<PAGE>
As filed with the Securities and Exchange Commission on February 15, 2000
Registration No. 333-94511
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE INTERCEPT GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
----------------
Georgia 58-2237359
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
(770) 248-9600
(770) 242-6803 (facsimile)
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
----------------
John W. Collins
Chief Executive Officer
The InterCept Group, Inc.
3150 Holcomb Bridge Road, Suite 200
Norcross, Georgia 30071
(770) 248-9600
(770) 242-6803 (facsimile)
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
James Walker IV, Esq. M. Hill Jeffries, Esq.
Susan L. Spencer, Esq. M. Todd Wade, Esq.
Jonathan R. Coe, Esq. Nicola J. Kean, 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 30309-3424
(404) 817-6000 (404) 881-7000
(404) 817-6050 (facsimile) (404) 881-4777 (facsimile)
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 15, 2000
[LOGO OF THE INTERCEPT GROUP]
3,000,000 Shares
Common Stock
The InterCept Group, Inc. is offering 2,650,000 shares of common stock and
the selling shareholders are offering an additional 350,000 shares of our
common stock. Our common stock is traded on the Nasdaq National Market under
the symbol "ICPT." On February 11, 2000, the last reported sale price of our
common stock was $28.13 per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
--------------
<TABLE>
<CAPTION>
Per Share Total
----------- ---------
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discount..................................... $ $
Proceeds to InterCept..................................... $ $
Proceeds to Selling Shareholders.......................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriters a 30-day option to purchase up to 450,000
additional shares of common stock to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 2000.
--------------
Robertson Stephens
J.C. Bradford & Co.
First Union Securities, Inc.
SunTrust Equitable Securities
The date of this prospectus is , 2000
<PAGE>
[Inside front cover]
Color background with the image of a circuit board. Across the top is The
InterCept Group, Inc. logo and the phrase "Single Source Technology Provider
for Community Financial Institutions." Lines connect nine pictures and labels,
corresponding to the technologies provided by InterCept in three rows of three
each. The labels and pictures are as follows: (1) "ATM/EFT Processing" under a
picture of a woman and child using an ATM machine; (2) "Core Data Processing &
Software" under a picture of a desktop computer running PC BancPAC; (3) "Check
Imaging" under a picture of a sheet of checks running through an imaging
machine; (4) "Data Communications Management" under a picture of a man working
at a computer in front of a wall of servers; (5) "Item Processing" under a
picture of hands typing on a keyboard; (6) "InterCept Switch ATM Network" under
a picture of a card being inserted into an ATM machine; (7) "Disaster Recovery"
under a picture of a lightning storm; (8) "Optical Storage" under a picture of
a hand holding a compact disk; and (9) "Merchant Portfolio Management" under a
picture of a credit card being swiped through a credit card processing machine.
Across the bottom is the phrase "Delivering advanced technologies that allow
community financial institutions to compete in today's market."
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, "InterCept,"
"we," "us" and "our" refer to The InterCept Group, Inc., a Georgia corporation.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Forward Looking Statements............................................... 18
Use of Proceeds.......................................................... 19
Price Range of Common Stock.............................................. 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 30
Management............................................................... 41
Selling Shareholders..................................................... 43
Underwriting............................................................. 44
Legal Matters............................................................ 46
Experts.................................................................. 46
Where You May Find Additional Information................................ 47
</TABLE>
----------------
Our logo and certain titles of our products and services mentioned in this
prospectus are our service marks and trademarks. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
3
<PAGE>
SUMMARY
This section summarizes information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all of the information that
may be important to you. You should carefully read and consider all of the
information in this prospectus, including the information incorporated by
reference, before deciding to invest in shares of our common stock. Unless we
indicate otherwise, we have assumed that the offering price will be $28.13 per
share and that the underwriters will not exercise their over-allotment option.
The InterCept Group
We are a single-source provider of a broad range of technologies, products
and services that work together to meet the electronic commerce and operating
needs of financial institutions. We focus on serving the needs of financial
institutions across the United States with assets of less than $500 million,
which we refer to as community financial institutions. Over 1,400 of these
community financial institutions have contracted with us for one or more of our
technologies, products and services, which include:
Electronic funds transfer. Electronic funds transfer, or EFT, transactions
include ATM withdrawals, balance inquiries and transfers and debit card
transactions. We process a variety of EFT transactions online through national
and regional electronic networks, including CIRRUS(R), PLUS(R), STAR(TM) and
PULSE(TM). We also offer InterCept Switch(TM), a growing ATM network used by
community financial institutions to offer their customers access to ATMs owned
by other community banks free of charge.
Core data processing. We supply the software systems and services needed to
meet our customers' core data processing requirements, including general
ledger, loan and deposit operations, financial accounting and reporting, and
customer information file maintenance. Many of our customers install our
client/server software system, PC BancPAC(TM), in-house to perform these core
data processing functions for themselves, and others outsource their core
processing needs to our service bureau operations. We also provide item
processing services, such as statement preparation and encoding of checks.
Check imaging. Check imaging involves creating computerized images of
checks, deposit slips and related paper documents for electronic storage and
retrieval. We offer check imaging products and services on both an in-house and
service bureau basis to reduce the labor and costs associated with traditional
check sorting.
Data communications management. We provide efficient, reliable and secure
solutions for the data communications needs of our customers and maintain
nationwide data communications coverage. We operate a frame relay network,
which serves as the principal conduit through which we deliver our EFT and
other electronic commerce technologies, products and services to our customers.
We also provide internet services, like web hosting and email services, over
our frame relay network.
Internet banking. Through our affiliate, Netzee, Inc., we offer internet and
telephone banking products and services as part of our strategy to provide
comprehensive electronic commerce and operating capabilities to our customers.
Our Industry
According to a recent industry survey by Grant Thornton LLP, 93% of
community financial institutions believe employing technology is the most
important issue to their continued success. Community financial institutions
often have limited resources and are under pressure to control their operating
costs. By using third-party providers like us for their electronic commerce and
operating needs, we believe community financial institutions can reduce their
overhead and gain access to advanced technologies and services they otherwise
might not be able to afford.
4
<PAGE>
Our Solution
Our comprehensive and flexible suite of integrated technologies, products
and services allows us to act as a single-source provider for the technology
and operating needs of community financial institutions and help these
financial institutions:
. Implement advanced technologies. The technologies we design, develop and
maintain enable community financial institutions to implement the latest
technologies available in the financial services industry;
. Rapidly deploy new products and services to their customers. Once a
customer is set up on our network, we can quickly add new applications
that can help them satisfy consumer demands for services and generate
revenues with minimal effort;
. Focus on offering their primary products and services. We help financial
institutions stay focused on their primary business while meeting the
demands of their customers for the latest financial products and
services;
. Improve operating efficiencies. By implementing our technologies,
products and services, our customers can improve the efficiency of their
operations without incurring significant expenses associated with
developing or maintaining these solutions themselves; and
. Securely process and transmit large amounts of information. Our data
communications network is designed to facilitate the rapid and secure
processing and transmission of large amounts of sensitive financial data
used by financial institutions in their operations.
Our Strategies
Our goal is to become the leading provider of electronic commerce and other
operating technologies, products and services to community financial
institutions in the United States by:
. cross-marketing our technologies, products and services to our existing
customer base in order to maximize our recurring revenues;
. expanding our sales force and our strategic marketing relationships;
. acquiring businesses with similar or complementary products or services
that will enhance and expand our solutions, increase our market share or
expand our geographic presence;
. increasing the use of our data communications management services to
optimize our frame relay network; and
. continuing to expand and enhance the capabilities of our technologies,
products and services.
Our Corporate Profile
We were incorporated in Georgia on April 30, 1996. Our principal executive
offices are located at 3150 Holcomb Bridge Road, Suite 200, Norcross, Georgia
30071, and our telephone number is (770) 248-9600. Our corporate website
address is www.intercept.net. We are not incorporating the information on our
website into this prospectus, and we do not intend to make our website a part
of this prospectus.
5
<PAGE>
The Offering
The following information is based on the number of shares of common stock
outstanding as of December 31, 1999. It does not include 1,818,757 shares of
common stock currently reserved for issuance under our stock option plans, of
which 1,499,438 shares were issuable upon the exercise of options outstanding
as of December 31, 1999.
<TABLE>
<C> <S>
Common stock offered by InterCept.................. 2,650,000 shares
Common stock offered by the selling shareholders... 350,000 shares
Common stock to be outstanding after the offering.. 12,767,972 shares
Use of proceeds.................................... To pay down approximately
$4.1 million of
indebtedness outstanding
under our credit facility
with First Union National
Bank, to fund future
acquisitions and for
working capital and other
general corporate
purposes.
Nasdaq National Market symbol...................... ICPT
</TABLE>
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
You should read the following summary financial data along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
incorporated by reference in this prospectus. We derived the summary financial
data as of and for the years ended December 31, 1996, 1997 and 1998 from our
consolidated financial statements, which have been audited by Arthur Andersen
LLP, our independent public accountants. We derived the summary financial data
as of September 30, 1999 and for the nine months ended September 30, 1998 and
1999 from our unaudited consolidated financial statements which, in the opinion
of our management, include all adjustments necessary for a fair presentation of
the information set forth in the financial statements. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results for a full year. The as adjusted information reflects
our sale of 2,650,000 shares of common stock in this offering and the
application of the estimated proceeds from that sale. Minority interest in loss
of unconsolidated subsidiary represents our share of the equity and earnings of
Netzee. Minority interest in (income) loss of consolidated subsidiary
represents the minority shareholder's 33.3% share of the equity and earnings of
ProImage, a corporation that provides check imaging services, of which we own
66.7%. The actual and as adjusted working capital as of September 30, 1999
includes $31.5 million due from Netzee, which was repaid by Netzee with some of
the proceeds from its initial public offering which was completed in November
1999.
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
December 31, September 30,
---------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................... $ 14,511 $ 23,260 $ 28,902 $ 20,483 $ 32,574
Costs of services.......... 7,859 10,223 12,031 8,634 12,798
Selling, general and
administrative expenses... 6,852 10,105 11,222 7,897 12,781
Depreciation and
amortization.............. 351 1,323 1,337 962 3,211
Loss on impairment of
intangibles............... -- 728 -- -- --
Write off of purchased
research and development
costs..................... 810 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses... 15,873 22,379 24,590 17,493 28,790
-------- -------- -------- -------- --------
Operating income (loss).... (1,362) 881 4,312 2,990 3,784
Other income (expense),
net....................... (279) (649) (184) (211) 16,119
-------- -------- -------- -------- --------
Income (loss) before
provision for income taxes
and minority interest..... (1,641) 232 4,128 2,779 19,903
Provision (benefit) for
income taxes.............. (236) 666 1,564 1,076 10,364
Minority interest in loss
of unconsolidated
subsidiary................ -- -- -- -- 5,541
Minority interest in
(income) loss of
consolidated subsidiary... (14) 39 (89) (80) (86)
-------- -------- -------- -------- --------
Net income (loss).......... (1,419) (395) 2,475 1,623 3,912
Preferred stock dividends.. (8) (32) (16) (16) --
-------- -------- -------- -------- --------
Net income (loss)
attributable to common
shareholders.............. $ (1,427) $ (427) $ 2,459 $ 1,607 $ 3,912
======== ======== ======== ======== ========
Net income (loss) per
common share:
Basic..................... $ (0.24) $ (0.06) $ 0.30 $ 0.21 $ 0.41
======== ======== ======== ======== ========
Diluted................... $ (0.24) $ (0.06) $ 0.30 $ 0.20 $ 0.39
======== ======== ======== ======== ========
Weighted average common
shares outstanding:
Basic..................... 5,851 6,750 8,132 7,749 9,643
Diluted................... 5,851 6,750 8,247 7,867 10,059
<CAPTION>
As of
As of December 31, September 30, 1999
---------------------------- ---------------------
1996 1997 1998 Actual As Adjusted
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $ 1,398 $ 2,010 $ 3,224 $ 1,163 $ 70,609
Working capital............ 1,509 1,117 4,627 2,687 72,133
Total assets............... 10,941 10,156 20,155 84,049 153,495
Long term debt, net of
current portion........... 5,212 4,717 211 200 200
Shareholders' equity
(deficit)................. 82 (784) 16,258 32,109 101,555
</TABLE>
7
<PAGE>
RISK FACTORS
An investment in shares of our common stock involves risks. You should
carefully consider the risks described below, together with the other
information in this prospectus, before making an investment in our common
stock. Our business, financial condition or results of operations could be
adversely affected by any of the following risks. If we are adversely affected
by these risks, then the trading price of our common stock could decline and
you could lose all or part of your investment. In addition, you should keep in
mind that the risks described below are not the only risks that we face. The
risks described below are the risks that we currently believe are material
risks of an investment in our common stock. However, additional risks not
presently known to us, or risks that we currently believe are not material, may
also impair our business operations.
Risks Related to Our Operations
Our rapid growth could strain our managerial, operational and financial
resources, and our failure to manage our growth could cause our business to
suffer.
Our internal growth and acquisitions since our initial public offering in
June 1998 have placed great demands on our business, particularly our
managerial, operational and financial personnel and systems. For example, we
have grown from approximately 170 employees on March 31, 1998 to approximately
380 employees on December 31, 1999. Of these employees, over 175 joined us as a
result of acquisitions. During the same period, we also added eight additional
facilities in four states and significantly increased our customer base.
Additional internal growth and acquisitions may further strain our resources.
We cannot guarantee that our systems, procedures, controls and existing
facilities will be adequate to support the expansion of our operations, while
maintaining adequate levels of customer service and satisfaction. Our future
operating results will depend substantially on the ability of our officers and
key employees to manage changing business conditions and to implement and
improve our technical, administrative, financial control and reporting systems.
Our failure to respond to and manage changing business conditions as we expand
could diminish the quality of our products and services, result in the loss of
customers and weaken our operating results.
Our acquisitions could result in integration difficulties, unexpected expenses,
diversion of management's attention and other negative consequences.
As part of our growth strategy, since our initial public offering in June
1998, we have completed several acquisition transactions. See "Business--Our
Acquisitions" for a description of these acquisitions. We plan to continue to
acquire similar or complementary businesses, products and services as a key
element of our growth strategy. We must integrate the technologies, products,
services, operations, systems and personnel of acquired businesses with our own
and attempt to grow the acquired businesses as part of our company. The
integration of other businesses is a complex process and places significant
demands on our management, financial, technical and other resources. The
successful integration of businesses we have acquired and may acquire in the
future is critical to our future success, and if we are unsuccessful, our
financial and operating performance could suffer. The risks and challenges
associated with the acquisition and integration of acquired businesses include,
but are not limited to:
. an inability to centralize and consolidate our financial, operational
and administrative functions with those of the businesses we acquire;
. the diversion of our management's attention from other business
concerns;
. an inability to retain and motivate key employees of an acquired
company;
. the entry into markets in which we have little or no prior direct
experience;
. the possibility of litigation, indemnification claims and other
unforeseen claims and liabilities arising from the acquisition or the
operations of acquired businesses;
8
<PAGE>
. the costs necessary to complete integration may exceed our expectations
or outweigh some of the intended benefits of the transactions we
complete;
. an inability to maintain the customers or goodwill of an acquired
business; and
. the costs necessary to improve or replace the operating systems,
products and services of acquired businesses may exceed our
expectations.
We cannot guarantee that we will be able to successfully integrate our
acquisitions with our operations on schedule or at all. We cannot assure you
that we will not incur large accounting charges or other expenses due to
acquisitions or that they will result in cost savings or sufficient revenues or
earnings to justify our investment in, or our expenses related to, these
acquisitions.
As noted, we may incur costs and expenses in connection with indemnification
claims and litigation associated with our acquisitions. We may also experience
customer attrition as a result of acquisitions if our existing customers or
customers of the acquired business disagree with or dislike the acquisition for
any reason. For example, in connection with an acquisition that we completed in
1999, a licensor of a core processing product to the company we acquired has
claimed that its license agreement was breached by the acquisition. The company
that we acquired uses the disputed software to service approximately 50
customers under written agreements we now have with those customers. The owner
of the software has demanded arbitration and is claiming that it should be
entitled to unspecified damages in excess of $50,000, termination of the
license agreement, interest on its damages and reimbursement of its fees and
costs. We intend to vigorously defend these claims. However, if we do not
prevail we could be required to pay a material amount in damages. If we lose
all or a significant number of the customers that currently use the software or
are required to pay large amounts of damages, it could have a material adverse
effect on our revenues and profits.
Competition, restrictions under our credit facility, market conditions and
other factors may impede our ability to acquire other businesses and may
inhibit our growth.
A significant part of our historic growth has been generated from
acquisitions. We anticipate that a large portion of our future growth will also
be accomplished through acquisitions. The success of this plan depends upon our
ability to identify suitable acquisition candidates, reach agreements to
acquire these companies and obtain necessary financing on acceptable terms. In
pursuing acquisition and investment opportunities, we may compete with other
companies with similar growth strategies. Some of these competitors may be
larger and have greater financial and other resources than we have. Due to this
competition, we may be unable to acquire businesses that could improve our
growth or expand our operations.
The acquisitions we have completed since our initial public offering have
been financed with our common stock, cash from our operations and borrowings
made under our line of credit with First Union National Bank. If our stock
price declines as a result of general market conditions or otherwise, the
shareholders of businesses that we seek to acquire may be unwilling to accept
our common stock in exchange for their business. In that case, in order to
continue to complete acquisitions, we would be required to use larger portions
of our line of credit or cash from operations, which would decrease our working
capital, increase our interest expense and could have a material negative
impact on our financial performance and results of operations. In addition, our
credit facility with First Union restricts our ability to complete acquisitions
without First Union's consent. We also must be in compliance with the financial
covenants of the credit facility in order to make these acquisitions. If we are
unable to raise additional capital or borrow funds, we may be unable to make
acquisitions that could be helpful to our business.
If we do not continue to expand our sales force and our marketing
relationships, we may not be able to continue our growth.
Our ability to expand our business will depend significantly on our ability
to expand our sales and marketing forces and our strategic marketing
relationships. In order to continue our growth, we must
9
<PAGE>
successfully cross-market our products and services to existing customers and
enter into agreements with new customers. This requires us to locate and hire
experienced sales and marketing personnel and to establish and maintain key
marketing relationships.
Competition for experienced sales and marketing personnel is intense, and we
may not be able to retain existing personnel or locate and attract additional
qualified personnel in the future. In addition, we have relationships with
various banking-related organizations for the marketing and endorsement of our
products and services. For example, we rely upon our agreements with bankers'
banks across the country to market our products and services to community
financial institutions. These relationships are important to our sales and
marketing efforts and our geographic expansion. If we lose any of these
marketing relationships or are unable to enter into new ones, it could delay
growth in our customer base and revenues.
The loss of our Chief Executive Officer or President could have a material
adverse effect on our business.
John W. Collins, our Chief Executive Officer, and Donny R. Jackson, our
President and Chief Operating Officer, have substantial experience with our
operations and our industry and have contributed significantly to our growth.
We maintain key man life insurance on both of these individuals, and each of
them works for us under the terms of an employment agreement. However, our
customer and marketing relationships would likely be impaired and our business
would likely suffer if we lose the services of either or both of these senior
officers for any reason.
Technological changes may reduce the demand for our solutions or render them
obsolete.
A substantial portion of our business involves electronic commerce. The
electronic commerce industry, including EFT, data communications and data
processing, has experienced rapid technological change. The introduction of new
technologies and financial products and services can render existing
technologies, products and services obsolete in a short period of time. We
expect other vendors to continually introduce new products and services, as
well as enhancements to their existing products and services, which will
compete with our products and services. To be successful, we must anticipate
evolving industry trends, continue to apply advances in electronic commerce,
enhance our existing products and services, and develop or acquire new products
and services to meet the demands of our customers. We may not be successful in
developing, acquiring or marketing new or enhanced products or services that
respond to technological change or evolving customer needs. We may also incur
substantial costs in developing and employing new technologies. If we fail to
develop and provide new and enhanced products and services, or if these
products and services do not achieve market acceptance, we could lose customers
and revenues and fail to attract new customers or otherwise realize the
benefits of costs we incur, all of which could cause our revenues and earnings
to fall below market expectations.
If our processing centers or communications networks suffer a system failure or
interruption, we may face customer service issues and may be liable for any
damage suffered by our customers.
Our operations depend on our ability to protect our processing centers,
network infrastructure and equipment. Damage to our systems or equipment or
those of third parties that we use may be caused by natural disasters, human
error, power and telecommunications failures, intentional acts of vandalism and
similar events. While we do have data and item processing centers in several
locations that serve as backups for each other, we only maintain a single data
communications switching facility and do not maintain a backup location for our
frame relay network hardware. Interruption in our processing or communications
services could delay transfers of our customers' data or damage or destroy the
data. Sudden increases in ATM usage or credit card activity could result in
slow response times in our network. Any of these occurrences could result in or
lead to lawsuits or loss of customers and may also harm our reputation.
We depend on third parties for products and services necessary to our business,
and if we cannot obtain satisfactory products and services on favorable terms,
or at all, our business could suffer.
We rely on third parties for internet and telephone banking products and
services, ATM and debit card productions, fiber optic communications, and other
products and services that are essential to our business. For
10
<PAGE>
example, we plan to use and market the internet and telephone banking products
and services of our affiliate, Netzee, Inc., as part of our electronic commerce
solutions. If Netzee or any of these other third parties terminates or changes
its relationship with us, or if for any reason we are unable to obtain its
products and services on favorable terms, we may be unable to meet our
customers' needs on a timely basis. Similarly, if any of these third parties is
permanently or temporarily unable to provide its products and services to us as
the result of natural disasters, technical difficulties or otherwise, we may be
unable to provide our products and services to our customers. If the
performance of the third party products and services, or our own products and
services, that we provide to our customers does not meet our customers'
expectations, whether due to difficulties in integrating these products and
services with the customers' existing products and services or otherwise, we
may be unable to satisfy our customers' operating needs. If we are unable to
meet our customers' needs, our customer relationships could be damaged and our
business reputation harmed, both of which could cause us to lose customers and
would inhibit our ability to obtain new customers.
If our products and services contain errors, we may lose customers and be
subject to claims for damages.
New products and services and enhancements to our existing solutions that we
may offer from time to time may have undetected errors or failures or could
fail to achieve market acceptance. Despite testing by us and our current and
potential customers, if we discover errors after we have introduced a new or
updated product to the marketplace, we could experience, among other things:
. delayed or lost revenues while we correct the errors;
. a loss or delay in market acceptance; and
. additional and unexpected expenses to fund further product development.
Our agreements with our customers generally contain provisions designed to
limit our 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 these provisions may not be
effective because of existing or future federal, state or local laws or
ordinances, or unfavorable judicial decisions. Therefore, in the event our
products and services fail to function properly, we could be subject to product
liability claims, which could result in increased litigation expense, damage
awards and harm to our business reputation.
Because our business involves the electronic storage and transmission of data,
we could be adversely affected by security breaches and computer viruses.
Our online transaction processing systems electronically store and transmit
sensitive business information of our customers. The difficulty of securely
storing confidential information electronically has been a significant issue in
conducting electronic commerce. We may be required to spend significant capital
and other resources to protect against the threat of security breaches,
computer viruses or to alleviate problems caused by breaches or viruses. To the
extent that our activities or the activities of our customers involve the
storage and transmission of confidential information, such as banking records
or credit information, security breaches and viruses could expose us to claims,
litigation or other possible liabilities. Our inability to prevent security
breaches or computer viruses could also cause customers to lose confidence in
our systems and terminate their agreements with us and inhibit our ability to
attract new customers.
We may be unsuccessful as a competitive local exchange or long distance
carrier.
As part of our business strategy to reduce our operating costs and enhance
services for our customers, we applied to several state public utility
commissions for authority to become both a competitive local exchange carrier,
or CLEC, and a long distance carrier, or IXC. Becoming a CLEC will allow us to
purchase at wholesale prices telecommunications services sold at retail by
local telephone companies such as the Regional Bell Operating Companies, or
RBOCs. Similarly, becoming an IXC will allow us to resell the long distance
services
11
<PAGE>
of other carriers such as AT&T Corp. or MCI WorldCom, Inc. We recently received
certification as a CLEC in Alabama, Florida and Georgia and an IXC in Alabama
and Florida. Our application for approval for an IXC in Georgia is currently
pending. We have negotiated an interconnection/resale agreement with BellSouth
Telecommunications Inc., a RBOC, but have not yet done so with an IXC. The
BellSouth interconnection/resale agreement has been filed with the public
utility commissions in Alabama, Florida and Georgia but has not been approved
by any of those states.
Our ability to succeed as a CLEC or an IXC will be subject to a number of
factors, including:
. our ability to market the new services to our customers;
. the willingness of our customers to use a non-traditional provider for
their telecommunications services;
. our ability to implement the necessary billing and collection systems
for these services;
. competition from RBOCs such as BellSouth, from IXCs such as AT&T Corp.
or MCI WorldCom, Inc., and from other CLECs;
. our ability to obtain the services, equipment and facilities that we
need to serve as a CLEC or IXC; and
. the performance of other carriers from whom we purchase services for
resale.
If we are unsuccessful in operating as a CLEC or an IXC, our ability to
control our operating costs would be harmed and we would not receive the
benefits of the costs we have incurred in our efforts to become both a CLEC and
an IXC.
As a CLEC and an IXC, we are subject to significant government regulation,
which is subject to change.
In addition to obtaining state CLEC and IXC certifications, we are also
required to obtain authorization from the Federal Communications Commission to
offer international telecommunications services. We are also required to file
with the FCC and with various state public utility commissions tariffs
describing the rates, terms and conditions of our services and to comply with
local license or permit requirements relating to installation and operation of
our network. We have incurred some costs in attempting to become a CLEC and IXC
and expect to incur significant costs in maintaining that status. Any of the
following could have a material adverse effect on our operations as a CLEC or
an IXC:
. failure to maintain proper federal and state tariffs;
. failure to maintain proper federal or state certifications;
. failure to comply with federal, state or local laws or regulations;
. failure to obtain and maintain required licenses and permits;
. changes in the laws applicable to CLECs or IXCs; and
. burdensome federal, state or local regulations, license or permit
requirements.
Fluctuations in our operating results may negatively affect the trading price
of our common stock.
Our operating results have varied in the past and may fluctuate
significantly in the future as a result of many factors. These factors include:
. the possible negative impact of implementing our growth and acquisition
strategies, including accounting charges and other expenses associated
with our acquisitions;
. loss of customers or strategic relationships;
. competition and pricing pressures; and
. increased operating expenses due to launches of new products and
services and sales and marketing efforts.
12
<PAGE>
Many factors that affect our operating results are outside of our control.
Because of these factors, it is likely that in some future period our financial
results will fall below the expectations of securities analysts or investors.
In such event, the trading price of our common stock would likely decline,
perhaps significantly.
Our limited combined operating history makes it difficult to evaluate our
business.
Since our incorporation in May 1996, we have completed several acquisitions.
The historical and pro forma financial information included or incorporated by
reference in this prospectus is based in part on the separate pre-acquisition
financial reports of the companies we have acquired. As a result, your
evaluation of us is based on a limited combined operating history. Our
historical results of operations and pro forma financial information may not
give you an accurate indication of our future results of operations or
prospects.
Georgia law, as well as our articles of incorporation, bylaws and some of our
employment agreements contain provisions that could discourage a third party
from attempting to acquire your shares at a premium to the market price.
Some provisions of our articles of incorporation, our bylaws and Georgia law
make it more difficult for a third party to acquire control of our company,
even if a change in control would be beneficial to our shareholders. Several of
our executive officers have entered into employment agreements with us that
contain change in control provisions. These provisions may discourage or
prevent a tender offer, proxy contest or other attempted takeover. In addition,
we have in the past and may in the future create and issue new classes of
preferred stock that have greater rights than our common stock. These superior
rights may include greater voting rights, entitlement to dividends and
preferential treatment in the event of a change of control, liquidation,
consolidation or other circumstances.
Risks Related to Our Ownership in Netzee
Because we own a minority interest in Netzee and Netzee is expected to continue
to have significant losses, our future financial performance may be adversely
affected.
In September 1999, we completed a series of transactions that removed
internet and telephone banking products and services from our operations. Our
historical financial results therefore include results of operations that we no
longer have. These operations are now conducted by Netzee, Inc., a company in
which we own approximately 37.9%. Although we no longer include Netzee's
operations in our financial results on a combined basis, we record the
operating income and losses of Netzee in a single line item on our statement of
operations. Because we continue to provide funding to Netzee for its working
capital needs, we will continue to include Netzee's losses in our statement of
operations. When the funding is complete, we will record only our relative
percentage of Netzee's losses. In addition, Netzee has a history of losses and
may never become profitable. The impact of Netzee's results of operations on
our financial condition, including our shareholders' equity, is uncertain, and
we cannot guarantee we will benefit from our ownership in Netzee.
If Netzee does not become profitable, it may not be able to repay the loans we
have made and may make to it in the future.
We continue to make loans to Netzee to fund its operations. As of
February 11, 2000, the total amount outstanding on our loans to Netzee was
approximately $3.2 million. We borrowed these funds under our credit facility
with First Union, which is secured by substantially all of our assets. Netzee
has a history of losses and may never become profitable. As a result, Netzee
may be unable to repay the loans we made to it, which would harm the value of
our investment in Netzee and our shareholders' equity.
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<PAGE>
Fluctuations in the price of Netzee's common stock and its operating results
could materially impact the price of our common stock.
Because of our significant ownership interest in Netzee, a perception may
exist in the market that our stock price is tied closely to the stock price of
Netzee. The value of our minority interest in Netzee will be based in part on
the fair market value of Netzee's common stock as reported on the Nasdaq
National Market. Some investors may discount the value of our position in
Netzee due to the large, illiquid nature of our ownership in Netzee. We believe
that Netzee will be valued similarly to other companies with internet-based
businesses, and the market values of these companies generally have fluctuated
significantly. Therefore, the value of our interest in Netzee and our
shareholders' equity could fluctuate significantly, which could cause our stock
price to fluctuate significantly as well.
Our relationship with Netzee presents potential conflicts of interest, which
may result in decisions which favor Netzee over our shareholders.
Because we and Netzee are both engaged in the sale of electronic commerce
products and services to community financial institutions, numerous potential
conflicts of interest exist between our companies. We will compete with each
other when offering some products and services to potential customers. Our
bylaws contain provisions addressing potential conflicts of interest between us
and Netzee and the allocation of transactions that, absent such allocation,
could constitute corporate opportunities of both companies. Under these
provisions, Netzee may take advantage of a corporate opportunity rather than
presenting that opportunity to us, absent a clear indication that the
opportunity was directed to us rather than to Netzee.
Our existing and future agreements and relationships with Netzee have not
resulted and will not necessarily result from arms-length negotiations. Our
Chairman and three of our other directors are directors and significant
shareholders of Netzee. In addition, Glenn W. Sturm, one of those directors,
serves as Chief Executive Officer of Netzee. When the interests of Netzee
diverge from our interests, Netzee's officers and directors may exercise their
influence in Netzee's best interests. Therefore, our agreements and
relationships with Netzee may be less favorable to us than those that we could
obtain from unaffiliated third parties. Moreover, many of the transactions
between us and Netzee do not lend themselves to precise allocations of costs
and benefits. Thus, the value of these transactions will be left to the
discretion of the parties, who are subject to potentially conflicting
interests.
Other than the provisions of our bylaws relating to corporate opportunities,
there is no mechanism in place to resolve these conflicts of interest, except
that it is our policy that transactions with affiliated parties be approved by
a majority of our disinterested directors. Nevertheless, due to the extensive
relationships between Netzee and us, we may make decisions that potentially
favor Netzee or its affiliates at the expense of our shareholders. Furthermore,
Georgia law may prohibit you from successfully challenging these decisions, if
the decision received the affirmative vote of a majority, but not less than
two, of our disinterested directors who received full disclosure of the
existence and nature of the conflict.
We could face liabilities due to our large ownership of Netzee.
Because we own a large percentage of Netzee's common stock, we could be
subject to various liabilities related to Netzee's business and operations. For
example, if Netzee were sued in a lawsuit, we could be named a co-defendant as
a result of our ownership interest and relationship with Netzee. Although we do
not believe that would be proper cause for us to be liable, any lawsuit in
which we are a named defendant could result in large litigation expenses and
distract us from running our business while we defend our position.
Risks Related to Our Industry
Because many of our competitors have significantly greater resources than we
do, we may be unable to gain significant market share.
Because our business includes a variety of products and services, we
generally face different competitors within each area of our business. Our
principal EFT competitors include regional ATM networks, regional and
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<PAGE>
local banks that perform processing functions, non-bank processors and other
independent electronic commerce and data communications organizations. In our
core banking and data processing business, we compete with several companies
who have national operations and significant assets. In each of these areas,
many of our competitors have longer operating histories, greater name
recognition, and substantially greater resources than we do. If we compete with
them for the same geographic market, their financial strength could prevent us
from capturing market share in those areas. In addition, the competitive
pricing pressures that would result from an increase in competition from these
companies could have a material adverse effect on our business, financial
condition and results of operations. Some of our competitors have established
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share.
We cannot guarantee that we will be able to compete successfully with
existing or new competitors. If we fail to adapt to emerging market demands or
to compete successfully with existing and new competitors, our business,
financial condition and results of operations would be materially adversely
affected.
Community financial institutions are subject to industry consolidation, and we
may lose customers with little notice.
We market our products and services primarily to community financial
institutions. Due to merger and acquisition activity in the banking industry,
there is a risk that an existing customer may be acquired by or merged with
another financial institution. Any such purchase or merger may result in a lost
customer for us because the acquiring financial institution may not use our
products and services. Many large financial institutions perform their own
transaction processing and data communications management and therefore do not
use third party providers like us. Although we have included financial
penalties in most of our contracts for early termination of the contract
without cause, these financial penalties would be insufficient to replace the
recurring revenues that we would have received if the financial institution had
continued as a customer.
The banking industry is highly regulated, and changes in banking regulations
could negatively impact our business.
Our banking customers are subject to the supervision of several state and
federal government regulatory agencies. If bank regulations change, or if new
regulations are adopted to regulate the products and services offered by or
used by community financial institutions, we could suffer an increase in the
costs of providing our technologies, products and services. Moreover, if any
new or revised regulations diminished the need for our services, we could lose
customers and suffer a decline in revenues.
We are subject to government and private regulation, and an increase in
regulatory requirements or tax burdens could place a strain on our business.
Various federal and state regulatory agencies examine our data processing
operations from time to time. These agencies can make findings or
recommendations regarding various aspects of our operations, and we generally
must follow such recommendations to continue our data processing operations. If
we fail to comply with these regulations, our operations and our processing
revenues could be negatively impacted.
Our ATM network operations are subject to federal regulations governing
consumers' rights. Fees charged by ATM owners are currently regulated in
several states, and legislation regulating ATM fees has been proposed in
several other states. Additional legislation may be proposed and enacted in the
future or existing consumer protection laws may be expanded to apply to ATM
fees. If the number of ATMs decreases, then our EFT revenues may decline.
Furthermore, we are subject to the regulations and policies of various ATM and
debit card associations and networks. If we lose our privileges to provide
transaction processing services across these networks, our revenues from ATM
and debit card transaction processing will decrease significantly.
As a transaction processing company, we may be subject to state taxation of
certain portions of the fees charged for our services. Application of this tax
is an emerging issue in the industry, and the states have not yet adopted
uniform guidelines implementing these regulations. If we are required to bear
all or a portion of these
15
<PAGE>
costs and are unable to pass these costs through to our customers, our
financial condition and results of operations would be adversely affected.
Because our industry relies on computers and other electronic devices, problems
related to the year 2000 date change could disrupt or damage our business
operations.
Our industry depends significantly on a number of computer software
programs, internal operating systems and connections to other networks. Many
installed computer software and network processing systems may still need to be
upgraded or replaced in order to accurately record and process information and
transactions on and after January 1, 2000, an issue commonly referred to as the
year 2000 problem. In addition, some recent publications have indicated that
February 29, 2000 may cause problems for some systems and networks. If any of
these programs, systems or connections do not properly process dates,
significant system failures or errors could cause damage or destruction to
customer data and result in a material adverse effect on our and our customers'
business, financial condition and results of operations. For our internal
accounting and operating systems and network communications, we use software
and other products provided by third parties. While we have not experienced any
significant year 2000 problems to date, our ability to provide services to our
customers may be materially adversely affected if we experience latent problems
with these third party products in the future.
Other companies interact electronically with us and our customers, and we
must coordinate our EFT, data communications and enterprise software processing
with such companies. We interface and exchange information with customers,
financial institutions' network processors and other participants in the
electronic commerce process. If these third parties do not successfully address
the year 2000 problem in their operations, and if we or our customers cannot
successfully transfer their processing operations to another provider that is
year 2000 compliant, our processing operations may be impeded, hindered or
delayed. The failure or delay of these third parties to address the year 2000
issue may have a material adverse effect on our business, financial condition
and operating results.
If we face a claim of intellectual property infringement by a third party or
fail to protect our intellectual property rights, we could be liable for
significant damages or could lose our intellectual property rights.
We attempt to protect our software, documentation and other written
materials under trade secret and copyright laws, confidentiality procedures and
contractual provisions, which afford only limited protection. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. We cannot guarantee that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology. We do not believe that any of our products infringe the
proprietary rights of third parties. We cannot guarantee, however, that third
parties will not make infringement claims, and we have agreed to indemnify many
of our customers against such claims. We anticipate that the number of
infringement claims will increase as the number of electronic commerce products
and services increases and the functionality of products in different industry
segments overlaps. Any such claims, whether with or without merit, could be
time-consuming, result in costly litigation, and may not be resolved on terms
favorable to us.
Risks Related to this Offering
A few people control a large portion of our stock and may vote their shares in
ways contrary to your interests.
After this offering, our executive officers and directors will beneficially
own approximately 25.1% of our outstanding common stock as of the date of this
prospectus. In addition, John W. Collins, our Chairman and Chief Executive
Officer, has the right to direct the voting of an additional 963,000 shares, or
approximately 7.5%, of our common stock held by another shareholder. As a
result, they can exercise control over our company and have the power to
influence the election of a majority of the directors, the appointment of
management and the approval of actions requiring a majority vote of our
shareholders. Their interests may conflict with your interest as a shareholder,
and they could use their power to delay or prevent a change in control, even if
a majority of the other shareholders desired a change.
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<PAGE>
Future sales of shares of our common stock will dilute your ownership and may
negatively affect our stock price.
To carry out our growth strategies, we plan to acquire other businesses and
products using a combination of our stock and cash, and we may also sell
additional shares of our stock to raise money for expanding our operations,
which would dilute your ownership interest in our company.
If our shareholders sell substantial amounts of our common stock, including
shares issuable upon the exercise of outstanding options and shares registered
in this offering, the market price of our common stock could fall. These sales
also might make it more difficult for us to sell equity securities in the
future at a time and price that we deem appropriate. As of December 31, 1999,
we had 10,117,972 shares of common stock outstanding and options outstanding to
acquire an additional 1,499,438 shares of common stock. After this offering,
approximately 10,300,000 shares, including the shares being sold by the selling
shareholders, will be freely tradable by persons who are not affiliates of our
company.
Our management will have broad discretion to spend a large portion of the net
proceeds of this offering and may spend the proceeds in ways with which you do
not agree.
We estimate that the net proceeds from the sale of the 2,650,000 shares of
common stock offered by us will be approximately $69.4 million, after deducting
estimated underwriting discounts and estimated offering expenses. We intend to
use a substantial portion of the net proceeds to fund future acquisitions and
investments that could provide additional customers, products, services or
technologies, and for working capital and other general corporate purposes.
We have not determined specific uses for a large portion of the net proceeds
from this offering. Consequently, our board of directors and management may
apply much of the net proceeds of this offering to uses that you may not
consider desirable. The failure of management to apply these funds effectively
could have a material adverse effect on our business, financial condition and
operating results. For more information on how we intend to use the proceeds
from this offering, see "Use of Proceeds."
We cannot predict every event and circumstance which may impact our business
and, therefore, the risks and uncertainties discussed above may not be the only
ones you should consider.
The risks and uncertainties discussed above are in addition to those that
apply to most businesses generally. In addition, as we continue to grow our
business, we may encounter other risks of which we are not aware at this time.
These additional risks may cause serious damage to our business in the future,
the impact of which we cannot estimate at this time.
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<PAGE>
FORWARD LOOKING STATEMENTS
We have made forward looking statements in this prospectus. These statements
are subject to risks and uncertainties, and we cannot guarantee you that they
will prove to be correct. Forward looking statements include assumptions as to
how we may perform in the future. When we use words like "believe," "expect,"
"anticipate," "predict," "potential," "seek," "continue," "will," "may,"
"could," "intend," "plan," "estimate," "goal," "strive" and similar
expressions, we are making forward looking statements.
Forward looking statements in this prospectus include statements regarding
the following:
. our business strategies and goals;
. our future sources of revenues and potential for growth and
profitability;
. expansion and enhancement of our technologies, networks, products and
services;
. our relationship with Netzee;
. trends in activities and industry conditions;
. development and expansion of our sales and marketing efforts;
. our ability to integrate our previous and future acquisitions; and
. other statements which are not of historical fact made throughout this
prospectus, including in the "Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections.
We believe that the expectations reflected in our forward looking statements
are reasonable, but we cannot guarantee that we will actually achieve these
expectations. In addition, we cannot guarantee that any of the assumptions from
which we have developed the pro forma financial information incorporated by
reference in this prospectus are complete or correct. Projections or estimates
of our future performance are necessarily subject to a high degree of
uncertainty and may vary materially from actual results. In evaluating forward
looking statements and pro forma information, you should carefully consider
various factors, including the risks outlined under the "Risk Factors" section
beginning on page 8 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 23, as well as our
consolidated financial statements. You should also consider the cautionary
statements contained in the reports we have filed with the Securities and
Exchange Commission. These factors may cause our actual results to differ
materially from any forward looking statements.
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<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of 2,650,000 shares of our
common stock in this offering will be approximately $69.4 million after
deducting the estimated underwriting discount and offering expenses. If the
underwriters exercise their over-allotment option in full, we will receive
approximately $11.9 million in additional net proceeds. We expect to use the
net proceeds of this offering:
. to pay down approximately $4.1 million of debt owed to First Union
under our revolving credit facility, $3.2 million of which we borrowed
and then loaned to Netzee;
. to fund future acquisitions and investments; and
. for working capital and other general corporate purposes.
Borrowings under the First Union credit facility accrue interest at either
the lender's prime rate minus .25% or the 30-day LIBOR rate plus applicable
margins, at our election. The interest rate on the credit facility was
approximately 6.25% as of December 31, 1999. This facility expires on June 30,
2002.
While we discuss potential acquisitions from time to time and have recently
completed several acquisitions, we currently have no commitments or agreements
for any acquisitions. Furthermore, we cannot guarantee that we will complete
any other acquisitions.
The amount of funds that we actually use for the above purposes, other than
debt repayment, will depend on many factors, including revisions to our
business plan, material changes in our revenues or expenses, and other factors.
Accordingly, our management will have significant discretion over the use and
investment of a large portion of the net proceeds to us from the offering. See
"Risk Factors--Risks Related to this Offering--Our management will have broad
discretion to spend a large portion of the net proceeds of this offering and
may spend the proceeds in ways with which you do not agree." Pending these
uses, we intend to invest the funds in investment-grade, interest-bearing
instruments.
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<PAGE>
PRICE RANGE OF COMMON STOCK
From our initial public offering in June 1998 until March 26, 1999, our
common stock traded on the American Stock Exchange under the symbol "ICG." On
March 29, 1999, our common stock began trading on the Nasdaq National Market
under the symbol "ICPT." The table below sets forth for the periods indicated
the high and low sale prices of our common stock as reported by the American
Stock Exchange and the Nasdaq National Market, as the case may be.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1998:
Second Quarter (beginning June 9, 1998)...................... $ 7.38 $ 7.00
Third Quarter................................................ $ 8.38 $ 5.00
Fourth Quarter............................................... $ 7.75 $ 4.50
Year Ended December 31, 1999:
First Quarter................................................ $10.25 $ 7.06
Second Quarter............................................... $17.38 $ 8.00
Third Quarter................................................ $30.13 $14.00
Fourth Quarter............................................... $31.25 $12.50
Year Ended December 31, 2000:
First Quarter (through February 11, 2000).................... $32.03 $20.25
</TABLE>
On February 11, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $28.13 per share. At January 11, 2000, there
were approximately 80 holders of record of our common stock, representing
approximately 1,680 beneficial owners of our common stock.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to fund the development and growth of
our business. Our line of credit from First Union National Bank prohibits us
from paying cash dividends without the consent of First Union. Payment of
future cash dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion.
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CAPITALIZATION
The following table describes our capitalization as of September 30, 1999:
. on an actual basis; and
. on an as adjusted basis to reflect the receipt and application by us of
the estimated net proceeds from this offering.
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," our consolidated
financial statements and related notes and the other financial information
appearing elsewhere or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
-------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Long term debt.......................................... $ 200 $ 200
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares
authorized; no shares issued or outstanding.......... -- --
Common stock, no par value; 50,000,000 shares
authorized; 10,115,972 shares issued and outstanding,
actual; 12,765,972 shares issued and outstanding, as
adjusted............................................. 29,228 98,674
Retained earnings....................................... 2,814 2,814
Accumulated other comprehensive income.................. 67 67
------- --------
Total shareholders' equity............................ 32,109 101,555
------- --------
Total capitalization................................ $32,309 $101,755
======= ========
</TABLE>
The number of shares of common stock to be issued and outstanding, as
adjusted, is based on the number of shares outstanding as of September 30, 1999
and does not include 1,503,438 shares issuable as of September 30, 1999 upon
the exercise of options granted under our stock option plans.
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SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
You should read the following data along with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes incorporated by reference in this
prospectus. We derived our selected consolidated financial data as of and for
the years ended December 31, 1995, 1996, 1997 and 1998 from our consolidated
financial statements, which have been audited by Arthur Andersen LLP, our
independent public accountants. We derived the selected consolidated financial
data as of December 31, 1994 and September 30, 1999 and for the year ended
December 31, 1994 and the nine months ended September 30, 1998 and 1999 from
our unaudited consolidated financial statements which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
information set forth in the financial statements. The results of operations
for the nine months ended September 30, 1999 are not necessarily indicative of
the results for a full year. Minority interest in loss of unconsolidated
subsidiary represents our share of the equity and earnings of Netzee. Minority
interest in (income) loss of consolidated subsidiary represents the minority
shareholder's 33.3% share of the equity and earnings of ProImage, a corporation
that provides check imaging services, of which we own 66.7%. Working capital as
of September 30, 1999 includes $31.5 million due from Netzee, which was repaid
by Netzee with some of the proceeds from its initial public offering which was
completed in November 1999.
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended December 31, Ended September 30,
---------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 6,076 $ 8,223 $ 14,511 $ 23,260 $ 28,902 $ 20,483 $ 32,574
Costs of services....... 2,374 4,607 7,859 10,223 12,031 8,634 12,798
Selling, general and
administrative
expenses............... 3,490 2,213 6,852 10,105 11,222 7,897 12,781
Depreciation and amorti-
zation................. 172 242 351 1,323 1,337 962 3,211
Loss on impairment of
intangibles............ -- -- -- 728 -- -- --
Write off of purchased
research and
development costs...... -- -- 810 -- -- -- --
------- ------- -------- -------- -------- --------- ---------
Total operating
expenses............... 6,036 7,062 15,873 22,379 24,590 17,493 28,790
------- ------- -------- -------- -------- --------- ---------
Operating income
(loss)................. 40 1,161 (1,362) 881 4,312 2,990 3,784
Other income (expense),
net.................... (86) (63) (279) (649) (184) (211) 16,119
------- ------- -------- -------- -------- --------- ---------
Income (loss) before
provision for income
taxes and minority
interest............... (46) 1,098 (1,641) 232 4,128 2,779 19,903
Provision (benefit) for
income taxes........... (17) 417 (236) 666 1,564 1,076 10,364
Minority interest in
loss of unconsolidated
subsidiary............. -- -- -- -- -- -- 5,541
Minority interest in
(income) loss of
consolidated
subsidiary............. -- -- (14) 39 (89) (80) (86)
------- ------- -------- -------- -------- --------- ---------
Net income (loss)....... (29) 681 (1,419) (395) 2,475 1,623 3,912
Preferred stock
dividends.............. -- -- (8) (32) (16) (16) --
------- ------- -------- -------- -------- --------- ---------
Net income (loss)
attributable to common
shareholders........... $ (29) $ 681 $ (1,427) $ (427) $ 2,459 $ 1,607 $ 3,912
======= ======= ======== ======== ======== ========= =========
Net income (loss) per
common share:
Basic.................. $ (0.01) $ 0.12 $ (0.24) $ (0.06) $ 0.30 $ 0.21 $ 0.41
======= ======= ======== ======== ======== ========= =========
Diluted................ $ (0.01) $ 0.12 $ (0.24) $ (0.06) $ 0.30 $ 0.20 $ 0.39
======= ======= ======== ======== ======== ========= =========
Weighted average common
shares outstanding
Basic:................. 5,867 5,867 5,851 6,750 8,132 7,749 9,643
Diluted:............... 5,867 5,867 5,851 6,750 8,247 7,867 10,059
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, September 30,
---------------------------------- -------------
1994 1995 1996 1997 1998 1999
----- ----- ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 63 $ 356 $1,398 $2,010 $3,224 $1,163
Working capital..................... 334 825 1,509 1,117 4,627 2,687
Total assets........................ 1,155 1,980 10,941 10,156 20,155 84,049
Long term debt, net of current por-
tion............................... 746 589 5,212 4,717 211 200
Shareholders' equity (deficit) ..... (89) 767 82 (784) 16,258 32,109
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with the consolidated
financial statements and the related notes and other financial information
included elsewhere or incorporated by reference in this prospectus.
Overview
We derive revenues primarily from the following sources:
. electronic funds transfer, or EFT, processing services;
. core data processing systems, support, maintenance and related
services;
. check imaging systems, support and related services;
. data communications management; and
. ancillary products and services, including maintenance and technical
support services, sales of banking related equipment and complementary
products.
We derive EFT revenues principally from processing ATM and debit card
transactions. We receive a base fee for providing our ATM processing services
and an additional fee for each ATM serviced. Once the number of transactions by
a financial institution exceeds established levels, typically between 2,000 and
3,000 transactions per month, we charge additional fees for the extra
transactions processed. For debit card transactions, we generally receive a
portion of the interchange fees charged by our financial institution customers,
and we charge a monthly fee if our customers do not meet a certain minimum
dollar amount of transactions for a particular month. Most charges due under
our EFT service agreements are paid monthly.
On a service bureau basis, we generate core data processing revenues from
service and processing fees based on the volume of transactions processed.
These revenues are recognized as the services are performed. We also generate
core data processing revenues by licensing PC BancPAC, our proprietary
Windows(R) NT based client/server software system, on an in-house basis. We
recognize revenues for licensing PC BancPAC in accordance with Statement of
Position 97-2 on "Software Revenue Recognition," issued by the American
Institute of Certified Public Accountants. We recognize software license fees
when we have signed a non-cancelable license agreement, shipped the product and
satisfied significant obligations to the customer.
We license on an in-house basis Renaissance(TM) software, our proprietary
check imaging software that we acquired in August 1999 as a result of our
acquisition of SBS Corp. See "Business--Our Acquisitions." We generate revenues
from upfront license fees and recurring annual maintenance fees charged for
this system. Revenues from licensing of Renaissance are recognized in
accordance with Statement of Position 97-2, as discussed above. We also provide
check imaging in a service bureau environment. On a service bureau basis, we
generate revenues based on the volume of items processed. This revenue is
recognized as we provide the service.
We generate our data communications management service revenues principally
from network management and data traffic across our frame relay network and
from equipment configuration, installation and sales. We charge a flat monthly
fee for providing telecommunications connectivity and network management as
well as an initial installation charge.
Our ancillary products and services generate revenues primarily from our
maintenance and technical support services as well as sales of equipment. We
recognize maintenance and technical support service revenues as the service
period elapses. We recognize equipment sales revenues at the time of shipment.
Approximately 73.2% of our revenues for the nine months ended September 30,
1999 were recurring revenues, and approximately 67.6% of our revenues for the
three months ended September 30, 1999 were recurring revenues. Recurring
revenues result from monthly payments by our customers for services used in
23
<PAGE>
connection with their ongoing business. These revenues do not include
conversion or deconversion fees, initial software license fees, installation
fees, hardware sales or similar activities. Our recurring revenues as a
percentage of total revenues decreased during the three months ended September
30, 1999 as compared to the three months ended September 30, 1998. This is due
to a greater amount of revenues derived from products and service that are one-
time sales, such as check imaging and related hardware products, which we
acquired in the acquisition of SBS Corp. in August 1999.
In June 1998, we completed an initial public offering of our common stock.
Since that time, we have completed a number of acquisitions. See "Business--Our
Acquisitions" for a discussion of these acquisitions. We originally accounted
for our acquisition of Direct Access in March 1999 as a pooling of interest. As
a result of the transactions described in "Business--Our Relationship with
Netzee," we have changed the accounting for the Direct Access acquisition to a
purchase. Therefore, all of our acquisitions since our initial public offering
have been accounted for as purchase transactions in our financial statements.
Due to Netzee's issuance of common stock in connection with transactions
that occurred on September 3, 1999, our ownership percentage in Netzee
decreased to approximately 49% as of that date. As a result, we no longer
consolidate Netzee's results of operations with our results of operations. We
now account for our investment in Netzee under the equity method, which
requires us to record the results of operations of Netzee in a single line item
in our statement of operations titled "Minority interest in loss of
unconsolidated subsidiary." Because we provided a guaranteed line of credit to
Netzee during the periods presented, all of Netzee's losses are included in
that line item, rather than our relative percentage of those losses. Once we
discontinue providing guaranteed funding to Netzee, we will record only our
relative percentage of Netzee's net losses. We currently own approximately
37.9% of Netzee's common stock.
We base our expenses to a significant extent on our expectations of future
revenues. Most of our expenses are fixed in the short term, and we may not be
able to quickly reduce spending if our revenues are lower than we expect. In an
attempt to enhance our long term competitive position, we may also make
decisions regarding pricing, marketing, services and technology that could have
an adverse near-term effect on our financial condition and operating results.
Due to the foregoing factors and other risks discussed in "Risk Factors" and in
our SEC filings, we believe that quarter to quarter comparisons of our
operating results are not a good indication of our future performance. It is
likely that our operating results will fall below the expectations of
securities analysts or investors in some future quarter. In such event, the
trading price of our common stock would likely decline, perhaps significantly.
24
<PAGE>
Results of Operations
The following table sets forth our results of operations and the percentage
of revenues represented by certain line items in our condensed consolidated
statements of operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1998 1999 1998 1999
------------- -------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $7,577 100.0% $13,910 100.0% $20,483 100.0% $32,574 100.0%
Costs of services....... 3,260 43.0 5,596 40.2 8,634 42.2 12,798 39.3
Selling, general and
administrative
expenses............... 2,790 36.8 5,698 41.0 7,897 38.6 12,781 39.2
Depreciation and
amortization........... 363 4.8 2,102 15.1 962 4.7 3,211 9.9
------ ----- ------- ----- ------- ----- ------- -----
Total operating
expenses............... 6,413 84.6 13,396 96.3 17,493 85.4 28,790 88.4
------ ----- ------- ----- ------- ----- ------- -----
Operating income........ 1,164 15.4 514 3.7 2,990 14.6 3,784 11.6
Other income (expense),
net.................... 81 1.1 16,056 115.4 (211) (1.0) 16,119 49.5
------ ----- ------- ----- ------- ----- ------- -----
Income before provision
for income taxes and
minority interest...... 1,245 16.4 16,570 119.1 2,779 13.6 19,903 61.1
Provision for income
taxes.................. 469 6.2 9,092 65.4 1,076 5.3 10,364 31.8
Minority interest in
loss of unconsolidated
subsidiary............. -- -- 5,541 39.8 -- -- 5,541 17.0
Minority interest in
(income) loss of
consolidated
subsidiary............. (30) 0.4 (28) 0.2 (80) 0.4 (86) 0.3
------ ----- ------- ----- ------- ----- ------- -----
Net income attributable
to common
shareholders........... $ 746 9.8% $ 1,909 13.7% $ 1,607 7.8% $ 3,912 12.0%
====== ===== ======= ===== ======= ===== ======= =====
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Revenues. Revenues increased 83.6% to $13.9 million for the three months
ended September 30, 1999 from $7.6 million for the three months ended September
30, 1998. The $6.3 million increase was primarily attributable to (a) $2.8
million generated by an increase in core data processing and check imaging
services, (b) $1.3 million generated by an increase in EFT processing services,
(c) $1.2 million generated from an increase in equipment sales, (d) $430,000
generated from sales of ancillary software products (of which $140,000 was
generated by SBS Corp. which was consolidated with InterCept from August 6,
1999 until September 3, 1999 when Netzee was deconsolidated), (e) $370,000
generated by an increase in data communications management services, and (f)
$200,000 of other increases.
Costs of Services. Costs of services increased 71.7% to $5.6 million for the
three months ended September 30, 1999 from $3.3 million for the three months
ended September 30, 1998. The $2.3 million increase was primarily attributable
to (a) $950,000 related to additional equipment sales, (b) $600,000 related to
additional core data processing sales, (c) $270,000 related to additional EFT
sales, (d) $260,000 related to additional data communications management
services and (e) $220,000 of other increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 104.2% to $5.7 million for the three months
ended September 30, 1999 from $2.8 million for the three months ended September
30, 1998. The $2.9 million increase was primarily attributable to (a) $2.2
million related to our internal growth and acquisitions, (b) $480,000 of
compensation expense related to stock options issued by Netzee during the brief
period when Netzee was consolidated and (c) $180,000 of expenses generated by
SBS Corp. during the period when Netzee was consolidated.
Depreciation and Amortization. Depreciation and amortization increased
479.1% to $2.1 million for the three months ended September 30, 1999 from
$360,000 for the three months ended September 30, 1998. The $1.8 million
increase was primarily attributable to additional property, plant and equipment
and additional amortization from acquisitions, including goodwill amortization
of $1.3 million from the acquisition of SBS Corp. during the period when Netzee
was consolidated.
25
<PAGE>
Other Income (Expense), Net. Other income (expense), net increased to $16.1
million for the three months ended September 30, 1999 from $80,000 for the
three months ended September 30, 1998. The increase was primarily due to a
$16.0 million gain associated with the deconsolidation of Netzee.
Provision for Income Taxes. Provision for income taxes increased to $9.1
million for the three months ended September 30, 1999 from $470,000 for the
three months ended September 30, 1998. The increase was attributable to $8.1
million associated with the gain from the deconsolidation of Netzee. The
remaining increase of $500,000 is due to increased pre-tax profits.
Minority Interest in Loss of Unconsolidated Subsidiary. Minority interest in
loss of unconsolidated subsidiary was $5.5 million for the three months ended
September 30, 1999. This amount is related to Netzee's net loss. There was no
minority interest in loss of unconsolidated subsidiary for the three months
ended September 30, 1998.
Minority Interest in (Income) Loss of Consolidated Subsidiary. Minority
interest in (income) loss of consolidated subsidiary remained constant at
$30,000 for the three months ended September 30, 1999 and for the three months
ended September 30, 1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenues. Revenues increased 59.0% to $32.6 million for the nine months
ended September 30, 1999 from $20.5 million for the nine months ended September
30, 1998. The $12.1 million increase was primarily attributable to (a) $5.2
million generated by an increase in core data processing and check imaging
services, (b) $3.3 million generated by an increase in EFT processing services,
(c) $1.3 million generated by an increase in equipment sales, (d) $1.0 million
generated by an increase in data communications management services, (e)
$430,000 generated from sales of ancillary software products (of which $140,000
was generated by SBS Corp. during the brief period when Netzee was
consolidated), (f) $420,000 generated from merchant portfolio management
services and (g) $450,000 of other increases.
Costs of Services. Costs of services increased 48.2% to $12.8 million for
the nine months ended September 30, 1999 from $8.6 million for the nine months
ended September 30, 1998. The $4.2 million increase was primarily attributable
to (a) $1.8 million related to an increase in core data processing services,
(b) $1.0 million related to additional equipment sales, (c) $700,000 related to
additional data communications management services, (d) $370,000 related to EFT
processing services and (e) $330,000 of other increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 61.8% to $12.8 million for the nine months
ended September 30, 1999 from $7.9 million for the nine months ended September
30, 1998. The $4.9 million increase was primarily attributable to (a) $4.2
million related to our internal growth and acquisitions, (b) $480,000 of
compensation expense related to stock options issued by Netzee during the brief
period when Netzee was consolidated and (c) $180,000 of expenses related to the
acquisition of SBS Corp.
Depreciation and Amortization. Depreciation and amortization increased $2.2
million to $3.2 million for the nine months ended September 30, 1999 from
$960,000 for the nine months ended September 30, 1998. The $2.2 million
increase was primarily attributable to additional property, plant and equipment
and additional amortization from acquisitions, including goodwill amortization
of $1.3 million from the acquisition of SBS Corp. during the period when Netzee
was consolidated.
Other Income (Expense), Net. Other income (expense), net increased to income
of $16.1 million for the nine months ended September 30, 1999 from expense of
$210,000 for the nine months ended September 30, 1998. The increase was
primarily due to a $16.0 million gain associated with the deconsolidation of
Netzee.
Provision for Income Taxes. Provision for income taxes increased to $10.4
million for the nine months ended September 30, 1999 from $1.1 million for the
nine months ended September 30, 1998. The increase was attributable to $8.1
million associated with the gain from the deconsolidation of Netzee and
increased pre-tax profits.
26
<PAGE>
Minority Interest in Loss of Unconsolidated Subsidiary. Minority interest in
loss of unconsolidated subsidiary was $5.5 million for the nine months ended
September 30, 1999. This amount is related to Netzee's net loss. There was no
minority interest in loss of unconsolidated subsidiary for the nine months
ended September 30, 1998.
Minority Interest in (Income) Loss of Consolidated Subsidiary. Minority
interest in (income) loss of consolidated subsidiary increased $10,000 to
($90,000) for the nine months ended September 30, 1999 from ($80,000) for the
nine months ended September 30, 1998. The increase was attributable to profits
in the operations of ProImage, in which we have a 66.7% ownership interest.
Liquidity and Capital Resources
Since our incorporation, we have financed our operations and capital
expenditures through cash flow from operations, borrowings from banks and sales
of our common stock, including our initial public offering in June 1998, which
resulted in net proceeds to us of $14.4 million.
Cash and cash equivalents were $1.2 million at September 30, 1999. Net cash
provided by operating activities was $3.9 million for the nine months ended
September 30, 1999 and $2.7 million for the nine months ended September 30,
1998. The increase in the net cash provided by operating activities was
primarily attributable to an increase in earnings.
Net cash used in investing activities was $36.2 million for the nine months
ended September 30, 1999 and $6.0 million for the nine months ended September
30, 1998. The increase in net cash used in investing activities was primarily
due to a receivable created from the funding of Netzee's operations and
acquisitions during the 1999 period.
Net cash provided by financing activities was $30.2 million for the nine
months ended September 30, 1999 and $6.9 million for the nine months ended
September 30, 1998. The increase in net cash provided by financing activities
was primarily due to increased borrowings under our credit facility due to the
funding of Netzee's operations and acquisitions during the 1999 period.
During 1998, we entered into a credit facility with First Union National
Bank. Under this facility, as amended, we may borrow up to $35.0 million for
working capital and to fund acquisitions and pay expenses related to
acquisitions. We extended the term of the facility from April 28, 2001 to June
30, 2002. The First Union credit facility contains provisions which require us
to maintain certain financial ratios and minimum net worth amounts and which
restrict our ability to incur additional debt, make certain capital
expenditures, enter into agreements for mergers, acquisitions or the sale of
substantial assets and pay cash dividends. Interest is payable monthly, and
outstanding principal amounts accrue interest at an annual rate equal to either
(a) a floating rate equal to the lender's prime rate minus 0.25% or (b) a fixed
rate based upon the 30-day LIBOR rate plus applicable margins, at our option.
On December 31, 1999, the interest rate under this facility was approximately
6.25%.
In connection with our acquisition of SBS Corp. and SBS Data Services, Inc.,
we borrowed $21.6 million from First Union and loaned that amount to our
subsidiary, Direct Access, to pay a portion of the purchase price for SBS Corp.
and to pay some outstanding liabilities of SBS Corp. In September 1999, we
borrowed an additional $7.3 million under the First Union credit facility and
loaned that amount to Netzee to pay a portion of the purchase price for
acquisitions of other companies. Netzee repaid these loans with some of the net
proceeds from its initial public offering.
Netzee has borrowed additional monies from us and we have committed, subject
to some conditions, to provide to Netzee a $15.0 million line of credit for its
working capital needs. Under the terms of this facility, which expires in
January 2003, absent a default, all outstanding amounts bear interest at the
prime rate plus 2.0% and Netzee agrees to indemnify us for any liabilities we
may incur as a result of making loans to it. As of
27
<PAGE>
February 11, 2000, a total of $3.2 million was due from Netzee under this line
of credit. We plan to finance this line of credit with additional borrowings
under our credit facility with First Union.
While there can be no assurance, we believe that the net proceeds to us from
this offering, together with funds currently on hand, funds to be provided by
operations and funds available for working capital purposes under the First
Union credit facility will be sufficient to meet our anticipated capital
expenditures and liquidity requirements for at least the next 12 months. We
intend to grow, in part, through strategic acquisitions and expect to make
additional expenditures to negotiate and consummate acquisition transactions
and integrate the acquired companies. No assurance can be made with respect to
the actual timing and amount of the expenditures and acquisitions. In addition,
no assurance can be given that we will complete any acquisitions on terms
favorable to us, if at all, or that additional sources of financing will not be
required.
Year 2000 Readiness
Our business and relationships with our customers depend significantly on a
number of computer software programs, internal operating systems and
connections to other regional and national telecommunications and processing
networks. If any of these software programs, systems or networks are not
programmed to recognize and properly process dates after December 31, 1999,
significant system failures or errors may result. We have experienced no such
problems as of the date of this prospectus, although it is still possible we
that we could experience such problems in the future. In addition, some recent
publications have indicated that February 29, 2000 may cause problems for some
systems and networks. These matters are commonly referred to as the year 2000
problem and they could have a material adverse effect on our operations and
those of our customers.
Our compliance program
We believe that our internal accounting and operating programs and systems
and the network connections we maintain are adequately programmed to address
the year 2000 problem. We have successfully converted all of our non-year 2000
compliant service bureau processing customers to our PC BancPAC software, which
is year 2000 compliant. We incurred costs of approximately $175,000 related to
the conversions. We have experienced no significant year 2000 problems with
these programs, systems or network connections to date.
We currently provide core data processing and check imaging services through
eleven centers located in Georgia, Florida, Tennessee, Arkansas and Colorado.
We have upgraded the equipment at each of these locations to be year 2000
compliant. The total cost to make the equipment year 2000 compliant was
approximately $75,000. In the event that the upgraded equipment does not
function properly, we believe that we can purchase equipment that will allow
processing to continue. It is difficult to estimate the potential expense
involved or delays which may result from a failure of the upgraded equipment at
our service bureau processing centers.
EFT processing depends upon coordinating the operations of other ATM
networks and our systems. With regard to our EFT operations and ATM network, we
have completed the internal coding required for our products to be year 2000
compliant. We have completed the testing and certification of our connections
to other ATM networks, and we believe these connections are year 2000
compliant. We have not experienced any material year 2000 issues in our EFT
processing operations. If the other ATM networks have not successfully
addressed the year 2000 problem in their operations and if we are unable to
route the transactions over another network or another provider that has year
2000 compliant systems, our operations may be affected. It is difficult to
estimate the cost of our efforts to certify these operations as the majority of
expenditures related to existing programmers and support staff required to
review the financial institutions' networks and equipment. It is difficult to
estimate the potential expenses involved or delays which may result from a
failure or delay of these institutions and third parties in resolving their
year 2000 issues.
With regard to our data communications operations, we believe that our
internal equipment as well as third party products and systems used in our
operations are year 2000 compliant. We also believe our data communications
equipment and services, which are primarily provided by companies such as
Motorola,
28
<PAGE>
BellSouth, MCI WorldCom and Qwest Communications, are year 2000 compliant. If
these companies have not successfully addressed the year 2000 problem in their
operations and if we are unable to successfully transfer our business
operations to another provider that has year 2000 compliant systems, our data
communications operations may be interrupted, hindered or delayed, which would
have a material adverse effect on our business, financial condition and results
of operations.
Third party compliance
Other companies interact electronically with us and our customers, and we
must coordinate our EFT processing, ATM network, data communications and data
processing operations with these other companies and our customers. We have not
experienced any material year 2000 problems with any third party products and
systems upon which our business depends. The financial institutions, third
party vendors and network processors with whom we do business, including our
customers, vendors and processors, have not reported any year 2000 issues to
us. However, we cannot assure you that these other companies have identified or
resolved year 2000 issues in their operations, and our business could suffer
greatly if our customers' and vendors' operations are halted or diminished even
temporarily to address or correct these issues. It is difficult to estimate the
potential expenses involved or delays which may result from the failure of
these institutions and third parties to resolve their year 2000 issues. We
cannot assure you that such expenses, failures or delays will not have a
material adverse effect on our business, financial condition or results of
operations.
Contingency plans
Although we have not incurred any material year 2000 issues with our
products, services or operating systems, or those of third parties with whom we
do business, we continue to retain contingency plans for handling any year 2000
problems that may occur. Our contingency plans include:
. accelerated replacement of affected equipment or software;
. the emergency allocation of personnel and resources to analyze, assess
and direct remediation efforts;
. the use of backup systems, including those that do not rely on
computers; and
. alternative sources of power and communications.
It is difficult to estimate the potential expenses involved or delays which
may result if we are required to implement any contingency plans to address
year 2000 issues.
Quantitative and Qualitative Disclosure About Market Risk
We do not use derivative financial instruments in our operations or
investments and do not have significant operations subject to fluctuations in
foreign currency exchange rates. Borrowings under the First Union credit
facility accrue interest at a fluctuating rate based either upon the lender's
prime rate or LIBOR. As of February 11, 2000, we had approximately $4.1 million
outstanding under this facility, which increases our risks from interest rate
fluctuations. Changes in interest rates which dramatically increase the
interest rate on the credit facility would make it more costly to borrow under
that facility and may impede our acquisition and growth strategies if we
determine that the costs associated with borrowing funds are too high to
implement these strategies. Additional loans to Netzee may increase the amount
outstanding under this facility.
29
<PAGE>
BUSINESS
Overview
We are a single-source provider of a broad range of technologies, products
and services that work together to meet the electronic commerce and operating
needs of community financial institutions. We focus on serving community
financial institutions in the U.S. with assets of less than $500 million. Over
1,400 of these community financial institutions have contracted with us for one
or more of our technologies, products and services, which include electronic
funds transfer transactions, core bank processing systems, check imaging
systems and data communications management networks, as well as services
related to each of these products and systems.
Our Industry
According to a recent industry survey by Grant Thornton LLP, 93% of
community financial institutions believe employing technology is the most
important issue to their continued success. Community financial institutions
often have limited resources and are under pressure to control their operating
costs. By using third-party providers like us for their electronic commerce and
operating needs, we believe community financial institutions can reduce their
overhead and gain access to advanced technologies and services they otherwise
might not be able to afford.
Electronic commerce involves transacting 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 electronic
funds transfer, or EFT, services such as ATM and debit card services, remote
banking and universal access to funds. Electronic commerce is an important part
of an overall technology solution, which also includes core processing, check
imaging, data communications and internet banking products and services, that
community financial institutions need to offer their customers the same
products and services provided by larger financial institutions. We believe
that the demand of community financial institutions for outsourced electronic
commerce and other technology solutions has increased substantially in recent
years and will continue to grow in the future as a result of numerous financial
and strategic factors.
Like many industries that have embraced the internet, banks have turned to
the internet as a medium for the delivery of banking services. Internet banking
has become a convenient and cost-effective method for businesses and consumers
to perform financial transactions and monitor and maintain their bank accounts.
Many larger financial institutions have added internet banking capabilities,
and community financial institutions are facing increased pressure from their
customers to provide these services. We believe that the ability to provide
banking and other financial services across the internet will continue to be an
important asset for community financial institutions.
Consolidation in the financial services industry has resulted in larger
financial institutions that mass market their products and services to
potential customers. We believe that community financial institutions can
compete with these larger banks and succeed as independent institutions by
remaining focused on serving the needs of the communities in which they
operate. In order to succeed, we believe community financial institutions will
need to:
. implement advanced technologies for their customers and use advanced
technologies in their own operations;
. obtain and offer new products and services to their customers quickly;
. focus on their primary products and services in order to build strong
customer relationships;
. control their costs and improve their operating efficiency without
passing additional costs on to their customers; and
. process and transmit large amounts of data to multiple locations.
30
<PAGE>
Our Solution
Our comprehensive and flexible suite of integrated technologies, products
and services allows us to act as a single-source provider for the technology
and operating needs of community financial institutions and help these
financial institutions:
Implement advanced technologies. Community financial institutions generally
lack sufficient capital and human resources to implement the latest
technological advancements available in the financial services industry. We
offer advanced technologies, including EFT services, core data processing and
check imaging software, and data communications products and services, as well
as our own ATM network, that community financial institutions need to run their
business in today's competitive marketplace. We continue to enhance and expand
our technologies, products and services, and they are integrated so they work
together to provide a complete technology solution for community financial
institutions.
Rapidly deploy new products and services. Once a community financial
institution is set up on our network, we can quickly add new applications with
minimal effort. This allows our customers to quickly deploy new products and
services to their customers and help them generate additional revenues while
controlling the expenses associated with new products and services.
Focus on offering their primary products and services. We offer a broad
array of technologies, products and services that allow our customers to stay
focused on their primary business while still meeting the demands of their
customers for the latest financial products and services.
Improve operating efficiencies. By taking advantage of our technology and
operating solutions, our customers can improve their operating efficiencies
without committing the expenses and resources necessary to develop or maintain
similar systems in-house. For example, our community financial institutions get
the benefit of access to PCBancPAC and our communications network without
having to maintain personnel to develop, update and run these systems and
without having to make large up-front capital expenditures to implement these
advanced technologies. In addition, we offer our products and services on a
service bureau basis which allows financial institutions to outsource their
technology and operating needs to further improve their operating efficiency.
Securely process and transmit large amounts of information. Our data
communications network and services facilitate the rapid and secure
transmission and processing of the large amounts of sensitive financial data
used in our customers' operations. Our network implements the fiber optic
networks of some of the largest telecommunications providers, and we link our
network to our customers' operations with high-capacity communications lines.
This ensures that our network will support the rapid processing and
transmission of electronic data required to support our customers' electronic
commerce operations.
Our Strategies
Our goal is to become the leading provider of products and services for the
technology and operating needs of community financial institutions in the
United States by:
Cross-marketing our products and services to our existing customer
base. Once a customer contracts for one or more of our products or services, we
strive to develop and expand our relationship by cross-marketing our other
products and services to that customer. As that relationship continues, we are
able to increase revenues from our existing customer base with minimal
additional expense by providing multiple products and services to customers
already using our network and systems. Since most of our products and services
require the payment of ongoing monthly charges, we are able to maximize our
recurring revenues by enhancing and increasing the use of our various products
and services by cross-marketing to our customers.
Expanding our sales force and our strategic marketing relationships. We plan
to expand our customer base and penetrate new geographic markets by hiring
sales personnel who are knowledgeable in electronic
31
<PAGE>
commerce products and services or have experience working with community
financial institutions. We also intend to leverage our relationships with
banking organizations such as bankers' banks. Bankers' banks are local or
regional business organizations that provide banking products and services for
financial institutions who cannot efficiently offer them due to cost, location,
lack of resources or other circumstances. In addition, bankers' banks provide
financial support to financial institutions and offer business advice with
respect to various critical areas such as operations, profitability and federal
and state regulation. We have exclusive contractual relationships with 7 of the
18 bankers' banks in the United States. We also have relationships with three
additional bankers' banks, as well as other banking related organizations,
which we leverage in our sales and marketing efforts. Our relationships with 10
of the 18 bankers' banks gives us access to more than 4,700 financial
institutions in the United States.
We believe that the close nature of the relationships between bankers' banks
and community financial institutions described above makes our alliances with
bankers' banks an important part of our marketing strategy. We intend to use
our expanded sales force to continue marketing our products and services
directly to community financial institutions and to enhance our indirect
marketing efforts by developing additional strategic marketing relationships
with bankers' banks and various other business organizations.
Acquiring businesses with complementary technologies, products or services
that will enhance and expand our solutions, increase our market share or expand
our geographic presence. Since our incorporation in 1996, we have grown in part
through acquisitions of other businesses and technologies. We intend to
continue to acquire other companies with complementary technologies or services
that will enhance and expand our products and services and increase our market
share. We also plan to continue our geographic expansion nationally, which is
likely to occur through the acquisition of a business in an area in which we do
not currently have operations.
Increasing our data communications management services to optimize our frame
relay network. We intend to increase our data communications management
services by offering customized, cost-competitive telecommunications
connectivity to our customers and managing their data traffic in a reliable and
secure manner across our frame relay network. We believe that our network is
one of the largest private frame relay networks in the southeastern United
States. Our network allows us to support our customers' existing applications
and easily add new products and services to our existing infrastructure with
minimal cost and effort. We have upgraded our processing and switching
equipment and telecommunications lines to improve the speed and efficiency of
transaction processing across our networks. We intend to expand use of the
frame relay network by selling additional communications services to our
customers and by extending the frame relay network into new geographic areas as
business warrants.
Continuing to expand and enhance our products and services. We have devoted
and will continue to devote resources to expanding and improving our products
and services. For example, our applications for authority to become a
competitive local exchange carrier, or CLEC, and long distance carrier, or IXC,
in Alabama and Florida were recently approved. These certifications will enable
us to offer telecommunications services to our customers and to potentially
reduce our operating costs. See "Risk Factors--We may be unsuccessful as a
competitive local exchange carrier." We plan to continue to combine our
electronic commerce and other operating solutions with sophisticated technology
to help our financial institution customers remain competitive with larger
financial service providers.
Our Technologies, Products and Services
Electronic Funds Transfer
We believe that increased use and acceptance of ATM and debit cards, coupled
with technological advances in electronic transaction processing, have created
a need for financial service providers to offer a wide variety of EFT solutions
to their customers. By aggregating the EFT transaction processing of numerous
financial institutions, third party processors like us create economies of
scale, which allows them to price their services competitively.
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<PAGE>
Our EFT products and services include:
<TABLE>
<CAPTION>
Category Description
- -------------------------------------------------------------------------------
<C> <S>
EFT transaction processing . Online processing of EFT transactions
initiated by a consumer at a terminal, such
as ATM and debit card transactions,
including MasterMoney(TM) and VISA(R) Check
cards
. Encompasses multiple transactions, including
cash withdrawals, transfers and balance
inquiries
. Network connections to most regional and all
national ATM and other debit card networks,
including STAR(TM), PULSE(TM), Cirrus(R),
PLUS(R), Maestro(R) and INTERLINK(R)
. Card-issue-only program, which gives banks
the option to offer ATM services to their
customers without the expense of purchasing
and maintaining a complete ATM system
. Receive a base fee for providing ATM
processing services and an additional fee
for each ATM serviced. Additional fees
received once the number of monthly
transactions exceeds established maximums,
typically between 2,000 and 3,000
transactions
. Approximately 450 customers as of September
30, 1999
- -------------------------------------------------------------------------------
InterCept Switch(TM) . Helps our customers keep consumers who may
be drawn to larger financial institutions
with a greater number of surcharge-free ATMs
The Surcharge-Free Network(TM) . Allows our customers to waive ATM surcharges
for customers of InterCept Switch members,
while retaining the ability to surcharge
non-member customers who use their ATMs
. At December 31, 1999, included approximately
180 active member institutions representing
over 350 ATMs in 12 states
</TABLE>
- --------------------------------------------------------------------------------
The typical ATM transaction that we process begins when a cardholder inserts
a card issued by a financial institution into an ATM to withdraw funds, obtain
a balance, make other account inquiries or transfer funds. The transaction is
routed from the ATM across our frame relay network to our data communications
and processing center in Norcross, Georgia. We then either (a) authorize or
deny the requested transaction or (b) direct 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. We update the account information of our customers'
cardholders on a daily basis.
The debit card transaction process begins when a consumer presents a debit
card to a merchant who "swipes" the card at a point of sale terminal and enters
the transaction amount. The transaction data is transmitted from the point of
sale terminal through the applicable credit and debit processing networks to
our frame relay network. The data is then routed across our network to our data
communications and processing center in Norcross, Georgia. We then (a) compare
the purchase transaction against the authorization data accessed through our
system, (b) place a hold for the transaction amount, (c) authorize the
transaction and (d) transmit the authorization response almost immediately back
through the network to the point of sale 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 us,
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.
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<PAGE>
For point of sale services, we generally receive a portion of the
interchange fees charged by our bank customers that issue debit cards. We may
charge a monthly fee if our customers do not meet a certain minimum dollar
amount of transactions for a particular month. Our other 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.
Core Processing
Changing technologies, business practices and financial products have
resulted in issues of compatibility, scalability and increased complexity for
the software used in many financial institutions. The technology surrounding
the transmission, storage and retrieval of massive amounts of data has further
increased the complexity of data processing for financial institutions. Older
systems may not offer the advanced technological capabilities provided by newer
systems. As a result, we believe that financial institutions are demanding more
complete and flexible core data processing software, as well as complementary
products and services.
Our core processing software and complementary products and services
include:
<TABLE>
<CAPTION>
Category Description
- -------------------------------------------------------------------------------
<C> <S>
PC BancPAC(TM) . Client/server enterprise software system that consists of a
series of integrated software products
. Client/server computing-- using personal computers as
workstations (the "client") and connecting them via a
network to another personal computer containing the database
(the "server") -- offers fast and easy processing on
economical computer hardware
. Satisfies our customers' core processing requirements
including general ledger, customer information file
maintenance, loan and deposit processing, and financial
accounting and reporting
. Available for in-house use as well as through our service
bureau operations (described below)
. Operates in a Windows NT environment
. Provides superior flexibility and improves customer service
throughout the financial institution
. Used in-house by approximately 10 customers as of September
30, 1999
- -------------------------------------------------------------------------------
Service bureau . Allows customers to focus on core competencies by
outsourcing their core processing needs to us
. Gives customers access to our processing systems without the
expense of maintaining in-house processing operations
. Services are conducted over our frame relay network and are
coordinated through four host data centers located in
Alabama, Colorado, Georgia and Tennessee
. Each processing center serves as a back-up facility in the
event another center experiences a natural disaster,
destruction or other similar event which eliminates or
diminishes its processing capabilities
. Item processing and back office services like proofing and
encoding of checks, bulk filing and statement preparation
are also available
. Item processing conducted from eight service centers in five
states
. Provided core data processing services to over 130 financial
institutions as of September 30, 1999
</TABLE>
- --------------------------------------------------------------------------------
34
<PAGE>
<TABLE>
<CAPTION>
Category Description
- ----------------------------------------------------------------------------
<C> <S>
Ancillary products and services . Include loan document tracking software,
teller software, check printing software
and optical disk storage
</TABLE>
Check Imaging
Check imaging involves creating digital images through the use of a camera
attached to a sorter. As an item passes through the sorter, its individual
picture is taken. Multiple item images are printed on a single page for
inclusion in monthly statements to reduce postage costs when mailing to the
banks' customers. Automated electronic sorting of digital images allows bank
employees to retrieve checks on personal computers, facilitates signature
verification and speeds responses to customer inquiries.
Increased electronic commerce activity and changing banking practices have
created a demand for faster, more efficient electronic handling of bank
documents, including checks and other documents. The need to reduce labor,
research time and the cost of postage has increased the demand for check
imaging solutions on both an in-house as well as service bureau basis. We
believe that financial institutions will continue to employ check imaging as
part of their efforts to reduce operating costs and provide enhanced banking
services to their customers.
Our check imaging capabilities include:
<TABLE>
<CAPTION>
Category Description
- -------------------------------------------------------------------------------
<C> <S>
Renaissance(TM) . Proprietary check imaging software used in-house by our
customers
. Allows customers to control the imaging process without
paying recurring monthly fees
. Licensed to approximately 65 customers at September 30,
1999
- -------------------------------------------------------------------------------
Service bureau . Turnkey outsourced solution for check imaging that provides
our customers the ability to offer check imaging without a
large capital expenditure
. Eight check imaging centers located in four states
. At September 30, 1999, provided check imaging to
approximately 75 customers on a service bureau basis
</TABLE>
35
<PAGE>
Data Communications Management
We believe that the growth in the number and types of communications devices
used in electronic commerce has created a large market for data communications
management, transaction processing and information exchange services. Key
elements of our data communications management solutions include:
<TABLE>
<CAPTION>
Category Description
- -------------------------------------------------------------------------------
<C> <S>
Communication services . Serve as single point of contact for
customers' communication needs
. Design and manage various local and wide area
communications networks for our customers
. Offer a full line of communications services,
including end-to-end management of equipment,
local lines and long distance
. Provide internet services, including web
hosting and email services, to the desktop of
our customers' personnel across our frame
relay network
. Ability to support customers' existing
applications and easily add new products and
services to existing infrastructure with
minimal cost and effort
. Provided data communications management
services to approximately 480 customers at
September 30, 1999
- -------------------------------------------------------------------------------
Frame relay network . Accommodates data transmissions of various
sizes and is protocol independent -- not only
can any set of data be accepted, switched and
transported across a network, but the
specific data is undisturbed in the process
. Provides efficient switching capabilities for
transferring information across the network,
resulting in rapid response time and secure
and reliable transmission and processing of
transactions
. Uses the fiber optic networks of MCI Worldcom
and BellSouth Telecommunications to provide
the capacity, or bandwidth, capable
of supporting our transaction-intensive
services
. Linked to our customers' operations by
communication lines that can handle large
amounts of data traffic to ensure adequate
bandwidth for rapid processing of
electronically transmitted data
. Monitored and maintained 24 hours a day, 7
days a week from a central location in
Norcross, Georgia
- -------------------------------------------------------------------------------
Competitive local exchange . Certificated during the second half of 1999
as a CLEC and an IXC in Alabama and Florida
carrier, or CLEC
Long distance carrier, or IXC . Will allow us to offer local and long
distance communications services to our
customers
. We can purchase for resale all tariffed
products and services offered by the Regional
Bell Operating Companies and long distance
carriers at wholesale prices, without having
to spend the significant capital required to
install our own network infrastructure
</TABLE>
36
<PAGE>
Internet Banking
In March 1999 we acquired internet banking and voice response products and
began marketing these products to our customers as part of our package of
electronic commerce products and services. In August 1999, we acquired SBS
Corporation, an Alabama-based provider of internet and telephone banking
technologies and services to community financial institutions nationwide. In
September 1999, we completed several other business combinations, the result of
which was the creation of Netzee, Inc., an internet banking and technology
company in which we currently own approximately 37.9%. For more information
about these transactions, see "Business--Our Acquisitions" and "Business--Our
Relationship with Netzee, Inc." Through Netzee, we offer leading internet and
telephone banking products and services as part of our strategy to provide
superior electronic commerce and operating capabilities to our customers.
Ancillary Products and Services
To complement the products and services described above, we provide a
variety of ancillary products and services. These include (a) maintenance and
technical support services and (b) specialized equipment including ATMs, proof
machines, teller equipment, vaults and other bank security equipment. We
provide ATM and various other banking equipment and maintenance services to
approximately 200 customers. Where applicable, we enter into standard ATM and
other equipment maintenance contracts with our customers that generally provide
for a term of between one and three years. Most of 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. We anticipate that, as revenues from our other operations
increase, revenues from supplying equipment and maintenance and technical
support services will decrease as a percentage of total revenues.
We also provide merchant portfolio management services, which are designed
to reduce labor intensive back-office functions for our customers. We can
provide these services at a lower cost than many banks incur in-house by
streamlining processes and taking advantage of economies of scale.
Our customer service and technical support departments provide coverage 24
hours a day, 7 days a week. We believe that well-trained support personnel are
essential to attract and retain financial institution customers. Our trained
customer service and technical support personnel enhance our ability to offer
reliable, secure and automated solutions. Our customer service departments are
responsible for educating and assisting our customers in the use of our
services and for resolving billing related issues. Our technical support group
is generally responsible for consulting with our customers regarding technical
issues and for solving any technical problems brought to their attention by our
customer service department. Our technical support department is also
responsible for maintaining our backup systems and for coordinating the
disaster recovery services maintained by some of our information processing
customers.
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<PAGE>
Our Acquisitions
Since our initial public offering in June 1998, we have completed the
following transactions:
<TABLE>
<CAPTION>
Date of Transaction Description
- -------------------------------------------------------------------------------
<C> <S>
August 1998 The purchase of some of the assets and liabilities of Nova
Financial Corporation, a core data processing, check
imaging and item capture services company located in
Georgia
- -------------------------------------------------------------------------------
September 1998 The purchase of some of the assets and liabilities of
Advance Data, an Arkansas-based provider of core data
processing, item capture and check imaging products and
services
- -------------------------------------------------------------------------------
October 1998 A merger with Item Processing of America, Inc., an item
processing capture center located in Florida
- -------------------------------------------------------------------------------
October 1998 The purchase of some of the assets and liabilities of
Premier Imaging, a Florida check imaging facility
- -------------------------------------------------------------------------------
January 1999 The purchase of some of the assets and liabilities of
Eastern Software, Inc., the developer of a loan document
and portfolio tracking software located in Georgia
- -------------------------------------------------------------------------------
March 1999 A merger with Direct Access Interactive, Inc., a provider
of internet and telephone banking software and services
located in Tennessee
- -------------------------------------------------------------------------------
May 1999 A merger with L.E. Vickers & Associates, Inc. and Data
Equipment Services, Inc., two related Tennessee-based
providers of core data processing, item capture, check
imaging, equipment and maintenance products and services
- -------------------------------------------------------------------------------
August 1999 A merger with SBS Corporation and SBS Data Services, Inc.,
two related Alabama-based providers of software systems
and services, including internet banking, core data
processing, check imaging, telephone banking and optical
storage products
- -------------------------------------------------------------------------------
February 2000 The purchase of some of the assets and liabilities of the
Dallas, Texas item processing center of TIB The
Independent BankersBank
</TABLE>
Our Relationship with Netzee, Inc.
As noted above, on August 6, 1999, we acquired SBS Corp. and SBS Data
Services, Inc., two affiliated Alabama corporations that provided internet and
telephone banking, core data processing, check imaging and optical storage
products and services to community financial institutions. We issued
approximately 192,000 shares of our common stock to the SBS Data shareholders
in connection with our acquisition of that company and its core data processing
operations. At the same time, our wholly-owned subsidiary, Direct Access, Inc.,
merged with SBS Corp. and paid approximately $16.6 million in cash and issued
2,600,000 shares of Direct Access common stock to the former shareholders of
SBS Corp. Direct Access also repaid approximately $4.9 million in debt owed by
SBS Corp. To provide the funds for the SBS Corp. transaction, we borrowed
approximately $21.6 million under our line of credit with First Union National
Bank and then loaned the funds to Direct Access. After the merger, Direct
Access sold all of the assets of SBS Corp., other than its internet and
telephone banking assets, to us in exchange for 450,000 shares of Direct Access
common stock owned by us.
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<PAGE>
In August 1999, we created a wholly-owned subsidiary, Netzee, Inc., and on
September 3, 1999, we combined it with:
. Direct Access, our internet banking subsidiary;
. the internet banking operations of The Bankers Bank and TIB The
Independent BankersBank;
. Call Me Bill, LLC, an electronic bill payment company; and
. Dyad Corporation, a developer of automated loan origination systems.
As a result of the issuance of shares of Netzee in connection with these
transactions, our ownership in Netzee decreased to approximately 49% as of
September 3, 1999. Following these transactions, we deconsolidated Netzee's
results of operations from our results of operations. To enable Netzee to
complete these transactions, we loaned it approximately $7.3 million. This loan
was in addition to the $21.6 million we loaned Netzee, as the successor to
Direct Access, in connection with the SBS Corp. merger described above. In
November 1999, Netzee completed its initial public offering of common stock and
repaid the amounts it had borrowed from us with some of the net proceeds from
that offering.
We have agreed to provide Netzee with a $15.0 million revolving line of
credit. The credit facility expires in January 2003 and all outstanding amounts
bear interest at the prime rate plus 2.0%. As of February 11, 2000, Netzee had
$3.2 million outstanding under the credit facility.
We currently own approximately 37.9% of Netzee. Four of our directors also
serve as directors of Netzee and one of those directors, Glenn W. Sturm, is the
Chief Executive Officer of Netzee. In addition, we maintain a strategic
relationship with Netzee to cross-market each other's products and services,
which we believe will benefit our business. See "Risk Factors--Risks Related to
Our Ownership in Netzee."
Sales and Marketing
Our sales force is made up of 26 sales representatives and product
specialists who sell all of our products and services to our customers in
specified geographic regions. Because they have the ability to sell our full
range of products and services, our sales representatives can capitalize on
their relationships with the community financial institutions. Although the
sales representatives are trained on each product line, we also employ several
product specialists who are available to assist the direct salesperson in the
specifics of certain technical products. We offer products and services on both
a stand-alone basis and in combination with one or more of our products and
services.
Our indirect marketing efforts include obtaining referrals and endorsements
from our customers and various banking related organizations. We currently have
exclusive marketing agreements with seven of the 18 bankers' banks and have
other relationships with three additional bankers' banks. Through our
relationship with these bankers' banks, we have referral sources to thousands
of financial institutions nationwide.
For the nine months ended September 30, 1999, our ten largest customers
accounted for less than 10.0% of our total revenues, and no single customer
accounted for more than 2.0% of our revenues.
Employees
At December 31, 1999, we had 319 full-time employees and 61 part-time
employees. Of these employees, 290 worked in operations, 50 in administration
and 40 in sales and marketing. None of our employees is represented by a
collective bargaining agreement nor have we ever experienced any work stoppage.
We believe that our relationships with our employees is satisfactory.
Government Regulation
Our banking customers are subject to the supervision of several state and
federal government regulatory agencies. In addition, various federal and state
regulatory agencies examine our data processing operations from time to time.
These agencies can make findings or recommendations regarding various aspects
of our operations, and we generally must follow such recommendations to
continue our data processing operations.
39
<PAGE>
Our ATM network operations are subject to federal regulations governing
consumers' rights. Fees charged by ATM owners are currently regulated in
several states, and legislation regulating ATM fees has been proposed in
several other states. Additional legislation may be proposed and enacted in the
future or existing consumer protection laws may be expanded to apply to ATM
fees. If the number of ATMs decreases, then our EFT revenues may decline.
Furthermore, we are subject to the regulations and policies of various ATM and
debit card associations and networks.
As a transaction processing company, we may be subject to state taxation of
certain portions of the fees charged for our services. Application of this tax
is an emerging issue in the industry, and the states have not yet adopted
uniform guidelines implementing these regulations.
Competition
The market for companies that provide technology solutions to community
financial institutions is intensely competitive and highly fragmented, and we
expect increased competition from both existing competitors and companies that
enter our existing or future markets. Many of our 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 we do. The principal
competitive factors affecting the market for our services include price,
quality and reliability of service, degree of service integration, ease of use
and service features.
Numerous companies supply competing products and services, and many of these
companies specialize in one or more of the services that we offer or intend to
offer to our customers. Our principal EFT competitors include regional ATM
networks, regional and local banks that perform processing functions, non-bank
processors and other independent electronic commerce and data communications
organizations. In our core banking and data processing business, we compete
with several national and regional companies.
Intellectual Property and Other Proprietary Rights
None of our technology is currently patented. Instead, we rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our proprietary technology.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or obtain and use information that we
regard as proprietary. We cannot assure you that steps we have taken will
adequately protect our proprietary rights or that our competitors will not
independently develop similar technology.
Legal Proceedings
We are not a party to, and none of our material properties is subject to,
any material litigation other than routine litigation incidental to our
business. In connection with one of our acquisitions in 1999, we have received
a demand for arbitration. See "Risk Factors--Our acquisitions could result in
integration difficulties, unexpected expenses, diversion of management's
attention and other negative consequences."
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<PAGE>
MANAGEMENT
The following table sets forth information regarding our executive officers
and directors as of December 31, 1999. The term of Class I directors expires in
2002; the Class II term expires in 2000; and the Class III term expires in
2001.
Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Class Position
- ---- --- ----- --------
<S> <C> <C> <C>
John W. Collins......... 52 III Chairman of the Board and Chief Executive Officer
Donny R. Jackson........ 50 III President, Chief Operating Officer and Director
Scott R. Meyerhoff...... 31 -- Vice President-Finance, Chief Financial Officer and Secretary
Michael R. Boian........ 60 -- Executive Vice President of Alliances and Strategic Partners
Michael D. Sulpy........ 39 -- Executive Vice President of Data Communications
Kenneth E. Kudrey....... 49 -- Senior Vice President of Data Processing
Jon R. Burke(2)......... 52 I Director
Boone A. Knox(1)(2)..... 63 II Director
John D. Schneider,
Jr.(1)(2).............. 46 II Director
Glenn W. Sturm.......... 45 I Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John W. Collins, one of our co-founders, has served as the Chief Executive
Officer and Chairman of the Board of Directors since our formation. Mr. Collins
has also served as the Chairman and Chief Executive Officer of InterCept
SwitchTM since its formation in 1996. Mr. Collins co-founded our predecessor
company in 1986 and served as its Chief Executive Officer and Chairman of the
Board until its merger with us in 1998. Mr. Collins has also served as an
officer and director of many of our subsidiary companies. Mr. Collins has
served as Chairman of the Board of Directors of Netzee since its inception in
1999. Mr. Collins has over 26 years of experience in multiple areas of
electronic commerce for community financial institutions. Mr. Collins is also a
director of Towne Services, Inc., a publicly-traded provider of electronic
commerce products and services for small businesses and community financial
institutions.
Donny R. Jackson, one of our co-founders, has served as our President and
Chief Operating Officer and as a director since our formation. He also has
served as the President and Chief Operating Officer of InterCept Switch(TM)
since its formation in 1996. Mr. Jackson was President and Chief Operating
Officer and director of our predecessor company from July 1996 until its merger
with us. Mr. Jackson has also served as an officer and director of many of our
subsidiary companies. Mr. Jackson has served as a director of Netzee since its
inception in 1999. Prior to joining us, Mr. Jackson was the President of Bank
Atlanta from 1991 to 1992. Mr. Jackson has over 24 years of experience working
with community financial institutions, including in service bureau, core
processing software and other bank processing and accounting operations.
Scott R. Meyerhoff has served as Vice President-Finance since March 1999 and
as Chief Financial Officer and Secretary since January 1998. For the seven
years prior to joining InterCept, 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. He is a certified public
accountant.
Michael R. Boian has served as our Executive Vice President of Alliances and
Strategic Partners since March 1999. He served as our Executive Vice President-
Sales and Marketing from January 1998 to March 1999 and as our Vice President
of Sales and Marketing from February 1997 to January 1998. Prior to joining
InterCept, he was Regional Vice President of Debit Services for MasterCard
International from May 1992 to
41
<PAGE>
November 1996. Mr. Boian has over 33 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 our Executive Vice President of Data
Communications since January 1998. In March 1996, Mr. Sulpy co-founded
InterCept Communications Technologies, a data communications management
company, and served as its Vice President of Communications until its merger
with InterCept in January 1998. He joined our predecessor company 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 16 years of data communications management and
telecommunications network experience.
Kenneth E. Kudrey has served as our Senior Vice President of Data Processing
since May 1999. From February 1983 to May 1999 he was the general manager of
L.E. Vickers & Associates, Inc., a company providing data processing and check
imaging services to community financial institutions. Mr. Kudrey has over 22
years of banking technology experience.
Jon R. Burke has served as one of our directors 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. He has served as a director of
Netzee since October 1999 and also serves as a director of United Companies
Financial Corporation, a financial services holding company engaged in
commercial lending, and HealthTronics, Inc., a provider of noninvasive
treatment solutions for multiple urologic and orthopedic conditions. 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. 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 one of our directors since February 1998. He is
a director of Merry Land Properties, a publicly held real estate investment
trust, Cousins Properties, Inc., a publicly-held Atlanta-based real estate
development company, and Equity Residential Properties Trust, a publicly-held
Chicago based real estate investment company. He serves as Chairman of the
Board of Directors of the southeast division (formerly Allied Bank of Georgia)
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 of Merry Land & Investment Co. from December 1996 until October 1998.
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.
John D. Schneider, Jr. has served as one of our directors since January
2000. For the past 12 years, Mr. Schneider has served as a director, President
and Chief Executive Officer of Bankers Bancorp Inc., a bank holding company. He
is a director, President and Chief Executive Officer of Independent Bankers
Bank and Chairman of Bankers Bank Service Corporation, subsidiaries of Bankers
Bancorp Inc., in Springfield, Illinois. Mr. Schneider is also a director of
Towne Services, Inc., Sullivan Bancshares, Inc., First National Bank of
Sullivan and Community Bank Mortgage Corp.
Glenn W. Sturm has served as one of our directors since May 1997. Mr. Sturm
has served as Netzee's Chief Executive Officer and as one of its directors
since its inception in 1999. Mr. Sturm has been a partner in the law firm of
Nelson Mullins Riley & Scarborough, L.L.P. since 1992, and he currently serves
that firm as a member of its executive committee. Mr. Sturm is also a director
of Towne Services, Inc. and comstar.net, inc.
42
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock by each selling shareholder as of December 31,
1999, and as adjusted to reflect the sale of common stock offered by each
selling shareholder.
The information in the table is based on information from the named persons
regarding their ownership of common stock. Unless otherwise indicated, each of
the holders listed below has sole voting power and investment power over the
shares beneficially owned. The number and percentage of shares beneficially
owned by each person includes common stock regarding which the person has the
right to acquire within 60 days after December 31, 1999 or with respect to
which such person otherwise has or shares voting or investment power. However,
these shares are not deemed outstanding for the purpose of computing the
percentage of any other person. As of December 31, 1999, there were 10,117,972
shares of common stock outstanding.
All of the selling shareholders are executive officers or directors of
InterCept, except for (a) Mr. Henderson, who served as one of our directors and
as an executive officer from June 1996 to January 1998, (b) Mr. Mashburn who
served as an executive officer from June 1996 to January 1999 and as a director
from May 1996 to January 1998 and (c) Mr. Nanda, who served as one of our
directors and an executive officer from May 1996 to January 1999.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Owned After the
the Offering Number of Offering
----------------- Shares -----------------
Name of Shareholder Number Percent Offered Number Percent
- ------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
John W. Collins................... 1,607,113 15.6% 100,000 1,507,113 11.6%
James R. Henderson................ 353,770 3.5 45,000 308,770 2.4
Donny R. Jackson.................. 746,284 7.2 75,000 671,284 5.2
Farrell S. Mashburn............... 183,012 1.8 45,000 138,012 1.1
Scott R. Meyerhoff................ 122,734 1.2 15,000 107,734 *
Vir A. Nanda...................... 870,044 8.6 25,000 845,044 6.6
Michael D. Sulpy.................. 464,047 4.6 45,000 419,047 3.3
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
43
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., J.C. Bradford & Co., First Union
Securities, Inc., and SunTrust Equitable Securities Corporation, have severally
agreed with us, subject to the terms and conditions of the underwriting
agreement, to purchase from us and the selling shareholders the number of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all such shares if any are
purchased.
<TABLE>
<CAPTION>
Number of
Underwriter shares
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc.................................
J.C. Bradford & Co.................................................
First Union Securities, Inc........................................
SunTrust Equitable Securities Corporation..........................
Total............................................................
===
</TABLE>
The underwriters' representatives have advised us that the underwriters
propose to offer the shares of common stock to the public at the public
offering price set forth on the cover page of this prospectus and to selected
dealers at that price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After this offering, the public
offering price, concession and reallowance to dealers may be reduced by the
underwriters' representatives. No such reduction shall change the amount of
proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters subject to receipt
and acceptance by them and subject to their right to reject any order in whole
or in part.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock at the public offering price less the underwriting
discount set forth on the cover page of this prospectus. To the extent that the
underwriters exercise this option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares as the number of shares to be purchased by it as shown in the above
table represents as a percentage of the 3,000,000 shares offered by this
prospectus. If purchased, these additional shares will be sold by the
underwriters on the same terms as those on which the 3,000,000 shares offered
by this prospectus are being sold. We will be obligated, under this over-
allotment option, to sell shares to the underwriters to the extent the option
is exercised. The underwriters may exercise the option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us and the selling shareholders:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
us.............................................. $ $ $
Underwriting discounts and commissions payable by
the selling shareholders........................ $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $800,000.
44
<PAGE>
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling shareholders against certain civil
liabilities, including liabilities under the Securities Act of 1933 and
liabilities arising from breaches of representations and warranties contained
in the underwriting agreement.
Lock-Up Agreements
Each of our executive officers and directors, each of the selling
shareholders and some of our other shareholders have agreed, during the period
of 90 days after the effective date of this prospectus, subject to specified
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
or any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by those holders
or with respect to which they have the power of disposition, without the prior
written consent of FleetBoston Robertson Stephens Inc. However, FleetBoston
Robertson Stephens Inc. may, in its sole discretion and at any time or from
time to time, without notice, release all or any portion of the securities
subject to lock-up agreements. There are no existing agreements between the
underwriters' representatives and any of our shareholders who have executed a
lock-up agreement providing consent to the sale of shares prior to the
expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, (a) consent to the disposition of any shares
held by shareholders subject to lock-up agreements prior to the expiration of
the lock-up period, or (b) offer, sell, contract to sell, or otherwise dispose
of, any shares of common stock, any options or warrants to purchase any shares
of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than (w) our sale of shares in
this offering, (x) the issuance of our common stock upon the exercise of
outstanding options or warrants, (y) the issuance of options under existing
stock option and incentive plans, subject to certain limitations, and (z) the
issuance of our common stock or securities convertible into, or exchangeable or
exercisable for shares of our common stock in connection with acquisitions,
subject to certain limitations.
Stabilization
The underwriters' representatives have advised us that, pursuant to
Regulation M under the Securities Act, some persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "syndicate covering transaction" is the bid for or
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the underwriters' representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in connection with the offering if the common stock originally
sold by such underwriter or syndicate member is purchased by the underwriters'
representatives in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The underwriters'
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
45
<PAGE>
Regulation M/Passive Market Making
In connection with this offering, certain underwriters and selling group
members, if any, who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, during the business day prior to the pricing
of this offering, before the commencement of offers or sales of the common
stock. Passive market makers must comply with applicable volume and price
limitations and must be identified as such. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid of
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for InterCept by Nelson Mullins Riley & Scarborough, L.L.P.,
Atlanta, Georgia. Glenn W. Sturm, a partner of Nelson Mullins, is one of our
directors. As of January 12, 2000, members and employees of Nelson Mullins,
including Mr. Sturm, beneficially owned an aggregate of approximately 424,500
shares of common stock. The execution and delivery of the underwriting
agreement and certain legal matters relating to the offering will be passed
upon for the underwriters by Alston & Bird, LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and schedules incorporated by
reference in this prospectus and elsewhere in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The audited financial statements of SBS Data Services, Inc. as of December
31, 1997 and 1998, incorporated by reference in this prospectus have been
audited by Hardman, Guess, Frost & Cummings, P.C., independent public
accountants, as stated in their reports and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Item Processing of America, Inc. incorporated by
reference in this prospectus have been audited by BDO Seidman, LLP, independent
certified public accounts, to the extent and for the periods set forth in their
report incorporated herein by reference, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
46
<PAGE>
WHERE YOU MAY FIND ADDITIONAL INFORMATION
We are subject to the information requirements of the Securities Exchange
Act of 1934, which means we are required to file annual, quarterly and special
reports, proxy statements and other information with the SEC. Our SEC filings
are available to the public over the internet at the SEC's website at
http://www.sec.gov. You may also read and copy any document we file with the
SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330.
We filed a registration statement on Form S-3 to register with the SEC the
shares of common stock to be issued in this offering. This prospectus is part
of that registration statement. As allowed by the SEC's rules, this prospectus
does not contain all of the information you can find in the registration
statement or the exhibits to the registration statement. The SEC allows us to
"incorporate by reference" into this prospectus the information we have filed
with the SEC. The information incorporated by reference is an important part of
this prospectus, and the information that we file subsequently with the SEC
will automatically update this prospectus. Absent unusual circumstances, we
will have no obligation to amend this prospectus, other than filing subsequent
information with the SEC. The historical and future information that is
incorporated by reference in this prospectus is considered to be part of this
prospectus and can be obtained at the locations described above. We also
incorporate by reference any filings we make with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the initial filing of the
registration statement and before the time that all of the securities offered
by this prospectus are sold. We incorporate by reference the documents listed
below:
. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999.
. Our Current Reports on Form 8-K filed on:
-- March 26, 1999;
-- June 11, 1999, as amended on August 11, 1999;
-- August 20, 1999, as amended on September 30, 1999 and November 8,
1999;
-- September 17, 1999, as amended on September 30, 1999 and November 8,
1999; and
-- February 2, 2000.
. The description of our capital stock contained in our Registration
Statement on Form 8-A, as amended on October 1, 1999.
You may request a copy of any information that we incorporate by reference
into the registration statement or this prospectus, at no cost, by writing or
telephoning us. Please send your request to:
The InterCept Group, Inc.
Attn: Scott R. Meyerhoff
Vice President-Finance, Chief Financial Officer & Secretary
3150 Holcomb Bridge Road, Suite 200
Norcross, GA 30071
(770) 248-9600
47
<PAGE>
[Inside back cover]
Across the top is the phrase "Offering community financial institutions a
competitive edge today and tomorrow through our philosophy of "HOMETOWN TOUCH .
. . HIGH TECH DELIVERY." Three pictures represent some of the technologies
provided by InterCept as follows: (1) tellers assisting bank customers; (2) a
desktop computer running PC BancPAC; and (3) a credit card being swiped through
a credit card processing machine. Across the bottom is The InterCept Group,
Inc. logo and InterCept's address, phone number and corporate website address.
<PAGE>
[LOGO OF THE INTERCEPT GROUP]
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the offering
described in the registration statement. All amounts are estimates except the
SEC Registration Fee and the NASD fees:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 20,607
Nasdaq Fees........................................................ 17,500
Blue Sky Fees and Expenses......................................... 3,000
NASD Fees.......................................................... 8,306
Printing and Engraving............................................. 150,000
Legal Fees and Expenses............................................ 450,000
Accounting Fees and Expenses....................................... 75,000
Transfer Agent Fees................................................ 5,000
Miscellaneous Expenses............................................. 70,587
--------
Total............................................................ $800,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Georgia Business Corporation Code permits a corporation to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for any breach of duty of care or other duty
as a director, provided that no provision shall eliminate or limit the
liability of a director for:
. an appropriation, in violation of his duties, of any business
opportunity of the corporation,
. acts or omissions which involve intentional misconduct or a knowing
violation of law,
. unlawful corporate distributions, or
. any transaction from which the director received an improper personal
benefit.
The Georgia Code permits a corporation to indemnify officers to the same
extent as directors. Our amended and restated articles of incorporation
exonerate our directors from monetary liability to the extent described above,
and our amended and restated bylaws provide the same limitation of liability to
our officers.
In addition to the rights provided by law, our amended and restated articles
of incorporation and our amended and restated bylaws provide broad
indemnification rights to our directors and the officers, employees and agents
designated by our directors, with respect to various civil and criminal
liabilities and losses which may be incurred by the director, officer, agent or
employee under any pending or threatened litigation or other proceedings,
except that such indemnification does not apply in the same situations
described above with respect to the exculpation from liability of our
directors. We are also obligated to reimburse directors and other parties for
expenses, including legal fees, court costs and expert witness fees, incurred
by the person in defending against any liabilities and losses, as long as the
person in good faith believes that he or she acted in accordance with the
applicable standard of conduct with respect to the underlying accusations
giving rise to such liabilities or losses and agrees to repay to us any
advances made if it is ultimately determined that the person is not entitled to
indemnification by us. Any amendment or other modification to the applicable
law, our articles of incorporation or our bylaws which limits or otherwise
adversely affects the rights to indemnification currently provided therein
shall apply only to proceedings based upon actions and events occurring after
such amendment and, in the case of amendments to our articles or bylaws,
delivery of notice thereof to the indemnified parties.
We have entered into separate indemnification agreements with each of our
directors and certain of our officers, whereby we 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 articles of
incorporation and the bylaws. These agreements may not be invalidated by action
of the shareholders. In addition, we hold an insurance policy covering
directors and officers under which the insurer agrees to pay, subject to
certain exclusions, for any claim made against our directors and officers for a
wrongful act that they may become legally obligated to pay or for which we are
required to indemnify the directors or officers.
II-1
<PAGE>
We believe that the above protections are necessary in order to attract and
retain qualified persons as directors and officers.
The underwriting agreement, which is filed as Exhibit 1.1 hereto, also
contains the underwriters' agreement to indemnify our directors and officers
and some other persons against civil liabilities specified in such agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the SEC this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against these liabilities (other than our
payment of expenses incurred or paid by one of our directors, officers or
controlling persons in the successful defense of any action, suit or
proceeding) is asserted by the director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Item 16. Exhibits.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated August 6, 1999 by and among The
InterCept Group, Inc., Zeenet Corporation, SBS Data Services, Inc.
and the shareholders of SBS Data Services, Inc. (incorporated by
reference to Exhibit 2.1 to InterCept's Current Report on Form 8-K
filed on August 20, 1999).**
2.2 Agreement and Plan of Merger dated August 6, 1999 by and among
Direct Access Interactive, Inc., SBS Corporation and the
shareholders of SBS Corporation (incorporated by reference to
Exhibit 2.2 to InterCept's Current Report on Form 8-K filed on
August 20, 1999).**
4.1 Amended and Restated Articles of Incorporation, as deemed filed
with the Secretary of the State of Georgia on April 29, 1998
(incorporated by reference to the exhibits to InterCept's
Registration Statement on Form 8-A (as amended on October 1,
1999)).
4.2 Amended and Restated Bylaws (incorporated by reference to the
exhibits to InterCept's Registration Statement on Form 8-A (as
amended on October 1, 1999)).
4.3 Amendment to Amended and Restated Bylaws (incorporated by
reference to the exhibits to InterCept's Registration Statement on
Form 8-A (as amended on October 1, 1999)).
4.4 Specimen Common Stock Certificate (incorporated by reference to
the exhibits to Intercept's Registration Statement on Form S-1
(No. 333-47197) as declared effective by the Securities and
Exchange Commission on June 9, 1998).
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
23.1 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (included in
Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of BDO Seidman, LLP.
23.4 Consent of Hardman, Guess, Frost & Cummings, P.C.
24.1 Power of Attorney (contained on the signature pages to InterCept's
Registration Statement on Form S-3 filed on January 12, 2000).
</TABLE>
- --------
** Pursuant to Item 601(b)(2) of Regulation S-K, InterCept agrees to furnish
supplementally a copy of any omitted schedule or exhibit to the Securities
and Exchange Commission upon request.
II-2
<PAGE>
Item 17. Undertakings.
A. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
InterCept pursuant to the foregoing provisions, or otherwise, InterCept 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 InterCept 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, InterCept 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.
C. InterCept 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 InterCept 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this 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 this 14th day of
February, 2000.
THE INTERCEPT GROUP, INC.
/s/ John W. Collins
By: ______________________________
John W. Collins
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities listed and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<C> <S> <C>
/s/ John W. Collins Chairman of the Board, Chief February 14, 2000
___________________________________ Executive Officer and
John W. Collins Director (Principal
Executive Officer)
* President, Chief Operating February 14, 2000
___________________________________ Officer and Director
Donny R. Jackson
/s/ Scott R. Meyerhoff Vice President-Finance, February 14, 2000
___________________________________ Chief Financial Officer and
Scott R. Meyerhoff Secretary (Principal
Financial and Accounting
Officer)
* Director February 14, 2000
___________________________________
Jon R. Burke
* Director February 14, 2000
___________________________________
Boone A. Knox
* Director February 14, 2000
___________________________________
John D. Schneider, Jr.
* Director February 14, 2000
___________________________________
Glenn W. Sturm
/s/ Scott R. Meyerhoff
*By: _______________________________
Scott R. Meyerhoff
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT 1.1
Underwriting Agreement
February ___, 2000
FleetBoston Robertson Stephens Inc.
J. C. Bradford & Co.
First Union Securities, Inc.
SunTrust Equitable Securities Corporation
As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. The InterCept Group, Inc., a Georgia corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,650,000 shares (the "Company
- ----------
Shares") of its Common Stock, no par value per share (the "Common Shares" or the
"Common Stock"). In addition, John W. Collins, James R. Henderson, Donny R.
Jackson, Farrell S. Mashburn, Scott R. Meyerhoff, Michael D. Sulpy and Vir A.
Nanda (collectively, the "Selling Shareholders"), acting severally and not
jointly, propose to sell to the Underwriters an aggregate of 350,000 Common
Shares (the "Selling Shareholder Shares"). The 2,650,000 Company Shares and the
350,000 Selling Shareholder Shares are collectively called the "Firm Shares."
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 450,000 shares of its Common Stock (the "Option Shares"), as
provided in Section 2. The Firm Shares and, if and to the extent such option is
exercised, the Option Shares are collectively called the "Shares." FleetBoston
Robertson Stephens Inc., J.C. Bradford & Co., First Union Securities, Inc. and
SunTrust Equitable Securities Corporation have agreed to act as representatives
of the several Underwriters (in such capacity, the "Representatives") in
connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-94511), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares (the "Offering"). Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
which it was declared effective by the Commission under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including all documents incorporated or
deemed to be incorporated by reference therein and any information deemed to be
a part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act or the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (collectively, the "Exchange
Act"), is called the "Registration Statement." Any registration statement filed
by the Company pursuant to Rule 462(b) under the Securities Act is called the
"Rule 462(b) Registration Statement," and, from and after the date and time of
filing of the Rule 462(b) Registration Statement, the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. Such
prospectus, in the form first used by the Underwriters to confirm sales of the
Shares, is called the "Prospectus." All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus or the Prospectus, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). All
references in this Agreement to financial statements and schedules and other
information that is "contained," "included" or "stated" in the Registration
Statement or the Prospectus (and all other references of like import) shall be
deemed to mean and include all such financial statements and schedules and other
information that is or is deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be, and all references
in this Agreement to amendments or supplements to the Registration Statement or
the Prospectus shall be deemed to mean and include the filing of any document
under the Exchange Act which is or is deemed to be incorporated by reference in
the Registration Statement or the Prospectus, as the case may be. Any statements
made in the Registration Statement or the Prospectus will be deemed to be
modified or superseded for purposes of the Registration Statement or the
Prospectus to the extent that a statement contained in the Registration
Statement or the Prospectus or in any other subsequently filed document which is
also incorporated or deemed to be incorporated by reference in the Registration
Statement or the Prospectus, modifies or supersedes the statement. Any statement
so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or the
Prospectus.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants to and agrees with each Underwriter as follows:
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(a) Compliance with Registration Requirements. The Registration
Statement has been declared effective (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement)
by the Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such purpose have
been instituted or are pending or, to the knowledge of the Company are
contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus, when filed, complied
in all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was substantially identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
------
effective (or becomes effective if not yet effective) and at all subsequent
times up to the closing of the purchase and sale of the Firm Shares (and, if
applicable, the purchase and sale of the Option Shares), complied and will
comply in all material respects with the Securities Act and did not and will not
contain any 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. The Prospectus, as amended or supplemented, as of its date and at
all subsequent times up to the closing of the purchase and sale of the Firm
Shares (and, if applicable, the purchase and sale of the Option Shares), did not
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representations
and warranties set forth in the two immediately preceding sentences do not apply
to statements in or omissions from the Registration Statement, any Rule 462(b)
Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon and
in conformity with information relating to any Underwriter furnished to the
Company in writing by the Representatives expressly for use therein. There are
no contracts or other documents required by the Securities Act to be described
in the Prospectus or to be filed as exhibits to the Registration Statement that
have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered or will deliver to each Representative at least one complete conformed
copy of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such
3
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
quantities and at such places as the Representatives have reasonably requested
for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement, as supplemented or amended.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Company
Shares have been duly authorized for issuance and sale pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement, will be validly issued, fully paid and nonassessable.
(f) Authorization of the Shares To Be Sold by the Selling Shareholders.
The Selling Shareholder Shares, when issued by the Company, were validly issued,
fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(h) No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) except as disclosed in or
contemplated by the Prospectus, there has been no material adverse change in, or
any development that could reasonably be expected to have a material adverse
effect on, the condition, financial or otherwise, or the earnings, business or
operations, whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries (as used herein, the term
"subsidiary" includes any corporation, joint venture, limited liability company
or partnership in which the Company or any wholly-owned subsidiary of the
Company has an ownership interest in excess of 50% and expressly excludes
Netzee, Inc. and its predecessors and specifically excludes Netzee, Inc.),
considered as one entity (any
4
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
such change or effect, where the context so requires, is called a "Material
Adverse Change" or a "Material Adverse Effect"); (ii) except as disclosed in or
contemplated by the Prospectus, the Company and its subsidiaries, considered as
one entity, have not incurred any material liability or obligation, indirect,
direct or contingent, not in the ordinary course of business nor entered into
any material transaction or agreement not in the ordinary course of business;
and (iii) except as disclosed in or contemplated by the Prospectus, and except
as is not material in amount, there has been no dividend or distribution of any
kind declared, paid or made by the Company or, except for dividends paid to the
Company or other subsidiaries, any of its subsidiaries on any class of capital
stock or repurchase or redemption by the Company or any of its subsidiaries of
any class of capital stock.
(i) Independent Accountants. Based on representations made to the
Company, Arthur Andersen LLP, Hardman, Guess, Fost & Cummings, P.C. and BDO
Seidman, LLP, who have expressed their opinion with respect to the financial
statements (which term as used in this Agreement includes the related notes
thereto) and any supporting schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act and the Exchange
Act.
(j) Preparation of the Financial Statements. The consolidated financial
statements and related notes and schedules thereto filed with the Commission as
a part of the Registration Statement and included in the Prospectus present
fairly the consolidated financial position of the Company and its subsidiaries
as of and at the dates indicated and the results of their operations and cash
flows for the periods specified. Such financial statements and any supporting
schedules have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved, except
as may be expressly stated in the related notes thereto, and except, in the case
of interim unaudited financial statements, for normal year-end adjustments and
for the absence of footnote disclosure. No other financial statements or
supporting schedules are required to be included in the Registration Statement.
The historical financial data set forth in the Prospectus under the captions
"Summary--Summary Consolidated Financial Data," "Capitalization" and "Selected
Consolidated Financial Data" fairly present the information set forth therein on
a basis consistent with that of the audited consolidated financial statements
contained in the Registration Statement (with respect to audited periods) and on
a basis consistent with that of the most recent interim consolidated financial
statements filed with the Commission (with respect to unaudited periods).
(k) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific
5
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
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.
(l) Subsidiaries of the Company. Except as disclosed in the Prospectus
[or as set forth on Schedule 1.K hereto], the Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
(m) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries (i) has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction in which it is organized with full corporate power and authority to
own its properties and conduct its business as described in the Prospectus, and
(ii) is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such qualification,
except where the failure to be so qualified would not have a Material Adverse
Effect.
(n) Capitalization of the Subsidiaries. All of the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise disclosed
in or contemplated by the Prospectus (including the credit facilities described
therein), all outstanding shares of capital stock of the subsidiaries are owned
by the Company, either directly or through its wholly-owned subsidiaries, free
and clear of any security interests, claims, liens or encumbrances.
(o) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited from
paying any dividends to the Company, from making any other distribution on such
subsidiary's capital stock, from repaying to the Company any loans or advances
to such subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary of the
Company, except as described in or contemplated by the Prospectus, restrictions
under securities laws, and such restrictions as would not have a Material
Adverse Effect.
6
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(p) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" as of the date presented therein
(other than for subsequent issuances, if any, pursuant to employee benefit plans
descriptions of which are contained in the Prospectus, upon exercise of
outstanding options descriptions of which are contained in the Prospectus or
other issuances which are not material in amount). The Common Shares (including
the Shares) conform in all material respects to the description thereof
contained in the Prospectus. All of the issued and outstanding Common Shares
have been duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with federal and state securities laws. None
of the outstanding Common Shares were issued in violation of any preemptive
rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(q) Stock Exchange Listing. The Company's Common Stock is registered
pursuant to Section 12(g) of the Exchange Act, and the Shares are listed, or
have been approved for listing upon notice of issuance, on the Nasdaq National
Market, and the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Shares from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, LLC (the "NASD") is contemplating terminating such
registration or listing.
(r) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made (including under
the Securities Act) and such as may be required (i) under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of the Shares
by the Underwriters in the manner contemplated here and in the Prospectus, (ii)
by the NASD and (iii) by the federal and provincial laws of Canada and any other
foreign jurisdiction in which the Shares may be offered or sold.
(s) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares, the consummation of any other of the transactions
herein
7
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
contemplated, nor the fulfillment of the terms hereof, will conflict with,
result in a breach or violation or imposition of any lien, charge or encumbrance
upon any property or asset of the Company or any of its subsidiaries pursuant to
(i) the charter or by-laws of the Company or any of its subsidiaries, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, covenant or instrument to which
the Company or any of its subsidiaries is a party or bound or to which its or
their property is subject or (iii) any statute, law, rule, regulation, judgment,
order or decree applicable to the Company or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of its subsidiaries
or any of its or their properties, except, in the case of clauses (ii) and (iii)
above, such violations, breaches or defaults as would not have a material and
adverse impact on the Company's ability to consummate the transactions
contemplated hereby and as would not have a Material Adverse Effect.
(t) No Defaults or Violations. Neither the Company nor any subsidiary
is in violation of or default under: (i) any provision of its charter or by-
laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, covenant or instrument to
which it is a party or bound or to which its property is subject; or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or such subsidiary or any of its
properties, as applicable; except in each case, for any such violation or
------ -- ---- ----
default which would not, singly or in the aggregate, result in a Material
Adverse Change, except as otherwise disclosed in or contemplated by the
Prospectus.
(u) No Actions, Suits or Proceedings. Except as otherwise disclosed in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or any of its subsidiaries or its or their property is pending or, to the
knowledge of the Company, threatened that, if determined adversely to the
Company and its subsidiaries, (i) could reasonably be expected to have a
material adverse effect on the Company's ability to perform its obligations
under this Agreement or to consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.
(v) All Necessary Permits, Etc. Except as would not have a Material
Adverse Effect, the Company and each subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any notice
of proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(w) Title to Properties. Except as disclosed in or contemplated by the
Prospectus, the Company and each of its subsidiaries has good and marketable
title to all the properties and assets reflected as owned in the financial
statements referred to in Section 1(A) (j) above and which are material to the
respective businesses (or elsewhere in the Prospectus), in each case free and
clear of any security interests, mortgages, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary. The
real property, improvements, equipment and personal property held under lease by
the Company or any subsidiary are held under valid and binding leases, with such
exceptions as are not material and do not materially interfere with the use made
or proposed to be made of such real property, improvements, equipment or
personal property by the Company or such subsidiary.
(x) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary and material federal, state and foreign income tax
returns and all material franchise tax returns applicable to its business, or
proper extensions therefor, and, if due and payable, have paid all taxes
required to be paid by any of them and any related or similar assessment, fine
or penalty levied against any of them, except such as may be contested in good
faith. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(A)(j) above in respect
of all federal, state and foreign income and franchise taxes for all periods
reflected in such financial statements as to which the tax liability of the
Company or any of its consolidated subsidiaries has not been finally determined.
The Company has no knowledge of any tax deficiency that has been or might be
asserted or threatened against the Company that could result in a Material
Adverse Change.
(y) Intellectual Property Rights. Except as disclosed in or contemplated
by the Prospectus: each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights or licenses, inventions,
collaborative research agreements, trade secrets, know-how, trademarks, service
marks, trade names and copyrights that are necessary to conduct its businesses
as described in the Registration Statement and Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not result in a Material Adverse Change; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of,
9
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
any infringement of or conflict with asserted rights of others with respect to
any patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names or copyrights which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. There is no claim being made against the Company regarding
patents, patent rights or licenses, inventions, collaborative research, trade
secrets, know-how, trademarks, service marks, trade names or copyrights that is
not otherwise disclosed in or contemplated by the Prospectus. The Company and
its subsidiaries do not in the conduct of their business as now or proposed to
be conducted as described in the Prospectus infringe or conflict with any right
or patent of any third party, or any discovery, invention, product or process
which is the subject of a patent application filed by any third party, known to
the Company, or any of its subsidiaries which such infringement or conflict is
reasonably likely to result in a Material Adverse Effect that is not otherwise
disclosed in the Prospectus.
(z) Year 2000 Preparedness. Except as disclosed in the Prospectus,
there are no issues related to the Company's or any of its subsidiaries'
preparedness for the Year 2000, February 29, 2000 and other related date data
interfaces that (i) are of a character required to be described or referred to
in the Registration Statement or Prospectus or any Incorporated Document by the
Securities Act or by the Exchange Act which have not been accurately described
in the Registration Statement or Prospectus or any Incorporated Document or (ii)
might reasonably be expected to result in any Material Adverse Change.
(aa) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Company Shares, except those that have been or will be paid by the
Company.
(bb) Company Not an "Investment Company." The Company (i) is not, (ii)
after receipt of payment for the Company Shares will not be, and (iii) does not
intend to conduct its business in a manner that would cause it to become, an
"investment company" or an entity "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(cc) Insurance. The Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are reasonably
deemed adequate and customary for their businesses, including, but not limited
to, policies covering material real and personal property owned or leased by the
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes, general liability and directors and officers
liability. The Company has no reason to believe that it or any subsidiary will
not be able
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(i) to renew its existing insurance coverage as and when such policies expire or
(ii) to obtain comparable coverage from similar institutions as may be necessary
or appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change.
(dd) Labor Matters. To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries which could reasonably
be expected to have a Material Adverse Effect exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers or original equipment manufacturers
that might reasonably be expected to result in a Material Adverse Change.
(ee) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ff) Lock-Up Agreements. Each executive officer and director of the
Company, each Selling Shareholder and each beneficial owner of one or more
percent of the outstanding Common Stock of the Company has signed an agreement
substantially in the form attached hereto as Exhibit A (the "Lock-up
---------
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements. The Company hereby agrees that it will not release any of
its executive officers, directors or other shareholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of FleetBoston Robertson Stephens Inc.
(hh) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the Company's knowledge, any employee or
agent of the Company or any subsidiary, has made any contribution or other
payment during the past three (3) years to any official of, or candidate for,
any federal, state or foreign office in violation of any law or of the character
required by any federal or state securities law to be disclosed in the
Prospectus.
(ii) Environmental Laws. The Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws"), which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change. The Company has received no
notice from any governmental authority or third
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus. The Company will
not be required to make future material capital expenditures to comply with
Environmental Laws. No property that is owned, leased or occupied by the Company
has been designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
--
seq.), or otherwise designated as a contaminated site under applicable state or
- ---
local law.
(jj) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means,
with respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such subsidiary
is a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such "employee
benefit plan" were terminated, would have any "amount of unfounded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by
the Company, its subsidiaries or any of their ERISA Affiliates that is intended
to be qualified under Section 401(a) of the Code is so qualified, and nothing
has occurred, whether by action or failure to act, that would cause the loss of
such qualification.
(kk) Exchange Act Compliance. The documents incorporated or deemed to be
incorporated by reference in the Prospectus (each an "Incorporated Document"),
at the time they were or hereafter are filed with the Commission (if filed prior
to the termination of the Offering), complied and will comply in all material
respects with the requirements of the Exchange Act, and, when read together with
the other information in the Prospectus, at the time the Registration Statement
and any amendments thereto become effective and at the First Closing Date and
the Second Closing Date, as the case may be, will 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, in the light of the
circumstances under which they were made, not misleading.
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(ll) Exchange Act Reports Filed. The Company has filed all reports
required to be filed pursuant to the Securities Act and the Exchange Act.
(mm) Conditions for Use of Form S-3. The Company has satisfied the
conditions for the use of Form S-3, as set forth in the general instructions
thereto, with respect to the Registration Statement.
(nn) Immigration. 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,
except where any such violation or investigation would not have (if the outcome
was adverse) a Material Adverse Effect.
Any certificate signed by an executive officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters set forth therein.
B. Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder, severally and not jointly, represents and warrants to and
agrees with each Underwriter and the Company as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling Shareholder
and is a valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws relating to or affecting the rights and remedies of creditors
or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Shareholder and SunTrust Bank, Atlanta,
as custodian (the "Custodian"), relating to the deposit of the Selling
Shareholder Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and (ii) Power of Attorney of such Selling Shareholder appointing
certain individuals named therein as such Selling Shareholder's attorneys-in-
fact (each, an "Attorney-in-Fact") to the extent set forth therein relating to
the transactions contemplated hereby and by the Prospectus (the "Power of
Attorney"), has been duly authorized, executed and delivered by such Selling
Shareholder and is a valid and binding agreement of such Selling Shareholder,
enforceable
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
in accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles. Each Selling
Shareholder agrees that the Selling Shareholder Shares to be sold by such
Selling Shareholder on deposit with the Custodian are subject to the interests
of the Underwriters, that the arrangements made for such custody are to that
extent irrevocable, and that the obligations of such Selling Shareholder
hereunder shall not be terminated, except as provided in this Agreement or in
the Custody Agreement, by any act of the Selling Shareholder, by operation of
law, by death or incapacity of such Selling Shareholder or by the occurrence of
any other event. To the maximum extent permitted under applicable law, if such
Selling Shareholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Selling Shareholder Shares to be sold
by such Selling Shareholder hereunder, the documents evidencing the Selling
Shareholder Shares to be sold by such Selling Shareholder then on deposit 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 shall have received
notice thereof.
(c) Title to Shares to be Sold. Such Selling Shareholder is the lawful
owner of the Selling Shareholder Shares to be sold by such Selling Shareholder
hereunder and set forth opposite each Selling Shareholder's name on Schedule B.
----------
Such Selling Shareholder has, and immediately prior to the delivery of the
Selling Shareholder Shares to be sold by such Selling Shareholder on the First
Closing Date (as defined below) will have, good and valid title to all of the
Selling Shareholders Shares, and upon sale and delivery of, and payment for,
such Selling Shareholder Shares, as provided herein, convey good and marketable
title to such Selling Shareholder Shares will pass to the Underwriters, free and
clear of all liens, encumbrances, equities and claims whatsoever.
(e) No Further Consents, Authorization or Approvals. No consent,
approval, authorization or order of any court or governmental agency or body is
required for (i) the execution and delivery by such Selling Shareholder of this
Agreement or such Selling Shareholder's Custody Agreement and Power of Attorney
or (ii) the consummation by such Selling Shareholder of the transactions
contemplated herein, except such as may have been obtained under the Securities
Act and such as may be required under the federal and provincial securities laws
of Canada or any other jurisdiction where the Shares may be offered or sold, or
the blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Shares by the Underwriters and such other approvals as have
been obtained.
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FleetBoston Robertson Stephens Inc., et al.
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(f) Non-Contravention. Neither the sale of the Selling Shareholder
Shares being sold by such Selling Shareholder nor the consummation of any other
of the transactions herein contemplated by such Selling Shareholder or the
fulfillment of the terms hereof by such Selling Shareholder will conflict with,
result in a breach or violation of, or constitute a default under the terms of
any indenture or other agreement or instrument to which such Selling Shareholder
is party or bound, any law, judgment, order or decree applicable to such Selling
Shareholder or of any court or regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Shareholder, except where such conflict, breach, default or violation would not
prohibit or challenge the validity of the transactions herein contemplated to be
consummated by such Selling Shareholder.
(g) No Registration or Other Similar Rights. Such Selling Shareholder
does not have or hereby waives in connection with the Offering contemplated by
this Agreement, any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement./1/
(h) No Preemptive, Co-sale or other Rights. Such Selling Shareholder
does not have, or hereby waives in connection with the Offering contemplated by
this Agreement, any preemptive right, co-sale right or right of first refusal or
other similar right of such Selling Shareholder to purchase any of the Shares
that are to be sold by the Company or any of the other Selling Shareholders to
the Underwriters pursuant to this Agreement; and such Selling Shareholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, right, warrants, options
or other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
(i) Disclosure Made by Such Selling Shareholder in the Prospectus. All
information furnished by or on behalf of such Selling Shareholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date (as defined below) will be, true,
correct, and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to make such
information (in light of the circumstances in which such statement is made, in
the case of the Prospectus) not misleading. Such Selling Shareholder confirms
as accurate the number of Common Shares beneficially owned by such Selling
Shareholder set forth opposite such Selling Shareholder's name in the Prospectus
under the caption "Selling Shareholders" (both prior to and after giving effect
to the sale of the Shares).
- --------------------
/1/ If there are Regulation Rights, we need to see the agreements.
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(j) No Price Stabilization or Manipulation. Such Selling Shareholder
has not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
(k) Distribution of Offering Materials by the Selling Shareholders. The
Selling Shareholders have not distributed and will not distribute, prior to the
later of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Shares, any offering material in connection
with the offering and sale of the Shares by such Selling Shareholder other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(l) Confirmation of Company Representations and Warranties. Such
Selling Shareholder has no knowledge that the representations and warranties of
the Company contained in Section 1(A) hereof are not true and correct in all
material respects, and is not prompted to sell the Selling Shareholder Shares to
be sold by such Selling Shareholder by any information concerning the Company
which is not set forth in the Registration Statement and the Prospectus.
Any certificate signed by any Selling Shareholder or by such Selling
Shareholder's Attorney-in-Fact on behalf of such Selling Shareholder and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. Upon the basis of the representations, warranties and
agreements herein contained and upon the terms but subject to the conditions
herein set forth, (i) the Company agrees, severally and not jointly with any
Selling Shareholder, to issue and sell to the several Underwriters an aggregate
of 2,650,000 Firm Shares and (ii) the Selling Shareholders, severally and not
jointly with the Company or any other Selling Shareholder, agree to sell to the
several Underwriters an aggregate of 350,000 Firm Shares, each Selling
Shareholder selling the number of Firm Shares set forth opposite such Selling
Shareholder's name on Schedule B. On the basis of the representations,
----------
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Shareholders the
respective number of Firm Shares set forth opposite their names on Schedule A.
----------
The purchase price per Firm Share to be paid
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
by the several Underwriters to the Company and the Selling Shareholders shall be
$___ per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Selling Shareholders and the Representatives at 6:00 a.m. San Francisco time, at
the offices of Nelson Mullins Riley & Scarborough, L.L.P. in Atlanta, Georgia
(or at such other place as may be agreed upon among the Representatives and the
Company), (i) if this Agreement is executed and delivered before 1:30 p.m., San
Francisco time, on the third (3rd) full business day following the first day
that Firm Shares are traded, (ii) after 1:30 p.m., San Francisco time, on the
fourth (4th) full business day following the day that this Agreement is executed
and delivered or (iii) at such other time and date not later that seven (7) full
business days following the first day that Firm Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
2(g) hereof, the Representatives may, in their sole discretion exercised in
compliance with the Securities Act, postpone the Closing Date until no later
than two (2) full business days following delivery of copies of the Prospectus
to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters, acting severally and not jointly, to
purchase up to an aggregate of 450,000 Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares.
The option granted hereunder is for use by the Underwriters solely in covering
any over-allotments in connection with the sale and distribution of the Firm
Shares. The option granted hereunder may be exercised in whole or in part at
any time or from time to time upon notice by the Representatives to the Company,
which notice may be given at any time within 30 days from the date of this
Agreement. The time and date of delivery of the Option Shares, if subsequent to
the First Closing Date, is called the "Second Closing Date," shall be determined
by the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Option
Shares are to be purchased, upon delivery of the exercise notice(s) with respect
thereto, each Underwriter agrees, severally and not jointly, to purchase the
number of Option Shares (subject to such adjustments to eliminate fractional
shares as the Representatives may determine) that bears the same proportion to
the total number of Option Shares to be purchased as the number of Firm Shares
set forth on Schedule A opposite the name of such Underwriter bears to the total
----------
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
number of Firm Shares. The Representatives may cancel the option (except with
respect to Option Shares for which a notice of exercise has been delivered to
the Company) at any time prior to its expiration by giving written notice of
such cancellation to the Company.
(d) Public Offering of the Shares. The Underwriters intend to offer for
sale to the public, as described in the Prospectus, their respective portions of
the Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in their sole
judgment, have determined is advisable and practicable.
(e) Payment for the Shares.
(i) Payment for the Shares to be sold by the Company shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer of immediately available funds to the order of the Company.
Payment for the Shares to be sold by the Selling Shareholders shall be made
at the First Closing Date by wire transfer of immediately available funds
to the order of the Custodian.
(ii) The Representatives have been authorized, for their own accounts and
the accounts of the several Underwriters, to accept delivery of and receipt
for, and make payment of the purchase price for, the Firm Shares and any
Option Shares the Underwriters have agreed to purchase. FleetBoston
Robertson Stephens Inc., individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter, whose funds shall not have been
received by the Representatives by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but
any such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
(iii) Each Selling Shareholder hereby agrees that (A) it will pay all
income tax, capital gains tax, stock transfer taxes, stamp duties and other
similar taxes, if any, payable upon the sale or delivery of the Selling
Shareholder Shares to be sold by such Selling Shareholder to the several
Underwriters, or otherwise in connection with the performance of such
Selling Shareholder's obligations hereunder and (B) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to
such Selling Shareholder hereunder and to pay such amounts for the account
of such Selling Shareholder in accordance with the Custody Agreement.
(f) Delivery of the Shares. The Company and the Selling Shareholders
shall deliver, or cause to be delivered, at the First Closing Date, a credit
representing the Firm
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
Shares to an account or accounts at The Depository Trust Company as designated
by the Representatives for the accounts of the Representatives and the several
Underwriters at least two (2) business days in advance of such First Closing
Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, at the First Closing Date or the Second
Closing Date, as the case may be, a credit representing the Option Shares to an
account or accounts at The Depository Trust Company as designated by the
Representatives for the accounts of the Representatives and the several
Underwriters at least two (2) business days in advance of such First Closing
Date or Second Closing Date, as applicable, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. Time shall be of the essence, and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters, the Company and the Selling Shareholders.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Firm Shares are released by
the Underwriters for sale to the public, the Company shall deliver, or cause to
be delivered, copies of the Prospectus in such quantities (not to exceed the
number of Prospectus copies requested by the Underwriters to be printed) and at
such places as the Representatives shall request.
Section 3. Covenants of the Company and the Selling Shareholders.
A. Covenants of the Company. The Company further covenants and agrees
with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause the Registration Statement (if not effective at the time this
Agreement is executed and delivered) to become effective as promptly as possible
or, if the procedure in Rule 430A of the Securities Act is followed, to prepare
and timely file with the Commission under Rule 424(b) under the Securities Act a
Prospectus in substantially the same form as approved by the Representatives,
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall promptly file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
the Securities Act, shall promptly notify the Representatives of the filing of
such Rule 462(b) Registration Statement and its effectiveness and shall pay the
applicable fees in accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly after it receives notice (i) when the Registration
Statement or any post-effective amendment thereto shall have become effective,
(ii) of receipt of any comments from the Commission, (iii) of any request of the
Commission for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for that purpose. The Company will use its best efforts to prevent the issuance
of any such stop order preventing or suspending the use of the Prospectus and,
if issued, to obtain as soon as possible the withdrawal thereof.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in their best efforts to
qualify the Shares for sale under the securities laws of such jurisdictions
(both national and Canadian) as the Representatives may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify or register as a foreign
corporation or to execute or file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. In each U.S. and Canadian jurisdiction in which the Shares shall have
been registered or qualified as provided above, the Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares
(not to exceed six months).
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act
so as to permit the completion of the distribution of the Shares as contemplated
in this Agreement and the Prospectus. If during the period in which a
prospectus is required by federal or state securities laws to be delivered by an
Underwriter or dealer in connection with sales of the Shares contemplated by
this Agreement any event shall occur as a result of which, in the judgment of
the Company or its counsel or in the reasonable opinion of the Representatives
or counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is required by the Securities
Act to be delivered to a purchaser of the Shares, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with
federal or state securities laws in
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
connection with sales of the Shares contemplated by this Agreement, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus,
as so amended or supplemented, will not.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date as, in the written opinion of counsel for the Underwriters, the
Prospectus is no longer required by federal or state securities laws to be
delivered in connection with sales of the Shares by an Underwriter or dealer
(the "Prospectus Delivery Period"), as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(f) Insurance. The Company shall obtain directors and officers liability
insurance in the minimum amount of $10 million, which shall apply to the
offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in the Representatives' opinion the market price of the Company
Shares has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, after written notice from the Representatives
advising the Company to the effect set forth above, forthwith prepare, consult
with the Representatives concerning the substance of and disseminate a press
release or other public statement, reasonably satisfactory to the
Representatives, responding to or commenting on such rumor, publication or
event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus. The Company will not invest or otherwise use the
proceeds from the sale of the Shares sold by it in such a manner as would
require the Company to register as an investment company under the Investment
Company Act.
(i) Transfer Agent. The Company shall continue to maintain, at its
expense, a registrar and transfer agent for the Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(which need not be audited) covering the twelve-month period ending March 31,
2001 that satisfies the provisions of Section 11(a) of the Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of FleetBoston Robertson Stephens
Inc., for a period of 90 days following the date that the Registration Statement
is declared effective (the "Lock-Up Period") offer, sell, contract to sell, or
otherwise dispose of or enter into any transaction that is designed to, or could
be expected to, result in the disposition during such 90-day period, (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, or announce the offering, of any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
--------
however, that the Company may (i) issue and sell the Shares pursuant to this
- -------
Agreement, (ii) issue and sell Common Shares or other securities pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus or
pursuant to options, warrants or other agreements entered into after the date of
the Prospectus (so long as no Common Shares issued to executive officers,
directors or holders of more than 1% of the total number of outstanding Common
Shares pursuant to such options, warrants or other agreements may be transferred
in violation of the lock-up agreements to which such person(s) are a party), and
the Company shall enter stop transfer instructions with its transfer agent and
registrar against the transfer of any such Common Shares and (iii) the Company
may issue Common Shares or other securities convertible into, or exercisable or
exchangeable for, Common Shares in an amount up to five percent of the issued
and outstanding share capital of the Company as consideration for the
acquisition by the Company of an entity or all or some of the assets of another
entity; provided, however, that (A) any recipient of Common Shares issued
pursuant to subsection (ii) who as a result of such issuance becomes a
beneficial owner of one percent or more of the outstanding share capital of the
Company and (B) all recipients of Common Shares issued pursuant to subsection
(iii) execute and deliver to FleetBoston Robertson Stephens Inc. a Lock-Up
Agreement substantially in the form attached hereto as Exhibit A, which term
---------
shall be for the remainder of the Lock-Up Period.
(m) Future Reports to the Representatives. If the closing of the
purchase and sale of the Firm Shares occurs, during the period of three years
hereafter, the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
Company as of the close of such fiscal year and statements of income,
shareholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public or certified public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock; provided, however, that the Company shall be deemed to have
-------- -------
satisfied its obligations hereunder if it files the document via EDGAR and such
document is available for public inspection via EDGAR.
(n) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act (including as allowed to be
extended pursuant to Form 12b-25 or otherwise under the Exchange Act).
B. Covenants of the Selling Shareholders. Each Selling Shareholder,
severally and not jointly, further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Shareholder will abide by the terms and conditions of the lock-up agreement
substantially in the form of Exhibit A hereto (with such changes and
---------
modifications as agreed to by the parties thereto) during the Lock-Up Period.
(b) Delivery of Form W-9. To deliver to the Custodian prior to the
First Closing Date a properly completed and executed United States Treasury Form
W-9 as required by the Custody Agreement.
(c) Notification of Untrue Statements, etc. If, at any time prior to the
date on which the distribution of the Shares as contemplated herein and in the
Prospectus has been completed, such Selling Shareholder has knowledge of the
occurrence of any event as a result of which the Prospectus or the Registration
Statement, in each case as then amended or supplemented, would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, such Selling Shareholder will promptly notify the Company
and the Representatives.
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section
1(A) hereof and the Selling Shareholders set forth in Section 1(B) hereof as of
the date hereof and as of the First Closing Date as though then made and, with
respect to the Option Shares, as of the Second Closing Date as though then made,
to the timely performance by the Company and the Selling Shareholders in all
material respects of their respective covenants and other obligations hereunder,
and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the NASD. The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Shareholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus) shall have been
complied with to the reasonable satisfaction of Underwriters' counsel; and the
NASD shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings of the Company and
other legal matters material to the Company's and the Selling Shareholders'
ability to perform its and their obligations in connection with this Agreement,
the form of Registration Statement and the Prospectus, and the registration,
authorization, issuance, sale and delivery of the Shares, shall have been
reasonably satisfactory to Underwriters' counsel, and such counsel shall have
been furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
from that set forth in the Registration Statement or Prospectus, which, in the
Representatives' sole judgment, is material and adverse and that makes it, in
the Representatives' sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus.
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FleetBoston Robertson Stephens Inc., et al.
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(d) Opinion of Counsel for the Company.
(i) The Representatives shall have received on the First Closing Date or
the Second Closing Date, as the case may be, an opinion of Nelson Mullins
Riley & Scarborough, L.L.P., counsel for the Company, substantially in the
form of Exhibit B attached hereto, dated the First Closing Date or the
---------
Second Closing Date, as the case may be, addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters.
(ii) Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State
of Georgia upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholders and of government officials, in which case their opinion is to
state that they are so relying and that they have no actual knowledge of
any material misstatement or inaccuracy in any such opinion, representation
or certificate. Copies of any opinion, representation or certificate so
relied upon shall be delivered to the Representatives and to Underwriters'
counsel.
(e) Opinion of Special Regulatory Counsel for the Company. The
Representatives shall have received on the First Closing Date or the Second
Closing Date, as the case may be, one or more opinions of special regulatory
counsel for the Company, substantially in the form of Exhibit C attached hereto,
---------
dated the First Closing Date or the Second Closing Date, as the case may be,
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters.
(f) Opinions of Counsel for the Underwriters. The Representatives
shall have received on the First Closing Date or the Second Closing Date, as the
case may be, an opinion of Alston & Bird LLP, counsel to the Underwriters,
substantially in the form of Exhibit D attached hereto, dated the First Closing
---------
Date or the Second Closing Date, as the case may be, addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters. The Company shall have furnished to such counsel such
documents as they may have reasonably requested for the purpose of enabling them
to pass upon such matters.
(g) Accountants' Comfort Letter. The Representatives shall have received
on the First Closing Date and on the Second Closing Date, as the case may be, a
letter in form and substance satisfactory to the Representatives and containing
the information set forth in Exhibit E attached hereto from Arthur Andersen LLP
---------
addressed to the Underwriters, dated the First Closing Date or the Second
Closing Date, as the case may be.
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FleetBoston Robertson Stephens Inc., et al.
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(h) Officers' Certificate. The Representatives shall have received on
the First Closing Date and the Second Closing Date, as the case may be, a
certificate of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, signed by the Chief Executive Officer and Chief
Financial Officer of the Company, to the effect that, and the Representatives
shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement are
true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, 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 First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, threatened
under the Securities Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such officer's certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, and the Incorporated Documents, when such Incorporated Documents
became effective or were filed with the Commission, contained all material
information required to be included therein by the Securities Act or the
Exchange Act, as the case may be, and in all material respects conformed to
the requirements of the Securities Act or the Exchange Act, as the case may
be; the Registration Statement and the Prospectus, and any amendments or
supplements thereto, did not and does not include any 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, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has
not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (A) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (B) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (C) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (D) any change in the capital stock or outstanding indebtedness of
the Company or any of its
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FleetBoston Robertson Stephens Inc., et al.
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subsidiaries that is material to the Company and its subsidiaries considered
as one enterprise, (E) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its subsidiaries,
or (F) any loss or damage (whether or not insured) to the property of the
Company or any of its subsidiaries which has been sustained or will have
been sustained that has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise.
(i) Lock-up Agreement from Certain Shareholders of the Company. The
Company shall have obtained and delivered to you copies of an agreement
substantially in the form of Exhibit A attached hereto (with such changes as may
---------
be agreed to by the parties thereto) from each executive officer and director of
the Company, each Selling Shareholder and each beneficial owner of one or more
percent of the outstanding share capital of the Company.
(j) Opinion of Counsel for the Selling Shareholders. You shall have
received on the First Closing Date the opinion of Nelson Mullins Riley &
Scarborough, L.L.P., counsel for the Selling Shareholders, substantially in the
form of Exhibit F attached hereto, dated as of the First Closing Date, addressed
---------
to the Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters.
In rendering such opinion, such counsel may rely as to questions of law not
involving the laws of the United States or State of Georgia upon opinions of
local counsel and as to questions of fact upon representations or certificates
of the Company, Selling Shareholders and of governmental officials, in which
case their opinion is to state that they are so relying and that they have no
actual knowledge of any material misstatement or inaccuracy of any material
misstatement or inaccuracy in any such opinion, representation or certificate so
relied upon shall be delivered to the Representatives of the Underwriters and to
Underwriters' counsel.
(k) Selling Shareholders' Certificate. On the First Closing Date, the
Representatives shall receive a written certificate executed each Selling
Shareholder or his Attorney-in-Fact, dated as of the First Closing Date, to the
effect that:
(i) the representations, warranties and covenants of such Selling
Shareholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Shareholder on and as of the First Closing Date; and
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FleetBoston Robertson Stephens Inc., et al.
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(ii) such Selling Shareholder has complied with all the agreements and
satisfied all the conditions to be performed or satisfied by him at or
prior to the First Closing Date.
(l) Selling Shareholders' Documents. The Company and the Selling
Shareholders shall have furnished for review by the Representatives copies of
the Powers of Attorney and Custody Agreements executed by each of the Selling
Shareholders and such further information, certificates and documents as the
Representatives may reasonably request.
(m) Stock Exchange Listing. The Shares shall have been listed or approved
for inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(n) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(o) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by written notice to the Company and the Selling Shareholders at
any time on or prior to the First Closing Date and, with respect to the Option
Shares, at any time prior to the Second Closing Date, which termination shall be
without liability on the part of any party to any other party, except that
Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters'
Expenses), Section 7 (Indemnification and Contribution) and Section 10
(Representations and Indemnities to Survive Delivery) shall at all times be
effective and shall survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Company Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes
in connection with the issuance and sale of the Company Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel, independent
public or certified public accountants and other advisors, (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Shares for offer and sale under the state securities or blue sky laws
(not to exceed $5,000 in the aggregate without the Company's written consent) or
the provincial securities laws of Canada or any other country (not to exceed
$7,500 in the aggregate without the Company's written consent), and, if
requested by the Representatives, preparing and printing a "Blue Sky Survey," an
"International Blue Sky Survey" or other memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the fees and expenses of
counsel for the Underwriters in connection with, the NASD review and approval of
the Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, (ix) all costs and expenses incident to the
preparation and undertaking of "road show" preparations to be made to
prospective investors, and (x) all other fees, costs and expenses referred to in
Item 14 of Part II of the Registration Statement. Except as provided in this
Section 5, Section 6, and Section 7 hereof, the Underwriters shall pay their own
expenses, including the fees and disbursements of their counsel.
The Selling Shareholders further agree with each Underwriter and the Company
to pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for such Selling Shareholders, (ii) fees
and expenses of the Custodian and (iii) expenses, underwriting discounts and
commissions, and taxes incident to the sale and delivery of the Selling
Shareholder Shares to be sold by such Selling Shareholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid written
agreement relating to the allocation of payment or reimbursement of expenses
between the Company, on the one hand, and the Selling Shareholders, on the other
hand.
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 9 or
Section 15, or if the sale to the Underwriters of the Shares on the First
Closing Date is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Shareholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
the Representatives and the other Underwriters (or such Underwriters as have
terminated this Agreement with respect to themselves), severally, upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Shares as contemplated in this Agreement,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges (subject to
applicable limits on such amounts as may be set forth elsewhere herein).
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
(i) The Company agrees to:
(A) indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act and the Exchange Act, against any
loss, claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of the Company, which consent shall not be unreasonably
withheld), insofar as such loss, claim, damage, liability or expense
(or actions in respect thereof as contemplated below) arises out of or
is based:
(1) upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, or any
amendment thereto, including any information deemed to be a part
thereof pursuant to Rule 430A or Rule 434 under the Securities
Act, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the
statements therein not misleading; or
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
(2) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or
(3) in whole or in part upon any inaccuracy in the representations
and warranties of the Company set forth herein; or
(4) in whole or in part upon any failure of the Company to perform
its obligations hereunder or under law; or
(5) upon any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to,
the Shares or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon any matter covered by clause (1), (2), (3) or
(4) above, provided that the Company shall not be liable under this clause
(5) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken
or omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and
(B) reimburse each Underwriter and each such controlling person for any and
all expenses (including the fees and disbursements of counsel chosen by
FleetBoston Robertson Stephens Inc.) as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action;
provided, however, that the foregoing indemnity agreement shall not apply to any
- -------- -------
loss, claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
-------- -------
with respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
31
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
asserting any loss, claim, damage, liability or expense purchased Shares, or any
person controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Representatives pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 7(a) shall be in addition to any
liabilities that the Company may otherwise have.
(ii) The Selling Shareholders, severally and not jointly, agree to:
(A) indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against
any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with
the written consent of the Company and such Selling Shareholder or his
Attorney-in-Fact, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based:
(1) upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, or any
amendment thereto, including any information deemed to be a part
thereof pursuant to Rule 430A or Rule 434 under the Securities
Act, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the
statements therein not misleading; or
(2) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading,
in the case of subparagraphs (1) and (2) of this Section 7(a)(ii)
to the
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
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 or such Underwriter by the Selling
Shareholder, directly or through the Selling Shareholder's
representatives, specifically for use in the preparation thereof;
or
(3) in whole or in part upon any inaccuracy in the
representations and warranties of such Selling Shareholder
contained herein; or
(4) in whole or in part upon any failure of such Selling
Shareholder to perform his obligations hereunder or under law; or
(5) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any
manner to, the Shares or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any
matter covered by clause (1), (2), (3) or (4) above, provided
that the Selling Shareholder shall not be liable under this
clause (5) to the extent that a court of competent jurisdiction
shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts
or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and
(B) reimburse each Underwriter and each such controlling person for
any and all expenses (including the fees and disbursements of counsel
chosen by FleetBoston Robertson Stephens Inc.) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action;
provided, however, that the foregoing indemnity agreement shall not apply to any
- -------- -------
loss, claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company or the Selling Shareholder by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
- -------- -------
foregoing indemnity agreement shall not inure to the benefit of any
33
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
Underwriter from whom the person asserting any loss, claim, damage, liability or
expense purchased Shares, or any person controlling such Underwriter, if copies
of the Prospectus were timely delivered to the Representatives pursuant to
Section 2 and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense; and provided, further, that the liability of each
-------- -------
Selling Shareholder under the foregoing indemnity agreement shall be limited to
an amount equal to (i) the number of Shares sold by such Selling Shareholder
pursuant to the Prospectus multiplied by (2) the public offering price of the
Shares sold by such Selling Shareholder, less the underwriting discount, as set
forth on the front cover page of the Prospectus. The indemnity agreement set
forth in this Section 7(a) shall be in addition to any liabilities that the
Selling Shareholder may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Shareholders and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage, liability
or expense, as incurred, to which the Company, or any such director, officer,
Selling Shareholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, 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 the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company or the
Selling Shareholders by the Representatives expressly for use therein; and to
reimburse the Company, or any such director, officer, Selling Shareholder or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer, Selling Shareholder or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage,
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
liability, expense or action. The indemnity agreement set forth in this Section
7(b) shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Information Provided by the Underwriters. The Company and each of the
Selling Shareholders hereby acknowledge that the only information that the
Underwriters have furnished to the Company and the Selling Shareholders
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) are the statements set
forth (i) the last sentence of the last paragraph on the front cover page of the
Prospectus and preliminary prospectus, and (ii) in the table in the first
paragraph, the second paragraph and in the paragraphs entitled "Stabilization"
and "Regulation M/Passive Market Making" under the caption "Underwriting" in the
Prospectus and preliminary prospectus; and the Underwriters confirm that such
statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action referenced in this Section 7, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 7, notify the indemnifying party in writing of the
commencement thereof. The omission, delay or failure so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 7 or to the extent it is not prejudiced as a
proximate result of such omission, delay or failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
-------- -------
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (FleetBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized in writing the employment of counsel for the
indemnified party at the expense of the indemnifying party, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement (or costs or expenses associated therewith) of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 7(d) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) as to which such
indemnified party is entitled to indemnification hereunder, then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders, on the
one hand,
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
and the Underwriters, on the other hand, from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders, on the one hand, and the
Underwriters, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand, and the Underwriters, on the other hand, shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bears to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholders, on the one hand, or the
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholders and Underwriters agree that it would not
be just and equitable if contributions pursuant to this Section 7(f) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to above in this Section 7(f).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 7(f) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, (ii) no Selling
Shareholder shall be required to contribute an amount in excess of the maximum
amount of his indemnification obligations under Section 7(a) or 7(b) above, and
(iii) 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. The
Underwriters' obligations in this Section 7(f) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(h) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or
37
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
contribution under this Section 7 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses are
incurred, but in all cases, no later than sixty (60) days of invoice to the
indemnifying party.
(i) Survival. The indemnity and contribution agreements contained in
this Section 7, and the representation and warranties of the Company set forth
in this Agreement, shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, or to the Selling Shareholders, their
representatives and successors, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
7.
(h) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares that such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the non-defaulting Underwriters shall be
obligated, severally, under the same terms and conditions set forth in this
Agreement and in the proportions that the number of Firm Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements reasonably satisfactory to the
38
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
Representatives and the Company for the purchase of such Shares are not made
within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4 and Section 7 shall at all times be effective and shall survive such
termination and except any action taken under this Section 8 shall not relieve
any defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement. In any such case, either the Representatives
or the Company shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, but in no event for longer than seven
days in order that the required changes, if any, to the Registration Statement
and the Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8.
Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company and the Selling Shareholders if at any time (i) trading or quotation in
any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York,
Georgia or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States' or international financial
markets, or any substantial change or development involving a prospective change
in the United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable or inadvisable to market the Shares in the manner and
on the terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character and magnitude as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company and
its subsidiaries, considered as one enterprise, regardless of whether or not
such loss shall have been insured. Any termination pursuant to this Section 9
shall be without liability on the part of (a) the Company or the Selling
Shareholders to any Underwriter, except that the Company and the Selling
Shareholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company or the Selling Shareholders, or (c) of any party hereto to any
39
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
other party except that the provisions of Section 7 shall at all times be
effective and shall survive such termination.
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its executive officers, of the Selling
Shareholders and of the several Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers or directors or any controlling person, or the
Selling Shareholders, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder and any termination of this Agreement.
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered (including by reputable overnight delivery
services) or telecopied and confirmed to the parties hereto as follows:
If to the Representatives:
FLEETBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
With a copy (which shall not constitute notice) to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Facsimile: (404) 881-4777
Attention: M. Hill Jeffries
40
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
If to the Company:
The InterCept Group, Inc.
3150 Holcomb Bridge Road
Suite 200
Norcross, Georgia 30071
Facsimile: (770) 242-6803
Attention: Chief Financial Officer
With a copy (which shall not constitute notice) to:
Nelson Mullins Riley & Scarborough, L.L.P.
First Union Plaza
Suite 1400
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Facsimile: (404) 817-6050
Attention: Susan L. Spencer
If to the Selling Shareholders:
SunTrust Bank, Atlanta, as Custodian
58 Edgewood
Atlanta, Georgia 30302
Facsimile: [___]
Attention: Corporate Trust Department
With a copy to:
The InterCept Group, Inc.
3150 Holcomb Bridge Road
Suite 200
Norcross, Georgia 30071
Facsimile: (770) 242-6803
Attention: Chief Financial Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others. Any notice made or delivered as set forth above
shall be deemed delivered (i) three business days after deposit, postage
prepaid, in the U.S. mails, (ii) when hand delivered or one business day after
deposit, delivery charges paid, with a reputable
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
overnight delivery service, or (iii) when delivered by facsimile (as provided in
the required confirmation of such facsimile).
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, personal representatives and permitted assigns, and no other person
will have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Shares as such from any of the Underwriters merely
by reason of such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding
42
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
brought in any such court has been brought in an inconvenient forum. Each party
not located in the United States irrevocably appoints CT Corporation System,
which currently maintains a San Francisco office at 49 Stevenson Street, San
Francisco, California 94105, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such suit, action
or proceeding that may be instituted in any state or federal court in the City
and County of San Francisco.
Section 15. Failure of One or More of the Selling Shareholders to Sell and
Deliver Common Shares. If one or more of the Selling Shareholders shall fail to
sell and deliver to the Underwriters an aggregate of more than 150,000 Shares to
be sold and delivered by such Selling Shareholders at the First Closing Date
pursuant to this Agreement, then the Underwriters may at their option, by
written notice from the Representatives to the Company and the Selling
Shareholders, either (i) require the Company and/or the non-defaulting Selling
Shareholders to sell such number of Common Shares as is equal to the number of
Shares that such defaulting Selling Shareholder had agreed to sell to the
Underwriters hereunder, or (ii) purchase the shares that the Company and other
Selling Shareholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Shareholders shall fail to sell
and deliver to the Underwriters the Shares to be sold and delivered by such
Selling Shareholders pursuant to this Agreement at the First Closing Date, then
the Underwriters shall have the right, by written notice from the
Representatives to the Company and the Selling Shareholders, to postpone the
First Closing Date, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
Section 16. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
43
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Custodian the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
THE INTERCEPT GROUP, INC.
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
THE SELLING SHAREHOLDERS
(severally and not jointly):
-----------------------------------------
John W. Collins
-----------------------------------------
James R. Henderson
-----------------------------------------
Donny R. Jackson
-----------------------------------------
Farrell S. Mashburn
-----------------------------------------
Scott R. Meyerhoff
-----------------------------------------
Vir A. Nanda
44
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
-----------------------------------------
Michael D. Sulpy
By:
-------------------------------------
Attorney-in-fact for the Selling
Shareholders named in Schedule B
----------
hereto
By:
-------------------------------------
Attorney-in-fact for the Selling
Shareholders named in Schedule B
----------
hereto
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC.
J.C. BRADFORD & CO.
FIRST UNION SECURITIES, INC.
SUNTRUST EQUITABLE SECURITIES CORPORATION
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------
By FLEETBOSTON ROBERTSON STEPHENS INC.
By:
--------------------------------
Authorized Signatory
45
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
SCHEDULE A
Number of
Firm Common Shares
Underwriters To be Purchased
- ------------ ------------------
FLEETBOSTON ROBERTSON STEPHENS INC........................ [_________]
J. C. BRADFORD & CO....................................... [_________]
FIRST UNION SECURITIES, INC............................... [_________]
SUNTRUST EQUITABLE SECURITIES CORPORATION................. [_________]
Total.................................................. 3,000,000
=========
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FleetBoston Robertson Stephens Inc., et al.
February , 2000
SCHEDULE B
Number of
Firm Shares
Selling Shareholder to be Sold
- ------------------- -----------
John W. Collins.............................................. 100,000
[address]
James R. Henderson........................................... 45,000
[address]
Donny R. Jackson............................................. 75,000
[address]
Farrell S. Mashburn.......................................... 45,000
[address]
Scott R. Meyerhoff........................................... 15,000
[address]
Vir A. Nanda................................................. 25,000
[address]
Michael D. Sulpy............................................. 45,000
[address]
-------
Total:.................................................. 350,000
=======
47
<PAGE>
[LETTERHEAD OF NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. APPEARS HERE]
February 14, 2000
The InterCept Group, Inc.
3150 Holcomb Bridge Road
Suite 200
Norcross, Georgia 30071
We have acted as counsel to The InterCept Group, Inc. (the "Company") and
certain shareholders of the Company (the "Selling Shareholders") in connection
with the filing of a Registration Statement on Form S-3 (Reg. No. 333-94511)
(the "Registration Statement") under the Securities Act of 1933, covering the
offering of up to 3,450,000 shares (the "Shares") of the Company's Common Stock,
no par value per share, by the Company and the Selling Shareholders. 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.
------------------------------------------------
Nelson Mullins Riley & Scarborough, LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated September 3, 1999
for Dyad Corporation and Subsidiaries, The Internet Banking Division of the
Bankers Bank, the Internet Banking Division of the Independent BankersBank, and
our report dated September 6, 1999 for SBS Corporation included in The InterCept
Group Inc.'s Form 8-K/A's filed on September 30, 1999, our reports dated
February 19, 1999 for the InterCept Group, Inc. included in The InterCept Group,
Inc.'s Form 10-K for the year ended December 31, 1998, our report dated June 30,
1999 for L.E. Vickers & Associates and Data Equipment Services included in The
InterCept Group, Inc.'s Form 8-K/A dated August 11, 1999 and to all references
to our Firm included in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 14, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Intercept Group, Inc.
Norcross, Georgia
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
January 22, 1998, relating to the financial statements of Item Processing of
America, Inc. appearing in The Intercept Group, Inc.'s Report on Form 8-K/A
dated January 13, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
- ----------------------------
Miami, Florida
February 14, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 to be filed on February 14, 2000) and related
Prospectus of The InterCept Group for the registration of shares of its common
stock and to the incorporation by reference therein of our report dated January
27, 1999, with respect to the financial statements of SBS Data Services, Inc.
included in the Current Reports on Form 8-K/A filed on September 30, 1999, as
amended, both filed with the Securities and Exchange Commission.
/s/ Hardman, Guess, Frost & Cummings, P.C.
Birmingham, Alabama
February 14, 2000
