, and no delay in exercising any right shall
operate as a waiver thereof, nor shall any single or partial exercise by Bank of
any right preclude any other or future exercise thereof or the exercise of any
other right. No waiver by Bank of any Default hereunder shall constitute a
waiver of any subsequent Default.
15.02 This Agreement is entered into in the State of Georgia and the
rights and obligations of the parties hereunder shall be governed by, construed,
enforced and interpreted in accordance with the laws of the State of Georgia.
-26-
<PAGE>
15.03 All representations, warranties and covenants contained herein
shall survive the Closing and the execution and delivery of the Note or any
other documents contemplated hereby until the Obligations are indefeasibly
satisfied in full.
15.04 This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof.
15.05 This Agreement shall not be modified or amended except by a
writing executed by the parties hereto.
15.06 This Agreement shall be binding upon the parties hereto, their
heirs, estates, representatives, successors and assigns and shall inure to the
benefit of Bank, its successors and assigns.
15.07 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
15.08 Article and paragraph headings used in this Agreement are for
convenience of reference only and are not part of this Agreement for any other
purpose.
15.09 Any notice, demand or communication required or permitted to be
given by the provisions of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered personally to a party
or to an officer of the party to whom the same is directed, or if sent by United
States Mail, first-class postage and charges prepaid, addressed to such party at
the following address, or to such other address as shall be furnished in writing
by any party to the other, pursuant to the provisions hereof:
If to Bank, to First Union National Bank
999 Peachtree Street, N.E.
Suite 950, M/C 9071
Atlanta, GA 30309
Attn: Mr. Brad P. Keller
with a copy to: Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E.
Suite 3100
Atlanta, GA 30309
Attn: John T. Vian, Esq.
If to Borrower, to c/o The InterCept Group
3150 Holcomb Bridge Road
-27-
<PAGE>
Suite 200
Norcross, GA 30071
Attn: Mr. Scott R. Meyerhoff and
Mr. John W. Collins
with a copy to: Nelson, Mullins, Riley & Scarborough, L.L.P.
999 Peachtree Street, NE
Atlanta, GA 30309
Attn: Susan L. Spencer, Esq.
Any such notice shall be deemed given as of the date so delivered personally, or
three (3) days after the date on which same was deposited, first-class postage
prepaid, in a regularly maintained receptacle for the deposit of United States
Mail, addressed as aforesaid.
15.10 If any notification of intended disposition of the Collateral or
of any other act by Bank is required by law and a specific time period is not
stated therein, such notification, if given in accordance with Section 15.09
above at least five (5) Business Days before such disposition or act, shall be
deemed reasonably and properly given.
15.11 Time is of the essence of this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
-28-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered in their names and on their behalf, and their seals to be
affixed and attested, all on the day and year first above written.
BORROWERS:
----------
Attest: THE INTERCEPT GROUP, INC.
/s/ Scott R. Meyerhoff /s/ John W. Collins
_________________________________ By:_________________________________
Secretary Title: Chairman & CEO
[CORPORATE SEAL]
Attest: INTERCEPT SWITCH, INC.
/s/ Denise Saylor /s/ John W. Collins
_________________________________ By:_________________________________
Secretary Title: Chairman & CEO
[CORPORATE SEAL]
Attest: PROVESA, INC.
/s/ John W. Collins /s/ John W. Collins
_________________________________ By:_________________________________
Secretary Title: Chairman & Secretary
[CORPORATE SEAL]
Attest: PROVESA SERVICES, INC.
/s/ John W. Collins /s/ John W. Collins
_________________________________ By:_________________________________
Secretary Title: Chairman & Secretary
[CORPORATE SEAL]
BANK:
FIRST UNION NATIONAL BANK
-29-
<PAGE>
/s/ Brad P. Keller
By:_________________________________
Vice President
Its:_________________________________
[BANK SEAL]
-30-
<PAGE>
EXHIBIT "A"
ENCUMBRANCES AND LIENS
DATE INSTRUMENT AND NUMBER SECURED PARTY
- ---- --------------------- -------------
COLLATERAL
- ----------
NONE.
<PAGE>
EXHIBIT "B"
CAPITALIZATION OF BORROWERS
---------------------------
[TO BE PROVIDED BY BORROWERS]
-2-
<PAGE>
EXHIBIT 23.1
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of
Amendment No. 1 to this S-1 Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, GA
April 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,010,236
<SECURITIES> 0
<RECEIVABLES> 2,775,608
<ALLOWANCES> 157,772
<INVENTORY> 221,124
<CURRENT-ASSETS> 5,015,813
<PP&E> 4,841,522
<DEPRECIATION> 2,325,654
<TOTAL-ASSETS> 10,156,462
<CURRENT-LIABILITIES> 4,023,772
<BONDS> 0
0
400,000
<COMMON> 2,764,405
<OTHER-SE> (3,548,226)
<TOTAL-LIABILITY-AND-EQUITY> 10,156,462
<SALES> 0
<TOTAL-REVENUES> 23,260,082
<CGS> 0
<TOTAL-COSTS> 10,222,651
<OTHER-EXPENSES> 10,105,317
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 648,640
<INCOME-PRETAX> 232,203
<INCOME-TAX> (666,125)
<INCOME-CONTINUING> (395,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (395,358)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 939,770
<SECURITIES> 0
<RECEIVABLES> 2,439,710
<ALLOWANCES> 156,616
<INVENTORY> 96,417
<CURRENT-ASSETS> 4,472,595
<PP&E> 5,291,386
<DEPRECIATION> 2,510,478
<TOTAL-ASSETS> 9,885,334
<CURRENT-LIABILITIES> 3,868,106
<BONDS> 0
0
400,000
<COMMON> 2,764,405
<OTHER-SE> (3,172,636)
<TOTAL-LIABILITY-AND-EQUITY> 9,885,334
<SALES> 0
<TOTAL-REVENUES> 6,257,215
<CGS> 0
<TOTAL-COSTS> 2,634,623
<OTHER-EXPENSES> 2,532,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,689
<INCOME-PRETAX> 646,208
<INCOME-TAX> 258,193
<INCOME-CONTINUING> 383,590
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<NET-INCOME> 383,590
<EPS-PRIMARY> 0.06
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</TABLE>
