<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-95111
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PRIMIS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 6531 58-18785227
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Number) Identification Number)
</TABLE>
--------------------------
11475 GREAT OAKS WAY, SUITE 320
ALPHARETTA, GEORGIA 30022
(770) 777-8600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
C. JAMES SCHAPER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRIMIS, INC.
11475 GREAT OAKS WAY, SUITE 320
ALPHARETTA, GEORGIA 30022
(770) 777-8600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
GABRIEL DUMITRESCU, ESQ. OBY T. BREWER III, ESQ.
KATHERINE M. KOOPS, ESQ. LAUREN Z. BURNHAM, ESQ.
Powell, Goldstein, Frazer & Murphy LLP DUNCAN T. SPEARS, ESQ.
Sixteenth Floor Morris, Manning & Martin, L.L.P.
191 Peachtree Street, N.E. 1600 Atlanta Financial Center
Atlanta, Georgia 30303 3343 Peachtree Road, N.E.
(404) 572-6600 Atlanta, Georgia 30326
(404) 233-7000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 an 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,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................. 7,130,000(1) $13.00(2) $92,690,000(2) $24,470(3)
</TABLE>
(1) Includes 930,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
reliance on Rule 457(a).
(3) $22,770 was previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
PRELIMINARY PROSPECTUS
THE INFORMATION CONTAINED 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 THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
6,200,000 SHARES
PRIMIS, INC.
COMMON STOCK
----------------
We are offering 6,200,000 shares of our common stock. This is our initial public
offering and no public market exists for our shares. We currently estimate that
the initial public offering price will be between $11.00 and $13.00 per share.
We have applied to have our common stock approved for quotation on the Nasdaq
Stock Market under the symbol "PRMZ."
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN RISKS THAT YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to an additional
930,000 shares of common stock from us at the initial public offering price less
the underwriting discount. The underwriters expect to deliver the shares on
, 2000.
------------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
J.C. BRADFORD & CO.
The date of this prospectus is , 2000.
<PAGE>
"Our Primis is simple..."
<PAGE>
"....property information that's quick, simple & accurate."
[Picture of house that morphs from photo, to data stream, to reproduction of the
company's website, to text describing the company's service offerings]
"Primis provides a direct source for web-based property information. Utilizing
technology, a national distribution channel and rigorous quality standards, we
drive efficiencies to a consolidating financial services marketplace."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS PROSPECTUS.
YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING THE RISK FACTORS AND
THE FINANCIAL STATEMENTS, BEFORE DECIDING WHETHER TO INVEST IN OUR COMMON STOCK.
PRIMIS, INC.
OUR BUSINESS
We are a business-to-business, web-based provider of property information
services in the United States. We provide appraisals, home inspections, title
services, flood determinations, energy audits, and other related property
information services, all of which our clients can order, monitor, receive and
pay for over the Internet using a standard web browser. We provide our services
to national mortgage lenders, regional and local mortgage lenders and brokers,
Internet lenders, specialized lenders, utility companies and real estate
professionals.
Currently, the property information services industry is fragmented, with
thousands of small, regionally focused appraisal, inspection and title services
companies and few national companies. Our industry experience indicates that
these smaller companies generally lack the resources to invest heavily in
service delivery infrastructure and that service quality can vary significantly
between firms.
We believe our solution provides our customers with the following key
benefits:
NATIONAL SERVICE DELIVERY CAPABILITIES. We are a single, national provider
of property information services. We currently have company-owned offices in
over 40 metropolitan markets, including 29 of the top 50 residential real estate
markets in the country. We expect to be in markets covering over 50% of all U.S.
mortgage loan originations by the end of 2000, primarily through acquisitions
but also through organic growth. We service customers in markets where we do not
have company-owned operations through our PRIMISnet network of contract
appraisers and home inspectors.
FLEXIBLE WEB-BASED PLATFORM. Our web-based platform enables our clients to
place orders, check the status of orders, receive reports in electronic format,
receive invoices and pay for services, all by using a standard web browser.
Although we derived approximately 12% of our 1999 revenues from our web-based
platform, we are rapidly migrating our clients to this platform, and web-based
transactions represented approximately 26% of our revenues for January 2000. Our
flexible platform will give our larger clients the option to bypass the web site
and connect their loan origination systems directly with the PRIMIS engine, our
transaction processing technology. This direct connection will enable these
clients to order our services when they originate loans without additional data
entry, and thereby encourage them to outsource more of their property
information services to us.
HIGH, CONSISTENT QUALITY STANDARDS. We maintain a rigorous quality
assurance program designed to ensure consistently high-quality service across
all of our offices. This quality assurance includes senior-level review of all
reports, a dedicated quality assurance team and continuing education and
training for all of our professionals. In addition, we deploy technology
internally to automate service delivery, improve the productivity of our field
employees and improve the quality and comprehensiveness of our reports.
FAST, EFFICIENT SERVICE DELIVERY. We deliver our property information
services to our clients quickly and efficiently. Our web-based platform
eliminates the need for many of the time-consuming faxes, phone calls, paper
deliveries and other delays associated with searching for local service
providers, scheduling appointments, ordering services, checking order status and
receiving reports. This enables us to accelerate the turnaround time for
delivery of our services. As an example, we can usually provide a full appraisal
to our national clients in 5 days or less, whereas many of these clients have
indicated to
1
<PAGE>
us that other service providers typically require 7 to 14 days. We intend to
offer our larger clients one-day full appraisal services in certain areas.
Our clients include 7 of the top 10 and 34 of the top 50 mortgage lenders in
the United States, based on 1998 origination dollar volume as reported by
Faulkner & Gray's Mortgage InfoSource 2000. We have acquired 24 businesses since
1995, including 12 since the beginning of 1999. We have incurred net losses
since inception. As of December 31, 1999, we had an accumulated deficit of
approximately $17.5 million. We anticipate that we will incur losses in the
forseeable future as we continue to invest in our e-commerce and administrative
infrastructures and expand our operations.
OUR MARKET OPPORTUNITY
Business-to-business trade over the Internet is projected to accelerate into
a period of exponential growth through 2003. Forrester Research forecasts that
inter-company Internet trade will double every year, growing from $43 billion in
1998 to $1.5 trillion in 2003. We believe that our web-based technology
platform, national service delivery capabilities and quality control will
position us well to capture a significant portion of the business-to-business
market for property information services. We believe that the total market for
our core home appraisal, home inspection and title services is in excess of
$5.5 billion annually. We also believe there are additional market opportunities
in the other property information services we provide, such as energy audits,
commercial appraisals, appraisal review services, construction inspections and
environmental inspections.
There are two trends occurring in the mortgage lending industry which we
believe will drive demand for our services. First, the mortgage lending industry
is undergoing significant consolidation. According to Faulkner & Gray, in 1998,
the top 20 residential lenders based on origination dollar volume originated,
underwrote or funded approximately 50% of all residential mortgage loans in the
United States. We believe that thousands of fragmented local appraisal,
inspection and other property information service firms cannot well serve this
consolidating lending industry. We believe these major lenders will increasingly
seek to consolidate their property information services with fewer providers and
will demand technology-based cost and time efficiencies and consistent quality.
Second, Internet lenders have emerged which, according to Forrester Research,
will capture a 10% share of the mortgage lending market by 2003. This trend will
intensify competition, which we believe will further drive demand for faster
turnaround times and cost-efficient services.
OUR STRATEGY
Our objective is to be the leading provider of property information services
in the United States. To accomplish this objective, we intend to do the
following:
- Refine our flexible web-based platform to deliver our services more
efficiently to our clients, and continue to develop our internal
technology to improve productivity and quality;
- Migrate our clients, a majority of which still obtain services through
traditional phone and fax channels, to web-based service delivery;
- Expand our geographic market presence, or national footprint, primarily
through acquisitions but also through organic growth;
- Aggressively target national accounts that we believe will benefit most
from a national provider of efficiently delivered, high-quality property
information services;
- Develop and monetize the valuable database of property information that we
are compiling into new valuation tools and service offerings; and
2
<PAGE>
- Evolve our PRIMISnet network of local contract appraisers and inspectors
into close affiliates with whom we share our technology and clients in
exchange for local business referrals and property data.
RECENT TRANSACTIONS
Through our January 2000 acquisition of InspecTech Corporation, we entered
the market for home inspection services with a force of nearly 100 property
inspectors. InspecTech performed over 30,000 inspections in 1999. Also in
January 2000, we entered into a letter of intent with the construction lending
division of Countrywide Home Loans, Inc., under which Countrywide will retain us
to provide appraisal review and inspection services over the next two years.
------------------------
We were incorporated in Georgia in 1990. Our principal executive offices are
located at 11475 Great Oaks Way, Suite 320, Alpharetta, Georgia 30022, telephone
(770) 777-8600. Our web site is located at www.primis.com. INFORMATION CONTAINED
ON OUR WEB SITE IS NOT A PART OF THIS PROSPECTUS OR THE REGISTRATION STATEMENT
OF WHICH IT IS A PART.
We have federal registrations for the following service marks and
trademarks: INSPECTECH-Registered Trademark-, VISTA-Registered Trademark- and
VISTA ADVANCED INSPECTION MANAGEMENT SYSTEM-Registered Trademark-. We have
applied for federal registration for or claim the following service marks and
trademarks: PRIMIS(SM) and design, PRIMIS SNAPSHOT(TM) and XPEDITE(SM). All
other trademarks, tradenames and service marks appearing in this prospectus are
the property of other entities.
------------------------
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 6,200,000 shares
Common stock to be outstanding after this
offering................................... 25,274,216 shares
Use of proceeds.............................. Approximately $13.6 million to fund
development of our technology,
infrastructure, personnel and support; up to
$9.7 million to repay indebtedness that may
remain outstanding after this offering;
approximately $4.0 million to fund sales and
marketing activities; and approximately
$40.2 million for acquisitions, working
capital and other general corporate purposes.
Proposed Nasdaq Stock Market symbol.......... PRMZ
</TABLE>
- ------------
The number of shares of common stock outstanding after this offering is
based on 14,420,401 shares outstanding as of February 29, 2000 plus:
- 6,200,000 shares being sold by us in this offering;
- 3,411,574 shares to be issued upon conversion of all of our outstanding
convertible preferred stock, based on aggregate stated values and accrued
dividends as of February 29, 2000; and
- 1,242,241 shares to be issued upon conversion of our November 1999
convertible notes, which are mandatorily convertible upon the closing of
this offering, based on aggregate principal amount and accrued interest as
of February 29, 2000.
The number of shares of common stock outstanding after this offering
excludes:
- any shares issuable upon the exercise of the underwriters' over-allotment
option;
- 3,151,615 shares issuable upon the exercise of options outstanding as of
February 29, 2000 with a weighted average exercise price of $3.73 per
share;
- 418,995 shares issuable upon the exercise of options outstanding as of
February 29, 2000 with a weighted average exercise price equal to the
initial public offering price;
- 851,058 shares issuable upon the exercise of warrants outstanding as of
February 29, 2000 with a weighted average exercise price of $8.21 per
share;
- 1,193,383 shares issuable upon the conversion of our January 2000
convertible notes, which are not mandatorily convertible upon the closing
of this offering, based on aggregate principal amount and accrued interest
as of February 29, 2000; and
- shares issuable in payment of dividends on all of our convertible
preferred stock and interest on all of our convertible notes accrued after
February 29, 2000.
Our officers, directors and affiliates, who will have the power to vote
approximately 55.0% of our outstanding common stock after this offering, will be
able to control the election of directors and other matters requiring
shareholder approval.
4
<PAGE>
CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus:
- assumes a 1.8622-for-1 stock split in the form of a stock dividend
relating to our common stock concurrently with the effectiveness of this
offering;
- assumes no exercise by the underwriters of their over-allotment option to
purchase up to 930,000 additional shares of our common stock;
- reflects the conversion of all our outstanding convertible preferred stock
into 3,411,574 shares of our common stock upon the closing of this
offering, based on aggregate stated values and accrued dividends as of
February 29, 2000; and
- assumes the conversion of our November 1999 convertible notes into
1,242,241 shares of our common stock upon the closing of this offering,
based on aggregate principal amount and accrued interest as of
February 29, 2000.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth summary financial data for our company. You
should read this information together with the financial statements and notes to
those statements appearing elsewhere in this prospectus and the information
contained in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999
1996 1997 1998 1999 PRO FORMA(1)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 1,922 $ 4,155 $14,356 $ 23,416 $ 37,429
Cost of revenues............................................ 1,001 2,537 7,824 13,071 20,172
-------- ------- ------- -------- --------
Gross profit................................................ 921 1,618 6,532 10,345 17,257
Operating expenses
Selling, general and administrative....................... 1,862 2,518 7,350 20,486 27,309
Research and development.................................. -- 122 206 -- --
Depreciation and amortization............................. 175 218 522 2,265 5,103
-------- ------- ------- -------- --------
Total operating expenses................................ 2,037 2,858 8,078 22,751 32,412
-------- ------- ------- -------- --------
Loss from operations........................................ (1,116) (1,240) (1,546) (12,406) (15,155)
Other income (expense)...................................... 15 41 131 (237) (280)
-------- ------- ------- -------- --------
Loss before provision for income taxes...................... (1,101) (1,199) (1,415) (12,643) (15,435)
Provision for income taxes.................................. -- -- -- -- 84
-------- ------- ------- -------- --------
Net loss.................................................... $ (1,101) $(1,199) $(1,415) $(12,643) $(15,519)
======== ======= ======= ======== ========
Preferred stock dividend.................................... -- -- -- (229) --
Net loss applicable to common shareholders.................. (1,101) (1,199) (1,415) (12,872) (15,519)
======== ======= ======= ======== ========
Net loss per common and common equivalent share--basic and
diluted................................................... $ (.60) $ (.23) $ (.15) $ (.99) $ (.61)
======== ======= ======= ======== ========
Weighted average common and common equivalent shares
outstanding--basic and diluted............................ 1,827 5,214 9,151 13,013 (25,645)
OTHER FINANCIAL DATA:
EBITDA(2)................................................... $ (941) $(1,023) $(1,024) $(10,141) $(10,052)
Cash flows from:
Operating activities...................................... (1,068) (1,237) (1,935) (8,497) --
Investing activities...................................... (93) (409) (4,296) (5,201) --
Financing activities...................................... 1,187 1,655 9,238 19,007 --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(4)
-------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,994 $ 6,081 $ 73,573
Working capital............................................. (2,818) (6,795) 70,708
Total assets................................................ 27,596 42,201 109,693
Long-term debt, less current portion........................ 3,098 3,874 3,874
Series A convertible preferred stock........................ 4,543 0 0
Series B convertible preferred stock........................ 4,402 0 0
Shareholders' equity........................................ 165 31,024 98,515
</TABLE>
- ---------------
(1) The pro forma statements of operations data give effect to all of our
acquisitions that occurred after January 1, 1999 as if they had occurred on
January 1, 1999, and give effect to the issuances of our outstanding
convertible preferred stock and convertible notes issued after January 1,
1999 as if such issuances had occurred on: (i) January 1, 1999 for the
portion of such issuances which were used to fund acquisitions or (ii) the
date of issuance for securities whose proceeds were not used to fund
acquisitions.
(2) EBITDA as used in this prospectus represents earnings before interest,
income taxes and depreciation and amortization. Although EBITDA is not a
measure of financial performance under generally accepted accounting
principles, we believe it is a common measure used by analysts and investors
to compare a company's results with those of similar companies as well as to
evaluate the capacity of a company to service its debt obligations. EBITDA
is not net income, operating income or cash flows, and items excluded from
EBITDA are significant components of our financial performance.
(3) The pro forma balance sheet data give effect to all of our acquisitions that
occurred after December 31, 1999 as if they had occurred on December 31,
1999, and give effect to the issuance of our January 2000 convertible notes,
and the conversion of all of our outstanding convertible preferred stock and
our November 1999 convertible notes as if such events had occurred on
December 31, 1999.
(4) The pro forma as adjusted balance sheet data reflect the pro forma data
adjusted for the sale of 6,200,000 shares of common stock offered by us in
this offering at an assumed initial public offering price of $12.00 per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN SUCH A CASE, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR
COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT CURRENTLY KNOWN TO US OR THAT WE
CURRENTLY CONSIDER IMMATERIAL MAY RESULT IN DECREASED REVENUES, INCREASED
EXPENSES AND OTHER EVENTS THAT COULD CAUSE THE PRICE OF OUR COMMON STOCK TO
DECLINE.
RISKS RELATING TO OUR BUSINESS
WE MAY NOT BE ABLE TO ACQUIRE BUSINESSES TO EXPAND OUR NATIONAL FOOTPRINT, WHICH
COULD CAUSE US TO LOSE REVENUES AND REVENUE OPPORTUNITIES AND SLOW OUR GROWTH.
Our business plan relies, in significant part, upon the expansion of our
business into new markets through the acquisition of companies that perform
property appraisals, inspections, tax services, title services and other
property information services. Failure to expand our national footprint could
cause us to lose national accounts and impair our ability to attract new
clients, which could cause us to lose revenues and revenue opportunities and
slow our growth. We primarily target larger businesses that we believe are more
likely to be easily integrated into the PRIMIS structure and are capable of
servicing national clients and marketing our broad range of services. We expect
to face increasing competition for acquisition candidates, which may limit the
number of acquisition opportunities and impede our ability to expand into new
geographic markets and establish a national footprint. This competition may
cause the prices for acquisitions to increase and we may not find suitable
acquisition candidates at acceptable acquisition prices. In addition, increased
competition for acquisition candidates may hinder our ability to complete
acquisitions.
HIGHER INTEREST RATES OR CHANGES IN GENERAL ECONOMIC CONDITIONS COULD REDUCE OUR
REVENUES, SLOW OUR GROWTH AND CAUSE FLUCTUATIONS IN OUR QUARTERLY OPERATING
RESULTS.
A prolonged period of higher interest rates or a downturn in the United
States economy, both of which are outside our control, could reduce our revenues
and slow our growth. Changes in interest rates or economic conditions could also
cause fluctuations in our quarterly operating results, which could cause our
stock price to decline. The demand for mortgages and, correspondingly, the
demand for appraisals and other property information services, is typically
adversely affected by rising interest rates. Higher interest rates generally
decrease demand for consumer credit, home sales and real estate valuations and
negatively affect the ability of borrowers to make loan payments. In addition,
the residential real estate industry is highly cyclical. Changes in general
economic conditions typically affect the number of home sales and new housing
starts. Over the last several years, we have operated in an environment of
relatively low interest rates, relatively high demand for consumer credit,
increasing home sales and rising real estate values. We cannot be sure that we
will be able to grow our business in an environment of higher interest rates,
lower consumer credit demand, declining real estate values and fewer home sales.
IF WE ARE UNABLE TO SUCCESSFULLY MANAGE GROWTH, OUR FINANCIAL CONDITION IS
LIKELY TO SUFFER.
Our success depends on our ability to manage growth. If we do not expand our
operations in an efficient manner, our expenses could grow disproportionately to
revenues or our revenues could decline or grow more slowly than expected. Either
of these results could negatively affect our financial condition or cause our
quarterly operating results to fluctuate, which could in turn cause our stock
price to decline.
7
<PAGE>
Since June 1998, we have acquired 14 businesses nationwide, and we intend to
continue acquiring businesses to expand our national footprint, enhance our
technology and add new service offerings. We face challenges integrating these
acquisitions into our existing business. We must integrate acquired companies'
personnel into our administrative operations and train these personnel according
to our policies and procedures, and we must migrate acquired companies to our
technologies and information systems. We must also migrate acquired companies to
our accounting and financial systems to ensure that we are able to properly
monitor and control our accounting and financial functions on a company-wide
basis.
We will need to hire additional personnel and enhance our information
systems infrastructure to fully integrate our recent and future acquisitions in
a timely manner. These integration activities will divert the attention of
management from other business activities and could cause us to experience
difficulties in responding to client demand for services and client support in a
timely manner and in accordance with client expectations. In addition, we cannot
guarantee that we will achieve any of the anticipated benefits we expect to
realize from acquisitions, including those reflected in our pro forma
consolidated financial data. Any failure to successfully integrate our
acquisitions could cause our financial results to suffer and could impede our
ability to make additional acquisitions.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT OF $17.5 MILLION. IF WE
CONTINUE TO EXPERIENCE LOSSES, WE MAY NEVER ACHIEVE PROFITABILITY.
We have incurred net losses in every fiscal period, since our inception, and
we expect that we will continue to incur losses for the foreseeable future. In
1999, we had a net loss of $12.6 million and as of December 31, 1999, we had an
accumulated deficit of approximately $17.5 million. We plan to continue to
invest in our e-commerce and administrative infrastructures and to expand our
operations by developing new services and acquiring companies involved in the
appraisal, home inspection and related businesses. These actions will require
significant expenditures. As a result, we will need to generate significant
additional revenues to achieve profitability. However, we may never achieve
profitability. Even if we achieve profitability, we may not be able to sustain
or increase profitability.
OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE IN FUTURE PERIODS. AS A
RESULT, WE MAY FAIL TO MEET EXPECTATIONS AND OUR STOCK PRICE MAY DECLINE.
Our revenues and operating results are likely to vary from quarter to
quarter. As a result, we may fail to meet expectations, which may cause our
stock price to decline. Historically, our results have been impacted by the
seasonal nature of the real estate market, specifically fewer mortgage
originations in the winter months. In addition, fluctuations in the timing and
size of acquisitions could significantly impact our operating results and our
ability to meet expectations. These fluctuations may also occur as a result of
the number and timing of client orders for our services; increased expenses,
whether related to sales and marketing, personnel or administration; and the
other risks described in this prospectus. In addition, if our earnings are below
securities analysts' expectations in any quarter, our stock price is likely to
decline.
WE MAY NOT BECOME PROFITABLE IF THE REAL ESTATE INDUSTRY, SPECIFICALLY MORTGAGE
ORIGINATORS, DOES NOT EMBRACE WEB-BASED DELIVERY OF PROPERTY INFORMATION
SERVICES.
During the past 12 months, we have invested approximately $3.4 million in
developing, enhancing and supporting our web-based delivery platform. We have,
however, only recently begun to implement this method. In 1999, we derived only
12% of our revenues from web-based transactions. We may never generate
sufficient revenues from our web-based services to allow us to operate
profitably. In addition, if clients do not perceive the added value of our
web-based services to their operations, it will be more difficult for us to
differentiate our services from those of our competitors.
8
<PAGE>
We believe that acceptance of our services will depend on or be affected by
the following principal factors, among others:
- our ability to successfully and efficiently develop web-based services
that are attractive to a sufficiently large number of mortgage originators
and consumers;
- a change in the perception among many real estate service providers and
consumers that web-based delivery of property information services is less
dependable than traditional methods;
- the reliability of the Internet as a medium for the delivery of our
services; and
- the continuing development by third parties of the necessary Internet
network infrastructure to support new technologies and handle the
increasing demands placed upon the Internet.
WE MAY HAVE DIFFICULTIES HIRING AND RETAINING QUALIFIED SALES AND OTHER SKILLED
PROFESSIONALS.
We may not be able to attract, assimilate or retain sufficiently qualified
information technology personnel or sales personnel with experience in the
property information services industry. Competition for employees, especially in
the e-commerce sector, is intense. We must continue to attract and retain
qualified information technology personnel to drive new technological
developments and to maintain our technology infrastructure. In addition, due to
the fragmented market for property information services, it will be difficult to
attract knowledgeable sales personnel with prior experience in the real estate
industry. Accordingly, our ability to identify, attract, hire, train, manage,
retain and motivate highly qualified personnel and experienced professionals
will impact our ability to serve our customers and compete effectively. Our
business could also suffer if the expenses associated with attracting and
retaining skilled professionals increase dramatically.
WE COULD LOSE NATIONAL CLIENTS, OR FAIL TO ATTRACT THEM, IF OUR CONTRACT
APPRAISERS AND HOME INSPECTORS ARE UNABLE TO PROVIDE THE TURNAROUND TIMES THESE
CLIENTS EXPECT.
We could lose national clients, or fail to attract them, if our contract
appraisers and home inspectors are unable to provide turnaround times comparable
to those of our staff professionals. To meet the demands of these clients, we
must transform PRIMISnet from a network of contract appraisers and home
inspectors into a network of affiliates with whom we will share our technology,
data and clients. Because this is a complex process that requires a significant
commitment of our time and resources, we may not achieve this result as soon as
we would like, if at all.
IF WE DO NOT CONTINUE TO IMPROVE OUR TECHNOLOGY AND INFRASTRUCTURE, OUR
COMPETITIVE POSITION COULD SUFFER.
We must constantly innovate and implement better technologies to drive
efficiencies. If we are unable to continually innovate, we will not be able to
distinguish ourselves from our competitors and may not be successful in
implementing our business model. We must constantly upgrade our network
technology and enhance our transaction-processing systems. We may not be able to
accurately project the rate or timing of increases in demand for our services,
and we may not be able to upgrade our systems and infrastructure to accommodate
these increases in a timely manner. In addition, our web-based infrastructure
may not be able to support additional usage volume.
THE PROPERTY INFORMATION SERVICES INDUSTRY IS INTENSELY COMPETITIVE, AND WE MAY
FAIL TO COMPETE SUCCESSFULLY IN THIS INDUSTRY.
We face intense competition for our property information services in every
geographic market in which we operate. We will continue to face competition both
from emerging providers of online property information services and traditional
providers of appraisal, property inspection, title insurance and other
property-related services. There are no substantial barriers to entry in these
markets, and we
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<PAGE>
expect that competition will continue to intensify. If we fail to compete
successfully, we could lose revenues as well as opportunities for growth.
Additionally, the e-commerce market in general is new, rapidly evolving and
intensely competitive. We expect that an increasing number of property
information services providers will enter this market. Existing and new property
information services providers may launch new Internet sites at relatively low
cost and can distinguish themselves in niche markets through low cost online
marketing.
We will face increasing direct competition from companies that subcontract
out property information services, known in the industry as management
companies, and other companies that now offer, or plan to offer, property
information services over the Internet. Our principal management company
competitors include Market Intelligence, owned by Fidelity Title; Lender
Services, Inc.; First American Real Estate Information, Inc., owned by First
American Financial Corporation; and U.S. Appraisal Company. In the home
inspection business, we compete with two large franchise organizations,
Amerispec and Housemaster. In addition, based on available data and industry
experience, we believe there are thousands of property appraisal services firms
and thousands of home inspection companies that offer services in defined
geographic markets.
Competition is likely to increase significantly as new companies enter the
online property information services market and current competitors expand their
services. Some of these current and potential competitors enjoy substantial
competitive advantages over us, including:
- greater name recognition;
- larger established client bases;
- substantially greater financial resources, sales and marketing personnel
and other resources; and
- longer operating histories.
WE DO NOT HAVE EXCLUSIVE ARRANGEMENTS WITH OUR CLIENTS. WE COULD LOSE
RELATIONSHIPS WITH ONE OR MORE OF OUR NATIONAL ACCOUNTS, WHICH COULD CAUSE OUR
BUSINESS TO SUFFER.
We do not have exclusive arrangements or formal contractual relationships
with any of our clients that guarantee minimum payments or any revenue
thresholds. While we do have agreements with a few of our clients that obligate
the client to use our services for a portion of its property information
services needs, these agreements do not specify a minimum number of orders or
volume of business. As a result, our revenues depend substantially on continued
good relationships with our clients.
The vast majority of our clients are mortgage originators who are under no
obligation to continue their relationships with us. Our reliance on these
mortgage originators makes our sales volume and the prices we charge for our
services more susceptible to changes in the rates, services and products such
mortgage originators offer. The loss of our relationship with one or more of our
national accounts could cause us to lose revenues and could have an adverse
effect on our business.
WE MAY NOT BE ABLE TO ACHIEVE DESIRED EFFICIENCIES IF WE ARE UNABLE TO
SUCCESSFULLY CROSS-TRAIN OUR PROFESSIONALS AND OUR SALES FORCE.
Many of our field personnel are trained to perform only one or a limited
number of services, such as home inspections or property appraisals. We plan to
achieve efficiencies by cross-training our field personnel to use our technology
to perform a range of property information services. For example, our home
inspectors may be able to gather data for use in valuation services. We believe
this will reduce our overall cost of providing services. We cannot be certain
that our training will achieve the efficiencies and quality we are expecting. We
may face difficulties in cross-training our inspectors and appraisers to
properly identify and record information necessary for other services and in
training our professionals to take full advantage of new technologies. In
addition, our sales force consists of
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<PAGE>
individuals from different service backgrounds and different industries. We face
challenges in cross-training these individuals to effectively sell our range of
services.
WE MAY BE SUBJECT TO GOVERNMENT REGULATION THAT COULD ADVERSELY AFFECT OUR
ABILITY TO DO BUSINESS.
The real estate industry is highly regulated. Because companies have only
recently begun delivering real estate-related services over the Internet, it is
unclear how many of these regulations will extend to our operations or those of
our Internet-related clients. Our business could be hindered and our results of
operations could be negatively impacted if governmental entities interpret
regulations in ways we do not anticipate. Any new government regulation
affecting our operations or those of our clients could negatively impact our
ability to operate our business plan.
The Real Estate Settlement Procedures Act and related regulations, known as
RESPA, generally prohibit the payment or receipt of fees or any other item of
value for referrals, fee shares or splits or unearned fees in connection with
the provision of real estate settlement services related to residential mortgage
loans. RESPA does not prohibit payments for goods or facilities furnished or for
services actually performed, so long as those payments bear a reasonable
relationship to the market value of the goods, facilities, or services provided.
The appraisal and flood determination services we offer are residential real
estate settlement services subject to these RESPA provisions. In addition, we
have relationships with real estate-related web sites, which we call our
"channel partners," under which we pay "click through" fees, which are fees we
pay in connection with advertisements on our channel partners' web sites. We
believe we have structured our relationships with our clients, contractors and
channel partners to comply with RESPA. However, due to the complexity of these
regulations and the uncertainty as to their application to e-commerce
arrangements, we run the risk that the compensation and pricing aspects of our
agreements and arrangements may be challenged under RESPA. Failure to comply
with RESPA may result in, among other things, administrative enforcement
actions, class action lawsuits, cease and desist orders and civil and criminal
liability.
Our operations on the Internet are not currently subject to direct
regulation by any government agency in the United States beyond real estate
appraisal, home inspection and mortgage-related regulations and regulations
applicable to businesses generally. Laws and regulations directly applicable to
the Internet and e-commerce may become more prevalent in the future. In the
event governmental authorities adopt or modify laws or regulations relating to
the Internet, our business, results of operations and financial condition could
suffer.
A number of legislative and regulatory proposals under consideration by
federal, state and local governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including taxation,
access charges, liability for third-party activities, online content, user
privacy and jurisdiction.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made that could impose taxes on the
sale of goods and services and certain other Internet activities. The Internet
Tax Freedom Act was signed into law in October 1998, placing a three-year
moratorium on new state and local taxes on Internet commerce. However, we cannot
assure you that future laws imposing taxes or other regulations would not
substantially impair the growth of our business and our financial condition.
SERVICE INTERRUPTIONS OR SLOW RESPONSE TIMES INVOLVING OUR COMPUTER SYSTEMS
WOULD HINDER OUR ABILITY TO PROCESS TRANSACTIONS AND RESULT IN DECREASED DEMAND
FOR OUR SERVICES.
The satisfactory performance, reliability and availability of our web site,
transaction-processing systems and network infrastructure are critical to our
ability to provide high levels of service and to attract and retain clients. If
our services were interrupted or delayed as a result of a computer system
failure, it could cause delays in the processing and closing of loans for our
clients. Interruptions of
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<PAGE>
services or increases in response times will likely impact client satisfaction
and future demand for our services.
A SECURITY BREACH INVOLVING OUR COMPUTER SYSTEM COULD DAMAGE OUR REPUTATION AND
SUBJECT US TO LIABILITY.
Our activities will involve the storage and transmission of proprietary and
often confidential information such as credit card information, social security
numbers and non-public information obtained in inspections. Security breaches
will damage our reputation and expose us to a risk of litigation and possible
liability. For example, we could be liable for damages resulting from
unauthorized use of social security or credit card numbers transmitted to us
electronically. Although we will implement and maintain systems designed to
prevent security breaches, we cannot assure that these security systems will
prevent security breaches.
WE MAY NOT HAVE SUFFICIENT FUNDS AVAILABLE TO EXPAND OUR BUSINESS.
We expect to fund acquisitions and approximately $13.6 million in
anticipated expenses relating to development of our technology, infrastructure,
personnel and support through existing resources, internally generated funds and
the proceeds of this offering. If the proceeds of this offering are insufficient
to fund these activities, we will have to delay or abandon some of our
expenditures or plans for future expansion. This would result in
underutilization of our established infrastructure and may negatively affect our
ability to compete for new clients and satisfy the demands resulting from the
growth and expansion of our clients. For more information, see "Use of
Proceeds."
We may use shares of our common stock to fund a significant portion of the
consideration to be paid in future acquisitions. If our common stock does not
maintain a sufficient market value, or if potential acquisition candidates are
unwilling to accept our common stock as part of the consideration for the sale
of their businesses, we will be required to use our cash, if available, to make
an acquisition. If we do not have sufficient cash resources, our growth could be
limited unless we are able to obtain additional capital through debt or equity
financings or other means.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS AND
COMPETITIVE POSITION WILL SUFFER.
Our success and ability to compete are substantially dependent upon our
ability to protect our name, trademarks, service marks and internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. We cannot assure you that the actions we have taken are
adequate to protect these intellectual property rights. We have applied for
federal trademark registration for the PRIMIS mark and for other trademarks or
service marks incorporating the PRIMIS brand name. We have registered the web
site domain names we use, which prevents any other person from using those names
for their web sites. However, we have no patents issued or applied for on our
technology. Unauthorized parties may attempt to copy or to otherwise obtain and
use our services or technology, and we cannot be certain that the steps we have
taken and will take in the future will prevent them from misappropriating or
infringing upon our technology. Additionally, we have not registered copyrights
on all of our proprietary software, which could affect our ability to recover
damages for infringement of our copyrights.
We typically enter into confidentiality, license or similar contractual
agreements with our employees, consultants and affiliated appraisers, and
generally control access to and distribution of our technologies, documentation
and other proprietary information. Despite our efforts to protect our
proprietary rights from unauthorized use or disclosure, parties may attempt to
disclose, obtain or use our rights. The steps we have taken may not prevent
misappropriation of our proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect our proprietary rights
as fully as in the United States.
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<PAGE>
WE COULD BE REQUIRED TO COMMIT SIGNIFICANT FINANCIAL AND MANAGERIAL RESOURCES IN
RESPONSE TO THIRD-PARTY CLAIMS OF INFRINGEMENT.
We expect that we may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties by us. Such claims, even if without merit, could result in the
expenditure of significant financial and managerial resources. Further, if such
claims are successful, we may be required to change our technology or our
trademarks, alter our content and pay financial damages, which could adversely
affect our business. We may be required to obtain licenses from others to
refine, develop, market and deliver new services. There can be no assurance that
we will be able to obtain any such license on commercially reasonable terms or
at all, or that rights granted pursuant to licenses will be valid and
enforceable. Further, the costs associated with enforcing our rights to
technology could adversely affect our financial performance.
THE LOSS OF ANY OF OUR KEY EXECUTIVE OFFICERS COULD HAVE AN ADVERSE EFFECT ON
OUR ABILITY TO OPERATE AND GROW OUR BUSINESS.
We believe that our future success will depend to a significant extent on
the continued services of our senior management and other key personnel,
including, among others, C. James Schaper, our Chairman of the Board, President
and Chief Executive Officer, Revell L. Fraser, our Vice President--Marketing and
Strategic Development and J. Chris Foretich, our Vice President and Chief
Information Officer. Each of these individuals has played a critical role in the
development and implementation of our business plan. If one of them left our
employ, our managerial resources would be taxed to such an extent that our
day-to-day operations and future growth could be impaired significantly.
WE HAVE A LIMITED OPERATING HISTORY WITH OUR CURRENT MANAGEMENT TEAM.
We have only a limited history of operation under our current management
team upon which investors may evaluate our performance. Six of our eight
executive officers, including C. James Schaper, our Chairman of the Board,
President and Chief Executive Officer, Leslie H. Schreiner, our Vice President,
Chief Financial Officer and Secretary, and Kevin P. Castle, our Vice
President--Operations, joined our company during 1999. Our other two executive
officers joined our company in 1998. Our current management team may not be able
to achieve or sustain revenue growth or profitability.
RISKS RELATING TO THIS OFFERING
PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL
CONTROL OVER OUR BUSINESS AFTER THIS OFFERING.
Upon the closing of this offering, our executive officers, directors and
greater than 5% shareholders, and any of their affiliates, will, in the
aggregate, own approximately 55.0% of our outstanding common stock. As a result,
such persons, acting together, will have the ability to substantially influence
all matters submitted to the shareholders for approval, including the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets, and the control our management and affairs.
This concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, impeding a merger, consolidation, takeover or
other business combination involving us or discouraging a potential acquiror
from making a tender offer or otherwise attempting to obtain control of our
business, even if such a transaction would be beneficial to other shareholders.
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OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THIS OFFERING AND, AS A
RESULT, YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
Prior to the offering, there has been no public market for our common stock.
The initial public offering price has been determined through negotiations
between the underwriters and us. You may not be able to resell your shares at or
above the initial public offering price due to a number of factors, including:
- actual or anticipated fluctuations in our revenues and operating results;
- changes in expectations as to our future financial performance;
- changes in expectations for failure to achieve estimates of securities
analysts; and
- the operating and stock price performance of other comparable companies.
In addition, the stock market in general, and the market for
Internet-related stocks in particular, has experienced dramatic price and volume
fluctuations. These fluctuations may or may not be based upon any business or
operating results. Our common stock may experience similar or even more dramatic
price and volume fluctuations that may continue indefinitely.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET.
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock. Of
the 25,220,537 shares of common stock to be outstanding upon the closing of this
offering, the 6,200,000 shares offered by this prospectus will be freely
tradable without restriction or further registration, other than shares
purchased by our officers, directors, or other "affiliates" within the meaning
of Rule 144 under the Securities Act, which will be restricted from sale until
180 days after the date of this prospectus pursuant to agreements between these
affiliates and the underwriters. The 19,020,538 remaining shares of our common
stock will become eligible for resale in the public market subject to the lapse
of applicable holding periods pursuant to Rule 144 as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET:
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
16,606,971........................... 181 days after the date of this prospectus, pursuant to lock-up
agreements between the shareholders and the underwriters.
Approximately 15,796,914 million of these shares will also be
subject to sales volume restrictions under Rule 144 under the
Securities Act.
2,413,567............................ 902,371 of these shares are eligible to be sold as of the date of
this prospectus pursuant to Rule 144 and the remainder will become
eligible for sale at various times thereafter.
</TABLE>
We, our directors and executive officers and a number of our shareholders
have agreed with the underwriters not to sell any common stock, or securities
convertible into or exchangeable or exercisable for common stock for 180 days
after the date of this prospectus. Bear, Stearns & Co. Inc. may agree to release
any or all of the shares of common stock from these lock-up agreements at any
time.
We have an agreement with the holders of an aggregate of 17,921,237 shares
of our common stock, including shares issuable upon conversion of outstanding
convertible securities, that gives them the right, six months after this
offering and subject to the lock-up agreements described above, to require us to
register their shares of common stock for resale under the Securities Act of
1933. After the expiration of the lock-up agreements, the holders of this right
may require us to file up to two
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registration statements under the Securities Act at our expense. The exercise of
these registration rights will cause the registered shares to become eligible
for sale. The sale of a large number of these shares, or the possibility that
such sale may occur, may adversely affect the market price of our common stock.
For more information, see "Shares Eligible for Future Sale."
YOUR STOCK OWNERSHIP COULD BE DILUTED IF WE NEED TO SELL ADDITIONAL SHARES OF
OUR COMMON STOCK TO FINANCE FUTURE ACQUISITIONS.
Part of our business strategy is to expand our national footprint,
cross-sell additional services, expand our client base, and improve our
operating profitability through the acquisition of property information
businesses. In order to successfully complete targeted acquisitions, we may
issue additional equity securities that could dilute your stock ownership.
Issuance of shares in future acquisitions will cause investors purchasing shares
in this offering to incur substantial dilution.
WE WILL RETAIN BROAD DISCRETION IN USING THE NET PROCEEDS FROM THIS OFFERING AND
MAY SPEND A SUBSTANTIAL PORTION IN WAYS WITH WHICH YOU DO NOT AGREE.
Approximately 60% of the net proceeds of this offering will be applied to
acquisitions and working capital. The amounts we actually use for each purpose
may vary significantly depending upon factors, including economic or industry
conditions, changes in the competitive environment and strategic opportunities
that may arise. As a result, we will retain a significant amount of discretion
over the application of the net proceeds from this offering as well as over the
timing of our expenditures. You will not have the opportunity to evaluate the
economic, financial or other information on which we base our decisions on how
to use the proceeds, because of the number and variability of factors that
determine our use of the net proceeds. For more information, see "Use of
Proceeds."
OUR ARTICLES OF INCORPORATION, OUR BYLAWS AND GEORGIA LAW COULD DETER TAKEOVER
ATTEMPTS.
Our articles of incorporation, our bylaws and Georgia law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our shareholders. For example, our articles of incorporation and
bylaws provide, among other things, that:
- our directors serve on a classified board, which could make it more
difficult for a third party to acquire us without the approval of our
board, may inhibit a shareholder from nominating and electing directors
and will make it difficult for shareholders to change the composition of
the board of directors in any one year;
- our shareholders may not take action outside of a meeting by less than
unanimous written consent;
- a director may be removed only for cause by the vote of at least 80% of
the outstanding shares entitled to vote at an election of directors;
- the board of directors, without shareholder approval, has the authority to
issue preferred stock with rights superior to the rights of the holders of
common stock; and
- the shareholders may call a special meeting only upon request of 25% of
votes entitled to be cast on an issue.
Georgia law also contains business combination and fair price provisions
which may delay, deter or prevent a change in control. We have adopted these
provisions in our bylaws. These anti-takeover provisions could substantially
impede the ability of public shareholders to change our management and board of
directors, which may reduce the market price of our common stock. For more
information, see "Description of Capital Stock--Anti-takeover Provisions of
Georgia Law."
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<PAGE>
FORWARD-LOOKING STATEMENTS MAY PROVE TO BE INACCURATE.
Some of the statements contained in this prospectus are forward-looking. The
words "believe," "expect," "intend," "anticipate," "estimate," "plan," "future,"
and other similar expressions generally identify forward-looking statements.
They include statements concerning:
- our liquidity and capital expenditures;
- our growth strategy;
- our acquisition activities;
- use of proceeds from this offering;
- regulatory matters affecting our industry;
- competitive conditions in our industry; and
- projected growth of our industry.
Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed in
this section.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $67.5 million, or approximately $77.9 million if the underwriters
exercise their over-allotment option in full. These estimates are based on an
assumed initial public offering price of $12.00 per share and reflect the
deduction of the underwriting discounts and commissions and estimated offering
expenses payable by us.
The purpose of this offering is to obtain additional capital, to create a
public market for our common stock and to generate additional currency for
acquisitions. We intend to use the net proceeds from this offering for the
following purposes:
- approximately $13.6 million to fund development of our service delivery
infrastructure, our internal technology and associated personnel training
and support costs necessary to grow our business;
- up to $9.7 million to repay the principal amount of our January 2000
convertible notes, which are not mandatorily convertible upon the closing
of this offering and which mature 181 days after the closing of this
offering;
- approximately $4.0 million to fund sales and marketing activities to
expand market share; and
- approximately $40.2 million to fund future acquisitions to expand our
national footprint and for working capital requirements and other general
corporate purposes.
As of February 29, 2000, we had approximately $9.7 million aggregate
principal amount of our January 2000 convertible notes outstanding. These notes
were issued in connection with loans from existing shareholders to us in order
to fund short-term working capital and acquisition needs. These notes accrue
interest at a rate of 8.0%.
We continually evaluate acquisition and strategic alliance candidates as a
key part of our growth strategy. However, we currently have no commitments or
agreements and are not involved in any negotiations with respect to any material
acquisition or strategic alliance.
We currently intend to allocate the net proceeds among the foregoing uses.
The precise allocation of funds among these uses will depend on acquisition
opportunities, future business, technological, and other developments in or
affecting our business, the competitive climate in which we operate and the
emergence of future opportunities. Because of the number and variability of
factors that determine our use of the net proceeds from this offering, we cannot
assure you that our application of the net proceeds will not vary substantially
from our current intentions. Pending these uses, we intend to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate declaring or 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. Declaration or payment of future 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 shows our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (a) all of our acquisitions that occurred
after December 31, 1999 as if they had occurred on December 31, 1999;
(b) the issuance of our January 2000 convertible notes; (c) the conversion
of all of our outstanding convertible preferred stock into 3,411,574
shares of our common stock, based on stated values and accrued dividends
as of February 29, 2000; and (d) the conversion of our November 1999
convertible notes into 1,242,241 shares of our common stock, based on
aggregate principal amount and accrued interest as of February 29, 2000;
- on a pro forma as adjusted basis to reflect the sale of the 6,200,000
shares of common stock offered by us in this offering at an assumed
initial public offering price of $12.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us and the payment of $9,722 to the holders of our January 2000
convertible notes.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 8,994 $ 6,081 $ 73,573
======== ======= ========
November 1999 convertible notes............................. 10,011 10,011 --
January 2000 convertible notes.............................. -- 9,722 --
Current portion of long-term debt........................... 2,232 3,567 3,567
-------- ------- --------
Total short-term debt................................. $ 12,243 $23,300 $ 3,567
======== ======= ========
Long-term debt, less current portion........................ $ 3,098 $ 3,874 $ 3,874
Series A convertible preferred stock, $.01 par value,
1,200,000 shares authorized, 0 and 1,091,242 shares issued
and outstanding at December 31, 1998 and 1999,
respectively.............................................. 4,543 -- --
Series B convertible preferred stock, $.01 par value,
3,000,000 shares authorized, 0 and 725,130 shares issued
and outstanding at December 31, 1998 and 1999,
respectively.............................................. 4,402 -- --
Series C convertible preferred stock, $.01 par value,
2,500,000 shares authorized, no shares issued and
outstanding actual, pro forma and pro forma as adjusted... -- -- --
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 13,181,901 shares issued and outstanding
actual, shares issued and outstanding pro
forma and shares issued and outstanding pro
forma as adjusted....................................... 132 192 254
Additional paid-in capital................................ 17,530 48,329 115,759
Accumulated deficit....................................... (17,497) (17,497) (17,497)
-------- ------- --------
Total shareholders' equity............................ 165 31,024 98,515
-------- ------- --------
Total capitalization................................ $ 33,445 $64,279 $179,529
======== ======= ========
</TABLE>
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DILUTION
Our pro forma net tangible book value on December 31, 1999 was approximately
$(6.0) million or $(.31) per share of common stock. Pro forma net tangible book
value is total assets minus the sum of liabilities and intangible assets. Pro
forma net tangible book value per share is net tangible book value divided by
the total number of shares outstanding before the offering and after giving
effect to (a) all of our acquisitions that occurred after December 31, 1999 as
if they had occurred on December 31, 1999; (b) the issuance of our January 2000
convertible notes; (c) the conversion of all of our outstanding convertible
preferred stock into 3,411,574 shares of our common stock, based on stated
values and accrued dividends as of February 29, 2000; and (d) the conversion of
our November 1999 convertible notes into 1,242,241 shares of our common stock,
based on aggregate principal amount and accrued interest as of February 29,
2000. After giving effect to the sale by us of 6,200,000 shares of common stock
offered by this prospectus at an assumed initial offering price of $12.00 per
share and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book value
as of December 31, 1999 would have been approximately $71.5 or $2.83 per share.
This represents an immediate increase in pro forma net tangible book value of
$3.14 per share to existing shareholders and an immediate dilution of $9.17 per
share to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of
December 31, 1999....................................... $(.31)
Increase per share attributable to this offering.......... 3.14
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.83
------
Net tangible book value dilution per share to new investors
in this offering.......................................... $ 9.17
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the total number of shares purchased from us, the total consideration paid
to us and the average price paid per share by existing shareholders and by new
investors purchasing shares in this offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------------ -------------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Existing
shareholders......... 19,074,216 75.5% $ 48,520,883 41.8% $ 2.54
New investors.......... 6,200,000 24.5 67,492,000 58.2 12.00
---------- ----- ------------ -----
Total.............. 25,274,216 100.0% $116,012,883 100.0%
========== ===== ============ =====
</TABLE>
The foregoing tables and pro forma calculations are based on 13,181,901 shares
of our common stock outstanding as of December 31, 1999 and:
- include 1,238,500 shares issued in acquisitions completed after
December 31, 1999;
- include 3,411,574 shares issuable upon the conversion of all of our
outstanding convertible preferred stock, based on aggregate stated values
and accrued dividends as of February 29, 2000;
- include 1,242,241 shares issuable upon conversion of our November 1999
convertible notes, based on aggregate principal amount and accrued
interest as of February 29, 2000;
- exclude 3,151,615 shares issuable upon the exercise of options outstanding
as of February 29, 2000 with a weighted average exercise price of $3.73
per share;
- exclude 851,058 shares issuable upon the exercise of warrants outstanding
as of February 29, 2000 with a weighted average exercise price of $8.21
per share; and
- exclude 1,193,383 shares issuable upon the conversion of our January 2000
convertible notes, which are not mandatorily convertible upon the closing
of this offering, based on aggregate principal amount and accrued interest
as of February 29, 2000.
19
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Our consolidated financial statements are included elsewhere in this
prospectus. The pro forma condensed consolidated financial information that
follows should be read together with those financial statements and related
notes.
We adjust our historical condensed consolidated statements of operations for
the year ended December 31, 1999 to arrive at the unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1999.
These adjustments reflect the acquisitions we have made since January 1, 1999 as
if they occurred on January 1, 1999 and the issuances of our outstanding
convertible preferred stock and convertible notes which we issued after
January 1, 1999 as if such issuances had occurred on: (i) January 1, 1999 for
the portion of such issuances which were used to fund acquisitions or (ii) the
date of issuance for securities whose proceeds were not used to fund
acquisitions. The pro forma condensed consolidated statements of operations are
not necessarily indicative of the results of operations that would have been
achieved had the transactions occurred on January 1, 1999 and should not be
construed as being representative of future results of operations.
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMBINED
HISTORICAL ACQUIRED PRO FORMA
COMPANY COMPANIES ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................. 23,415,806 14,013,564 -- 37,429,370
Cost of revenues......................... 13,070,434 7,102,009 -- 20,172,443
------------ ----------- ----------- ------------
Gross profit............................. 10,345,372 6,911,555 -- 17,256,927
Operating expenses
Selling, general and administrative.... 20,486,326 6,822,383 -- 27,308,709
Research and development............... -- -- -- --
Depreciation and amortization.......... 2,265,053 367,998 2,470,406(4) 5,103,457
------------ ----------- ----------- ------------
Total operating expenses............. 22,751,379 7,190,381 2,470,406 32,412,166
------------ ----------- ----------- ------------
Operating loss........................... (12,406,007) (278,826) (2,470,406) (15,155,239)
Other income (expense)
Interest and other income.............. 181,103 29,500 -- 210,603
Interest expense....................... (418,185) (139,372) 66,741(5) (490,816)
------------ ----------- ----------- ------------
Loss before provision for income
taxes.............................. (12,643,089) (388,698) (2,403,665) (15,435,452)
Provision for income taxes........... -- 83,254 -- 83,254
------------ ----------- ----------- ------------
Net loss............................. (12,643,089) (471,952) (2,403,665) (15,518,706)
------------ ----------- ----------- ------------
Dividends on preferred stock............. (228,994) -- 228,994(6) --
------------ ----------- ----------- ------------
Net loss applicable to common
shareholders....................... $(12,872,083) $ (471,952) $(2,174,671) $(15,518,706)
============ =========== =========== ============
Basic and diluted net loss per common
share(1)............................... (.99) (.61)
============ ============
Weighted average common shares
outstanding(1)......................... 13,013,743 25,645,369
------------ ------------
</TABLE>
21
<PAGE>
We adjust our historical condensed consolidated balance sheet as of
December 31, 1999 to arrive at the unaudited pro forma condensed consolidated
balance sheet as of December 31, 1999. These adjustments give effect to all of
our acquisitions that occurred after December 31, 1999 as if they had occurred
on December 31, 1999 and give effect to the issuance of our January 2000
convertible notes, the conversion of all of our outstanding convertible
preferred stock and our November 1999 convertible notes, the repayment of our
January 2000 convertible notes with a portion of the proceeds from this offering
and the receipt of proceeds from this offering as if such events had occurred on
December 31, 1999.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL BUSINESSES PRO FORMA
COMPANY ACQUIRED ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............... $ 8,993,957 $ (2,913,038) $ 67,492,000(7) $ 73,572,919
Certificates of deposit............ -- -- -- --
Accounts receivable, net........... 3,283,256 646,430 -- 3,929,686
Prepaid expenses and other current
assets........................... 292,725 216,200 -- 508,925
----------- ------------ ------------ ------------
Total current assets........... 12,569,938 (2,050,408) 67,492,000 78,011,530
Property and equipment, net.......... 3,208,560 272,610 -- 3,481,170
Capitalized software, net............ 167,902 -- -- 167,902
Intangible assets, net............... 11,017,211 15,989,538 -- 27,006,749
Security deposits and other assets... 631,982 393,250 -- 1,025,232
----------- ------------ ------------ ------------
Total assets................... $27,595,593 $ 14,604,990 $ 67,492,000 $109,692,583
=========== ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses......................... $ 2,010,414 $ 592,088 -- $ 2,602,502
Accrued bonuses.................... 1,134,386 1,134,386
Current portion of long-term
debt............................. 12,242,907 1,334,919 (10,011,174)(8) 3,566,652
----------- ------------ ------------ ------------
Total current liabilities...... 15,387,707 1,927,007 (10,011,174) 7,303,540
Long-term debt, less current
portion............................ 3,098,284 775,349 -- 3,873,633
----------- ------------ ------------ ------------
Total liabilities.............. 18,485,991 2,702,356 (10,011,174) 11,177,173
Series A convertible preferred
stock.............................. 4,543,202 -- (4,543,202)(9) --
Series B convertible preferred
stock.............................. 4,401,542 -- (4,401,542)(10) --
Shareholders' equity
Common stock....................... 131,820 14,476 108,001 254,297
Additional paid-in capital......... 17,530,511 11,888,158 86,339,917 115,758,586
Accumulated deficit................ (17,497,473) -- -- (17,497,473)
----------- ------------ ------------ ------------
Total shareholders' equity..... 164,858 11,902,634 86,447,918 98,515,410
----------- ------------ ------------ ------------
Total liabilities and
shareholders' equity......... $27,595,593 $ 14,604,990 $ 67,492,000 $109,692,583
=========== ============ ============ ============
</TABLE>
22
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) Potential shares of common stock consist of Series A and Series B
convertible preferred stock and the November 1999 convertible notes, using
the as-converted method, and stock options and warrants using the treasury
stock method, which are excluded from the computation, as their effect is
antidilutive.
(2) Our acquisition history since January 1, 1999 is reflected in the table
below. All of our acquisitions have been accounted for using the purchase
method and, accordingly, each purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis
of their fair values at the acquisition dates. Identifiable intangible
assets consist primarily of non-compete agreements with previous owners of
the acquired entities. Each purchase price in excess of identified tangible
and intangible assets acquired has been allocated to goodwill and is being
amortized over eight years. Based on the acquisition dates, the allocation
of the purchase price in excess of the fair value of the net tangible assets
acquired between identifiable intangible assets and goodwill for the
companies acquired in 2000 is in process, and the final allocations could
differ from those set forth below. The value assigned to the shares of
common stock issued as consideration for the companies we acquired has been
valued based upon arms' length negotiations between ourselves and the target
companies and reflects the valuation used in the most recent private
financing consummated prior to the signing of the respective acquisition
agreements and other factors considered applicable by us and the owners of
the acquired companies.
<TABLE>
<CAPTION>
EXCESS OF
COST OVER
FAIR VALUE OF
NET ASSETS
FAIR VALUE ACQUIRED
OF NET AND
TANGIBLE IDENTIFIABLE IDENTIFIABLE
ACQUISITION TOTAL ASSETS INTANGIBLE INTANGIBLE
BUSINESS ACQUIRED DATE CONSIDERATION ACQUIRED ASSETS ASSETS
- ----------------- ----------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
The William Fall Group, Inc.................. 02/26/1999 1,135,919 431,053 105,700 599,166
First Houston Appraisal Group................ 04/01/1999 664,572 19,607 96,700 548,265
Cramer Property Services Incorporated........ 09/03/1999 843,531 17,843 124,000 701,688
E.T. Jones & Associates, Inc................. 09/29/1999 2,047,896 5,749 306,300 1,735,847
Stewart Title of Birmingham, Inc............. 09/29/1999 1,017,716(A) 76,000 141,300 800,416
Fournier, Crane & Associates, Inc............ 12/03/1999 560,781 18,000 81,400 461,381
InspecTech Corporation....................... 01/07/2000 12,509,489 114,000 12,395,489
The Appraisal Company........................ 01/07/2000 756,300 25,000 109,700 621,600
Bliss Associates, Inc........................ 01/18/2000 3,221,988 814,309 361,200 2,046,479
Suncoast Appraisal Group of Charlotte County,
Inc........................................ 02/14/2000 110,000(B) 24,000 12,900 73,100
Focus Appraisal Services, Inc................ 02/18/2000 375,070 6,000 56,900 312,170
----------- ---------- ---------- -----------
Total.................................. $23,243,262 $1,551,561 $1,396,100 $20,295,601
=========== ========== ========== ===========
</TABLE>
- ---------------
(A) Excludes an earnout of up to $500,000 payable to the former owners which has
not been earned as of the date hereof.
(B) Excludes an earnout of up to $148,000 payable to the former owners which has
not been earned as of the date hereof.
23
<PAGE>
(3) For those companies acquired during 1999 and 2000, the following table
presents the statements of operations for the period January 1, 1999 through
the date of acquisition or, for companies acquired in 2000, the historical
results of operations for the year ended December 31, 1999.
<TABLE>
<CAPTION>
THE FIRST CRAMER ET JONES STEWART TITLE FOURNIER,
WILLIAM HOUSTON PROPERTY & OF CRANE &
FALL APPRAISAL SERVICES ASSOCIATES, BIRMINGHAM, ASSOCIATES, INSPECTECH
GROUP, INC. GROUP INCORPORATED INC. INC. INC. CORPORATION
----------- --------- ------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. 367,889 322,391 1,225,189 1,321,754 905,061 1,008,699 4,367,903
Cost of revenues..... 211,776 157,824 895,815 607,452 433,521 522,843 2,401,997
-------- -------- ---------- ---------- -------- ---------- -----------
Gross profit......... 156,113 164,567 329,374 714,302 471,540 485,856 1,965,906
-------- -------- ---------- ---------- -------- ---------- -----------
Operating expenses:
Selling, general
and admin........ 236,268 181,630 284,068 481,010 484,109 427,543 2,654,877
Research &
development...... -- -- -- -- -- -- --
Depreciation and
amortization..... 9,907 6,910 26,838 8,543 15,990 10,320 264,974
-------- -------- ---------- ---------- -------- ---------- -----------
Total operating
expenses........... 246,175 188,540 310,906 489,553 500,099 437,863 2,919,851
-------- -------- ---------- ---------- -------- ---------- -----------
Operating income
(loss)............. (90,062) (23,973) 18,468 224,749 (28,559) 47,993 (953,945)
Other income
(expense)
Interest and other
income........... 854 -- 1,627 -- -- 285 --
Interest expense... (1,732) -- (8,806) (1,334) (23,074) -- (103,560)
-------- -------- ---------- ---------- -------- ---------- -----------
Income (loss) before
income taxes....... (90,940) (23,973) 11,289 223,415 (51,633) 48,278 (1,057,505)
Income taxes......... (27,963) -- -- -- -- -- --
Net income (loss).... (62,977) (23,973) 11,289 223,415 (51,633) 48,278 (1,057,505)
-------- -------- ---------- ---------- -------- ---------- -----------
Net loss appliable to
common
shareholders....... $(62,977) $(23,973) $ 11,289 $ 223,415 $(51,633) $ 48,278 $(1,057,505)
======== ======== ========== ========== ======== ========== ===========
<CAPTION>
SUNCOAST
APPRAISAL
GROUP OF FOCUS
BLISS THE CHARLOTTE APPRAISAL COMBINED
ASSOCIATES, APPRAISAL COUNTY, SERVICES, ACQUIRED
INC. COMPANY INC. INC. COMPANIES
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............. 2,580,354 795,076 546,984 572,264 14,013,564
Cost of revenues..... 984,937 342,097 273,903 269,844 7,102,009
---------- -------- -------- -------- -----------
Gross profit......... 1,595,417 452,979 273,081 302,420 6,911,555
---------- -------- -------- -------- -----------
Operating expenses:
Selling, general
and admin........ 1,408,137 96,416 242,588 325,737 6,822,383
Research &
development...... -- -- -- -- --
Depreciation and
amortization..... 12,038 -- 10,100 2,378 367,998
---------- -------- -------- -------- -----------
Total operating
expenses........... 1,420,175 96,416 252,688 328,115 7,190,381
---------- -------- -------- -------- -----------
Operating income
(loss)............. 175,242 356,563 20,393 (25,695) (278,826)
Other income
(expense)
Interest and other
income........... 26,734 -- -- -- 29,500
Interest expense... -- -- -- (866) (139,372)
---------- -------- -------- -------- -----------
Income (loss) before
income taxes....... 201,976 356,563 20,393 (26,561) (388,698)
Income taxes......... 111,217 -- -- -- 83,254
Net income (loss).... 90,759 356,563 20,393 (26,561) 471,952
---------- -------- -------- -------- -----------
Net loss appliable to
common
shareholders....... $ 90,759 $356,563 $ 20,393 $(26,561) $ 471,952
========== ======== ======== ======== ===========
</TABLE>
(4) Reflects amortization expense for the year ended December 31, 1999 related
to identifiable intangible assets and goodwill in connection with the
acquisitions we completed after January 1, 1999. Such amounts are amortized
over the estimated useful life of each asset. Identifiable intangible assets
consist primarily of non-compete agreements, which are being amortized over
periods of four to six years. Goodwill is being amortized over eight years.
In addition, amortization excludes from the recognized purchase price
calculations an earnout payment of $648,000 which has not been earned under
the terms of certain acquisition agreements. Any purchase price adjustments
resulting from the payment of this amount to the previous owners of the
companies will be recognized as an adjustment to goodwill and will be
amortized over the remaining expected useful life.
(5) Reflects the elimination of interest expense incurred on our November 1999
convertible notes.
(6) Reflects the elimination of dividends on our Series A and B convertible
preferred stock.
(7) Reflects net proceeds of $67,492,000 from this offering, the receipt of
$9.7 million from the issuance of our January 2000 convertible notes and the
payment of $9.7 million to the holders of our January 2000 convertible notes
upon the completion of this offering.
(8) Reflects the conversion of our November 1999 convertible notes into common
stock upon the completion of this offering.
(9) Reflects the conversion of our Series A convertible preferred stock into
common stock upon the completion of this offering.
(10) Reflects the conversion of our Series B convertible preferred stock into
common stock upon the completion of this offering.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below are derived from our audited and
unaudited consolidated financial statements. The statements of operations data
for the three years ended December 31, 1997, 1998 and 1999, and the balance
sheet data as of the end of each such year, are derived from our audited
consolidated financial statements contained elsewhere in this prospectus. The
following selected financial information should be read in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements, including
the notes to those statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 847 $ 1,922 $ 4,155 $14,356 $ 23,416
Cost of revenues............................................ 722 1,001 2,537 7,824 13,071
------ ------- ------- ------- --------
Gross Profit................................................ 125 921 1,618 6,532 10,345
------ ------- ------- ------- --------
Operating expenses
Selling, general and administrative....................... 737 1,862 2,518 7,350 20,486
Research and development.................................. -- -- 122 206 --
Depreciation and amortization............................. 111 175 218 522 2,265
------ ------- ------- ------- --------
Operating loss.............................................. (723) (1,116) (1,240) (1,546) (12,406)
Other income and expense
Interest and other income................................. 36 20 45 155 181
Interest expense.......................................... (7) (5) (4) (24) (418)
------ ------- ------- ------- --------
Loss before provision for income taxes...................... $ (694) $(1,101) $(1,199) $(1,415) $(12,643)
====== ======= ======= ======= ========
Provision for income taxes.................................. -- -- -- -- --
Net loss.................................................... $ (694) $(1,101) $(1,199) $(1,415) $(12,643)
Preferred stock dividend.................................... -- -- -- -- (229)
------ ------- ------- ------- --------
Net loss applicable to common shareholders.................. $ (694) $(1,101) $(1,199) $(1,415) $(12,872)
====== ======= ======= ======= ========
Net loss per common and common
equivalent share--basic and diluted....................... $ (.62) $ (.60) $ (.23) $ (.15) $ (.99)
====== ======= ======= ======= ========
Weighted average common and common
equivalent shares outstanding--basic and diluted.......... 1,117 1,827 5,214 9,151 13,013
OTHER FINANCIAL DATA:
EBITDA(1)................................................... $ (613) $ (941) $(1,023) $(1,024) $(10,141)
Cash flows from:
Operating activities...................................... (581) (1,068) (1,237) (1,935) (8,497)
Investing activities...................................... (299) (93) (409) (4,296) (5,201)
Financing activities...................................... 1,461 1,187 1,655 9,238 19,007
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 643 $ 668 $ 677 $ 3,684 $ 8,994
Working capital............................................. 584 712 792 5,868 (2,818)
Total assets................................................ 1,170 1,447 3,156 14,915 27,596
Long-term debt, net of current portion...................... 34 135 777 997 3,098
Series A convertible preferred stock........................ -- -- -- -- 4,543
Series B convertible preferred stock........................ 4,402
Shareholders' equity........................................ 941 1,112 1,669 12,465 165
</TABLE>
- ---------------
(1) EBITDA as used in this prospectus represents earnings before interest,
income taxes and depreciation and amortization. Although EBITDA is not a
measure of financial performance under generally accepted accounting
principles, we believe it is a common measure used by analysts and investors
in comparing a company's results with those of similar companies as well as
to evaluate the capacity of a company to service its obligations. EBITDA is
not net income, operating income or cash flows, and items excluded from
EBITDA are significant components of our financial performance.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES TO THOSE STATEMENTS, INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISK AND UNCERTAINTY.
OVERVIEW
We are a business-to-business web-based provider of property information
services in the United States. We provide appraisals, home inspections, title
services, flood determinations, energy audits and other related property
information services that our clients can order, monitor, receive and pay for
over the Internet using a standard web browser. Our clients include 7 of the top
10 and 34 of the top 50 mortgage lenders in the United States, based on 1998
origination dollar volume as reported in Faulkner & Gray's Mortgage InfoSource
2000.
Until 1999, we were essentially a collection of acquired appraisal
companies, each focused on its local marketplace. In late 1998 and early 1999,
we brought in a new management team to develop and execute an integrated
strategy consisting of (a) company-owned national service delivery capability,
(b) web-based technology to allow efficient delivery of our services, and (c) a
quality assurance program intended to set the highest standard in the industry.
In September 1999, we acquired Stewart Title of Birmingham, Inc., expanding
our service offerings to include additional title services. In January 2000, we
acquired InspecTech Corporation of San Ramon, California. The InspecTech
acquisition will expand significantly our existing distribution platform and
allow us to provide home inspection services nationwide.
We have acquired 24 businesses since September 1995 and intend to continue
acquiring companies in the future as a key element of our growth strategy. We
evaluate potential acquisitions based on a number of factors, including
geographic coverage, historical revenue and profitability, service quality,
share of their local market, and quality of management. Our acquisitions enable
us to expand both the geographic scope of our property information services and
the breadth of our service offerings.
The success of our acquisition program depends upon, among other things, our
ability to find suitable acquisition candidates, integrate the operations and
personnel of these acquisitions successfully and retain the existing client base
while servicing our national account business in the acquired entity.
In 1999, we derived approximately 94% of our revenues from our residential
and commercial appraisal services, approximately 5% of revenue from our title
services and approximately 1% of our revenue from our flood and valuation tool
services combined. With the addition of home inspections to our service
offerings in early 2000, we expect appraisal services will continue to become a
smaller percent of total revenue as we roll out our inspection services on a
national basis.
We generated revenue from our web-based services and from services delivered
through traditional methods, such as fax, phone and paper delivery. We derived
12% of our 1999 revenues from our web-based platform and we are rapidly moving
our clients to this platform. As a result of this migration and our acquisition
of InspecTech Corporation, web-based revenues represented approximately 26% of
our revenues for January 2000. Based on our experience in the industry and on
recent trends in our revenue growth, we believe that we will derive an
increasing portion of our revenue from web-based delivery.
Our clients generally retain our services on a transaction-by-transaction
basis. We recognize revenue on the date of delivery of the respective service to
our clients. Concentration of credit risk with respect to trade accounts
receivable is generally diversified due to the large number of entities
comprising our client base. We perform ongoing credit evaluations and provide
for an allowance for potential credit losses against the portion of accounts
receivable that we estimate to be uncollectible.
26
<PAGE>
We accounted for all of our acquisitions under the purchase method and,
accordingly, each purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
values on the acquisition dates. Each purchase price in excess of identified
tangible and intangible assets acquired has been allocated to goodwill and is
being amortized over eight years. Prior to January 1, 1999, goodwill was
amortized over 15 years. Identifiable intangible assets consist primarily of
non-compete agreements with previous owners of the acquired entities.
RESULTS OF OPERATIONS
The following discussion relates to our actual operating results for the
periods indicated. These operating results include the operations of the
companies acquired by us during the periods referenced from the date of
acquisition only. We anticipate that our acquisitions, both past and future,
will continue to significantly impact our future results. We believe that a
comparison of our historical financial results may not be meaningful because of
(a) the significant changes in management that occurred in early 1999, (b) the
recent change in our business strategy and focus, and (c) our significant
acquisition activity since June 1998.
The following sets forth selected statements of operations data expressed as
a percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues....................................... 100.0% 100.0% 100.0%
Cost of revenues............................... 61.1 54.5 55.8
-------- -------- --------
Gross profit................................... 38.9 45.5 44.2
Operating expenses
Selling, general and administrative.......... 60.6 51.2 87.5
Research and development..................... 3.0 1.4 0.0
Depreciation and amortization................ 5.2 3.7 9.7
-------- -------- --------
Total operating expenses................. 68.8 56.3 97.2
Operating loss................................. (29.9) (10.8) (53.0)
Other income and expense
Interest and other income.................... 1.1 1.1 0.8
Interest expense............................. (0.1) (0.2) (1.8)
-------- -------- --------
Loss before provision for income taxes....... (28.9) (9.9) (54.0)
Net loss..................................... (28.9)% (9.9)% (54.0)%
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
TOTAL REVENUES. Revenues, which consist of individual fees for services
ordered, increased $9.0 million, or 63%, to $23.4 million for the year ended
December 31, 1999 from $14.4 million for the year ended December 31, 1998. This
increase was primarily attributable to acquisitions made by us during 1999.
Acquisitions completed in the last half of 1998 accounted for $4.0 million of
the increase in 1999. Acquisitions completed in 1999 accounted for $4.9 million
of the revenue increase. In addition, our revenues increased by the addition of
eight new Internet and national accounts in 1999, which were offset in part by a
decrease in local business caused primarily by an increase in interest rates
beginning in July 1999.
COST OF REVENUES. Cost of revenues, which consist of fees shared with
contract appraisers and inspectors, costs of data sources and service delivery
costs associated with generated revenues,
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increased $5.3 million, or 67%, to $13.1 million for the year ended
December 31, 1999 from $7.8 million for the year ended December 31, 1998. This
increase was primarily attributable to the increased levels of appraisal
production expense driven by increased volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $13.1 million, or 179%, to $20.5 million for
the year ended December 31, 1999 from $7.4 million for the year ended
December 31, 1998. This increase was primarily attributable to the hiring of a
national sales force, creation of a consolidated national client service center,
and additional hiring in technology needed to implement our technology platform
in the branch distribution system.
In addition, the selling, general and administrative expense for the 1999
period includes an $826,000 charge related to a write-down of aged accounts
receivable. Due to a lack of a centralized means of tracking and collecting aged
receivables and the continued growth in volume and complexity of our company
structure, we consolidated the collections and receivables management function
in June of 1999. In the process of consolidating the receivables function, we
undertook an assessment of the collectibility of certain small, aged accounts
receivable balances. As a result of this assessment, we determined this charge
was necessary. During 1999, we established a dedicated collection staff to
identify and pursue collection matters on a timely basis and to continue to
focus on process improvements relating to more current invoices.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$0 for the year ended December 31, 1999 and $206,000 for the year ended
December 31, 1998. In 1998, we expensed costs associated with the plan design of
VALUTRACK and VALUEXPRESS, our proprietary ordering and tracking software. In
1999, we developed and implemented VALUTRACK and VALUEXPRESS for which the
associated costs were capitalized and are being amortized over a three-year
period.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $1.7 million, or 334%, to $2.3 million for the year ended
December 31, 1999 from $522,000 for the year ended December 31, 1998. This
increase was primarily attributable to amortization of goodwill and other
purchased intangibles resulting from acquisitions accounted for as purchases and
the investments in physical infrastructure in these companies post acquisition.
Additionally, this increase in depreciation was attributable to the purchase of
computer equipment used to build our technology infrastructure.
INTEREST AND OTHER INCOME. Interest and other income increased $26,000, or
17%, to $181,000 for the year ended December 31, 1999 from $155,000 for the year
ended December 31, 1998. This increase can be attributed to higher levels of
average investable balances during 1999.
INTEREST EXPENSE. Interest expense increased $394,000, to $418,000 for the
year ended December 31, 1999 from $24,000 for the year ended December 31, 1998.
This increase can be attributed to higher levels of debt incurred to finance our
acquisitions.
INCOME TAXES. We have not paid income taxes in any of the periods shown due
to the operating losses which have been incurred to date. As of December 31,
1998 and 1999, we had net operating loss carryforwards for federal income tax
purposes of approximately $2.8 million and $15.2 million. If not utilized, the
net operating loss carryforwards will begin expiring in the year ended
December 31, 2011.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased $10.2 million, or 243%, to $14.4 million for
the year ended December 31, 1998 from $4.2 million for the year ended
December 31, 1997. This increase was primarily attributable to our acquisition
strategy coupled with increased sales of our appraisal and title services.
Acquisitions completed in the year ended December 31, 1998 accounted for
$5.4 million of the revenue increase.
COST OF REVENUES. Cost of revenues increased $5.3 million, or 212%, to
$7.8 million for the year ended December 31, 1998 from $2.5 million for the year
ended December 31, 1997. However, as a
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percentage of revenues, cost of revenues decreased from 61% for the year ended
December 31, 1997 to 54% for the year ended December 31, 1998. The decrease in
percentage terms was primarily attributable to a change in product mix. In the
year ended December 31, 1997, 35% of our revenues resulted from PRIMISnet and
title activity, representing services that were outsourced at a lower margin.
For year ended December 31, 1998, title and PRIMISnet revenues represented 23%
of our total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.9 million, or 196%, to $7.4 million for the
year ended December 31, 1998 from $2.5 million for the year ended December 31,
1997. This was attributable to $3.8 million in field office administrative
spending associated with acquisitions made in 1997 and 1998 and increased
general corporate spending of $1.0 million.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $84,000, or 69%, to $206,000 in for the year ended December 31, 1998
from $122,000 for the year ended December 31, 1997. Research and development
costs in 1998 were primarily attributable to plan design associated with
VALUTRACK and VALUEXPRESS.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $304,000, or 139% to $522,000 for the year ended
December 31, 1998 from $218,000 for the year ended December 31, 1997. This
increase primarily related to amortization of goodwill resulting from
acquisitions.
INTEREST AND OTHER INCOME. Interest income increased $110,000, or 244%, to
$155,000 for the year ended December 31, 1998 from $45,000 for the year ended
December 31, 1997. This increase was due to higher average investable balances
in 1998.
INTEREST EXPENSE. Interest expense increased $21,000, or 700%, to $24,000
for the year ended December 31, 1998 from $3,000 for the year ended
December 31, 1997. This increase can be attributed to higher levels of debt
incurred to finance acquisitions and capital equipment purchases.
LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements consist primarily of working capital, capital
expenditures and acquisitions. Historically, we have funded these cash needs
primarily by issuance of securities as follows:
- During 1995, 1996 and 1997, we raised $5.0 million through a series of
private placements of preferred and common stock to various venture
capital funds and individual investors.
- In June 1998, we sold 4,003,730 shares of common stock for $9.0 million to
six existing shareholders and four new venture capital fund investors.
- In November 1998, we borrowed $560,000 from First Union National Bank at a
fixed interest rate of 7.75% pursuant to a promissory note secured by a
certificate of deposit, payable ratably over a three year period. As of
February 29, 2000, the outstanding balance on this loan was $337,000.
- In May 1999, we sold 2,032,110 shares of Series A convertible preferred
stock to existing shareholders for $4.4 million.
- In August 1999, we entered into a credit facility with Silicon Valley Bank
providing for borrowings of up to $2.5 million. As of December 31, 1999,
we had repaid the entire outstanding amount under this credit facility
with Silicon Valley and cancelled the facility.
- In September 1999, we entered into a master note and security agreement
with Leasing Technologies International, Inc. to fund or refinance the
purchase of capital equipment. Maximum indebtedness is not to exceed
$2.0 million, to be paid over a two and half year period
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at an interest rate equal to prime plus 2.75%. As of February 29, 2000,
the interest rate was 11.5% and the outstanding balance on this loan was
$1.3 million.
- In September 1999, we issued notes to two existing shareholders for an
aggregate principal amount of $1.5 million, which were subsequently
converted into shares of Series B convertible preferred stock.
- In October 1999, we sold 1,350,337 shares of Series B convertible
preferred stock to existing shareholders for $4.4 million.
- In November 1999, we issued convertible notes and warrants to existing
shareholders for aggregate consideration of $10.0 million.
- In January 2000, we issued convertible notes and warrants to existing
shareholders for aggregate consideration of $9.7 million.
As of February 29, 2000, we had approximately $11.5 million in cash and cash
equivalents. During 1999, we used $1.0 million per month in cash, excluding the
cash portion of the purchase price paid in acquisitions. However, we anticipate
our monthly cash needs to increase in such areas as sales and marketing, product
development and general overhead to support future revenue growth. Current cash
obligations include certain capital and operating leases. At February 29, 2000
the approximate future minimum lease payments for non-cancelable capital leases
were $1.7 million of which $809,000 is short-term and future minimum lease
payments for non-cancelable operating leases were $4.9 million of which
$1.7 million is short term. We anticipate making additional capital equipment
purchases in line with the revenue growth. Additional cash obligations include
certain notes payable or deferred payments related to completed acquisitions
totaling $5.4 million of which $2.6 million is short-term as of February 29,
2000. We anticipate that we will finance future acquisitions through a
combination of cash and the issuance of securities.
We plan to use a portion of the net proceeds of this offering and our
internally generated funds to meet the cash obligations described above and
believe that these sources of liquidity and capital will be adequate to meet our
cash needs for at least the next 12 months. To meet our liquidity and capital
needs beyond these points, we may be required to raise additional capital by
issuing equity securities or incurring additional debt.
IMPACT OF THE YEAR 2000
We have not experienced any immediate adverse impact from the transition to
the year 2000. It is possible that some of the internal systems of our clients
or other parties with whom we do business have already been or will be
negatively affected by the year 2000 date change. We currently have no
contingency plan to manage any year 2000 issues that may arise.
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BUSINESS
OVERVIEW
We are a business-to-business, web-based provider of property information
services in the United States. We provide appraisals, home inspections, title
services, flood determinations, energy audits and other related property
information services, all of which our clients can order, monitor, receive and
pay for over the Internet using a standard web browser. We believe there are
three key differentiating features of our business:
- NATIONAL SERVICE DELIVERY PLATFORM anchored by company-owned offices in
over 40 metropolitan markets, including 29 of the top 50 residential real
estate markets in the United States, as well as our PRIMISnet network of
contract appraisers and home inspectors;
- WEB-BASED SERVICE DELIVERY through the PRIMIS SERVICE STATION that allows
our clients to realize cost savings and improved turnaround times; and
- SERVICE QUALITY AND CONSISTENCY through a rigorous quality assurance
program and aggressive internal use of technology.
We expect to enter a significant number of additional key markets in 2000
primarily through strategic acquisitions as well as organic growth.
Additionally, as we conduct our operations and acquire appraisal, home
inspection and title services businesses in new markets, we continue to gather,
organize and analyze a wide variety of data on the condition of properties in
our markets. Through these activities, we are compiling a comprehensive database
of property information that we believe will become one of our most valuable
long-term assets.
Our clients include 7 of the top 10 and 34 of the top 50 mortgage lenders in
the United States, based on 1998 origination dollar volume as reported in
Faulkner & Gray's Mortgage InfoSource 2000. We sell our services to traditional
lenders, such as Bank of America and Compass Bank; Internet lenders such as
Quicken Loans, a division of Intuit, Inc., Mortgage.com and E-Loan; specialized
lenders such as Countrywide Quality Assurance and Provident Funding; utility
companies; consumers and real estate professionals.
We were incorporated as Residential and Relocation Appraisals, Inc., an
Atlanta-based appraisal company in 1990. As Residential and Relocation
Appraisals, we developed a proprietary appraisal software system that automated
the appraisal process by using an electronic form linked with the multiple
listing service and other providers of data from public records. In 1992, we
changed our name to Premier Appraisals, Inc. We began broadening our
distribution capabilities in 1995 with the acquisitions of appraisal companies
in North Carolina and Florida. Until 1999, we were essentially a collection of
acquired appraisal companies, each focused on its local marketplace. On
December 31, 1998, we changed our name to PRIMIS, Inc. In late 1998 and early
1999, we brought in a new management team to develop and execute our current
business model.
PRIMIS' MARKET OPPORTUNITIES
THE INTERNET BUSINESS-TO-BUSINESS OPPORTUNITY
The Internet provides companies the opportunity to conduct business with
other companies directly and more efficiently. Business-to-business trade over
the Internet is projected to accelerate into a period of exponential growth
through 2003. Forrester Research forecasts that inter-company Internet trade
will double every year, growing from $43 billion in 1998 to $1.5 trillion in
2003. We expect that Internet-based lenders as well as traditional mortgage
originators will increasingly rely on e-commerce to procure property information
services. In view of our first-mover advantage relating to our web-based
technology, agreements with national accounts and the anticipated increase in
capital resources
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resulting from this offering, we believe we are well positioned to capture a
significant portion of the business-to-business market for property information
services.
THE PROPERTY INFORMATION SERVICES MARKET OPPORTUNITY
We believe that the total market for our core property information services
is in excess of $5.5 billion annually. Based on available industry data and our
internal estimates, we believe that in 1999 the market for appraisal services
was approximately $2.4 billion, the market for home inspection services was
approximately $2.1 billion, and the market for flood determinations and title
services was approximately $1.0 billion. In addition, we believe that we have
significant opportunities for growth in the markets for the other property
information services we provide, such as energy audits, commercial appraisals,
appraisal services, phased construction inspections and environmental
inspections.
Commercial banks, mortgage lenders, mortgage brokers and other financial
institutions require property information services when they originate first
mortgage loans, refinance existing loans or provide home equity loans or lines
of credit. A mortgage lender typically requires an appraisal, a title search and
a flood determination in the loan approval process. Purchasers of homes and,
increasingly, sellers typically seek a home inspection in connection with the
purchase or sale of a home. In addition, mortgage lenders are increasingly
requiring home inspections as a condition to making mortgage loans.
We believe that there are two significant trends developing in the mortgage
lending industry that will considerably affect the property information services
market.
CONSOLIDATION IN THE MORTGAGE LENDING INDUSTRY. The mortgage lending
industry has experienced significant consolidation in the past few years. We
believe that this consolidation will continue. According to Faulkner & Gray, the
largest 20 mortgage lenders have increased market share considerably in the past
few years and, in 1998 originated, underwrote or funded approximately 50% of all
residential mortgage loans in the United States. These multistate lenders are
demanding a wide product mix, national coverage and consistent quality of
property information services. We believe that a consolidating lending industry
is not served well by a fragmented service provider industry.
EMERGENCE OF INTERNET LENDERS. In addition to consolidation of the mortgage
lending industry, according to Forrester Research, online mortgage lending is
expected to grow from less than 1% of mortgages funded in 1998 to nearly 10%, or
approximately $91 billion, by 2003. This new class of Internet lenders is
intensifying the already fierce competition in the mortgage lending industry and
increasing the pressure to lower costs and improve margins. To reduce costs,
mortgage lenders increasingly seek to reduce the number of vendors with which
they do business and to outsource non-core property information functions, such
as managing property information and reports required in the mortgage
origination process.
We believe that the emergence of Internet lenders, as well as the
consolidation in the mortgage lending industry, is creating a demand for a
web-based property information services provider with national coverage that can
provide consistent quality services across all of its offices.
LIMITATIONS OF TRADITIONAL PROPERTY INFORMATION SERVICE PROVIDERS
We believe that the traditional model for the delivery of property
information services has several deficiencies, particularly in light of the
changes in the mortgage lending industry described above. These deficiencies
include the following:
- HIGHLY FRAGMENTED MARKET. The property information market is highly
fragmented. Based on available data and our industry experience, we
believe that there are thousands of appraisal and thousands of home
inspection companies in the United States. We believe these types of firms
are regionally focused, with two to ten employees. As a result, national
mortgage lenders and
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other financial institutions are forced to source their property
information services from a myriad of vendors throughout the country.
- INCONSISTENT QUALITY. Our industry experience indicates that traditional
appraisal and home inspection firms generally do not have strict quality
assurance programs in place to monitor adherence to industry standards and
consistency among individual reports. We believe that many of these
providers are small and lack the resources to invest in technology,
employee training and continuing education programs. As a result, we
believe that many traditional appraisal and home inspection firms cannot
consistently deliver high quality services, particularly across a broad
geographic region.
- SLOW, INEFFICIENT DELIVERY. In our experience, the property information
services industry historically has had slow turnaround times between the
time an order is placed and final delivery of the report to the client.
Ordering property information reports and monitoring their status
typically involves time-consuming telephone calls or faxes to different
vendors. The appraisal process is frequently the most time-consuming
component of the entire mortgage loan origination process. We can usually
provide a full appraisal to our national clients in 5 days or less,
whereas many of these clients have indicated that other service providers
typically require 7 to 14 days. Turnaround times can be particularly
problematic for management companies, which subcontract appraisal work to
individual appraisers who share their fees with the management company
and, therefore, have less incentive to rapidly complete their work.
THE PRIMIS SOLUTION
We are a national source for a wide range of high-quality property
information services delivered timely through an automated, web-based platform.
We have standardized and streamlined the process of obtaining property
information services, and we have done so from the lender's perspective. The key
elements of our solution include:
NATIONAL SERVICE DELIVERY CAPABILITIES. We are a single, national provider
of property information services. We currently have company-owned offices in
over 40 metropolitan markets, including 29 of the top 50 residential real estate
markets in the country ranked by total mortgage origination volume in 1998. We
expect to be in markets covering over 50% of all U.S. loan originations by the
end of 2000, primarily through strategic acquisitions but also through organic
growth. Additionally, we established PRIMISnet, a network of contract appraisers
and home inspectors to service customers in smaller markets where we do not
currently have company-owned operations. Importantly, we apply the same quality
assurance standards to the services delivered through PRIMISnet as those we
apply to our own internal reports.
FLEXIBLE WEB-BASED PLATFORM. THE PRIMIS SERVICE STATION, our web-based
platform, enables our clients to place orders, check the status of orders,
receive reports in electronic format, receive invoices and pay for services, all
by using a standard web browser. Our flexible, open architecture will allow our
larger clients to bypass the PRIMIS SERVICE STATION and interface their loan
origination systems with the PRIMIS engine through direct connections. In these
cases, as clients enter property information into their systems in the loan
origination process, the direct connection will allow the clients to place
orders, obtain status information and have reports generated and delivered
automatically, thereby eliminating an additional data entry step. In addition,
we continue to maintain our proprietary software system, VALUEXPRESS, which
enables our clients that use this software to place orders, obtain status
information and have reports generated and delivered over the Internet. We
believe we can further accelerate this migration by educating and assisting
customers on the benefits they will receive from our web-based platform. Our
web-based platform also links together our offices nationwide, enabling all
offices to share property information data and operational information, which
creates efficiencies of scale.
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HIGH, CONSISTENT QUALITY STANDARDS. We use our internal and external
technology to deliver high quality services consistently throughout our national
service delivery system. We have automated a number of steps in the service
delivery process to minimize staff involvement and the possibility for human
errors. For example, our proprietary technology known as the Vista Advanced
Inspection Management System, or VISTA, enhances the quality and reliability of
our home inspection reports by automating the inspection and report preparation
processes. We intend to adapt and customize the VISTA technology to extend to
appraisal and other services we offer. In addition, we intend to become the
quality standard of the property information services industry by operating the
most comprehensive quality assurance program in the industry. Our quality
assurance program has three major components:
- office reviews, in which all of our reports are reviewed by senior
reviewers or branch managers prior to their release to clients;
- dedicated quality assurance team, which reviews randomly selected samples
of reports on an ongoing basis in all of our offices; and
- a training and continuing education program for all of our professionals.
FAST, EFFICIENT SERVICE DELIVERY. We are able to deliver our property
information services to our clients very quickly as a result of our technology
infrastructure. Our web-based platform eliminates the need for many of the
time-consuming faxes, phone calls, paper deliveries and other delays associated
with searching for local service providers, scheduling appointments, ordering
the services, monitoring status and receiving reports. This enables us to
accelerate the turnaround time for delivery of our services. Additionally, we
have instituted performance-based compensation programs for our professionals
and branch managers that provide incentives tied to targeted turnaround times.
Furthermore, by continuing to build upon our national distribution channel and
our web-based delivery platform, we believe that we will be able to provide our
large national clients in select markets with one-day full appraisal turnaround
service, which we call XPEDITE. We plan to begin to offer XPEDITE in two test
markets by the end of Spring 2000, Atlanta, Georgia and Toledo, Ohio. By the end
of 2000 and assuming the successful completion of a 60-day pilot program in our
test markets, we plan to offer XPEDITE in all of our core markets.
FULL SUITE OF SERVICES. We offer a wide range of property information
services, all available through our flexible web-based platform. We sell these
services individually or packaged together with bundled pricing, encouraging
clients to order multiple services. Our current services include:
- APPRAISAL SERVICES--residential appraisals ranging from those based on
publicly available data to those requiring a complete inspection and
analysis of the property, appraisals of small apartment buildings and
condominiums and commercial appraisals;
- APPRAISAL REVIEW SERVICES--desk reviews, four-hour reviews, field reviews
and enhanced field reviews;
- INSPECTION SERVICES--home inspections and new construction inspections;
- TITLE SERVICES;
- FLOOD DETERMINATIONS; and
- ENERGY AUDITS.
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PRIMIS' STRATEGY
Our objective is to be the leading web-based provider of property
information services in the United States. Our business strategy to accomplish
this objective includes the following key elements:
LEVERAGE INFRASTRUCTURE TO IMPROVE SERVICE DELIVERY. During the past
12 months, we have invested approximately $3.4 million in developing, enhancing
and supporting our flexible web-based infrastructure. We expect this will enable
us to achieve substantial productivity and efficiency gains. We plan to continue
to automate all of the steps in our service delivery process, such as order
entry, status inquiry and reports and delivery of reports and billing, in order
to minimize staff involvement and the possibility for human errors. We also
intend to continue to invest in our internal technology, including adapting the
VISTA technology for use by many of our field professionals. We have developed
data format structures and system capabilities to retain and leverage the data
that we gather, which we believe will allow us to develop new proprietary
valuation services and improve the quality and consistency of our services.
MIGRATE CUSTOMERS TO BUSINESS-TO-BUSINESS E-COMMERCE. We intend to
facilitate and encourage the use of e-commerce service delivery channels by both
our new and existing clients. Many of our larger national accounts already
utilize our e-commerce platform to place orders, obtain status information and
receive reports in electronic format and experience significant cost savings
over traditional service delivery methods. We expect to quickly migrate a
significant number of our other clients from traditional service delivery
methods to e-commerce. During 1999, without any marketing or educating efforts
from us, we saw a natural migration of our customers toward our web-based
platform that resulted in an increase in the percentage of our revenues
represented by web-based transactions. As a result of this migration and our
acquisition of InspecTech Corporation, web-based revenues represented
approximately 26% of our revenues for January 2000. We believe we can further
accelerate this migration by educating and assisting customers on the benefits
they will receive from our web-based platform. This will further improve
efficiency and turnaround time both for us and our clients.
EXPAND FOOTPRINT THROUGH ACQUISITIONS. In 2000, we intend to focus on
acquiring property information services businesses in active residential real
estate markets where we do not currently have a significant presence. Our goal
by the end of 2000 is to be in markets covering over 50% of all U.S. mortgage
loan originations. In making acquisitions, we target primarily larger,
well-managed operations that can service national clients, can market our
broader range of services and have good reputations for quality. In 2001, we
intend to focus on in-market acquisitions to build market share and develop
further efficiencies in managing overhead expenses.
AGGRESSIVELY TARGET NATIONAL ACCOUNTS. We have built and are expanding a
seasoned sales force to target and manage larger, national accounts. We believe
these national accounts have the greatest need for a national provider of
property information services that offers consistent quality, quick turnaround
and efficiencies through technology. In addition, we believe these national
accounts provide us with a mix of stable business and make our business less
sensitive to changes in the economy. Furthermore, this strategy complements the
existing, valuable relationships we have with smaller lenders and brokers in our
local markets. We will continue to focus on building relationships with the
major Internet lenders, regional and national banks, regional and national
homebuilders, large credit unions, local mortgage entities and brokers, and real
estate agencies.
DEVELOP AND MONETIZE PROPRIETARY INFORMATION DATABASE. During the normal
course of business, we gather, organize and analyze various property data from
our nationwide operations. In addition, during the appraisal, home inspection
and energy audit processes, we obtain a substantial amount of information about
the condition of the real estate properties in our markets. We have developed
data format structures and system capabilities to retain and build upon the
potential value of this information. Our rapidly expanding database of property
information will allow us to increasingly
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automate the appraisal and home inspection processes. While this information
will be useful internally to improve productivity, we believe that this database
will become one of our most valuable long-term assets. We believe this data will
enable us to develop new proprietary valuation services, improve the quality and
consistency of our services, develop tools to value mortgage loan portfolios for
investors and servicers and update county and municipal tax assessments.
ENHANCE PRIMISNET. We intend to transform PRIMISnet from a network of
contract appraisers and home inspectors into a network of affiliates with whom
we will share our technology, data and clients. In exchange for our technology,
access to our database and our referrals, our PRIMISnet affiliates will adhere
to the same turnaround times as our staff professionals and share with us their
property data generated during the performance of their services. We believe
that we can bundle elements of our proprietary systems, broad services offering,
national account revenue and name recognition into an attractive package that
can be shared with independent professionals or small offices that agree to
become part of our PRIMISnet affiliated network. We believe this model is an
improvement over the traditional management company model because it adds value
to the local appraisal or home inspection firm, increases the qualities and
efficiencies they can achieve, creates additional revenue for us and gives us
access to property information data from smaller markets.
OUR SERVICES
We provide a wide range of property information services to various segments
of the lending community and to consumers through electronic and traditional
channels. Our service offerings include residential and commercial appraisal
services, home inspections, title services, flood determinations, energy audits
and other related property information services.
APPRAISAL SERVICES
We believe that we are the only company to offer and deliver a full suite of
appraisal services via the Internet. We offer a full spectrum of appraisal
services ranging from low cost data access to the most complex valuation
assignments that require high levels of expertise. Our appraisal services are
performed by either certified appraisers or trainees. Appraisers take full
responsibility for value conclusions and analyses, while trainees only perform
research and due diligence. We currently employ approximately 140 certified
appraisers and have the services of over 1,600 certified appraisers available to
us through PRIMISnet. The following is a summary description of our core
appraisal services:
- PRIMIS SNAPSHOT is our software generated data service which provides our
clients a first step indication of the value of a particular property
based on publicly available property information such as county assessor's
information, county recorder's information, area maps, flood zone
information and tax assessment data. PRIMIS Snapshot consolidates a
variety of public information into a simple report. Currently, this
service uses property data we acquire from third parties, which we format
and resell under our brand. We intend to enhance this service with our
proprietary appraisal and other property information data during 2000.
- AUTOMATED VALUATION MODEL is our computer software program that analyzes
various data elements, primarily tax assessment records and county
property records, to determine property valuations. The output of an
automated valuation model is not, by itself, an appraisal, but may become
the basis for a property valuation for use in certain lending decisions
that are more heavily-weighted towards credit factors. Because it is a
completely automated process, neither certified appraisers nor trainees
are involved. Typical users include equity lenders who utilize the service
to approve low risk equity loans. We currently resell automated valuation
models provided by several other vendors, and in 18 to 24 months we intend
to introduce a proprietary PRIMIS automated valuation model that leverages
our extensive proprietary property information database.
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- ELECTRONIC COLLATERAL ASSESSMENT is an estimate of the value of a
residential property made by one of our trained evaluators or appraisers
based on publicly available data. This service is typically used in equity
lending situations where a lender needs a qualified third-party
examination and interpretation of data. Our trainees, rather than
certified appraisers, usually complete our electronic collateral
assessments.
- LIMITED SCOPE APPRAISAL is a valuation service that requires an appraiser
to view the residential property. This service is typically used in equity
lending situations where a lender needs a qualified third-party
examination and interpretation of data and, due to a higher level of risk,
requires that a certified appraiser perform the analysis.
- DRIVE-BY APPRAISAL is a standard appraisal required by Fannie Mae and the
Federal Home Loan Mortgage Corporation, or Freddie Mac. This type of
appraisal requires that a certified appraiser view the residential
property being evaluated, but does not require an inspection of the inside
of the property. This service is heavily utilized in both equity and first
mortgage lending.
- UNIFORM RESIDENTIAL APPRAISAL REPORT is the most comprehensive residential
property appraisal service. This type of appraisal involves, among other
things, an inspection of the inside of the property by a certified
appraiser and a more in-depth analysis and visuals of comparable sales.
This is the most typical appraisal service approved by lenders and
investors for determining values, primarily for first mortgage loans.
- SMALL RESIDENTIAL INCOME PROPERTY REPORT is an appraisal of small
apartment buildings and condominiums. These are standard appraisal
services that include in-depth analysis and visuals of the interior and
exterior of the property as well as a complete analysis of comparable
properties.
- COMMERCIAL APPRAISAL is an appraisal of commercial, industrial, and
multi-family properties. We market these services to leverage our regional
and national coverage areas, technology platform and existing client
relationships. Commercial appraisals include in-depth analysis of the
property and comparable properties, and usually include analysis of rental
revenue potential. Only certified commercial appraisers may perform these
appraisals.
- APPRAISAL REVIEW SERVICES involve the review of appraisals performed by
other firms at the request of investors who purchase mortgages or invest
in mortgage pools. We offer desk reviews, four-hour reviews, field reviews
and enhanced field reviews. Our certified appraisers review the work of
other appraisers to ensure that Uniform Standards of Professional
Appraisal Practice guidelines were followed and that the appraisers chose
realistic sales data to help in determining the value of the property.
This service is typically required by wholesale lenders and investors to
guard against fraud on loans or portfolios of loans they are purchasing.
INSPECTION SERVICES
In January 2000, we entered the market for home inspection services through
the acquisition of InspecTech. Following our acquisition of InspecTech, we now
have home inspection operations in California, Arizona, Washington, New Jersey
and Colorado. InspecTech had approximately 100 employee and franchise inspectors
as of December 31, 1999. InspecTech performed over 30,000 inspections during
1999.
As a result of our acquisition of InspecTech, we are able to provide home
inspections, phased inspections and environmental inspections. The following is
a summary description of these services:
- HOME INSPECTIONS involve the examination of the structure and systems of a
house and the issuance of a report on the condition of the house by an
independent professional. We perform home inspections for buyers or
sellers of residential properties during the purchase and sale
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process and for financial institutions in connection with their
evaluations of non-performing mortgage loans.
- PHASED INSPECTIONS involve the inspection of a home by one of our
professionals at various points in time during the construction process.
We provide these services to financial institutions that provide
construction loans for new homes.
- ENVIRONMENTAL INSPECTIONS consist of water quality surveys, termite
inspections, radon detection and inspections for lead-based paint and
asbestos. We generally provide these services to home purchasers together
with the basic home inspection.
We ensure rapid delivery of consistent high-quality inspection services
through the use of our VISTA system, which allows a home inspector to carry a
hand-held, stylus-based device from room to room. The inspection software
displays appropriate categories and comments for over 500 building systems and
components from the extensive VISTA comment library. The VISTA system allows an
experienced inspector to increase the detail and thoroughness of the home
inspection report without an undue increase in time and effort. An inspector
equipped with the VISTA system and a portable color printer can perform an
extensive home inspection and print a comprehensive report on site. Inspectors
use their computers to connect to corporate headquarters and transfer inspection
data into our centralized database. At the same time, they retrieve booking and
scheduling information from our database.
We intend to adapt and customize the VISTA technology to extend to appraisal
and other services we offer. Once this technology is fully integrated, all of
our professionals will operate on an identical technology platform and will
perform all their field work through the use of hand-held devices. They will
also communicate through wireless modems and transfer information back to our
National Service Office. Our goal is that one field professional, in just one
visit, can gather the data to provide multiple services with respect to that
property.
TITLE SERVICES
We provide a full range of title services for the markets that we service.
We can deliver quick and accurate property reports and title insurance
commitments electronically or by fax to meet the needs of our clients, often
within 24 to 48 hours. We provide a variety of title services for mortgage
originators and underwriters of title insurance, such as limited title reports,
full title reports, title recordings, tax information and property reports.
Although representing a small percentage of our revenue, title services
represents a key opportunity to establish a relationship with new clients and
homebuyers and, at the same time, gather additional data. Since we originate but
do not underwrite title insurance policies, we are not subject to underwriting
risks.
FLOOD DETERMINATIONS
Our flood determination service provides information on whether a property
is located in a flood zone and what potential exposure the property has to flood
damage. Our clients use our flood determination service to evaluate whether the
property qualifies for government and government-sponsored lending programs such
as Freddie Mac, Fannie Mae, Veteran's Administration or Federal Housing
Administration. In situations where flood insurance is not available, such as
coastal zones, Federal Emergency Management Agency, or FEMA, suspended
communities and communities not yet mapped, we provide information to assist our
clients in assessing the risk of acquiring property without flood insurance
coverage. This service makes use of data we purchase from a third-party
provider. Our provider uses industry-leading mapping technology, the latest FEMA
information, as well as community classifications from the National Flood
Insurance Program to provide swift and accurate flood zone determinations. These
determinations are ordered and delivered through the PRIMIS SERVICE STATION over
the Internet, usually within minutes.
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ENERGY AUDITS
We perform energy audits of homes for utility companies such as Southern
California Gas pursuant to annual contracts. An energy audit involves the
inspection of a house to evaluate and gather information about heating and air
conditioning systems, appliances, ambient temperature and other readings. We
perform an energy audit to establish an energy footprint and a rating with
respect to the energy efficiency of the house and its systems. The information
provided by the inspector allows the homeowner to make intelligent decisions
about investing in system upgrades, the cost of which is often subsidized by
utility company rebate programs, to reduce overall energy consumption and lower
utility bills.
Historically, utilities have staffed and run such programs in-house but are
under increasing pressure to outsource these programs to reduce costs. For
example, the California Public Utilities Commission has instituted a program
that involves home inspectors gathering additional data during the course of
their regular home inspections, in a manner that would take only an additional
10 to 15 minutes. This information is input into software developed for this
purpose, which generates an energy efficiency rating and report on the home. The
report includes recommendations for system upgrades, along with costs, savings,
environmental benefits, and information on various rebate and incentive programs
to help subsidize the costs of renovations. The demand for energy audits is
driven by regulations enacted by various states, including California, Texas and
Massachusetts, which require that a portion of the ratepayer utility revenues be
set aside by utility companies for programs that encourage energy use
efficiencies.
FUTURE SERVICES
Our technology enables us to provide new services such as construction
inspections, hybrid inspection/appraisals for repossessed properties and closing
services, all of which we are currently developing for implementation by
year-end 2000. In addition, we anticipate leveraging our expansive database to
offer clients appraiser data subscriptions, appliance/conditions marketing
tools, commercial data/automated valuation models and mortgage investor models.
We believe that we will have significant opportunities to cross-sell these
additional services to clients who purchase our core appraisal and home
inspection services.
FLEXIBLE WEB-BASED SERVICE DELIVERY PLATFORM
We can deliver all of our services to our clients through our flexible
web-based platform. This platform allows service delivery through either of two
primary e-commerce channels: the PRIMIS SERVICE STATION or, for our larger
clients, a direct electronic connection to the PRIMIS engine.
THE PRIMIS SERVICE STATION
The PRIMIS SERVICE STATION is our web-based resource for property
information services. Our clients can use the PRIMIS SERVICE STATION at
www.primis.com to review information about our suite of services and place
orders. From the PRIMIS SERVICE STATION, by using a standard web browser, the
user can:
- place orders for all of our services;
- review pricing information;
- monitor the status of orders;
- review, download and print reports;
- receive and review billing;
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- generate an automated valuation model;
- review archived reports; and
- review, search or manipulate lists of orders by category for any service
ordered.
The PRIMIS SERVICE STATION provides our clients with a convenient channel
for ordering and receiving property information services. By using the PRIMIS
SERVICE STATION channel, our clients can achieve cost savings and substantially
reduce turnaround times. We believe that the advantages of the PRIMIS SERVICE
STATION over traditional paper-based methods of delivery of property information
services will enable us to establish stable, long-term relationships with our
national clients and to attract new clients.
DIRECT CONNECTIONS
Our web-based platform has the flexibility to support direct connections for
our larger clients. Our open architecture will allow these clients to bypass the
PRIMIS SERVICE STATION and interface their loan origination systems with the
PRIMIS engine through direct electronic connections. These direct connections
will allow the clients to place orders, obtain status information and have
reports generated and delivered automatically, thereby eliminating an additional
data entry step. The direct connection will be able to support all of the same
functionality as our PRIMIS SERVICE STATION, yet will eliminate the data entry
step. In addition, we believe that the direct connection platform will help to
preserve and enhance our relationship with our larger customers, because the
direct connection will make it more difficult for them to switch to alternative
property information services providers. In the beginning of 2000, we
implemented our first direct connection with a national client.
QUALITY ASSURANCE PROGRAM
We believe we operate the most comprehensive quality assurance program in
the property information services industry. Our quality assurance program
ensures that we meet or exceed acceptable industry standards in providing our
services and that we provide a consistent level of quality across all of our
locations.
The PRIMIS quality assurance program has three critical components:
- OFFICE REVIEW. All of our reports are reviewed at the local offices prior
to their release to clients. In most cases, the branch manager, who has
extensive industry experience and who has achieved requisite
certification, performs the review. We believe that quality control is one
of the primary responsibilities of each branch manager. In some of our
larger offices, this function is performed by a senior reviewer who is
responsible for reviewing reports.
- QUALITY ASSURANCE TEAM. Our dedicated quality assurance team reviews
randomly selected samples of reports on an ongoing basis in all of our
offices. The quality assurance team summarizes its findings into a rating
for each staff professional and each office. We hold each branch manager
accountable for maintaining a satisfactory rating from the quality
assurance team. We also evaluate and compensate branch managers based on
their ability to produce a high rating from the quality assurance team. A
staff professional who fails to meet quality assurance team standards is
either terminated or returned to a trainee status where the professional
can obtain constructive coaching and more extensive monitoring and review.
- TRAINING. We emphasize training for all of our professionals and conduct a
rigorous ongoing training program. We require appraisers and inspectors to
take continuing education courses, and we provide both educational
allowances and financial incentives to assist them in meeting those
requirements. For example, we require appraisers to complete at least
20 hours of continuing education each year. In addition, our quality
assurance team conducts continuing professional education at each field
office on an annual basis to ensure our employees provide consistent
quality throughout our national network of offices.
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We maintain databases of staff appraisers, contract appraisers and fee
appraisers. These databases include resumes, work samples and licensing
information. We continually monitor all licenses and certifications to ensure
that they are current and meet the high expectations of our clients. Although we
could be held liable for faulty appraisals or inspections, our liability
exposure on individual properties is relatively low, given that the vast
majority of properties involved are residential and not commercial. We maintain
commercial general liability, errors and omissions and workers' compensation
insurance with limits and deductibles that we believe are reasonable for our
size and industry.
SALES AND MARKETING
We utilize a multi-tiered sales model to attract new clients and to increase
the level of services we provide to existing clients. Our sales department is
divided into national and local sales groups. Our national sales force calls on
national mortgage lenders, real estate companies and strategic accounts. Our
local sales force consists primarily of account executives who are in touch with
their local areas and understand the needs of their communities. These account
executives call on financial organizations, local mortgage lenders and real
estate professionals to foster and maintain close ties in the local real estate
industry.
Our account executives initiate contacts with clients through a variety of
methods, including attending trade shows, receiving recommendations from
existing clients, making cold calls, advertising, building on local
relationships to sell to national organizations and capitalizing on
relationships previously forged by acquired companies. Our account executives
work with clients to encourage use of PRIMIS services and to explore new sales
and revenue opportunities. In addition, our account executives develop and
maintain relationships with decision-makers and influence significant buying
decisions. It is our account executive's responsibility to:
- DEVELOP AND EXECUTE STRATEGIES TO GAIN ADOPTION OF OUR PROPERTY
INFORMATION SERVICES including informing clients of all service offerings,
methods of connectivity and implementation timelines, developing sales
presentations, visiting existing clients to grow revenue opportunities,
reviewing monthly revenue reports to understand activities and trends and
monitoring service quality and turnaround times;
- LEAD AND MANAGE THE SERVICE AGREEMENT PROCESS by managing all
contract-related issues and negotiations (pricing, terms and conditions),
reviewing contracts three to six months before renewal date and developing
and delivering both new and renewal contract proposals;
- ESTABLISH AND MANAGE CLIENT REVENUE OBJECTIVES by influencing client
buying decisions and working to encourage increased property information
services growth;
- CONTINUALLY DEVELOP EACH CLIENT RELATIONSHIP by learning and documenting a
client's industry, organization, strategy, personnel, and politics and
participating in regularly scheduled meetings with the client's executive
and senior-level managers including account reviews; and
- COMMUNICATE AND REPORT TO OUR MANAGEMENT ON A REGULAR BASIS with respect
to support service issues and sales activities.
We compensate our account executives through a mix of a base salary and a
performance bonus. The starting base pay is determined by agreement and is often
dependent upon education, prior work experience, and acquired skills in light of
the base pay compensation being paid to those in the relevant job market with
comparable characteristics. Adjustments in future years are dependent upon
individual performance factors, as well as overall company guidelines that are
set in light of current economic conditions. The performance bonus is
principally divided into two primary components, new accounts and revenue
growth. The new accounts component is directly tied to securing new business
from high potential clients. Account executives are provided a list of target
accounts and are compensated on their ability to secure agreements, contracts,
or significant revenues from the target list. We apply a
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point system to give reasonable credit for business obtained on a quarterly
basis. We base the revenue growth component of the compensation on the
achievement of quarterly revenue targets from assigned clients.
To service and grow our high potential accounts, we have developed a special
service level called PRIMIS SELECT to provide higher priority service. PRIMIS
SELECT clients have dedicated client teams consisting of account managers, a
relationship manager, and a seasoned account executive. These client teams
proactively manage the account relationship and day-to-day service issues that
are unique to high volume clients. The teams work closely with their assigned
clients and act as our internal PRIMIS SELECT client coordinators to ensure that
we are responding to our clients' requests with the appropriate sense of urgency
and commitment. In most cases, our PRIMIS SELECT clients receive a higher
priority of service and guaranteed turnaround times, often within three days.
Our sales strategy for the national accounts is to secure agreements from
larger or high profile clients whenever possible. We have been successful in
securing agreements with several high profile clients including Bank of America,
E-Loan and Quicken Loans. In addition, we have developed partnerships with
aggregators such as Homebid.com, RealEstate.com and Homespace.com, as a way to
reach consumers directly without the need for expensive sales forces and
marketing campaigns. These aggregators are Internet-based companies that provide
comprehensive web sites with information for homeowners, including information
on movers, furnishings, real estate services and mortgage lenders. Increasingly,
homeowners are playing a greater role in ordering appraisals and home
inspections as a result of heightened consumer awareness and greater access to
information. As the aggregators bring consumers into the appraisal and
inspection ordering market, we will adapt our market to increase our focus on
the consumer directly.
We expect to continue to invest significant time, effort and financial
resources to market and promote our new and existing services and build the
PRIMIS brand name. To increase customer penetration and increase the level of
services used by our customers, we use a coordinated array of marketing
techniques, including advertising, industry trade shows, direct mail,
promotional items, direct sales and channel partner marketing.
OUR CLIENTS
We market and sell our services to traditional lenders (mortgage brokers,
mortgage companies and commercial banks), Internet lenders, specialized lenders,
utility companies, consumers and real estate professionals.
The following is a list of our more significant national clients, based on
revenues in each of these industry sectors. The clients listed are among the top
clients in those categories based on 1999 revenues in the case of traditional
and Internet lenders and based on 2000 revenues in the case of specialized
lenders, channel partners and others.
<TABLE>
<CAPTION>
TRADITIONAL LENDERS INTERNET LENDERS SPECIALIZED LENDERS CHANNEL PARTNERS/OTHERS
- ------------------- ---------------- ------------------------ -----------------------
<S> <C> <C> <C>
Bank of America E-Loan Conti Mortgage Homespace.com
Compass Bank Mortgage.com Countrywide Quality RealEstate.com
Chase Mortgage Quicken Loans Assurance Trans Union
First Franklin U.S. Appraisals
Provident Funding
Ryland Mortgage
</TABLE>
TRADITIONAL LENDERS. We define traditional lenders as mortgage brokers,
mortgage companies and commercial banks. There are approximately 20,000 mortgage
brokerage operations in the United States according to the National Association
of Mortgage Brokers. Most of these brokers operate in local markets originating
loans for multiple underwriters who purchase the closed loans. Brokers earn
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revenues by charging origination fees to the mortgage consumer and by generating
gains on the sale of closed mortgages. Mortgage brokers typically purchase
traditional full-appraisals, flood determinations and title services and recover
the cost from the consumer at closing.
Mortgage companies operate more broadly than brokers, originating, funding,
securitizing and servicing mortgages. Most mortgage companies operate a
wholesale division to purchase closed loans from mortgage brokers. This portion
of the mortgage industry has experienced significant consolidation. According to
Faulkner & Gray, in 1998, the top 20 residential lenders based on origination
dollar volume originated, underwrote or funded approximately 50% of all
residential mortgage loans. We believe that the mortgage industry will continue
to consolidate as the industry experiences pressure to lower costs and improve
margins. Mortgage companies purchase traditional full-appraisal services for the
loans they originate and also purchase our appraisal review services as an
additional underwriting control with respect to mortgages purchased from
mortgage brokers through their wholesale divisions. Currently, we have business
relationships with 34 of the top 50 mortgage companies based on 1998 origination
dollar volume as reported by Faulkner & Gray.
Commercial banks also originate first mortgage loans either directly or
through a mortgage subsidiary. Additionally, banks operate consumer lending
divisions, which originate home equity loans. Commercial banks generally
purchase from us traditional full-appraisals and drive-by appraisals for first
mortgages they originate; limited scope appraisals and electronic collateral
assessments for home equity loans; and automated valuation models and PRIMIS
SNAPSHOT data in connection with the evaluation of non-performing assets.
INTERNET LENDERS. Because the traditional mortgage process can be
inefficient and expensive, several mortgage brokers have developed the
capability to offer mortgages over the Internet. Internet lenders have
introduced a more automated process and can charge fees significantly lower than
the amounts charged by traditional mortgage brokers.
SPECIALIZED LENDERS. We have identified several specialized segments within
the mortgage lending industry that are clear targets for our systems and
services. These segments include new construction builders and lenders,
relocation lenders and wholesale lenders. These clients are typically less price
sensitive and place an even greater emphasis on speed, geographic coverage,
quality and hands-on service. Specialized lenders generally purchase our
appraisal services.
UTILITY COMPANIES. Some states, such as California, Texas and
Massachusetts, have enacted requirements that a portion of the ratepayer utility
revenues be set aside for programs to encourage more efficient energy use. We
market and sell our energy audit services to utility companies that are in the
process of designing or implementing mandated energy efficiency programs.
REAL ESTATE PROFESSIONALS AND CONSUMERS. Both real estate professionals and
consumers purchase or direct purchases of home inspections in many real estate
transactions. In fact, most real estate sales contracts encourage home buyers to
conduct professional home inspections prior to closing. In addition, we believe
that the acceptance of low-end, automated valuation products will increase the
number of consumers who purchase appraisals directly from appraisal firms to
establish their homes' values prior to or during the sales process or to cancel
private mortgage insurance. We plan to market our property information services
to real estate professionals and consumers by offering our services through
various real estate agencies and Internet portals that target home buyers and
sellers.
OUR ACQUISITION STRATEGY
Our strategy is to make acquisitions in order to:
- ENTER NEW MARKETS to expand our national footprint;
- EXPAND IN EXISTING MARKETS through in-market acquisitions; and
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- EXPAND OUR SERVICE OFFERINGS through the acquisition of businesses with
complementary or additional property information service offerings.
We expect to enter a significant number of additional key markets in 2000,
largely through strategic acquisitions. In 2001, we intend to focus on in-market
acquisitions to build market share and on strategic acquisitions to expand our
service offerings.
As the only major acquiror in the property information services industry, we
believe that we will readily be able to acquire attractive companies. We believe
that local property information services businesses will benefit from our
technological advantage, national distribution and data network and brand name.
Our acquisition team continually evaluates our expansion prospects. We receive
information on, and inquiries from, potential acquisition targets on an ongoing
basis, but we currently are not actively negotiating with any potential target.
Our acquisition strategy is carried out by two separate departments. Our
Mergers and Acquisitions department identifies potential acquisition candidates
and negotiates and completes our acquisitions. Our National Service Office
conducts the integration of all completed acquisitions into our company. This
separation of acquisition-related duties allows each department to focus on its
specific responsibilities.
We target primarily larger, well-managed operations that can service
national clients, can market our broader range of services and have good
reputations for quality. We generally focus on companies that have significant
presence in their local market, can extend our operational infrastructure and/or
add strategic proprietary technology that we deem critical to maintaining our
competitive position.
Following an acquisition, our National Service Office prepares an
integration project plan for the acquisition, to be implemented over a period of
30 to 90 days. Our integration process has three primary goals: (1) to implement
PRIMIS operating processes and programs quickly, (2) to upgrade the acquired
company's technology and systems to PRIMIS standards, and (3) to improve local
office productivity. The National Service Office is the focal point and
coordinates the activities of other PRIMIS departments, such as accounting,
human resources and information technology. Three project managers with
integration backgrounds manage individual project plan tasks until the
integration process is successfully completed.
Our National Service Office reviews status and issues tracking reports using
standardized formats and procedures. Acquired companies' branch managers report
to the National Service Office until the integration is completed. After
integration is completed, the branch managers report to the appropriate PRIMIS
regional manager.
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The following is a summary of the acquisitions we have completed since
January 1, 1999:
<TABLE>
<CAPTION>
HEADQUARTERS
BUSINESS ACQUIRED LOCATION SERVICE
- --------------------------------------- --------------- -----------------------------------------
<S> <C> <C>
The William Fall Group, Inc. Toledo, OH Commercial and residential appraisal
services
First Houston Appraisal Group Houston, TX Residential appraisal services
Cramer Property Services Incorporated Seattle, WA Commercial and residential appraisal
services
E.T. Jones & Associates, Inc. Dallas, TX Commercial and residential appraisal
services
Stewart Title of Birmingham, Inc. Birmingham, AL Title services
Fournier, Crane & Associates, Inc. Phoenix, AZ Commercial and residential appraisal
services
InspecTech Corporation San Ramon, CA Home inspection services
The Appraisal Company Knoxville, TN Residential appraisal services
Bliss Associates, Inc. Kansas City, MO Commercial and residential appraisal
services
McIntosh Appraisal Services Durham, NC Residential appraisal services
Suncoast Appraisal Group of Charlotte Fort Myers, FL Commercial and residential appraisal
County, Inc. services
Focus Appraisal Services, Inc. Freehold, NJ Commercial and residential appraisal
services
</TABLE>
PRIMISNET
PRIMISnet is our network of contract appraisers and home inspectors that
provide services in smaller markets where we do not currently have company-owned
operations. We have built a network that ensures coverage in every state and
virtually every county. In addition to the approximately 140 certified
appraisers we currently employ, our PRIMISnet network currently makes available
the services of over 1,600 certified appraisers. Prior to selecting a PRIMISnet
contractor, we review all qualifications, including samples of work and
professional certifications, to ensure that the contractor can meet our quality
standards.
We pay our PRIMISnet contractors a portion of the fee we receive from our
clients for each property report completed. Typically, this fee is negotiated
based on the type of service requested and is affected by the volume of work
that we generate for the contractors. In many cases, we are able to negotiate
attractive fees because of the volume driven by our national accounts. In
addition, unlike traditional management companies who derive all of their
revenues from this model, we are able to share more of the fee with our
PRIMISnet contractors. We believe our model has a direct, positive influence on
meeting turnaround and quality expectations. All orders completed by our
PRIMISnet contractors go through the same rigorous quality review process that
we apply to our internally-generated reports before being delivered to our
clients. In addition, we actively track and monitor both turnaround and quality
scores for our PRIMISnet contractors and aggressively manage service
commitments.
We intend to transform PRIMISnet from a network of contract appraisers and
home inspectors into a network of affiliates with whom we will share our
technology, data and clients. In exchange for our technology, access to our
database and our referrals, our PRIMISnet affiliates will adhere to the same
turnaround times as our staff professionals and will provide data to us to
enhance our existing database of property information.
We believe we can bundle elements of our proprietary systems capabilities,
broad service offerings, national account revenue and name recognition into an
attractive package that can be shared with independent professionals and small
offices that agree to become PRIMISnet affiliates. We believe this model is an
improvement over the traditional management company model because it adds value
to the local appraisal or home inspection firm, creates additional revenue for
us and gives us access to property information data from smaller markets.
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TECHNOLOGY AND SYSTEMS
The key to our productivity and processing is combining our technology
infrastructure with our proprietary software, which we call the PRIMIS engine,
to manage our property information services. The backbone of the PRIMIS engine
is an Oracle 8i Internet-enabled relational database that stores all information
that is entered into our systems. Personnel at our offices enter data into the
PRIMIS engine through connections on an intranet. The hardware infrastructure
for this intranet consists of Cisco routers and switches, frame relay service
provided by AT&T, and servers that run Windows NT or UNIX operating systems.
The architecture behind our technology infrastructure allows for scalability
as transaction volume increases. We can continually upgrade our systems to
increase processing efficiency and reduce bottlenecks. We currently operate at a
processing and storage capacity volume of approximately 4% of designed maximum
load and have identified and tested our current capacity limitations. We
developed the PRIMIS engine using object oriented technology. Object oriented
technology reduces the complexity of coding software by enabling developers to
build scalable solutions using individual subsets, known as objects, that
perform specific functions. There are more than 70 objects connected together to
form the PRIMIS engine. This isolation of functionality into smaller pieces of
software allows us to act or react to a changing market quickly. The software
also allows us to add new services and build customized solutions for customers
quickly without compromising the integrity of the software in production.
We primarily use Sun Microsystems servers that run the Unix (Solaris)
operating system for our Internet infrastructure. Our web site obtains real-time
information from the Oracle database as it is updated by our offices and can
route the requested information to the user over a secure connection. Our
flexible web-based platform was designed to use existing Internet standards so
that our clients can use existing hardware and software to interface with us
using a standard web browser.
We have not experienced any significant downtime except for scheduled
maintenance or system upgrades in non-production hours. We test all of our
systems thoroughly before deploying them in our field offices and with our
clients. To assure our customers that we can continue to operate in the event of
automated systems failure or Internet outages, we maintain an infrastructure
that allows us to transact business by telephone, fax and other traditional
means.
COMPETITION
The market for property information services is highly competitive, and we
expect competition to intensify in our industry in the future as companies adapt
to the new e-commerce environment. We compete primarily with large national
management companies, independent local appraisal firms and franchised and local
home inspection companies.
MANAGEMENT COMPANIES. Currently, the management company model is the only
method of national delivery within the real estate appraisal industry.
Management companies operate as brokers obtaining orders from lenders and
distributing those orders to independent fee appraisers. Several of these firms
are wholly owned divisions of larger publicly held companies. Primary management
company competitors include Market Intelligence, owned by Fidelity Title; Lender
Services, Inc.; First American Real Estate Information, Inc., owned by First
American Financial Corporation; and U.S. Appraisal Company. Some management
companies who are our competitors also use our appraisal services from time to
time on a fee-sharing basis. These management companies are large, nationally-
recognized organizations that, compared to us, are better capitalized and have
greater assets and access to superior resources.
LOCAL APPRAISAL COMPANIES. Based on available data and industry experience,
we believe there are thousands of appraisal companies in the United States.
Typically, these firms are regionally focused and
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<PAGE>
have two to ten employees. We face competition from local appraisal companies in
all of the markets where we have a presence.
HOME INSPECTION COMPANIES. Based on available data and industry experience,
we believe there are thousands of home inspection companies in the United States
that perform pre-purchase inspections. We compete with these companies and with
two large franchise organizations, Amerispec and Housemaster, a division of
ServiceMaster. Amerispec and Housemaster are large organizations that, compared
to us, are better capitalized and have greater assets and access to superior
resources.
LICENSING AND REGULATION
Real estate appraisers are required to be licensed. The licensing and
certification process was mandated by the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA. Under
FIRREA, the states are responsible for establishing the educational and
experience requirements necessary to obtain and retain an appraisal license. The
Appraisal Standard Board, or ASB, of The Appraisal Foundation develops,
publishes, interprets and amends the Uniform Standards of Professional Appraisal
Practice on behalf of appraisers and the users of appraisal services. All
licensed and certified appraisers must follow Uniform Standards of Professional
Appraisal Practice rules and regulations. Because companies have only recently
begun delivering real estate-related services over the Internet, it is unclear
how many of these state and federal regulations will extend to our operations or
those of our Internet-related clients.
RESPA and related regulations generally prohibit the payment or receipt of
fees or any other items of value for the referral of real estate settlement
services related to residential mortgage loans. RESPA also prohibits fee shares
or splits or unearned fees in connection with the provision of residential real
estate settlement services. Notwithstanding these prohibitions, RESPA permits
payments for goods or facilities furnished or for services actually performed,
so long as those payments bear a reasonable relationship to the market value of
the goods, facilities, or services provided. The appraisal and flood
determination services we provide are real estate settlement services subject to
these RESPA requirements when provided in connection with residential mortgage
loans. RESPA's referral and split fee prohibitions are complex and susceptible
to subjective interpretation. RESPA's applicability to our channel partners
relationships is also uncertain, absent amendments to the law or regulations, or
clarification from regulators. Although we believe that we have structured our
relationships with our clients, contractors and channel partners to comply with
RESPA, we do run the risk that some of the compensation and pricing aspects of
our relationships may be challenged under RESPA.
Currently, New Jersey, Oregon, North Carolina, South Carolina, Texas, and
Wisconsin have inspector licensing laws, and states that require registration or
certification include Alabama, Arkansas, Nevada and Tennessee. Other states such
as California, Arizona, Washington, Pennsylvania, Illinois and New York are
expected to pass similar legislation during 2000. Much of this licensing
legislation makes use of the codes of conduct of the American Society of Home
Inspectors or the California Real Estate Inspection Association, two nationwide
home inspection organizations. All our home inspectors are required to pass
American Society of Home Inspectors or California Real Estate Inspection
Association exams and attain membership in one of these two organizations.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent upon our
ability to protect our name, trademarks, service marks and internally developed
technology. Generally, we have relied upon trademark and copyright law, trade
secret protection, and confidentiality and other contractual agreements with
employees, clients and others to protect our proprietary interests. We intend to
use similar protections with these parties and our PRIMISnet affiliates in the
future.
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<PAGE>
Notwithstanding these precautions, our efforts to protect our intellectual
property and technologies may not be adequate. Our competitors may independently
develop similar technologies to ours or duplicate our information database or
web-based service delivery platform. There can be no assurance that steps that
we have taken or will take will be adequate to prevent misappropriation,
infringement or other violations of our intellectual property and technologies,
or deter third-party development of similar technologies.
We own the Internet domain name PRIMIS.COM. We have filed for federal
trademark registration for the mark PRIMIS as well as other trademarks or
service marks incorporating the PRIMIS brand name. It is possible, however, that
these applications may not be approved.
EMPLOYEES
We had 631 employees as of February 29, 2000, including 35 in sales and
marketing, 27 in information technology, 67 in management and administration,
and 502 in field operations and branch administration. We believe that our
future success will depend on our continued ability to attract and retain highly
skilled and qualified employees. None of our employees is currently covered by a
collective bargaining agreement. We believe that we have good relationships with
our employees.
FACILITIES
We are headquartered in Alpharetta, Georgia, an Atlanta suburb, where our
executive and administrative offices are located. Our lease for our executive
offices expires in May 2004 and covers an 11,753 square foot central office
facility. We also lease approximately 40 other office facilities in all of the
markets in which we operate. Generally, these facilities are less than 5,000
square feet and house our regional branch offices.
We believe that our leased facilities are adequate to meet our current needs
in the markets in which we currently operate. Additional facilities will be
required as our business grows and we expand into new markets.
LEGAL PROCEEDINGS
From time to time, we are made a party to routine litigation incidental to
our business. As of the date of this prospectus, we were not engaged in any
legal proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our company.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of our
executive officers and directors as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
C. James Schaper....................... 48 Chairman of the Board, President and Chief Executive
Officer
Leslie H. Schreiner.................... 36 Vice President, Chief Financial Officer and Secretary
Kevin P. Castle........................ 43 Vice President--Operations
Revell L. Fraser....................... 38 Vice President--Marketing and Strategic Development
J. Chris Foretich...................... 39 Vice President and Chief Information Officer
M. Brent Burns......................... 36 Vice President--Sales
Connie C. Breeser...................... 42 Vice President and Chief Legal Officer
Kathleen G. Bergeron................... 47 Vice President of Human Resources
Donald W. Burton....................... 55 Director
Douglas F. Cobb........................ 42 Director
Alan Colner............................ 45 Director
Michael E. Gellert..................... 68 Director
D.R. Grimes............................ 54 Director Nominee
J. David Grissom....................... 61 Director
David C. Mahoney....................... 55 Director Nominee
Geoffrey P. Mott....................... 47 Director
Jack Tyrrell........................... 53 Director
</TABLE>
C. JAMES SCHAPER has served as our Chairman of the Board since January 2000
and as our President and Chief Executive Officer and director since April 1999.
From February 1997 to June 1998, Mr. Schaper served as Executive Vice President
and Chief Operating Officer of Per-Se Technologies, Inc., formerly known as
Medaphis Corporation, a healthcare services and software company, where he was
responsible for all operations of the software and services units. From August
1994 to November 1996, Mr. Schaper served in various capacities with Dun and
Bradstreet Software, including President and Chief Executive Officer in 1996,
Chief Operating Officer from 1995 to 1996 and Senior Vice President, Field
Operations from 1994 to 1995.
LESLIE H. SCHREINER has served as our Vice President, Chief Financial
Officer and Secretary since July 1999 and is responsible for accounting,
finance, budgeting and human resources. From April 1987 to June 1999,
Ms. Schreiner served in various capacities, including Vice President of Finance,
with Information America, Inc., a national online database company for publicly
available information. From February 1995 to June 1999, Ms. Schreiner was the
senior financial executive for Information America, responsible for all aspects
of finance, including strategic financial planning.
KEVIN P. CASTLE has served as our Vice President--Operations since
December 1999 and is responsible for field operations and our National Service
Office. From February 1998 to December 1999, Mr. Castle served as Senior Vice
President--Operations of Per-Se Technologies, Inc., formerly known as Medaphis
Corporation, where he was responsible for company operations. From 1995 to 1998,
Mr. Castle served as Senior Vice President of Technology Management Services, a
subsidiary of GE Capital Services Corporation, where he was responsible for new
and existing customer relationships. From 1993 to 1995, Mr. Castle served in
various capacities with Alltel Corporation, including as Senior Vice
President--Operations in 1995.
REVELL L. FRASER has served as our Vice President--Marketing and Strategic
Development since October 1998 and is responsible for developing and executing
our marketing, product, and sales
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<PAGE>
strategies, including developing and maintaining relationships with strategic
and national accounts. From June 1997 to October 1998, Mr. Fraser served as Vice
President--Sales and Relationship Management of CheckFree Corporation, a
provider of electronic commerce services. At CheckFree, Mr. Fraser managed the
sales and account management functions for CheckFree's strategic accounts. From
July 1979 to June 1997, Mr. Fraser served in various capacities with NationsBank
and BankSouth Corporation (which was acquired by NationsBank in 1996), including
Senior Vice President--Senior Project Manager, Alternative Banking Strategies
from November 1995 to June 1997 and Senior Vice President--Direct Banking from
January 1994 to November 1995.
J. CHRIS FORETICH has served as our Vice President and Chief Information
Officer since November 1998 and is responsible for managing our national
electronic infrastructure and Internet strategies. From December 1996 to October
1998, Mr. Foretich served as Vice President, Information Technology for Auto
Lenders' Acceptance Corporation, an operating unit of Fortis, Inc., a
$4 billion holding company specializing in finance, insurance and benefits. At
Fortis, Mr. Foretich was responsible for Internet development, operations of
electronic infrastructure, strategy and executive management. From November 1984
to November 1996, Mr. Foretich served in various capacities with Rexam, Inc., a
$1.7 billion globally diversified manufacturer, including Director of
Information Technology from November 1993 to November 1996.
M. BRENT BURNS has served as our Vice President--Sales since August 1999 and
is responsible for managing the overall business relationships with all major
regional and national mortgage lenders. From September 1998 to August 1999,
Mr. Burns served as the Vice President of Account Management at CheckFree
Corporation, where he managed client relationships with CheckFree's top 100
financial institutions, brokerage firms and credit unions and the sales
activities for those clients. From October 1988 to September 1998, Mr. Burns was
the Atlanta Bond Manager for CitiGroup (formerly Travelers Group), where he
managed client relationships and the underwriting of financial guarantees for
major clients throughout the southeast United States.
CONNIE C. BREESER has served as our Vice President and Chief Legal Officer
since November 1999 and is responsible for managing our in-house legal
operations. From June 1988 to November 1999, Ms. Breeser served with Norrell
Corporation (which was acquired by Interim Services in 1999), a national
provider of temporary personnel and outsourcing services. At Interim Services
and Norrell, Ms. Breeser served as Vice President and Assistant General Counsel
from December 1997 to November 1999 and Associate Counsel from June 1988 to
December 1997, where she was responsible for corporate contractual legal
matters.
KATHLEEN G. BERGERON has served as our Vice President--Human Resources since
December 1999 and is responsible for all human resources functions, including
compensation and benefits, recruiting, training, performance issues and
organizational development. From January 1997 to October 1999, Ms. Bergeron
served as Executive Vice President and Chief of Staff of Associated Industries
of Florida and Associated Industries Insurance Services, where she managed the
human resources functions of each. From June 1996 to January 1997, Ms. Bergeron
served as regional director for the Florida Department of Banking and Finance,
where she was responsible for ensuring banking and finance regulation and
statute compliance. From October 1995 to June 1996, Ms. Bergeron served as
Assistant Chief of Staff for Administration for the United States Marine Corps,
Camp Lejeune, North Carolina, where she was the principal human resources
executive.
DONALD W. BURTON has served as a director since August 1998. Mr. Burton has
served as Managing General Partner of South Atlantic Venture Fund I, II
and III, Limited Partnerships, since each fund was organized, beginning in 1981.
He has also served as Chairman of the South Atlantic Private Equity Fund IV,
Limited Partnership and South Atlantic Capital, Inc. since 1997. Mr. Burton has
been the general partner of The Burton Partnership, Limited Partnership since
October 1979. Since January 1981, he has also served as President of South
Atlantic Capital Corporation. Mr. Burton also
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<PAGE>
serves on the board of directors of several companies, including Knology
Holdings, Inc., ITC Holding Company, Inc., ITC^DeltaCom, Inc., and
Powertel, Inc. He is a trustee of The Heritage Group of Mutual Funds and several
private companies. Mr. Burton also serves as a director of the National Venture
Capital Association.
DOUGLAS F. COBB has served as a director since April 1995. Since September
1997, Mr. Cobb has served as President and Chief Executive Officer of Greater
Louisville, Inc., an economic development organization in Louisville, Kentucky.
From January 1994 to September 1997, Mr. Cobb served as Managing Director of
Chrysalis Ventures, Inc., a venture capital management firm that he co-founded.
ALAN COLNER has served as a director since 1998. Since August 1996,
Mr. Colner has served as Managing Director, Private Equity Investments at Moore
Capital Management, Inc. Before joining Moore Capital, Mr. Colner was a Managing
Director of Corporate Advisors, L.P., the general partner of Corporate Partners,
a private equity fund affiliated with Lazard Freres & Co. LLC. He also serves as
a director of Bolt, Inc., iVillage, Inc. and NextCard, Inc., as well as several
private companies.
MICHAEL E. GELLERT has served as a director since September 1999. Since
1967, Mr. Gellert has served as a General Partner of Windcrest Partners, New
York, New York, a private investment company. Mr. Gellert serves as a director
of Devon Energy Corp., High Speed Access Corp., Humana Inc., Premier
Parks, Inc., Seacor Smit Inc., Smith Barney World Funds, Smith Barney Worldwide
Securities Ltd., and Smith Barney Worldwide Special Fund NV.
D.R. GRIMES has served as Vice Chairman, Chief Executive Officer and a
director of Net.B@nk, Inc. since January 1997. From March 1996 to January 1997,
he was an independent management consultant, and from 1978 to March 1996, he
served in various capacities with Servantis Systems, Inc., which provides
electronic funds transfer and home banking software to the financial services
industry, including Executive Vice President of Technology and Chief Information
Officer from 1995 to 1996; Executive Vice President of Technology and Marketing
from 1993 to 1995; President, Treasury Products Division in 1994; and President,
Financial Productions Division from 1988 to 1993. Prior to joining Servantis
Systems, Mr. Grimes served in various technology positions with Trust Company
Bank of Georgia, now SunTrust Bank.
J. DAVID GRISSOM has served as a director since April 1995 and served as our
Chairman from June 1998 to January 2000. Mr. Grissom has also served as Chairman
of Mayfair Capital, Inc., a private investment firm, since April 1989.
Mr. Grissom also serves as a director of Providian Financial Corporation,
Churchill Downs and LG&E Energy Corp., as well as a number of privately held
corporations.
DAVID C. MAHONEY has served as President and Chief Executive Officer of
Dataware Technologies, Inc. since January 1999 and has served as a director of
Dataware since February 1999. Before joining Dataware, he served as President
and CEO of Sovereign Hill Software, Inc., a supplier of advanced information
retrieval software products that Dataware acquired in December 1998.
Mr. Mahoney was the founder and, from 1983 to 1998, the Chairman and CEO of
Banyan Systems Incorporated, a provider of enterprise networking software and
services and Internet directory services. Mr. Mahoney is also a director of
Banyan Systems Incorporated and its subsidiary, Switchboard Incorporated, Applix
Incorporated and several smaller early stage software companies.
GEOFFREY P. MOTT has served as a director since January 2000. Since January
1998, Mr. Mott has served as Managing Partner of the McKenna Group, a Silicon
Valley strategy consultancy. Prior to joining the McKenna Group, Mr. Mott served
as a Director of Lochridge & Co., a management consulting firm, beginning in
1987. Mr. Mott serves as a director of Mortice Kern Systems, Inc.
JACK TYRRELL has served as a director since June 1998. Mr. Tyrrell is
Managing Partner of Richland Ventures, L.P. and Richland Ventures II, L.P.,
venture capital firms based in Nashville, Tennessee, which
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<PAGE>
were founded in May 1994 and September 1996 respectively. He is also a director
of National Health Investors, Inc.
Our executive officers are appointed by and serve at the discretion of our
board of directors. There are no family relationships among any of our directors
or executive officers.
TERMS OF DIRECTORS
Our board of directors consists of eight members divided into three classes,
with staggered three-year terms. At each annual meeting of shareholders, a class
of directors will be elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. The terms of office of our
directors are as follows: (a) C. James Schaper, Donald W. Burton and Douglas F.
Cobb serve as Class I directors for terms expiring at the 2001 annual meeting of
shareholders; (b) Michael E. Gellert and Geoffrey P. Mott serve as Class II
directors for terms expiring at the 2002 annual meeting of shareholders; and
(c) Alan Colner, J. David Grissom and Jack Tyrrell serve as Class III directors
for terms expiring at the 2003 annual meeting of shareholders. We anticipate
that Messrs. Grimes and Mahoney will be appointed to serve in Classes II and
III, respectively.
BOARD COMMITTEES
The board of directors has established a compensation committee and an audit
committee. The compensation committee has the authority to review all
compensation matters relating to our executive officers. Messrs. Grissom, Mott
and Tyrrell serve on the compensation committee of the board of directors.
The audit committee recommends to the board of directors the independent
public accountants to be selected to audit our annual financial statements and
approves any special assignments given to such accountants. The audit committee
also reviews the scope of the annual audit, any changes in accounting principles
and the effectiveness and efficiency of our internal accounting staff.
Messrs. Burton, Cobb, Colner and Gellert serve on the audit committee of the
board of directors.
The board of directors may from time to time establish other committees to
facilitate the management of our company.
DIRECTOR COMPENSATION
In the past, we have not compensated our directors for their services. We
have reimbursed and will continue to reimburse our directors who are not our
employees, upon request, for reimbursable out-of-pocket expenses incurred in
attending meetings of the board of directors or a committee of the board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, our board of directors as a whole made
decisions relating to the compensation of our executive officers. During this
time, Michael W. Mattox, former President and Chief Executive Officer, and C.
James Schaper, Chairman of the Board, President and Chief Executive Officer,
participated in deliberations of our board of directors concerning executive
compensation. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the year ended
December 31, 1999 paid to our current Chief Executive Officer, our former Chief
Executive Officer in 1999, two other executive officers who had compensation in
excess of $100,000 during 1999 and two additional former executive
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<PAGE>
officers who had compensation in excess of $100,000 during 1999. We may refer to
these officers as our named executive officers in other parts of this
prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION(1)
- ----------------------------------------- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
C. James Schaper,........................ $146,282 $100,000 668,297 --
Chairman of the Board, President and
Chief Executive Officer(2)
Michael W. Mattox,....................... 13,750 -- -- 171,478(4)
former President and Chief Executive
Officer(3)
Revell L. Fraser,........................ 157,917 65,000 279,330 --
Vice President--Marketing and Strategic
Development
J. Chris Foretich,....................... 157,917 65,000 279,330 --
Vice President and Chief Information
Officer
William B. Britain,...................... 125,000 21,640 -- --
Regional Manager for the Mid-Atlantic
Region(5)
Michael L. Robertson,.................... 129,600 -- -- --
former Chief Appraisal Officer(6)
</TABLE>
- ------------
(1) Unless otherwise indicated, the compensation set forth in the table does not
include compensation in the form of perquisites or other personal benefits,
because the aggregate value of such perquisites and other personal benefits
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for the respective executive officer for the year ended December 31,
1999.
(2) Mr. Schaper has served as President and Chief Executive Officer since
April 1999. Mr. Schaper was elected Chairman of the Board in January 2000.
(3) Mr. Mattox resigned as President and Chief Executive Officer in
January 1999.
(4) Represents severance payments to Mr. Mattox.
(5) Mr. Britain has served as Regional Manager for the Mid-Atlantic Region since
July 1999. Previously in 1999, Mr. Britain served as our Vice President of
Finance and Operations.
(6) Mr. Robertson's employment with our company will terminate effective
February 1, 2000.
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<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth all individual grants of stock options to
each of the named executive officers during the year ended December 31, 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
----------------------------------------------------------- ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED(1) 1999 PER SHARE DATE 5% 10%
- ---- ---------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. James Schaper..... 465,550 19.5% $ 2.15 4/1/09 $1,636,414 $2,596,161
18,622 .7 2.15 5/27/99 65,217 103,846
41,046 1.7 3.22 11/4/09 215,287 342,810
49,968 2.0 8.22 11/29/09 669,047 1,065,346
93,110 3.7 8.22 12/29/09 1,246,698 1,985,158
Michael W. Mattox.... -- -- -- -- -- --
Revell L. Fraser..... 279,330 11.2 2.15 2/15/09 978,248 1,557,697
J. Chris Foretich.... 279,330 11.2 2.15 2/15/09 978,248 1,557,697
William B. Britain... -- -- -- -- -- --
Michael L. -- -- -- -- -- --
Robertson..........
</TABLE>
- ------------
(1) All options were granted with exercise prices equal to the fair market value
of our common stock on the date of grant as determined by the board of
directors.
(2) The potential realizable value is calculated based on the ten-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option. The actual realizable
value of the options based on the price to the public in this offering could
substantially exceed the potential realizable value shown in the table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
No executive officer named in the table below exercised stock options during
the last fiscal year. The following table summarizes the value of the
outstanding options held at December 31, 1999 by the named executive officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
C. James Schaper............................... -- 668,297 5,670,313
Michael W. Mattox.............................. -- --
Revell L. Fraser............................... -- 279,330 2,751,400
J. Chris Foretich.............................. -- 279,330 2,751,400
William B. Britain............................. 29,175 157,044 299,355 1,719,537
Michael L. Robertson........................... -- --
</TABLE>
- ------------
(1) Based on the estimated fair market value of our common stock of $12.00 per
share, the initial public offering price, less the exercise price payable
upon exercise of the offering.
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<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We have entered into an employment agreement with C. James Schaper.
Mr. Schaper's agreement provides that he shall serve as our President and Chief
Executive Officer. His employment agreement, as amended, expires April 30, 2003,
but will remain in effect after that date unless terminated by either party upon
90 days prior written notice. Mr. Schaper's base salary is $250,000 per year,
subject to increase by the board of directors or compensation committee.
Mr. Schaper's employment agreement provides for a bonus of $150,000 for 2000 and
50% of his annual salary for each year thereafter, upon achievement of specific
performance goals. Under the terms of Mr. Schaper's employment agreement, he
received a grant of stock options to purchase 465,550 shares of our common stock
with an exercise price of $2.15 per share. These options vest in three equal
annual installments beginning on April 1, 2001. In addition, in the event that
we issue securities in a financing transaction prior to an initial public
offering, Mr. Schaper's employment agreement entitles him to receive options to
purchase the number of shares of common stock that will enable him to maintain
his same percentage ownership, at an exercise price equal to the fair market
value on the date of grant. These options will vest in three equal annual
installments beginning on the third anniversary of the date of the grant. If we
terminate Mr. Schaper without cause or he terminates his employment for good
reason within 12 months of a change in control of our company, he will be
entitled to receive severance payments equal to one-half of his base salary at
termination plus any prorated cash bonus for that year. Mr. Schaper's employment
agreement also contains provisions for non-disclosure, non-competition and
non-solicitation of customers or employees.
We have entered into an employment agreement with Revell L. Fraser.
Mr. Fraser's agreement provides that he will serve as our Vice
President--Marketing and Strategic Development. His employment agreement expires
February 8, 2003, but will remain in effect after that date unless terminated by
either party upon 90 days prior written notice. In addition, Mr. Fraser may
terminate his employment at any time upon 90 days prior written notice to us.
Mr. Fraser's base salary is $160,000 per year, subject to increase by the board
of directors or compensation committee. Mr. Fraser's employment agreement
provides for a bonus of 25% of his annual salary for 1999 and for each year
thereafter, upon achievement of specific performance goals. Under the terms of
Mr. Fraser's employment agreement, he received a grant of stock options to
purchase 279,330 shares of our common stock with an exercise price of $2.15 per
share. These options vest in three equal annual installments beginning on
February 15, 2001. If we terminate Mr. Fraser without cause, he will be entitled
to receive (a) the fair market value of the underlying securities, less the
exercise price, for all vested but unexercised options, (b) the shares of common
stock purchased through the exercise of stock options, and (c) any prorated cash
bonus for that year. Mr. Fraser's employment agreement also contains provisions
for non-disclosure, non-competition and non-solicitation of customers or
employees.
We have entered into an employment agreement with J. Chris Foretich.
Mr. Foretich's agreement provides that he will serve as our Vice President and
Chief Information Officer. His employment agreement expires February 28, 2003,
but will remain in effect after that date unless terminated by either party upon
90 days prior written notice. In addition, Mr. Foretich may terminate his
employment at any time upon 90 days prior written notice to us. Mr. Foretich's
base salary is $160,000 per year, subject to increase by the board of directors
or compensation committee. Mr. Foretich's employment agreement provides for a
bonus of 25% of his annual salary for 1999 and for each year thereafter, upon
achievement of specific performance goals. Under the terms of Mr. Foretich's
employment agreement, he received a grant of stock options to purchase 279,330
shares of our common stock with an exercise price of $2.15 per share. These
shares vest in three equal annual installments beginning on February 15, 2001.
If we terminate Mr. Foretich without cause, he will be entitled to receive
(a) the fair market value of the underlying securities, less the exercise price,
for all vested but unexercised options, (b) the shares of common stock purchased
through the exercise of stock options, and (c) any prorated cash bonus for that
year. Mr. Foretich's employment agreement also contains provisions for non-
disclosure, non-competition and non-solicitation of customers or employees.
55
<PAGE>
In addition, we have employment agreements with Leslie H. Schreiner, Kevin
P. Castle, Kathleen G. Bergeron and Connie C. Breeser. These agreements
generally provide for four-year terms, with provisions for later termination,
base salaries subject to increase by the board of directors or compensation
committee, performance bonuses of a pre-determined percentage of the employees'
annual salaries for 1999 and for each year thereafter upon achievement of
specific performance goals an entitlement to stock options with an exercise
price at the prevailing market price, and, in some cases, severance benefits
upon termination of the employee by us without cause. In addition, these
employment agreements also contain provisions for non-disclosure,
non-competition and non-solicitation of customers or employees.
EMPLOYEE STOCK OPTION PLANS
1997 EMPLOYEE STOCK OPTION PLAN. Our 1997 Employee Stock Option Plan
provides for grants of incentive stock options and nonqualified stock options to
our key employees, including officers and directors. By encouraging stock
ownership, we seek to motivate these individuals to contribute to our success.
The plan authorizes up to 4,003,730 shares of our common stock for issuance
under the plan. Options to purchase 2,926,056 shares of our common stock are
outstanding under this plan as of February 29, 2000 with a weighted average
exercise price of $3.98 per share. If options granted under the plan expire or
are terminated for any reason without being exercised, the underlying shares of
our common stock will again be available for issuance under the plan.
The compensation committee of the board of directors administers and
interprets the plan. The compensation committee has the sole authority to
determine the type, size and terms of the grants, including the individuals to
whom grants shall be made. Grants of incentive stock options and nonqualified
stock options may be made to any key employees of PRIMIS or our subsidiaries,
including officers and directors who are also employees of PRIMIS or any of our
subsidiaries.
The exercise price of an option is determined by the compensation committee,
but in no event can the exercise price of an incentive stock option be less than
the fair market value of a share of our common stock on the date the incentive
stock option is granted. The exercise price of an incentive stock option granted
to an employee who owns more than 10% of our common stock may not be less than
110% of the fair market value of a share of our common stock on the date of
grant.
The compensation committee determines the term of each option, up to a
maximum of ten years from the date of grant, except that the term of an
incentive stock option granted to an employee who owns more than 10% of our
common stock may not exceed five years from the date of grant.
The compensation committee may amend or terminate the plan at any time,
subject to shareholder approval if required. The plan will terminate in
May 2007, unless the compensation committee terminates it earlier or extends it
with approval of the shareholders.
In the event of a change of control, whether by merger or asset sale or a
sale by the shareholders of more than 50% of our total voting power, all
outstanding options under the plan shall immediately vest. Upon the occurrence
of a change in control event where we are not the surviving entity or where we
survive only as a subsidiary of another entity, all outstanding grants shall be
assumed by or replaced with comparable options or stock of the surviving
corporation.
INSPECTECH STOCK OPTION PLANS. In connection with our acquisition of
InspecTech in January 2000, we converted all of InspecTech's outstanding stock
options into stock options to purchase shares of our common stock. We adjusted
the number of shares subject to the stock options we converted and the exercise
price of these options to reflect the exchange ratio we used in the acquisition.
We converted the InspecTech stock options into stock options to purchase 197,625
shares of our stock with a weighted average exercise price of $.35 per share. We
will not issue any additional stock options under stock options plans or
arrangements we assumed in the InspecTech acquisition.
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<PAGE>
RELATED PARTY TRANSACTIONS
We believe that all of the transactions set forth below were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions between us and our officers,
directors, principal shareholders and their affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested members of the board of directors, and will be on terms no less
favorable to us than those that could be obtained from unaffiliated third
parties.
SALES OF STOCK, NOTES AND WARRANTS
CONVERTIBLE NOTE AND WARRANT FINANCING. In January 2000, we issued and sold
$9,721,862 aggregate principal amount of convertible notes and warrants. The
convertible notes bear interest at the rate of 8% per annum, and will mature six
months after the date issued unless we complete an initial public stock offering
or other qualifying financing prior to that time. If an initial public offering
is completed within 6 months, the notes will mature 181 days after the closing
of the offering. Prior to a public offering, the convertible notes are
convertible into shares of our Series C convertible preferred stock at the
option of the holder. Upon completion of a public offering of our common stock,
the notes will be convertible into shares of our common stock. In each case, the
conversion price is the lower of $8.22 per share or the per share price of the
securities issued in a qualifying financing, subject to anti-dilution
adjustments. With respect to the notes and warrants, we have assumed a
conversion or exercise price of $8.22 per share.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
NOTE
CONVERSION WARRANT
INVESTOR CONVERTIBLE NOTE SHARES SHARES
- -------- ---------------- ---------- --------
<S> <C> <C> <C>
Windcrest Partners........................ $ 600,000 72,992 25,547
Richland Ventures II, L.P................. 2,698,230 328,251 114,888
South Atlantic Private Equity Fund IV,
Limited Partnership..................... 420,574 51,164 17,907
South Atlantic Private Equity Fund IV
(QP), Limited Partnership............... 580,792 70,655 24,729
Moore Global Investments, Ltd............. 2,205,287 268,283 93,899
Remington Investments Strategies, L.P..... 492,942 59,968 20,989
JG Funding, LLC........................... 500,000 60,827 21,289
J. David Grissom.......................... 1,994,877 242,685 84,940
Jack Tyrrell.............................. 86,107 10,475 3,666
W. Patrick Ortale, III.................... 43,053 5,237 1,833
</TABLE>
Michael E. Gellert, one of our directors, is a general partner of Windcrest
Partners. Jack Tyrrell, one of our directors, is Partner of Richland Ventures
II, L.P. Donald W. Burton, one of our directors, is Chairman and Managing
Director of South Atlantic Private Equity Fund IV, Limited Partnership and South
Atlantic Private Equity Fund IV (QP), Limited Partnership. Alan Colner, one of
our directors, has sole voting and investment power with respect to the PRIMIS
securities held by Moore Global Investments, Ltd. and Remington Investments
Strategies, L.P. David A. Jones, Jr. is Chairman of Chrysalis Ventures, LLC,
which has sole voting and investment power with respect to the PRIMIS securities
held by JG Funding, LLC, Chrysalis Ventures Limited Partnership and JG
Partnership, Ltd. Mr. Jones is deemed to own greater than five percent of our
common stock by virtue of his affiliation with these entities. W. Patrick
Ortale, III is a partner and beneficial owner of shares of Richland
Ventures II, L.P., and is deemed to be a five percent shareholder.
57
<PAGE>
In November 1999, we issued and sold $10,011,174 aggregate principal amount
of convertible notes and warrants. Our November 1999 convertible notes mature
six months after the date issued, and bear interest at 8% per annum. Pursuant to
their terms, the notes will mandatorily convert into shares of our common stock
if this offering is completed prior to the date the notes mature, and will
convert into shares of our Series C convertible preferred stock if a qualifying
financing occurs prior to maturity at the lower of $8.22 or the price per share
of the securities issued in the qualifying financing, subject to anti-dilution
requirements. With respect to the notes, we have assumed a conversion price of
$8.22 per share. With respect to the warrants, we have assumed an exercise price
of $8.22 per share.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include the following:
<TABLE>
<CAPTION>
CONVERTIBLE CONVERSION WARRANT
INVESTOR NOTE SHARES SHARES
- -------- ----------- ---------- --------
<S> <C> <C> <C>
Windcrest Partners............................ $1,197,118 145,634 50,972
Richland Ventures II, L.P..................... 1,969,759 239,630 83,870
South Atlantic Private Equity Fund IV, Limited
Partnership................................. 827,298 100,644 35,225
South Atlantic Private Equity Fund IV (QP),
Limited Partnership......................... 1,142,459 138,985 48,644
Moore Global Investments, Ltd................. 1,575,807 191,704 67,096
Remington Investments Strategies, L.P......... 393,952 47,926 16,774
JG Funding, LLC............................... 500,000 60,827 21,289
J. David Grissom.............................. 2,239,391 272,431 95,351
Jack Tyrrell.................................. 103,594 12,602 4,410
W. Patrick Ortale, III........................ 51,796 6,301 2,205
</TABLE>
SERIES B CONVERTIBLE PREFERRED STOCK FINANCING. In October 1999, we issued
and sold an aggregate of 725,130 shares of Series B convertible preferred stock
to existing investors at a purchase price per share of $6.00. The Series B
shares will mandatorily convert into an aggregate of 1,350,337 shares of our
common stock upon the closing of this offering. All accrued and unpaid dividends
on the Series B shares will be valued at the initial public offering price and
payable in shares of our common stock on the day of the offering.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
NUMBER OF
SERIES B CONVERSION TOTAL PRESENT
INVESTOR SHARES SHARES CONSIDERATION VALUE(1)
- -------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Windcrest Partners.............................. 87,813 163,525 $ 526,878 $1,962,300
Richland Ventures II, L.P....................... 77,542 144,398 465,252 1,732,776
South Atlantic Private Equity Fund IV, Limited
Partnership................................... 32,568 60,648 195,408 727,776
South Atlantic Private Equity Fund IV (QP),
Limited Partnership........................... 44,974 83,750 269,844 1,005,000
Moore Global Investments, Ltd................... 63,585 118,407 381,510 1,420,884
Remington Investments Strategies, L.P........... 13,958 25,992 83,748 311,904
Casselberry Partners, L.P....................... 52,650 98,044 315,900 1,176,528
JG Funding, LLC................................. 166,667 310,367 1,000,002 3,724,404
J. David Grissom................................ 164,268 305,899 985,608 3,670,788
Jack Tyrrell.................................... 7,599 14,150 45,594 169,800
W. Patrick Ortale, III.......................... 3,799 7,074 22,794 84,888
</TABLE>
- ------------
(1) Assuming an offering price of $12.00 per share of common stock.
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<PAGE>
Douglas F. Cobb, one of our directors, has sole voting and investment power with
respect to the PRIMIS securities held by Casselberry Partners, L.P.
SERIES A CONVERTIBLE PREFERRED STOCK FINANCING. In June 1999, we issued and
sold 1,091,242 shares of Series A convertible preferred stock to existing
investors who exercised options and subscription rights to purchase such shares
at an exercise price per share of $4.00. The Series A shares will mandatorily
convert into an aggregate of 2,032,110 shares of our common stock upon the
closing of this offering. All accrued and unpaid dividends on the Series A
shares will be valued at the initial public offering price and payable in shares
of our common stock on the day of the offering.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A CONVERSION TOTAL PRESENT
INVESTOR SHARES SHARES CONSIDERATION VALUE(1)
- -------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Windcrest Partners.............................. 62,499 116,385 $ 249,996 $1,396,620
Richland Ventures II, L.P....................... 250,000 465,550 1,000,000 5,586,600
South Atlantic Private Equity Fund IV, Limited
Partnership................................... 104,999 195,529 419,996 2,346,348
South Atlantic Private Equity Fund IV (QP),
Limited Partnership........................... 144,999 270,017 579,996 3,240,204
Moore Global Investments, Ltd................... 204,999 381,749 819,996 4,580,988
Remington Investments Strategies, L.P........... 45,000 83,799 180,000 1,005,588
Casselberry Partners, L.P....................... 30,858 57,463 123,432 689,556
Chrysalis Ventures Limited Partnership.......... 78,249 145,715 312,996 1,748,580
JG Funding, LLC................................. 28,392 52,871 113,568 634,452
J. David Grissom................................ 125,000 232,775 500,000 2,793,300
</TABLE>
- ------------
(1) Assuming an offering price of $12.00 per share of common stock.
David A. Jones, Jr. is Chairman of Chrysalis Ventures, LLC, which has sole
voting and investment power with respect to the PRIMIS securities held by JG
Funding, LLC, Chrysalis Ventures Limited Partnership and JG Partnership, Ltd.
Mr. Jones is deemed to own greater than five percent of our common stock by
virtue of his affiliation with these entities.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 29, 2000, and as adjusted to
reflect the sale of the shares of common stock offered in this prospectus, of:
- each named executive officer;
- each of our directors;
- each person known by us to be the beneficial owner of more than five
percent of our common stock; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, or SEC. Shares of common stock issuable by
us to a person or entity listed in the table pursuant to options or warrants
that may be exercised within 60 days after February 29, 2000 are deemed to be
beneficially owned and outstanding for purposes of calculating the number of
shares and the percentage beneficially owned by that person or entity. However,
these shares are not deemed to be beneficially owned and outstanding for
purposes of computing the percentage beneficially owned by any other person or
entity.
For purposes of calculating the percentage of common stock beneficially
owned by any person or entity, the number of shares deemed outstanding before
this offering includes:
- 14,420,401 shares of common stock outstanding as of February 29, 2000;
- 4,600,136 shares of common stock issuable upon the mandatory conversion of
convertible securities outstanding as of February 29, 2000, without taking
into account dividends or interest accrued thereon; and
- shares of common stock issuable upon the exercise of options and warrants
which may be exercised by that person or entity within 60 days of
February 29, 2000.
For purposes of calculating the percentage beneficially owned by any person
or entity, the number of shares deemed outstanding after this offering includes:
- all shares deemed to be outstanding before this offering; and
- 6,200,000 shares being sold in this offering.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
C. James Schaper.................................. -- -- --
Michael W. Mattox................................. -- -- --
Revell L. Fraser.................................. -- -- --
J. Chris Foretich................................. -- -- --
William B. Britain................................ 63,743(1) * *
Michael L. Robertson.............................. 826,477(2) 4.3% 3.3%
All directors and executive officers as a group
(15 persons)...................................... 13,872,687(3) 66.3 55.0
J. David Grissom.................................. 3,959,884(4) 20.4 15.7
David A. Jones, Jr................................ 3,229,188(5) 17.0 13.0
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Chrysalis Ventures Limited Partnership............ 3,229,188(5) 17.0 13.0
JG Funding, LLC................................... 3,229,188(5) 16.9 13.0
JG Partnership, Ltd............................... 3,229,188(5) 17.0 13.0
Jack Tyrrell...................................... 2,489,720(6) 12.7 9.9
Richland Ventures II, L.P......................... 2,307,552(7) 11.8 9.1
W. Patrick Ortale, III............................ 2,398,634(8) 12.3 9.5
Michael E. Gellert................................ 2,040,261(9) 10.6 8.1
Windcrest Partners................................ 2,040,261(9) 10.6 8.1
Alan Colner....................................... 2,307,552(10) 11.8 9.1
Moore Global Investments, Ltd..................... 2,307,552(10) 11.8 9.1
Remington Investments............................. 2,307,552(10) 11.8 9.1
Donald W. Burton.................................. 2,028,917(11) 10.5 8.0
South Atlantic Private Equity
Fund IV, Limited Partnership.................... 2,028,917(11) 10.5 8.0
South Atlantic Private Equity
Fund IV (QP), Limited Partnership............... 2,028,917(11) 10.5 8.0
Douglas F. Cobb................................... 1,046,351(12) 5.5 4.1
Casselberry Partners, L.P......................... 1,046,351(12) 5.5 4.1
</TABLE>
- ------------
* Less than one percent.
(1) Includes 29,175 shares issuable upon the exercise of currently exercisable
options at an exercise price of $1.74 per share.
(2) Includes (a) 12,163 shares to be issued upon conversion of convertible notes
held by Mr. Robertson; and (b) 4,256 shares issuable upon exercise of a
warrant which will become exercisable upon completion of this offering at an
exercise price of $8.22 per share. Mr. Robertson's address is 2340 Santa
Rita Road, Suite 4, Pleasanton, California 94566.
(3) Includes (a) an aggregate of 2,818,087 shares to be issued upon automatic
conversion of convertible preferred stock; (b) an aggregate of 2,253,636
shares to be issued upon conversion of convertible notes; and (c) an
aggregate of 788,772 shares issuable upon exercise of warrants which will
become exercisable upon completion of this offering at an exercise price of
$8.22 per share.
(4) Includes (a) 538,674 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Mr. Grissom; (b) 515,026
shares to be issued upon conversion of convertible notes held by
Mr. Grissom; and (c) 180,259 shares issuable upon exercise of warrants which
will become exercisable upon completion of this offering at an exercise
price of $8.22 per share. Mr. Grissom's address is Suite 2510, 400 West
Market Street, Louisville, Kentucky 40202.
(5) Includes (a) 2,471,236 shares owned by Chrysalis Ventures Limited
Partnership, including 145,715 shares to be issued on automatic conversion
of all shares of our convertible preferred stock owned by Chrysalis Ventures
Limited Partnership; (b) 633,188 shares owned by JG Funding, LLC, including
363,238 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by JG Funding, 121,631 shares to be issued
upon conversion of convertible notes held by JG Funding and 42,569 shares
issuable upon exercise of warrants held by JG
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<PAGE>
Funding which will become exercisable upon completion of this offering at an
exercise price of $8.22 per share; and (c) 124,763 shares owned by JG
Partnership, Ltd. Chrysalis Ventures, LLC, of which Mr. Jones is the
Chairman and principal owner, has sole voting and investment power with
respect to the shares owned by Chrysalis Ventures Limited Partnership, JG
Funding and JG Partnership. The address for Mr. Jones, Chrysalis Ventures
Limited Partnership, JG Funding and JG Partnership is 1650 National City
Tower, 101 South Fifth Street, Louisville, Kentucky 40202.
(6) Consists of (a) 2,307,552 shares owned by Richland Ventures II, LP,
including 609,948 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Richland Ventures II,
567,781 shares to be issued upon conversion of convertible notes held by
Richland Ventures II and 198,722 shares issuable upon the exercise of
warrants held by Richland Ventures II, which will become exercisable upon
completion of this offering at an exercise price of $8.22 per share; and
(b) 182,167 shares owned by Mr. Tyrrell including 14,150 shares to be issued
upon automatic conversion of all shares of our convertible preferred stock
owned by Mr. Tyrrell, 23,072 shares to be issued upon conversion of
convertible notes held by Mr. Tyrrell and 8,074 shares issuable upon the
exercise of warrants held by Mr. Tyrrell which will become exercisable upon
completion of this offering at an exercise price of $8.22 per share.
Mr. Tyrrell shares voting and investment power with respect to the shares
owned by Richland Ventures II. The address for Mr. Tyrrell and Richland
Ventures II is Suite 200, 200 31st Avenue North, Nashville, Tennessee 37203.
(7) Includes (a) 609,948 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Richland Ventures II;
(b) 567,781 shares to be issued upon conversion of convertible notes held by
Richland Ventures II; and (c) 198,722 shares issuable upon the exercise of
warrants held by Richland Ventures II, which become exercisable upon
completion of this offering at an exercise price of $8.22 per share.
(8) Consists of (a) 2,307,552 shares owned by Richland Ventures II, including
609,948 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by Richland Ventures II, 567,781 shares to
be issued upon conversion of convertible notes held by Richland Ventures II
and 198,722 shares issuable upon the exercise of warrants held by Richland
Ventures II, which will become exercisable upon completion of this offering
at an exercise price of $8.22 per share; and (b) 91,082 shares owned by
Mr. Ortale including 7,074 shares to be issued upon conversion of all shares
of our convertible preferred stock owned by Mr. Ortale, 11,536 shares to be
issued upon conversion of convertible notes held by Mr. Ortale and 4,037
shares issuable upon the exercise of warrants held by Mr. Ortale which will
become exercisable upon completion of this offering at an exercise price of
$8.22 per share. Mr. Ortale shares voting and investment power with respect
to the shares held by Richland Ventures II. Mr. Ortale's address is Suite
200, 200 31st Avenue North, Nashville, Tennessee 37203.
(9) Consists of (a) 2,040,261 shares owned by Windcrest Partners including
279,911 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by Windcrest Partners; (b) 218,588 shares
to be issued upon conversion of convertible notes held by Windcrest
Partners; and (c) 76,506 shares issuable upon the exercise of warrants held
by Windcrest Partners which will become exercisable upon completion of this
offering at an exercise price of $8.22 per share. Mr. Gellert shares voting
and investment power with respect to the shares held by Windcrest Partners.
The address for Mr. Gellert and Windcrest Partners is 49th Floor, 122 E.
42nd Street, New York, New York 10168.
(10) Consists of (a) 1,884,531 shares owned by Moore Global Investments, Ltd.,
including 500,157 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Moore Global Investments,
459,905 shares to be issued upon conversion of convertible notes held by
Moore Global Investments, and 160,966 shares issuable upon the exercise of
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<PAGE>
warrants held by Moore Global Investments, which will become exercisable
upon completion of this offering at an exercise price of $8.22 per share;
and (b) 423,021 shares owned by Remington Investments Strategies, LP,
including 109,791 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Remington Investments
Strategies, 107,875 shares to be issued upon conversion of convertible notes
held by Remington Investments Strategies, and 37,756 shares issuable upon
the exercise of warrants held by Remington Investments Strategies, which
will become exercisable upon completion of this offering at an exercise
price of $8.22 per share. Moore Capital Management, Inc., a Connecticut
corporation, is vested with investment discretion with respect to portfolio
assets held for the account of Moore Global Investments. Moore Capital
Advisors, L.L.C., a New York limited liability company, is the sole general
partner of Remington Investment Strategies. Alan Colner is a Managing
Director, Private Equity Investments, at Moore Capital Management, Inc.,
which is the trading advisor of Moore Global Investments. Mr. Colner does
not have voting or investment power with respect to the shares of securities
owned by Moore Global Investments or Remington Investment Strategies, and
disclaims beneficial ownership of the shares. The address of Moore Capital
Management, Inc. is 1251 Avenue of the Americas, New York, NY 10020.
(11) Consists of (a) 852,146 shares owned by South Atlantic Private Equity Fund
IV, Limited Partnership, including 256,177 shares to be issued upon
automatic conversion of all shares of our convertible preferred stock owned
by South Atlantic Private Equity Fund IV, Limited Partnership, 151,782
shares to be issued upon conversion of convertible notes held by South
Atlantic Private Equity Fund IV, Limited Partnership, and 53,124 shares
issuable upon exercise of warrants held by South Atlantic Private Equity
Fund IV, Limited Partnership, which will become exercisable upon completion
of this offering at an exercise price of $8.22 per share; and (b) 1,176,770
shares beneficially owned by South Atlantic Private Equity Fund IV (QP),
Limited Partnership, including 353,767 shares to be issued upon automatic
conversion of all shares of our convertible preferred stock owned by South
Atlantic Private Equity Fund IV (QP), Limited Partnership, 209,603 shares to
be issued upon conversion of convertible notes held by South Atlantic
Private Equity Fund IV (QP), Limited Partnership, and 73,361 shares issuable
upon exercise of warrants held by South Atlantic Private Equity Fund IV
(QP), Limited Partnership, which will become exercisable upon completion of
this offering at an exercise price of $8.22 per share. Mr. Burton has sole
voting and investment power with respect to the shares owned by South
Atlantic Private Equity Fund IV, Limited Partnership, and South Atlantic
Private Equity Fund IV (QP), Limited Partnership. The mailing address for
Mr. Burton, South Atlantic Private Equity Fund IV, Limited Partnership and
South Atlantic Private Equity Fund IV (QP), Limited Partnership is 614 West
Bay Street, Tampa, Florida 33606.
(12) Consists of 1,046,351 shares owned by Casselberry Partners, L.P., including
155,508 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by Casselberry Partners. Mr. Cobb has sole
voting and investment power with respect to the shares owned by Casselberry
Partners. The mailing address for Mr. Cobb and Casselberry Partners is 12206
E. Osage Rd., Louisville, Kentucky 40223.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our capital stock and provisions of our
articles of incorporation and our bylaws are summaries thereof and are qualified
by reference to our articles of incorporation and our bylaws, copies of which
have been filed with the SEC as exhibits to our registration statement, of which
this prospectus forms a part.
The total amount of our authorized capital stock consists of 108,000,000
shares, of which 100,000,000 have been designated common stock, par value $0.01
per share, and 8,000,000 have been designated preferred stock, par value $0.01
per share. Upon completion of this offering, all 1,816,372 shares of convertible
preferred stock outstanding will be converted into common stock. After
completion of this offering, there will be 25,220,537 shares of common stock
issued and outstanding based on the 14,420,401 shares outstanding as of
February 29, 2000 and including the 6,200,000 shares of common stock being sold
by us in this offering and the 4,600,136 shares of common stock issuable upon
conversion of our outstanding convertible preferred stock and mandatorily
convertible notes, based on the stated values and conversion prices of each of
the outstanding series of convertible preferred stock and mandatorily
convertible notes as discussed below, but not taking into account dividends or
interest accrued thereon.
COMMON STOCK
All outstanding shares of our common stock are fully paid and
non-assessable. Subject to the prior rights of the holders of our preferred
stock, the holders of our common stock are entitled to receive dividends at a
time and in such amounts as our board of directors may determine. The shares of
our common stock are not convertible and holders thereof have no preemptive or
subscription rights to purchase any of our securities, nor will holders be
entitled to the benefits of any redemption or sinking fund provisions. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive pro rata all of our assets which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of our preferred stock which is then
outstanding. Each outstanding share of our common stock is entitled to one vote
on all matters submitted to a vote of shareholders.
PREFERRED STOCK
We are authorized to issue 8,000,000 shares of preferred stock. 1,200,000
shares are currently designated Series A convertible preferred stock, of which
1,091,242 shares are currently issued and outstanding. 3,000,000 shares are
currently designated Series B convertible preferred stock, of which 725,130
shares are currently issued and outstanding. 2,500,000 shares are currently
designated Series C convertible preferred stock, of which no shares are
currently issued and outstanding. The Series A convertible preferred stock
currently has a stated value of $4.00 per share and a conversion price of $2.15
per share, the Series B convertible preferred stock currently has a stated value
of $6.00 per share and a conversion price of $3.22 per share, and the Series C
convertible preferred stock currently has a stated value of $15.31 per share and
a conversion price of $8.22 per share.
Upon any liquidation, dissolution or winding up of our company, whether
voluntary or involuntary, the holders of the preferred stock shall be entitled
to receive, prior and in preference to any distribution of any of the assets or
surplus funds of our company to the holders of the common stock, an amount equal
to the greater of (i) for each share of preferred stock, the stated value of
such share, plus accrued and unpaid dividends thereon, or (ii) for each share of
preferred stock, the amount distributable for each share of common stock to all
holders thereof (assuming all shares of the series of preferred stock had been
converted to common stock), plus accrued and upaid dividends on the preferred
stock. If upon the occurrence of such event, the assets and funds distributed
are insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then holders of
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Series A convertible preferred stock, Series B convertible preferred stock and
Series C convertible preferred stock shall receive distributions in equal parity
and in proportion to the amount each would have received had there been
sufficient funds to permit the payment to such holders of the full aforesaid
preferential amount.
All 1,816,372 shares of our convertible preferred stock outstanding will be
mandatorily converted into 3,382,447 shares of common stock and none of the
8,000,000 shares of preferred stock that we are authorized to issue will be
issued and outstanding after the completion of this offering. In addition,
holders of our convertible preferred stock will be entitled to receive accrued
dividends valued at the initial public offering price and payable in shares of
our common stock on the day of the offering. Dividends accrue at a rate of seven
percent per annum.
Our board of directors has authority, without shareholder approval, to issue
shares of preferred stock in one or more series and to determine the number of
shares, designations, dividend rights, conversion rights, voting power,
redemption rights, liquidation preferences and other terms of any such series.
Satisfaction of any dividend preferences on outstanding shares of preferred
stock would reduce the amount of funds available for the payment of dividends on
shares of our common stock. The issuance of preferred stock, while providing
desired flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of the holders of common stock
and the likelihood that such holders will receive payments upon liquidation and
could have the effect of delaying, deferring, or preventing a change in control
of our company. We have no current plans to issue any shares of preferred stock.
WARRANTS
In November 1999 and January 2000, we issued warrants to purchase shares of
our Series C convertible preferred stock. These warrants were issued in
connection with our convertible note financing. Upon the closing of this
offering, these warrants become exercisable for shares of common stock. The
warrants have a five-year term from the date of issue and become exercisable
upon the earlier of the following events:
- an underwritten public offering of our common stock within 180 days from
the date the warrant was issued;
- the merger, consolidation or sale of our company, within 180 days from the
date the warrant was issued; or
- the sale of additional shares of our preferred stock in a qualifying
financing.
Under any of these circumstances, the exercise price per share would be the
lesser of $8.22 or, in the case of a public offering or qualifying financing,
the price at which the shares of stock were sold in this financing.
If we fail to complete a public offering of our common stock or a qualifying
financing, and we are not sold, within 180 days from the date a warrant is
issued, the warrant can be exercised for shares of our Series C convertible
preferred stock at an exercise price of $3.22 per share.
A total of 426,190 shares are issuable under the warrants issued in
November 1999, and a total of 413,873 shares are issuable under the warrants
issued in January 2000. These warrants include a cashless exercise feature, and
the holders are entitled to customary antidilution protection, including
adjustments to the number of shares issuable upon exercise of the warrants in
the event of a subdivision or combination of stock or payment of a stock
dividend.
In connection with our acquisition of InspecTech in January 2000, we
converted all of InspecTech's outstanding warrants into warrants exercisable for
shares of our common stock. We adjusted the number of shares subject to the
warrants we converted and the exercise price of these warrants to reflect the
exchange ratio we used in the acquisition. We converted the InspecTech warrants
into
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warrants to purchase 10,994 shares of our common stock with a weighted average
exercise price of $7.51 per share.
ANTI-TAKEOVER PROVISIONS OF GEORGIA LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
The Georgia Business Corporation Code, or GBCC, generally restricts a
corporation from entering into certain business combinations with an interested
shareholder, which is defined as any person or entity that is the beneficial
owner of at least 10% of a company's voting stock, or its affiliates, for a
period of five years after the date on which the shareholder became an
interested shareholder, unless:
- the transaction is approved by the board of directors of the corporation
prior to the date the person became an interested shareholder;
- the interested shareholder acquires 90% of the corporation's voting stock
in the same transaction in which it exceeds 10%; or
- subsequent to becoming an interested shareholder, the shareholder acquires
90% of the corporation's voting stock and the business combination is
approved by the holders of a majority of the voting stock entitled to vote
on the transaction.
The fair price provisions of the GBCC further restrict business combination
transactions with 10% shareholders. These provisions require that the
consideration paid for stock acquired in the business combination must meet
specified tests that are designed to ensure that shareholders receive at least
fair market value for their shares in the business combination.
The interested shareholder and fair price provisions of the GBCC do not
apply to a corporation unless the bylaws of the corporation specifically provide
that these provisions are applicable to the corporation. We have elected to be
covered by these provisions in our bylaws.
In addition, some provisions of our articles of incorporation and bylaws may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder might deem to be in his best
interest. The existence of these provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock. These
provisions include:
CLASSIFIED BOARD OF DIRECTORS. Under our articles of incorporation, our
board of directors is divided into three classes of directors, with staggered
three-year terms. As a result, approximately one-third of our board of directors
will be elected each year. The classified board provision will help ensure the
continuity and stability of our board of directors and our business strategies
and policies as determined by our board of directors. The classified board
provision could have the effect of discouraging a third party from making an
unsolicited tender offer or otherwise attempting to obtain control of us without
the approval of our board of directors even where such acquisitions could have
resulted in increased value to our shareholders. In addition, the classified
board provision could delay shareholders who do not like the policies of our
board of directors from electing a majority of our board of directors for two
years.
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS. Our shareholders may
not take action, outside of a duly called annual or special meeting, by less
than unanimous written consent. Our bylaws further provide that special meetings
of our shareholders may be called only upon the written request of 25% of the
votes entitled to be cast on an issue.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide us timely notice
in writing. To be timely, a shareholder's notice must be delivered to or mailed
and received at our principal executive offices, not less than 90 days nor more
than 120 days prior to the
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first anniversary of the date of the preceding year's annual meeting, provided,
that if no annual meeting of shareholders was held in the previous year or the
date of the annual meeting of shareholders has been changed to be more than 30
calendar days earlier than or 70 calendar days after this anniversary, notice by
the shareholder, to be timely, must be so received not earlier than 120 days
prior to such annual meeting nor later than the later of:
- 90 days prior to the annual meeting of shareholders; or
- 10 days following the date on which notice of the date of the meeting is
made public.
Our bylaws also specify requirements as to the form and content of a
shareholder's notice. These provisions may preclude shareholders from bringing
matters before an annual meeting of shareholders or from making nominations for
directors at an annual meeting of shareholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval, subject to certain limitations imposed by the Nasdaq Stock
Market. These additional shares may be utilized for a variety of corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation provide for the indemnification of our current
and former officers and directors in accordance with the GBCC. The GBCC empowers
a corporation to indemnify a director against liability arising from official
acts if the director acted in good faith and reasonably believed that his
conduct was in the best interests of the corporation. For all other acts, the
corporation may indemnify a director who acted in good faith and reasonably
believed that the conduct was at least not opposed to the best interests of the
corporation. The corporation may indemnify a director with respect to criminal
proceedings if the director acted in good faith and had no reasonable cause to
believe the conduct was unlawful. A corporation may not indemnify a director
adjudged liable for conduct involving receipt of an improper personal benefit.
The GBCC permits a corporation to indemnify an officer to the same extent as a
director.
Our bylaws provide for indemnification against liability for each director
or officer acting in a manner he believed in good faith to be in, or not opposed
to, our best interests and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. Our bylaws also provide
for indemnification against liability for any individual's conduct with respect
to an employee benefit plan for a purpose he believes in good faith to be in the
interests of the participants in, and beneficiaries of, the plan. Our bylaws
also provide that we will not indemnify an individual in connection with a
derivative proceeding in which that individual was adjudged liable to us on the
basis that personal benefit was improperly received by him unless that
individual is fairly and reasonably entitled to indemnification. Our bylaws also
require us to pay for or reimburse the reasonable expenses incurred by a
director or officer who is a party to a proceeding in advance of the final
disposition of the proceeding if that individual furnishes us with a written
affirmation of his good faith belief that he has met the standard of conduct
required for indemnification and also furnishes to us a written undertaking to
repay any advances made if it is determined that that person is not entitled to
indemnification.
REGISTRATION RIGHTS
We have entered into registration rights agreements with holders of an
aggregate of 17,921,237 shares of common stock, including shares issuable upon
conversion or exercise of outstanding convertible preferred stock, convertible
notes and warrants. The holders of 25% or more of the registrable securities are
entitled to demand that we register their registrable securities under the
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Securities Act. We are not required to effect more than two registrations
pursuant to these demand registration rights. These holders are also entitled to
require us to include their registrable securities in registration statements
that we may file for the purpose of offering shares to the public, including
this offering. The holders of these registration rights have agreed to waive
their registration rights with respect to this offering. The registration rights
are subject to various conditions and limitations, including the right of the
underwriters of an offering to limit the number of registrable securities that
may be included in the offering. In addition, holders of registrable securities
will be restricted from exercising their demand rights until 180 days after the
date of this prospectus. We are required to bear the expense of such
registrations, except for any underwriting discounts and commissions which may
be borne by the selling shareholders in proportion to the number of shares sold.
Registration of any of the registrable securities will result in such shares
becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Union
National Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 25,220,537 shares of common
stock outstanding, including shares of common stock to be issued upon conversion
of all of our outstanding convertible preferred stock and our mandatorily
convertible notes. Of these shares, the 6,200,000 shares sold in this offering
will be freely tradable upon completion of this offering. The remaining
19,020,538 shares of common stock outstanding are "restricted securities" under
Rule 144 of the Securities Act of 1933 and are subject to the lock-up agreements
and Rule 144 restrictions discussed below.
Shares of our common stock will become eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES: DATE SHARES BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET:
----------------- ------------------------------------------------------------
<S> <C>
6,200,000..................... These shares will be freely tradable without restriction as
of the date of this prospectus.
16,606,971..................... These shares are subject to 180-day lock-up agreements and
will be eligible for resale commencing 181 days after the
date of this prospectus. However, 15,796,914 of these shares
are held by affiliates and are subject to the provisions of
Rule 144 that limit the amount of securities that may be
sold in any three-month period.
2,413,567..................... These shares are restricted. However, of these shares,
902,371 are eligible to be sold as of the date of this
prospectus pursuant to Rule 144 and the remainder will
become eligible for sale at various times thereafter.
</TABLE>
In general, under Rule 144, a shareholder, including an affiliate, who has
beneficially owned restricted securities for at least one year is entitled to
sell, within any three month period, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume in our common stock during a four calendar week period,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from PRIMIS, or the date they were
acquired from an affiliate of PRIMIS, a shareholder who is not an affiliate of
PRIMIS at the time of sale and has not been an affiliate for at least three
months prior to the sale is entitled to sell the shares immediately without
compliance with the foregoing requirements under Rule 144.
Our directors and officers and shareholders holding an aggregate of
18,629,102 shares of our common stock, including shares issuable upon conversion
of our convertible securities, have agreed that they will not offer, sell or
agree to sell, directly or indirectly, or otherwise dispose of any shares of
common stock without the prior written consent of Bear, Stearns & Co. Inc. for a
period of 180 days from the date of this prospectus. Bear, Stearns & Co. Inc.
may agree to release any or all of the shares of common stock from these lock-up
agreements at any time.
Any of our employees who purchased shares pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701, which
permits nonaffiliates to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with the Rule 144 holding period restrictions, in each
case commencing 90 days after the date of this prospectus. As of February 29,
2000, the holders of options exercisable for approximately 248,030 shares of
common stock will be eligible to sell their shares after 90 days from the
completion of this offering. The holders of the remaining outstanding options
will be able to sell their shares on the expiration of the 180-day lockup period
or at various dates thereafter subject to vesting of such options. In addition,
the holders of warrants exercisable for approximately 851,058 shares of common
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stock will be eligible to sell their shares pursuant to Rule 144 at various
times after 90 days after the date of this prospectus.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
our Employee Stock Option Plan within 180 days after the date of this
prospectus, permitting the resale of such shares by nonaffiliates in the public
market without restriction under the Securities Act.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except
that we may issue, and grant options to purchase, shares of common stock under
our Employee Stock Option Plan. In addition, we may issue shares of common stock
in connection with any acquisition of, or strategic relationship with, another
company if the terms of issuance provide that such common stock shall not be
resold prior to the expiration of the 180-day period referenced in the preceding
sentence.
Following this offering, holders of an aggregate of 17,921,237 shares of our
common stock, including shares issuable upon conversion of our convertible
securities, will have demand registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares in any future registration of our
securities.
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UNDERWRITING
UNDERWRITING AGREEMENT
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., U.S. Bancorp Piper Jaffray Inc. and
J.C. Bradford & Co., has severally agreed to purchase from us the aggregate
number of shares of our common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
U.S. Bancorp Piper Jaffray Inc..............................
J.C. Bradford & Co..........................................
[others]....................................................
---------
Total..................................................... 6,200,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all of the above shares of our common stock if any are purchased.
PUBLIC OFFERING PRICE
The underwriters propose to offer the shares of our common stock directly to
the public at the offering price set forth on the cover page of this prospectus
and at that price less a concession not in excess of $ per share of common
stock to other dealers who are members of the National Association of Securities
Dealers, Inc. The underwriters may allow, and those dealers may reallow,
concessions not in excess of $ per share of common stock to certain other
dealers. After this offering, the offering price, concessions and other selling
terms may be changed by the underwriters. Our common stock is offered subject to
receipt and acceptance by the underwriters and subject to other conditions,
including the right to reject orders in whole or in part. The underwriters have
informed us that the underwriters do not expect to confirm sales of common stock
to any accounts over which they exercise discretionary authority.
The following table summarizes the per share and total public offering price
of the shares of common stock in the offering, the underwriting compensation to
be paid to the underwriters by us and the proceeds of the offering, before
expenses, to us. The information presented assumes either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
TOTAL
---------------------
WITHOUT WITH
OVER- OVER-
PER SHARE ALLOTMENT ALLOTMENT
--------- --------- ---------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discounts and commissions payable by us........
------- ------- -------
Proceeds, before expenses, to us............................ $ $ $
======= ======= =======
</TABLE>
The underwriting discounts and commissions per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock.
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We estimate total expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $1.7 million.
OVER-ALLOTMENT OPTION TO PURCHASE ADDITIONAL SHARES
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 930,000 additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
INDEMNIFICATION AND CONTRIBUTION
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act or will contribute to payments that the underwriters may be required to make
in respect of those liabilities.
LOCK-UP AGREEMENTS
Our directors and officers and shareholders holding an aggregate of
18,629,102 shares of common stock, including shares issuable upon conversion of
convertible securities, have agreed that they will not offer, sell or agree to
sell, directly or indirectly, or otherwise dispose of any shares of common stock
in the public market without the prior written consent of Bear, Stearns &
Co. Inc. for a period of 180 days from the date of this prospectus.
In addition, we have agreed that for a period of 180 days from the date of
this prospectus, we will not, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of common
stock, except that we may issue, and grant options to purchase, shares of common
stock under our Employee Stock Option Plan.
NASDAQ STOCK MARKET QUOTATION
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in those negotiations, the
primary factors will be our results of operations in recent periods, estimates
of our prospects and the industry in which we compete, an assessment of our
management, the general state of the securities markets at the time of this
offering and the prices of similar securities of generally comparable companies.
We have applied for approval for the quotation of our common stock on the Nasdaq
Stock Market, under the symbol "PRMZ." We cannot assure you, however, that an
active or orderly trading market will develop for the common stock or that the
common stock will trade in the public market subsequent to this offering at or
above the initial offering price.
STABILIZATION, SYNDICATE SHORT POSITION AND PENALTY BIDS
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
actually sold to them. The underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in this offering are reclaimed if shares of
common stock previously distributed in this offering are repurchased in
connection with
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stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the common stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq Stock Market or otherwise and, if commenced, may be discontinued at any
time.
RESERVED SHARE PROGRAM
At our request, the underwriters have reserved for sale at the initial
public offering price up to five percent of the shares of common stock to be
sold in this offering for sale to our directors and director nominees, selected
officers and employees, selected vendors, channel partners, customers and
friends or relatives of such persons. Purchases of reserved shares are to be
made through an account at Bear, Stearns & Co. Inc. in accordance with Bear,
Stearns & Co. Inc.'s procedures for opening an account and transacting in
securities. The number of shares available for sale to the general public will
be reduced to the extent that any reserved shares are purchased. Any reserved
shares not purchased by our directors, officers, employees, business associates,
vendors and related persons will be offered by the underwriters to the general
public on the same terms as the other shares offered by this prospectus.
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LEGAL MATTERS
Certain legal matters in connection with the shares of common stock offered
by this prospectus will be passed upon for PRIMIS, Inc. by Powell, Goldstein,
Frazer & Murphy LLP, Atlanta, Georgia. Certain legal matters in connection with
the offering will be passed upon by Morris, Manning & Martin, L.L.P., counsel to
the underwriters listed on the cover page of this prospectus.
EXPERTS
The consolidated financial statements of PRIMIS, Inc. as of December 31,
1998 and 1999, and for each of the three years in the period ended December 31,
1999, included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Bliss Associates, Inc. as of December 31, 1999,
and for the year ended December 31, 1999, included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of InspecTech Corporation as of December 31, 1998
and 1999, and for the two years ended December 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given authority of said
firm as experts in auditing and accounting.
The financial statements of E.T. Jones & Associates, Inc. for the period
from January 1, 1999 to August 31, 1999, included in this prospectus have been
so included in reliance in the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Stewart Title of Birmingham, Inc. for the period
from January 1, 1999 to August 31, 1999, included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of The William Fall Group, Inc. for the period from
January 1, 1999 to February 28, 1999, included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Kushner & Robertson, Inc. for the period from
January 1, 1998 to June 14, 1998, included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, a registration statement
on Form S-1 under the Securities Act of 1933 with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and our common stock, reference
is made to the registration statement and the exhibits and any schedules filed
therewith. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance, if such contract or document is filed as an exhibit, reference is made
to the copy of such contract or other documents filed as an exhibit to the
registration statement, each statement being
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qualified in all respects by such reference. A copy of the registration
statement, including the exhibits and schedules thereto, may be read and copied
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site at http://www.sec.gov, from which interested persons can electronically
access the registration statement, including the exhibits and any schedules
thereto.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance with those requirements, will file periodic reports, proxy statements
and other information with the SEC. These reports, proxy and information
statements and other information will be available for inspection and copying at
the SEC's Public Reference Room and its web site as described above.
We intend to furnish our shareholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim financial information.
We also maintain an Internet site at http://www.primis.com. OUR WEB SITE AND
THE INFORMATION CONTAINED THEREIN OR CONNECTED THERETO WILL NOT BE DEEMED TO BE
INCORPORATED INTO THIS PROSPECTUS OR THE REGISTRATION STATEMENT OF WHICH IT
FORMS A PART.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PRIMIS, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-4
Statement of Changes in Shareholders' Equity for the Years
Ended December 31, 1997, 1998 and 1999.................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
BLISS ASSOCIATES, INC.
Report of Independent Accountants........................... F-19
Balance Sheet as of December 31, 1999....................... F-20
Statement of Operations for the Year Ended December 31,
1999...................................................... F-21
Statement of Changes in Shareholders' Equity for the Year
Ended December 31, 1999................................... F-22
Statement of Cash Flows for the Year Ended December 31,
1999...................................................... F-23
Notes to Financial Statements............................... F-24
INSPECTECH CORPORATION
Report of Independent Accountants........................... F-27
Balance Sheets as of December 31, 1998 and 1999............. F-28
Statements of Operations for the Years Ended December 31,
1998 and 1999............................................. F-29
Statement of Changes in Shareholders' Equity (Deficit) for
the Years Ended December 31, 1999 and 1998................ F-30
Statements of Cash Flows for the Years Ended December 31,
1998 and 1999............................................. F-31
Notes to Financial Statements............................... F-32
E.T. JONES & ASSOCIATES, INC.
Report of Independent Accountants........................... F-40
Statement of Operations for the Period January 1, 1999
through August 31, 1999................................... F-41
Statement of Changes in Shareholders' Equity for the Period
January 1, 1999 through August 31, 1999................... F-42
Statement of Cash Flows for the Period January 1, 1999
through August 31, 1999................................... F-43
Notes to Financial Statements............................... F-44
STEWART TITLE OF BIRMINGHAM, INC.
Report of Independent Accountants........................... F-46
Statement of Operations for the Period January 1, 1999
through August 31, 1999................................... F-47
Statement of Cash Flows for the Period January 1, 1999
through August 31, 1999................................... F-48
Notes to Financial Statements............................... F-49
THE WILLIAM FALL GROUP, INC.
Report of Independent Accountants........................... F-51
Statement of Operations for the Period January 1, 1999
through February 28, 1999................................. F-52
Statement of Changes in Shareholders' Equity for the Period
January 1, 1999 through February 28, 1999................. F-53
Statement of Cash Flows for the Period January 1, 1999
through February 28, 1999................................. F-54
Notes to Financial Statements............................... F-55
KUSHNER & ROBERTSON, INC.
Report of Independent Accountants........................... F-57
Statement of Operations for the Period January 1, 1998
through June 14, 1998..................................... F-58
Statement of Changes in Shareholders' Equity for the Period
January 1, 1998 through June 14, 1998..................... F-59
Statement of Cash Flows for the Period January 1, 1998
through June 14, 1998..................................... F-60
Notes to Financial Statements............................... F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
The recapitalization described in Note 1 to the financial statements has not
been consummated at March 10, 2000. When it has been consummated, we will be in
a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and changes in shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of PRIMIS, Inc. and its subsidiaries at December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion of these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above."
PricewaterhouseCoopers
Atlanta, Georgia
March 10, 2000
F-2
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
ASSETS 1998 1999
- ------ ----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 3,683,836 $ 8,993,957
Certificate of deposit.................................... 560,000 --
Accounts receivable, less allowance for doubtful Accounts
of approximately $449,000 and $803,000 at December 31,
1998 and 1999, respectively............................. 2,979,446 3,283,256
Prepaid expenses and other................................ 98,043 292,725
----------- -----------
Total current assets.................................. 7,321,325 12,569,938
Property and equipment, net................................. 753,767 3,208,560
Capitalized software, net................................... -- 167,902
Intangible assets, net...................................... 6,782,087 11,017,211
Security deposits and other assets.......................... 58,059 631,982
----------- -----------
Total assets.......................................... $14,915,238 $27,595,593
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $ 607,428 $ 2,010,414
Accrued bonuses........................................... 253,766 1,134,386
Current portion of long-term debt......................... 235,706 616,923
Current portion of long-term debt to related parties...... 356,058 11,625,984
----------- -----------
Total current liabilities............................. 1,452,958 15,387,707
Long-term debt.............................................. 497,665 836,751
Long-term debt to related parties........................... 499,242 2,261,533
----------- -----------
Total liabilities..................................... 2,449,865 18,485,991
Series A convertible preferred stock, $.01 par value,
1,200,000 shares authorized, 0 and 1,091,242 shares issued
and outstanding at December 31, 1998 and 1999,
respectively.............................................. -- 4,543,202
Series B convertible preferred stock, $.01 par value,
3,000,000 shares authorized, 0 and 725,130 shares issued
and outstanding at December 31, 1998 and 1999,
respectively.............................................. -- 4,401,542
Commitments and contingencies (Note 6)
Shareholders' equity
Common stock, $.01 par value, 100,000,000 shares
authorized, 12,958,754 and 13,181,901 shares issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ 129,588 131,820
Additional paid-in-capital.................................. 17,190,169 17,530,511
Accumulated deficit......................................... (4,854,384) (17,497,473)
----------- -----------
Total shareholders' equity............................ 12,465,373 164,858
----------- -----------
Total liabilities and shareholders' equity............ $14,915,238 $27,595,593
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenues............................................. $ 4,155,116 $ 14,355,790 $ 23,415,806
Cost of revenues..................................... 2,537,400 7,823,800 13,070,434
----------- ------------ ------------
Gross profit......................................... 1,617,716 6,531,990 10,345,372
Operating expenses
Selling, general and administrative................ 2,517,956 7,350,183 20,486,326
Research and development........................... 122,508 205,648 --
Depreciation and amortization...................... 217,722 522,334 2,265,053
----------- ------------ ------------
Total operating expenses......................... 2,858,186 8,078,165 22,751,379
----------- ------------ ------------
Operating loss....................................... (1,240,470) (1,546,175) (12,406,007)
Other income and expense
Interest and other income.......................... 45,256 155,481 181,103
Interest expense................................... (3,461) (24,323) (418,185)
----------- ------------ ------------
Loss before provision for income taxes........... (1,198,675) (1,415,017) (12,643,089)
Provision for income taxes........................... -- -- --
----------- ------------ ------------
Net loss............................................. (1,198,675) (1,415,017) (12,643,089)
----------- ------------ ------------
Preferred stock dividend............................. -- -- (228,994)
----------- ------------ ------------
Net loss applicable to common shareholders........... $(1,198,675) $ (1,415,017) $(12,872,083)
=========== ============ ============
Net loss per common and common equivalent
shares--basic and diluted.......................... $ (.23) $ (.15) $ (.99)
=========== ============ ============
Weighted average common and common equivalent shares
outstanding--basic and diluted..................... 5,214,370 9,150,756 13,013,743
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- --------------------- PAID-IN FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT
-------- ---------- ---------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996............ 782,124 $1,467,449 3,724,400 $ 37,244 $ 1,631,978 $ (106,504) $ (1,918,656)
Issuance of common stock.............. 2,715,706 27,157 1,722,843
Exchange of note receivable from
shareholder and related accrued
interest for common stock........... (186,220) (1,862) (98,138) 106,504
Net loss.............................. (1,198,675)
-------- ---------- ---------- -------- ----------- ----------- ------------
Balance at December 31, 1997............ 782,124 1,467,449 6,253,886 62,539 3,256,683 -- (3,117,331)
Issuance of common stock.............. 5,400,380 54,004 11,557,046
Exercise of options................... 372,440 3,724 396,276
Conversion of Class A Preferred
stock............................... (782,124) (1,467,449) 932,048 9,321 1,780,164 (322,036)
Compensation expense.................. 200,000
Net loss.............................. (1,415,017)
-------- ---------- ---------- -------- ----------- ----------- ------------
Balance at December 31, 1998............ -- -- 12,958,754 129,588 17,190,169 -- (4,854,384)
Issuance of common stock.............. 223,147 2,232 569,336
Dividends on Series A Preferred
stock............................... (178,234)
Dividends on Series B Preferred
stock............................... (50,760)
Net loss.............................. (12,643,089)
-------- ---------- ---------- -------- ----------- ----------- ------------
Balance at December 31, 1999............ -- $ -- 13,181,901 $131,820 $17,530,511 $ -- $(17,497,473)
======== ========== ========== ======== =========== =========== ============
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1996............ $ 1,111,511
Issuance of common stock.............. 1,750,000
Exchange of note receivable from
shareholder and related accrued
interest for common stock........... 6,504
Net loss.............................. (1,198,675)
------------
Balance at December 31, 1997............ 1,669,340
Issuance of common stock.............. 11,611,050
Exercise of options................... 400,000
Conversion of Class A Preferred
stock............................... --
Compensation expense.................. 200,000
Net loss.............................. (1,415,017)
------------
Balance at December 31, 1998............ 12,465,373
Issuance of common stock.............. 571,568
Dividends on Series A Preferred
stock............................... (178,234)
Dividends on Series B Preferred
stock............................... (50,760)
Net loss.............................. (12,643,089)
------------
Balance at December 31, 1999............ $ 164,858
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flow from operating activities
Net loss............................................ $(1,198,675) $(1,415,017) $(12,643,089)
Adjustment to reconcile net loss to net cash used in
operating activities
Depreciation and amortization..................... 217,722 522,334 2,265,053
Provision for doubtful accounts................... 26,022 458,534 354,507
Write-off of receivables.......................... 825,916
Noncash interest expense on notes payable......... -- 5,868 118,933
Compensation expense for stock options granted.... -- 200,000 1,800
Changes in operating assets and liabilities
Accounts receivable............................. (518,934) (2,000,804) (1,218,188)
Other assets.................................... (99,262) 49,090 (404,792)
Accounts payable and accrued expenses........... 336,466 244,582 2,203,041
----------- ----------- ------------
Net cash used in operating activities......... (1,236,661) (1,935,413) (8,496,819)
----------- ----------- ------------
Cash flow from investing activities
Purchases of property and equipment................. (84,457) (268,877) (3,116,895)
Partial redemption of certificate of deposit........ -- -- 170,553
Cash paid for business acquisitions................. (324,596) (3,466,823) (2,254,205)
Purchase of certificate of deposit.................. -- (560,000) --
----------- ----------- ------------
Net cash used in investing activities......... (409,053) (4,295,700) (5,200,547)
----------- ----------- ------------
Cash flow from financing activities
Payments on long-term debt.......................... (94,891) (288,767) (974,553)
Payment of capital lease obligation................. -- (27,639) (254,172)
Proceeds from issuance of convertible debt.......... -- -- 10,011,174
Proceeds from issuance of stock..................... 1,750,000 8,994,132 8,731,126
Proceeds from long-term debt........................ -- 560,000 1,493,912
----------- ----------- ------------
Net cash provided by financing activities..... 1,655,109 9,237,726 19,007,487
----------- ----------- ------------
Net increase in cash.................................. 9,395 3,006,613 5,310,121
Cash at beginning of period........................... 667,828 677,223 3,683,836
----------- ----------- ------------
Cash at end of period................................. $ 677,223 $ 3,683,836 $ 8,993,957
=========== =========== ============
Supplemental cash flow information
Cash paid for interest.............................. $ 3,461 $ 3,858 $ 101,813
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We are a national provider of appraisals, title searches, flood
determination, valuation tools and other property information services. Our
revenues are subject to fluctuation based on the volume of mortgage lending
activity, which is dependent on factors such as interest rates, home sales, and
general economic conditions.
BASIS OF PRESENTATION
The consolidated financial statements include our accounts and those of our
wholly-owned subsidiaries from the date of acquisition after elimination of
intercompany transactions.
On March 9, 2000, our Board of Directors approved a 1.8622-for-one split of
our common stock. This split will be effected through a stock dividend and will
be effective concurrent with the consummation of a proposed initial public
offering. The accompanying financial statements give retroactive effect for this
stock split as if it occurred at inception of the Company.
Our financial statements are prepared using generally accepted accounting
principles applicable to a going concern which contemplate the realization of
assets and the settlement of liabilities in the normal course of business. We
have recognized recurring losses and negative cash flows from operations since
our inception. Historically, we have funded our cash needs by issuance of
securities to related parties. We believe that continued private financings or
an initial public offering of common stock and the successful commercialization
of our products and services will generate sources of liquidity and adequate
capital to meet our annual cash needs.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported and disclosures made in the
financial statements and accompanying notes. Actual results may differ from
those estimates. Such estimates include the useful lives and net realizable
value of intangible assets capitalized software and property and equipment, the
allowance for doubtful accounts and income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents. Cash equivalents at December 31,
1998 and 1999 consist of funds on deposit with banks.
PROPERTY AND EQUIPMENT
Property and equipment, including certain equipment acquired under capital
leases, are stated at cost. Property and equipment are depreciated using the
double-declining balance method over the assets' expected useful lives which
range from three to seven years. Assets acquired under capital leases are
amortized over the term of the underlying lease. Amortization of leasehold
improvements is recorded on a straight-line basis over the shorter of the useful
life of the improvement or the term of the lease. Such amounts are included in
depreciation expense. Maintenance and repairs are charged to expense as
incurred.
F-7
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE
In fiscal 1999, we adopted AICPA Statement of Position 98-1, "ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE," which
requires the capitalization of certain costs incurred in the development of
internal-use software. Software development costs are amortized using the
straight-line method over the assets' expected useful lives of three years.
There were no software development costs in 1997 and 1998 and $192,000 in 1999.
Amortization expense for 1999 was $23,000.
The carrying value of software and development costs is regularly reviewed,
and a loss is recognized when the value of estimated undiscounted cash flow
benefit arising from the asset falls below the unamortized cost.
INCOME TAXES
We account for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS 109").
Under the SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The Company provides a valuation allowance for deferred tax assets which are
determined by management to be below the threshold for realization established
by SFAS 109.
INTANGIBLE ASSETS
Intangible assets consist of covenants not to compete and excess of costs
over the fair value of net assets acquired relating to acquired businesses.
Non-compete agreements are amortized on a straight-line basis over a period of
four to six years. The amortization period is commensurate with the life of the
underlying non-compete agreement with each respective party. The excess of costs
over the fair value of net assets acquired is goodwill. We believe that each
acquisition contributed indistinguishable synergistic qualities which generated
value at the enterprise level. The excess of costs over the fair value of net
assets acquired is amortized on a straight-line basis over 15 years for the
years ended December 31, 1997 and 1998 and are amortized on a straight line
basis over eight years for the year ended December 31, 1999.
The lives established for these assets are a composite of many factors which
are subject to change because of the nature of our operations. This is
particularly true for costs in excess of net assets acquired which reflect value
attributable to the going concern nature of acquired businesses, the stability
of their operations, market presence and reputation.
At each balance sheet date, a determination is made by management to
ascertain whether the intangible assets have been impaired. If events or changes
in circumstances indicate that the carrying amount of these assets may not be
recoverable, we estimate the future cash flows, as an undiscounted basis,
expected to result from the use of the assets. If the sum of the expected future
cash flows is less than the carrying amount of the asset, an impairment loss is
recognized. We do not believe that there are any facts or circumstances
indicating impairment of intangible assets at December 31, 1999.
In accordance with our accounting policies for intangible assets, we
evaluate whether changes in events and circumstances warrant revised estimates
for these assets. During 1999, we made a determination regarding the remaining
useful lives of goodwill. We considered the changes that
F-8
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
occurred in 1999, specifically, the changes in the nature of our business model,
web-based business-to-business strategy, new management, national versus local
customer sales and marketing, delivery methodology and increased competition in
a web-based environment. Based upon our assessment, we reduced the useful life
for the costs in excess of net assets acquired to eight years from 15 years,
effective January 1, 1999. Goodwill for businesses acquired during 1999 has been
recorded based on an eight year life. The unamortized cost for pre-1999
acquisitions are amortized over the lesser of the remaining useful life or eight
years. The impact of this change in estimate is included in our statement of
operations for the year ended December 31, 1999. The change in estimate
increased amortization expense by $475,000 for the year ended December 31, 1999
and would have increased amortization expense by $17,000 and $259,000 for the
years ended December 31, 1997 and 1998, respectively.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based upon our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We provide for an allowance for doubtful accounts which are
estimated to be uncollectible.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for our financial
instruments approximate fair values.
ADVERTISING EXPENDITURES
We expense the cost of advertising programs when incurred. Advertising
expense was approximately $12,000, $23,000 and $441,000 in 1997, 1998 and 1999,
respectively.
OTHER MATTERS
Certain prior years amounts have been reclassified to conform to current
year presentation.
2. PROPERTY AND EQUIPMENT
At December 31, 1998 and 1999, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Office and computer equipment........................ $1,408,406 $3,270,858
Furniture............................................ 289,667 642,971
Leasehold improvements............................... 32,571 139,125
Software............................................. -- 653,436
---------- ----------
1,730,644 4,706,390
Less: Accumulated depreciation and amortization...... (976,877) (1,497,830)
---------- ----------
Property and equipment, net........................ $ 753,767 $3,208,560
========== ==========
</TABLE>
Depreciation expense was $167,000, $259,000 and $769,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
F-9
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
During the years ended December 31, 1997, 1998 and 1999, we consummated the
following acquisitions:
<TABLE>
<CAPTION>
PER SHARE
FAIR VALUE SHARES OF
OF PRIMIS COMMON
ACQUISITION COMMON STOCK NOTES
BUSINESS ACQUIRED DATE STOCK (3) ISSUED PAYABLE (2) EARNOUT CASH
- ----------------- ------------------ ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Carr, Fleming & Associates,
Inc............................. May 12, 1997 $ 79,929 $ 23,521
Executive Appraisal Services...... August 4, 1997 100,983 22,960
Thomas Brown, III................. September 1, 1997 35,580
Management Plus, Inc.............. October 31, 1997 284,174 60,958
Graham-Foster & Associates........ November 20, 1997 153,769 40,000
Suncoast Appraisal Group.......... December 10, 1997 86,130 100,000
John B. Kennedy................... December 15, 1997 105,000 25,000
Kushner & Robertson............... June 18, 1998 $ 2.15 1,395,349 3,000,000
Pardu, Heid, Church, Smith &
Waller.......................... December 1, 1998 775,000
The William Fall Group............ February 26, 1999 766,557 369,362
First Houston Appraisals, Inc..... April 1, 1999 415,520 249,052
Cramer Property Services, Inc..... September 3, 1999 3.22 18,693 356,000 427,339
E.T. Jones & Associates, Inc...... September 29, 1999 2.15 93,023 1,000,000 847,896
Stewart Title of Birmingham,
Inc............................. September 29, 1999 2.15 93,023 600,000 $500,000 217,716
Fournier, Crane & Associates...... December 3, 1999 8.22 18,249 125,000 285,774
---------- ---------- -------- ----------
Total........................... 1,618,337 $4,073,062 $500,000 $6,480,158
========== ========== ======== ==========
<CAPTION>
EXCESS OF
COST OVER
FAIR VALUE OF
NET ASSETS
FAIR VALUE ACQUIRED
OF NET LESS
TANGIBLE INDENTIFIABLE INDENTIFIABLE
TOTAL ASSETS INTANGIBLE INTANGIBLE
BUSINESS ACQUIRED CONSIDERATION ACQUIRED ASSETS ASSETS
- ----------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Carr, Fleming & Associates,
Inc............................. $ 103,450 $ 13,933 $ 89,517
Executive Appraisal Services...... 123,943 33,985 89,958
Thomas Brown, III................. 35,580 7,848 27,732
Management Plus, Inc.............. 345,132 45,458 299,674
Graham-Foster & Associates........ 193,769 27,170 166,599
Suncoast Appraisal Group.......... 186,130 30,954 155,176
John B. Kennedy................... 130,000 -- 130,000
Kushner & Robertson............... 6,000,000 944,003 $ 914,000 4,141,997
Pardu, Heid, Church, Smith &
Waller.......................... 775,000 68,052 228,600 478,348
The William Fall Group............ 1,135,919 431,053 105,700 599,166
First Houston Appraisals, Inc..... 664,572 19,607 96,700 548,265
Cramer Property Services, Inc..... 843,531 17,843 124,000 701,688
E.T. Jones & Associates, Inc...... 2,047,896 5,749 306,300 1,735,847
Stewart Title of Birmingham,
Inc............................. 1,017,716(1) 76,000 141,300 800,416
Fournier, Crane & Associates...... 560,781 18,000 81,400 461,381
----------- ---------- ---------- -----------
Total........................... $14,163,419 $1,739,655 $1,998,000 $10,425,764
=========== ========== ========== ===========
</TABLE>
F-10
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
- ------------
(1) Excludes earnout of up to $500,000 payable to the former owners which has
not been earned as of the date hereof.
(2) The notes payable to the former owners are payable in equal installments
over periods of two to four years.
(3) The value assigned to the shares of common stock issued as consideration for
the companies we acquired has been valued based upon arms' length
negotiations between ourselves and the target companies and reflects the
valuation used in the most recent private financing consummated prior to the
finalization of price negotiations and other factors considered applicable
by us and the owners of the acquired companies.
These acquisitions were accounted for under the purchase method.
Identifiable intangible assets and the purchase price in excess of identified
tangible and intangible assets acquired have been allocated to goodwill and are
being amortized over their remaining useful lives. Identifiable intangible
assets consist of non-compete agreements with previous owners of the acquired
entities. These intangible assets, in the aggregate of $2.0 million, are being
amortized over a period of four to six years. The excess of cost over the fair
value of net assets acquired, in the aggregate of $10.4 million, is being
amortized over eight years.
The following unaudited pro forma summary combines the consolidated results
of the Company and the 1998 and 1999 acquisitions as if the acquisitions had
occurred as of January 1, 1998. The pro forma summary does not purport to
represent what out results of operations would actually have been if such
transactions had occurred as of January 1, 1998, or to project the Company's
results of operations for any future period.
<TABLE>
<CAPTION>
1998 1999
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Pro forma revenues.......................................... $41,238,927 $ 37,429,370
Pro forma net losses........................................ (7,598,880) (15,578,706)
Pro forma loss per share.................................... (.83) (1.22)
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Non-compete agreements...................................... $1,252,950 $ 2,108,350
Goodwill.................................................... 5,879,023 10,596,103
---------- -----------
7,131,973 12,704,453
Less: Accumulated amortization.............................. (349,886) (1,687,242)
---------- -----------
Intangibles, net............................................ $6,782,087 $11,017,211
---------- -----------
</TABLE>
Amortization expense relating to intangible assets was $263,000 and
$1,020,433 for the years ended December 31, 1998 and 1999, respectively.
F-11
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Note payable to bank, principle and interest payable monthly
at a rate
of 7.75%, due November 15, 2001........................... $ 546,347 $ 372,569
Convertible debt, payable to related parties, accrues
interest at a rate of 8% per annum, due May 2000 (see Note
7)........................................................ -- 10,011,174
Notes payable to related parties, net, interest rates
ranging from 7-7.75%, due at various dates from January
2000 through June 2008.................................... 855,300 3,876,343
Capital lease obligation.................................... 187,024 1,081,105
--------- ----------
1,588,671 15,341,191
Less: Current installments.................................. 591,764 12,242,907
--------- ----------
Long-term debt, excluding current installments.............. $ 996,907 $3,098,284
========= ==========
</TABLE>
Notes payable to related parties arose from business acquisitions in 1998
and 1999. Discounts relating to the notes payable were $0 and $281,000 as of
December 31, 1998 and 1999, respectively.
At December 31, 1999, our weighted average short-term borrowing rate was 8%.
At December 31, 1999, approximate aggregate principal maturities of notes
payable and capitalized lease obligations, are as follows:
<TABLE>
<S> <C>
2000........................................................ $12,242,907
2001........................................................ 2,268,439
2002........................................................ 652,430
2003........................................................ 121,153
2004........................................................ 8,328
2005 and thereafter......................................... 47,934
-----------
$15,341,191
===========
</TABLE>
F-12
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENT AND CONTINGENCIES
We lease office space and certain equipment under noncancelable operating
and capital leases expiring in various years through 2003. Future minimum
payments under the noncancellable operating and capital leases with initial
terms of one year or more consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
---------- ----------
<S> <C> <C>
2000................................................. $ 576,593 $1,694,493
2001................................................. 553,571 1,248,330
2002................................................. 180,669 1,083,728
2003................................................. 1,786 1,179,271
---------- ----------
Total minimum obligations............................ $1,312,619 $5,205,822
==========
Less interest on capital leases...................... 231,514
----------
Present value of net minimum obligation.............. 1,081,105
Less: Current portion................................ 430,256
----------
Long-term obligations at December 31, 1999........... $ 650,849
==========
</TABLE>
Rental expense under operating leases was approximately $318,000, $707,000
and $1,203,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
From time to time, we are made party to routine litigation incidental to our
business. As of December 31, 1999, we were not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on our company.
The Company has employment agreements with several members of management
which provide for severance upon termination without cause.
7. SHAREHOLDERS' EQUITY
Historically we have funded our cash needs by issuance of securities to
related parties.
During June 1998, we consummated the following equity transactions:
i. Amended our articles of incorporation to reclassify its Class A and
Class B common stock into a single class of common stock.
ii. Sold 4,000,000 shares of common stock for approximately $8,600,000.
iii. An officer exercised 372,440 options to acquire common stock for
approximately $400,000.
iv. Converted all 782,124 shares of Class A convertible preferred stock
issued and outstanding into an equivalent number of shares of common
stock pursuant to the original terms of the agreement. In addition, we
issued approximately 148,837 shares of common stock in settlement of
the cumulative unpaid dividends of approximately $320,000.
In June 1999, we issued and sold 1,091,242 shares of Series A convertible
preferred stock to existing investors who exercised options and subscription
rights to purchase such shares at an exercise price per share of $4.00. The
Series A shares will mandatorily convert into an aggregate of 1,091,242 shares
of our common stock upon the closing of an initial public offering of common
stock. All accrued
F-13
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
and unpaid dividends on the Series A shares will be valued at the initial public
offering price and payable in shares of our common stock on the day of the
offering.
In October 1999, we issued and sold an aggregate of 725,130 shares of
Series B convertible preferred stock to existing investors at a purchase price
per share of $6.00. The Series B shares will mandatorily convert into an
aggregate of 725,130 shares of our common stock upon an initial public offering
of common stock. All accrued and unpaid dividends on the Series B shares will be
valued at the initial public offering price and payable in shares of our common
stock on the day of the offering.
In November 1999, we issued and sold $10,011,174 aggregate principal amount
of convertible notes and warrants to certain existing common and preferred
shareholders. Our November 1999 convertible notes mature six months after the
date issued, and bear interest at 8% per annum. Pursuant to their terms, the
notes will mandatorily convert into shares of our common stock if an initial
public offering is completed prior to the date the notes mature, and will
convert into shares of our Series C convertible preferred stock if a qualifying
financing occurs prior to maturity at the lower of $15.31 or the price per share
of the securities issued in the qualifying financing, subject to anti-dilution
requirements. With respect to the notes, we have assumed a conversion price of
$8.22 per share. With respect to the warrants, we have assumed an exercise price
of $15.31 per share.
8. STOCK BASED COMPENSATION
We have issued options to our employees under the terms of the 1997 Employee
Stock Option Plan (the "Plan"). As amended, the Plan permits management to grant
either incentive stock options or nonqualified stock options to purchase shares
of common stock to our employees. The Plan authorizes the issuance of options to
purchase up to an aggregate of 4,000,000 shares of common stock. Options issued
under the plan vest at varying rates over periods up to five years from the date
of grant. The maximum term for options issued under the Plan is ten years.
The following table summarizes information about options issued in 1997,
1998 and 1999 and outstanding at December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- ---------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... -- -- 1,256,985 $ .74 1,330,076 $ 1.19
Granted........................... 1,311,361 $ .73 520,950 2.15 2,471,459 3.96
Exercised......................... -- -- 372,440 1.07 -- --
Forfeited......................... -- -- 75,419 .64 855,463 1.36
Expired........................... 54,376 .54 -- -- 206,456 .54
--------- ----- ----------- ----- --------- ------
Outstanding at end of year.......... 1,256,985 .74 1,330,076 1.19 2,739,616 3.68
--------- ----- ----------- ----- --------- ------
Option exercisable at year-end...... -- -- 235,879 .54 35,504 1.53
--------- ----- ----------- ----- --------- ------
Weighted average fair value of
options granted during the year... $ .18 $ .46 $ 1.19
</TABLE>
F-14
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BASED COMPENSATION (CONTINUED)
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED
OPTIONS AS OF AVERAGE REMAINING OPTIONS AVERAGE
DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 PRICE LIFE 1999 PRICE
- --------------- ------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
$.01-$2.68................... 2,043,159 $ 2.14 8.75 years 35,505 $1.53
$2.68-$15.31................. 658,288 8.22 9.94 years -- --
--------- ------ ---------- ------ -----
$.01-$8.22................... 2,701,447 $ 3.62 9.15 years 35,505 $1.53
</TABLE>
We account for employee stock options in accordance with Accounting
Principles Board Option 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related
interpretations. The fair market value of an option is determined by the
compensation committee and approved by the Board of Directors. We recognized $0,
$200,000, and $1,800 in compensation expense relative to options granted in
1997, 1998, and 1999, respectively.
We have adopted the disclosure-only provision of Financial Accounting
Standards Board Statement 123 ("FAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, which define a fair value based method whereby compensation
expense is measured at the grant date based on the fair value of the award. Had
compensation cost for our stock-based compensation plan been determined on a
fair value basis in accordance with the provisions of this statement, our net
loss for the years ended December 31, 1997, 1998 and 1999, would have been as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
As reported........................... $(1,198,675) $(1,415,017) $(12,872,083)
Pro forma............................. (1,231,924) (1,449,189) (12,998,908)
Pro forma loss per share.............. $ (.24) $ (.19) $ (1.00)
</TABLE>
The amount of the pro forma charge has been determined using the minimum
value method as permitted for private companies by FAS 123. For purposes of the
calculation, management used the following assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk free interest rate.................... 5.58% 4.92% 5.84%
Expected term.............................. 5.00 years 1.81 years 6.00 years
Expected volatility........................ 0.00% 0.00% 0.00%
Expected dividend yield.................... 0.00% 0.00% 0.00%
</TABLE>
9. INCOME TAXES
We have accounted for income taxes under the liability method required by
SFAS 109. Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1998 and
1999, we had net deferred tax assets of approximately $1,542,000 and $6,001,000,
respectively, which were offset by a valuation allowance because the assets did
not meet the
F-15
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
criteria for recognition in SFAS 109. Significant components of our deferred tax
liabilities and assets as of December 31, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for Doubtful Accounts.................. $ 170,518 $ 305,231
Amortization..................................... -- 178,513
Net Operating Losses............................. 1,371,880 5,763,091
Other............................................ 2,776
----------- -----------
Total deferred tax assets.......................... 1,542,398 6,249,611
Deferred tax liabilities:
Capitalized Software............................. -- (248,306)
----------- -----------
Total deferred tax liabilities..................... -- (248,306)
Net deferred tax assets............................ 1,542,398 6,001,305
Valuation Allowance................................ (1,542,398) (6,001,305)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
The change in the total valuation allowance for 1999 resulted primarily from
increases in the above described temporary differences on which a valuation
allowance was provided.
We did not record an income tax expense or benefit from operations for the
years ended December 31, 1998 and 1999. The following table provides a
reconciliation between the Federal income tax rate and our effective income tax
rate:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal income tax rate.............. (34%) (34%) (34%)
Increase in valuation allowance................ 34% 34% 35%
Other, net..................................... 0% 0% (1%)
---- ---- ----
Effective tax rate............................. 0% 0% 0%
==== ==== ====
</TABLE>
At December 31, 1999, we had Federal net operating loss (NOL) carryforwards
of approximately $15.2 million. If not utilized, the NOLs will begin expiring in
the year ended December 31, 2011. Due to changes in stock ownership, the NOLs
are subject to annual utilization limitations under Internal Revenue Code
Section 382.
10. SEGMENT INFORMATION
Our management considers the performance and preparation of property
information services to be our sole business segment. No single customer
accounted for more than 10% of our revenues in 1997, 1998 and 1999.
F-16
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS
ACQUISITIONS
During the period from January 1, 2000 through March 3, 2000, we consummated
the following acquisitions:
<TABLE>
<CAPTION>
PER SHARE
FAIR VALUE SHARES OF
OF PRIMIS COMMON
ACQUISITION COMMON STOCK NOTES TOTAL
BUSINESS ACQUIRED DATE STOCK (3) ISSUED PAYABLE (2) EARNOUT CASH CONSIDERATION
- ----------------- ----------------- ---------- --------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
InspecTech Corporation...... January 7, 2000 $ 8.22 1,448,009 $ 606,856 $12,509,489
The Appraisal Company....... January 7, 2000 $ 380,000 376,300 756,300
Bliss Associates............ January 18, 2000 908,698 2,313,290 3,221,988
Suncoast Appraisal Group of
Charlotte County, Inc..... February 14, 2000 $ 148,000 110,000 110,000(1)
Focus Appraisal Services,
Inc....................... February 18, 2000 164,570 210,500 375,070
--------- ---------- ----------- ---------- -----------
Total..................... 1,448,009 $1,453,268 $ 148,000 $3,616,946 $16,972,847
========= ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
EXCESS OF
COST OVER
FAIR VALUE OF
NET ASSETS
FAIR VALUE ACQUIRED
OF NET LESS
TANGIBLE INDENTIFIABLE INDENTIFIABLE
TOTAL ASSETS INTANGIBLE INTANGIBLE
BUSINESS ACQUIRED CONSIDERATION ACQUIRED ASSETS ASSETS
- ----------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
InspecTech Corporation..................................... $12,509,489 $114,000 $12,395,489
The Appraisal Company...................................... 756,300 25,000 $ 109,700 621,600
Bliss Associates........................................... 3,221,988 814,309 361,200 2,046,479
Suncoast Appraisal Group of Charlotte County, Inc.......... 110,000(1) 24,000 12,900 73,100
Focus Appraisal Services, Inc.............................. 375,070 6,000 56,900 312,170
----------- -------- ----------- -----------
Total...................................................... $16,972,847 $983,309 $ 540,700 $15,448,838
=========== ======== =========== ===========
</TABLE>
- ---------------
(1) Excludes earnout of up to $148,000 payable to the former owners which has
not been earned as of the date hereof.
(2) The notes payable to the former owners are payable in equal installments
over a period of two to four years.
(3) The value assigned to the shares of common stock issued as consideration for
the companies we acquired has been valued based upon arms' length
negotiations between ourselves and the target companies and reflects the
valuation used in the most recent private financing consummated prior to the
signing of the respective acquisition agreements and other factors
considered applicable by us and the owners of the acquired companies.
These acquisitions were accounted for under the purchase method. Each
purchase price in excess of identified tangible and intangible assets acquired
has been allocated to goodwill and is amortized over eight years. Based on the
acquisition dates, the allocation of the pruchase price in excess of the fair
value of the net tangible assets acquired between identifiable intangible assets
and goodwill for companies acquired subsequent to December 31, 1999 is in
process. The final allocations could differ from the amounts set forth above.
CAPITAL TRANSACTIONS
In January 2000, we issued and sold $9,721,862 aggregate principal amount of
convertible notes and warrants to certain existing common and preferred
shareholders. The convertible notes bear interest at the rate of 8% per annum,
and will mature six months after the date issued unless we complete an initial
public stock offering or other qualifying financing prior to that time. If an
initial
F-17
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
public offering is completed within 6 months, the notes will mature 181 days
after the closing of the offering. Prior to a public offering, the convertible
notes are convertible into shares of our Series C convertible preferred stock at
the option of the holder. Upon completion of a public offering of our common
stock, the notes will be convertible into shares of our common stock. In each
case, the conversion price is the lower of $8.22 per share or the per share
price of the securities issued in a qualifying financing, subject to
anti-dilution adjustments. With respect to the notes and warrants, we have
assumed a conversion or exercise price of $8.22 per share.
INITIAL PUBLIC OFFERING
On January 20, 2000, we filed a Form S-1 with the Securities and Exchange
Commission to register shares of our common stock. This filing was not effective
as of the date of these financial statements.
STOCK SPLIT
On March 9, 2000, our Board of Directors approved a 1.8622-for-one split of
our common stock. This split will be effected through a stock dividend and will
be effective concurrent with the consummation of the aforementioned initial
public offering.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Bliss Associates, Inc. at
December 31, 1999 and the results of its operations and its cash flows for the
year ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 28, 2000
F-19
<PAGE>
BLISS ASSOCIATES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
--------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $249,310
Certificate of deposit.................................... 13,001
Accounts receivable, less allowance for doubtful accounts
of $10,000 at December 31, 1999......................... 466,651
Prepaid expenses and other current assets................. 2,700
--------
Total current assets.................................... 731,662
Property and equipment, net............................... 42,334
Other assets.............................................. 63,071
--------
Total assets............................................ $837,067
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $151,113
--------
Total current liabilities............................... 151,113
Deffered income taxes................................... 4,743
--------
Total liabilities....................................... 155,856
Shareholders' equity
Common stock,par vlaue $1.00 per share.................... 3,300
Authorized 30,000 shares, 3,300 shares issued, 2,153
shares outstanding
Additional paid-in-capital................................ 29,910
Retained earnings......................................... 871,385
Common stock in treasury, at cost, 1,147 shares........... (223,384)
--------
Total shareholders' equity.............................. 681,211
========
Total liabilities and shareholders' equity.............. $837,067
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
BLISS ASSOCIATES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Revenues.................................................... $2,580,354
Cost of revenues............................................ 984,937
----------
Gross Profit................................................ 1,595,417
----------
Operating expenses
Selling, general and administrative....................... 1,408,137
Depreciation.............................................. 12,038
----------
Total operating expenses................................ 1,420,175
----------
Operating income............................................ 175,242
Other income and expense
Interest and other income, net............................ 26,734
----------
Income before provision for income taxes.................... 201,976
Provision for income taxes.................................. 111,217
----------
Net income.................................................. $ 90,759
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
BLISS ASSOCIATES, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- TREASURY PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT STOCK CAPITAL EARNINGS EQUITY
-------- -------- --------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998.............. 3,300 $3,300 $(223,384) $29,910 $780,626 $590,452
Net Income.............................. 90,759 90,759
----- ------ --------- ------- -------- --------
Balance at December 31, 1999.............. 3,300 $3,300 $(223,384) $29,910 $871,385 $681,211
===== ====== ========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
BLISS ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Cash flow from operating activities
Net income................................................ $ 90,759
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization........................... 12,038
Changes in operating assets and liabilities
Accounts receivable................................... 37,189
Prepaid and other assets.............................. (10,505)
Accounts payable and accrued liabilities.............. (9,884)
--------
Net cash provided by operating activities........... 119,597
--------
Cash flow from investing activities
Purchases of property and equipment..................... (8,782)
Net cash used in investing activities............... (8,782)
--------
Cash flow from financing activities......................... --
--------
Net cash provided by financing activities........... --
--------
Net increase in cash........................................ 110,815
Cash at beginning of period................................. 138,495
--------
Cash at end of period....................................... $249,310
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
BLISS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide appraisal services to commercial and home real estate buyers in
the greater Kansas City area. Our revenues are subject to fluctuation based on
the volume of mortgage lending activity, which is dependent on factors such as
interest rates, home sales, and the general economic conditions.
On January 18, 2000, we were acquired by PRIMIS, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives of property and equipment, the allowance for
doubtful accounts and income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the double-declining balance method over the assets' expected
useful lives which range from 5 to 7 years. Assets acquired under capital leases
are amortized over the term of the underlying lease. Amortization of leasehold
improvements is recorded on a straight-line basis over the shorter of the useful
life of the improvement or the term of the lease. These amounts are included in
depreciation expense. Maintenance and repairs are charged to expense as
incurred.
INCOME TAXES
Under the Statement of Financial Accounting Standards No. 109 (SFAS) 109,
Accounting for Income Taxes, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
We provide a valuation allowance for deferred tax assets which are
determined by management to be below the threshold for realization established
by SFAS 109.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and
F-24
<PAGE>
BLISS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provide for an allowance for doubtful accounts which are estimated to be
uncollectible. Such allowances have historically been within our management's
expectations.
Our management considers the performance of commercial and residential
real-estate appraisal services to be our sole business segment. No single
customer accounted for more than 10% of our revenues for the year ended
December 31, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for our financial
instruments approximate fair values.
2. PROPERTY AND EQUIPMENT
At December 31, 1999, property and equipment consisted of the following:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Furniture and equipment..................................... $ 386,124
Leasehold improvements...................................... 6,526
---------
392,650
Less: Accumulated depreciation............................ (350,316)
---------
Property and equipment, net............................... $ 42,334
=========
</TABLE>
Depreciation expense was $12,038 for the year ended December 31, 1999.
3. COMMITMENTS AND CONTINGENCIES
We lease office space under a noncancelable operating lease expiring in
June 2003. Future minimum payments under the noncancelable operating lease
consist of the following at December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ $ 99,718
2001........................................................ $101,732
2002........................................................ $103,747
2003........................................................ $ 52,377
</TABLE>
Rental expense under this operating lease was approximately $97,703 for the
year ended December 31, 1999.
From time to time, we are made a party to routine litigation incidental to
our business. As of December 31, 1999 we were not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our Company.
4. SHAREHOLDERS' EQUITY
At December 31, 1999, we had 3,300 shares outstanding with a par value of
$1. There has been no stock activity for 1999.
F-25
<PAGE>
BLISS ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
We have accounted for income taxes under the liability method required by
SFAS 109. Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1999, we
had a net deferred tax liability of $4,743.
Significant components of our deferred tax liabilities and assets as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Deferred tax asset:
Allowance for Doubtful Accounts........................... $ 3,800
Deferred tax liability:
Depreciation.............................................. (8,543)
-------
Deferred tax liability...................................... $(4,743)
=======
</TABLE>
We did record an income tax expense from operations for the year ended
December 31, 1999. The following table provides a reconciliation between the
Federal income tax rate and our effective income tax rate:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Statutory Federal income tax rate........................... 34%
Non deductible deferred compensation........................ 9%
Other, net.................................................. 12%
--
Tax liability............................................... 55%
==
</TABLE>
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and changes in shareholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of InspecTech
Corporation at December 31, 1998 and 1999, and the results of its operations and
its cash flows for the years ended December 31, 1998 and 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 14, 2000
F-27
<PAGE>
INSPECTECH CORPORATION
BALANCE SHEET
AS OF DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 60,057 $ 84,379
Accounts receivable, less allowance for doubtful accounts
of $127,929 and $149,601 at December 31, 1998 and 1999,
respectively............................................ 96,427 534,763
Prepaid expenses and other current assets................. 147,046 213,551
------------ ------------
Total current assets.................................. 303,530 832,693
Property and equipment, net................................. 347,235 189,956
Intangible assets, net of accumulated amortization of
$72,524 and $179,161 at December 31, 1998 and 1999,
respectively.............................................. 347,860 322,905
Security deposits and other assets.......................... 66,633 4,616
------------ ------------
Total assets.......................................... $ 1,065,258 $ 1,350,170
============ ============
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses..................... $ 978,292 $ 707,098
Notes payable and capital lease obligations............... 5,330,969 477,079
------------ ------------
Total current liabilities............................. 6,309,261 1,184,177
Long term portion of capital lease obligations.............. 48,332 --
------------ ------------
Total liabilities..................................... 6,357,593 1,184,177
Contingencies and Commitments (Note 5)
Shareholders' equity (deficit)
Preferred stock no par value, authorized 10,000,000 shares
Series A Preferred 833,333 shares issued and outstanding
at December 31, 1998.................................. 2,450,000
Series A1 Preferred 3,991,628 shares issued and
outstanding at December 31, 1999...................... 778,203
Common stock no par value, authorized 50,000,000 shares,
issued and outstanding 7,821,508 shares at December 31,
1998 and 2,543,918 at December 31, 1999................. 6,375,475 14,540,470
Additional paid-in capital................................ 696,381 719,016
Accumulated deficit....................................... (14,814,191) (15,871,696)
------------ ------------
Total shareholders' equity (deficit).................. (5,292,335) 165,993
------------ ------------
Total liabilities and shareholders' equity
(deficit)........................................... $ 1,065,258 $ 1,350,170
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
INSPECTECH CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 3,280,338 $ 4,367,903
Cost of revenue............................................. 2,544,748 2,401,997
----------- -----------
Gross profit................................................ 735,590 1,965,906
----------- -----------
Operating expenses
Selling, general and administrative....................... 3,712,850 2,654,877
Depreciation and amoritization............................ 320,132 264,974
Total operating expense................................. 4,032,982 2,919,851
----------- -----------
Operating loss.............................................. (3,297,392) (953,945)
Other income and expense
Interest and other expense net............................ (1,167,298) (103,560)
----------- -----------
Loss before provision for income taxes...................... (4,464,690) (1,057,505)
----------- -----------
Provision for income taxes.................................. -- --
----------- -----------
Net loss.................................................... $(4,464,690) (1,057,505)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
INSPECTECH CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
------------------------ -------------------------- PAID-IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME
---------- ----------- ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997................ 833,333 $ 2,450,000 5,989,100 $ 5,962,226 $366,140 $(69,714)
Issuance of common stock.................. 1,832,408 413,249
Issuance of warrants...................... 330,241
Unrealized loss on marketable
securities.............................. 69,714
Net loss..................................
---------- ----------- ------------ ----------- -------- --------
Balance at December 31, 1998................ 833,333 2,450,000 7,821,508 6,375,475 696,381 --
Conversion of Series A Preferred Stock
into common stock....................... (833,333) (2,450,000) 833,333 2,450,000
Issuance of Series A1 preferred stock..... 4,204,543 825,000
Conversion of debt into common stock...... 147,912,586 5,668,198
Reverse stock split....................... (154,247,587)
Conversion of Series A1 into common
stock................................... (212,715) (46,797) 212,715 46,797
Issuance of options to non-employees...... 22,635
Net loss..................................
---------- ----------- ------------ ----------- -------- --------
Balance at December 31, 1999................ 3,991,828 $ 778,203 2,532,555 $14,540,470 $719,016 $ --
========== =========== ============ =========== ======== ========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY (DEFICIT)
------------ ----------------
<S> <C> <C>
Balance at December 31, 1997................ $(10,349,501) $(1,640,849)
Issuance of common stock.................. 413,249
Issuance of warrants...................... 330,241
Unrealized loss on marketable
securities.............................. 69,714
Net loss.................................. (4,464,690) (4,464,690)
------------ -----------
Balance at December 31, 1998................ (14,814,191) (5,292,335)
Conversion of Series A Preferred Stock
into common stock....................... --
Issuance of Series A1 preferred stock..... 825,000
Conversion of debt into common stock...... 5,668,198
Reverse stock split....................... --
Conversion of Series A1 into common
stock................................... --
Issuance of options to non-employees...... 22,635
Net loss.................................. (1,057,505) (1,057,505)
------------ -----------
Balance at December 31, 1999................ $(15,871,696) $ 165,993
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
INSPECTECH CORPORATION
STATEMENT OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Cash flow from operating activities
Net loss.................................................. $(4,464,690) $(1,057,505)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 320,132 264,974
Amortization of discount on debt........................ 528,427 25,444
Issuance of options to non-employees.................... 22,635
Loss on sale of fixed assets............................ 4,000 --
Issuance of stock for services.......................... 7,320 --
Realized loss on sale of securities..................... 28,242 --
Changes in operating assets and liabilities
Accounts receivable and other current assets.......... 418 (442,824)
Accounts payable and accrued expenses................. 536,562 358,316
----------- -----------
Net cash used in operating activities............... (3,039,589) (828,960)
----------- -----------
Cash flow from investing activities:
Purchase of intangibles................................... (102,141) (81,682)
Purchase of fixed assets.................................. (163,869) (1,058)
Proceeds from sale of equipment........................... 6,223 --
Proceeds from sale of securities.......................... 184,400 --
----------- -----------
Net cash used in investing activities................. (75,387) (82,740)
----------- -----------
Cash flow from financing activities:
Proceeds from issuance of notes payable................... 2,802,071 613,550
Cash used for repayment of notes payable.................. -- (32,500)
Cash used for repayment of lease payable.................. (101,629) (99,069)
Proceeds from issuance of preferred stock................. -- 454,041
Proceeds from issuance of common stock.................... 405,929 --
----------- -----------
Net cash provided by financing activities............. 3,106,371 936,022
----------- -----------
Net increase (decrease) in cash............................. (8,605) 24,322
Cash at beginning of period................................. 68,662 60,057
Cash at end of period....................................... $ 60,057 $ 84,379
=========== ===========
Supplemental cash flow information
Cash paid for interest.................................... $ 3,375 $ --
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND
FINANCIAL ACTIVITIES:
1999
We exchanged common stock for the forgiveness of notes payable of
$5,089,971, discount on notes payable of $51,283 and accrued interest of
$629,510.
Our shareholders converted 833,333 of Series A Preferred stock carried at
$2,450,000 into common stock.
A total of $370,000 of outstanding debt was converted into Series A1
Preferred Stock as part of the issuance.
Our shareholders converted 212,715 shares of Series A1 Preferred Stock
carried at $46,797 into common stock.
F-31
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide home inspection services to home buyers in the California,
Arizona, Washington, New Jersey and Colorado markets. Our revenues are subject
to fluctuation based on the volume of mortgage lending activity, which is
dependent on factors such as interest rates, home sales, and general economic
conditions.
On January 7, 2000, we were acquired by PRIMIS, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives and impairment of intangible assets, the
useful lives of property and equipment, the allowance for doubtful accounts and
income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents. Cash equivalents at December 31,
1999 and 1998 consist of funds on deposit with banks.
PROPERTY AND EQUIPMENT
Property and equipment, including certain equipment acquired under capital
leases, are stated at cost. Property and equipment are depreciated using the
double declining balance method over the assets' expected useful lives which
range from 3 to 7 years. Assets acquired under capital leases are amortized over
the shorter of the useful life or term of the underlying lease. Such amounts are
included in depreciation expense. Maintenance and repairs are charged to expense
as incurred.
INCOME TAXES
We account for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS No. 109").
Under the Statement of Financial Accounting Standards No. 109, the liability
method is used in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
We provide a valuation allowance for deferred tax assets which are
determined by management to be below the threshold for realization established
by SFAS 109.
INTANGIBLE ASSETS
Intangible assets consist of software costs, customer acquisition costs and
website development. Software development costs that have been capitalized
relate to our proprietary home inspection software, Vista. Software development
costs have been capitalized in accordance with Statement of Position No. 98-1,
CAPITALIZATION OF INTERNAL USE SOFTWARE COSTS ("SOP 98-1"). Under the provisions
of SOP 98-1, capitalization of costs begins when the preliminary project stage
is complete and
F-32
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management has made a definitive decision to move forward with the project. We
begin amortizing capitalized software development costs when the product is
substantially complete and ready for its intended use. Amortization is provided
on a straight-line basis over the estimated useful life of the related product,
generally five years.
We capitalized costs in association with customer acquisition costs of
$20,750 during 1998 and 1999, respectively. We also capitalized costs in
association with the development of our website of $60,932 during 1999.
Amortization for these intangibles is provided on a straight-line basis over the
estimated useful life of the related asset which is generally five years.
At each balance sheet date, a determination is made by management to
ascertain whether intangible assets have been impaired based on several
criteria, including sales trends and undiscounted cash flows. Impairment of
value, if any, is recognized in the period in which it is determined. Our
management does not believe that there are any facts or circumstances indicating
impairment of intangible assets at December 31, 1999.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provide for an
allowance for an allowance for doubtful accounts which are estimated to be
uncollectible. Such allowances have historically been within our management's
expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for our financial
instruments approximate fair values.
ADVERTISING EXPENDITURES
We expense the cost of advertising programs when incurred. Advertising
expense was $354,843 and $43,529 for the years ended December 31, 1998 and 1999,
respectively.
2. PROPERTY AND EQUIPMENT
At December 31, 1998 and 1999, property and equipment consisted of the
following:
Depreciation expense was $251,080 and $158,336 for the years ended
December 31, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment................................... $1,081,926 $ 955,436
Furniture and office equipment....................... 67,288 67,288
---------- ----------
Subtotal............................................. 1,149,214 1,022,724
Less: accumulated depreciation....................... (801,979) (832,768)
---------- ----------
Property and equipment, net.......................... $ 347,235 $ 189,956
========== ==========
</TABLE>
F-33
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INTANGIBLE ASSETS
At December 31, 1998 and 1999, intangible assets consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Software development costs............................. $374,634 $ 374,634
Website development costs.............................. -- 60,932
Purchased customer base................................ 45,750 66,500
-------- ---------
Subtotal............................................... $420,384 $ 502,066
Less: Accumulated amortization......................... (72,524) (179,161)
-------- ---------
Intangibles, net....................................... $347,860 $ 322,905
======== =========
</TABLE>
Amortization expense relating to intangible assets was $69,052 and $106,638
for the years ended December 31, 1998 and 1999, respectively.
4. NOTES PAYABLE
At December 31, 1998, our notes payable balance included promissory notes of
$50,000 that bear interest at 9% per year and are convertible, at the option of
the holder, into common stock at the rate of one share per each $1.20 of
principal amount to be converted. These notes were due on December 31, 1994. We
continue to pay interest on these notes and are obligated to repay the related
principal on demand.
Additionally at December 31, 1998, our notes payable balance included
promissory notes of $5,089,971 with our two principal shareholders. Of this
amount, $4,529,971 bore interest on unpaid principal of 14% per year and were
due at various dates between June 30, 1998 and May 31, 1999. The remaining
$560,000 bear interest on unpaid principal of 10% per year and was due on
August 31, 1999. The outstanding principal of these notes was convertible into
common stock upon default and was secured by certain assets including accounts
receivable.
With these promissory notes with our primary shareholders, we issued
warrants to purchase 4,144,971 shares of common stock. These warrants are
exercisable at prices ranging from $1.80 to $2.50 in whole or in part at any
time before the expiration dates which range from August 31, 2002 to
November 30, 2002. Upon default, the exercise price of these warrants are
reduced to prices ranging from $.05 to $.25 per share.
During 1998 we borrowed an additional amount of $187,100 from our
shareholders. This amount, along with an additional $182,900 that was borrowed
in the beginning of 1999, was converted into Series A1 Preferred Stock in
February 1999.
These notes are reflected in our balance sheet at December 31, 1998 net of a
related discount relative to the detachable warrants of $75,768.
During February 1999, $5,089,971 of outstanding debt with our principal
shareholders, a corresponding discount on debt of $51,283 and accrued interest
of $629,510 were converted into common stock.
During 1999, we entered into new convertible, subordinated promissory notes
("Bridge Notes") totaling $563,550. The Bridge Notes mandatorily convert into
common stock upon a qualified financing. A qualified financing is defined as the
date we sell equity securities for cash or retire of debt securities (other than
this note or identical notes) in a single transaction or series of transactions
within a 12 month period for an aggregate purchase price paid of no less than
$3,000,000. The conversion price
F-34
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE (CONTINUED)
for the Bridge Notes is the last price per share paid in the qualified financing
for the equity or debt securities.
There are warrants to purchase common stock attached to each Bridge Note.
The warrants entitle the holder to purchase shares equal to 25% of each note
divided by the conversion price. The purchase price is the conversion price
defined in the Bridge Note agreement. These warrants are exercisable at the
option of the holder at any time before expiration on May 31, 2004, conditioned
on establishment of the conversion price.
Of the total amount of Bridge Notes issued during the year, $182,900 was
converted into Series A1 Preferred Stock and $32,500 was repaid.
In December 1999, we received a $50,000 loan from PRIMIS to help fund the
business. At December 31, 1999, our notes payable included promissory notes of
$50,000, the loan from PRIMIS of $50,000 and Bridge Notes of $348,150.
5. COMMITMENTS AND CONTINGENCIES
We lease office space and certain equipment under noncancelable operating
leases and capital leases. Future minimum payments under the noncancelable
operating and capital leases with initial terms of one year or more consist of
the following at December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
-------- ---------
<S> <C> <C>
2000..................................................... $30,175 $119,614
2001..................................................... -- 23,893
------- --------
Total minimum obligations.............................. 30,175 $143,507
========
Less interest on capital leases........................ (1,246)
-------
Present value of net minimum obligation................ $28,929
=======
</TABLE>
Rental expense under operating leases was $180,380 and $220,924 for the
years ended December 31, 1998 and 1999, respectively.
From time to time, we are made party to routine litigation incidental to our
business. At December 31, 1999, we are not engaged in any legal proceedings that
are expected, individually or in the aggregate, to have a material adverse
effect on our Company.
6. CAPITAL STOCK
At December 31, 1998, our preferred stock consisted of 833,333 shares
outstanding of Series A Preferred Stock ("Series A"). The Series A shares are
cumulative and earn a dividend at 10% of the Liquidation Preference of $3.75 per
share. The Series A is convertible contingent upon the occurrence of certain
events. During January 1999, all of the outstanding shares of Series A were
converted into 833,333 shares of common stock. The Series A was converted upon
agreement by the holders and us in order to carry out the recapitalization
transactions in February 1999.
At December 31, 1998, we had 6,567,907 warrants outstanding to purchase
shares of our common stock at prices ranging from $.05 to $3.00. These warrants
expire through November 2003.
F-35
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL STOCK (CONTINUED)
In January 1999, we amended our articles of incorporation to authorize a new
series of preferred stock, Series A1 Preferred Stock ("Series A1"). We are
authorized to issue 4,454,546 shares of Series A1 from the 10,000,000 shares of
Preferred Stock authorized.
In February 1999, we issued 4,204,543 shares of Series A1 at a purchase
price of $.22 per share. A total of $370,000 of outstanding debt was converted
into Series A1 as part of this issuance. The Series A1 is non-cumulative,
entitles holders to elect four of the five members of the Board of Directors and
has a liquidation preference of $.22 per share. Each holder may at any time
convert Series A1 shares into fully-paid and non-assessable shares of common
stock. Each share of Series A1 automatically converts into common stock in the
event of an initial public offering. We also issued to Series A1 holders 249,999
warrants to purchase Series A1 at an exercise price of $.22 per share. These
warrants expire in February 2009. These warrants expire in the event of certain
circumstances occurring including, but not limited to, a consolidation or
purchase of our company by another.
In February 1999, we amended our articles of incorporation authorizing and
implementing a 1-for-.0148 reverse stock split of common stock. The number of
shares issued at December 30, 1999, with the effect to the split, is 2,543,986.
All references to the number of shares of common stock during 1999 reflect the
effect of the reverse stock split.
In February 1999, we also converted promissory notes with principal
shareholders into common stock. Per the agreement, a total of 2,191,590
post-split shares were issued for the $5,089,971 outstanding principal, $51,283
remaining discount on notes, and $629,510 of accrued interest.
In December 1999, Series A1 holders converted 212,715 shares of Series A1
into common stock. Also in December, 11,363 warrants were exercised at a
purchase price of $.22 per share to purchase Series A1 which was then converted
into common stock.
At December 31, 1999, we had 238,636 warrants outstanding to purchase shares
of our Series A1 preferred stock at an exercise price of $.22 per share. These
warrants expire in February 2009. We also had 150,992 warrants to purchase
shares of our common stock at exercise prices ranging from $.18 to $202. Most of
these common stock warrants were repriced in January 2000 (Se Note 9). These
warrants expire through May 2004.
7. STOCK BASED COMPENSATION
Effective June 24, 1999, we adopted a Stock Incentive Plan which permits the
issuance of stock options to purchase common stock to directors, officers, and
employees of the Company and/or any contractors, consultants or advisors of the
Company. This plan will be effective for ten years. The number of shares
reserved for options under this plan is 1,076,203. The Board, or Board appointed
committee, has the authority to determine whom options may be granted, number of
options granted, period of exercise, the option price at the date of grant, and
any other restrictions.
During 1999 we issued 969,567 stock options to officers and employees at
fair market values at exercise prices ranging from $.03 to $.08. We also issued
98,412 options to purchase common stock to non-employee directors at a price of
$.24. We recorded compensation expense of $22,635 at the grant date of these
options.
F-36
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK BASED COMPENSATION (CONTINUED)
The following table summarizes information about options issued in 1998 and
1999 and outstanding at December 31, 1998 and 1999.
<TABLE>
<CAPTION>
1998 1999
------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 18,933 $0.04 15,191 $2.64
Granted............................... 148 3.00 1,067,980 0.06
Exercised............................. -- -- -- --
Forfeited............................. (3,890) 2.50 (11,782) 2.62
Expired............................... -- -- -- --
------ ----- --------- -----
Outstanding at end of year.............. 15,191 2.64 1,071,389 0.07
------ ----- --------- -----
Option exercisable at year-end.......... 7,341 2.64 395,259 0.06
------ ----- --------- -----
Weighted average fair value of options
granted during the year............... $3.00 $0.06
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED
OPTIONS AS OF AVERAGE REMAINING OPTIONS AVERAGE
DECEMBER 31, EXERCISE CONTRACTUAL DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 PRICE LIFE 1999 PRICE
- ----------------------- ------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ .03-$.08............. 969,568 $0.05 9.28 years 391,899 $0.03
$0.25.................. 98,412 0.25 9.67 years -- --
$2.50-$3.00............ 3,409 2.78 1.43 years 3,360 2.80
--------- ----- ---------- ------- -----
$ .03-$3.00............ 1,071,389 $0.07 9.29 years 395,259 $0.06
</TABLE>
We have adopted the disclosure-only provisions of Financial Accounting
Standards Board Statement 123 ("FAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION which define a fair value based method whereby compensation expense
is measured at the grant date based on the fair value of the award. Had
compensation cost for our stock-based compensation plan been determined on a
fair value basis in accordance with the provisions of this statement, our net
losses for the years ended December 31, 1998 and 1999 would have been as
follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
As reported........................................ $(4,464,690) $(1,057,505)
=========== ===========
Pro forma.......................................... $(4,464,690) $(1,062,578)
=========== ===========
</TABLE>
F-37
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK BASED COMPENSATION (CONTINUED)
The amount of the pro forma charge has been determined using the minimum
value method as permitted for private companies by FAS 123. For purposes of the
calculation, management used the following assumptions:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Risk free interest rate............................ 4.92% 4.92%
Expected term...................................... 5.00 years 10.00 years
Expected volatility................................ 0.00% 0.00%
Expected dividend yield............................ 0.00% 0.00%
</TABLE>
8. INCOME TAXES
We have accounted for income taxes under the liability method required by
SFAS 109. Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1999, and
December 31, 1998, we had net deferred tax assets of approximately $5,700,000
and $5,300,000 respectively, which were totally offset by valuation allowances
because the assets do not meet the criteria for recognition in SFAS 109.
Significant components our deferred tax liabilities and assets as of
December 31, 1999, and December 31, 1998, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve.......................... $ 56,848 $ 48,613
Net operating losses...................... 5,533,718 5,105,318
Depreciation.............................. 58,503 125,668
Other..................................... 36,968 37,397
----------- -----------
Total deferred tax assets................... 5,686,037 5,316,996
Total deferred tax liabilities.............. -- --
----------- -----------
Net deferred tax assets..................... 5,686,037 5,316,996
Valuation allowance......................... (5,686,037) (5,316,996)
----------- -----------
Net deferred taxes.......................... $ -- $ --
----------- -----------
</TABLE>
The valuation allowances for deferred tax assets as of December 31, 1999,
and December 31, 1998, were approximately $5,700,000 and $5,300,000
respectively. The change in the total valuation allowances for 1999 and 1998
resulted primarily from increases in the above described temporary differences
on which valuation allowances were provided.
We did not record any income tax expense or benefit from operations for the
years ended December 31, 1999, or December 31, 1998. The following table
provides a reconciliation between the Federal income tax rate and the Company's
effective income tax rate:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Statutory Federal income tax rate........... -34% -34%
Increase in valuation allowance............. 35% 38%
Other, net.................................. -1% -4%
---- ----
Effective tax rate.......................... 0% 0%
---- ----
</TABLE>
F-38
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
At December 31, 1999, we had Federal net operating loss (NOL) carryforwards
of approximately $14.6 million. If not utilized, the NOLs will begin expiring in
the year ended December 31, 2006. State net operating losses total approximately
$7.3 million and begin expiring in the year ended December 31, 2000. Due to
changes in stock ownership in earlier years, some of the net operating losses
are subject to annual use limitations under Internal Revenue Code Section 382.
9. SEGMENT INFORMATION
Our management considers the performance of home inspection services to be
our sole business segment. No single customer accounted for more than 10% of our
revenues for the years ended December 31, 1998 or 1999.
10. SUBSEQUENT EVENTS
On January 6, 2000, all of the issued and outstanding shares of InspecTech
Corporation were acquired by PRIMIS. Prior to the purchase by PRIMIS, all of the
outstanding options to purchase shares of our common stock become immediately
vested. Additionally prior to the PRIMIS acquisition, 70,306 warrants to
purchase our common stock with prices, affected by the reverse stock-split,
ranging from $3.37 to $168 per share were adjusted to $.22. The conversion price
of all warrants issued attached to the Bridge Notes were priced at $1.52 per
share.
F-39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying statements of operations, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the results of the operations and cash flows of E.T. Jones & Associates, Inc.
for the period from January 1, 1999 through August 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 14, 2000
The accompanying are an integral part of these financial statements.
F-40
<PAGE>
E.T. JONES & ASSOCIATES, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
1999
----------
<S> <C>
Revenues.................................................... $1,321,754
Cost of revenues............................................ 607,452
----------
Gross Profit................................................ 714,302
----------
Operating expenses
Selling, general and administrative....................... 481,010
Depreciation.............................................. 8,543
----------
Total operating expenses................................ 489,553
----------
Operating income............................................ 224,749
Other income and expense
Interest and other expenses............................... (1,334)
----------
Income before provision for income taxes.................... 223,415
Provision for income taxes.................................. --
----------
Net income.................................................. $ 223,415
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
E.T. JONES & ASSOCIATES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
------------------- ADDITIONAL COMPREHENSIVE RETAINED SHAREHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL INCOME EARNINGS EQUITY
-------- -------- --------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998......... 1,000 $1,000 $18,000 $(74,311) $790,380 $735,069
Net income...................... 223,415 223,415
Distribution to Shareholder..... (33,000) (33,000)
Decrease in unrealized loss..... 57,158 57,158
------ ------ ------- -------- -------- --------
Balance August 31, 1999........... 1,000 $1,000 $18,000 $(17,153) $980,795 $982,642
====== ====== ======= ======== ======== ========
</TABLE>
The accompanying are an integral part of these financial statements.
F-42
<PAGE>
E.T. JONES & ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Cash flow from operating activities
Net income................................................ $ 223,415
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation............................................ 8,543
Changes in operating assets and liabilities
Accounts receivable and advances...................... (42,575)
---------
Accounts payable...................................... (2,906)
---------
Net cash provided by operating activities........... 186,477
---------
Cash flow from investing activities
Investment in securities................................ (556,618)
Sale of securities...................................... 125,749
Capital expenditures.................................... (2,383)
---------
Net cash used in investing activities............... (433,252)
---------
Cash flow from financing activities
Distribution to shareholder............................. (33,000)
---------
Net cash used in financing activities............... (33,000)
---------
Net decrease in cash........................................ (279,775)
Cash at beginning of period................................. 319,985
---------
Cash at end of period....................................... $ 40,210
=========
</TABLE>
The accompanying are an integral part of these financial statements.
F-43
<PAGE>
E.T. JONES & ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide appraisal services to commercial and home real estate buyers in
the greater Dallas-Ft. Worth, Texas area. Our revenues are subject to
fluctuation based on the volume of mortgage lending activity, which is dependent
on factors such as interest rates, home sales, and the general economic
conditions.
On September 29, 1999 we were acquired by PRIMIS, Inc. Our acquisition
agreement with PRIMIS, Inc. was structured so that the effective date of the
acquisition would be September 1, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives of property and equipment, the allowance for
doubtful accounts and income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
MARKETABLE SECURITIES
We classify all marketable securities as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
holding gains or losses, net of income taxes, reported in other comprehensive
income as a component of shareholder's equity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the double-declining balance method over the assets' expected
useful lives which range from 5 to 7 years. Depreciation expense recorded for
the period ended August 31, 1999 is $8,543. Maintenance and repairs are charged
to expense as incurred
INCOME TAXES
We qualify as an S Corporation in the U.S. for federal and state income tax
purposes. However, the state of Texas assesses a franchise tax on capital at the
entity level. Accordingly, a provision has been made for this tax. Individual
shareholders report their share of the U.S. taxable income or loss on their
respective individual income tax returns.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
F-44
<PAGE>
E.T. JONES & ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provide for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowances have historically been within our management's expectations.
2. COMMITMENTS AND CONTINGENCIES
We lease office space under a non-cancelable operating lease expiring in
October 2002. Future minimum payments under the non-cancelable operating lease
consist of the following at August 31, 1999:
<TABLE>
<S> <C>
1999....................................................... $29,464
2000....................................................... $88,742
2001....................................................... $90,842
2002....................................................... $77,160
</TABLE>
Rental expense under the operating lease was approximately $63,959 for the
period ended August 31, 1999.
From time to time, we are made a party to routine litigation incidental to
our business. As of August 31, 1999, we were not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our Company.
3. SEGMENT INFORMATION
Our management considers the performance and preparation of property
information services to be our sole business segment. No single customer
accounted for more than 10% of our revenues for the period January 1, 1999
through August 31, 1999
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc
In our opinion, the accompanying statement of operations and cash flows
present fairly, in all material respects, the results of the operations and cash
flows of Stewart Title of Birmingham, Inc. for the period from January 1, 1999
to August 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
The accompanying financial statements have been carved out of the historical
financial statements of Stewart Title of Birmingham, Inc. As such, these
financial statements represent a lesser business component and are not intended
to be a complete presentation of the results of operations or cash flows of the
Company were it to operate on a stand-alone basis. A description of the
significant assumptions used to prepare the carve-out financial statements is
included in Note 1 to the financial statements.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 14, 2000
F-46
<PAGE>
STEWART TITLE OF BIRMINGHAM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31, 1999
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Revenues.................................................... $905,061
Cost of revenues............................................ 433,521
--------
Gross Profit................................................ 471,540
--------
Operating expenses
Selling, general and administrative....................... 484,109
Depreciation.............................................. 15,990
--------
Total operating expenses................................ 500,099
--------
Operating loss.............................................. (28,559)
Other income and expense
Interest and other expenses............................... (23,074)
--------
Loss before provision for income taxes...................... (51,633)
Provision for income taxes.................................. --
--------
Net loss.................................................... $(51,633)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
STEWART TITLE OF BIRMINGHAM, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH AUGUST 31,1999
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Cash flow from operating activities
Net income................................................ $ (51,633)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation............................................ 15,990
Changes in operating assets and liabilities
Accounts receivable and advances...................... (104,321)
Other assets.......................................... 21,580
Accounts payable and accrued liabilities.............. (24,267)
---------
Net cash used in operating activities............... (142,651)
---------
Cash flow from investing activities
Purchases of property and equipment..................... (2,104)
---------
Net cash used in investing activities............... (2,104)
---------
Cash flow from financing activities
Payments on long-term debt.............................. (14,632)
---------
Net cash used in financing activities............... (14,632)
---------
Net decrease in cash........................................ (159,387)
Cash at beginning of period................................. 234,623
---------
Cash at end of period....................................... $ 75,236
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
STEWART TITLE OF BIRMINGHAM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide title and closing services to commercial and home real estate
buyers in the Alabama market. We also provide credit services for mortgage
lenders and financial institutions. Our revenues are subject to fluctuation
based on the volume of mortgage lending activity, which is dependent on factors
such as interest rates, home sales, and the general economic conditions.
Historically, we were comprised of three divisions: title/closing services,
mortgage credit services, and employment screening services. These financial
statements represent the two divisions, title/closing services and mortgage
credit services.
On August 31, 1999, we were acquired by PRIMIS, Inc. Excluded from the sale
were specific assets and liabilities relating to our Employee Screening Service
business.
BASIS OF PRESENTATION
Historically, financial statements were not prepared for our company. The
accompanying financial statements have been prepared in accordance with
generally accepted accounting principles and have been "carved out" of the
financial statements of Stewart Title of Birmingham, Inc. for each of the
periods, and as of each of the dates presented. These statements are not
intended to be a complete presentation of the results of our operations or cash
flows were we to operate on a stand-alone basis.
Our statement of operations includes all revenues and costs directly
attributable to us and also includes allocations of corporate overhead from
Stewart Title of Birmingham, Inc. The primary expenses that were allocated
related to corporate administrative functions (including office space, telephone
charges, professional fees and other corporate overheads). These expenses were
primarily allocated based on headcount or management estimates and have been
included in selling, general and administrative expenses within the statement of
operations. We believe that these allocations are reasonable, however, the
financial information included herein may not necessarily reflect our results of
operations and cash flows in the future, or what they would have been had we
been a separate entity during the periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives of property and equipment, the allowance for
doubtful accounts and income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the double declining balance method over the assets' expected
useful lives which range from 3 to 7 years.
F-49
<PAGE>
STEWART TITLE OF BIRMINGHAM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation expense recorded for the period ended August 31, 1999 is $15,990.
Maintenance and repairs are changed to expense as incurred.
INCOME TAXES
Prior to 1999, we were taxed as a C Corporation. During the 1999 tax year,
we filed for an S Corporation election. We have received verbal confirmation
from the IRS that the S Corporation election was approved and effective
beginning January 1, 1999. As an S Corporation, the individual stockholders
report their share of the U.S. taxable income or loss on their respective
individual federal and state income tax returns.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provide for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowances have historically been within our management's expectations.
2. COMMITMENTS AND CONTINGENCIES
We lease office space under a noncancelable operating lease expiring in
November 2002. Future minimum payments under the noncancelable operating lease
consist of the following at August 31, 1999:
<TABLE>
<S> <C>
1999........................................................ $26,837
2000........................................................ $83,173
2001........................................................ $86,507
2002........................................................ $89,664
</TABLE>
Rental expense under the operating lease was approximately $53,144 for the
period ended August 31, 1999.
We lease a title plant under a perpetual operating lease. The fee for this
lease is $1,300 per year.
From time to time, we are made a party to routine litigation incidental to
our business. As of August 31, 1999 we were not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on our Company.
3. SEGMENT INFORMATION
Our management considers the performance and preparation of property
information services to be our sole business segment. No single customer
accounted for more than 10% of our revenues for the period January 1, 1999
through August 31, 1999.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying statements of operations, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the results of the operations and cash flows of The William Fall Group, Inc. for
the period from January 1, 1999 to February 28, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 21, 2000
F-51
<PAGE>
THE WILLIAM FALL GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 THROUGH FEBRUARY 28, 1999
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Revenues.................................................... $367,889
Cost of revenues............................................ 211,776
--------
Gross Profit................................................ 156,113
Operating expenses
Selling, general and administrative....................... 236,268
Depreciation.............................................. 9,907
--------
Total operating expenses................................ 246,175
--------
Operating loss.............................................. (90,062)
Other income and expense
Interest and other expenses, net.......................... (878)
--------
Loss before provision for income taxes...................... (90,940)
Benefit for income taxes.................................... (27,963)
--------
Net loss.................................................... $(62,977)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
THE WILLIAM FALL GROUP, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1999 THROUGH FEBRUARY 28, 1999
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998........................... 100 $2,000 $509,716 $511,716
Net Loss............................................. (62,977) (62,977)
--- ------ -------- --------
Balance at February 28, 1999........................... 100 $2,000 $446,739 $448,739
--- ------ -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
THE WILLIAM FALL GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH FEBRUARY 28, 1999
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Cash flow from operating activities
Net loss.................................................. $(62,977)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 9,907
Changes in operating assets and liabilities
Accounts receivable and advances...................... 70,105
Other assets.......................................... 10,237
Accounts payable and accrued expenses................. (29,733)
--------
Net cash used in operating activities............... (2,461)
--------
Cash flow from investing activities
Capital expenditures...................................... --
--------
Net cash used in investing activities............... --
--------
Cash flow from financing activities
Payment on debt........................................... (31,953)
--------
Net cash used in financing activities............... (31,953)
--------
Net decrease in cash........................................ (34,414)
Cash at beginning of period................................. 235,146
--------
Cash at end of period....................................... $200,732
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
THE WILLIAM FALL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide appraisal services to commercial and home real estate buyers in
northwest Ohio and the greater Detroit area. Our revenues are subject to
fluctuation based on the volume of mortgage lending activity, which is dependent
on factors such as interest rates, home sales, and the general economic
conditions.
On March 1, 1999 we were acquired by PRIMIS, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates. Such estimates include
the useful lives of property and equipment, the allowance for doubtful accounts
and income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the double declining balance method over the assets' expected
useful lives which range from 5 to 7 years. Depreciation expense recorded for
the period ended February 28, 1999 is $9,907. Maintenance and repairs are
charged to expense as incurred.
INCOME TAXES
Under the Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
We provide a valuation allowance for deferred tax assets which are
determined by management to be below the threshold for realization established
by SFAS 109.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provide for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowances have historically been within our management's expectations.
F-55
<PAGE>
THE WILLIAM FALL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS AND CONTINGENCIES
We lease office space under noncancelable operating leases expiring in
April 2002 and October 2007. Future minimum payments under these noncancelable
operating leases, with initial terms of one year or more consist of the
following at February 28, 1999:
<TABLE>
<S> <C>
1999........................................................ $ 77,950
2000........................................................ $ 95,540
2001........................................................ $ 96,540
2002........................................................ $ 78,540
2003 and after.............................................. $324,520
</TABLE>
Rental expense under the operating leases was approximately $15,590 for the
period ended February 28, 1999.
From time to time, we are made a party to routine litigation incidental to
our business. As of February 28, 1999, we were not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our Company.
3. INCOME TAXES
We have accounted for income taxes under the liability method required by
SFAS 109. Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At February 28, 1999, we
had no net deferred tax asset due to the valuation allowance. Significant
components of our deferred tax asset as of February 28, 1999, are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
-----------------
<S> <C>
Deferred tax asset
State net operating losses................................ $ 3,290
Other..................................................... 5,149
-------
Total deferred tax asset.................................... 8,439
Less valuation allowance.................................... (8,439)
-------
Net deferred tax asset...................................... $ --
</TABLE>
We did record an income tax benefit from operations for the year ended
February 28, 1999, to the extent that the current year tax loss could be carried
back to earlier years to realize a refund of previously paid taxes. The
following table provides a reconciliation between the Federal income tax rate
and our effective income tax rate:
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
-----------------
<S> <C>
Statutory Federal income tax rate........................... (34)%
Other, net.................................................. 3%
Tax benefit................................................. (31)%
</TABLE>
4. SEGMENT INFORMATION
Our management considers the performance and preparation of property
information services to be our sole business segment. No single customer
accounted for more than 10% of our revenues for the period from January 1, 1999
through February 28, 1999.
F-56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying statements of operations, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the results of the operations and cash flows of Kushner & Robertson, Inc. for
the period from January 1, 1998 to June 14, 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 17, 1999
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
KUSHNER & ROBERTSON, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1998 THROUGH JUNE 14, 1998
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Revenues.................................................... $2,852,520
Cost of revenues............................................ 1,319,159
----------
Gross Profit................................................ 1,533,361
----------
Operating expenses
Selling, general and administrative....................... 1,298,828
Depreciation and amortization............................. 8,227
----------
Total operating expenses................................ 1,307,055
----------
Operating income............................................ 226,306
Other income
Interest and other income................................. 13,642
----------
Income before provision for income taxes.................... 239,948
Provision for income taxes.................................. 8,493
----------
Net income.................................................. $ 231,455
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
KUSHNER & ROBERTSON, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD JANUARY 1 THROUGH JUNE 14, 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
---------- -------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997.......................... 1,000,000 $70,270 $730,823 $801,093
Dividends........................................... (86,639) (86,639)
Net Income.......................................... 231,445 231,445
---------- ------- -------- --------
Balance at June 14, 1998.............................. 1,000,000 $70,270 $875,629 $945,899
========== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
KUSHNER & ROBERTSON, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1998 THROUGH JUNE 14, 1998
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Cash flow from operating activities
Net income................................................ $231,455
Adjustments to reconcile net income to net cash flows
provided by operating activities
Depreciation and amortization........................... 8,227
Provision for doubtful accounts......................... 20,000
Changes in operating assets and liabilities
Accounts receivable and advances...................... 60,457
Other assets.......................................... (9,656)
Accounts payable...................................... 307,709
Accrued expenses...................................... 68,636
--------
Net cash provided by operating activities........... 686,828
--------
Cash flow from investing activities
Capital expenditures.................................... (25,305)
--------
Net cash used in investing activities............... (25,305)
--------
Cash flow from financing activities
Payment on notes payable................................ (6,305)
Dividends............................................... (86,639)
--------
Net cash provided by financing activities........... (92,944)
--------
Net increase in cash........................................ 568,579
Cash at beginning of period................................. 49,138
--------
Cash at end of period....................................... $617,717
========
Supplemental cash flow information
Cash paid for interest.................................. $ 2,500
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
KUSHNER & ROBERTSON, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide appraisal services to commercial and home real estate buyers in
the California market. Our revenues are subject to fluctuation based on the
volume of mortgage lending activity, which is dependent on factors such as
interest rates, home sales, and the general economic conditions.
On June 14, 1998 we were acquired by PRIMIS, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives and impairment of intangible assets, the
useful lives of property and equipment, the allowance for doubtful accounts and
income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the accelerated methods over the assets' expected useful lives
which range from 5 to 15 years. Amortization of leasehold improvements is
recorded on a straight-line basis over the shorter of the useful life of the
improvement or the term of the lease. Such amounts are included in depreciation
expense. Depreciation expense recorded for the period ended June 14, 1998 is
$8,227.
INCOME TAXES
We account for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS No. 109").
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provides for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowances have historically been within our management's expectations.
F-61
<PAGE>
KUSHNER & ROBERTSON, INC.
NOTES TO FINANCIAL STATEMENTS
2. COMMITMENTS AND CONTINGENCIES
We lease office space and certain equipment under noncancelable operating
leases expiring in various years through 2001. Future minimum payments under the
noncancelable operating and capital leases with initial terms of one year or
more consist of the following at June 14, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 63,518
2000........................................................ $114,904
2001........................................................ $ 54,625
</TABLE>
Rental expense under operating leases was approximately $49,718 for the
period June 14, 1998.
From time to time, we are made a party to routine litigation incidental to
our business. As of June 14, 1998, we were not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on our Company.
F-62
<PAGE>
[Picture of PRIMIS logo in center of page]
"Our PRIMIS is simple..."
[Picture of the PRIMIS home page, www.primis.com]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER PRIMIS, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 7
Use of Proceeds............................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Pro Forma Consolidated Financial
Information.............................. 20
Selected Consolidated Financial Data....... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 27
Business................................... 32
Management................................. 50
Related Party Transactions................. 58
Principal Shareholders..................... 61
Description of Capital Stock............... 65
Shares Eligible for Future Sale............ 70
Underwriting............................... 72
Legal Matters.............................. 75
Experts.................................... 75
Where You Can Find More Information........ 75
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
6,200,000 SHARES
PRIMIS, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
J.C. BRADFORD & CO.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of our common stock being registered, all of which will be paid by us. All
amounts are estimates except the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 24,668
NASD filing fee............................................. 9,844
Nasdaq Stock Market original listing fee.................... 31,625
Accounting fees and expenses................................ 450,000
Legal fees and expenses..................................... 700,000
Transfer Agent and Registrar fees........................... 5,000
Printing and engraving expenses............................. 300,000
Miscellaneous............................................... 178,863
----------
Total................................................. $1,700,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
GEORGIA BUSINESS CORPORATION CODE
Section 14-2-851 of the Georgia Business Corporation Code, or the GBCC,
empowers a corporation to indemnify a director (including a former director and
including a director who is or was serving at the request of the corporation as
a director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other entity) against liability arising from official acts if the director
acted in good faith and reasonably believed that his conduct was in the best
interests of the corporation. For all other acts, the corporation may indemnify
a director who acted in good faith and reasonably believed that the conduct was
at least not opposed to the best interests of the corporation. The corporation
may indemnify a director with respect to criminal proceedings if the director
acted in good faith and had no reasonable cause to believe the conduct was
unlawful. A corporation may not indemnify a director adjudged liable for conduct
involving receipt of an improper personal benefit.
In addition, Section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved or ratified by the
shareholders to authorize the corporation to indemnify a director against claims
to which the director was a party, including claims by the corporation or in the
right of the corporation (e.g., a shareholder derivative action). However, the
corporation may not indemnify the director for liability to the corporation for
any appropriation, in violation of his or her duties, of a corporate
opportunity, intentional misconduct or knowing violation of law, unlawful
distributions or receipt of an improper benefit.
Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful on the
merits or otherwise in defending an action to which the director was a party due
to his status as a director of the corporation. Section 14-2-854 allows a court,
upon application by a director, to order indemnification and advancement of
expenses if it determines that the director is entitled to indemnification under
the GBCC or if it determines that indemnification is fair and reasonable even if
the director has failed to meet the statutory standard of conduct under
section 14-2-851. However, the court may not order indemnification in excess of
reasonable expenses for liability to the corporation in a derivative action or
for receipt of an improper benefit.
II-1
<PAGE>
Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) to the same extent as
a director. A corporation may indemnify an officer who is not a director to a
further extent by means of articles of incorporation, bylaw, board resolution,
or contract. However, the corporation may not indemnify an officer for liability
arising from conduct involving appropriation, in violation of his duties, of a
corporate opportunity, intentional misconduct or knowing violation of law,
unlawful distributions, or receipt of an improper personal benefit. An officer
who is not a director is also entitled to mandatory indemnification and may
apply for court-ordered indemnification.
Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by them
in their capacities or arising out of their status as directors and officers of
the corporation, regardless of whether the corporation would have the power to
indemnify or advance expenses to the director or officer for the same liability
under the GBCC.
We intend to enter into indemnification agreements with each of our
executive officers and directors that will indemnify them to the fullest extent
permitted by the GBCC.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted as to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission, this indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ARTICLES OF INCORPORATION
Article VII of our Articles of Incorporation, as amended, provides that each
person who is or was one of our directors or officers, and each person who is or
was one of our directors or officers, who at our request is serving or has
served as an officer, director, partner, joint venturer or trustee of another
corporation, partnership, joint venture, trust or other enterprise shall be
indemnified by us against those expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement which are allowed to be paid or reimbursed
by us under the laws of the State of Georgia and which are actually and
reasonably incurred in connection with any action, suit, or proceeding, pending
or threatened, whether civil, criminal, administrative or investigative, in
which such person may be involved by reason of his being or having been a
director or officer of our company or of such other enterprises, subject to the
conditions prescribed by the GBCC.
Article VII further provides that, where required by the GBCC, such
indemnification shall be made only upon determination that certain specified
standards of conduct have been met, and upon application to us for
indemnification. As a condition to any such right of indemnification, we may
require that we be permitted to participate in the defense of any such action or
proceeding through legal counsel designated by us and at our expense. We may
purchase and maintain insurance on behalf of any such persons whether or not we
would have the power to indemnify such officers and directors against any
liability under the laws of the State of Georgia. If any expenses or other
amounts are paid by way of indemnification, other than by court order, action by
shareholders or by an insurance carrier, we shall provide notice of such payment
to the shareholders in accordance with the provisions of the laws of the State
of Georgia.
Article VIII of our Articles of Incorporation, as amended, provides that no
director shall have any personal liability to us or to our shareholders for
monetary damages for breach of duty of care or other duty as a director, by
reason of any act or omission occurring subsequent to the date of filing of the
Articles of Incorporation, except that such provision shall not eliminate or
limit the liability of a director for (a) any appropriation, in violation of his
duties, or any business opportunity of our
II-2
<PAGE>
company; (b) acts or omissions which involve intentional misconduct or a knowing
violation of law; (c) liabilities of a director imposed by Section 14-2-832 of
the GBCC; or (d) any transaction from which the director derived an improper
personal benefit.
BYLAWS
Article VIII of our Bylaws, as amended, provides for indemnification for
(a) each individual who is made a party to a proceeding because he is or was a
director or officer against liability incurred by him in the proceeding if the
individual acted in a manner he believed in good faith to be in or not opposed
to our best interests and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful, and (b) an individual's
conduct with respect to an employee benefit plan for a purpose he believed in
good faith to be in the interests of the participants in and beneficiaries of
the plan.
Article VIII further provides that we shall not indemnify an individual in
connection with a proceeding in which such individual was adjudged liable us or
in connection with any other proceeding in which such individual was adjudged
liable on the basis that personal benefit was improperly received by him unless
such individual is fairly and reasonably entitled to indemnification. However,
in either such circumstance, such indemnification is limited to reasonable
expenses incurred in connection with the proceeding.
Article VIII further provides that we shall pay for or reimburse the
reasonable expenses incurred by a director or officer who is a party to a
proceeding in advance of the final disposition of the proceeding if such
individual furnishes us with a written affirmation of his good faith belief that
he has met the standard of conduct required for indemnification and a written
undertaking to repay any advances made if it is determined that the person is
not entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
In May 1997, we sold 2,715,705 shares of Class A common stock to
existing shareholders who were accredited investors for a purchase price
of $0.64 per share, resulting in an aggregate offering price of
approximately $1,749,998. The offer and sale of shares were made pursuant
to an exemption from registration by virtue of Rule 506 of Regulation D
of the Securities Act.
In June 1998, holders of Class A convertible preferred stock elected
to convert such shares into 932,040 shares of common stock. Dividends on
the Class A convertible preferred stock were paid in common stock. The
conversion of shares was made pursuant to an exemption from registration
by virtue of Section 3(a)(9) of the Securities Act.
In June 1998, we sold 4,003,730 shares of common stock to accredited
investors at a purchase price of $2.15 per share, resulting in an
aggregate offering price of $8,600,000. The offer and sale of shares were
made pursuant to an exemption from registration by virtue of
Section 4(2) of the Securities Act.
In June 1998, we issued 1,396,650 shares of common stock to the
former owners of Kushner & Robertson, Inc. d/b/a Hacienda Property
Valuation as part of the consideration for our acquisition of all of the
outstanding shares of that company. The offer and sale of shares were
made pursuant to an exemption from registration by virtue of
Section 4(2) of the Securities Act.
II-3
<PAGE>
In June 1999, we sold 30,255 shares of our common stock to existing
shareholders for the aggregate purchase price of $64,988. The offer and
sale of shares were made pursuant to an exemption from registration by
virtue of Section 4(2) of the Securities Act.
In September 1999, we issued 18,681 shares of common stock to the
former owner of Cramer Property Services Incorporated as consideration
for the purchase of substantially all of the assets of that company. The
offer and sale of shares were made pursuant to an exemption from
registration by virtue of Section 4(2) of the Securities Act.
In September 1999, we issued 93,110 shares of common stock to the
former owner of E.T. Jones & Associates, Inc. as part of the
consideration for the purchase of substantially all of the assets of that
company. The offer and sale of shares were made pursuant to an exemption
from registration by virtue of Section 4(2) of the Securities Act.
In October 1999, we issued 93,110 shares of common stock to the
former owner of Stewart Title of Birmingham, Inc. as part of the
consideration for the purchase of substantially all of the assets of that
company. The offer and sale of shares were made pursuant to an exemption
from registration by virtue of Section 4(2) of the Securities Act.
In October 1999, we sold 725,130 shares of Series B convertible
preferred stock to existing shareholders at a purchase price of $6.00 per
share, resulting in an aggregate offering price of $4,350,780. The offer
and sale of shares were made pursuant to an exemption from registration
by virtue of Section 4(2) of the Securities Act.
In December 1999, we sold 18,245 shares of common stock to the former
owners of Fournier, Crane Associates, Inc. as part of the consideration
for the purchase of substantially all of the assets of that company. The
offer and sale of shares were made pursuant to an exemption from
registration by virtue of Section 4(2) of the Securities Act.
In January 2000, we issued 1,238,500 shares of common stock to the
former owners of InspecTech Corporation as part of the consideration for
our acquisition of that company. The offer and sale of securities in this
acquisition were made pursuant to an exemption from registration by
virtue of Rule 506 of Regulation D of the Securities Act.
(b) Issuances of Notes and Warrants.
In November 1999, we issued $10,011,174 of convertible notes and
warrants to existing shareholders who were accredited investors in
reliance on the exemption from registration contained in Section 4(2) of
the Securities Act. Our November 1999 convertible notes mature six months
after the date issued, and bear interest at 8% per annum. Pursuant to
their terms, the notes will convert into shares of our common stock if
this offering is completed prior to the date the notes mature, and will
convert into shares of our Series C convertible preferred stock if a
qualifying financing occurs prior to maturity at the lower of $8.22 or
the price per share of the securities issued in the qualifying financing,
subject to anti-dilution requirements. With respect to the warrants, the
number and kind of shares that can be acquired and the exercise price per
share may vary from time to time depending on whether certain events
occur within 180 days from the date issued.
In January 2000, we issued $9,721,862 of convertible notes and
warrants to existing shareholders who were accredited investors in
reliance on the exemption from registration contained in Section 4(2) of
the Securities Act. The convertible notes bear interest at the rate of 8%
per annum, and will mature six months after the date issued unless we
complete an initial public stock offering or other qualifying financing
prior to that time. If an initial public offering is completed within six
months, the notes will mature 181 days after the closing of the offering.
Prior to a public offering, the convertible notes are convertible into
shares of our
II-4
<PAGE>
Series C convertible preferred stock. Upon completion of a public
offering of our common stock, the notes will be convertible into shares
of our common stock. In each case, the conversion price is the lower of
$8.22 per share or the per share price of the securities issued in a
qualifying financing, subject to anti-dilution adjustments. With respect
to the warrants, the number and kind of shares that can be acquired and
the exercise price per share may vary from time to time depending on
whether certain events occur within 180 days from the date issued.
(c) Grants and Exercises of Stock Options.
Since May 1997, we have granted stock options to purchase 2,829,769
shares of common stock with exercise prices ranging from $0.54 to $8.22
per share, to employees, directors and officers pursuant to our 1997
Employee Stock Option Plan. This plan was amended and restated on
June 15, 1998, June 15, 1999 and on November 29, 1999. The issuance of
these options was made pursuant an exemption from registration by virtue
of Rule 701 of the Securities Act, as transactions pursuant to a
compensatory benefit plan.
In May 1997, we granted an option to purchase 372,440 shares of
Class A common stock to one investor. Such option had an exercise price
of $1.07 per share and were exercised on June 16, 1998, resulting in
aggregate proceeds of $400,000. The issuance of common stock upon
exercise of this option was made pursuant to an exemption from
registration by virtue of Rule 506 of Regulation D of the Securities Act.
In March 1998, we granted an option to purchase 27,933 shares of
Class A common stock at $0.64 per share to one of our directors. The
option was made pursuant to an exemption from registration by virtue of
Section 4(2) of the Securities Act.
In June 1998, in connection with an issuance of common stock to ten
accredited investors, we granted options to each of them to purchase
additional shares of common stock. Pursuant to subsequent agreements,
these options were amended to, among other things, become options to
purchase shares of Series A convertible preferred stock at a purchase
price of $4.00 per share. Such options were exercised on July 6, 1999 to
purchase a total of 1,074,995 shares of Series A convertible preferred
stock, resulting in aggregate proceeds of $4,299,980. The issuance of
common stock upon exercise of these options was made pursuant to an
exemption from registration by virtue of Section 4(2) of the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A list of exhibits included as part of this registration statement is set
forth in the Exhibit Index that immediately precedes the exhibits and is
incorporated by reference here.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
price may be reflected in the form of prospectus filed with the
Commission
II-5
<PAGE>
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the such Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-6
<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-1 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Alpharetta, State of Georgia, on March 10, 2000.
<TABLE>
<S> <C> <C>
PRIMIS, INC.
By:
-----------------------------------------
C. James Schaper
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board, President March 10, 2000
---------------------------------------- and Chief Executive Officer
C. James Schaper (principal executive officer)
Vice President and March 10, 2000
/s/ LESLIE H. SCHREINER * Chief Financial Officer
---------------------------------------- (principal financial officer
Leslie H. Schreiner and accounting officer)
/s/ DONALD W. BURTON * March 10, 2000
---------------------------------------- Director
Donald W. Burton
/s/ DOUGLAS F. COBB * March 10, 2000
---------------------------------------- Director
Douglas F. Cobb
/s/ ALAN COLNER * March 10, 2000
---------------------------------------- Director
Alan Colner
/s/ MICHAEL E. GELLERT * March 10, 2000
---------------------------------------- Director
Michael E. Gellert
/s/ J. DAVID GRISSOM * March 10, 2000
---------------------------------------- Director
J. David Grissom
/s/ GEOFFREY P. MOTT * March 10, 2000
---------------------------------------- Director
Geoffrey P. Mott
/s/ JACK TYRRELL * March 10, 2000
---------------------------------------- Director
Jack Tyrrell
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: --------------------------------------
Connie C. Breeser
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1 Form of Underwriting Agreement regarding offer and sale of
common stock.
3.1 Form of Amended and Restated Articles of Incorporation of
the Registrant.+
3.2 Amended and Restated Bylaws of the Registrant.+
4.1 Specimen Certificate for shares of the Registrant's common
stock.
4.2 Description of Capital Stock (contained in the Articles of
Incorporation filed as Exhibit 3.1).+
4.3 Form of Convertible Promissory Note issued in November
1999.+
4.4 Form of Warrant to Purchase Stock issued in November 1999.+
4.5 Form of Convertible Promissory Note issued in January 2000.+
4.6 Form of Warrant to Purchase Stock issued in January 2000.+
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
the legality of the common stock being registered.++
10.1 Employment and Non-Competition Agreement, dated as of
April 1, 1999, by and between the Registrant and C. James
Schaper.*+
10.2 Employment and Non-Competition Agreement, dated as of
July 12, 1999, by and between the Registrant and Leslie H.
Schreiner.*+
10.3 Employment and Non-Competition Agreement, dated as of
December 4, 1999, by and between the Registrant and Kevin P.
Castle.*+
10.4 Employment and Non-Competition Agreement, dated as of
February 15, 1999, by and between the Registrant and Revell
L. Fraser.*+
10.5 Employment and Non-Competition Agreement, dated as of
February 15, 1999, by and between the Registrant and J.
Chris Foretich.*+
10.6 Employment and Non-Competition Agreement, dated as of
November 30, 1999, by and between the Registrant and Connie
C. Breeser.*+
10.7 Common Stock Purchase Agreement, dated as of June 16, 1998,
by and among the Registrant and the parties named on
Schedule I thereto.+
10.8 Second Amended and Restated Registration Rights Agreement,
dated as of June 16, 1998, by and among the Registrant and
the parties named on Schedule I thereto.+
10.9 Amendment No. 1 to Second Amended and Restated Registration
Rights Agreement, dated as of December 17, 1998, by and
among the Registrant and the parties named on Schedule I
thereto.+
10.10 Agreement to Extend Option, dated as of December 17, 1998,
by and among the Registrant and the parties named on
Schedule I thereto.+
10.11 Release and Settlement Agreement, dated as of January 25,
1999, between the Registrant and Michael W. Mattox.+
10.12 Office Lease Agreement, dated March 9, 1999, between the
Registrant and Opus South Corporation.
10.13 Amendment to Agreement to Extend Option, dated as of June 1,
1999, by and among the Registrant and the parties named on
Schedule I thereto.+
10.14 Stock Purchase Agreement, dated as of June 18, 1999, by and
among the Registrant, Kushner & Robertson, Inc., Michael L.
Robertson, Jeremy McCarty, Joseph Mathews and
James Sulger.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.15 Master Note and Security Agreement, dated as of
September 10, 1999, between the Registrant and Leasing
Technologies International, Inc.
10.16 Asset Purchase Agreement, dated as of September 29, 1999, by
and among the Registrant, E.T. Jones and E.T. Jones &
Associates, Inc.+
10.17 Series B Convertible Preferred Stock Purchase Agreement,
dated as of October 7, 1999, by and among the Registrant and
the parties named on Schedule I thereto.+
10.18 PRIMIS, Inc. Third Amended and Restated 1997 Employee Stock
Option Plan, dated as of November 24, 1999.*+
10.19 Convertible Promissory Note and Warrant Purchase Agreement,
dated as of November 29, 1999, by and among the Registrant
and the parties named on Schedule I thereto.+
10.20 Agreement and Plan of Reorganization, dated as of January 7,
2000, by and among the Registrant, InspecTech Corporation
and PRIMIS Acquisition Corp.+
10.21 Convertible Promissory Note and Warrant Purchase Agreement,
dated as of January 18, 2000, by and among the Registrant
and the parties named on Schedule I thereto.+
10.22 Stock Purchase Agreement, dated as of January 18, 2000, by
and among the Registrant, Bliss Associates, Inc., The Bliss
Associates, Inc. 401(k) Profit Sharing Plan, Mark R. Cox,
Roland G. Hoffman, Robert E. Marx, Kenneth E. Meyers and
Gregory Nitschke.+
10.23 Countywide Letter of Intent dated January 6, 2000.
21.1 List of subsidiaries of the Registrant.+
23.1 Consent of PricewaterhouseCoopers LLP relating to the
Registrant's audited financial statements.
23.2 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of Bliss & Associates, Inc.
23.3 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of InspecTech Corporation.
23.4 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of E.T. Jones & Associates,
Inc.
23.5 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of Stewart Title of Birmingham,
Inc.
23.6 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of The William Fall Group, Inc.
23.7 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of Kushner & Robertson, Inc.
23.8 Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibit 5.1).++
24.1 Power of Attorney.+
27.1 Financial Data Schedule for the Registrant.
99.1 Consent of D.R. Grimes, director nominee.
99.2 Consent of David Mahoney, director nominee.
</TABLE>
- ------------
* Management contract or compensatory agreement.
+ Previously filed.
++ To be filed by amendment.
<PAGE>
Exhibit 1.1
_________ Shares of Common Stock
PRIMIS, Inc.
UNDERWRITING AGREEMENT
February [ ], 2000
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY INC.
J.C. BRADFORD & CO.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Ladies and Gentlemen:
PRIMIS, Inc., a corporation organized and existing under the
laws of Georgia (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of _________ shares (the "Firm Shares")
of its common stock, par value $.01 per share (the "Common Stock"), and, for the
sole purpose of covering over-allotments in connection with the sale of the Firm
Shares, at the option of the Underwriters, up to an additional _________ shares
(the "Additional Shares") of Common Stock. The Firm Shares and any Additional
Shares purchased by the Underwriters are referred to herein as the "Shares." The
Shares are more fully described in the Registration Statement referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriters that:
<PAGE>
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and may have
filed an amendment or amendments thereto, on Form S-1 (No. 333-95111), for the
registration of the Shares under the Securities Act of 1933, as amended (the
"Act"). Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof, as amended at the time of effectiveness of the registration statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the Regulations is herein called the "462(b) Registration
Statement," and after such filing, the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations or
filed as part of the Registration Statement at the time of effectiveness if no
Rule 424(b) or Rule 434 filing is required, is herein called the "Prospectus."
The term "preliminary prospectus" as used herein means a preliminary prospectus
as described in Rule 430 of the Regulations. Neither the Commission nor the Blue
Sky or securities authority of any jurisdiction has issued a stop order
suspending the effectiveness of the Registration Statement, preventing or
suspending the use of any preliminary prospectus, the Prospectus, the
Registration Statement or any amendment or supplement thereto, refusing to
permit the effectiveness of the Registration Statement or suspending the
registration or qualification of the Shares, nor, to the Company's knowledge,
has any of such authorities instituted or threatened to institute any
proceedings with respect to a stop order.
(b) At the respective time of the effectiveness of
the Registration Statement or any 462(b) Registration Statement or the
effectiveness of any post-effective amendment to the Registration Statement,
when the Prospectus is first filed with the Commission pursuant to Rule 424(b)
or Rule 434 of the Regulations, when any supplement to or amendment of the
Prospectus is
2
<PAGE>
filed with the Commission and at the Closing Date and the Additional Closing
Date, if any (as hereinafter respectively defined), the Registration Statement
and the Prospectus and any amendments thereof and supplements thereto (including
any prospectus wrapper) complied or will comply in all material respects with
the applicable provisions of the Act and the Regulations and do not or will not
contain an untrue statement of a material fact and do not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the circumstances
under which they were made, not misleading, and the Prospectus, any preliminary
prospectus and any supplement thereto or prospectus wrapper prepared in
connection therewith, at their respective times of issuance and at the Closing
Date, complied and will comply in all material respects with any applicable laws
or regulations of foreign jurisdictions in which the Prospectus and such
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of the Directed Shares (as
hereinafter defined). When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the registration statement for the
registration of the Shares or any amendment thereto or pursuant to Rule 424(a)
of the Regulations) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading.
No representation and warranty is made in this subsection (b), however, with
respect to any information contained in or omitted from the Registration
Statement or the Prospectus or any related preliminary prospectus or any
amendment thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter through you as herein stated expressly for use in connection with
the preparation
3
<PAGE>
thereof. If Rule 434 is used, the Company will comply with the requirements of
Rule 434.
(c) PricewaterhouseCoopers LLC, who have certified
the financial statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the Act and the
Regulations.
(d) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
set forth in the Registration Statement and the Prospectus, there has been no
material adverse change or any development involving a prospective material
adverse change in the business, prospects, properties, operations, condition
(financial or other) or results of operations of the Company, including but not
limited to relationships with customers and suppliers of the Company, whether or
not arising from transactions in the ordinary course of business, and since the
date of the latest balance sheet presented in the Registration Statement and the
Prospectus, the Company has not incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company, except for
liabilities or obligations which are reflected in the Registration Statement and
the Prospectus.
(e) This Agreement and the transactions contemplated
herein have been duly and validly authorized by the Company, and this Agreement
has been duly and validly executed and delivered by the Company.
(f) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or lapse
of time, or both, would constitute a default) or Repayment Event (as hereinafter
defined) under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to, any
agreement, instrument, franchise, license or permit to which the Company is a
party or by which the Company or its properties or assets may be bound or (ii)
violate or conflict
4
<PAGE>
with (A) any provision of the certificate of incorporation or by-laws of the
Company or (B) any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its properties or assets. No consent,
approval, authorization, order, registration, filing, qualification, license or
permit of or with any court or any public, governmental or regulatory agency or
body having jurisdiction over the Company or any of its properties or assets is
required for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the issuance,
sale and delivery of the Shares to be issued, sold and delivered by the Company
hereunder, except the registration under the Act of the Shares and such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the Shares
by the Underwriters. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to require
the repurchase, redemption or repayment of all or a portion of such indebtedness
by the Company.
(g) All of the outstanding shares of capital stock of
the Company are duly and validly authorized and issued, fully paid and
nonassessable, and none of such shares was issued in violation of or is now
subject to any preemptive or similar rights. The Shares have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued, delivered and sold in accordance with this Agreement, will be
duly and validly issued and outstanding, fully paid and nonassessable and will
not have been issued in violation of or be subject to any preemptive or similar
rights, and no holder of Shares will be subject to personal liability by reason
of being such a holder. The Company had, at December 31, 1999, an authorized and
outstanding capitalization as set forth in the Registration Statement and the
Prospectus. The authorized capital stock of the Company, including the Firm
Shares and the Additional Shares, conforms to the description thereof contained
in the Registration
5
<PAGE>
Statement and the Prospectus. Except as disclosed in the Registration Statement
and the Prospectus, there are no outstanding options, warrants or other rights
calling for the issuance of, and no commitments, obligations, plans or
arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of the Company. The
outstanding stock options relating to the Common Stock have been duly authorized
and validly issued and conform to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(h) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. The Company is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the character or
location of its properties (owned, leased or licensed) or the nature or conduct
of its business makes such qualification necessary, except for those failures to
be so qualified or in good standing which will not in the aggregate have a
material adverse effect on the Company. The Company has all requisite power and
authority, and all necessary consents, approvals, authorizations, orders,
registrations, qualifications, licenses and permits (collectively, "Governmental
Licenses") of and from all public, regulatory or governmental agencies and
bodies, to own, lease and operate its properties and conduct its business as now
being conducted and as described in the Registration Statement and the
Prospectus, each such Governmental License is valid and in full force and
effect, and no such Governmental License contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and the
Prospectus, and the Company has not received any notice of proceedings relating
to the revocation of any such Governmental Licenses. The Company does not own
any capital stock or any other interests in any other corporation or entity.
(i) The Company is not (i) in violation of its
charter or by-laws, as the case may be, or in breach of any of the terms or
provisions of or in default (or would be in default with notice or lapse of time
or both) in the performance or observance of any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
6
<PAGE>
of indebtedness or in any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, lease, joint venture or other agreement or instrument
to which the Company is a party or by which any of its properties may be bound,
which breach, violation, default or defaults would have individually or in the
aggregate a material adverse effect on the Company or (ii) in violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any court
or governmental agency or body, the violation of which would have individually
or in the aggregate a material adverse effect on the Company.
(j) Except as described in the Prospectus, there is
no litigation or governmental proceeding to which the Company is a party or to
which any property of the Company is subject or which is pending or, to the
knowledge of the Company, contemplated against the Company which might result in
any material adverse change or any development involving a material adverse
change in the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company or which is required to be
disclosed in the Registration Statement and the Prospectus.
(k) Neither the Company nor any of its directors,
officers or affiliates has taken or will take, directly or indirectly, any
action designed to cause or result in, or which constitutes or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(l) The financial statements included in the
Registration Statement and the Prospectus, including the notes thereto and
supporting schedules, present fairly the consolidated financial position of the
Company as of the dates indicated and the results of its operations for the
periods specified; except as otherwise stated in the Registration Statement,
said financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis; and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein; and the selected financial data and
the summary financial information included in the Registration Statement
7
<PAGE>
and the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the financial statements included in
the Registration Statement and the Prospectus.
(m) The Company has filed all federal, state, local
and foreign tax returns that have been required to be filed and has paid all
taxes shown thereon and all assessments received by it to the extent that such
taxes have become due and are not being contested in good faith. Except as
disclosed in the Registration Statement and the Prospectus, there is no tax
deficiency that has been or might reasonably be expected to be asserted or
threatened against the Company.
(n) The Company has good and marketable title to all
personal property owned by it, in each case free and clear of all liens,
encumbrances and defects except such as are described or referred to in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made or proposed to be made of such property by the
Company. Any real property and buildings held under lease by the Company are
held under valid, existing and enforceable leases with such exceptions as are
not material and do not interfere with the use made or proposed to be made of
such property and buildings by the Company.
(o) Except as described in the Registration Statement
and the Prospectus, the Company owns or possesses valid and enforceable licenses
or other rights to use all inventions, patents, patent applications, trademarks,
service marks, trade names, copyrights, technology, software, databases,
Internet domain names, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), proprietary techniques (including processes and substances) and
other intellectual property rights necessary to conduct the business now
conducted or presently contemplated to be conducted by the Company as described
in the Registration Statement and the Prospectus (collectively, "Intellectual
Property"), free and clear of all liens, claims and encumbrances. The Company
has taken all reasonable steps to protect, maintain and safeguard the
Intellectual Property for which improper or unauthorized disclosure would impair
its value or validity and has executed
8
<PAGE>
appropriate nondisclosure and confidentiality agreements and made appropriate
filings and registrations in connection with the foregoing; other than as
described in the Registration Statement and the Prospectus: (i)there are no
third parties who have any rights in the Intellectual Property that could
preclude the Company from conducting its business as currently conducted or as
presently contemplated to be conducted as described in the Registration
Statement and the Prospectus; (ii) there are no pending or, to the Company's
knowledge, threatened action, suits, proceedings, investigations or claims by
others challenging the rights of the Company or (if the Intellectual Property is
licensed) the licensor thereof if any Intellectual Property owned or licensed to
the Company; (iii) neither the Company nor (if the Intellectual Property is
licensed), to the Company's knowledge, the licensor thereof has infringed or
received any notice of infringement of or conflict with, any rights of others
with respect to the Intellectual Property; and (iv) there is, to the knowledge
of the Company, no dispute between it and any licensor with respect to any
Intellectual Property. True and correct copies of all material licenses and
other material agreements between the Company and any third party relating to
the Intellectual Property, and all amendments thereof and supplements thereto,
have been provided to the Underwriters.
(p) No relationship, direct or indirect, exists
between or among the Company or any of its affiliates, on the one hand, and the
directors, officers, shareholders, customers or suppliers of the Company, on the
other hand, that is required by the Act to be described in the Registration
Statement and the Prospectus that is not so described.
(q) The Shares have been approved for quotation on
the Nasdaq National Market, subject only to official notice of issuance.
(r) Except as described in the Prospectus or as have
been waived in writing, no holder of securities of the Company has any rights to
the registration of securities of the Company because of the filing of the
Registration Statement or otherwise in connection with the sale of the Shares
contemplated hereby.
9
<PAGE>
(s) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, subject to registration as an
"investment company" or an entity "controlled" by an "investment company" under
the Investment Company Act of 1940, as amended.
(t) There are no existing or, to the knowledge of the
Company, threatened labor disputes with any employees of the Company that are
likely in the aggregate to have a material adverse effect on the Company.
(u) The Company is conducting its business in
compliance with all applicable federal, state and local laws, rules and
regulations of the jurisdictions in which it is conducting its business,
including but not limited to real estate appraisal, home inspection and
mortgage-related regulations, except where failure to comply would not have a
material adverse effect on the prospects or financial condition of the Company.
(v) The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval, except
where such noncompliance or failure to comply with the terms and conditions of,
or failure to receive, such permits, licenses or approvals will not in the
aggregate have a material adverse effect on the Company.
(w) Each employee benefit plan, within the meaning of
Section 3(3) of the Employee Retirement Income Securities Act of 1974, as
amended ("ERISA"), that is maintained, administered or contributed to by the
Company for employees or former employees of the Company has been maintained in
compliance with its respective terms and the requirements of any applicable
statutes, orders, rules and regulations, including but not limited to ERISA and
the Internal Revenue Code of
10
<PAGE>
1986, as amended (the "Code"). No prohibited transaction, within the meaning of
Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to
any such plan, excluding transactions effected pursuant to a statutory or
administrative exemption. For each such plan that is subject to the funding
rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated
funding deficiency," as defined in Section 412 of the Code, has been incurred,
whether or not waived, and the fair market value of the assets of each such plan
(excluding for these purposes accrued but unpaid contributions) exceeded the
present value of all benefits accrued under such plan determined using
reasonable actuarial assumptions.
(x) The Company maintains a system of internal
accounting controls that, taken as a whole, is sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(y) The Company maintains insurance of the types and
in the amounts generally deemed adequate for its business, including, without
limitation, insurance coverage for real and personal property owned or leased by
it against theft, damage, destruction, acts of vandalism and all other material
risks customarily insured against, all of which insurance is in full force and
effect. The Company has no reason to believe that it will not be able to renew
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business.
(z) The Company has reviewed its operations and those
of any third parties with which the Company has a material relationship to
evaluate the extent to which the business or operations of the Company
11
<PAGE>
will be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the general affairs, management,
current or future financial position, business, prospects, shareholders' equity
or results of operations of the Company or result in any material loss or
interference with the Company's business or operations. The "Year 2000 Problem"
as used herein means any significant risk that computer hardware or software
used in the receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
(bb) The statistical and market-related data included
in the Registration Statement and the Prospectus are derived from sources which
the Company reasonably and in good faith believes to be accurate, reasonable and
reliable, and such data agree with the sources from which they were derived.
(cc) There are no contracts or documents which are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits thereto which have not been so described and filed as
required.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to the Underwriters, and
the Underwriters, severally and not jointly, agree to purchase from the Company,
at a purchase price per share of $[ ], the number of Firm Shares set forth
opposite the respective names of the Underwriters in Schedule I hereto plus any
additional number of Shares which such Underwriter may become obligated to
purchase pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery
of certificates for, the Shares shall be
12
<PAGE>
made at the offices of Morris, Manning & Martin, L.L.P., 1600 Atlanta Financial
Center, 3343 Peachtree Road, NE, Atlanta, Georgia 30326, or at such other place
as shall be agreed upon by you and the Company, at 9:00 A.M. (Atlanta time) on
the third or fourth Business Day, as permitted under Rule 15c6-1 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), unless postponed
in accordance with the provisions of Section 9 hereof, following the date of the
effectiveness of the Registration Statement (or, if the Company has elected to
rely upon Rule 430A of the Regulations, the third or fourth business day (as
permitted under Rule 15c6-1 under the 1934 Act) after the determination of the
initial public offering price of the Shares), or such other time not later than
ten Business Days after such date as shall be agreed upon by you and the Company
(such time and date of payment and delivery being herein called the "Closing
Date"). As used herein, the term "Business Day" means any day other than a day
on which banks are permitted or required to be closed in Boston, Massachusetts.
Payment shall be made to the Company by wire transfer in same day funds, against
delivery to you at the offices of Morris, Manning & Martin, L.L.P., 1600 Atlanta
Financial Center, 3343 Peachtree Road, NE, Atlanta, Georgia 30326, or such other
location as may be mutually acceptable, for the respective accounts of the
Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least two full
Business Days prior to the Closing Date. The Company will permit you to examine
and package such certificates for delivery at least one full Business Day prior
to the Closing Date.
(c) In addition, the Company hereby grants to the
Underwriters the option to purchase up to ________ Additional Shares at the same
purchase price per share to be paid by the Underwriters to the Company for the
Firm Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option may
be exercised at any time, or from time to time, in whole or in part, on or
before the 30th day following the date of the Prospectus, by written notice by
you to the Company. Such notice shall set forth the aggregate number of
Additional Shares as to which the option is being exercised
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and the date and time, as reasonably determined by you, when the Additional
Shares are to be delivered (such date and time being herein sometimes referred
to as the "Additional Closing Date"); PROVIDED, HOWEVER, that the Additional
Closing Date shall not be earlier than the Closing Date or earlier than the
second full Business Day after the date on which the option shall have been
exercised nor later than the eighth full Business Day after the date on which
the option shall have been exercised (unless such time and date are postponed in
accordance with the provisions of Section 9 hereof). Certificates for the
Additional Shares shall be registered in such name or names and in such
authorized denominations as you may request in writing at least two full
Business Days prior to the Additional Closing Date. The Company will permit you
to examine and package such certificates for delivery at least one full Business
Day prior to the Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter
shall be the number which bears the same ratio to the aggregate number of
Additional Shares being purchased as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to ________, subject, however,
to such adjustments to eliminate any fractional shares as you in your sole
discretion shall make.
Payment of the purchase price for the Additional Shares shall
be made to the Company by wire transfer in same day funds at the offices of
Morris, Manning & Martin, L.L.P., 1600 Atlanta Financial Center, 3343 Peachtree
Road, NE, Atlanta, Georgia 30326, or such other location as may be mutually
acceptable, upon delivery of the certificates for the Additional Shares to you
for the respective accounts of the Underwriters.
3. OFFERING.
(a) Upon your authorization of the release of the
Firm Shares, the Underwriters propose to offer the Shares for sale to the public
upon the terms set forth in the Prospectus.
(b) The Company and the Underwriters hereby agree
that up to [ ] percent (___%) of the
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Firm Shares to be purchased by the Underwriters (the "Directed Shares") shall be
reserved for sale by the Underwriters to certain eligible employees of, and
certain persons designated by, the Company (the "Directed Shares Purchasers") as
part of the distribution of the Shares by the Underwriters, subject to the terms
of this Agreement, the applicable rules, regulations and interpretations of the
National Association of Securities Dealers, Inc. and all other applicable laws,
rules and regulations, PROVIDED, HOWEVER, that under no circumstances will Bear
Stearns & Co. Inc. or any other Underwriter be liable to the Company or to any
of the Directed Shares Purchasers for any action taken or omitted in good faith
in connection with transactions effected with regard to the Directed Shares
Purchasers. To the extent that such Directed Shares are not orally confirmed for
purchase by such persons by the end of the first day after the date of this
Agreement, such Directed Shares will be offered to the public as part of the
offering contemplated hereby.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
(a) If the Registration Statement has not yet been
declared effective, the Company will use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as possible, and if Rule 430A is used or the filing of the Prospectus
is otherwise required under Rule 424(b) or Rule 434, the Company will file the
Prospectus (properly completed if Rule 430A has been used) pursuant to Rule
424(b) or Rule 434 within the prescribed time period and will provide evidence
satisfactory to you of such timely filing. If the Company elects to rely on Rule
434, the Company will prepare and file a term sheet that complies with the
requirements of Rule 434.
The Company will notify you immediately (and, if
requested by you, will confirm such notice in writing) (i) when the Registration
Statement and any amendments thereto become effective, (ii) of any request by
the Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for any additional information, (iii) of the mailing or the
delivery to the Commission for filing of any amendment of or supplement to the
Registration Statement or the
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Prospectus, (iv) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or any post-effective amendment
thereto or of the initiation, or the threatening, of any proceedings therefor,
(v) of the receipt of any comments from the Commission and (vi) of the receipt
by the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for that purpose. If the Commission shall propose
or enter a stop order at any time, the Company will make every reasonable effort
to prevent the issuance of any such stop order and, if issued, to obtain the
lifting of such order as soon as possible. The Company will not file any
amendment to the Registration Statement, make any filing under Rule 462(b) of
the Regulations or file any amendment of or supplement to the Prospectus
(including the prospectus required to be filed pursuant to Rule 424(b) or Rule
434 of the Regulations) that differs from the prospectus on file at the time of
the effectiveness of the Registration Statement before or after the effective
date of the Registration Statement to which you shall reasonably object in
writing after being timely furnished in advance a copy thereof.
(b) The Company will comply with the Act and the
Regulations so as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If at any time when a
prospectus relating to the Shares is required to be delivered under the Act any
event shall have occurred as a result of which the Prospectus as then amended or
supplemented would, in the judgment of the Underwriters or the Company, include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it shall be necessary at any time to amend or supplement the Prospectus or
Registration Statement to comply with the Act or the Regulations, the Company
will notify you promptly and prepare and file with the Commission an appropriate
amendment or supplement (in form and substance reasonably satisfactory to you)
which will correct such statement or omission and will use its best efforts to
have any amendment to the Registration Statement declared effective as soon as
possible.
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<PAGE>
(c) The Company will promptly deliver to you four
signed copies of the Registration Statement, including exhibits and all
amendments thereto, and signed copies of all consents, and the Company will
promptly deliver to each of the Underwriters such number of copies of any
preliminary prospectus, the Prospectus, the Registration Statement and all
amendments of and supplements to such documents, if any, as you may reasonably
request, and the Company hereby consents to the use of such copies for purposes
permitted by the Act.
(d) The Company will endeavor in good faith, in
cooperation with you, at or prior to the time of effectiveness of the
Registration Statement, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares in such
jurisdictions as you may designate and to maintain such qualification in effect
for so long as required for the distribution thereof; except that in no event
shall the Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process.
(e) The Company will make generally available (within
the meaning of Section 11(a) of the Act) to its security holders and to you as
soon as practicable, but not later than 45 days after the end of its fiscal
quarter in which the first anniversary date of the effective date of the
Registration Statement occurs, an earning statement (in form complying with the
provisions of Rule 158 of the Regulations) covering a period of at least twelve
consecutive months beginning after the effective date of the Registration
Statement.
(f) During the period of 180 days from the date of
the Prospectus, the Company will not directly or indirectly, without the prior
written consent of Bear, Stearns & Co. Inc., issue, sell, offer or agree to
sell, grant any option for the sale of, pledge, or otherwise dispose of or
encumber, or otherwise create or maintain a "put equivalent position" (within
the meaning of Rule 16a-1(h) under the 1934 Act) in, any shares of the Company's
Common Stock (or any securities convertible into, exercisable for or
exchangeable for Common Stock), and the Company has obtained or will obtain the
undertaking of each of its officers, directors, option
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holders and each shareholder that beneficially owns one or more percent of the
outstanding capital stock of the Company, as listed on Schedule II attached
hereto, not to engage in any of the aforementioned transactions on their own
behalf, other than (i) the Company's sale of Shares hereunder, (ii) the
Company's issuance of shares of Common Stock and options to purchase Common
Stock under any stock option or purchase plan described in the Prospectus, and
(iii) the Company's issuance of shares of Common Stock upon the exercise of any
currently outstanding warrant or the automatic conversion of any class of
securities outstanding on the date hereof and disclosed in the Prospectus. The
Company agrees not to waive any undertaking obtained pursuant to this paragraph.
(g) During a period of three years from the effective
date of the Registration Statement, the Company will furnish to you copies of
(i) all reports to its shareholders and (ii) all reports, financial statements
and proxy or information statements filed by the Company with the Commission or
any national securities exchange. The Company, during the period when the
Prospectus is required to be delivered under the Act, will file all documents
required to be filed with the Commission pursuant to the 1934 Act within the
time periods required by the 1934 Act and the rules and regulations of the
Commission thereunder.
(h) The Company will apply the proceeds from the sale
of the Shares as set forth under "Use of Proceeds" in the Prospectus and report
such use of proceeds as may be required pursuant to Rule 463 of the Regulations.
(i) The Company will use its best efforts to cause
the Shares to be quoted on the Nasdaq National Market and to maintain such
quotation so long as any of the Shares are outstanding.
(j) The Company hereby agrees that it will ensure
that the Directed Shares are restricted as required by the National Association
of Securities Dealers, Inc. or the National Association of Securities Dealers,
Inc. rules from sale, transfer, assignment, pledge or hypothecation for a period
of three months following the date of this Agreement. The Underwriters
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<PAGE>
will notify the Company as to which persons will need to be so restricted. At
the request of the Underwriters, the Company will direct the transfer agent to
place a stop transfer restriction upon such securities for such a period of
time. Should the Company release, or seek to release, from such restrictions any
of the Directed Shares, the Company agrees to reimburse the Underwriters for any
reasonable expenses (including without limitation legal expenses) they incur in
connection with such release.
(k) The Company will use its best efforts to do and
perform all things required or necessary to be done and performed under this
Agreement by the Company prior to or after the Closing Date or any Additional
Closing Date, as the case may be, and to satisfy all conditions precedent to the
delivery of the Shares.
5. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement is terminated,
the Company hereby agrees to pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including those in
connection with (i) preparing, printing, duplicating, filing and distributing
the Registration Statement, as originally filed, and all amendments thereof
(including all exhibits thereto), any preliminary prospectus, the Prospectus and
any amendments or supplements thereto (including, without limitation, fees and
expenses of the Company's accountants and counsel), the underwriting documents
(including this Agreement and the Agreement Among Underwriters and the Selling
Agreement) and all other documents related to the public offering of the Shares
(including those supplied to the Underwriters in quantities as hereinabove
stated), (ii) the issuance, transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
qualification of the Shares under state or foreign securities or Blue Sky laws,
including the costs of printing and mailing a preliminary and final "Blue Sky
Survey" and the reasonable fees of counsel for the Underwriters and such
counsel's reasonable disbursements in relation thereto, (iv) quotation of the
Shares on the Nasdaq National Market, (v) filing fees of the Commission and the
National Association of Securities Dealers, Inc., (vi) the cost of
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printing certificates representing the Shares, (vii) the cost and charges of any
transfer agent or registrar and (viii) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Directed Shares which
are designated by the Company for sale to certain employees of and certain
persons designated by the Company.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for the Firm Shares and the Additional
Shares, as provided herein, shall be subject to the accuracy of the
representations and warranties of the Company herein contained, as of the date
hereof and as of the Closing Date (for purposes of this Section 6, "Closing
Date" shall refer to the Closing Date for the Firm Shares and any Additional
Closing Date, if different, for the Additional Shares), to the absence from any
certificates, opinions, written statements or letters furnished to you or to
Morris, Manning & Martin, L.L.P. ("Underwriters' Counsel") pursuant to this
Section 6 of any misstatement or omission, to the performance by the Company of
its obligations hereunder and to the following additional conditions:
(a) The Registration Statement, including any Rule
462(b) Registration Statement, shall have become effective and all necessary
approvals of The Nasdaq Stock Market, Inc. shall have been received not later
than 5:30 P.M., Atlanta time, on the date of this Agreement, or at such later
time and date as shall have been consented to in writing by you; if the Company
shall have elected to rely upon Rule 430A or Rule 434 of the Regulations, the
Prospectus shall have been filed with the Commission in a timely fashion in
accordance with Section 4(a) hereof; and at or prior to the Closing Date, no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof shall have been issued and no proceedings
therefor shall have been initiated or threatened by the Commission.
(b) At the Closing Date, you shall have received the
opinion of Powell, Goldstein, Frazer & Murphy LLP, counsel for the Company,
dated the Closing Date, addressed to the Underwriters and in form and
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substance satisfactory to Underwriters' Counsel, to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of
the State of Georgia. The Company is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased, licensed or
operated) or the nature or conduct of its business makes such
qualification necessary, except for those failures to be so qualified
or in good standing which will not in the aggregate have a material
adverse effect on the Company. The Company has all requisite corporate
authority to own, lease, license and operate its properties and conduct
its business as now being conducted and as described in the
Registration Statement and the Prospectus.
(ii) The Company has an authorized capitalization as
set forth in the Registration Statement and the Prospectus; and all of
the outstanding shares of capital stock of the Company are duly and
validly authorized and issued, are fully paid and nonassessable and
were not issued in violation of or subject to any preemptive or similar
rights. The Shares to be delivered on the Closing Date have been duly
and validly authorized and, when delivered by the Company against
payment therefor in accordance with this Agreement, will be duly and
validly issued, fully paid and nonassessable and will not have been
issued in violation of or subject to any preemptive or similar rights.
The Common Stock, the Firm Shares and the Additional Shares conform in
all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.
(iii) The Shares to be sold under this Agreement to
the Underwriters have been approved for quotation on the Nasdaq
National Market subject to official notice of issuance.
(iv) This Agreement has been duly and validly
authorized, executed and delivered by the Company.
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(v) There is no litigation or governmental or other
action, suit, proceeding or investigation before any court or before or
by any public, regulatory or governmental agency or body pending or to
the best of such counsel's knowledge, threatened against, or involving
the properties or businesses of, the Company that is of a character
required to be disclosed in the Registration Statement and the
Prospectus and has not been properly disclosed therein. In rendering
the opinion set forth in this paragraph, such counsel shall not be
required to search the dockets of any courts or governmental
authorities.
(vi) The Company is listed in the records of the
United States Patent and Trademark Office ("PTO") as the owner of
record of each of the trademark registrations and applications listed
in EXHIBIT A attached hereto (herein called the "Trademarks"). To such
counsel's knowledge, there are no asserted or unasserted claims of any
persons relating to the scope or ownership of any of the Trademarks,
there are no liens which have been filed against any of the Trademarks,
there are no material defects of form in the preparation or filing of
the Trademark applications, the Trademark Applications are being
diligently prosecuted, and none of such Trademarks has been finally
rejected or abandoned. Further, nothing has come to our attention that
leads us to believe that the Trademark applications will not eventuate
in registered Trademarks, or that any Trademark registrations issued,
or to be issued in respect of any such Trademark applications, will not
be valid or will not afford the Company reasonable trademark protection
relative to the subject matter thereof.
(vii) The Company owns or possesses valid and
enforceable licenses or other rights to use all Intellectual Property.
(viii) Other than as described in the Registration
Statement and the Prospectus: (A) there are no third parties who have
any rights in the Intellectual Property that could preclude the
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Company from conducting business as currently conducted or as
presently contemplated to be conducted as described in the
Registration Statement and the Prospectus; (B) there are no pending or
threatened actions, suits, proceedings, investigations or claims by
others challenging the rights of the Company or, if the Intellectual
Property is licensed to the Company, in respect of any third-party
licensor; (C) neither the Company nor, to the extent any Intellectual
Property is licensed to the Company, any third-party licensor has
infringed, or received any notice of infringement of or conflict with,
any rights of others with respect to the Intellectual Property; and
(D) there is no dispute between the Company and any third-party
licensor with respect to any Intellectual Property.
(ix) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
by the Company do not and will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default
(or an event which with notice or lapse of time, or both, would
constitute a default) or Repayment Event under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, any agreement,
instrument, franchise, license or permit known to such counsel to which
the Company is a party or by which the Company or its properties or
assets may be bound or (B) violate or conflict with any provision of
the certificate of incorporation or by-laws of the Company, or any
judgment, decree, order, statute, rule or regulation of any court or
any public, governmental or regulatory agency or body having
jurisdiction over the Company or any of its properties or assets. No
consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its properties or assets is required for the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby including the
issuance, sale
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and delivery of the Shares, except for (1) such as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters (as to
which such counsel need express no opinion) and (2) such as have been
made or obtained under the Act or the 1934 Act.
(x) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, subject to registration
as an "investment company" or an entity "controlled" by an "investment
company" under the Investment Company Act of 1940, as amended.
(xi) The Registration Statement and the Prospectus
and any amendments thereof or supplements thereto (other than the
financial statements and schedules and other financial data included or
incorporated by reference therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations.
(xii) Such counsel has been informed by the
Commission that the Registration Statement is effective under the Act,
and to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof or supplement thereto has been issued and no
proceedings therefor have been initiated or threatened by the
Commission and all filings required by Rule 424(b) of the Regulations
have been made.
(xiii) Except as disclosed in or specifically
contemplated by Registration Statement and the Prospectus, to such
counsel's knowledge, there are no outstanding options, warrants or
other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible or exchangeable for
capital stock of the Company. The outstanding stock options relating to
the Common Stock have been duly authorized and validly issued and
conform to the
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descriptions thereof contained in the Registration Statement and the
Prospectus.
(xiv) The statements in the Registration Statement
and the Prospectus under the captions "Description of Capital Stock"
and "Business --Legal Proceedings" and in Item 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary
of the terms of the Shares, legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such terms, legal matters, documents or proceedings.
(xv) The form of certificate used to evidence the
Common Stock complies in all material respects with all applicable
statutory requirements, with any applicable requirements of the
certificate of incorporation and by-laws of the Company and with the
requirements of The Nasdaq Stock Market, Inc.
(xvi) To the knowledge of such counsel, there are no
statutes or regulations that are required to be described in the
Prospectus that are not described as required.
(xvii) All descriptions in the Registration Statement
of contracts and other documents to which the Company is a party are
accurate in all material respects; to the knowledge of such counsel,
there are no franchises, contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be described
or referred to in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto are correct in all material respects.
(xviii) Each acquisition agreement relating to the
acquisitions described in the Prospectus under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" has been duly authorized,
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executed and delivered by the Company and each of its subsidiaries and
each other party thereto and constitutes the valid and binding
agreement of the Company and such subsidiary enforceable against the
Company and such subsidiary in accordance with its terms, subject, as
to enforcement, to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws relating to or affecting the
enforcement of creditors' rights generally and to general equitable
principles.
(xix) In addition, such opinion shall also contain a
statement that such counsel has participated in conferences with
officers and representatives of the Company, representatives of the
independent public accountants for the Company and the Underwriters at
which the contents of the Registration Statement and the Prospectus and
related matters were discussed, and no facts have come to the attention
of such counsel which would lead such counsel to believe that either
the Registration Statement at the time it became effective (including
the information deemed to be part of the Registration Statement at the
time of effectiveness pursuant to Rule 430A(b) or Rule 434, if
applicable), or any amendment thereof made prior to the Closing Date as
of the date of such amendment, contained an untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date (or any amendment
thereof or supplement thereto made prior to the Closing Date as of the
date of such amendment or supplement) and as of the Closing Date
contained or contains an untrue statement of a material fact or omitted
or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that
such counsel need express no belief or opinion with respect to the
financial statements and schedules and other financial data included or
incorporated by reference therein).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws
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other than the laws of the United States and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably
acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as
to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
regarding the corporate existence or good standing of the Company, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale
of the Firm Shares and the Additional Shares as herein contemplated shall be
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, and the Underwriters shall have received from said Underwriters'
Counsel a favorable opinion, dated as of the Closing Date, with respect to the
issuance and sale of the Shares, the Registration Statement and the Prospectus
and such other related matters as you may reasonably require, and the Company
shall have furnished to Underwriters' Counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(d) At the Closing Date, you shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company, dated the Closing Date, to the effect that (i) the conditions set forth
in subsection (a) of this Section 6 have been satisfied, (ii) as of the date
hereof and as of the Closing Date, the representations and warranties of the
Company set forth in Section 1 hereof are accurate, (iii) as of the Closing
Date, the obligations of the Company to be performed hereunder on or prior
thereto have been duly performed and (iv) subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus,
the Company
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has not sustained any material loss or interference with its businesses or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal or governmental
proceeding, and there has not been any material adverse change, or any
development involving a material adverse change, in the business, prospects,
properties, operations, condition (financial or otherwise) or results of
operations of the Company, except in each case as described in or contemplated
by the Prospectus.
(e) At the time this Agreement is executed and at the
Closing Date, you shall have received a letter from PricewaterhouseCoopers LLC,
independent public accountants for the Company, dated, respectively, as of the
date of this Agreement and as of the Closing Date addressed to the Underwriters
and in form and substance satisfactory to you, stating that: (i) they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the Regulations and stating that the answer to Item 10 of
the Registration Statement is correct insofar as it relates to them; (ii) in
their opinion, the financial statements and schedules of the Company included in
the Registration Statement and the Prospectus and covered by their opinion
therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim financial
statements of the Company, a reading of the minutes of meetings and consents of
the shareholders and board of directors of the Company and the committees of
such board subsequent to December 31, 1999, inquiries of officers and other
employees of the Company who have responsibility for financial and accounting
matters of the Company with respect to transactions and events subsequent to
December 31, 1999, a review of interim financial information in accordance with
the standards established by the American Institute of Certified Public
Accountants in Statement of Auditing Standards No. 71, Interim Financial
Information, with respect to the year ended December 31, 1999 and other
specified procedures and inquiries to a date not more than five days prior to
the date of such letter, nothing has come to their attention
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that would cause them to believe that: (A) the unaudited financial statements
and schedules of the Company presented in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Act and, if applicable, the 1934 Act and the
applicable published rules and regulations of the Commission thereunder or that
such unaudited financial statements are not fairly presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement and the Prospectus; (B) with respect to the period
subsequent to December 31, 1999, there were, as of the date of the most recent
available monthly financial statements of the Company, if any, and as of a
specified date not more than five days prior to the date of such letter, any
changes in the capital stock or long-term indebtedness of the Company or any
decrease in the net current assets or shareholders' equity of the Company, in
each case as compared with the amounts shown in the most recent balance sheet
presented in the Registration Statement and the Prospectus, except for changes
or decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter or (C) that during
the period from January 1, 2000 to the date of the most recent available monthly
financial statements of the Company, if any, and to a specified date not more
than five days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in total
revenues, or total or per share net income (loss), except for decreases which
the Registration Statement and the Prospectus disclose have occurred or may
occur or which are set forth in such letter; and (iv) they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings(loss) and other financial information pertaining to the Company set
forth in the Registration Statement and the Prospectus, which have been
specified by you prior to the date of this Agreement, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting and financial records of the Company or from schedules furnished by
the Company, and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified readings,
29
<PAGE>
inquiries, and other appropriate procedures specified by you set forth in such
letter, and found them to be in agreement.
(f) Prior to the Closing Date, the Company shall have
furnished to you such further information, certificates and documents as you may
reasonably request.
(g) At the Closing Date, the Shares shall have been
approved for quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not
have been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date, and the
obligations of the Underwriters to purchase the Additional Shares may be
canceled by you at, or at any time prior to, the Additional Closing Date. Notice
of such cancellation shall be given to the Company in writing, or by telephone,
facsimile, telex or telegraph, confirmed in writing.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the 1934 Act, against any
and all losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to reasonable attorneys' fees and any and all
reasonable expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Act, the 1934
Act or otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained
30
<PAGE>
in the Registration Statement or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) (A) the
violation of any applicable laws or regulations of foreign jurisdictions where
Directed Shares have been offered and (B) any untrue statement or alleged untrue
statement of a material fact included in the supplement or prospectus wrapper
material distributed in connection with the reservation and sale of the Directed
Shares to eligible employees and certain persons designated by the Company or
the omission or alleged omission therefrom of a material fact necessary to make
the statements therein, when considered in conjunction with the Prospectus or
preliminary prospectus, not misleading; PROVIDED, HOWEVER, that the Company will
not be liable in any such case to the extent but only to the extent that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have, including under this
Agreement.
(b) Each Underwriter severally, and not jointly,
agrees to indemnify and hold harmless the Company, each of the directors of the
Company, each of the officers of the Company who shall have signed the
Registration Statement and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the 1934 Act,
against any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the 1934 Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses
31
<PAGE>
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or any related preliminary
prospectus or the Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon 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 any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein; PROVIDED, HOWEVER, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have, including under this Agreement. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page, in the [table in the first paragraph and the third and twelfth paragraphs]
under the caption "Underwriting" in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for use in the Registration Statement or in any amendment thereof, any related
preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.
(c) In connection with the offer and sale of the
Directed Shares, the Company agrees, promptly upon a request in writing, to
indemnify and hold harmless the Underwriters from and against any and all
losses, liabilities, claims, damages and expenses incurred by it as a result of
(i) the failure of the Directed Shares Purchasers to pay for and accept delivery
of the Directed Shares which, by the end of the day following the date of this
Agreement, were subject to a properly confirmed agreement to purchase such
Directed Shares or (ii) the refusal of any Directed Shares Purchasers that are
also employees of the Company to properly confirm their respective agreements to
purchase the Directed Shares that they had agreed to purchase by
32
<PAGE>
the end of the first day after the date of this Agreement.
(d) Promptly after receipt by an indemnified party
under subsection (a), (b) or (c) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the commencement of
such action (but the failure so to notify an indemnifying party shall not
relieve it from any liability which it may have under this Section 7). In case
any such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may elect 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
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (A) effected with its written consent
or (B) effected without its written consent if the settlement is entered into
more than 20 Business Days after the indemnifying party shall have
33
<PAGE>
received a request from the indemnified party for reimbursement for the fees and
expenses of counsel (in any case where such fees and expenses are at the expense
of the indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement request.
8. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the 1934
Act, officers of the Company who signed the Registration Statement and directors
of the Company) as incurred to which the Company and one or more of the
Underwriters may be subject, in such proportions as are appropriate to reflect
the relative benefits received by the Company and the Underwriters from the
offering of the Shares or, if such allocation is not permitted by applicable
law, in such proportions as are appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters, respectively, shall be deemed to be in the same proportion
as (a) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (b) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative
34
<PAGE>
fault of the Company and of the Underwriters 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 Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission or any violation of the nature
referred to in Section 7(a)(ii). The Company and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 8 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 which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by such Underwriter hereunder and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the 1934 Act, each officer
of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 8. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties,
notify each
35
<PAGE>
party or parties from whom contribution may be sought, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have under this
Section 8 or otherwise. No party shall be liable for contribution with respect
to any action or claim settled without its consent; PROVIDED, HOWEVER, that such
consent was not unreasonably withheld.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default
in its or their obligation to purchase Firm Shares or Additional Shares
hereunder, and if the Firm Shares or Additional Shares with respect to which
such default relates do not (after giving effect to arrangements, if any, made
by you pursuant to subsection (b) below) exceed in the aggregate 10% of the
number of Firm Shares or Additional Shares, as the case may be, the Firm Shares
or Additional Shares to which the default relates shall be purchased by the
non-defaulting Underwriters in the same respective proportions which the numbers
of Firm Shares set forth opposite their respective names in Schedule I hereto
bear to the aggregate number of Firm Shares set forth opposite the names of the
non-defaulting Underwriters.
(b) In the event that such default relates to more
than 10% of the total number of Firm Shares or Additional Shares, as the case
may be, you may in your discretion arrange for yourself or for another party or
parties (including any non-defaulting Underwriter or Underwriters who so agree)
to purchase such Firm Shares or Additional Shares, as the case may be, to which
such default relates on the terms contained herein. In the event that within 5
calendar days after such a default you do not arrange for the purchase of the
Firm Shares or Additional Shares, as the case may be, to which such default
relates as provided in this Section 9, this Agreement or, in the case of a
default with respect to the Additional Shares, the obligations of the
Underwriters to purchase and of the Company to sell the Additional Shares shall
thereupon terminate, without liability on the part of the Company (except in
each case as provided in Section 5, Section 7(a) and Section 8 hereof) or the
Underwriters, but nothing in this Agreement shall relieve a defaulting
Underwriter or
36
<PAGE>
Underwriters of its or their liability, if any, to the other Underwriters and
the Company for damages occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional
Shares to which such default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date or
Additional Closing Date, as the case may be, for a period not exceeding five
Business Days in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus which, in the opinion
of Underwriters' Counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and Additional Shares, as the
case may be.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All
representations and warranties, covenants and agreements of the Underwriters and
the Company contained in this Agreement, including the agreements contained in
Section 5 hereof, the indemnity agreements contained in Section 7 hereof and the
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof or by or on behalf
of the Company, any of its officers and directors or any controlling person
thereof and shall survive delivery of and payment for the Shares to and by the
Underwriters. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 9 or Section 11
hereof.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective upon the
later of (i) such time as you and the
37
<PAGE>
Company shall have received notification of the effectiveness of the
Registration Statement and (ii) the execution of this Agreement. If either the
initial public offering price or the purchase price per Share has not been
agreed upon prior to 5:00 P.M., New York time, on the fifth full Business Day
after the Registration Statement shall have become effective, this Agreement
shall thereupon terminate without liability to the Company or the Underwriters
except as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
notifying the Company. Notwithstanding the foregoing, the provisions of this
Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full
force and effect.
(b) You shall have the right to terminate this
Agreement at any time prior to the Closing Date or the obligations of the
Underwriters to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be, if (i) any domestic or
international event or act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, the market for the
Company's securities or securities in general; (ii) if trading on the New York
Stock Exchange or quotations over the Nasdaq National Market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the New
York Stock Exchange or for the Nasdaq National Market by the New York Stock
Exchange or The Nasdaq Stock Market, Inc. or by order of the Commission or any
other governmental authority having jurisdiction; or (iii) if a banking
moratorium has been declared by a state or federal authority or if any new
restriction materially adversely affecting the distribution of the Firm Shares
or the Additional Shares, as the case may be, shall have become effective; or
(iv) (A) if the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a declaration
of a national emergency or war by the United States or (B) if there shall have
been such change in political, financial or economic conditions, if the effect
of any such event in (A) or (B) as in your judgment makes it impracticable or
inadvisable to proceed with the offering, sale and delivery of the Firm Shares
38
<PAGE>
or the Additional Shares, as the case may be, on the terms contemplated by the
Prospectus.
(c) Any notice of termination pursuant to this
Section 11 shall be by telephone, facsimile, telex or telegraph, confirmed in
writing.
(d) If this Agreement shall be terminated pursuant to
any of the provisions hereof (otherwise than pursuant to (i) notification by you
as provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof in
any material respect, the Company will, subject to demand by you, reimburse the
Underwriters for all reasonable out-of-pocket expenses (including the reasonable
fees and expenses of their counsel), incurred by the Underwriters in connection
herewith.
12. NOTICE. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, sent by facsimile, telex or telegraph
and confirmed in writing by letter, to such Underwriter c/o Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, Attention: _____________,
_________________, fax no. (212) 272-____; if sent to the Company, shall be
mailed, delivered, or sent by facsimile, telex or telegraph and confirmed in a
letter to the Company, 11475 Great Oaks Way, Suite 320, Alpharetta, Georgia
30022, Attention: C. James Schaper, President and Chief Executive Officer, fax
no. (770) ___-____, with a copy to Powell, Goldstein, Frazer & Murphy LLP,
Sixteenth Floor, 191 Peachtree Street, N.E., Atlanta, Georgia 30303, Attention:
Gabriel Dumitrescu, Esquire, fax no. (404) ___-____.
13. PARTIES. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriters and the Company and the
controlling persons, directors, officers, employees and agents referred to in
Sections 7 and 8, and their respective successors and assigns, and no other
person shall have or be construed
39
<PAGE>
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement or any provision contained herein. The term
"successors and assigns" shall not include a purchaser, in its capacity as such,
of Shares from any of the Underwriters.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
15. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
40
<PAGE>
If the foregoing correctly sets forth the understanding
between you and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
PRIMIS, INC.
By:
-------------------------
Name:
Title:
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY INC.
J.C. BRADFORD & CO.
By: BEAR, STEARNS & CO. INC.
By:
-------------------------
Name:
Title:
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
41
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
<S> <C>
Bear, Stearns & Co. Inc...............................
U.S. Bancorp Piper Jaffray Inc........................
J.C. Bradford & Co....................................
Total...................... ____________
</TABLE>
42
<PAGE>
SCHEDULE II
[To come]
43
<PAGE>
EXHIBIT A
[To come]
44
<PAGE>
Exhibit 4.1
COMMON STOCK
$.01 PAR VALUE
NUMBER SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 741616 10 6
[LOGO] PRIMIS
THE DIRECT SOURCE FOR PROPERTY INFORMATION
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
PRIMIS, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney, upon the surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
(CHARLOTTE, NC)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[Seal]
/s/ C. James Schaper
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
/s/ Leslie H. Schreiner
SECRETARY
NOTE: LOGO IS FOR POSITION ONLY
- -----------------------------------
AMERICAN BANK NOTE COMPANY
55TH STREET AT SANSOM STREET
PHILADELPHIA, PA 19139
(215)764-8600
- -----------------------------------
SALES: A. HOBBS: 404-525-1455
- -----------------------------------
/NET/BANKNOTE/HOME 15/PRIMIS/H65479
- -----------------------------------
- ----------------------------------------------------
PRODUCTION COORDINATOR: STEVE KOWALSKI: 215-764-8620
PROOF OF MARCH 1, 2000
PRIMIS, INC.
H65479 FACE
- ----------------------------------------------------
OPERATOR EG/MT
- ----------------------------------------------------
NEW
- ----------------------------------------------------
C E R T I F I C A T E O F S T O C K
<PAGE>
PRIMIS, INC.
The Corporation will furnish without charge to each shareholder who so
requests a statement or summary of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof that the Corporation is authorized to issue and of
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in its
entirety according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -- _______________________ as Custodian for
________________________________________
(Minor)
under Uniform Gifts to Minors Act of
________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
____________________________________________________________________________
____________________________________________________________________________
______________________________________________________________________Shares
of the common stock represented by this Certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________________Attorney
to transfer such stock on the books of the Corporation with full power of
substitution in the premises.
Dated ________________________________
_________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed: __________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION SUCH AS A SECURITIES
BROKER/DEALER, COMMERCIAL BANK, TRUST COMPANY,
SAVINGS ASSOCIATION OR A CREDIT UNION PARTICIPATING
IN A MEDALLION PROGRAM.
- -----------------------------------
AMERICAN BANK NOTE COMPANY
55TH STREET AT SANSOM STREET
PHILADELPHIA, PA 19139
(215)764-8600
- -----------------------------------
SALES: A. HOBBS: 404-525-1455
- -----------------------------------
HOME 15/LIVE JOBS/P/PRIMIS/H65479
- -----------------------------------
- ----------------------------------------------------
PRODUCTION COORDINATOR: STEVE KOWALSKI: 215-764-8620
PROOF OF MARCH 1, 2000
PRIMIS, INC.
H65479 Bk
- ----------------------------------------------------
OPERATOR MT
- ----------------------------------------------------
NEW
- ----------------------------------------------------
<PAGE>
Exhibit 10-12
OFFICE
LEASE AGREEMENT
OPUS SOUTH CORPORATION, a Florida corporation, as Landlord,
and
PRIMIS, INC., a Georgia corporation, as Tenant
Dated: March 9th, 1999
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
BASIC TERMS.....................................................................1
ARTICLE 1 LEASE OF PREMISES AND LEASE TERMS.....................................4
1.1 Premises...............................................................4
1.2 Term, Delivery and Commencement........................................4
1.3 Completion of Tenant's Work............................................5
1.4 Effect of Occupancy....................................................5
ARTICLE 2 RENTAL AND OTHER PAYMENTS.............................................6
2.1 Basic Rent............................................................6
2.2 Additional Rent.......................................................6
2.3 Improvement Allowance.................................................6
2.4 Delinquent Rental Payments............................................7
2.5 Independent Obligations...............................................7
ARTICLE 3 OPERATING EXPENSES - DEFINITION.......................................7
3.1 Operating Expenses....................................................7
3.2 Excess Operating Expenses.............................................9
3.3 Tenant's Prorata Share of Excess Operating Expenses...................9
ARTICLE 4 OPERATING EXPENSES - PAYMENT..........................................9
4.1 Payment of Operating Expenses.........................................9
4.2 Estimation of Tenant's Prorata Share of Excess Operating Expenses.....9
4.3 Payment of Estimated Prorata Share of Excess Operating Expenses......10
4.4 Re-Estimation of Tenant's Prorata Share of Excess Operating
Expenses...........................................................10
4.5 Confirmation of Tenant's Prorata Share of Excess Operating
Expenses...........................................................10
4.6 Annual Amendment to Definition of Tenant's Prorata Share of
Excess Operating Expenses..........................................11
4.7 Personal Property Taxes..............................................11
4.8 Landlord's Right to Contest Taxes....................................11
4.9 Adjustment for Variable Operating Expenses...........................11
ARTICLE 5 USE..................................................................12
5.1 Permitted Use........................................................12
5.2 Acceptance of Premises...............................................12
5.3 Increased Insurance..................................................12
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5.4 Laws, Rules and Regulations..........................................13
5.5 Common Areas.........................................................13
5.6 Parking..............................................................13
5.7 Americans with Disabilities Act......................................14
ARTICLE 6 HAZARDOUS MATERIALS..................................................14
6.1 Compliance with Hazardous Materials Laws.............................14
6.2 Indemnificiation.....................................................14
ARTICLE 7 SERVICES.............................................................15
7.1 Landlord's Obligations...............................................15
7.2 Tenant's Obligations.................................................17
7.3 Other Provisions Relating to Services................................17
7.4 Effects on Utilities.................................................17
ARTICLE 8 MAINTENANCE AND REPAIR...............................................17
8.1 Landlord's Obligations...............................................18
8.2 Tenant's Obligations.................................................18
8.3 Tenant's Waiver of Claims Against Landlord...........................19
ARTICLE 9 CHANGES AND ALTERATIONS..............................................19
9.1 Landlord Approval....................................................19
9.2 Tenant Responsibility for Cost and Insurance.........................20
9.3 Construction Obligations and Ownership...............................20
9.4 Liens................................................................20
9.5 Indemnification......................................................20
ARTICLE 10 RIGHTS RESERVED BY LANDLORD.........................................21
10.1 Landlord's Entry....................................................21
10.2 Landlord's Cure.....................................................21
ARTICLE 11 INSURANCE...........................................................22
11.1 Landlord's Casualty Insurance Obligations...........................22
11.2 Tenant's Casualty Insurance Obligations.............................22
11.3 Landlord's Liability Insurance Obligations..........................23
11.4 Tenant's Liability Insurance Obligations............................23
11.5 Tenant's Miscellaneous Insurance Obligations........................24
11.6 Tenant's Indemnification of Landlord................................24
11.7 Tenant's Waiver.....................................................24
11.8 Landlord's Deductible...............................................25
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11.9 Tenant's Property...................................................25
11.10 Increase in Insurance...............................................25
11.11 Tenant's Failure to Insure..........................................25
ARTICLE 12 DAMAGE OR DESTRUCTION...............................................26
12.1 Tenantable Within 120 Days..........................................26
12.2 Not Tenantable Within 120 Days......................................26
12.3 Property Substantially Damaged......................................26
12.4 Uninsured Casualty or Unavailable Insurance Proceeds................26
12.5 Deductible Payments.................................................27
12.6 Landlord's Repair Obligations.......................................27
12.7 Rent Apportionment..................................................27
ARTICLE 13 EMINENT DOMAIN......................................................27
13.1 Termination of Lease................................................27
13.2 Landlord's Repair Obligations.......................................28
13.3 Tenant's Participation..............................................28
ARTICLE 14 ASSIGNMENT AND SUBLETTING...........................................28
14.1 Restriction on Transfers............................................28
14.2 Definition of Assignment............................................29
14.2 Recapture...........................................................30
14.2 Costs...............................................................30
14.2 Proceeds............................................................30
ARTICLE 15 DEFAULTS; REMEDIES..................................................30
15.1 Events of Default...................................................30
15.2 Remedies............................................................32
15.3 Costs...............................................................33
15.4 No Waiver...........................................................34
15.5 Waiver by Tenant....................................................34
ARTICLE 16 PROTECTION OF CREDITORS.............................................34
16.1 Subordination.......................................................34
16.2 Attornment..........................................................35
16.3 Estoppel Certificates...............................................35
16.4 Mortgagee Protection Clause.........................................36
ARTICLE 17 TERMINATION OF LEASE................................................36
17.1 Surrender of Premises...............................................36
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17.2 Holding Over........................................................37
ARTICLE 18 MISCELLANEOUS PROVISIONS............................................37
18.1 Notices.............................................................37
18.2 Landlord's Continuing Obligations...................................38
18.3 Successors..........................................................38
18.4 Captions and Interpretation.........................................38
18.5 Relationship of Parties.............................................38
18.6 Entire Agreement....................................................38
18.7 Severability........................................................39
18.8 Landlord's Limited Liability........................................39
18.9 Survival............................................................39
18.10 Attorney's Fees.....................................................39
18.11 Broker..............................................................39
18.12 Governing Law.......................................................40
18.13 Time is of the Essence..............................................40
18.14 Joint and Several Liability.........................................40
18.15 Tenant's Waiver.....................................................40
18.16 Delivery of Tenant Organization Documents...........................40
18.17 Provisions are Covenants and Conditions.............................41
18.18 Business Days.......................................................41
18.19 Force Majeure.......................................................41
18.20 Submission of Lease.................................................41
18.21 Relocation..........................................................41
18.22 Usufruct............................................................41
18.23 Security Deposit....................................................42
18.24 Special Stipulations................................................42
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EXHIBIT "A" LEGAL DESCRIPTION OF LAND
EXHIBIT "B" FLOOR PLAN
EXHIBIT "C" RULES AND REGULATIONS
EXHIBIT "D" WORK LETTER
EXHIBIT "D-1" BASE BUILDING CONDITION
EXHIBIT "E" SPECIAL STIPULATIONS
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LEASE AGREEMENT
This Lease Agreement (the "Lease") is made and entered into as of
___________________, 1999 ("Effective Date"), by and between OPUS SOUTH
CORPORATION, a Florida corporation, as Landlord, and PRIMIS, INC., a Georgia
corporation, as Tenant.
BASIC TERMS
The following terms ("Basic Terms") are hereby incorporated into and
made a part of this Lease. Each reference in this Lease to the Basic Terms
shall mean the information set forth below and shall be construed to
incorporate all of the terms provided under the particular section in this
Lease pertaining to such information. In the event of a conflict between the
Basic Terms and the particular section in this Lease, the particular section
shall prevail.
1. Landlord: Opus South Corporation, a Florida corporation
2. Address of Landlord Normandale Properties South Corporation
for Payment of Rent: 4200 West Cypress Street
Suite 445
Tampa, Florida 33607
Telephone No.: (813) 876-1515
Facsimile No.: (813) 876-7955
3. Address of Landlord Opus South Corporation
for Notices: Suite 144
11675 Great Oaks Way
Alpharetta, Georgia 30202
Attn: Director of Real Estate
Telephone No.: (770) 521-0045
Facsimile No.: (770) 521-0046
With a copy to: Opus U.S. Corporation
700 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: Law Department
Telephone No.: 612-936-4444
Facsimile No.: 612-936-9808
4. Tenant: Primis, Inc., a Georgia corporation
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5. Address of Tenant Primis, Inc.
for Notices: 11475 Great Oaks Way
Suite 320
Alpharetta, Georgia 30022
Attn: Chris Foretich
VP, Chief Information Officer
Telephone No.: (770) 804-9800
Facsimile No.: (770) 804-1997
6. Premises: Approximately 11,797 rentable square feet
located on the 3rd floor and designated as
Suite 320 within the Building located at
11475 Great Oaks Way, commonly known as Royal
Centre Three situated on the parcel of land
in the City of Alpharetta, County of Fulton,
State of Georgia described on EXHIBIT "A",
together with the Improvements. The Premises
are located within the Building on EXHIBIT "B".
(See Section 1.1).
7. Tenant's Work: The Improvements to be constructed by
Landlord as described in the Work Letter.
(See Section 1.3)
8. Tenant Improvements: All Improvements other than the Tenant's
Work (See Section 1.3)
9. Lease Term: Initial Lease Term: Approximately five (5)
years beginning on the Commencement Date and
ending on the last day of the calendar month
in which the fifth anniversary of the
Commencement Date occurs. (See Section 1.2)
10. Base Rent:
LEASE YEAR BASE RENT PER RENTABLE SQUARE FOOT OF THE
PREMISES PER ANNUM
1 $19.50
2 $19.99
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3 $20.49
4 $21.00
5 $21.53
The Base Rent is subject to the provisions
of Section 2.1 of this Lease.
11. Base Year 1999; (The Base Year shall be the calendar
year used in the calculation of the Operating
Expenses in the manner described in Section
3.1)
12. Tenant Insurance: Hazard: (At option of Tenant, see Section
11.2)
Full replacement value on all tenant
furniture, fixtures, personal property and
equipment.
Liability: (See Section 11.4)
$3,000,000.00 combined limit
13. Security Deposit The equivalent of two (2) months rent
or Guaranty: during the first year of the Lease Term
14. Brokers: CB Richard Ellis
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ARTICLE I
LEASE OF PREMISES AND LEASE TERM
1.1 PREMISES.
Landlord, for and in consideration of the rents, covenants and
agreements hereinafter set forth, hereby leases to Tenant and Tenant hereby
leases from Landlord, upon and subject to the terms, covenants and conditions
hereinafter set forth, certain space situated within the office building
commonly known as Royal Centre Three ("Building"), currently being
constructed on that certain parcel of land situated in the City of Alpharetta
("City"), County of Fulton ("County"), State of Georgia ("State") legally
described on EXHIBIT "A" attached hereto and incorporated herein ("Land") and
shown and designated on the floor plan ("Floor Plan") attached hereto as
EXHIBIT "B" and incorporated herein ("Premises"). The Land and Building are
sometimes referred to herein collectively as the "Property." The Premises
shall contain approximately 10,000 rentable square feet.
Landlord and Tenant acknowledge that the exact size and configuration of
the Floor Plan for the Premises will be determined at the time the Final
Plans and Specifications (as described in the Work Letter) for the Premises
are submitted by Tenant and approved by Landlord. Upon approval of the Final
Plans and Specifications, Landlord and Tenant shall substitute the Final
Floor Plan designating the Premises for the Floor Plan attached hereto as
EXHIBIT "B" and the final, conclusively agreed upon square footage of the
Premises shall be determined by multiplying the usable square footage thereof
(determined by reference to the standard set forth in ANSI-Z65.1, 1996
version, promulgated by the Building Owner's and Manager's Association)
multiplied by a mutually agreed upon add-on factor of 1.14772.
1.2 TERM, DELIVERY AND COMMENCEMENT.
Provided that Tenant supplies sufficient information to Landlord to
allow Landlord to prepare, or cause to be prepared, the Plans (as defined in
EXHIBIT D hereto) on or before March 19, 1999, Landlord shall use
commercially reasonable efforts to deliver occupancy of the Premises to
Tenant on or before June 1, 1999 ("Delivery Date"). Subject to the provisions
for Force Majeure contained in Section 18.19, the initial term of this Lease
("Initial Term") shall commence on the earlier of (a) the date of Substantial
Completion (as defined in the Work Letter attached hereto as EXHIBIT "D") of
the Tenant's Work (as defined in Section 1.3) or (b) the date the Tenant's
Work would have been substantially completed in accordance with the
definition of Substantial Completion contained in the Work Letter but for
Tenant Delays (as defined in the Work Letter) ("Commencement Date"). The
Initial Term shall end on the last day of the calendar month in which the
fifth (5th) anniversary of the Rent Commencement Date (as defined in Section
2.1 below) occurs. Any reference to the
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"Term" of this Lease or similar reference shall be a reference to the Initial
Term. Any reference to "Lease Year" shall refer to each consecutive twelve
(12) month period during the Term commencing on the Commencement Date.
However, if the Commencement Date occurs on a day which is not the first day
of the calendar month, then the first Lease Year shall be for a period
beginning on the Commencement Date and ending on the last day of the calendar
month in which the Commencement Date occurs plus the following twelve (12)
consecutive calendar months.
Tenant shall, within five (5) days of written request from Landlord,
execute an acknowledgment of the rentable square footage of the Premises, the
Base Rent, the Additional Rent, Commencement Date and any other terms of this
Lease. However, the failure of Tenant to execute such acknowledgment shall
not affect any obligation of Tenant hereunder or the determination of the
Commencement Date. If Tenant fails to execute and deliver such acknowledgment
in the form proposed by Landlord, Landlord and any prospective purchaser or
encumbrancer may conclusively presume and rely upon the following facts: (i)
that the Premises are in acceptable condition and were delivered in
compliance with all of the requirements of the Work Letter and (ii) the
Commencement Date is the date specified in the Landlord's acknowledgment and
(iii) any other facts specified in Landlord's acknowledgment are true and
correct.
Tenant shall not occupy the Premises before the Commencement Date
without Landlord's prior written consent, which consent shall not be
unreasonably delayed or withheld. Any early occupancy of the Premises by
Tenant shall be solely for the installation of Tenant's furniture, fixtures
and equipment and shall be subject to all of the terms and conditions of this
Lease other than the obligation to pay Base Rent (as defined in Section 2.1)
and Additional Rent (as defined in Section 2.2).
1.3 COMPLETION OF TENANT'S WORK.
Landlord shall use commercially reasonable efforts to complete, on or
before the Delivery Date, that portion of the improvements identified as
Tenant's Work the Work Letter set forth in EXHIBIT "D" attached hereto and
incorporated herein. The cost of completing Tenant's Work shall be paid by
Landlord, but only up to the amount of the Improvement Allowance defined in
Section 2.3. All Additional Work (as defined in the Work Letter) shall be
paid for solely by Tenant.
1.4 EFFECT OF OCCUPANCY.
Subject to the punch list provisions of the Work Letter ("Punchlist"),
occupancy of the Premises by Tenant shall conclusively establish that
Landlord has completed Tenant's Work as required by this Lease except for
latent defects in Tenant's Work of which Tenant notifies Landlord at least
ten (10) days prior to first anniversary of date of Substantial Completion.
The Punchlist provisions of the Work Letter are intended to provide Tenant
with its sole and exclusive remedy for incomplete or defective
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construction of the Tenant's Work. The failure of Tenant to comply with the
Punchlist provisions of the Work Letter shall constitute a waiver by Tenant
of any and all rights, benefits, claims or warranties which may be available
to Tenant in connection with completion of Tenant's Work under the Work
Letter, at law or in equity.
ARTICLE 2
RENTAL AND OTHER PAYMENTS
2.1 BASE RENT.
Beginning on the date one (1) month following the Commencement Date (the
"Rent Commencement Date") Tenant covenants to pay Landlord in advance on the
first day of each and every calendar month during the Term, without notice,
demand, offset, abatement or deduction, except as expressly provided
elsewhere in this Lease, at the address of Landlord specified at Item 2 of
the Basic Terms, or at such other place as Landlord may from time to time
designate in writing, the rental specified at Item 10 of the Basic Terms
("Base Rent"). In the event the Rent Commencement Date is not the first day
of a calendar month and there are less the fifteen (15) days remaining in
such month, Tenant shall pay to Landlord the Base Rent for such partial month
and the next succeeding month on or before the Rent Commencement Date. Base
Rent for any partial month shall be prorated on the basis of the number of
days within such calendar month.
2.2 ADDITIONAL RENT.
All charges payable by Tenant other than Base Rent, however denoted,
shall be deemed "Additional Rent." Unless this Lease provides otherwise, all
Additional Rent shall be paid with the next installment of Base Rent falling
due. Additional Rent for any partial month shall be prorated on the basis of
the number of days within such calendar month. All payments of Additional
Rent that are paid pursuant to an estimation provided by Landlord to Tenant
shall be payable without further demand therefor.
2.3 IMPROVEMENT ALLOWANCE.
Landlord has agreed to perform Tenant's Work at Landlord's sole expense
on a "turnkey" basis as described in the Work Letter attached hereto as
Exhibit "D" and in accordance with those certain construction documents
prepared by Leo A. Daly Company, dated March 9, 1999. Accordingly, Landlord
will not be providing Tenant any improvement allowance or other payment in
connection with Tenant's move to the Premises. Landlord shall also pay all of
the costs associated with the preparation of the Plans, as well as any
preliminary space plans and drawings.
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2.4 DELINQUENT RENTAL PAYMENTS.
Any installment of Base Rent, Additional Rent or any other charge
payable by Tenant under the provisions hereof and not paid within ten (10)
days of when due shall bear interest at Prime, as hereafter defined, plus
four percent (4%) per annum, not to exceed the maximum interest rate
permitted by law ("Maximum Rate of Interest") from the date when the same is
due hereunder through the date the same is paid. Notwithstanding the
foregoing, Tenant shall not be obligated to pay such interest on the first
late payment in any calendar year so long as Tenant makes the payment within
ten (10) days following written notice from Landlord that such payment is
past due; provided, however, that Landlord shall not be obligated to provide
written notice of late payment on more than two occasions in such calendar
year. For purposes of this Lease, the term "Prime" shall mean the rate
announced from time to time by Wachovia Bank of Georgia, N.A. as its prime or
reference rate. If Wachovia Bank of Georgia, N.A. shall cease to announce
its prime or reference rate, then Landlord shall select the rate of another
financial institution to be substituted therefor. The right to require
payment of interest shall be in addition to all of Landlord's rights and
remedies hereunder, at law or in equity.
2.5 INDEPENDENT OBLIGATIONS.
Any term or provision of this Lease to the contrary notwithstanding,
the covenants and obligations of Tenant to pay Base Rent and Additional Rent
hereunder shall be independent from any obligations, warranties or
representations of Landlord hereunder. Base Rent and Additional Rent are
sometimes collectively referred to herein as "Rent" or "rent."
ARTICLES 3
OPERATING EXPENSES - DEFINITION
3.1 OPERATING EXPENSES.
"Operating Expenses" shall mean all expenses incurred with respect to
the ownership, maintenance and operation of the Property as determined by
Landlord's accountant in accordance with generally accepted accounting
principles consistently followed, including, but not limited to the
following: all taxes (as defined below); insurance premiums; maintenance and
repair costs; steam, electricity, water, sewer, gas and other utility
charges; fuel; lighting; window washing; janitorial services; trash and
rubbish removal; wages payable to employees of Landlord whose duties are
directly connected with the operation or maintenance of the Property (but
only for the portion of time allocable to work related to the Property),
together with all payroll taxes, unemployment insurance, vacation allowances
and disability, pension, profit sharing, hospitalization, retirement and
other so-called fringe benefits paid in connection with such employees
amounts paid to contractors or subcontractors for work or services
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performed in connection with the operation and maintenance of the Property;
all costs of uniforms, supplies and materials used in connection with the
operation and maintenance of the Property; any expense imposed upon
Landlord, its contractors or subcontractors pursuant to law or pursuant to
any collective bargaining agreement covering such employees; all services,
supplies, repairs, replacements or other expenses for maintaining and
operating the Property; reasonable management fees (i.e., not to exceed four
percent (4%) of gross revenues); common expenses of the Royal Centre Project,
properly allocated among the Building and other buildings in the Royal Centre
Project; and such other expenses as may be ordinarily incurred in the
operation and maintenance of an office complex similar to the Property. The
term "taxes" shall mean any general real property tax, improvement tax,
assessment, special assessment, reassessment, commercial rental tax, in lieu
tax, levy, charge, penalty or similar imposition whatsoever imposed by any
authority having the direct or indirect power to tax, including but not
limited to, (a) any city, county, state or federal entity, (b) any school,
agricultural, lighting, drainage or other improvement or special assessment
district, (c) any agency, or (d) any private entity having the authority to
assess the Property pursuant to the Permitted Encumbrances. Property Taxes
shall include (i) all charges or burdens of whatsoever kind and nature
incurred in the use, occupancy, ownership, operation, leasing or possession
of the Property, without particularizing by any known name and whether any of
the foregoing be general, special, ordinary, extraordinary, foreseen or
unforeseen, (ii) any tax or charge for fire protection, street lighting,
streets, sidewalks, road maintenance, refuse, sewer, water or other services
provided to the Property, and (iii) all costs and expenses, including
reasonable attorneys' fees, incurred in connection with any appeal or contest
of Property Taxes by Landlord pursuant to Section 4.6 below. However,
Property Taxes shall not include Landlord's state or federal income,
franchise, estate or inheritance taxes. In the event Landlord is entitled to
pay any of the above listed assessments or charges in installments over a
period of two or more calendar years, then only the minimum installment of
such assessments or charges shall be included within Property Taxes for such
calendar year.
The term "Operating Expenses" shall not include the cost of any
capital improvement to the Property other than replacements required for
normal maintenance and repair; the cost of repairs, restoration or other work
occasioned by fire, windstorm or other insured casualty, except for the
amount of any deductible under any insurance policy; expenses incurred in
leasing or procuring tenants; leasing commissions; advertising expenses;
expenses for renovating space for new or existing tenants; legal expenses
incident to enforcement by Landlord of any lease; interest or principal
payments on any mortgage or other indebtedness of Landlord; depreciation
allowance or expense; expense of any items typically capitalized using
generally accepted accounting principles (except as delineated above); any
amounts for which Landlord is directly reimbursed by another tenant (except
for payments received pursuant to any operating expense provision, such as
this Section 3.1); expenses of any reimbursements
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to tenants by Landlord; or costs of installation or operation of any special
facilities (i.e., exercise room, lunch club, etc.).
Notwithstanding the foregoing in the event Landlord installs
equipment in, or makes improvements or alterations to, the Property which are
for the purpose of reducing energy, maintenance or other costs, or which are
required under any governmental laws, regulations or ordinances which were not
required on the Commencement Date, Landlord may include in Operating Expenses
reasonable charges for interest paid on such investment and reasonable
charges for depreciation of the same so as to amortize such investment over
the reasonable life of such equipment, improvement or alteration on a
straight line basis. Operating Expenses shall also be deemed to include
expenses incurred by Landlord in connection with city sidewalks adjacent to
the Property, any pedestrian walkway system (either above or below ground)
and any other public facility to which Landlord or the Property is from time
to time subject in connection with operation of the Property.
3.2 EXCESS OPERATING EXPENSES.
"Excess Operating Expenses" shall mean the amount of Operating
Expenses due and incurred by Landlord during any calendar year of the Term in
excess of the Operating Expenses for the Base Year.
3.3 TENANT'S PRORATA SHARE OF EXCESS OPERATING EXPENSES.
"Tenant's Prorata Share of Excess Operating Expenses" (based on the
rentable square footage of the Premises compared to the total rentable square
footage of the Building, which is 165,527) shall mean 7.1269% of the Excess
Operating Expenses for the applicable calendar year.
ARTICLE 4
OPERATING EXPENSES - PAYMENT
4.1 PAYMENT OF OPERATING EXPENSES.
Tenant covenants and agrees to pay during the Term, as Additional Rent,
Tenant's Prorata Share of Excess Operating Expenses, which are due and
payable during any calendar year of the Term. Tenant's Prorata Share of
Excess Operating Expenses due and payable during the calendar year in which
the Lease commences or terminates shall be prorated as of the Commencement
Date or termination date, as applicable, based upon the number of days of the
Term within said calendar year compared to three hundred sixty-five (365)
days.
4.2 ESTIMATION OF TENANT'S PRORATA SHARE OF EXCESS OPERATING
EXPENSES.
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Landlord shall estimate for each calendar year of the Term (a) Excess
Operating Expenses, (b) Tenant's Prorata Share of Excess Operating Expenses
and (c) the annual and monthly Additional Rent attributable to Tenant's
Prorata Share of Excess Operating Expenses. Said estimates shall be in
writing and shall be delivered to Tenant at the addresses specified in the
Basic Terms.
4.3 PAYMENT OF ESTIMATED PRORATA SHARE OF EXCESS OPERATING EXPENSES.
Tenant shall pay, as Additional Rent, the estimated amount of Excess
Operating Expenses for each calendar year of the Term in equal monthly
installments, in advance, on the first day of each month during such calendar
year. In the event that said estimates are delivered to Tenant after the
first day of January of the applicable calendar year, said estimated amount
shall be payable as Additional Rent in equal monthly installments, in
advance, on the first day of each month over the balance of such calendar
year, with the number of installments being equal to the number of full
calendar months remaining in such calendar year.
4.4 RE-ESTIMATION OF TENANT'S PRORATA SHARE OF EXCESS OPERATING
EXPENSES.
On one occasion during any calendar year of the Term, Landlord may
re-estimate the amount of Excess Operating Expenses and Tenant's Prorata Share
of Excess Operating Expenses. In such event, Landlord shall also re-estimate
the monthly Additional Rent attributable to Tenant's Prorata Share of Excess
Operating Expenses for such calendar year in an amount sufficient to pay the
re-estimated monthly amount over the balance of such calendar year after
giving credit for payments made by Tenant on the previous estimate. Such
re-estimate shall be delivered to Tenant in writing in the manner specified
in Section 4.2. Tenant shall pay said re-estimated amount, in advance, on the
first day of each month remaining in such calendar year.
4.5 CONFIRMATION OF TENANT'S PRORATA SHARE OF EXCESS OPERATING
EXPENSES.
After the end of each calendar year of the Term, Landlord shall cause
its accountants to determine the actual amount of Excess Operating Expenses
and Tenant's Prorata Share of Excess Operating Expenses for such expired
calendar year and deliver a written certification of the amount thereof to
Tenant. If for any calendar year Tenant paid less than the amounts specified
in said certification, Tenant shall pay the unpaid portion of the same within
thirty (30) days after receipt of such certification. If for any calendar
year Tenant paid more than the amounts specified in said certification,
Landlord shall, at Landlord's option, either (a) refund such excess to
Tenant, or (b) credit such excess against the next due monthly installment or
installments of estimated Additional Rent for the then existing calendar year.
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4.6 ANNUAL AMENDMENT TO DEFINITION OF TENANT'S PRORATA SHARE OF EXCESS
OPERATING EXPENSES.
The percentage used in the definitions of Tenant's Prorata Share of
Excess Operating Expenses has been agreed upon by Landlord and Tenant after
due consideration of the rentable square footage of the Premises compared to
the rentable square footage of the Building. However, the percentage shall be
amended each calendar year of the Term to the greater of the following: (a)
if the rentable square footage of the Building actually leased pursuant to
leases under which the terms have commenced is 95% or less of the rentable
square footage of the Building, the percentage shall be
calculated by comparing the rentable square footage of the Premises to 95% of
the rentable square footage of the Building for such calendar year; or (b) if
the rentable square footage of the Building actually leased pursuant to
leases under which the terms have commenced is greater than 95% of the
rentable square footage of the Building, the percentage shall be calculated
by comparing the rentable square footage of the Premises to the rentable
square footage of the Building actually leased pursuant to leases under which
the terms have commenced for the calendar year.
4.7 PERSONAL PROPERTY TAXES.
Tenant shall pay, prior to delinquency, all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging to
Tenant. Tenant shall use its best efforts to have such trade fixtures,
furnishings, equipment and personal property taxed separately from the
Property. If any of Tenant's trade fixtures, furnishings, equipment and
personal property is taxed with the Property, Tenant shall pay Landlord for
such taxes within thirty (30) days after Tenant receives a written statement
from Landlord for the same.
4.8 LANDLORD'S RIGHT TO CONTEST TAXES.
Landlord shall have the right, but not the obligation, to contest the
amount or validity, in whole or in part, of any of the Taxes. All reasonable
costs incurred in connection with any such contests by Landlord including,
without limitation, reasonable, actual fees and expenses of tax consultants
and attorneys, shall be included in Operating Expenses. Any refund received
from such contest shall be credited toward the amount of the Taxes payable
by tenants in the calculation of the Operating Expenses.
4.9 ADJUSTMENT FOR VARIABLE OPERATING EXPENSES.
Notwithstanding anything to the contrary set forth above, it is agreed
that in the event the Building is not fully occupied at any time during a
calendar year (including the Base Year), a reasonable and equitable
adjustment shall be made by Landlord in computing the Operating Expenses for
such calendar year so that Tenant's obligation
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for payment of any component of Operating Expenses which adjusts based upon
occupancy shall be equal to the amount which Tenant would have paid for such
component of Operating Expenses had the Building been fully occupied at all
times during such calendar year.
ARTICLE 5
USE
5.1 PERMITTED USE.
Tenant may use the Premises for general office purposes in the operation
of its business as an information service provider only and for no other
purpose. Tenant shall not use the Property, or knowingly permit the Property
to be used, in violation of any Laws (as defined in Section 5.4) or in any
manner which would (a) violate any certificate of occupancy affecting the
Property, (b) make void or voidable any insurance now or hereafter in force
with respect to the Property, (c) cause structural injury to the Property,
(d) cause the value or usefulness of the Property or any portion thereof to
substantially diminish (reasonable wear and tear excepted), or (e) constitute
a public or private nuisance or waste. Promptly upon discovery of any
prohibited use, Tenant will take all necessary steps to discontinue such use.
5.2 ACCEPTANCE OF PREMISES.
Except for the Punchlist items, Tenant acknowledges that neither
Landlord nor any agent, contractor or employee of Landlord has made any
representation or warranty of any kind whatsoever with respect to the
Premises or the Building, specifically including but not limited to,
suitability or fitness for any particular purpose. Subject to the Punchlist
items, Tenant accepts the Premises in an "as is - where is" condition.
5.3 INCREASED INSURANCE.
Tenant shall not do or permit to be done anything which will (a)
increase the premium of any insurance policy covering the Premises or the
Property, (b) cause a cancellation of or be in conflict with any such
insurance policy; (c) result in a refusal by any insurance company in good
standing to issue or continue any such insurance in amounts satisfactory to
Landlord; or (d) subject Landlord to any liability or responsibility for
injury to any person or property by reason of any operation in the Premises
or use of the Property. Tenant shall, at Tenant's expense, comply with all
rules, orders, regulations and requirements of insurers and of the American
Insurance Association or any other organization performing a similar
function. Tenant shall promptly, upon demand, reimburse Landlord for any
additional premium charges for such policy or policies caused by reason of
Tenant's failure to comply with the provisions of this section.
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5.4 LAWS, RULES AND REGULATIONS.
Tenant acknowledges that this Lease is subject and subordinate to all
liens, easements, declarations, encumbrances, deeds of trust, reservations,
restrictions and other matters affecting the Property ("Permitted
Encumbrances") and any law, regulation, rule, order or ordinance of any
governmental entity, applicable to the Property or the use or occupancy
thereof in effect on or after the Effective Date ("Laws") or any of the Rules
and Regulations (as defined below) promulgated by Landlord. Tenant shall not
violate any Permitted Encumbrances, Laws or Rules and Regulations. A copy of
the current Rules and Regulations promulgated by Landlord are attached hereto
and incorporated herein as EXHIBIT "C", which Rules and Regulations may be
reasonably amended by Landlord from time to time in Landlord's sole
discretion. Except for the Rules and Regulations excluding Tenant from
parking in designated portions of the parking facilities comprising a portion
of the Common Area, as specified in Section 5.5, Tenant shall not be
obligated to comply with any Rules and Regulations promulgated by Landlord
which are not imposed and enforced in a uniform and nondiscriminatory manner
with respect to all tenants in the Building.
5.5 COMMON AREAS.
Landlord hereby grants to Tenant the non-exclusive right, together with
all other occupants of the Building and their agents, employees and invitees,
to use the parking areas, driveways, lobby areas and other common areas of
the Property designated by Landlord from time to time ("Common Area").
Landlord shall have the sole and exclusive control of the Common Area, as
well as the right to make changes to the Common Area. Landlord's rights shall
include, but not be limited to, the right to (a) restrain the use of the
Common Area by unauthorized persons; (b) place permanent or temporary kiosks,
displays, carts or stands in the Common Area and to lease same to tenants;
(c) temporarily close any portion of the Common Area (i) for repairs,
improvements or alternations, (ii) to discourage unauthorized use, (iii) to
prevent dedication or an easement by prescription, or (iv) for any other
reason deemed sufficient in Landlord's judgment; (d) change the shape and
size of the Common Area, add, eliminate or change the location of any
improvements located on the Common Area and construct buildings on the Common
Area, provided that any such changes shall not materially and adversely
affect Tenant's use of the Common Area; and (e) impose Laws concerning use of
the Common Area, including the right to exclude Tenant, its agents, employees
and invitees, from parking in designated portions of the parking facilities
comprising a portion of the Common Area.
5.6 PARKING.
Tenant's rights to use the parking facilities in the Common Area shall
be for unreserved spaces in an amount equal to five (5) spaces per each one
thousand (1,000) rentable square feet of the Premises. Within such total
parking allocation, two (2)
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spaces per each one thousand (1,000) rentable square feet of the Premises
will be provided in the covered, access-controlled parking facility.
Initially, Landlord will provide access cards to Tenant at no cost for each
space to which Tenant is entitled. Replacement cards must be paid for by
Tenant at Landlord's then current rate. Such parking spaces shall be provided
to Tenant at no charge throughout the Term of this Lease. Landlord will also
provide, throughout the Term, ten (10) spaces which will be marked for use
only by visitors of the Building.
5.7 AMERICANS WITH DISABILITIES ACT.
Landlord and Tenant acknowledge that the Property may be construed to be
a place of public accommodation under the Americans with Disabilities Act of
1990, as amended ("ADA"). Landlord represents and warrants that the Property
will not violate Title III of ADA (Title III) as interpreted and enforced by
local building inspection authorities as of the Commencement Date. Landlord
shall correct any violation of Title III within any part of the Common Area
of the Property, but shall not be required to correct any violation of Title
III within the Premises after the Commencement Date. Tenant shall correct any
violation of Title III within the Premises after the Commencement Date.
ARTICLE 6
HAZARDOUS MATERIALS
6.1 COMPLIANCE WITH HAZARDOUS MATERIALS LAWS.
Tenant shall not cause or permit any Hazardous Materials or Hazardous
Substances (as defined in any applicable state, federal or local
environmental Laws) to be brought upon, kept or used in connection with the
Premises by Tenant, its agents, employees, contractors or invitees, except
for de minimis amounts of materials, such as copying machine fluids, which
are customary for general office use and which are present in the Premises
strictly in compliance with all applicable Laws. Landlord shall not cause or
permit any Hazardous Materials or Hazardous Substances (as defined in any
applicable state, federal or local environmental Laws) to be brought upon,
kept or used in connection with the Building by Landlord, its agents,
employees, contractors or invitees, except for de minimis amounts of
materials which are customary for general office use and which are present in
the Building strictly in compliance with all applicable Laws.
6.2 INDEMNIFICATION.
Tenant shall indemnify, defend (with counsel reasonably acceptable to
Landlord) and protect Landlord against, and hold Landlord free and harmless
from, any
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and all claims, liabilities, damages, costs, penalties, forfeitures, losses
or expenses (including attorneys' fees and the costs and expenses of
enforcing this indemnity) ("Claims") for death or injury to any person or
damage to any property whatsoever arising or resulting in whole or in part,
directly or indirectly, from the presence, treatment, storage,
transportation, disposal, release or management of Hazardous Materials
resulting from or in any way related to Tenant's use of the Premises.
Tenant's obligations hereunder shall include, without limitation and whether
foreseeable or unforeseeable, the costs of (a) any required or necessary
repair, clean-up, detoxification or decontamination of the Property, b) the
implementation of any closure, remediation or other required action in
connection therewith and (c) any costs and fees incurred in the enforcement
of the indemnity action. Landlord shall indemnify, defend and protect Tenant
against, and hold Tenant free and harmless from, any and all Claims for death
or injury to any person or damage to any property whatsoever arising or
resulting in whole or in part, directly or indirectly, from the presence,
treatment, storage, transportation, disposal, release or management of
Hazardous Materials resulting from or in any way related to Landlord's
operation of the Building. Landlord's obligations hereunder shall include,
without limitation and whether foreseeable or unforeseeable, the costs of (a)
any required or necessary repair, clean-up, detoxification or decontamination
of the Property, (b) the implementation of any closure, remediation or other
required action in connection therewith and (c) any costs and fees incurred
in the enforcement of the indemnity action. The obligations of Landlord and
Tenant under this section shall survive the expiration or other termination
of the Term.
ARTICLE 7
SERVICES
7.1 LANDLORD'S OBLIGATIONS.
Landlord shall provide the following services, the cost of which shall
be deemed Operating Expenses:
7.1.1 JANITORIAL SERVICE.
Nightly Janitorial services on Monday through Friday in the
Premises, including cleaning, upkeep, trash removal, vacuuming, maintenance
of towels, tissue and other restroom supplies and such other work as is
customarily performed in connection with nightly Janitorial services in
office complexes similar in construction, location, use and occupancy to the
Property. Landlord shall also provide periodic interior and exterior window
washing and cleaning and waxing of uncarpeted floors in accordance with
Landlord's reasonable schedule.
7.1.2 ELECTRICAL ENERGY.
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Electrical energy for lighting and operation of office machines, air
conditioning and heating as required for general office use during the hours
specified in Section 7.1.3. The electrical energy provided will be sufficient
for operation of personal computers and other equipment of similar low
electrical consumption, and for customary fluorescent office lighting but will
not be sufficient for main frame computers, computer rooms or for
non-standard lighting. Landlord hereby consents to Tenant's use of electrical
energy in compliance with those certain construction documents prepared by
the architectural firm of Leo A. Daly, dated March 9, 1999. Tenant shall not
use any equipment or lighting requiring electrical energy in excess of the
above standards without receiving Landlord's prior written consent, which
consent shall not be unreasonably withheld but may be conditioned upon Tenant
paying all costs of installing the equipment and facilities necessary to
furnish such excess energy and an amount equal to the average cost per unit
of electricity for the Building applied to the excess use as determined by an
engineer selected by Landlord or by submeter. At the option of either
Landlord or Tenant, a submeter may be provided and installed at Tenant's
expense if allowable under the Laws. All lighting bulbs, tubes, ballasts and
starters within the Premises shall be replaced by Landlord at the expense of
Tenant and shall be paid by Tenant upon receipt of an invoice from Landlord
as Additional Rent.
7.1.3 HEATING AND AIR CONDITIONING.
Heat and air conditioning, sufficient to maintain comfortable
temperatures in Landlord's reasonable judgment, on Monday through Friday from
7:00 a.m. to 6:00 p.m. and on Saturdays which are not holidays from 8:00 a.m.
to 1:00 p.m. During other hours, Landlord shall provide heat and air
conditioning upon a reasonable advance notice from Tenant to Landlord, which
advance notice shall not be less than twenty-four (24) hours. Tenant, upon
presentation of a bill therefor, shall pay Landlord for such extended service
on an hourly basis at the prevailing rates as reasonably established by
Landlord, consistent with the prevailing rates of other Class A office
buildings in the Atlanta, Georgia area. If such extended service is not a
continuation of that furnished during the hours described above, Tenant may
be required to pay for a minimum of three (3) hours of such service. Air
conditioning to the Premises is to be provided based on standard lighting and
general office use only.
7.1.4 WATER.
Hot and cold water from the standard building outlets for lavatory,
restroom and drinking purposes.
7.1.5 PASSENGER ELEVATOR SERVICE.
Passenger elevator service in common with other tenants to be
provided by automatic elevators. Landlord shall have the right to restrict
the use of elevators for
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freight purposes to the freight elevator and to hours determined by Landlord.
Landlord shall have the right to limit the number of elevators in operation
on Saturdays, Sundays and holidays.
7.2 TENANT'S OBLIGATIONS.
Tenant shall be solely responsible for the payment to Landlord of all
utilities which are separately submetered or separately charged (based on an
engineer's survey), if any, to the Premises or to Tenant and shall make such
payments to Landlord promptly upon invoice. Such amounts shall not be
included as Operating Expenses. Except as provided in Section 7.1 or the Work
Letter, Tenant shall also furnish and pay for all other utilities and
services which Tenant requires with respect to the Premises (including but
not limited to hook-up and connection charges).
7.3 OTHER PROVISIONS RELATING TO SERVICES.
No interruption in, or temporary stoppage of, any of the aforesaid
services shall be deemed an eviction or disturbance of Tenant's use and
possession, relieve Tenant from any obligation herein set forth or render
Landlord liable for damages or abatement of rent. In no event shall Landlord
be required to provide any heat, air conditioning, electricity or other
services in excess of that permitted by voluntary or involuntary guidelines
or any applicable Laws. Landlord reserves the right, from time to time, to
make reasonable and non-discriminatory modifications to the above standards
for utilities and services. Notwithstanding anything to the contrary set
forth hereinabove, in the event that the essential services to the Premises
(which the parties hereby agree are electricity, water and HVAC service) are
interrupted and (i) the interruption is caused by a matter within Landlord's
control, (ii) the interruption continues for five (5) or more consecutive
business days, (iii) the interruption renders all or a portion of the
Premises untenantable and (iv) Tenant actually discontinues use of all or a
portion of the Premises, Tenant shall be entitled to an abatement of Rent,
beginning on the sixth (6th) business day after such interruption, based on
the portion of the Premises which is untenantable and which tenant has
discontinued using, with such abatement to continue until the applicable
services have been substantially restored by Landlord.
7.4 EFFECTS ON UTILITIES.
Tenant shall not, without the prior written consent of Landlord (which
consent shall not be unreasonably delayed or withheld), use any apparatus or
device in or about the Premises which shall cause substantial noise or
vibration. Tenant shall not connect any apparatus or device to electrical
current or water except through the electrical and water outlets installed by
Landlord pursuant to the Work Letter.
ARTICLE 8
MAINTENANCE AND REPAIR
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8.1 LANDLORD'S OBLIGATIONS.
Except as otherwise provided in this Lease, Landlord shall repair and
maintain the following in good order, condition and repair: (a) the
foundations, exterior walls and roof of the Building, (b) the electrical,
mechanical, plumbing, heating and air conditioning systems, facilities and
components located in the Building which are concealed and used in common by
all tenants of the Property and (c) the Common Area. Landlord shall also
maintain and repair windows, doors, plate glass and the exterior surfaces of
walls that are adjacent to Common Area, unless such maintenance and repair
becomes necessary in whole or in part due to (i) the negligence of Tenant,
its employees, agents, customers, licensees or invitees in or about the
Premises or Property, or (ii) damage caused by breaking and entering into the
Premises. The cost of Landlord's repair and maintenance hereunder shall be
included in Operating Expenses. Neither Base Rent nor Additional Rent shall
be reduced, not shall Landlord be liable, for loss or injury to or
interference with property, profits or business arising from or in connection
with any such repairs or maintenance.
8.2 TENANT'S OBLIGATIONS.
Tenant, at Tenant's sole cost and expense, shall keep and maintain the
Premises (including all non-structural interior portions, systems and
equipment; interior surfaces of exterior walls, interior moldings, partitions
and ceilings; and interior electrical, lighting and plumbing fixtures) in as
good order, condition and repair as they were on the Commencement Date,
reasonable wear and tear and damage from fire and other casualties excepted.
In the event that compliance with any Laws is required after the
Commencement Date, which is due in whole or in part to Tenant's specific use
of the Premises (as opposed to general office use) and/or Tenant's specific
actions or inactions with respect to the Premises, the cost of compliance
shall be Tenant's sole responsibility. Likewise, in the event any
governmental authority requires any alterations to the Building or the
Premises as a result of Tenant's particular use of the Building or as a
result of any alterations to the Premises by Tenant, Tenant shall be
obligated for the cost of all such alterations. In the event such alterations
involve the structural, mechanical, electrical, life safety or heating and
air conditioning systems of the Building ("Structural Alterations"),
Landlord shall make such repairs after Tenant deposits with Landlord an
amount sufficient to pay for the cost thereof. In the event the alterations
are not Structural Alterations, Tenant shall make the repairs, at Tenant's
sole cost and expense, subject to the requirements of Article 9 below.
Tenant shall keep the Premises in a neat and sanitary condition and
shall not commit any nuisance or waste on the Premises or in, on or about the
Property. All uninsured damage or injury to the Premises or to the Property
caused by Tenant installing, removing or transporting any furniture,
fixtures, equipment or other
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property of Tenant, its agents, contractors, servants or employees shall be
repaired, rstored and replaced promptly by Tenant at its sole cost and
expense to the satisfaction of Landlord. Tenant shall be solely responsible
for, shall indemnify, protect and defend Landlord against and hold Landlord
harmless from, any penetrations or perforations of the roof or exterior walls
to the Building caused by Tenant. It is the intention of Landlord and Tenant
that Tenant shall maintain the Premises in a first-class and fully operative
condition. All repairs made by Tenant shall be at least equal in quality and
workmanship to the original work and shall be made by Tenant in accordance
with all Laws. The maintenance obligations of Tenant shall apply even if
Tenant has vacated the Premises.
8.3 TENANT'S WAIVER OF CLAIMS AGAINST LANDLORD.
Except as otherwise expressly provided in the Work Letter or this Lease,
Landlord shall not be required to furnish any services or facilities, or make
any repairs or alterations, in, about or to the Premises or the Property.
ARTICLE 9
CHANGES AND ALTERATIONS
9.1 LANDLORD APPROVAL.
Tenant shall not make any alterations, additions or improvements to the
Property ("Alterations") without Landlord's prior written consent, which
consent shall not be unreasonably delayed or withheld. Along with any request
for Landlord's consent and before commencement of the Alterations or delivery
of any materials to be used in the Alterations, Tenant shall furnish Landlord
with plans and specifications, and names and addresses of prospective
contractors. All Alterations shall be constructed (a) promptly by a
contractor approved in writing by Landlord in its sole discretion, (b) in a
good and workmanlike manner, (c) in compliance with all applicable Laws, and
(d) in accordance with all orders, rules and regulations of the Board of Fire
Underwriters where the Premises are located or any other body exercising
similar functions.
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9.2 TENANT RESPONSIBILITY FOR COST AND INSURANCE.
Tenant shall pay the cost and expense of all Alterations, including a
reasonable charge for Landlord's review, inspection and engineering time and
for any painting, restoring or repairing of the Premises or the Building
occasioned by the Alterations. Prior to commencement of construction of the
Alterations, Tenant shall deliver the following in form and amount
satisfactory to Landlord: (a) demolition and/or lien and completion bonds,
(b) builder's all risk insurance, (c) commercial general liability insurance
insuring against construction related risks and copies of contracts and all
necessary permits and licenses.
9.3 CONSTRUCTION OBLIGATIONS AND OWNERSHIP.
Tenant shall permit Landlord to inspect construction of the Alterations.
Upon completion of the Alterations. Tenant shall furnish Landlord with
contractor affidavits, unconditional lien releases, full and final waivers of
liens (in form satisfactory, under applicable Laws, to extinguish all lien
rights) and receipted bills covering all labor and materials expended and
used in connection with the Alterations. Tenant shall promptly remove any
Alterations constructed in violation of this Article 9 upon Landlord's
written request. All Alterations (other than Tenant's movable trade fixtures,
furniture and equipment) made or installed by Tenant shall become the
property of and be surrendered to Landlord upon termination of this Lease
without payment therefor by Landlord.
9.4 LIENS.
Tenant shall keep the Premises free from any mechanics', materialmens',
designers' or other liens arising out of any work performed, materials
furnished or obligations incurred by or for Tenant or any person or entity
claiming by, through or under Tenant. If any such liens are filed and Tenant
does not provide for release of the same of record, or provide Landlord with
a bond or other surety satisfactory to Landlord protecting Landlord and the
Property against such liens, within thirty (30) days after such filing,
Landlord may without waiving its rights and remedies based upon such breach
by Tenant and without releasing Tenant from any obligations hereunder, cause
such liens to be released by any means it shall deem proper, including
payment of the claim giving rise to such lien or posting a bond to cause the
discharge of such lien. In such event, all amounts paid by Landlord shall
immediately be due and payable by Tenant as Additional Rent.
9.5 INDEMNIFICATION.
Tenant hereby agrees to indemnify, protect and defend Landlord against,
and hold Landlord and the Property harmless from, any liability, cost,
obligation, expense (including without limitations reasonable attorneys' fees
and expenses incurred in
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enforcing this indemnity), or claim of any mechanics', materialmens',
designers' or other liens in any manner relating to or arising out of any
work performed, materials furnished or obligations incurred by or for Tenant
or any person or entity claiming by, through or under Tenant.
ARTICLE 10
RIGHTS RESERVED BY LANDLORD
10.1 LANDLORD'S ENTRY.
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant to enter the Premises to: (a) inspect the Premises; (b) show
the Premises to prospective purchasers, mortgagees, tenants and underlying
landlords; or (c) otherwise exercise and perform Landlord's rights and
obligations under this Lease. In the case of an emergency, Landlord and/or
its authorized representatives may enter the Premises at any time using any
and all means which Landlord may deem proper. Entry into the Premises by
Landlord in the event of any emergency shall not be construed as a forcible
or unlawful entry into, or detainer of, the Premises or as an eviction of
Tenant from the Premises or any portion thereof.
Tenant shall permit Landlord (or its designees) to erect, use, maintain,
replace and repair pipes, cables, conduits, plumbing and vents, and
telephone, electric and other wires or other items, in, to and through the
Premises, as and to the extent that Landlord may now or hereafter deem
necessary or appropriate for the proper operation and maintenance of the
Building.
10.2 LANDLORD'S CURE.
If Tenant shall default in the performance of its obligations under this
Lease and if such default is not cured within the applicable periods provided
in Article 15, Landlord may but shall not be obligated to, make any such
payment or perform any such act on Tenant's part without waiving its rights
based upon any default of Tenant and without releasing Tenant from any
obligations hereunder. Except as may be specifically provided to the contrary
in this Lease, Tenant shall pay to Landlord, within ten (10) days after
delivery by Landlord to Tenant of statements therefor, sums equal to
expenditures reasonably made and obligations incurred by Landlord in
connection with the remedying by Landlord of Tenant's defaults. If there are
any outstanding monetary obligations of Tenant under this Lease attributable
to the period prior to the expiration or termination of this Lease, such
obligations shall survive the termination or expiration of this Lease and
such amount shall be payable to Landlord within ten (10) days after receipt
of notice therefor from landlord.
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ARTICLE 11
INSURANCE
11.1 LANDLORD'S CASUALTY INSURANCE OBLIGATIONS.
Landlord shall keep the Property insured for the benefit of Landlord,
its lenders and agents, in an amount equivalent to the full replacement value
thereof (excluding the Land, foundation, grading and excavating costs)
against:
(a) loss or damage by fire; and
(b) such other risk or risks which are customarily covered with
respect to buildings and improvements similar in construction, general
location, use, occupancy and design to the Property, including but not
limited to windstorms hail, explosion, vandalism, malicious mischief civil
commotion and such other coverage as Landlord may deem appropriate or
necessary.
These insurance provisions shall not limit or modify the obligations of
Tenant under any provision of this Lease. Such policy or policies of
insurance shall permit releases of liability as provided herein and/or waiver
of subrogation as to Tenant. Landlord waives, releases and discharges Tenant
from all claims or demands whatsoever which Landlord may have or acquire
arising out of damage to or destruction of the Property, or loss of use
thereof occasioned by fire or other casualty, which claim or demand may arise
because of the negligence or fault of Tenant, its agents, employees,
customers or business invitees, and Landlord agrees to look to the insurance
coverage only in the event of such loss. Notwithstanding the foregoing or
anything to the contrary elsewhere in this Lease, Tenant shall be obligated
to continue to pay Rent in the event of damage to or destruction of the
Premises or the Property if such damage or destruction is occasioned by the
negligence or fault of Tenant, its agents, employees, customers or business
invitees. Premiums paid for insurance under this section shall be included in
Operating Expenses.
11.2 TENANT'S CASUALTY INSURANCE OBLIGATIONS.
Tenant shall be solely responsible for but shall not be obligated to
keep all of its machinery, equipment, furniture, fixtures and personal
property (including all property under the care, custody or control of
Tenant) which may be located in, upon, or about the Premises insured in an
amount equivalent to the full insurable value thereof against:
(a) loss or damage by fire; and
(b) such other risk or risks which are customarily covered with
respect to a tenant's machinery, equipment, furniture, fixtures, personal
property and business located in a building similar in construction, general
location, use, occupancy
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and design to the Property, including but not limited to, windstorms hail,
explosions, vandalism, theft, malicious mischiefs civil commotion and such
other coverage as Tenant may deem appropriate or necessary.
To the extent Tenant keeps such insurance coverage, all policy or
policies of insurance shall permit release of liability as provided herein
and/or waiver of subrogation as to Landlord. Tenant waives, releases and
discharges Landlord, Landlord's lenders and its agents, employees and
contractors, from all claims or demands whatsoever which Tenant may have or
acquire arising out of damage to or destruction of the machinery, equipment,
furniture, fixtures, personal property or business, and loss of use thereof
occasioned by fire or other casualty, or by any cause whatsoever, including,
without limitation, damage caused by the negligence or fault of Landlord, its
agents, employees, contractors, and Tenant agrees to look to its insurance
coverage only (or if Tenant does not elect to carry such coverage, then to
Tenant's own funds) in the event of such loss.
11.3 LANDLORD'S LIABILITY INSURANCE OBLIGATIONS.
Landlord shall maintain commercial general liability insurance against
claims for personal injury, death or property damage occurring upon, in or
about the Property, such insurance to afford protection to Landlord, its
lenders and agents in amounts deemed reasonably to be appropriate by
Landlord. Premiums paid for insurance under this section shall be included in
Operating Expenses.
11.4 TENANT'S LIABILITY INSURANCE OBLIGATIONS.
Tenant shall, at Tenant's sole cost and expense, maintain commercial
general liability insurance against claims for personal injury, death or
property damage occurring upon, in or about the Premises, with combined
single limits of not less than Three Million and No/100 Dollars
($3,000,000.00). Tenant agrees to include contractual liability coverage in
such policy insuring Tenant's indemnification obligations under this Lease.
Any such coverage shall be deemed primary to any liability coverage secured
by Landlord.
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11.5 TENANT'S MISCELLANEOUS INSURANCE OBLIGATIONS.
All policies of commercial general liability insurance shall be written
by companies reasonably acceptable to Landlord, naming Landlord, Landlord's
lenders and agents as additional insureds thereunder. All policies, or a
memorandum or certificate of such insurance, shall be delivered to Landlord
endorsed "Premium Paid" by the company or agency issuing the same or
accompanied by other evidence satisfactory to Landlord that the premium
thereon has been paid. At such time as insurance limits required of tenants
in office buildings in the area in which the Property is located are
generally increased to greater amounts, Landlord shall have the right to
require such greater limits as may then be customary. All insurance policies
required of Tenant shall be written on an occurrence basis (not a claims made
basis) so that they afford coverage for all claims based upon acts,
omissions, injury or damage, which claims occurred or arose (or the onset of
which occurred or arose) in whole or in part during the policy period. All
insurance policies required of Tenant shall require sixty (60) days written
notice by the insurer to Landlord prior to cancellation.
11.6 TENANT'S INDEMNIFICATION OF LANDLORD.
Tenant agrees to indemnify, defend (with counsel reasonably acceptable
to Landlord) and protect Landlord, Landlord's lenders and managing agent,
against, and hold Landlord, Landlord's lenders and managing agent free and
harmless from, Claims arising from (a) any breach or default on the part of
Tenant in the performance of any covenant or agreement on the part of Tenant
to be performed pursuant to this Lease, (b) from any act or negligence on the
part of Tenant or its agents, contractors, servants, employees or licensees,
and (c) from any accident, injury or damage in or about the Premises and
Property to the extent caused by Tenant, its agents, contractors, servants,
employees or licensees.
11.7 TENANT'S WAIVER.
To the extent not expressly prohibited by applicable Laws, Tenant agrees
that Landlord, Landlord's lenders, its agents, employees and servants, shall
not be liable for and expressly waives all Claims for damage to, Tenant's
property or business sustained during the Term resulting directly or
indirectly from (a) any existing or future condition, defect, matter or thing
in the Premises, the Property or any part thereof, (b) from any equipment or
appurtenances becoming out of repair, (c) any occurrence, act or omission of
Landlord, its agents, employees or servants, or any other tenant or occupant
of the Building or any other person. This paragraph shall apply especially
but not exclusively, to damage caused by the flooding of basements or other
subsurface areas and by refrigerators, sprinkling devices, air conditioning
apparatus, water, snow, frost, steam, excessive heat or cold, falling
plaster, broken glass, sewage, gas, odors, noise or the bursting or leaking
of pipes or plumbing fixtures and shall apply regardless
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whether any such damage results form an Act of God, the act or omission of
other tenants or occupants of the Property or any other persons.
11.8 LANDLORD'S DEDUCTIBLE.
Provisions herein to the contrary notwithstanding, in the event any
damage to the Property results from any act or omission of Tenant, its
agents, employees or invitees, and all or any portion of the cost to repair
the damage falls within the deductible under Landlord's insurance policy,
Tenant shall pay to Landlord the amount of such deductible (not to exceed
$5,000 per event) as Additional Rent.
11.9 TENANT'S PROPERTY.
All machinery, equipment, furniture, fixtures and personal property of
Tenant, including all property under the care, custody and control of Tenant,
shall be at the risk of Tenant only, and Landlord shall not be liable for
damage thereto or theft, misappropriation or loss thereof Tenant agrees to
indemnify, defend (with counsel reasonably acceptable to Landlord) and
protect Landlord against, and hold Landlord free and harmless from, claims
arising in connection with such property.
11.10 INCREASE IN INSURANCE.
Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or adversely affect in any other way any fire or other
insurance policy upon the Property or any of its contents, or cause a
cancellation of any insurance policy covering the Property or any of its
contents. Notwithstanding anything to the contrary contained herein, Tenant
shall promptly, upon demand, reimburse Landlord for the full amount of any
additional premium charged for such policy by reason of Tenant's failure to
comply with the provisions of this section, it being understood that such
demand for reimbursement shall not be Landlord's exclusive remedy.
11.11 TENANT'S FAILURE TO INSURE.
In the event Tenant fails to provide Landlord with evidence of insurance
required under Section 11.4 and Section 11.5, Landlord may but shall not be
obligated to, without further demand upon Tenant and without waiving or
releasing Tenant from any obligation contained in this Lease, effect such
insurance. In such event, Tenant agrees to repay, upon demand, all sums
incurred by Landlord in effecting such insurance. All such sums shall become
Additional Rent hereunder, but no such payment by Landlord shall relieve
Tenant from any default under this Lease.
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ARTICLE 12
DAMAGE OR DESTRUCTION
12.1 TENANTABLE WITHIN 180 DAYS.
If fire or other casualty shall render the whole or any material portion
of the Premises untenantable, and the Premises can reasonably be expected to
be made tenantable within one hundred eighty (180) days from the date of such
event, then Landlord shall repair and restore the Property and the Premises
to as near their condition prior to the fire or other casualty as is
reasonably possible within such one hundred eighty (180) day period (subject
to delays for causes beyond Landlord's reasonable control) and notify Tenant
that it will be doing so, such notice to be mailed within forty-five (45)
days from the date of such damage or destruction. In such case, this Lease
shall remain in full force and effect, but Rent for the period during which
the Premises are untenantable shall be abated prorata (based upon the portion
of the Premises which is untenantable). If Landlord is required to repair the
Premises as aforesaid, said work shall be undertaken and prosecuted with all
due diligence and speed.
12.2 NOT TENANTABLE WITHIN 180 DAYS.
If for or other casualty shall render the whole or any material part of
the Premises untenantable and the Premises cannot reasonably be expected to
be made tenantable within one hundred eighty (180) days from the date of such
event, then either party, by notice in writing to the other sent within
forty-five (45) days from the date of such damage or destruction, may
terminate this Lease effective upon a date within thirty (30) days from the
date of such notice.
12.3 PROPERTY SUBSTANTIALLY DAMAGED.
In the event that more than fifty percent (50%) of the value of the
Property is damaged or destroyed by fire or other casualty, and irrespective
of whether damage or destruction can be made tenantable within on hundred
eighty (180) days thereafter, then at Landlord's option, by written notice to
Tenant sent within forty-five (45) days from the date of such damage or
destruction, Landlord may terminate this Lease effective upon a date within
ninety (90) days from the date of such notice to Tenant.
12.4 UNINSURED CASUALTY OR UNAVAILABLE INSURANCE PROCEEDS.
If fire or other casualty shall render any portion of the Premises or
any material portion of the Property untenantable and the insurance proceeds
are not sufficient to make such repair or if Landlord's lender requires all
or a portion of the proceeds to be applied to the outstanding balance due
under the loan, then Landlord may, by notice to Tenant sent within forty-five
(45) days from the date of such damages or destruction,
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terminate this Lease effective upon a date within forty-five (45) days from
the date of such notice.
12.5 DEDUCTIBLE PAYMENTS.
If the Premises or the Property is damaged, and such damage is of the
type insured against under the casualty insurance maintained by Landlord
hereunder, the cost of repairing said damage up to the amount of the
deductible under said insurance policy shall be included as a part of the
Operating Expenses. If the damage is not covered by such insurance policies
and Landlord elects to repair the damage, then Tenant shall pay Landlord a
share of the deductible under Landlord's insurance policies equal to Tenant's
Prorata Share of Excess Operating Expenses. If the damage was due to an act
or omission of Tenant, Tenant shall pay Landlord the entire amount of the
deductible under Landlord's insurance policies (not to exceed $5,000.00) as
Additional Rent.
12.6 LANDLORD'S REPAIR OBLIGATIONS.
In the event (a) fire or other casualty shall render the whole or any
material part of the Premises untenantable and the Premises cannot reasonably
be expected to be made tenantable within one hundred eighty (180) days from
the date of such event and neither party hereto terminates this Lease
pursuant to its rights herein, (b) more than fifty percent (50%) of the value
of the Property is damaged or destroyed by fire or other casualty, and
Landlord does not terminate this Lease pursuant to its option granted herein
or (c) fifty percent (50%) or less of the value of the Property is damaged or
destroyed by fire or other casualty and neither the whole nor any material
portion of the Premises is rendered untenantable, then in any such event
Landlord shall repair and restore the Premises and the Property to as near
their condition prior to the fire or other casualty as is reasonably possible
with a due diligence and speed (subject to delays for causes beyond
Landlord's reasonable control) and the Rent for the period during which the
Premises are untenantable shall be abated prorata (based upon the portion of
the Premises which is untenantable). In no such event shall Landlord be
obligated to repair or restore any Tenant Improvements or special equipment
or improvements installed by Tenant at Tenant's expense.
12.7 RENT APPORTIONMENT.
In the event of a termination of this Lease pursuant to this Article 12,
Rent shall be apportioned on a per diem basis and paid to the date of the
fire or other casualty.
ARTICLE 13
EMINENT DOMAIN
13.1 TERMINATION OF LEASE.
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If the whole or any substantial part of the Premises is taken by any
public authority under the power of eminent domain or taken in any manner for
any public or quasi-public use, so as to render the remaining portion of the
Premises unsuitable for the purposes intended hereunder, then this Lease
shall terminate as of the day possession shall be taken by such public
authority and Landlord shall make a pro rata refund of any prepaid Rent. In
the event that fifty percent (50%) or more of the building area or fifty
percent (50%) or more of the value of the Property is taken by public
authority under the power of eminent domain then at Landlord's option by
written notice to Tenant, mailed within sixty (60) days from the date
possession shall be taken by such public authority, Landlord may terminate
this Lease effective upon a date within ninety (90) days from the date of
such notice to Tenant.
13.2 Landlord's Repair Obligations.
In the event this Lease is not terminated pursuant to Section 13.1,
Landlord shall, at its sole cost and expense, restore the Premises and
Property to a complete architectural unit and the Base Rent provided for
herein during the period from and after the date of delivery of possession
pursuant to such proceedings to the termination of this Lease shall be
reduced to a sum equal to the product of the Base Rent provided for herein
multiplied by a fraction, the numerator of which is the fair market rent of
the Premises after such taking and after same has been restored to a complete
architectural unit, and the denominator of which is the fair market rent of
the Premises prior to such taking. In addition, Tenant's Prorata Share of
Excess Property Taxes and Tenant's Prorata Share of Excess Operating Expenses
for the same period shall be adjusted in accordance with Section 4.7 after
due consideration of the rentable square footage of the Premises after the
date of delivery of possession pursuant to such proceedings compared to the
rentable square footage of the Building after the date of delivery of
possession pursuant to such proceedings.
13.3 Tenant's Participation.
All damages awarded for such taking under the power of eminent domain or
any like proceedings shall belong to and be the property of Landlord, Tenant
hereby assigning to Landlord its interest, if any, in said award. Tenant
shall have the right to prove in any condemnation proceedings and to receive
any separate award which may be made for damages to or condemnation of
Tenant's movable trade fixtures and equipment and for moving expenses;
provided however, Tenant shall in no event have any right to receive any
award for its interest in this Lease or for loss of leasehold.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Restriction on Transfers.
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Tenant shall not assign, mortgage, pledge, transfer, sublease or
otherwise encumber or dispose of this Lease, or any interest therein, or in
any manner assign, mortgage, pledge, transfer or otherwise encumber or
dispose of its interest or estate in the Premises, or any portion thereof
("Transfer"), without obtaining Landlord's prior written consent in each and
every instance, which consent shall not be unreasonably withheld or delayed.
Landlord shall grant or withhold such consent within twenty (20) days after
Tenant notifies Landlord of such proposed Transfer. Landlord shall be deemed
reasonable in withholding such consent based on any of the following factors:
(i) the character, reputation or business of the proposed assignee or
subtenant is inconsistent with the tenant mix or the quality of the tenancies
in other Class A office buildings in the Atlanta, Georgia area; (ii) the
financial condition of the proposed assignee or subtenant is not equal to or
better than the financial condition then being required by Landlord for new
tenants of the Building; (iii) the proposed assignee or subtenant intends to
make a use which is not in keeping with the first-class nature of the
Building or which will violate an exclusive use right granted by Landlord to
another tenant of the Building; (iv) the proposed assignee or subtenant is an
existing tenant of the Building for whom Landlord has space available (on the
date the existing tenant desires to expand) in the Building and desires a
length of term which Landlord is willing to provide; or (v) the proposed
assignee or subtenant is a potential candidate for space in the Building who
has asked for and received a bona fide proposal from Landlord with respect to
other space which Landlord currently has available in the Building and which
would be adequate to satisfy the requirements of the potential assignee or
subtenant (disregarding any difference in rental rate between Landlord's
Space and Tenant's Sublease Space) and such candidate desires the space for a
length of term which Landlord is willing to provide. In the event Landlord
elects to withhold consent to a proposed assignment or sublet, Landlord shall
notify Tenant of the factor upon which Landlord bases such election. No
Transfer shall release Tenant from its liability under this Lease.
14.2 Definition of Assignment.
For the purposes of this Lease, an "assignment" prohibited by this
Section 9 shall be deemed to include the following: if Tenant is a
partnership, a withdrawal or change (voluntary, involuntary, by operation of
law) of any one or more of the partners thereof, or the dissolution of the
partnership; or, if Tenant consists of more than one person, a purported
assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by
operation of law or otherwise) from one constituent member to any other
constituent member, or to any third party; or, if Tenant is a corporation,
any dissolution, merger, consolidation or other reorganization of Tenant, or
any change in the ownership (voluntary, involuntary, by operation of law,
creation of new stock or otherwise) of fifty percent (50%) or more of its
capital stock from the ownership existing on the date of execution hereof,
or, the sale of fifty percent (50%) of the value of the assets of Tenant.
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14.3 Recapture.
No less than thirty (30) days prior to the effective date of a proposed
assignment or sublease (other than one made pursuant to Subsection 14.2)
Tenant shall offer to reconvey to Landlord, as of said effective date, that
portion of the Premises which Tenant is seeking to assign or sublet, which
offer shall contain an undertaking by Tenant to accept, as full and adequate
consideration for the reconveyance, Landlord's release of Tenant from all
future Rent and other obligations under this Lease with respect to the
Premises or the portion thereof so reconveyed. Landlord, in its absolute
discretion, shall accept or reject the offered reconveyance within twenty
(20) days of the offer and if Landlord accepts, the reconveyance shall be
evidenced by an agreement acceptable to Landlord in form and substance. If
Landlord fails to accept or reject the offer within the twenty (20) day
period, Landlord shall be deemed to have rejected the offer.
14.4 Costs.
Tenant agrees to pay on behalf of Landlord any and all cost of Landlord,
including reasonable attorney's fees (such fees not to exceed $700.00, unless
such Transfer involves an unusually complex structure), occasioned by such
Transfer.
14.5 Proceeds.
If Landlord rejects or is deemed to have rejected Tenant's offer of
reconveyance and if Landlord gives its consent to any assignment of this
Lease or to any sublease, or if Tenant is otherwise permitted to make any
assignment or sublease pursuant to this Lease, Tenant shall in consideration
therefore, pay to Landlord, as Additional Rent any and all amounts by which
the rent and any other consideration paid by the subtenant or assignee
exceeds the Rent due and payable by Tenant to Landlord hereunder. With
respect to a sublease of less than the entire Premises, the Rent due under
this Lease shall be appropriately prorated on a per rentable square foot
basis to determine any such excess amounts. Any such excess amounts shall be
paid by Tenant to Landlord as and when payable by the assignee or subtenant
to Tenant, after deducting reasonable marketing fees (i.e., commissions).
ARTICLE 15
DEFAULTS; REMEDIES
15.1 Events of Default.
The occurrence of any of the following shall constitute a default and
breach of this Lease by Tenant:
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15.1.1 FAILURE TO PAY BASE RENT OR ADDITIONAL RENT.
If Tenant fails to pay Base Rent or Additional Rent as and when due.
15.1.2 FAILURE TO PERFORM.
If Tenant fails to perform any of Tenant's nonmonetary obligations
under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if performance as required by
this Lease reasonably requires more than thirty (30) days to
complete, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) day period and thereafter
diligently pursues its completion and accomplishes the cure within
ninety (90) days. Landlord shall not be required to give such notice
if Tenants failure to perform constitutes a non-curable breach of
this Lease.
15.1.3 REPEATED DEFAULTS.
Notwithstanding anything to the contrary set forth in Section 15.1.2
above, in the event Tenant fails to perform any non-monetary
obligations under this Lease on more than two (2) occasions in any
calendar year, then any further non-monetary failure in such calendar
year shall constitute an event of default without any notice or
opportunity to cure.
15.1.4 OTHER DEFAULTS.
If (a) Tenant makes a general assignment or general arrangement for
the benefit of creditors; (b) a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or
against Tenant and is not dismissed within thirty (30) days; (c) a
trustee or receiver is appointed to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease and possession is not restored to Tenant
within thirty (30) days; or (d) substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is
not discharged within thirty (30) days. If a court of competent
jurisdiction determines4es that any of the acts described in this
subsection is not a default under this Lease, and a trustee is
appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest
hereunder, then Landlord shall receive, as Additional Rent, the
difference between the Rent (or any other consideration) paid in
connection with such assignment or sublease and the Rent payable by
Tenant hereunder.
The notices required by this section are intended to satisfy any and
all notice requirements imposed by the Laws and are not in addition
to any such requirements.
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15.2 REMEDIES.
Upon the occurrence of any default by Tenant, Landlord may at any
time and from time to time exercise any of the following remedies.
Landlord's exercise of any right or remedy shall not prevent it from
exercising any other right or remedy available at law or in equity.
15.2.1 TERMINATION OF TENANT'S RIGHT TO POSSESSION OF THE PREMISES.
Terminate Tenant's right to possession of the Premises by any lawful
means, in which case Tenant shall immediately surrender possession of
the Premises to Landlord. In such case, this Lease shall continue in
full force and effect except for Tenant's right to possession.
Termination of Tenant's right to possession shall not be construed as
an election by Landlord to terminate this Lease and Tenant's
obligations and liabilities hereunder unless and until Landlord
delivers written notice to Tenant expressly exercising such right of
termination.
15.2.2 RIGHT OF RE-ENTRY AND RELETTING.
Upon termination of Tenant's right to possession of the Premises,
Landlord may but shall not be obligated to, re-enter the Premises and
remove all persons and property from the Premises. Any property
removed may be stored in a public warehouse or elsewhere at the cost
of and for the account of Tenant. Upon such re-entry, Landlord may
but shall not be obligated to, relet the Premises or any part of
them, to third parties for Tenant's account. Tenant shall be liable
immediately to Landlord for all costs and expenses incurred by
Landlord in re-entering or reletting the Premises, including but not
limited to (a) maintaining or preserving the Premises after such
default, (b) recovering possession of the Premises, removing persons
and property from the Premises and storing such property, including
court costs and reasonable attorney's fees incurred in connection
therewith (c) reletting, renovating or altering the Premises, and (d)
real estate commissions paid or payable in connection with reletting
the Premises, said cost and expenses collectively referred to herein
as "Re-entry Costs". Reletting can be for a period shorter or longer
than the remaining Term. Tenant shall continue to pay Rent when due
under this Lease, less the Net Rent (as hereafter defined) actually
received by Landlord from reletting. Net Rent shall mean all rental
actually received by Landlord from reletting less the following: (i) any
indebtedness from Tenant to Landlord other than Rent, which shall
be paid first, and (ii) the Reentry Costs, which shall be paid second.
In the event the rental actually received by the Landlord from
reletting exceeds the Rent, any sum remaining will be held by
Landlord and applied to future Rent under this Lease.
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15.2.3 TERMINATION OF LEASE
Terminate this Lease and all of Tenant's rights and obligations
hereunder by delivery of written notice to Tenant. Such termination
shall be effective upon delivery of such notice to Tenant and Tenant
shall immediately surrender possession of the Premises to Landlord.
In such event, Landlord shall be entitled to recover from Tenant and
Tenant shall pay to Landlord immediately upon demand, all damages
incurred by Landlord by reason of Tenant's default, including without
limitation (a) all Rent due and payable under this Lease as of the
effective date of the termination; (b) any amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's
failure to perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom,
including but not limited to, any costs or expenses incurred in (i)
maintaining or preserving the Premises after such default, (ii)
recovering possession of the Premises, removing persons and property
from the Premises and storing such property, including court costs
and reasonable attorneys' fees incurred in connection therewith (iii)
reletting, renovating or altering the Premises, and (iv) real estate
commission paid or payable in connection with reletting the Premises;
and (c) an amount equal to the difference between the present worth,
as of the effective date of the termination, of the Rent for the
balance of the Term remaining after the effective date of the
termination (assuming no termination) and the present worth, as of
the effective date of the termination, of a fair and reasonable
market rent for the Premises for the same period. For purposes of
this section, present worth shall be computed by utilizing a discount
rate of six percent (6%). Nothing in this section shall limit or
prejudice Landlord's right to prove and obtain damages in an amount
equal to the maximum amount allowed by the Laws, regardless of
whether such damages are greater than the amounts set forth herein.
15.3 COSTS
Tenant shall reimburse and compensate Landlord upon demand, as
Additional Rent, for any actual pecuniary loss incurred by Landlord in
connection with, resulting from or related to any breach or default of
Tenant under this Lease, whether or not suit is commenced or judgment
entered. Such loss shall include all reasonable legal fees, costs and
expenses incurred in the negotiation, settlement or enforcement of
rights or remedies of Landlord or necessary to protect Landlord's
interest under this Lease in a bankruptcy case or proceeding under Title
II of the United States Code, as amended. Tenant shall also indemnify,
defend (with counsel reasonably acceptable to Landlord) and protect
Landlord against, and hold Landlord free and harmless from, all Claims
incurred by Landlord if Landlord becomes or is made a party to any claim
or action (a) instituted by Tenant, by any third party against Tenant
or by or against any person holding any interest under or using the
Premises by license of or agreement with Tenant; (b) for foreclosure of
any lien for labor or material furnished to or for Tenant or such other
person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's
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interest under this Lease in a bankruptcy case or proceeding under Title II
of the United States Code, as amended.
15.4 NO WAIVER.
No failure by Landlord to insist upon the performance of any of the
terms of this Lease or to exercise any right or remedy consequent upon a
breach thereof, and no acceptance by Landlord of full or partial rent from
Tenant or any third party during the continuance of any such breach, shall
constitute a waiver of any such breach or of any of the terms of this Lease.
None of the terms of this Lease to be kept, observed or performed by Landlord
or by Tenant, and no beach thereof, shall be waived, altered or modified
except by a written instrument executed by Landlord and/or by Tenant, as the
case may be. No waiver of any default of Tenant herein shall be implied from
any omission by Landlord to take any action on account of such default. One
or more waivers by Landlord shall not be construed as a waiver of a
subsequent breach of the same covenant, term or condition. No statement on a
payment check from Tenant or in a letter accompanying a payment check shall
be binding on Landlord. Landlord may, with or without notice to Tenant,
negotiate such check without being bound to the conditions of such statement.
15.5 WAIVER BY TENANT.
Tenant hereby waives all claims resulting from Landlord's re-entry and
taking possession of the Premises and removing and storing the property of
Tenant as permitted under this Lease and will save Landlord harmless from all
losses, costs or damages occasioned thereby. No such reentry shall be
considered or construed to be a forcible entry by Landlord.
ARTICLE 16
PROTECTION OF CREDITORS
16.1 SUBORDINATION.
This Lease and all rights of Tenant therein, and all interest or estate
of Tenant in the Property or any portion thereof, shall be subject and
subordinate to the lien of any mortgage, deed of trust or other document of
like nature ("Mortgage") which now or at any time may be placed upon the
Property or any portion thereof, and to any replacements, renewals,
amendments, modifications, extensions or refinancing thereof, and to each and
every advance made under any Mortgage. Tenant agrees at any time hereafter,
and from time to time on demand of Landlord, to execute and deliver to
Landlord any instruments, releases or other documents that may be reasonably
required for the purpose of subjecting and subordinating this Lease to the
lien of any Mortgage. It is agreed that so long as Tenant is not in default
in the payment of Rent or the performance and observance of any covenant,
condition, provision, term or agreement
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to be performed and observed by Tenant under this Lease, the holder of any
Mortgage shall not interfere with, hinder, molest or disturb Tenant's rights
under this Lease. The lien of any such Mortgage shall not cover Tenant's
trade fixtures or other personal property located in or on the Premises.
16.2 ATTORNMENT.
If Landlord's interest in the Premises is acquired by any ground
landlord, the holder of any Mortgage at a foreclosure sale or by any new
person or entity as a result of any transfer by Landlord, Tenant shall attorn
to the transferee of or successor to Landlord's interest in the Premises and
recognize such transferee or successor as landlord under this Lease. Tenant
waives the protection of any statute or rule of Law which gives or purports
to give Tenant any right to terminate this Lease or surrender possession of
the Premises upon the transfer of Landlord's interest.
26.3 ESTOPPEL CERTIFICATES.
16.3.1 CONTENTS.
Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (a) that
this Lease (and all guaranties, if any) is unmodified and in full force and
effect or, if there have been any modifications, that the same is in full
force and effect, as modified, and stating the modifications); (b) that this
Lease has not been canceled or terminated; (c) that last date of payment of
Base Rent and Additional Rent and the time period covered by such payments;
(d) whether or not there are then existing any breaches or defaults by
Landlord known by Tenant under this Lease, and if so, specifying the same and
the steps being taken to remedy the same; (e) specifying any setoffs or
defenses in favor of Tenant against the enforcement of this Lease (or of any
guaranties); and (f) such other statements as required by Landlord, any
lender, prospective lender, investor or purchaser. Tenant shall deliver such
statement to Landlord within ten (10) business days after Landlord's request.
Any such statement by Tenant may be given by Landlord to any lender,
prospective lender, investor or purchaser of the Premises and may be relied
upon by such party as true and correct.
16.3.2 FAILURE TO DELIVER.
If Tenant does not deliver such statement to Landlord within such
ten (10) business day period, (a) Tenant irrevocably constitutes and appoints
Landlord as its special attorney-in-fact to execute and deliver the
certificate to any third party and (b) such failure shall constitute a
default under this Lease entitling Landlord to pursue remedies for breach.
Further, Landlord, and any lender, prospective lender, investor or purchaser,
may conclusively presume and rely upon the following facts: (i) that the
terms and provisions of this Lease have not been changed except as otherwise
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represented by Landlord; (ii) that this Lease has not been canceled or
terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or Additional Rent have been paid in advance; and
(iv) that Landlord is not in default under this Lease. In such event, Tenant
shall be estopped from denying the truth of such facts.
16.4 MORTGAGEE PROTECTION CLAUSE.
Tenant agrees to give the holder of any Mortgage, by registered mail, a
copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of
assignment of rents and leases or otherwise) of the address of such holder.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this Lease, then such holder shall have an
additional ten (10) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be
necessary if, within such ten (10) day period, the holder has commenced and
is diligently pursuing the remedies necessary to cure such default (including
but not limited to commencement of foreclosure proceedings if necessary to
effect such cure) in which event this Lease shall not be terminated while
such remedies are being so diligently pursued.
16.5 QUIET POSSESSION. The Landlord agrees that the Tenant, keeping
and performing the covenants herein contained on the part of the Tenant to be
kept and performed, shall at all times during the existence of the Lease,
Renewals, or extensions peaceably and quietly, have, hold, and enjoy the
Premises, without suit, trouble or hindrance from the Landlord, or any person
claiming Landlord.
ARTICLE 17
TERMINATION OF LEASE
17.1 SURRENDER OF PREMISES.
At the expiration of the Term, Tenant shall surrender the Premises in
the same condition as the same were in on the Commencement Date, reasonable
wear and tear excepted, permitted alterations and damage by casualty or
condemnation excepted, and shall surrender all keys to the Premises to
Landlord's managing agent or to Landlord at the place then fixed for the
payment of Base Rent and shall inform Landlord of all combinations on locks,
safes and vaults, if any. Tenant shall at such time remove all of its
property therefrom and all alterations and improvements placed thereon by
Tenant if so requested by Landlord. Tenant shall repair any damage to the
Premises caused by such removal, and any and all such property not so removed
shall, at Landlord's option, become the exclusive property of Landlord or be
disposed of by Landlord at Tenant's cost and expense without further notice
to or demand upon Tenant. If the
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Premises are not surrendered as above set forth, Tenant shall indemnify,
defend (with counsel reasonably acceptable to Landlord) and protect Landlord
against, and hold Landlord free and harmless from, any Claim resulting from
the delay by Tenant in so surrendering the Premises, including without
limitation, any claim made by any succeeding occupant founded on such delay.
All property of Tenant not removed on or before the last day of the Term
shall be deemed abandoned. Tenant hereby appoints Landlord its agent to
remove, at Tenant's cost, all property of Tenant from the Premises upon
termination of this Lease and to cause its transportation and storage for
Tenant's benefit, all at the sole cost and risk of Tenant and Landlord shall
not be liable for damage, theft, misappropriation or loss thereof and
Landlord shall not be liable in any manner in respect thereto.
17.2 HOLDING OVER.
In the event Tenant remains in possession of the Premises after
expiration of this Lease, and without the execution of a new lease, but with
Landlord's written consent, it shall be deemed to be occupying the Premises
as a tenant from month to month, subject to all the provisions, conditions and
obligations of this Lease insofar as the same can be applicable to a
month-to-month tenancy, except that (i) for the first month after the
expiration of this Lease, the Base Rent shall be escalated to one hundred
fifty percent (150%) of Landlord's then current Base Rent for the Premises
according to Landlord's then current rental rate schedule for prospective
tenants, and (ii) for the every month thereafter, the Base Rent shall be
escalated to two hundred percent (200%) of landlord's then current Base Rent
for the Premises according to Landlord's then current rental rate schedule
for prospective tenants. In the event Tenant remains in possession of the
Premises after expiration of this Lease and without the execution of a new
lease and without Landlord's written consent, Tenant shall be deemed to be
occupying the Premises without claim of right and Tenant shall pay Landlord
for all costs arising out of loss or liability resulting from delay by Tenant
in so surrendering the Premises as provided in Section 17.1 and shall pay a
charge for each day of occupancy an amount equal to double the Base Rent and
Additional Rent (on a day basis) then currently being charged by Landlord on
new leases in the Property for space similar to the Premises.
ARTICLE 18
MISCELLANEOUS PROVISIONS
18.1 NOTICES.
All notices, demands and requests which may be or are required to be
given, demanded or requested by either party to the other shall be in writing.
All notices, demands and requests shall be sent by United States registered
or certified mail, postage prepaid or by an independent overnight courier
service, addressed to the addresses specified in the Basic Terms or at such
other place as either party may
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designate to the other party by written notice given in accordance with this
section. Notices, demands and requests which shall be given by mail shall be
deemed delivered within three (3) business days of deposit with the United
States Post Office and if delivered by courier shall be deemed delivered on
the next business day after the day of deposit with such courier.
18.2 LANDLORD'S CONTINUING OBLIGATIONS.
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean
and include only the owner or owners at the time in question of the fee title
of the Property. In the event of any transfer or conveyance of the Property,
the then grantor shall be automatically freed and relieved from and after the
date of such transfer or conveyance of all liability as respects the
performance of any covenants or obligations on the part of Landlord contained
in this Lease thereafter to be performed; provided that any funds in the
hands of such grantor at the time of such transfer, in which Tenant has an
interest, shall be turned over to the grantee for payment to Tenant in
accordance with this Lease.
18.3 SUCCESSORS.
The covenants and agreements herein contained shall bind and inure to
the benefit of Landlord, its successors and assigns, and Tenant and its
permitted successors and assigns.
18.4 CAPTIONS AND INTERPRETATION.
The captions of the Articles and Sections of this Lease are to assist
the parties in reading this Lease and are not a part of the terms or
provisions of this Lease. Whenever required by the context of this Lease, the
singular shall include the plural and the plural shall include the singular.
The masculine, feminine and neuter genders shall each include the other. In
any provision relating to the conduct, acts or omissions of Tenant, the Term
"Tenant" shall include Tenant's agents, employees, contractors, invitees,
successors or others using the Premises with Tenant's expressed or implied
permission.
18.5 RELATIONSHIP OF PARTIES.
This Lease does not create the relationship of principal and agent, or
of partnership, venture, or of any association or relationship between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant.
18.6 ENTIRE AGREEMENT.
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Any exhibits, addenda and schedules attached hereto, and the Work
Letter, shall be incorporated herein as though fully set forth herein. All
preliminary and contemporaneous negotiations are merged into and incorporated
in this Lease. This Lease Agreement together with the Exhibits contains the
entire agreement between the parties. No subsequent alteration, amendment,
change or addition to this Lease shall be binding upon Landlord or Tenant
unless reduced to writing and signed by the party to be charged with their
performance.
18.7 SEVERABILITY.
If any covenant, condition, provision, term or agreement of this Lease
shall, to any extent, be held invalid or unenforceable, the remaining
covenants, conditions, provisions, terms and agreements of this Lease shall
not be affected thereby, but each covenant, condition, provision, term or
agreement of this Lease shall be valid and in force to the extent permitted
by Law.
18.8 LANDLORD'S LIMITED LIABILITY.
Tenant agrees to look solely to Landlord's equity interest in the
Building for recovery of any judgment from Landlord, it being agreed that
Landlord (and if Landlord is a partnership, its partners, whether general or
limited, and if Landlord is a corporation, its directors, officers or
shareholders and if Landlord is a limited liability company, its governors,
managers or members) shall never be personally liable for any personal
judgment or deficiency decree or judgment against it, nor shall Tenant be
entitled to reach any of the general corporate assets of Landlord, or its
parent corporation or its affiliated corporations for satisfaction of any
such judgment.
18.9 SURVIVAL.
All obligations (together with interest on money obligations at the
Maximum Rate of Interest) accruing prior to expiration of the Term shall
survive the expiration or other termination of this Lease.
18.10 ATTORNEYS' FEES.
In the event of any litigation or judicial action in connection with
this Lease or the enforcement thereof or the enforcement of any indemnity
obligation hereunder, the prevailing party in any such litigation or judicial
action shall be entitled to recover all costs and expenses of any such
judicial action or litigation (including, but not limited to, reasonable
attorneys' fees, costs and expenditures fees) from the other party.
18.11 BROKER.
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Landlord shall pay the broker(s), if any, listed in the Basic Terms,
pursuant to a separate agreement between Landlord and such broker(s).
Landlord and Tenant each represent and warrant to the other that it has not
had any dealings with any realtors, brokers or agents in connection with the
negotiation of this Lease except as may be specifically set forth in the
Basic Terms and agree to hold the other harmless from the failure to pay any
realtors, brokers or agents (other than the Brokers specified in the Basic
Terms) and from any cost, expense or liability for any compensation,
commission or changes claimed by any realtors, brokers or agents (other than
the Brokers specified in the Basic Terms) claiming by, through or on behalf
of it with respect to this Lease and/or the negotiation hereof Landlord
agrees to pay all amounts due to the Brokers named in the Basic Terms as a
result of this Lease.
18.12 GOVERNING LAW.
This Lease shall be governed by the laws of the State of Georgia. All
covenants, conditions and agreements of Tenant arising hereunder shall be
performable in the county wherein the Premises are located. Any suit arising
from or relating to this Lease shall be brought in the county wherein the
Premises are located, and the parties hereto waive the right to be sued
elsewhere.
18.13 TIME IS OF THE ESSENCE.
Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
18.14 JOINT AND SEVERAL LIABILITY.
All parties signing this Lease as Tenant shall be jointly and severally
liable for all obligations of Tenant.
18.15 TENANT'S WAIVER.
Any claim which Tenant may have against Landlord for default in
performance of any of the obligations herein contained to be kept and
performed by Landlord shall be deemed waived unless such claim is asserted by
written notice thereof to Landlord within ten (10) days of commencement of
the alleged default or of accrual of the cause of action and unless suit be
brought thereon within six (6) months subsequent to the accrual of such cause
of action.
18.16 DELIVERY OF TENANT ORGANIZATION DOCUMENTS.
In the event Tenant is an entity, Tenant shall without charge to Landlord,
at any time and from time to time within ten (10) days after written request
by Landlord, deliver the following instruments and documents:
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(a) Certificate of Good Standing from the state of formation of
Tenant and the State, confirming that Tenant is in good standing
under the corporate laws governing formation;
(b) A copy of Tenant's organization documents and any amendments or
modifications thereof, certified as true and correct by an
appropriate official of Tenant.
18.17 PROVISIONS ARE COVENANTS AND CONDITIONS.
All provisions, whether covenants or conditions, shall be deemed to be
both covenants and conditions.
18.18 BUSINESS DAYS.
As used herein, the term "business days" shall mean any day which is not
Saturday, Sunday or a legal holiday in the State.
18.19 FORCE MAJEURE.
If Landlord or Tenant shall be delayed or prevented from the performance
of any act required hereunder (excluding, however, the payment of money) by
reason of acts of God, strikes, lockouts, labor troubles, inability to
procure materials, respect of governmental laws or regulations, or by any
order or direct of any legislative, administrative or judicial body, or any
government department, or by reason of not being able to obtain any licenses,
permissions or authorities required therefor, or other causes without fault
or beyond the reasonable control of Landlord or Tenant, performance of such
acts by Landlord or Tenant shall be excused for the period of the delay and
the period of the performance of any such acts shall be extended for a period
equivalent to the period of such delay. Such delays are sometimes referred to
in this Lease as "Force Majeure."
18.20 SUBMISSION OF LEASE.
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or an option for lease and is not effective
as a lease or otherwise until execution and delivery by both Landlord and
Tenant.
18.21 RELOCATION. Intentionally Deleted.
18.22 USUFRUCT.
The parties hereby agree that the interest granted by Landlord to Tenant
under this Lease is not an interest in real estate and is not a leasehold
estate but is merely a usufruct.
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18.23 SECURITY DEPOSIT.
Tenant shall pay Landlord the sum equivalent to two (2) months Rent
during the first year of the Initial Lease Term (hereinafter referred to as
"Security Deposit"), which shall be held by the Landlord during the Term of
this Lease, or any renewal thereof. The Security Deposit may be commingled by
Landlord with its other funds and under no circumstances will Tenant be
entitled to any interest on the Security Deposit. The Security Deposit may be
used by Landlord, at its discretion, to apply to any amount owing to Landlord
hereunder, or to pay the expenses of repairing any damage to the Premises,
except natural wear and tear occurring from normal use of the Premises, which
exists on the day Tenant vacates the Premises, but this right shall not be
construed to limit Landlord's right to recover additional sums from Tenant
for damages to the Premises. In addition to any other rights available to
Landlord hereunder, the Security Deposit shall be forfeited if this Lease
should be terminated prior to the normal Expiration Date of the original
term, or of any renewal thereof as a result of Tenant's default. If there is
any balance of the Security Deposit remaining after all payments have been
made, the Security Deposit, or such balance thereof remaining, will be
refunded to the Tenant within thirty (30) days after fulfillment by Tenant of
all obligations hereunder. Upon sale or conveyance of the Building, Landlord
may transfer or assign the Security Deposit to any new owner of the Premises,
and upon such transfer all liability of Landlord for the Security Deposit
shall terminate. Notwithstanding the foregoing, if no event of default has
occurred during the first eleven (11) months of the first Lease Year, Tenant
may apply fifty percent (50%) of the Security Deposit to the payment of Rent
due on the twelfth month, and Landlord shall retain the balance thereof for
the purposes described in this Paragraph 18.23
18.24 SPECIAL STIPULATIONS.
The Special Stipulations attached hereto as Exhibit E form a part of
this Lease and are hereby incorporated by this reference. In the event of any
conflict between the Special Stipulations and the remaining provisions of
this Lease, to the Special Stipulations shall control.
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Landlord and Tenant have signed this Lease on the dates specified
adjacent to their signatures below.
Dated 3-15-99 LANDLORD:
------------
OPUS SOUTH CORPORATION, a Florida
corporation
By: /s/ Neil Rauenhorst
-------------------------------
Name: Neil Rauenhorst
------------------------------
Title: President & CEO
------------------------------
Dated 3/9/99 TENANT:
PRIMIS, INC., a Georgia corporation
By: /s/ James C. Foretich
--------------------------------
Name: James C. Foretich
------------------------------
Title: Vice President
-----------------------------
By: /s/ Trevor Fraser
--------------------------------
Name: Trevor Fraser
------------------------------
Title: Vice President
-----------------------------
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EXHIBIT "A"
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LEGAL DESCRIPTION OF LAND
-------------------------
All that tract or parcel of land lying and being in Land lots 858 and 906,
1st District, 2nd Section, City of Alpharetta, Fulton County, Georgia, being
more particularly described as follows:
TO FIND THE TRUE POINT OF BEGINNING, commence at a point formed by the
intersection of the northwesterly right-of-way of North Point Parkway, having
a 120 foot right-of-way and the easterly right-of-way of Kimball Bridge Road,
having a varying right-of-way; thence, run northwesterly, along the
northwesterly right-of-way of North Point Parkway right-of-way in a generally
northeasterly direction, a distance of 1,991.27 feet to a point located at
the intersection of the northwesterly right-of-way of North Point Parkway and
the northeasterly right-of-way of Great Oaks Way, having a varying
right-of-way, which point is THE TRUE POINT OF BEGINNING FROM SAID TRUE POINT
OF BEGINNING AS THUS ESTABLISHED, and leaving the northwesterly right-of-way
of North Point Parkway, run in a generally northwesterly direction along the
northeasterly right-of-way of said proposed Great Oaks Way, the following
courses and distances: South 77 degrees 39 minutes 14 seconds West, a
distance of 28.28 feet to a point; North 57 degrees 20 minutes 46 seconds
West, a distance of 42.66 feet to a point; along an arc of curve to the
right, having a radius of 391.74 feet, an arc distance of 66.71 feet (said
arc being subtended by a chord bearing North 52 degrees 28 minutes 05 seconds
West, a chord distance of 66.63 feet) to a point; along an arc of curve to
the right, having a radius of 101.00 feet, an arc distance of 8.55 feet (said
arc being subtended by a chord bearing North 50 degrees 00 minutes 58 seconds
West, a chord distance of 8.55 feet) to a point; along an arc of curve to the
right, having a radius of 392.87 feet, an arc distance of 44.80 feet (said
arc being subtended by a chord bearing North 49 degrees 10 minutes 32 seconds
West, a chord distance of 44.78 feet) to a point; along an arc of curve to
the right, having a radius of 396.67 feet, an arc distance of 60.21 feet
(said arc being subtended by a chord bearing North 41 degrees 33 minutes 37
seconds West, a chord distance of 60.15 feet) to a point; along an arc of
curve to the right, having a radius of 79.00 feet, an arc distance of 10.14
feet (said arc being subtended by a chord bearing North 33 degrees 32 minutes
08 seconds West, a chord distance of 10.13 feet) to a point; along an arc of
curve to the right, having a radius of 403.74 feet, an arc distance of 22.05
feet (said arc being subtended by a chord bearing North 28 degrees 17 minutes
42 seconds West, a chord distance of 22.05 feet) to a point; North 26 degrees
43 minutes 49 seconds West a distance of 301.99 feet to a point; along an arc
of curve to the left, having a radius of 477.74 feet, an arc distance of
208.16 feet (said arc being subtended by a chord bearing North 39 degrees 12
minutes 46 seconds West, a chord distance of 206.52 feet) to a point; North
51 degrees 41 minutes 43 seconds West a distance of 78.93 feet to a point;
thence, leaving said proposed right-of-way of Great Oaks Way, run thence
North 34 degrees 04 minutes 23 seconds East a distance of 48.00 feet to a
point; thence run
<PAGE>
North 71 degrees 45 minutes 16 seconds East, a distance of 606.66 feet to a
point; thence run South 53 degrees 27 minutes 36 seconds East, a distance of
614.17 feet to a point located on the northwesterly right-of-way of the
aforementioned North Point Parkway, thence run in a generally southwesterly
direction along said northwesterly right-of-way of North Point Parkway the
following courses and distances; South 61 degrees 06 minutes 35 seconds West,
a distance of 148.92 feet to a point; along an arc of curve to the left,
having a radius of 1,014.93 feet, an arc distance of 504.06 feet (said arc
being subtended by a chord bearing South 46 degrees 52 minutes 54 seconds
West, a chord distance of 498.90 feet) to a point; South 32 degrees 39
minutes 14 seconds West a distance of 112.74 feet to a point, and THE TRUE
POINT OF BEGINNING.
The above described property contains 10.925 acres, more or less, and is
shown on and described according to that certain ALTA/ACSM Survey for
Wachovia Bank of Georgia, N.A., Opus South Corporation and Chicago Title
Insurance Company dated September 24, 1997, prepared by Engineering &
Inspection Systems, Inc., John E. Norton, Registered Land Surveyor No. 1848,
which survey is incorporated herein by reference.
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EXHIBIT "B"
-----------
FLOOR PLAN
----------
[GRAPHIC]
- ROYAL CENTER THREE -
AT ROYAL 400
ALPHARETTA, GEORGIA
A DEVELOPMENT OF
OPUS SOUTH CORPORATION
THIRD FLOOR PLAN
[SCALE]
[LOGO]
<PAGE>
EXHIBIT "C"
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RULES AND REGULATIONS
---------------------
1. Any sign, lettering, picture, notice or advertisement installed on or in
any part of the Premises and visible from the exterior of the Building, or
visible from the exterior of the Premises, shall be installed at Tenant's
sole cost and expense, and in such manner, character and style as Landlord
may approve in writing. In the event of a violation of the foregoing by
Tenant, Landlord may remove the same without any liability and may charge the
expense incurred by such removal to Tenant.
2. No awning or other projection shall be attached to the outside walls of
the Building. No curtains, blinds, shades or screens visible from the
exterior of the Building or visible from the exterior of the Premises, shall
be attached to or hung in, or used in connection with any window or door of
the Premises without the prior written consent of Landlord. Such curtains,
blinds, shades, screens or other fixtures must be of a quality, type, design
and color, and attached in the manner approved by Landlord.
3. Tenant, its servants, employees, customers, invitees and guests shall
not obstruct sidewalks, entrances, passages, corridors, vestibules, halls,
elevators, or stairways in and about the Building which are used in common
with other tenants and their servants, employees, customers, guests and
invitees, and which are not a part of the Premises of Tenant. Tenant shall not
place objects against glass partitions or doors or windows which would be
unsightly from the Building corridors or from the exterior of the Building
and will promptly remove any such objects upon notice from Landlord.
4. Tenant shall not make excessive noises, cause disturbances or vibrations
or use or operate any electrical or mechanical devices that emit excessive
sound or other waves or disturbances or create obnoxious odors, any of which
may be offensive to the other tenants and occupants of the Building, or that
would Interfere with the operation of any device, equipment, radio,
television broadcasting or reception from or within the Building or elsewhere
and shall not place or install any projection, antennas, aerials or similar
devices inside or outside of the Premises or on the Building.
5. Tenant shall not waste electricity, water or air conditioning and shall
cooperate fully with Landlord to insure the most effective operation of the
Building's heating and air conditioning systems and shall refrain from
attempting to adjust any controls other than unlocked room thermostats, if
any, installed for Tenant's use. Tenant shall keep corridor doors closed.
6. Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage, which includes keeping doors locked and other means of
entry to the Premises closed and secured after normal business hours.
<PAGE>
7. No person or contractor not employed by Landlord shall be used to
perform janitorial work, window washing, cleaning, maintenance, repair or
similar work in the Premises without the written consent of Landlord, which
shall not be unreasonably withheld or delayed.
8. In no event shall Tenant bring into the Building inflammables, such as
gasoline, kerosene, naphtha and benzine, or explosives or any other article
of Intrinsically dangerous nature. If, by reason of the failure of Tenant to
comply with the provisions of this subparagraph, any insurance premium for
all or any part of the Building shall at any time be increased, Tenant shall
make immediate payment of the whole of the increased insurance premium,
without waiver of any of any Landlord's other rights at law or in equity for
Tenant's breach of this Lease.
9. Tenant shall comply with all applicable federal, state and municipal
laws, ordinances and regulations, and Building rules and shall not directly
or indirectly make any use of the Premises which may be prohibited by any of
the foregoing or which may be dangerous to persons or property or may
increase the cost of insurance or, require additional insurance coverage.
10. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's reasonable opinion tends to impair the reputation of the
Building, and upon written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
11. The Premises shall not be used for cooking (except normal break room use
such as coffee machines and microwave ovens for warming, but in no event
shall any open flame or electric element cooking take place), lodging,
sleeping or for any immoral or illegal purpose.
12. Tenant and Tenant's servants, employees, agents, visitors and licenses
shall observe faithfully and comply strictly with the foregoing rules and
regulations and such other and further appropriate rules and regulations as
Landlord or Landlord's agent may from time to time adopt. Reasonable notice
of any additional rules and regulations shall be given in such manner as
Landlord may reasonably elect.
13. Unless expressly permitted by the Landlord, no additional locks or
similar devices shall be attached to any door or window and no keys other
than those provided by the Landlord shall be made for any door. If more than
two keys for one lock are desired by the Tenant. The Landlord may provide the
same upon payment by the Tenant. Upon termination of this Lease of the
Tenant's possession, the Tenant shall surrender all keys of the Premises and
shall explain to the Landlord all combination locks on safes, cabinets and
vaults.
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14. Any carpeting cemented down by Tenant shall be installed with a
releasable adhesive. In the event of a violation of the foregoing by Tenant,
Landlord may charge the expense incurred for or in connection with the
removal of such carpeting and adhesive, and any related repairs which may be
necessary as a result thereof, to Tenant.
15. The water and wash closets, drinking fountains and other plumbing
fixtures shall not be used for any purpose other than those for which they
were contructed, and no sweepings, rubbish, rags, coffee grounds or other
substances shall be thrown therein. All damages resulting from any misuse of
the fixtures shall be brone by the Tenant who, or whose servants, employees,
agents, visitors or licensees, shall have caused the same. No person shall
waste water by interfering or tampering with the faucets and otherwise.
16. No electric circuits for any purpose shall be brought into the Premises
without Landlord's permission specifying the manner in which some may be done.
17. No bicycle or other vehicle, and no dog (except seeing eye dogs) or
other animal shall be allowed in offices, halls, corridors, or elsewhere in
the Building.
18. Tenant shall not throw anything out of the door or windows, or down many
passageways or elevator shaft.
19. All loading, unloading, receiving and delivery of goods, supplies or
disposal of garbage or refuse shall be made only though entryways and freight
elevators provided for such purposes and indicated by Landlord. Unless caused
by the negligence or willful misconduct of Landlord, its agents or
employees, Tenant shall be responsible for any damage to the Building or the
property of its employees or others and injuries sustained by any person
whomsoever resulting from the use or moving of such articles in or other of
the Premises, and shall make all repair and improvements required by Landlord
or governmental authorities in connection with the use or moving of such
articles.
20. All safes, equipment or other heavy articles shall be carried in or out
of the Premises only at such time and in such manner as shall be prescribed
in writing by Landlord, and Landlord shall in all cases have the right to
specify the proper position of any such safe equipment or other heavy
article, which shall only be used by Tenant in a manner which will not
interfere with or cause damage to the Premises or the Building in which they
are located, or to the other tenants or occupants of said Building. Tenant
shall be responsible for any damage to the Building or the property of its
employees or others and injuries sustained by any person whomsoever resulting
from the use or moving of such articles in or out of the Premises, and shall
make all repairs and improvements required by Landlord or governmental
authorities in connection with the use or moving of such articles.
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\<PAGE>
21. Canvassing, soliciting, and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
22. Vending machines (other than those in break rooms which are exclusively
for the use of Tenant's employees and guests) shall not be installed without
permission of the Landlord.
23. Wherever in these Building Rules and Regulations the word "Tenant"
occurs, it is understood and agreed that it shall mean Tenant's associates,
agents, employees, clerks, servants, contractors and visitors. Wherever the
word "Landlord" occurs, it is understood and agreed that It shall mean
Landlord's assigns, agents, employees, clerks, servants, contractors and
visitors.
24. Landlord shall have the right to enter upon the Premises upon reasonable
prior notice (except in emergencies) at all reasonable hours for the purpose
of inspecting the same.
25. Landlord shall have the right to enter the Premises at ours convenient
to the Tenant for the purpose of exhibiting the same to prospective tenants
within the one hundred eighty (180) day period prior to the expiration of
this Lease and at any time while an uncured event of default exists under
this Lease.
26. Tenant, its agents, servants, employees, customers, invitees and guests
shall, when using the common parking facilities, if any, in and around the
Building, observe and obey all signs regarding fire lanes and no parking
zones, and when parking always park between the designated lines. Landlord
reserves the right to tow away, at the expense of the owner, any vehicle
which is improperly parked or parked In a no parking zone. All vehicles shall
be parked at the sole risk of the owner, and Landlord assumes no
responsibility for any damage to or loss of vehicles. No vehicles shall be
parked on an overnight basis for any extended period of time.
27. At all times the Property shall be in charge of Landlord's employee in
charge and (a) persons may enter the Property only in accordance with
Landlord's regulations, (b) persons entering or departing from the Property
may be questioned as to their business in the Property, and the right is
reserved to require the use of an Identification card or other access device
and the registering of such persons as to the hour of entry and departure,
nature of visit, and other information deemed necessary for the protection of
the Property, and (c) all entries into and departures from the Property will
take place through such one or more entrances as Landlord shall from time to
time designated provided. however, anything herein to the contrary
notwithstanding. Landlord shall not be liable for any lack of security in
respect to the Property whatsoever. Landlord will normally not enforce
clauses (a), (b) and (c) above from 7:00 a.m. to 6:00 p.m., Monday through
Friday, and from 8:00 a.m. to 2:00 p.m. - on Saturdays, but it reserves the
right to do so or not to do so at any time and from time to
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<PAGE>
time at its sole discretion. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right to prevent access
to the Property during the continuance of the same by closing and locking the
doors or otherwise for the safety of the tenants or the protection of the
Property and the property therein. Landlord shall in no case be liable for
damages for any error or other action taken with regard to the admission to
or exclusion from the Property of any person.
28. All entrance doors to the Premises shall be locked when the Premises are
not in use. All corridor doors shall also be closed during times when the air
conditioning equipment in the Property is operating so as not to dissipate
the effectiveness of the system or place an overload thereon.
29. Landlord reserves the right, upon reasonable prior notice to Tenant, at
any time and from time to time to rescind, alter or waive, in whole or in
part, any of these Rules and Regulations when it is deemed necessary,
desirable, or proper in Landlord's judgment, for its best interest or for the
best interest of the tenants of the Property.
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<PAGE>
EXHIBIT "D"
WORK LETTER
1. Landlord shall construct, or cause to be constructed in the Premises, in
accordance with all applicable laws, rules, regulations and ordinances
(including ADA, as it currently exists and as currently interpreted by local
building code requirements), the improvements (the "Tenant's Work") described
in and shown on the Plans (hereinafter defined). Landlord shall cause a
preliminary layout to be prepared with Tenant's cooperation and for Tenant's
approval. Tenant's failure to approve or disapprove the layout within five
(5) business days of its submission shall be deemed an approval. Upon
approval of the layout, Landlord and Tenant shall cause the architectural
firm of Leo A. Daly to prepare working drawings for the construction of the
standard building items and improvements, adequate in detail to perform the
Tenant's Work and shall have mechanical (sprinkler, air conditioning,
heating, electrical and plumbing) drawings prepared by Landlord's mechanical
engineer covering mechanical elements of the Tenant's Work (together with the
preliminary layout, the drawings are referred to as the "Plans"). The Plans
(and any modifications thereof) shall comply with all governmental standards,
regulations and requirements and shall be subject to the approval of both
Landlord and Tenant. Tenant's failure to approve or disapprove the Plans
within five (5) business days of submission shall be deemed an approval.
Tenant shall not unreasonably withhold its approval of the Plans or any part
thereof. In the event Landlord disapproves the Plans, Tenant shall have five
(5) business days to cause the plans to be modified and resubmitted to
Landlord for Landlord's approval.
2. Any other work desired by Tenant, such as furniture, fixturing and
telecommunications and computer cabling ("Additional Work"), shall be
performed by Tenant at Tenant's sole expense using contractors and pursuant
to planning approved by Landlord, which approval shall not be unreasonable
withheld, conditioned or delayed. Prior to commencing Tenant's Work Landlord
or Landlord's agent shall submit to Tenant a written estimate of the cost of
Tenant's Work. If Tenant shall fail to approve said estimate within three
(3) business days from the receipt thereof, the same shall be deemed approved
in all respects by Tenant and Landlord shall be deemed authorized to proceed
thereon. If Tenant desires any changes in the Plans after having approved the
initial Plans and cost estimate, Tenant shall be required to sign such field
order changes requested by Landlord or Landlord's contractors or agents to
evidence any such change desired by Tenant. Tenant acknowledges that no cost
estimate will be given for any changes in the Plans after the initial cost
estimate has been approved by Tenant, and Tenant shall be responsible for any
and all costs associated with any such change in the Plans.
3. In addition to constructing Tenant's Work as described in this Work
Letter, Landlord will also, at Landlord's expense, provide certain basic
improvements in the
<PAGE>
Premises as described on "EXHIBIT D-1" attached hereto and made a part
hereof, and as described on those certain construction drawings prepared by
the architectural firm of Leo A. Daly, dated March 9, 1999.
4. Landlord, at Landlord's discretion, may permit Tenant and Tenant's
agents to enter the Premises prior to the Commencement Date of the term of
the Lease in order that Tenant may do Additional Work required by Tenant to
make the Premises ready for Tenant's use and occupancy. Provided there have
been no delays caused by Tenant as described in Paragraph 5 below, Landlord
shall use commercially reasonable efforts to allow Tenant access to the
Premises by May 25, 1999. If Landlord permits such entry prior to such
Commencement Date, such permission is conditioned upon Tenant and its agents,
contractors, employees and invitees working in harmony and not interfering
with Landlord and its agents, contractors and employees in doing Tenant's
Work and the Work for other tenants and occupants of the Building. If at any
time such entry shall cause or threaten to cause disharmony or interference,
Landlord shall have the right to withdraw such permission upon 24 hours
notice to Tenant. Tenant agrees that any such entry into and occupation of
the Premises shall be deemed to be under all of the terms, covenants,
conditions and provisions of the Lease except as to the covenant to pay the
rent, and further agrees Landlord shall not be liable in any way for any
injury, loss or damage which may occur to any of Tenant's work and
installations made in the Premises or to properties placed therein prior to
the Commencement Date of the term of the Lease, the same being at Tenant's
sole risk.
5. The Premises shall be deemed substantially completed ("Substantial
Completion") on the date Landlord substantially completes Tenant's Work in
accordance with the Plans and obtains a certificate of occupancy for the
Premises. If Tenant's Substantial Completion of the Premises by Landlord is
delayed due to any act or omission of Tenant or Tenant's representatives,
including any delays by Tenant in the submission of plans, drawings,
specifications or other information or in approving any drawings or estimates
or in giving any authorization or approval or as a result of Tenant's request
for materials that are not available by the time necessary to allow Landlord
to complete Tenant's Work by the targeted Delivery Date, ("Tenant Delay"),
Landlord will be deemed to have achieved Substantial Completion of the
Premises on the date when they would have been ready but for such Tenant
Delay. Within twenty (20) business days following Landlord's notice to Tenant
that Substantial Completion has been achieved, Tenant's authorized
representatives (Chris Foretich and Nicole Limberis) and Landlord's
authorized representative shall conduct a walk-through inspection of the
Premises and shall prepare a list of incomplete or defective items of
Tenant's Work ("Punchlist"). Landlord shall cause the Punchlist items to be
completed or corrected as soon as reasonably possible and, in any event
within thirty (30) days of the Commencement Date.
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with
<PAGE>
EXHIBIT "D-1"
BASE BUILDING CONDITION
1. STRUCTURE: The Building structure will be designed for a maximum
floor live load of 100 lb. per square foot for all tenant areas. Live
structural loads include all Tenant added weight to be supported by the
Building structure including walls, doors, furniture, equipment and people.
2. BUILDING SHELL: The Building shell will include a completely
finished Entrance Lobby front and rear on the ground floor. Each floor shall
include two sets of restrooms with ADA compliant drinking fountains and an
elevator lobby. Perimeter and interior columns are wrapped in sheetrock,
taped, finished, sanded and ready for paint. The perimeter knee wall below
the windowsill is framed and ready for sheetrock. The first floor also
includes a completed exit corridor as required by Life Safety Codes. Finishes
in the corridor include vinyl wall covering, vinyl base and carpet. Each
floor will also have electrical / telephone, janitorial and mechanical rooms,
and four stairwells. The rest room facilities on each floor of the premises
will have granite lavatory tops, vitreous china lavatories, and enclosed water
closets for women plus urinals and enclosed water closets for men. Facilities
are ADA compliant. Ceramic tile will be placed on restroom floors and walls.
The exit stairwells will be finished with vinyl wall covering, rubber stair
treads and landings in order to promote circulation between floors.
3. FLOORS: A concrete floor will be installed with a smooth trowel
finish for installation of glued-down carpet. The floor will be poured level
and finished in accordance with current ACI Standard Specifications 117.
4. LIFE SAFETY SYSTEM: A life safety system will be installed in
accordance with the more stringent of applicable national, state and local
codes or the Americans with Disabilities Act Regulation throughout the
Building, including all corridors and stairwells. It shall consist of fire
sprinklers, fire alarm system, elevator recall, emergency lighting, and exit
signs as required by applicable codes per Building plans and specifications.
The sprinkler system will have an approved water flow alarm connection and
tamper-proof detection device connected to a central station. It will include
all distribution of mains, laterals, and heads per sprinkler subcontractor
approved shop drawings. Sprinkler heads shall be of the "semi-recessed" type.
5. DEMISING WALLS: Slab-to-slab sheetrock on each side of the
demising/party walls with sound batt insulation from finished floor to deck
above. Minimum fire rating: 1 hour. Each wall shall be taped, spackled,
sanded, prime-painted and ready to receive finish material. Demising wall
cost is shared between tenants. Corridor walls are as described in and will
be installed as described in the Building Plans and Specifications. In the
case of demising walls between tenants, one-half of the wall is a tenant
cost.
<PAGE>
6. CORRIDOR WALLS: Fire rated public exit corridors will be installed
where required by local codes. Public side of the corridor walls will receive
vinyl wall covering. The tenant side of the corridor will be taped, finished
and ready for paint. Painting of the tenant side of corridors is a tenant
cost. Interior tenant partitions shall consist of 3 5/8" metal studs with one
layer of 5/8" gypsum board on each side, taped, floated, sanded and ready for
paint. Paint shall consist of two coats of flat latex paint. Cost of corridor
not shown on Building Plans and Specifications and necessary for tenant's
layout, is a tenant cost. Interior tenant walls are a tenant cost.
7. CEILING GRID AND TILE: Tenant areas will have a 2x2 ceiling grid
in place with the ceiling tile stacked on the floor. Ceiling tile shall be
fine-textured and non-directional with a reveal edge, equivalent to
Armstrong-Minatone and will have an average noise reduction coefficient of
.55. Tile will be stacked boxes in the tenant areas for installation as a
tenant cost.
8. DOORS: Tenant Entry doors are solid core mahogany doors 3' x 8'10"
tall. Interior doors are solid core, mahogany veneer with stained finish,
3' x 8'4". Frames: Knock down steel frames. Hardware: Standard door hardware
is Schlage mortised latchsets with bright chrome finish. Each door shall be
hung on two pair of hinges with similar finish. Entry and interior tenant
doors are a tenant cost.
9. CARPET: Carpeting will be installed in elevator lobbies and in
common corridors shown on base Building plans. Carpet in above areas will be
direct, glue down and have a weight of 34 ounce per square yard. Vinyl base
equal to Roppe will be installed in all carpeted areas. Building standard
carpet in tenant areas shall be purchased and installed at an allowance of
$12.00 per square yard as a tenant cost.
10. WINDOW TREATMENT: Provide and install window treatment on the
exterior windows. Landlord will supply thin-lined, 1" horizontal blinds equal
to Bali-Graber quality.
11. LIGHT FIXTURES: Building standard lighting to provide a minimum of
50 foot candles maintained at desk level throughout the Premises. Modern
fluorescent lighting fixtures, based on one fixture per 80 usable square
feet. The light fixtures will be 2' by 4', three lamp fixtures. Recessed
parabolic fixtures will be provided which contain eight cell parabolic lens,
and minimum three inch baffle depth. Lamps are to be of the T-8, 3500 degree
Kelvin energy saving type. Ballasts shall also be energy efficient,
electronic type. Connecting whips are attached to the fixtures. These
fixtures with attachment whips are stacked on the floor as part of the base
Building. Installation of 2 x 4 fluorescent fixtures is a tenant cost.
12. TELEPHONE SERVICE: Telephone service will be provided by the local
utility and brought to tenant's telephone room. Base Building will include
necessary conduit / sleeves to distribute telephone service between floors.
Sleeves will be provided for the installation of fiber optic cable to the
main Building telephone room. Phone line construction within the tenant space
is a tenant cost.
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<PAGE>
13. PLUMBING: All sinks and special plumbing is a tenant cost.
14. FIRE AND EMERGENCY PROTECTION: Installation of all emergency
lighting systems, exit signage and fire extinguishers within a tenant's space
as required by local, state, and federal codes and ordinances is a tenant
cost. Minor relocation of base Building sprinklers may become necessary based
upon tenant layout and would be a tenant cost.
15. HVAC: The Building is conditioned utilizing a Trane "Self
Contained, Water Cooled, Packaged System" consisting of two units per floor,
perimeter slot diffusers fed by fan powered units with strip heat and
interior zones served by VAV boxes are installed in the Building. All
interior low-pressure supplies downstream of VAV's and special returns are
tenant costs. There are 33 zones per floor at approximately 1,250 square feet
per zone. Additional zones and/or special control areas may be added as a
tenant cost. The location of interior thermostats and diffusers will be
configured according to Tenant's final space plan and as part of tenant's
cost. The testing and balancing of the tenant's Premises and additional zones
for conference rooms or special computer rooms are tenant costs.
16. MILLWORK: All millwork is a tenant cost.
17. DESIGN: All design work as well as the cost to prepare partition,
electrical, finish, reflected ceiling, mechanical and plumbing plans is a
tenant cost.
18. INTERIOR GLASS: All interior glass is a tenant cost.
19. SECURITY: An electronically controlled card-access security system
is installed in the Building. A card-access reader is installed on each entry
door to the Building. Each card can be separately coded for individual
employee access, and the system can be configured for several authorized
access levels. If the Tenant selects the same manufacturer to provide an
access-card system for its Premises, one card can be programmed to gain
access to the Building as well as to the Premises. Any security system
designed for leased space is a tenant cost. A closed-circuit surveillance
camera system is installed in the Building. Cameras are installed at several
locations on the first floor and at both entries to the covered parking deck.
The monitor for this system is located at the security guard station in the
main Building lobby. Security guard coverage will be after business hours,
weeknights and on weekends. Guard hours are subject to change. Tenants and
visitors entering and exiting the building after hours will be asked to sign
a guest registry.
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<PAGE>
EXHIBIT "E"
SPECIAL STIPULATIONS
1. RIGHT TO AUDIT. Within three (3) months after Tenant's receipt of
the statement of Excess Operating Expenses and Tenant's Prorata Share of
Excess Operating Expenses described in Section 4.5 hereof, Tenant and its
representatives may audit Landlord's books and records pertaining to the
certified statement at Landlord's offices on a mutually convenient date
during normal business hours. If such an audit reveals that any items of
Operating Expenses have been incorrectly included in the statement, Tenant may
also audit the statements for the preceding two (2) years, but only with
respect to the items that were incorrectly included in the statement first
audited. If the parties are in agreement that any items of Operating Expense
were improperly included in a statement, or that Tenant's Prorata Share of
Excess Operating Expenses was incorrectly calculated, then within thirty (30)
days Landlord shall refund the appropriate amount to Tenant (or, of Landlord
fails to do so, then Tenant may offset same against Rent due hereunder). If
any examination or audit by Tenant of Landlord's books and records
demonstrates an overstatement of Tenant's Prorata Share of Excess Operating
Expenses in excess of 5% of the correct amount payable by Tenant for the
year, Landlord shall also pay Tenant the reasonable costs incurred by Tenant
in connection with said audit.
<PAGE>
Exhibit 10.15
MASTER NOTE AND SECURITY AGREEMENT
Wilton, Connecticut
Date: September 10, 1999
1. MASTER AGREEMENT.
(a) This Agreement sets forth the basic terms and conditions upon which
LEASING TECHNOLOGIES INTERNATIONAL, INC. (together with its successors and
assigns, collectively, the "LENDER"), shall, lend to Primis, Inc. a corporation
organized under the laws of the State of Georgia (the "BORROWER"), and the
Borrower shall borrow from the Lender, funds to purchase (or refinance the
purchase of) the items of "EQUIPMENT" specified (and as defined in) one or more
loan schedules hereto to be entered into from time to time (each, a "LOAN
SCHEDULE"). Each Loan Schedule shall reference this Master Note and Security
Agreement (this "AGREEMENT") and shall be deemed to incorporate therein all of
the terms and conditions hereof, unless and to the extent any provisions hereof
are expressly excluded or modified therein, and shall contain such additional
terms as the Lender and the Borrower shall, in their sole discretion, agree
upon. Each Loan Schedule, together with the terms and conditions of this
Agreement so incorporated therein, shall constitute a separate promissory note
that evidences a separate loan with respect to the Equipment specified in such
Loan Schedule. Each Loan Schedule may be assigned by the Lender and/or
reassigned by any assignee(s) thereof separate and apart from any other Loan
Schedule(s) hereunder. With respect to each Loan Schedule, the Lender or its
respective assignee(s) shall have all of the rights of the "Lender" thereunder
and with respect to the Equipment and other Collateral covered thereby, and such
rights shall be separately exercisable by the Lender or such assignee(s), as the
case may be, collectively with all of the other Loan Schedules then held by the
Lender or such assignee(s), but exclusively and independently of the rights of
the Lender or such assignee(s) with respect to any other Loan Schedule(s) not
then held by the Lender or such assignee(s).
(b) The term "LOAN" as used in this Agreement shall mean any and all of
the liabilities and obligations of the Borrower under a loan evidenced by a
particular Loan Schedule, which is entered into by the Lender and the Borrower
under this Agreement with respect to the Equipment specified in such Loan
Schedule. Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings ascribed to them in the relevant Loan Schedule.
2. TERMS OF PAYMENT.
(a) FOR VALUE RECEIVED, the Borrower hereby promises to pay to the
order of the Lender, the "PRINCIPAL SUM" set forth in each Loan Schedule, in the
"TOTAL NUMBER OF MONTHLY INSTALLMENTS" set forth in such Loan Schedule,
consisting of the "NUMBER OF CONSECUTIVE MONTHLY INSTALLMENTS" of principal and
interest set forth in such Loan Schedule, each payable in advance, and the
"FINAL PAYMENT" of principal and interest set forth in such Loan Schedule,
together with all other sums then owing thereunder, payable on the "FINAL
PAYMENT DATE" set forth in such Loan Schedule; the first such consecutive
monthly installment shall be in the "FIRST MONTHLY INSTALLMENT AMOUNT" set forth
in such Loan Schedule and shall be due and payable on the "FIRST MONTHLY
INSTALLMENT DATE" set forth in such Loan Schedule; the remaining consecutive
monthly installments shall each be in the "REMAINING CONSECUTIVE MONTHLY
INSTALLMENT AMOUNT" set forth in such Loan Schedule and shall thereafter be due
and payable on the same day of each month in each year as such First Monthly
Installment Date and ending on the "LAST CONSECUTIVE MONTHLY INSTALLMENT DATE"
set forth in such Loan Schedule; and the
<PAGE>
Final Payment and shall be due and payable on the Final Payment Date, except as
otherwise expressly provided in SECTIONS 17(b), 17(c), 17(d) OR 18(b) hereof.
(b) The installments described in SECTIONS 2(a) AND 17(a) hereof
include interest on the unpaid principal amount of the relevant Loan from time
to time outstanding, computed on the basis of a 360-day year at the "ANNUAL
INTEREST RATE" set forth in the relevant Loan Schedule.
(c) The proceeds of the Loan evidenced by each Loan Schedule shall be
used solely to purchase (or refinance the purchase of) the Equipment described
in such Loan Schedule.
(d) The Borrower shall have the right to prepay any Loan upon payment
of the present value of all Monthly Installments, and the Final Payment,
calculated by discounting at the rate of six percent (6%) per annum, compounded
monthly, or upon the payment of such other amount as may be set forth in the
applicable Loan Schedule.
(e) Whenever any installment or other amount payable to the Lender by
the Borrower hereunder is not paid when due, the Borrower agrees to pay to the
Lender, on demand, as liquidated damages and not as a penalty: (i) a late charge
on such overdue amounts calculated at the rate of one and a half (1 1/2) percent
a month, or the maximum amount permitted under applicable law, whichever is
less, from the date such payment is due until the date such payment is made in
full to the Lender; and (ii) in addition, with respect to overdue installment
payments only, an administrative fee equal to five cents ($.05) for each one
dollar ($1.00) of such delayed installment payment overdue for more than twenty
(20) days, or the maximum amount permitted under applicable law, whichever is
less. The Borrower agrees to also reimburse the Lender on demand for any and all
reasonable costs and expenses (including the Lender's reasonable attorneys' fees
and disbursements) arising out of or caused by this Agreement or any breach by
the Borrower hereunder, including (without limitation) any enforcement by the
Lender of its rights and remedies hereunder.
(f) All payments by the Borrower on account of principal, interest or
fees hereunder shall be made in lawful money of the United States of America, in
immediately available funds.
3. GRANT OF SECURITY INTEREST. The Borrower hereby pledges, assigns and
grants to the Lender a continuing first priority security interest in and lien
on the following properties, assets and rights (collectively, the "COLLATERAL"):
(a) the Equipment as set forth (and defined) in each Loan Schedule hereunder,
together with all warranties thereon and all additions, improvements,
accessions, replacements and substitutions thereto and therefor, whether now
owned or hereafter acquired, and all proceeds thereof; (b) the proceeds of any
insurance payable to the Borrower with respect to the Equipment; and (c) all of
the "OTHER PERSONAL PROPERTY," if any, described in any Loan Schedule hereunder
and all proceeds thereof. In addition, all other property of the Borrower now or
hereafter pledged to or held by the Lender to secure any Obligations (as
hereinafter defined), whether under this Agreement, any Loan Schedule or
otherwise, and all property now or hereafter leased by the Lender to the
Borrower, shall also serve as collateral security for the full payment and
performance of the Obligations.
4. OBLIGATIONS SECURED. The Collateral hereunder constitutes and will constitute
continuing security for the full payment, performance and observance by the
Borrower of the following obligations (collectively, the "OBLIGATIONS"):
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<PAGE>
(a) "LIABILITIES," which shall mean all of the indebtedness
evidenced by this Agreement and each Loan Schedule hereunder together with any
Lease Agreement(s) between Lender and Borrower (and any Schedules thereunder),
and all liabilities and obligations of any kind of the Borrower to the Lender
arising out of or relating thereto, whether (i) for the Lender's own account,
(ii) acquired directly or indirectly by the Lender from the Borrower, (iii)
absolute or contingent, joint or several, secured or unsecured, liquidated or
unliquidated, due or not due, contractual or tortious, now existing or hereafter
arising, or (iv) incurred by the Borrower as principal, surety, endorser,
guarantor, borrower, lessee or otherwise, and including (without limitation) all
reasonable expenses and attorneys' fees incurred by the Lender in connection
with any such indebtedness, liabilities or obligations or any of the Collateral
(including any sale or other disposition of the Collateral);
(b) the prompt payment, when due, of all present and future
obligations and indebtedness of the Borrower to the Lender under this Agreement
and/or any Loan Schedule, as the same may hereafter be amended or modified, and
under any other agreement or instrument executed by the Borrower in favor of the
Lender, whether direct or indirect, absolute or contingent; and
(c) the strict performance and observance by the Borrower of
all warranties, covenants and agreements contained in this Agreement or any Loan
Schedule and any instrument or other agreement delivered by the Borrower to the
Lender.
5. BORROWER SELECTED EQUIPMENT; WARRANTY DISCLAIMER. THE BORROWER
REPRESENTS AND ACKNOWLEDGES THAT IT HAS SELECTED BOTH THE EQUIPMENT AND THE
VENDOR OF THE EQUIPMENT (THE "VENDOR") AND THAT THE EQUIPMENT SUITS THE
BORROWER'S PARTICULAR NEEDS. THE LENDER MAKES NO REPRESENTATIONS OR WARRANTIES
OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, AS TO THE
EQUIPMENT OR ANY OTHER MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, TITLE TO
THE EQUIPMENT OR THE EQUIPMENT'S CONDITION, THE SUITABILITY OF THE EQUIPMENT,
ITS DURABILITY, CAPACITY, OPERATION, PERFORMANCE, DESIGN, MATERIALS, WORKMANSHIP
AND/OR QUALITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. THE
BORROWER AGREES TO LOOK SOLELY TO THE MANUFACTURER, VENDOR OR CARRIER OF THE
EQUIPMENT FOR ANY CLAIM ARISING FROM ANY DEFECT, BREACH OF WARRANTY, FAILURE OR
DELAY IN DELIVERY, MISDELIVERY OR INABILITY TO USE THE EQUIPMENT FOR ANY REASON
WHATSOEVER, AND THE BORROWER'S OBLIGATIONS TO THE LENDER HEREUNDER SHALL NOT IN
ANY MANNER BE AFFECTED THEREBY. THE LENDER SHALL NOT BE LIABLE FOR ANY LOSS,
DAMAGE, INJURY OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF
EQUIPMENT, THE USE, MAINTENANCE, REPAIR, DEFECT OR SERVICING THEREOF, BY ANY
DELAY OR FAILURE TO PROVIDE SAME, BY ANY INTERRUPTION OF SERVICE OR LOSS OF
SERVICE OR LOSS OF USE, OR FAILURE TO PROVIDE SAME, OR FOR ANY LOSS OF BUSINESS
HOWEVER CAUSED. NO REPRESENTATION OR WARRANTY AS TO THE EQUIPMENT OR ANY OTHER
MATTER BY THE VENDOR OF THE EQUIPMENT SHALL BE BINDING ON THE LENDER, NOR SHALL
THE BREACH OF SUCH RELIEVE THE BORROWER OF, OR IN ANY WAY AFFECT, ANY OF THE
BORROWER'S OBLIGATIONS TO THE LENDER AS SET FORTH HEREIN.
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<PAGE>
6. REPRESENTATIONS AND WARRANTIES. The Borrower represents, warrants,
covenants and agrees that:
(a) The Borrower is a corporation duly organized, existing and
in good standing under the laws of its state of incorporation, is duly qualified
and in good standing under the laws of each jurisdiction where the character of
its properties or the transaction of its business makes such qualification
necessary and has full power to own its properties and assets and to carry on
its business as now being conducted.
(b) The Borrower has full power and authority to execute,
deliver and perform this Agreement and each Loan Schedule, which has been duly
authorized by all necessary and proper corporate action. No consent of
stockholders, if any, or of any public authority is required as a condition to
the validity of this Agreement and each Loan Schedule. The making and
performance by the Borrower of this Agreement and each Loan Schedule will not
violate any provision of law and will not conflict with or result in a breach of
any order, writ, injunction or decree of any court or government
instrumentality, or its charter or by-laws or create a default under any
agreement, note or indenture to which it is a party or by which it is bound or
to which any of its property is subject, or result in the imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of its properties
or assets, except for the liens created under this Agreement or any Loan
Schedule.
(c) This Agreement and each Loan Schedule have been duly
executed and delivered, and constitutes the valid and legally binding obligation
of the Borrower, enforceable in accordance with its terms.
(d) The Borrower has good title to and is the lawful owner of
the Collateral free from all claims, liens, encumbrances, charges or security
interests whatsoever, except for the liens granted by this Note. For purposes of
this Agreement, Permitted Liens shall mean the liens granted by this Agreement
or any Loan Schedule.
(e) The Collateral is and will be kept at the location(s) set
forth in the relevant Loan Schedule hereto.
(f) The provisions of this Agreement and each Loan Schedule
create a valid and perfected first priority security interest in the Collateral,
enforceable in accordance with their respective terms, subject to no prior or
equal lien, charge, encumbrance or security interest, upon the filing of
appropriate Uniform Commercial Code financing statements or equivalent
instruments, and notation and issuance of appropriate certificates of title,
with respect to the Collateral. Uniform Commercial Code financing statements or
equivalent instruments and certificates of title with the Lender's security
interest duly noted thereon, with respect to the Collateral in a form provided
by Lender, have been executed by the Borrower and delivered to the Lender for
filing at the appropriate offices.
(g) There are no judgments outstanding against the Borrower
and there are no actions or proceedings before any court or administrative
agency pending or, to the knowledge of the Borrower, threatened against the
Borrower which, if determined adversely to the Borrower, would affect the
Collateral.
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(h) The Borrower's principal office and place of business
where it maintains its records concerning the Collateral is at its address
stated on the relevant Loan Schedule. The Borrower has no other office or place
of business, except as indicated on the relevant Loan Schedule.
7. INSURANCE. The Borrower shall keep and maintain the Equipment and
other Collateral insured with all risk insurance, for not less than the
replacement cost thereof. The Borrower shall also provide, for the benefit of
the Lender, public liability insurance (both personal injury and property
damage) covering the Equipment and other Collateral. The amount of any such
insurance shall be sufficient so that neither the Borrower nor the Lender will
be considered a co-insurer. Such insurance shall be in form, issued by insurance
companies and in amounts reasonably satisfactory to the Lender. Each insurer
shall agree, by endorsement upon the policy or policies issued by it or by
independent instrument furnished to the Lender, that such insurer give at least
ten (10) days' prior written notice of the effective date of any alteration or
cancellation of such policy and that coverage under such policy shall not be
affected by any default, misrepresentation or other breach by the Borrower or
the Lender under this Agreement or any Loan Schedule or such policy. The Lender
shall have the option but not the obligation, to pay the premiums to continue
any such canceled insurance policy in effect or to obtain like coverage. The
Borrower agrees that any payment made by the Lender pursuant to the foregoing
authorization (and interest thereon at the rate of one and a half (1 1/2)
percent a month, or if such rate shall exceed the maximum rate allowed by law,
then, at such maximum rate from the date of such payment) shall become part of
the Obligations and be secured by the Collateral. The proceeds of all insurance
payable as a result of loss or damage to any item of the Equipment, up to the
amount of the Obligations pertaining to such Equipment may be applied by Lender
to satisfy such Obligations. The Borrower hereby irrevocably appoints the Lender
as the Borrower's attorney-in-fact to make claim for, receive payments of and
execute and endorse all documents, checks or drafts received in payment for loss
or damage under any such insurance policy. In the event that the amount of such
payments exceeds the amount of the Obligations pertaining to such Equipment or
this Agreement, Lender shall remit such excess amount to Borrower within ten
(10) business days after receipt thereof. In all events, the Borrower shall be
liable for any loss, damage, expense or costs suffered or incurred by the Lender
relating to or in any manner pertaining to this Agreement or any Loan Schedule,
the Collateral or the use or operation of the Collateral, provided that Borrower
shall not be liable for any loss, damage, expense or cost solely caused by
Lender's gross negligence or willful misconduct.
8. MAINTENANCE; LOSS OF COLLATERAL. The Borrower acknowledges that, in
making its decision to extend the credit evidenced by this Agreement and each
Loan Schedule to the Borrower, the Lender is depending heavily upon the
realizable value of the Collateral at all times during the term of this
Agreement and each Loan Schedule, and the Borrower hereby represents and
warrants to the Lender that the purchase price paid by the Borrower for the
Collateral represents the retail fair market value thereof. Accordingly, the
Borrower agrees at all times to maintain the Collateral in good operating
condition, repair and appearance, and protect the same from deterioration, other
than normal wear and tear, keep the Collateral in its exclusive possession and
control at the location specified in the relevant Loan Schedule and use the
Collateral only in the regular course of its business within its normal
capacity, without abuse and in a manner contemplated by the Vendor, shall comply
with all laws, ordinances, regulations, requirements and rules with respect to
the use, maintenance and operation of the Collateral, shall not make any
modification, alteration or addition to the Collateral (other than normal
operating accessories or controls which, when added to the Collateral, shall not
impair the operation or reduce the value of the
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Collateral) without the prior written consent of the Lender, and all
modifications, alterations, accessories, parts, replacements and additions to
the Collateral which affect the value or operation of the Collateral shall
become part of the Collateral and be included within the term "Collateral" as
used herein. For the purpose of assuring the Lender that the Collateral will be
properly serviced, the Borrower agrees, in the event that the Lender so
requests, to cause the Collateral to be maintained by the Vendor (or another
maintenance organization approved by the Lender in writing) pursuant to Vendor's
standard preventive maintenance contract or comparable maintenance contract, in
each case covering at least prime shift maintenance of each item of Collateral.
The Borrower hereby assumes the entire risk of loss, damage or destruction of
the Collateral from any and every cause whatsoever. The Borrower agrees that any
such loss, damage or destruction of the Collateral shall not relieve the
Borrower of its obligations hereunder, which obligations shall remain absolute,
unconditional and not subject to any claim, defense, set-off, counterclaim,
reduction or abatement of any kind whatsoever; provided, however, that the
foregoing shall not limit the right of the Borrower to bring a separate claim
against Lender for breach of this Agreement or any other reason. In the event of
any loss, damage or destruction of any item of Collateral, the Borrower shall
give the Lender immediate written notice thereof and shall, at the Borrower's
sole expense (except to the extent of any proceeds of insurance maintained by
the Borrower which shall have been received by the Borrower as a result of such
loss, damage or destruction) and at the Lender's sole option, either (a) repair
such item, returning it to its previous condition, unless damaged beyond repair,
or (b) replace such item with a like item acceptable to the Lender, in good
condition and of equivalent value, which shall be included within the term
"Collateral" as used herein.
9. BOOKS AND RECORDS. The Borrower shall give the Lender full and free
access to the Collateral at reasonable times during the normal business hours of
Borrower and with reasonable notice and to all books, correspondence and records
of the Borrower with respect thereto, permit the Lender and its representatives
to examine the same and to make copies and extracts therefrom, all at the
Borrower's expense. Notice shall not be required at such time Borrower is in
default under this Agreement.
10. TAXES AND ENCUMBRANCES. The Borrower shall promptly pay and
discharge or cause to be paid and discharged all its obligations and
liabilities, including (without limitation) all taxes, assessments and
governmental charges upon it and its income or properties, when due unless and
to the extent only that the same shall be contested in good faith and by
appropriate proceedings and then only to the extent that a bond is filed in
cases where the filing of a bond is necessary to avoid the creation of a lien
against any of the Collateral or any of its other assets. Other than Permitted
Liens, the Borrower covenants and agrees to keep the Collateral free and clear
of all levies, liens, claims, security interests and encumbrances (including,
without limitation, any lease or sublease thereof) and to promptly pay all
charges, taxes and fees which may now or hereafter be imposed upon the
ownership, sale, purchase, possession or use of the Collateral. In addition, the
Borrower shall timely file all tax returns required solely in connection with
the use, operation or possession of the Collateral, and shall promptly furnish
copies thereof to the Lender.
11. CORPORATE EXISTENCE. The Borrower shall do, or cause to be done,
all things necessary to preserve and keep in full force and effect its corporate
existence and all franchises, rights and privileges necessary for the proper
conduct of its business, and continue to engage in the business of the same
similar or related type as now conducted by it.
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12. NOTICE OF EVENTS OF DEFAULT. The Borrower shall give notice in
writing promptly to the Lender of the occurrence of any event which constitutes,
or which with notice or lapse of time or both would constitute, an Event of
Default (as hereinafter defined).
13. DELIVERY OF FINANCIAL DATA.
(a) So long as any obligations remain unsatisfied under this Agreement,
Borrower agrees to deliver to Lender or any assignee and any successor assignee
a copy of Borrower's monthly unaudited financial statements, and the annual
financial budget for the upcoming year as soon as such monthly unaudited
financial statements and annual financial budgets are available and as it may be
adjusted during the year. Borrower shall also furnish, as soon as available and
in any event within one-hundred twenty (120) days after the last day of
Borrower's fiscal year, a copy of Borrower's annual audited statements and
consolidating and consolidated balance sheet, if any, as of the end of such
fiscal year, accompanied by the opinion of Price Waterhouse Coopers or another
independent certified public accounting firm of recognized standing. The
Borrower shall furnish such other financial information as may be reasonably
requested by Lender, including but not limited to any material changes in the
financial budgets or projected financial statements as approved by the Board of
Directors and/or furnished to Shareholders.
(b) The Borrower acknowledges and agrees that all credit applications,
statements, financial reports and other information prepared by (including any
information prepared by the Borrower's CPA's, as hereafter defined) and
submitted by it to the Lender are material inducements to the execution by the
Lender of this Agreement and each Loan Schedule and the financing provided
hereunder. The Borrower warrants that all such credit applications, statements,
reports and other information are and all information hereafter prepared by
(including any information prepared by the Borrower's CPA's, as hereafter
defined) and furnished by the Borrower to the Lender will be, to the best of
Borrower's knowledge true and correct in all material respects as of the date
submitted, that no such credit application, statement, report or other
information contains any material untrue or misleading information or omits any
material fact necessary to make such application, statement, report or other
information not misleading and that the Borrower is in no way affiliated with
any Vendor of any of the Equipment. The Borrower agrees, upon request by Lender,
to obtain for the Lender such estoppel certificates, landlord's waivers or other
similar documents as the Lender may reasonably request. Landlord Waivers are
only required for leasehold improvements including but not limited to fixtures.
14. PRINCIPAL OFFICE. The Borrower shall not change its principal
office or the place where it maintains its records pertaining to the Collateral,
as specified in SECTIONS 6(e) AND 6(h) hereof, without giving the Lender at
least thirty (30) days' prior written notice thereof.
15. LOCATION OF COLLATERAL; INSPECTION; LABELS. The Borrower shall not
remove or permit the removal of the Collateral from its present location as set
forth on the relevant Loan Schedule, without the prior written consent of the
Lender which consent shall not be unreasonably withheld or delayed. Upon
reasonable notice, the Lender and its representatives shall have the right to
enter the Borrower's premises from time to time during business hours to
inspect, observe or, after the occurrence and during the continuance of an Event
of Default, remove the Collateral, and to confirm its existence, condition and
proper maintenance or otherwise protect the Lender's interest therein. The
Borrower shall comply with all laws, ordinances, regulations or requirements of
any governmental authority, official, board or department relating to the
Collateral's installation, possession, use or maintenance. The Collateral shall
remain personal property regardless of its affixation to any realty. Upon the
Lender's request, the Borrower shall
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affix and keep in a prominent place on each item of Collateral labels, plates or
other markings indicating the Lender's security interest in the Collateral.
16. OPTION TO PERFORM OBLIGATIONS OF THE BORROWER IN RESPECT OF THE
COLLATERAL. If the Borrower fails or refuses, after any applicable grace period
and notice to the Borrower, to make any payment, perform any covenant or
obligation, or take any other action which the Borrower is obligated hereunder
to perform, observe, take or do hereunder, then the Lender may, at its option,
without releasing the Borrower from any obligation or covenant hereof, perform,
observe, take or do the same in such manner and to such extent as the Lender may
deem necessary or appropriate to protect any of the Collateral and its rights
hereunder, including (without limitation) obtaining insurance and the payment of
any taxes and the payment of any sums necessary to discharge liens or security
interests at any time levied or placed on the Collateral. The Borrower agrees
that any payment or expense incurred by the Lender pursuant to the foregoing
authorization (and interest thereon at the rate of one and a half (1 1/2)
percent a month, or if such rate shall exceed the maximum rate allowed by law,
then, at such maximum rate from the date of incurring of any such expense is
incurred) shall become part of the Obligations and be secured by the Collateral
set forth in this Agreement and each Loan Schedule.
17. FINAL PAYMENT ALTERNATIVES (a) Notwithstanding anything to the
contrary set forth in SECTION 2(a) of this Agreement, if at least 90 days prior
to the Final Payment Date under a Loan Schedule, the Borrower gives the Lender
written notice requesting that the Lender extend and finance the repayment of
the relevant Final Payment over an additional 12-month term commencing on such
Final Payment Date (the "REFINANCING REQUEST"), and provided that no Event of
Default (as hereinafter defined) and no event or circumstance that, with the
giving of notice or the passage of time, or both, would constitute an Event of
Default, including (without limitation) the nonpayment or nonperformance of any
outstanding liability or obligation under this Agreement (each, a "DEFAULT"),
shall have occurred and be continuing as of (i) the date such Refinancing
Request is given, or (ii) the relevant Final Payment Date, THEN such Final
Payment shall not be due and payable on such Final Payment Date but instead
shall be payable in 12 equal monthly installments of principal and interest,
each in the "REFINANCED MONTHLY INSTALLMENT AMOUNT" set forth in the relevant
Loan Schedule and due and payable on the same day of each month as such Final
Payment Date, commencing on such Final Payment Date.
(b) Notwithstanding anything to the contrary set forth in SECTION 2(a)
of this Agreement, so long as no Default or Event of Default has occurred and is
continuing on the Final Payment Date under a Loan Schedule and if, at least 90
days prior to the relevant Final Payment Date, the Borrower notifies the Lender
in writing (the "RETURN OPTION EXERCISE NOTICE") of the Borrower's desire to
transfer title to the related Equipment to the Lender in partial satisfaction of
the Borrower's obligation to pay the relevant Final Payment (the "RETURN
OPTION"), the Borrower shall receive a credit in an amount equal to the "RETURN
OPTION CREDIT" set forth in such Loan Schedule against such Final Payment by
unconditionally and irrevocably transferring and assigning to the Lender or its
designee on such Final Payment Date all of the Borrower's right, title and
interest in and to the related Equipment; PROVIDED, HOWEVER, that the Borrower
pays the entire remaining "RETURN OPTION BALANCE AMOUNT" set forth in such Loan
Schedule to the Lender on the relevant Final Payment Date. If a Return Option
Exercise Notice is duly given as provided above, the relevant Return Option
shall be exercised by the Borrower delivering each of the following to the
Lender, at the Borrower's sole cost and expense, on or before the relevant Final
Payment Date: (i) a duly executed bill of sale in favor of the Lender with
respect to all of the Equipment covered by the relevant Loan Schedule, in form
and substance satisfactory to the Lender and its counsel; (ii) payment
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in full of the relevant Return Option Balance Amount; and (iii) the relevant
Equipment, at a location within the continental Untied States designated by the
Lender, in the same operating order, repair, condition and appearance as on the
date hereof, reasonable wear and tear only excepted, and with all engineering
and safety changes prescribed by the manufacturer or approved maintenance
organization to accept such Equipment under contract maintenance at its then
standard rates. The Borrower shall promptly pay any and all costs of repair,
replacement, deinstallation, packing, shipping and delivery of the relevant
Equipment to the Lender upon the Borrower's exercise of such Return Option. If
the Borrower duly satisfies all of the terms and conditions of this SECTION
17(b), the Borrower shall have fully satisfied all of its obligations under the
related Loan Schedule.
(c) Notwithstanding anything to the contrary set forth in SECTION 2(a)
of this Agreement, if the Borrower believes that the "Fair Market Value" (as
hereinafter defined) of the Equipment covered by a Loan Schedule as of the
relevant Final Payment Date will be less than the amount of the Final Payment
under such Loan Schedule, the Borrower may notify the Lender in writing at least
90 days prior to such Final Payment Date of the Borrower's election to have the
amount of such Final Payment adjusted (the "FINAL PAYMENT ADJUSTMENT OPTION
NOTICE") to an amount equal to the greater of (i) Fair Market Value of the
relevant Equipment as of such Final Payment Date, or (ii) the "ADJUSTED FINAL
PAYMENT" set forth in the such Loan Schedule. If such Final Payment Adjustment
Option Notice is so given, and so long as no Default or Event of Default has
occurred and is continuing as of (A) the date such Final Payment Adjustment
Option Notice is given, or (B) the relevant Final Payment Date, THEN unless the
amount of such Adjusted Final Payment is greater than the amount of such Final
Payment, such Final Payment shall automatically be deemed changed to such
Adjusted Final Payment and the Borrower irrevocably and unconditionally agrees
to pay such Adjusted Final Payment on the relevant Final Payment Date in lieu of
such Final Payment. "FAIR MARKET VALUE" of any Equipment shall mean the amount
as of the relevant Final Payment Date that would obtain for such Equipment in a
retail arms'-length transaction between an informed and willing buyer in
possession under no compulsion to buy and an informed and willing seller under
no compulsion to sell. The Lender shall initially determine the Fair Market
Value of any Equipment by notifying the Borrower thereof in writing at least 75
days prior to the relevant Final Payment Date. If the Borrower does not accept
such determination of Fair Market Value by the Lender, the Borrower shall notify
the Lender of such non-acceptance in writing not less than 60 days prior to such
Final Payment Date. If the Borrower does not so notify the Lender of its
non-acceptance of the Lender's determination within such period, then the Fair
Market Value of such Equipment as initially determined by the Lender shall be
conclusive. If the Borrower does so notify the Lender of such non-acceptance
within such period, then the Fair Market Value of such Equipment shall
conclusively be established not less than 30 days prior to the relevant Final
Payment Date by an independent appraiser selected by the Lender and reasonably
acceptable to the Borrower. All costs for such appraiser shall be paid by the
Borrower within 10 days after its receipt of an invoice therefor.
18. EVENTS OF DEFAULT; REMEDIES. (a) If any one of the following events
(each, an "EVENT OF DEFAULT") shall occur, then to the extent permitted by
applicable law, the Lender shall have the right to exercise any one or more of
the remedies set forth in SECTION 18(b) hereof: (i) the Borrower fails to make
any payment when due hereunder and such failure continues for a period of five
days; or (ii) Borrower fails to observe or perform (A) any other agreement or
obligation to be observed or performed hereunder or under any Loan Schedule or
other agreement, document or instrument delivered to the Lender by or on behalf
of an Obligor or otherwise relating to any of the Obligations (collectively, the
"OTHER DOCUMENTS") and unless expressly set forth in this Agreement or any Loan
Schedule, such failure
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continues uncured for a period of thirty (30) days following notice by Lender,
or (B) any other obligation of Borrower to the Lender and the failure to observe
or perform shall continue uncured for thirty (30) days following notice by
Lender; or (iii) any representation or warranty made by or on behalf of Borrower
in this Agreement or any Loan Schedule or in any of the Other Documents shall at
any time prove to have been incorrect or untrue in any material respect when
made; or (iv) the Borrower's failure to obtain or maintain any insurance
required by the Lender hereunder and such failure continues uncured for a period
of ten (10) days following notice by Lender; or (v) a default occurs in the
performance or observance of the terms of any agreement, document or instrument
pursuant to which such indebtedness was created, secured or guaranteed, the
effect of which default is to cause the holder of any such indebtedness to cause
the same to be due prior to its stated maturity; or (vi) Borrower fails (after
ten (10) days prior notice thereof) to pay, withhold, collect or remit when
asserted or due any tax, assessment or other sum payable with respect to the
Collateral or any security for any of the Obligations (including, without
limitation, any premium on any insurance policy with respect to any of the
Collateral or any security for any of the Obligations, or any insurance policy
assigned to the Lender as security for any of the Obligations), or (vii) a
judgment is entered against the Borrower in an amount in excess of $25,000 and
such judgment is not satisfied, dismissed or stayed with 45 days, or any
attachment, levy or execution is made against any Collateral; or (viii) Borrower
sells all or substantially all of its assets or consolidates with or merges into
any other entity or Borrower's stockholders sell all or substantially all of
their stock; or (ix) Borrower fails (or Borrower admits in writing its
inability) to generally pay its debts as they become due or the insolvency or
business failure of Borrower; or (x) the filing of an application for
appointment of a trustee, custodian or receiver for Borrower or of any part of
Borrower's property (and in the case of an involuntary filing against the
Borrower, such filing is not dismissed within 60 days); or (xi) the filing of a
petition in bankruptcy by or against Borrower, or the commencement by or against
Borrower of any proceeding under any bankruptcy or insolvency law or statute, or
any law or statute relating to the relief of debtors or arrangement of debt,
readjustment of indebtedness, reorganization, receivership or composition, or
the extension of indebtedness (and in the case of an involuntary filing against
the Borrower, such filing is not dismissed within 60 days); or (xii) a material
adverse change in the condition or affairs (financial or otherwise) of Borrower
or any other event or circumstance occurs that materially impairs the prospects
of full and prompt payment or performance by Borrower of any of its Obligations;
or (xiii) Borrower attempts to remove, sell, transfer, encumber, sublet or part
with possession of the Equipment or any item thereof, except as expressly
permitted herein; no cure period shall apply to this Section 18 (xiii).
Notwithstanding the foregoing, the following shall not constitute an Event of
Default pursuant to this Agreement: if prior to February 28, 2000 [i] all or
some of the Borrower's current subsidiaries are merged into Borrower with
Borrower as the surviving corporation or [ii] Borrower enters into tax-free
reorganization pursuant to I.R.C. 368(a)(1)(F) (the "Reorganization
Transaction") pursuant to the terms of which [a] Borrower is merged into a
Delaware corporation (the "Delaware Borrower") which would be [x] the surviving
corporation and [y] formed solely for the purpose of reorganizing Borrower as a
Delaware corporation, [b] the outstanding shares of capital stock of the
Borrower would be converted on a one-for-one basis into outstanding shares of
capital stock of the Delaware Borrower, [c] the capital stock of the Delaware
Borrower will have attributes identical to the capital stock of the Borrower,
[d] the directors and officers of the Delaware Borrower would be the same
persons as the directors and officers of the Borrower before the Reorganization
Transaction, and [e] the Delaware Borrower would succeed to all of the rights
and assume all of the obligations of the Borrower, including the rights and
obligations of the Borrower pursuant to this Agreement and any and all documents
and instruments referenced herein.
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(b) Upon the occurrence of an Event of Default, which Event of
Default has not been cured within the applicable cure period, at the Lender's
sole option, all or any part of the entire unpaid total amount of the
Obligations then owed to the Lender for the balance of the term thereof shall be
at once due and payable and the Lender may, enter upon the premises where any or
all of the Collateral securing such Obligations is located, take possession of
and remove same, and exercise any one or more of the following rights and
remedies, without liability to the Borrower therefor and without affecting the
Borrower's obligations hereunder: (i) sell, lease or otherwise dispose of any or
all of such Collateral or any part thereof at one or more public or private
sales, leases or other dispositions, at wholesale or retail, for such
consideration, on such terms, for cash or on credit, as the Lender may deem
advisable, and the Lender may immediately, without demand of performance and
without intention of notice to sell or of the time or place of sale or of
redemption or of advertisement or other notice or demand whatsoever to the
Borrower, all of which are hereby expressly waived (if notice of any sale or
other disposition is required by law to be given, the Borrower hereby agrees
that a notice sent at least five (5) days before the time of any intended public
sale or of the time after which any private sale or other disposition of such
Collateral is to be made, shall be reasonable notice of such sale or other
disposition); or (ii) to the extent permitted by law, retain such Collateral or
any part thereof, crediting the Borrower with the reasonable fair market or
rental value thereof for the balance of the term of the related Loan Schedule;
and/or (iii) require the Borrower to assemble such Collateral at the Borrower's
sole expense, for the Lender's benefit, at a place designated by the Lender;
and/or (iv) pursue any other remedy granted by any existing or future document
executed by the Borrower or by law, including, without limitation, the rights
and remedies of a secured party under the Uniform Commercial Code as enacted in
any jurisdiction in which any of such Collateral may be located. At any public
sale, the Lender may be the purchaser of all or any part of such Collateral,
free from any right of redemption on the part of the Borrower, which right is
hereby waived and released. The Borrower agrees to pay all of the Lender's
reasonable expenses, including but not limited to the costs of repossessing,
storing, repairing and preparing such Collateral for sale or lease, any
commissions payable in connection with any such sale or lease, and reasonable
attorney's fees and disbursements, if an attorney shall be consulted. The net
proceeds realized from any such sale, lease or other disposition or the exercise
of any other remedy, after deducting therefrom all related expenses, shall be
applied toward payment of the unpaid Obligations due and to become due to the
Lender hereunder, the Borrower to remain personally liable for any deficiency.
The Lender's recovery shall in no event exceed the maximum amount permitted by
law. If any of such Collateral is leased by the Lender to a bona fide third
party, the present value of such lease receivable discounted at an interest rate
of 12% per annum shall be credited to the Borrower's liability to the Lender
after deducting all expenses associated with the lease of such Collateral and
the Borrower shall remain liable for any deficiency thereof. It is understood
that the ability to repossess the Collateral after the occurrence of an uncured
Event of Default is a basis for the financial accommodation reflected by this
Agreement and each Loan Schedule. Any late charges payable to the Lender under
SECTION 2(e) hereof shall be payable in addition to all amounts payable by the
Lender as a result of exercise of any of the remedies herein provided. The
Borrower agrees to also reimburse the Lender for any expenses (including the
Lender's reasonable attorneys' fees and expenses) arising out of or caused by
Borrower's breach of this Agreement or any Loan Schedule. Notwithstanding
anything to the contrary contained herein, if any one or more Loan Schedules are
assigned by the Lender to one or more assignees, the Collateral securing the
Obligations under each Loan Schedule shall be limited to the Collateral securing
the Obligations under each Loan Schedule then held by the Lender or such
assignee, as the case may be.
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19. POWER OF ATTORNEY. The Borrower authorizes the Lender and does
hereby make, constitute and appoint the Lender and any officer, employee or
agent of the Lender with full power of substitution, as the Borrower's true and
lawful attorney-in-fact with power, in its own name or in the name of the
Borrower: upon the occurrence and during the continuance of an Event of Default,
(i) to endorse any notes, checks, drafts, money orders, or other instruments of
payment (including payments under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Lender, (ii) to
sign and endorse any documents relating to the Collateral, (iii) to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral, and/or (iv) to grant,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; and (v) generally to do, at the Lender's option, all acts and
things that the Lender reasonably deems necessary or desirable to protect,
preserve and realize upon the Collateral and the Lender's security interests
therein, or (vi) in order to otherwise effectuate the intent of this Agreement
and each Loan Schedule, in each case as fully and effectually as the Borrower
might or could itself do; and the Borrower hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. THIS
POWER OF ATTORNEY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE FOR AS
LONG AS ANY OF THE OBLIGATIONS SHALL BE OUTSTANDING. The Borrower agrees that
any expense incurred by the Lender pursuant to the foregoing authorization, and
interest thereon at the rate of one and a half (1 1/2) percent a month, or if
such rate shall exceed the maximum rate allowed by law, then, at such maximum
rate from the date of incurring any such expense, shall become part of the
Obligations and be secured by the Collateral.
20. ASSIGNMENT, ETC. The Borrower shall not assign, pledge, mortgage,
lease, transfer, encumber or otherwise dispose of any of its rights in the
Collateral or any part thereof, nor permit its use by anyone other than its
regular employees without the Lender's prior written consent. Any such purported
transfer, assignment or other action without the Lender's prior written consent
shall be void. The Lender may, upon notice to (but without the consent of) the
Borrower, transfer or assign this Agreement and each Loan Schedule or any
interest herein and may mortgage, pledge, encumber or transfer any of its rights
or interest in and to the Collateral or any part thereof and, without
limitation, each assignee, transferee, pledgee and mortgagee (which may include
any affiliate of the Lender) shall have the right to further transfer or assign
its interest. Each such assignee, transferee, pledgee and mortgagee shall have
all of the rights (but none of the obligations) of the Lender under this
Agreement and each Loan Schedule, all of which obligations of the Lender will in
all cases and instances be retained by the Lender. The Borrower hereby
acknowledges notice of the Lender's intended assignment of this Agreement and
each Loan Schedule and, upon such assignment, the Borrower agrees not to assert
against any such assignees, transferees, pledgees and mortgagees any defense,
claim, counterclaim, recoupment or set-off that the Borrower may have against
the Lender, whether arising under this Agreement or any Loan Schedule or
otherwise. Any assignee, transferee, pledgee or mortgagee of the Lender's rights
under this Agreement or any Loan Schedule shall be considered a third party
beneficiary of all of the Borrower's representations, warranties and obligations
hereunder to the Lender. The Borrower agrees (a) in connection with any such
transfer or assignment, to provide such instruments, documents, acknowledgments
and further assurances as the Lender or any assignee, transferee, mortgagee or
pledgee may deem necessary or advisable to effectuate the intents of this
Agreement or any Loan Schedule or any such transfer or assignment, with respect
to such matters as the Agreement, any Loan Schedule, the Collateral, the
Borrower's obligations to such assignee, transferee, mortgagee or pledgee and
such other matters as may be reasonably requested, and (b) that after receipt by
the Borrower of written notice of assignment from the Lender or from the
Lender's assignee, transferee, pledgee or mortgagee, all principal,
-12-
<PAGE>
interest and other amounts which are then and thereafter become due under this
Agreement or any Loan Schedule shall be paid to such assignee, transferee,
pledgee or mortgagee, at the place of payment designated in such notice. This
Agreement and each Loan Schedule shall be binding upon the Borrower and its
successors and shall inure to the benefit of the Lender and its successors and
assigns.
21. NO WAIVER. No failure on the part of the Lender to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Lender of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. No course of dealing between the Borrower and the
Lender nor any delay or omission on the part of the Lender shall operate as a
waiver of any rights of the Lender. Each and every right, remedy or power hereby
granted to the Lender or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Lender
from time to time. Waiver of any particular Event of Default shall not be deemed
to be a waiver of any other or subsequent Event of Default.
22. FURTHER ASSURANCES; FILING. The Borrower from time to time, at its
sole expense, will promptly execute and deliver all further instruments,
documents and assurances, and take all further action, that may be necessary or
desirable, or that the Lender may reasonably request, and hereby authorizes the
Lender to take all action (including the filing of any financing statements,
continuation statements or amendments thereto without the signature of the
Borrower) as the Lender may deem reasonably necessary, proper or desirable in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Lender to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral. The Borrower hereby
authorizes the Lender to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Collateral without
the signature of the Borrower where permitted by law. A carbon, photographic or
other reproduction of this Agreement or any Loan Schedule or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law. The Borrower agrees to pay the
Lender the actual fees for such filing, recording or stamp fees or taxes arising
from the filing or recording of any such instrument or statement. Upon request,
Lender shall provide Borrower with copies of each filing which has been made
hereunder.
23. INDEMNITY AND EXPENSES. The Borrower shall and does hereby
indemnify and save the Lender, its directors, officers, employees, agents,
attorneys, servants, successors and assigns, harmless from any and all
liabilities (including, without limitation, negligence, tort and strict
liability), damages, expenses, claims, actions, proceedings, judgments,
settlements, losses, liens and obligations (each, an "INDEMNIFIED CLAIM"),
including (without limitation) attorneys' fees and expenses, arising out of the
ordering, purchase, delivery, rejection, non-delivery, ownership, selection,
possession, leasing, renting, financing, operation (regardless of where, how and
by whom operated), control, use, condition (including but not limited to latent
and other defects, whether or not discoverable by the Borrower), maintenance,
delivery, transportation, storage, repair, furnishing of specifications with
respect to, and the return or other disposition of, the Equipment or any other
Collateral, or, in the event that the Borrower shall be in default hereunder,
arising out of the condition of any item of Equipment or any other Collateral
sold or disposed of after use by the Borrower, including (without limitation)
claims for injury to or death of persons and for damage to property. The
indemnities and obligations herein provided shall continue in full force and
effect notwithstanding the expiration, termination or cancellation of this
Agreement or any Loan Schedule for any reason whatsoever and irrespective of
whether the Borrower ever accepts the Equipment or any
-13-
<PAGE>
other Collateral. The Lender shall give the Borrower prompt written notice of
any Indemnified Claim and, at the Lender's sole option, Borrower shall defend
the Lender against any Indemnified Claim at the Borrower's sole expense with
attorney(s) selected by the Borrower and reasonably acceptable to Lender. The
Borrower is an independent contractor and nothing contained herein shall
authorize the Borrower or any other person to operate any item of Equipment or
any other Collateral so as to incur any liability or obligation for or on behalf
of the Lender. The Borrower will upon demand pay to the Lender the amount of any
and all reasonable expenses, including the fees and disbursements of its counsel
and of any experts and agents, which the Lender may incur in connection with (a)
the exercise, enforcement or protection of any of the rights of the Lender
hereunder after the occurrence and during the continuance of an Event of
Default, or (b) the failure by the Borrower to perform or observe any of the
provisions hereof. The foregoing amounts shall become part of the Obligations
and secured by the Collateral as set forth in this Agreement or any Loan
Schedule and the Lender may at any time apply to the payment of all such costs
and expenses all proceeds arising from the possession or disposition of all or
any portion of the Collateral.
24. MODIFICATIONS, ETC. Neither this Agreement nor any Loan Schedule,
nor any provision hereof or thereof, may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by a duly
authorized representative of the party against whom enforcement of the change,
waiver, discharge or termination is sought.
25. TERMINATION. Upon the non-defeasible payment in full of all
Obligations, the Lender shall execute and deliver to the Borrower all such
documents and instruments as shall be necessary to evidence termination of this
Agreement or any Loan Schedule and the security interests created hereunder.
26. ENTIRE AGREEMENT: PARTIAL INVALIDITY. This Agreement and each Loan
Schedule constitutes the entire agreement of the Lender and the Borrower with
respect to the transactions covered hereby, and supersedes any and all prior
agreements, understandings and negotiations with respect thereto. If any
provision of this Agreement or any Loan Schedule is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Agreement or any Loan Schedule as a whole, but this Agreement or such Loan
Schedule shall be construed as though it did not contain the particular
provision or provisions held to be invalid or unenforceable and the rights and
obligations of the parties shall be construed and enforced to such extent as
shall be permitted by law.
27. MISCELLANEOUS. (a) Any notice or other communication to a party
hereunder shall be sufficiently given if in writing and personally delivered or
mailed to said party by certified mail, return receipt requested, at its address
set forth herein or such other address as either may designate for itself in
such a notice to the other and such notice shall be deemed to have been given
when received if personally delivered or served by overnight delivery or by
mail. Whenever the sense of this Agreement or any Loan Schedule requires, words
in the singular shall be deemed to include the plural and words in the plural
shall be deemed to include the singular. If more than one Borrower is named
herein, the liability of each shall be joint and several. The headings set forth
in this Agreement or any Loan Schedule are for convenience of reference only,
and shall not be given substantive effect.
(b) To the extent that any Loan Schedule evidencing a Loan hereunder
would constitute "chattel paper," as such term is defined under the Connecticut
Uniform Commercial Code, a security interest therein may be created only through
the transfer or possession of the original of Counterpart No. 1 of such
-14-
<PAGE>
Loan Schedule executed pursuant to this Agreement. Transfer or possession of an
original counterpart of this Agreement shall not be necessary to perfect such
security interest and no security interest in any such Loan Schedule may be
created by the transfer or possession of any other counterpart of such Loan
Schedule or by the transfer or possession of any counterpart of this Agreement.
28. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT AND EACH LOAN
SCHEDULE SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. THE BORROWER HEREBY
AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY FROM OR IN
CONNECTION WITH THIS AGREEMENT OR ANY LOAN SCHEDULE OR ANY OF THE COLLATERAL
SHALL, AT THE LENDER'S SOLE OPTION, BE LITIGATED ONLY IN THE CONNECTICUT STATE
COURTS OR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT
SITTING IN FAIRFIELD COUNTY, CONNECTICUT. The Borrower consents to the
jurisdiction and venue of the foregoing courts and consents that any process or
notice of motion or other application to either of such courts or a judge
thereof may be served inside or outside the State of Connecticut or the District
of Connecticut by registered mail, return receipt requested, directed to the
Borrower at its address set forth in this Agreement or any Loan Schedule (and
service so made shall be deemed complete upon receipt or by personal service, or
in such other manner as may be permissible under the rules of said courts). THE
LENDER AND THE BORROWER EACH WAIVE THE RIGHT TO TRIAL BY JURY IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR ANY LOAN
SCHEDULE, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT
THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER
AND THE LENDER. The Borrower hereby waives the right to interpose any set-off or
counterclaim or cross-claim in any such litigation, such litigation, except for
counterclaims or cross-claims which must, as a matter of law, be maintained, in
such litigation, or if not commenced in such action are forfeited; PROVIDED,
HOWEVER, that nothing in this SECTION 28 shall prevent the Borrower from
asserting, in a separate and independent proceeding, any claim it may have
against the Lender.
IN WITNESS WHEREOF, the parties hereby have caused these
presents to be duly executed by their authorized representatives on the date
first above written.
LEASING TECHNOLOGIES PRIMIS, INC.
INTERNATIONAL, INC.
By: /s/ George A. Parker By: /s/ James Schaper President & CEO
------------------------------- ---------------------------------
(Title) (Title)
GEORGE A. PARKER
EXECUTIVE VICE PRESIDENT Attest: /s/ Leslie H. Schreiner CEO
----------------------------
(Title)
COUNTERPART NO. 3 OF 3
- -
-15-
<PAGE>
SECRETARY'S CERTIFICATE
The undersigned hereby certifies to LEASING TECHNOLOGIES
INTERNATIONAL, INC. ("LTI") that (a) he/she is the Secretary of Primis, Inc., a
corporation existing under the laws of Georgia (the "CORPORATION"), (b) the
following resolutions were duly adopted by the Board of Directors of the
Corporation [by unanimous written consent dated ________________, 1999]* [at a
meeting duly held on _________________________, 1999, at which meeting a quorum
was present and acting throughout]*, and (c) the same have not been modified or
rescinded and are not in conflict with any provision of the Certificate of
Incorporation, By-laws or any agreement of the Corporation:
"RESOLVED, that this Corporation is authorized and empowered
to lease equipment and/or purchase equipment and/or borrow
and/or obtain credit from, and/or enter into other financial
arrangements with, Leasing Technologies International, Inc.
("LTI") from time to time (including, without limitation, the
leasing of equipment, the purchasing of equipment, the
borrowing of funds, the granting of security interests in
property of every description belonging to this Corporation,
and/or the sale of property now or hereafter owned by this
Corporation and the leasing back of any such property), all
such transactions to be on such terms and conditions as may
be mutually agreed from time to time between this Corporation
and LTI, and each and any officer of this Corporation is
authorized, in the name and on behalf of this Corporation, to
execute and deliver to LTI such lease agreements, promissory
notes, chattel mortgages, security agreements, financing
statements, bills of sale and/or other agreements,
instruments and documents in connection with such
transactions, and all supplements, amendments, modifications
and restatements thereto as such officer may deem advisable,
each containing such terms and conditions as may be approved
by the officer executing such document, such officer's
execution thereof to be conclusive evidence of such approval
and of such officer's authority to do so, and it is further
RESOLVED, that each and any officer of this Corporation is
authorized, in the name and on behalf of this Corporation, to
execute and deliver to LTI such other documents and take such
other actions as such officer may deem necessary or advisable
to effectuate and perform the transactions contemplated by
the foregoing resolution, and the Secretary or any Assistant
Secretary
- ----------
*Delete if inapplicable.
-16-
<PAGE>
of this Corporation is authorized to certify a copy of these
resolutions to LTI."
The undersigned further certifies that (a) annexed hereto as EXHIBITS
"A" AND "B", respectively, are true, correct and complete copies of the
Certificate of Incorporation and Bylaws of the Corporation, as amended to date,
and (b) set forth below are the names and genuine signatures of certain officers
of the Corporation, each of whom is duly elected, qualified and currently holds
the respective office(s) appearing beside such name:
OFFICE NAME SIGNATURE
- ------ ---- ---------
President ________________________ _________________________
Vice President ________________________ _________________________
Treasurer ________________________ _________________________
Signed and sealed this ___________ day of ____________, 1998.
(Corporate Seal)
--------------------------------------
(Secretary)
The undersigned, the _________________ of the Corporation, hereby
certifies to LTI that the above is the signature of
_________________________________, the duly elected, qualified and currently
serving Secretary of the Corporation.
--------------------------------------
(Officer)
-17-
<PAGE>
EXHIBIT 10.23
LETTER OF INTENT
For the purposes of elevating Countrywide's Quality Control Division to
Primis Select Client status, Primis and Countrywide's Quality Control
division hereby indicate their mutual intent to work together on the
following terms. The relationship may be terminated by either party upon 30
days notice.
1. Primis will offer Field Review services in each of our 16 core market
states, prepared by our employed staff appraisers;
2. Primis will offer Field Review services in the remaining 34 states,
prepared by our affiliated "PrimisNet" appraisers;
3. Electronic delivery (EDI) of our reports via a .PDF e-mail attachment, or
other suitable method, will be made available in our core markets and we
will target a 50-60% overall EDI delivery for your account. As our
acquisitions continue, this percentage will increase.
4. Primis will make available archival system for (EDI) review reports on CD
at month-end, or other mutually agreeable periodic basis. With the
complete Adobe Acrobat software (we can make it available to you), we
have been advised you will be able to COPY AND PASTE sections from the
.PDF files we provide to your internal management reports.
5. Primis will provide Countrywide QC with all of the benefits of being a
"Select Client" which will include a dedicated team of service
specialists handling your account and providing you with comprehensive
communication services including confirmations, updates, event tracking,
management reports and consolidated billing services. Reports are made
available to you on a daily, weekly and monthly basis;
6. Field Review fees to be $165 in our core market areas (see attached grid
of states/counties) and $250 for the rest of the United States. As we add
additional core market areas, we will revise the pricing to match this
concept.
7. Primis will provide you with a color printer by which the reports we
transmit to Countrywide electronically can be printed in your Simi Valley
office. Cost of maintenance and toner cartridges will be the
responsibility of Countrywide.
8. Subject to the satisfactory performance of Primis, Countrywide Quality
Control will use its best efforts over the next twenty four (24) months
to direct field review orders in Primis' core market areas to Primis.
Countrywide Quality Control will direct other national orders to Primis
such that Primis will receive an aggregate of 50% of Countrywide Quality
Control's monthly orders.
9. The parties will seek to execute an agreement, satisfactory to the
parties and their respective legal departments, which will more formally
document their mutual agreement on the above general terms.
10. Additional Terms:
A. Oregon and Washington at $250
Dated this 6th day of January, 2000.
/s/ Lee Trumble
- ---------------------------------------- -----------------------------------
Lee Trumble, Countrywide Quality Control Joseph D. Mathews, Primis, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated March 10, 2000, relating to the financial statements of
PRIMIS, Inc. which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated January 28, 2000, relating to the financial statements of
Bliss Associates, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated January 14, 2000, relating to the financial statements of
InspecTech Corporation which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated January 14, 2000, relating to the financial statements of E.T.
Jones & Associates, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated January 14, 2000, relating to the financial statements of
Stewart Title of Birmingham, Inc., which appear in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated January 21, 2000, relating to the financial statements of The
William Fall Group, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated December 17, 1999, relating to the financial statements of
Kushner & Robertson, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 8,993,957
<SECURITIES> 0
<RECEIVABLES> 4,086,256
<ALLOWANCES> (803,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,569,938
<PP&E> 4,706,390
<DEPRECIATION> (1,497,830)
<TOTAL-ASSETS> 27,595,593
<CURRENT-LIABILITIES> 15,387,707
<BONDS> 0
8,944,744
0
<COMMON> 134,820
<OTHER-SE> 33,038
<TOTAL-LIABILITY-AND-EQUITY> 27,595,593
<SALES> 23,415,806
<TOTAL-REVENUES> 23,415,806
<CGS> 13,070,434
<TOTAL-COSTS> 13,070,434
<OTHER-EXPENSES> 22,751,379
<LOSS-PROVISION> 1,399,170
<INTEREST-EXPENSE> 418,185
<INCOME-PRETAX> (12,643,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,643,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,872,083)
<EPS-BASIC> (.99)
<EPS-DILUTED> (.99)
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT OF NAMED INDIVIDUAL
I hereby consent to being named in the Registration Statement on Form
S-1 (Reg. No. 333-95111) of PRIMIS, Inc. (the "Company"), and any amendments
thereto, for the initial public offering of shares of the Company's common
stock, $.01 par value per share.
Dated: February 29, 2000 /s/ D.R. Grimes
----------------------------
D.R. Grimes
<PAGE>
EXHIBIT 99.2
CONSENT OF NAMED INDIVIDUAL
I hereby consent to being named in the Registration Statement on Form
S-1 (Reg. No. 333-95111) of PRIMIS, Inc. (the "Company"), and any amendments
thereto, for the initial public offering of shares of the Company's common
stock, $.01 par value per share.
Dated: February 23, 2000 /s/ David C. Mahoney
----------------------------
David C. Mahoney
