<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 2000
REGISTRATION NO. 333-95111
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
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 58-1878527
(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 Morris, Manning & Martin, L.L.P.
Sixteenth Floor 1600 Atlanta Financial Center
191 Peachtree Street, N.E. 3343 Peachtree Road, N.E.
Atlanta, Georgia 30303 Atlanta, Georgia 30326
(404) 572-6600 (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) 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 APRIL 7, 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 may use up to 14.4% of the net proceeds of this offering to repay convertible
notes held by existing shareholders, including directors. These convertible
notes become due, unless previously converted, 181 days after the closing of
this offering.
We have applied to have our common stock approved for quotation on the Nasdaq
Stock Market under the symbol "PRMZ."
At our request, the underwriters have reserved for sale at the initial
public offering price up to 434,000 shares in this offering as follows:
- up to 250,000 shares to D.R. Horton, Inc., a national home builder and two
affiliated entities; and
- up to 184,000 shares for our directors and director nominees, selected
officers and employees, selected vendors and clients and friends or
relatives of such persons.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 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 consistent 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. 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,
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 that we provide our clients 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 have acquired 24 businesses since 1995, including 12
since the beginning of 1999. 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. This
platform is flexible because it is scalable, which enables us to accomodate new
databases and applications, and can be customized for individual clients.
Although we derived approximately 12% of our 1999 revenues from our web-based
platform, we are continually migrating our clients to this platform, and
web-based transactions represented approximately 26% of our revenues for January
and February 2000. Our flexible platform gives 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 quality assurance program
designed to ensure that service across all of our offices conforms to our
quality standards. 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
1
<PAGE>
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 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.
HISTORY OF LOSSES; CONTROL BY MANAGEMENT
We have not operated with a profit since 1993. We have incurred net losses
of $17.5 million from our inception through December 31, 1999. In 1999, we had a
net loss of $12.6 million and a pro forma net loss of $15.5 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 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.
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. Based on available industry estimates
with respect to the volume of mortgage loan originations and our experience in
the industry with respect to the usage of appraisals, home inspections, flood
determinations and title services in connection with mortgage loan originations,
we believe that the total market for our core property information services was
in excess of $5.5 billion in 1999. 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;
2
<PAGE>
- 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
- 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.
------------------------
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;
- 225,000 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.
CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus:
- reflects a 1.8622-for-1 stock split in the form of a stock dividend
relating to our common stock effective April 4, 2000;
- 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.
4
<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) $ (.67)
======== ======= ======= ======== ========
Weighted average common and common equivalent shares
outstanding--basic and diluted............................ 1,827 5,214 9,151 13,013 23,007
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. Our
computation of EBITDA may not be comparable to other similarly titled
measures of other companies. EBITDA should not be construed as an
alternative to net income, operating income or cash flows as determined in
accordance with generally accepted accounting principles.
(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.
5
<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.
WE HAVE MADE SIGNIFICANT ACQUISITIONS IN THE PAST AND WE INTEND TO ENGAGE IN
SIGNIFICANT ACQUISITION ACTIVITY IN THE FUTURE. IF WE ARE UNABLE TO SUCCESSFULLY
INTEGRATE THESE ACQUISITIONS AND MANAGE OUR INTERNAL GROWTH, OUR FINANCIAL
CONDITION IS LIKELY TO SUFFER.
Since June 1998, we have acquired 14 businesses nationwide, and we intend to
continue significant acqusitions activity 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
6
<PAGE>
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.
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, either of which could cause our stock
price to decline.
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 since our inception and have not operated with a
profit since 1993. In 1999, we had a net loss of $12.6 million and a pro forma
net loss of 15.5 million. From our inception through December 31, 1999, we
incurred net losses of approximately $17.5 million. We expect that we will
continue to incur losses for the foreseeable future. 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. However,
we only introduced this service delivery method in August 1999. 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
7
<PAGE>
profitably. In addition, if clients do not perceive our web-based services as an
added value to their operations, it will be more difficult for us to
differentiate our services from those of our competitors.
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.
COMPUTER SYSTEM AND WEB SITE CAPACITY CONSTRAINTS OR FAILURES CAN HURT OUR
BUSINESS.
We must constantly upgrade our network technology and enhance our
transaction-processing systems in anticipation of business growth. 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. The satisfactory performance,
reliability and availability of our transaction-processing systems, network
infrastructure and web-site are critical to our ability to provide high levels
of service and to attract and retain clients. If our services are 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 services or
increases in response times will likely impact client satisfaction and future
demand for our services.
8
<PAGE>
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 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.
9
<PAGE>
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 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. In addition, the extent to which state licensing
requirements apply to electronic collateral assessments, appraisal review and
mortgage porfolio valuation services is also unclear and may vary from state to
state. 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 under which we pay "click
through" fees, which are fees we pay in connection with advertisements on these
web sites. We believe we have structured our relationships with our clients,
contractors and operators of real-estate related web sites 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.
10
<PAGE>
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.
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 spend significant amounts of cash for acquisitions, development
of our technology, infrastructure, personnel and support to implement our growth
strategy. 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.
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
acquisitions. 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
11
<PAGE>
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.
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 and Kevin P. Castle, our Vice
President--Operations, joined our company during 1999. David A. Post, our
Executive Vice President and Chief Financial Officer joined us in April 2000.
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
12
<PAGE>
offer or otherwise attempting to obtain control of our business, even if such a
transaction would be beneficial to other shareholders.
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. The 19,020,538 remaining shares of our common stock will become
eligible for resale in the public market, subject to applicable securities law
restrictions, 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 restrictions under the securities laws that limit the
amount of securities our affiliates may sell in any three-month
period.
2,413,567............................ 902,371 of these shares are eligible to be sold as of the date of
this prospectus and the remainder will become eligible for sale at
various times thereafter when the holding periods under the
securities laws applicable to these shares expire.
</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 registration statements under the Securities
Act at our expense. In addition, we agreed to grant registration rights with
respect to 190,875 shares issuable upon the exercise of a warrant we agreed to
issue upon the closing of this offering. Under these registration rights, the
holder of the warrant shares will be entitled to require us to register the
warrant shares for resale when we become eligible to register securities under a
short-form registration statement on Form S-3. We expect to become eligible to
use a short-form registration statement on Form S-3 one year after the date of
this prospectus. 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.
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.
13
<PAGE>
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.
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.
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.
14
<PAGE>
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. To the extent holders of these convertible notes exercise their
conversion rights, we will use the corresponding proceeds for general
corporate purposes;
- 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.
Our January 2000 convertible notes accrue interest at a fixed rate of 8.0%
per annum and were issued to the following existing shareholders to fund
short-term working capital and acquisition needs:
<TABLE>
<CAPTION>
NAME OF EXISTING SHAREHOLDER PRINCIPAL AMOUNT
- ---------------------------- ----------------
<S> <C>
Windcrest Partners $ 600,000
Richland Ventures II, L.P. 2,698,230
South Atlantic Private Equity Fund IV, Limited Partnership 420,574
South Atlantic Private Equity Fund IV (QP), Limited
Partnership 580,792
Moore Global Investments, Ltd. 2,205,287
Remington Investments Strategies, L.P. 492,942
JG Funding, LLC 500,000
J. David Grissom 1,994,877
Jack Tyrrell 86,107
W. Patrick Ortale, III 43,053
Michael L. Robertson 100,000
</TABLE>
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.
15
<PAGE>
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 $9.7 million 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>
16
<PAGE>
DILUTION
Our pro forma net tangible book deficit on December 31, 1999 was
approximately $1.9 million or $.10 per share of common stock. Pro forma net
tangible book value or deficit is total assets minus the sum of liabilities and
intangible assets. Our pro forma net tangible book deficit per share is net
tangible book deficit 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 $65.5 million or $2.59 per share. This represents an immediate
increase in pro forma net tangible book value of $2.69 per share to existing
shareholders and an immediate dilution of $9.41 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 deficit per share as of
December 31, 1999....................................... $(.10)
Increase per share attributable to this offering.......... 2.69
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.59
------
Net tangible book value dilution per share to new investors
in this offering.......................................... $ 9.41
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
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.
17
<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 conversion into common shares of our
outstanding convertible preferred stock and convertible notes which we issued
after January 1, 1999 as if such conversion had occurred on:
- January 1, 1999 for the portion of such issuances which were used to fund
acquisitions, or
- the date of issuance for securities whose proceeds were not used to fund
acquisitions.
We also give effect to the issuance of shares in this offering as if such
offering had occurred on Janaury 1, 1999.
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.
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMBINED
HISTORICAL ACQUIRED PRO FORMA
COMPANY COMPANIES(3) 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) (.67)
============ ============
Weighted average common shares
outstanding(1)(12)..................... 13,013,743 23,006,627
------------ ------------
</TABLE>
19
<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>
COMBINED
HISTORICAL ACQUIRED PRO FORMA
COMPANY COMPANIES(7) ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............... $ 8,993,957 $ (2,913,038) $ 67,492,000(8) $ 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)(9) 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)(10) --
Series B convertible preferred
stock.............................. 4,401,542 -- (4,401,542)(11) --
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>
20
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) Potential shares of common stock consisting of 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.
21
<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(3)
----------- --------- --------- --------- --------------
<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>
22
<PAGE>
(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. Amortization for each acquisition is as follows:
<TABLE>
<CAPTION>
THE FIRST CRAMER ET JONES STEWART TITLE FOURNIER,
WILLIAM HOUSTON PROPERTY & OF CRANE &
FALL APPRAISAL SERVICES ASSOCIATES, BIRMINGHAM, ASSOCIATES,
GROUP, INC. GROUP INCORPORATED INC. INC. INC.
----------- --------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................
Cost of revenues........................
-------- -------- -------- --------- -------- --------
Gross profit............................
-------- -------- -------- --------- -------- --------
Operating expenses:
Selling, general and admin............
Research & development................
Depreciation and amortization......... $ 16,006 $ 21,162 $ 65,631 $ 178,687 $ 85,541 $ 67,790
-------- -------- -------- --------- -------- --------
Total operating expenses................ 16,006 21,162 65,631 178,687 85,541 67,790
-------- -------- -------- --------- -------- --------
Operating income (loss)................. (16,006) (21,162) (65,631) (178,687) (85,541) (67,790)
Other income (expense)
Interest and other income.............
Interest expense......................
-------- -------- -------- --------- -------- --------
Income (loss) before income taxes....... (16,006) (21,162) (65,631) (178,687) (85,541) (67,790)
Income taxes............................
Net income (loss)....................... (16,006) (21,162) (65,631) (178,687) (85,541) (67,790)
-------- -------- -------- --------- -------- --------
Dividends on preferred stock............
Net loss appliable to common
shareholders.......................... $(16,006) $(21,162) $(65,631) $(178,687) $(85,541) $(67,790)
======== ======== ======== ========= ======== ========
<CAPTION>
SUNCOAST
APPRAISAL
GROUP OF FOCUS
BLISS THE CHARLOTTE APPRAISAL COMBINED
INSPECTECH ASSOCIATES, APPRAISAL COUNTY, SERVICES, ACQUIRED
CORPORATION INC. COMPANY INC. INC. OTHER COMPANIES
----------- ----------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................
Cost of revenues........................
----------- --------- -------- -------- -------- ---------- ----------
Gross profit............................
----------- --------- -------- -------- -------- ---------- ----------
Operating expenses:
Selling, general and admin............
Research & development................
Depreciation and amortization......... $1,549,436 $ 328,050 $ 95,983 $ 11,718 $ 50,402 $ $2,470,406
----------- --------- -------- -------- -------- ---------- ----------
Total operating expenses................ 1,549,436 328,050 95,983 11,718 50,402 2,470,406
----------- --------- -------- -------- -------- ---------- ----------
Operating income (loss)................. (1,549,436) (328,050) (95,983) (11,718) (50,402) (2,470,406)
Other income (expense)
Interest and other income.............
Interest expense...................... 66,741 66,741
----------- --------- -------- -------- -------- ---------- ----------
Income (loss) before income taxes....... (1,549,436) (328,050) (95,983) (11,718) (50,402) 66,741 (2,403,665)
Income taxes............................
Net income (loss)....................... (1,549,436) (328,050) (95,983) (11,718) (50,402) 66,741 (2,403,665)
----------- --------- -------- -------- -------- ---------- ----------
Dividends on preferred stock............ 228,994 228,994
Net loss appliable to common
shareholders.......................... $(1,549,436) $(328,050) $(95,983) $(11,718) $(50,402) $ 295,735 $2,174,671
=========== ========= ======== ======== ======== ========== ==========
</TABLE>
23
<PAGE>
(5) Reflects the elimination of interest expense incurred on our November 1999
convertible notes. Such notes in the amount of $10,011,174 were issued in
November 1999 and accrue interest at a rate 8% per annum.
(6) Reflects the elimination of dividends on our Series A and Series B
convertible preferred stock which were issued in June 1999 and October 1999,
respectively. We issued 2,032,110 shares of our Series A convertible
preferred stock which accrues annual dividends of $.15 per share and issued
1,350,337 shares of our Series B convertible preferred stock which accrues
annual dividends of $.23 per share.
(7) For those companies acquired in 2000, the following table presents the
closing balance sheets as of the date of acquisition.
24
<PAGE>
<TABLE>
<CAPTION>
SUNCOAST
APPRAISAL
GROUP OF FOCUS
BLISS THE CHARLOTTE APPRAISAL COMBINED
INSPECTECH ASSOCIATES, APPRAISAL COUNTY, SERVICES, ACQUIRED
CORPORATION INC. COMPANY INC. INC. COMPANIES(7)
----------- ----------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents.................. $ (165,855) $(2,050,383) $(376,300) $(110,000) $(210,500) $(2,913,038)
Certificates of deposit............... -- -- -- -- -- --
Accounts receivable, net.............. 125,000 521,430 -- -- -- 646,430
Prepaids and other current assets..... 214,000 2,200 -- -- -- 216,200
----------- ----------- --------- --------- --------- -----------
Total current assets............ 173,145 (1,526,753) (376,300) (110,000) (210,500) (2,050,408)
Property and equipment, net............. 190,000 27,610 25,000 24,000 6,000 272,610
Capitalized software, net............... -- -- -- -- -- --
Intangible assets, net.................. 12,395,489 2,407,679 731,300 86,000 369,070 15,989,538
Security deposits and other assets...... 328,000 65,250 -- -- -- 393,250
----------- ----------- --------- --------- --------- -----------
Total assets.................... $13,086,634 $ 973,786 $ 380,000 $ -- $ 164,570 $14,604,990
=========== =========== ========= ========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
expenses............................ $ 527,000 $ 65,088 $ -- $ -- $ -- $ 592,088
Accrued bonuses....................... -- -- -- --
Current portion of long term debt..... 526,000 454,349 190,000 -- 164,570 1,334,919
----------- ----------- --------- --------- --------- -----------
Total current liabilities....... 1,053,000 519,437 190,000 -- 164,570 1,927,007
Long term debt, less current portion.... 131,000 454,439 190,000 -- -- 775,349
----------- ----------- --------- --------- --------- -----------
Total liabilities............... 1,184,000 973,786 380,000 -- 164,570 2,702,356
----------- ----------- --------- --------- --------- -----------
Series A convertible preferred debt..... -- -- -- -- -- --
Series B convertible preferred debt..... -- -- -- -- -- --
Shareholders' equity
Common stock.......................... 14,476 -- -- -- -- 14,476
Additional paid-in capital............ 11,888,158 -- -- -- -- 11,888,158
Accumulated deficit................... -- -- -- -- -- --
----------- ----------- --------- --------- --------- -----------
Total shareholders' equity.............. 11,902,634 -- -- -- -- 11,902,634
----------- ----------- --------- --------- --------- -----------
Total liabilities and shareholder
equity................................ $13,086,634 $ 973,786 $ 380,000 $ -- $ 164,570 $14,604,990
=========== =========== ========= ========= ========= ===========
</TABLE>
(8) 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.
(9) Reflects the conversion of our November 1999 convertible notes into common
stock upon the completion of this offering.
(10) Reflects the conversion of 1,350,337 shares of our Series A convertible
preferred stock into common stock upon the completion of this offering.
(11) Reflects the conversion of 2,032,110 shares of our Series B convertible
preferred stock into common stock upon the completion of this offering.
25
<PAGE>
(12) Our weighted average share calculation includes the following:
<TABLE>
<C> <S> <C>
- weighted average common shares (historical basis)........... 12,958,753
- common shares issued to owners of acquired companies........ 1,461,648
- proceeds from the sale of Series A preferred stock; portion
used to fund acquisitions................................... 182,495
- proceeds from the sale of Series A preferred stock; portion
used to fund working capital requirements................... 1,084,431
- proceeds from the sale of Series B preferred stock; portion
used to fund acquisitions................................... 319,678
- proceeds from the sale of Series B preferred stock; portion
used to fund working capital requirements................... 259,783
- common shares into which our November 1999 notes are
convertible; portion used to fund acquisitions.............. 474,699
- common shares into which our November 1999 notes are
convertible; portion used to fund working capital
requirements................................................ 65,140
- common shares issued in this offering....................... 6,200,000
----------
Pro forma weighted average common shares outstanding........ 23,006,627
==========
</TABLE>
26
<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. Our
computation of EBITDA may not be comparable to other similarly titled
measures of other companies. EBITDA should not be construed as an
alternative to net income, operating income or cash flows as determined in
accordance with generally accepted accounting principles.
27
<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. In 1999, we derived 12.7% of our revenues from clients included in the top
50 mortgage lenders as compiled by Faulkner & Gray.
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, including 12 since the
beginning of 1999. We 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 continually
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 and February 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.
28
<PAGE>
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.
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
29
<PAGE>
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, 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,
increases in the provision for doubtful accounts, and additional hiring in
technology needed to implement our technology platform in the branch
distribution system.
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
30
<PAGE>
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.
31
<PAGE>
Maximum indebtedness is not to exceed $2.0 million, to be paid over a two
and half year period 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. These
convertible notes bear interest at a fixed rate of 8.0% per annum.
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.
At February 29, 2000, we had anticipated cash commitments in excess of
$17.1 million for the next 12 months consisting of short-term non-cancelable
operating and capital lease obligations, the current portion of acquisition
related notes payable and deferred payments and operating cash requirements
based on 1999 operating cash use. As discussed previously, however, we
anticipate our monthly cash requirements to increase throughout 2000.
Additionally, total current liabilites at February 29, 2000 were approximately
$27.4 million. This amount includes the principal amount of the November 1999
convertible notes which are mandatorily convertible into common stock upon the
closing of this offering and the principal amount of the January 2000
convertible notes which we expect to repay from the proceeds of this offering if
they are not converted into common stock within 180 days after the closing of
this offering. We anticipate that we will finance future acquisitions through a
combination of cash and the issuance of securities.
We plan to use $40.2 million of the net proceeds of this offering for
potential acquisitions, working capital and general corporate purposes. In the
future, we expect to acquire a number of relatively small, regionally based
firms that provide property information services. We expect that the proceeds
from this offering will be sufficient to fund these acquisitions. However,
without proceeds from this offering, we must rely on other sources of financing
to maintain our current acquisition strategy, or we must revise our acquisition
timetable. We have obtained a commitment from our current investors to, as
deemed appropriate by the Board of Directors, continue such fundings on a pro
rata equity basis through March 31, 2001. Furthermore, in the event that a
planned initial public offering does not occur, such investors have agreed to
extend the due dates of the convertible notes to June 30, 2001.
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. If we are unable to complete this offering or if the net
32
<PAGE>
proceeds from this offering are significantly less than we anticpate, we may not
be able to expand our operations according to our current plans. In the future,
we may need to raise additional funds through public or private financings, or
other arrangements to fund our operations and acqusitions.
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.
33
<PAGE>
BUSINESS
OVERVIEW
We are a business-to-business, web-based provider of property information
services. 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 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 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. In 1999, we derived 12.7% of our
revenues from clients included in the top 50 mortgage lenders as compiled by
Faulkner & Gray. 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.
Through our January 2000 acquisition of InspecTech, we entered the market
for home inspection services with a force of nearly 100 property inspectors.
InspecTech performed over 30,000 inspections and energy audits 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.
In April 2000, we entered into the following agreements with Trans Union
LLC:
- a services purchase agreement under which Trans Union agreed to designate
us as a preferred provider with respect to certain of our appraisal
services for inclusion as part of a package of services offered by Trans
Union to its customers; and
34
<PAGE>
- a marketing agreement under which we and Trans Union agreed to use our
commercially reasonable best efforts to promote each other's services and
engage in joint or coordinated marketing and promotional activities.
Also in April 2000, we agreed in principle to form REalitics, LLC, a joint
venture between us and Encore Venture Partners II (Texas) L.P., an affiliate of
D.R. Horton, Inc. D.R. Horton is the third largest builder measured by units
closed in the United States in 1999 according to Professional Builder magazine.
The joint venture will provide appraisal and related services primarily to
mortgage lenders in the home building industry. We have a 50% interest in this
joint venture. We expect to enter into a services agreement with the joint
venture under which we will provide appraisal and related services to the joint
venture in our primary markets. Our services agreement with the joint venture
will not be exclusive. The joint venture will provide appraisal and related
services initially to CH Mortgage Company, a wholly owned affiliate of
D.R. Horton.
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 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
Based on available industry estimates with respect to the volume of mortgage
loan originations and our experience in the industry with respect to the usage
of appraisals, home inspections, flood determinations and title services in
connection with mortgage loan originations, we believe that the total market for
our core property information services was in excess of $5.5 billion in 1999.
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
35
<PAGE>
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 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.
THE PRIMIS SERVICE DELIVERY MODEL
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
36
<PAGE>
of obtaining property information services, and we have done so from the
lender's perspective. The key elements of our service delivery model 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. This platform is flexible because it is
scalable, which enables us to accomodate new databases and applications, and can
be customized for individual clients. Our 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, the
predecessor to our web-based interface. VALUEEXPRESS is a client installed
communications program which enables our clients to access the PRIMIS engine to
place orders, obtain status information and have reports generated and delivered
electronically without a web based interface. We are continually migrating our
clients to our web-based placeform 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 reduces turnaround
time for clients and creates efficiencies of scale.
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. 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. 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 has enabled us to reduce the turnaround time for delivery of our services.
Additionally, we have instituted performance-based compensation programs for our
professionals and branch
37
<PAGE>
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.
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 and February 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.
38
<PAGE>
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 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
39
<PAGE>
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.
- 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 our 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
40
<PAGE>
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 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.
41
<PAGE>
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.
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 will enable us to provide new services in the future, and we
are currently developing serveral new services for implementation by year-end
2000. For example, we plan to offer a
42
<PAGE>
hybid inspection/appraisal, which is a single report for reposessed or
distressed properties. In addition, we plan to offer construction inspections
reports for general contractors to permit them to draw down on construction
loans. We also plan to offer home equity loan closing services to our clients,
which involve collecting agreements and other closing documents and obtaining
appropriate signatures and notarizations usually at our local field offices. We
also anticipate offering to clients subscriptions to appraisal data in our
database, general statistical data relating to appliance conditions in the home,
automated valuation models for commercial properties and valuation models for
mortgage portfolios. 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;
- 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.
43
<PAGE>
QUALITY ASSURANCE PROGRAM
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
an 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.
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.
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
44
<PAGE>
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 negotiating 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 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 third-party
relationships, which we call channel relationships, 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 marketing through channel relationships.
45
<PAGE>
OUR CLIENTS
We market and sell our services to traditional lenders such as 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 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, aggregators and others.
<TABLE>
<CAPTION>
TRADITIONAL LENDERS INTERNET LENDERS SPECIALIZED LENDERS AGGREGATORS/OTHERS
- ------------------- ---------------- ------------------------ ------------------
<S> <C> <C> <C>
Compass Bank Quicken Loans First Franklin Trans Union
Sun Trust E-Loan Countrywide Quality Homespace.com
Bank of America Mortgage.com Assurance US Appraisals
HomeBanc iOwn.com Boeing Employee Credit RealEstate.com
Chase Mortgage Union
Ryland Mortgage
Provident Funding
</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
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.
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.
46
<PAGE>
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
- 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:
- to implement PRIMIS operating processes and programs quickly;
- to upgrade the acquired company's technology and systems to PRIMIS
standards; and
- 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
47
<PAGE>
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.
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 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.
48
<PAGE>
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.
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 makes it easier to modify our technology to add new services and build
customized solutions for customers 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
49
<PAGE>
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 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. In addition, the extent to which state
licensing requirements apply to electronic collateral assessments, appraisal
review and mortgage portfolio valuation services is also unclear and may vary
from state to state.
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 third-party channel
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 operators of real estate-related
web sites 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 examinations and attain membership in one of these two
organizations.
50
<PAGE>
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.
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.
INSURANCE
We are responsible for the services performed by our employees and agents
and could be held liable for faulty or erroneous appraisals or home inspections.
We minimize our exposure to these potential liabilities by maintaining errors
and omissions insurance policies with limits and deductibles that we believe are
reasonable for the services we provide, the values of the properties we appraise
or inspect, and the volume of services we perform. We require our PRIMISnet
contractors to maintain similar insurance coverage. We also maintain workers'
compensation insurance as required by applicable law and commercial general
liability insurance.
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.
51
<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
David A. Post.......................... 47 Executive Vice President and Chief Financial Officer
Kevin P. Castle........................ 43 Vice President--Operations
Revell L. Fraser....................... 38 Vice President--Marketing and Strategic Development
J. Chris Foretich...................... 39 Vice President, Chief Information Officer
M. Brent Burns......................... 36 Vice President--Sales
Connie C. Breeser...................... 42 Vice President, Chief Legal Officer and Secretary
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.
DAVID A. POST has served as our Executive Vice President and Chief Financial
Officer since April 2000 and is responsible for the finance, strategic planning
and merger and acquisition aspects of our business. From October 1996 to
February 2000, Mr. Post served as Corporate Vice President and Chief Financial
Officer of Equifax Inc., a global leader in consumer and commercial credit
information services and payment services. From February 1992 to October 1996,
Mr. Post served as Senior Vice President and Group Chief Financial Officer of
Equifax's Financial Services Group. Prior to his experience with Equifax,
Mr. Post served as Senior Vice President and Controller for Wachovia Corporation
of Georgia since 1983.
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.
52
<PAGE>
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 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 Secretary since April 2000 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
53
<PAGE>
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 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.
54
<PAGE>
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 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
55
<PAGE>
officers who had compensation in excess of $100,000 during 1999 and two
additional former executive 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 terminated effective
February 1, 2000.
56
<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.
57
<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.
58
<PAGE>
In addition, we have employment agreements with David A. Post, Kevin P.
Castle, Kathleen G. Bergeron, M. Brent Burns 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. As of February 29, 2000, options to purchase 3,151,615 shares
with a weighted average exercise price of $3.73 per share and options to
purchase 225,000 shares with an exercise price equal to the initial offering
price in this offering were outstanding under this plan. 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.
59
<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>
PERCENTAGE OF
OUTSTANDING
COMMON STOCK
NOTE BENEFICIALLY
CONVERSION WARRANT OWNED PRIOR
INVESTOR CONVERTIBLE NOTE SHARES SHARES TO THIS OFFERING(1)
- -------- ---------------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Windcrest Partners......................... $ 600,000 72,992 25,547 10.6%
Richland Ventures II, L.P.................. 2,698,230 328,251 114,888 11.8
South Atlantic Private Equity Fund IV,
Limited Partnership...................... 420,574 51,164 17,907 10.5
South Atlantic Private Equity Fund IV (QP),
Limited Partnership...................... 580,792 70,655 24,729 10.5
Moore Global Investments, Ltd.............. 2,205,287 268,283 93,899 11.8
Remington Investments Strategies, L.P...... 492,942 59,968 20,989 11.8
JG Funding, LLC............................ 500,000 60,827 21,289 16.9
J. David Grissom........................... 1,994,877 242,685 84,940 20.4
Jack Tyrrell............................... 86,107 10,475 3,666 12.7
W. Patrick Ortale, III..................... 43,053 5,237 1,833 12.3
</TABLE>
- ------------
(1) See "Principal Shareholders" for additional information about the
calculation of percentage beneficial ownership prior to this offering.
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
60
<PAGE>
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.
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>
PERCENTAGE OF
OUTSTANDING
COMMON STOCK
BENEFICIALLY
CONVERTIBLE CONVERSION WARRANT OWNED PRIOR
INVESTOR NOTE SHARES SHARES TO THIS OFFERING(1)
- -------- ----------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Windcrest Partners............................. $1,197,118 145,634 50,972 10.6%
Richland Ventures II, L.P...................... 1,969,759 239,630 83,870 11.8
South Atlantic Private Equity Fund IV, Limited
Partnership.................................. 827,298 100,644 35,225 10.5
South Atlantic Private Equity Fund IV (QP),
Limited Partnership.......................... 1,142,459 138,985 48,644 10.5
Moore Global Investments, Ltd.................. 1,575,807 191,704 67,096 11.8
Remington Investments Strategies, L.P.......... 393,952 47,926 16,774 11.8
JG Funding, LLC................................ 500,000 60,827 21,289 16.9
J. David Grissom............................... 2,239,391 272,431 95,351 20.4
Jack Tyrrell................................... 103,594 12,602 4,410 12.7
W. Patrick Ortale, III......................... 51,796 6,301 2,205 12.3
</TABLE>
- ------------
(1) See "Principal Shareholders" for additional information about the
calculation of percentage beneficial ownership prior to this offering.
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.
61
<PAGE>
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
COMMON STOCK
NUMBER OF BENEFICIALLY
SERIES B CONVERSION TOTAL PRESENT OWNED PRIOR
INVESTOR SHARES SHARES CONSIDERATION VALUE(1) TO THIS OFFERING(2)
- -------- --------- ---------- ------------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Windcrest Partners............... 87,813 163,525 $ 526,878 $1,962,300 10.6%
Richland Ventures II, L.P........ 77,542 144,398 465,252 1,732,776 11.8
South Atlantic Private Equity
Fund IV, Limited Partnership... 32,568 60,648 195,408 727,776 10.5
South Atlantic Private Equity
Fund IV (QP), Limited
Partnership.................... 44,974 83,750 269,844 1,005,000 10.5
Moore Global Investments, Ltd.... 63,585 118,407 381,510 1,420,884 11.8
Remington Investments Strategies,
L.P............................ 13,958 25,992 83,748 311,904 11.8
Casselberry Partners, L.P........ 52,650 98,044 315,900 1,176,528 5.5
JG Funding, LLC.................. 166,667 310,367 1,000,002 3,724,404 16.9
J. David Grissom................. 164,268 305,899 985,608 3,670,788 20.4
Jack Tyrrell..................... 7,599 14,150 45,594 169,800 12.7
W. Patrick Ortale, III........... 3,799 7,074 22,794 84,888 12.3
</TABLE>
- ------------
(1) Assuming an offering price of $12.00 per share of common stock.
(2) See "Principal Shareholders" for additional information about the
calculation of percentage beneficial ownership prior to this offering.
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.
62
<PAGE>
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
COMMON STOCK
NUMBER OF BENEFICIALLY
SERIES A CONVERSION TOTAL PRESENT OWNED PRIOR
INVESTOR SHARES SHARES CONSIDERATION VALUE(1) TO THIS OFFERING(2)
- -------- --------- ---------- ------------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Windcrest Partners............... 62,499 116,385 $ 249,996 $1,396,620 10.6%
Richland Ventures II, L.P........ 250,000 465,550 1,000,000 5,586,600 11.8
South Atlantic Private Equity
Fund IV, Limited Partnership... 104,999 195,529 419,996 2,346,348 10.5
South Atlantic Private Equity
Fund IV (QP), Limited
Partnership.................... 144,999 270,017 579,996 3,240,204 10.5
Moore Global Investments, Ltd.... 204,999 381,749 819,996 4,580,988 11.8
Remington Investments
Strategies, L.P................ 45,000 83,799 180,000 1,005,588 11.8
Casselberry Partners, L.P........ 30,858 57,463 123,432 689,556 5.5
Chrysalis Ventures Limited
Partnership.................... 78,249 145,715 312,996 1,748,580 17.0
JG Funding, LLC.................. 28,392 52,871 113,568 634,452 16.9
J. David Grissom................. 125,000 232,775 500,000 2,793,300 20.4
</TABLE>
- ------------
(1) Assuming an offering price of $12.00 per share of common stock.
(2) See "Principal Shareholders" for additional information about the
calculation of percentage beneficial ownership prior to this offering.
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.
63
<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................................ 43,277(1) * *
Michael L. Robertson.............................. 696,123(2) 3.7% 3.3%
All directors and executive officers as a group
(15 persons)...................................... 13,873,207(3) 66.3 55.0
J. David Grissom.................................. 3,960,004(4) 20.4 15.7
David A. Jones, Jr................................ 3,229,217(5) 17.0 13.0
</TABLE>
64
<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............ 3,229,217(5) 17.0 13.0
JG Funding, LLC................................... 3,229,217(5) 16.9 13.0
JG Partnership, Ltd............................... 3,229,217(5) 17.0 13.0
Jack Tyrrell...................................... 2,489,859(6) 12.7 9.9
Richland Ventures II, L.P......................... 2,307,687(7) 11.8 9.1
W. Patrick Ortale, III............................ 2,398,770(8) 12.3 9.5
Michael E. Gellert................................ 2,040,310(9) 10.6 8.1
Robert J. Gellert................................. 2,040,310(9) 10.6 8.1
Windcrest Partners................................ 2,040,310(9) 10.6 8.1
Alan Colner....................................... 2,307,686(10) 11.8 9.1
Moore Global Investments, Ltd..................... 2,307,686(10) 11.8 9.1
Remington Investments............................. 2,307,686(10) 11.8 9.1
Louis M. Bacon.................................... 2,307,686(10) 11.8 9.1
Donald W. Burton.................................. 2,028,997(11) 10.5 8.0
South Atlantic Private Equity
Fund IV, Limited Partnership.................... 2,028,997(11) 10.5 8.0
South Atlantic Private Equity
Fund IV (QP), Limited Partnership............... 2,028,997(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) 515,116
shares to be issued upon conversion of convertible notes held by
Mr. Grissom; and (c) 180,291 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) 633,218 shares owned by JG Funding, LLC,
65
<PAGE>
including 363,238 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by JG Funding, 121,654
shares to be issued upon conversion of convertible notes held by JG Funding
and 42,578 shares issuable upon exercise of warrants held by JG 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) 2,307,687 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,
567,881 shares to be issued upon conversion of convertible notes held by
Richland Ventures II and 198,758 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) 182,172 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, 23,077 shares to be issued upon conversion of
convertible notes held by Mr. Tyrrell and 8,076 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) 567,881 shares to be issued upon conversion of convertible notes held by
Richland Ventures II; and (c) 198,758 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) 2,307,687 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, 567,881 shares to
be issued upon conversion of convertible notes held by Richland Ventures II
and 198,758 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) 91,083 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, 11,538 shares to be
issued upon conversion of convertible notes held by Mr. Ortale and 4,038
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 2,040,310 shares owned by Windcrest Partners, including
(a) 279,910 shares to be issued upon automatic conversion of all shares of
our convertible preferred stock owned by Windcrest Partners; (b) 218,626
shares to be issued upon conversion of convertible notes held by Windcrest
Partners; and (c) 76,519 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. Michael E. Gellert and Mr. Robert J. Gellert share 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) 1,884,640 shares owned by Moore Global Investments, Ltd.,
including 500,156 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock
66
<PAGE>
owned by Moore Global Investments, 459,987 shares to be issued upon
conversion of convertible notes held by Moore Global Investments, and
160,995 shares issuable upon the exercise of 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) 423,046 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, 107,894 shares to be issued upon
conversion of convertible notes held by Remington Investments Strategies,
and 37,763 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, Ltd. Moore Capital Advisors, L.L.C., a New York limited
liability company, is the sole general partner of Remington Investment
Strategies L.P. Mr. Louis M. Bacon is the majority shareholder of Moore
Capital Management, Inc., and is the majority equity holder of Moore Capital
Advisors, L.L.C. As a result, Mr. Bacon, though he disclaims beneficial
ownership of the shares, may be deemed to be the beneficial owner of the
aggregate shares held by Moore Global Investments, Ltd. and Remington
Investment Strategies, L.P. Alan Colner is a Managing Director, Private
Equity Investments Ltd., 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) 852,179 shares owned by South Atlantic Private Equity Fund
IV, Limited Partnership, including (a) 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, 151,808
shares to be issued upon conversion of convertible notes held by South
Atlantic Private Equity Fund IV, Limited Partnership, and 53,132 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) 1,176,818
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, 209,640 shares to
be issued upon conversion of convertible notes held by South Atlantic
Private Equity Fund IV (QP), Limited Partnership, and 73,373 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.
67
<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. Of these
shares:
- 1,200,000 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; and
- 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
68
<PAGE>
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:
- for each share of preferred stock, the stated value of such share, plus
accrued and unpaid dividends thereon or
- 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 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.
69
<PAGE>
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 warrants to purchase 10,994 shares of our common stock with a weighted
average exercise price of $7.51 per share.
Pursuant to a marketing agreement with Trans Union, we agreed to issue to
Trans Union, upon the closing of this offering, a warrant to purchase 190,875
shares of our common stock at an exercise price equal to the initial public
offering price in this offering. This warrant will become exercisable 180 days
after the closing of this offering.
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
70
<PAGE>
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 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
71
<PAGE>
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
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.
We also agreed to grant to Trans Union registration rights with respect to
the shares issuable upon the exercise of a warrant to purchase 190,875 shares of
common stock that we agreed to issue to Trans Union upon the closing of this
offering. Under these registration rights, Trans Union will be entitled to
require us to include the warrant shares in registration statements that we may
file for the purpose of offering securities to the public. In addition, under
these registration rights, Trans Union will be entitled to demand that we
register the warrant shares for resale when we become eligible to register
securities under a short-form registration statement on Form S-3. We expect to
become eligible to use a short-form registration statement on Form S-3 one year
after the date of this prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Union
National Bank.
72
<PAGE>
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 our
affilates may sell 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
73
<PAGE>
options. In addition, the holders of warrants exercisable for approximately
851,058 shares of common 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.
74
<PAGE>
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. The underwriting discounts and
commissions per share represent % of the initial public offering price.
75
<PAGE>
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. We also may issue shares of common
stock in connection with any acquisition of, or strategic relationship with,
another company if the terms of such issuance provide that such common stock
shall not be resold prior to the expiratin of the 180-day period referenced in
the preceding sentence.
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
76
<PAGE>
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 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 434,000 shares in this offering:
- up to 250,000 shares D.R. Horton, Inc. and two affiliated entities; and
- up to 184,000 shares to our directors and director nominees, selected
officers and employees, selected vendors and clients 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 which are not purchased will be
offered by the underwriters to the general public on the same terms as the other
shares offered by this prospectus.
77
<PAGE>
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
78
<PAGE>
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.
79
<PAGE>
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-20
Balance Sheet as of December 31, 1999....................... F-21
Statement of Operations for the Year Ended December 31,
1999...................................................... F-22
Statement of Changes in Shareholders' Equity for the Year
Ended December 31, 1999................................... F-23
Statement of Cash Flows for the Year Ended December 31,
1999...................................................... F-24
Notes to Financial Statements............................... F-25
INSPECTECH CORPORATION
Report of Independent Accountants........................... F-28
Balance Sheets as of December 31, 1998 and 1999............. F-29
Statements of Operations for the Years Ended December 31,
1998 and 1999............................................. F-30
Statement of Changes in Shareholders' Equity (Deficit) for
the Years Ended December 31, 1999 and 1998................ F-31
Statements of Cash Flows for the Years Ended December 31,
1998 and 1999............................................. F-32
Notes to Financial Statements............................... F-33
E.T. JONES & ASSOCIATES, INC.
Report of Independent Accountants........................... F-41
Statement of Operations for the Period January 1, 1999
through August 31, 1999................................... F-42
Statement of Changes in Shareholders' Equity for the Period
January 1, 1999 through August 31, 1999................... F-43
Statement of Cash Flows for the Period January 1, 1999
through August 31, 1999................................... F-44
Notes to Financial Statements............................... F-45
STEWART TITLE OF BIRMINGHAM, INC.
Report of Independent Accountants........................... F-47
Statement of Operations for the Period January 1, 1999
through August 31, 1999................................... F-48
Statement of Cash Flows for the Period January 1, 1999
through August 31, 1999................................... F-49
Notes to Financial Statements............................... F-50
THE WILLIAM FALL GROUP, INC.
Report of Independent Accountants........................... F-52
Statement of Operations for the Period January 1, 1999
through February 28, 1999................................. F-53
Statement of Changes in Shareholders' Equity for the Period
January 1, 1999 through February 28, 1999................. F-54
Statement of Cash Flows for the Period January 1, 1999
through February 28, 1999................................. F-55
Notes to Financial Statements............................... F-56
KUSHNER & ROBERTSON, INC.
Report of Independent Accountants........................... F-58
Statement of Operations for the Period January 1, 1998
through June 14, 1998..................................... F-59
Statement of Changes in Shareholders' Equity for the Period
January 1, 1998 through June 14, 1998..................... F-60
Statement of Cash Flows for the Period January 1, 1998
through June 14, 1998..................................... F-61
Notes to Financial Statements............................... F-62
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
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 LLP
Atlanta, Georgia
March 10, 2000 except as to
Note 11 for which the
date is April 4, 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 1,180,423
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 was effected through a stock dividend on April 4,
2000. The accompanying financial statements give retroactive effect for this
stock split as if it occurred at inception of the Company.
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.
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.
F-7
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. In determining the lives
assigned to intangible assets, we consider the nature of the acquired entities
operations and anticipated changes in the operating environment.
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 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
F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
Pardue, 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
Pardue, 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>
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. In January 2000, we issued and sold $9,721,862 of
convertible notes to related parties at a rate of 8% per annum due 6 months
after date of issue unless we complete an initial public offering. (see
Note 7). We have obtained a commitment from our current investors to, as deemed
appropriate by the Board of Directors, continue such fundings on a pro rata
equity basis through March 31, 2001. Furthermore, in the event that a planned
initial public offering does not occur, such investors have agreed to extend the
due dates of the convertible notes to June 30, 2001.
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.
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 1,350,337 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.
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.
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.
F-14
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BASED COMPENSATION (CONTINUED)
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>
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
F-15
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BASED COMPENSATION (CONTINUED)
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 full valuation allowance. Realization of
these assets is contingent upon the Company having future taxable earnings.
Based on the cumulative losses in recent years and the limitations on the use of
the Company's net operating losses we believe that a full valuation allowance
should be recorded against the deferred tax asset. 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>
F-16
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
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-17
<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-18
<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 was effected through a stock dividend effective
April 4, 2000.
F-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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.......................................... 231,455 231,455
---------- ------- -------- --------
Balance at June 14, 1998.............................. 1,000,000 $70,270 $875,639 $945,909
========== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<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-61
<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-62
<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-63
<PAGE>
[Picture of PRIMIS logo in center of page]
"Our PRIMIS is simple..."
[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............................... 6
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Pro Forma Consolidated Financial
Information.............................. 18
Selected Consolidated Financial Data....... 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 28
Business................................... 34
Management................................. 52
Related Party Transactions................. 60
Principal Shareholders..................... 64
Description of Capital Stock............... 68
Shares Eligible for Future Sale............ 73
Underwriting............................... 75
Legal Matters.............................. 78
Experts.................................... 78
Where You Can Find More Information........ 78
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......... $ 24,470
NASD filing fee............................................. 9,770
Nasdaq Stock Market original listing fee.................... 95,000
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............................................... 115,760
----------
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.
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 company; (b) acts or omissions which
involve intentional misconduct or a knowing violation of law;
II-2
<PAGE>
(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 3,296,269
shares of common stock with exercise prices ranging from $0.54 to $8.22
per share, and options to purchase 439,500 shares with an exercise price
equal to the initial public offering price 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
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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,
II-5
<PAGE>
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:
- 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;
- 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 April 6, 2000.
<TABLE>
<S> <C> <C>
PRIMIS, INC.
By: /s/ C. JAMES SCHAPER
-----------------------------------------
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>
/s/ C. JAMES SCHAPER Chairman of the Board, President April 6, 2000
---------------------------------------- and Chief Executive Officer
C. James Schaper (principal executive officer)
Executive Vice President and April 6, 2000
/s/ DAVID A. POST Chief Financial Officer
---------------------------------------- (principal financial officer
David A. Post and accounting officer)
DONALD W. BURTON* April 6, 2000
---------------------------------------- Director
Donald W. Burton
DOUGLAS F. COBB* April 6, 2000
---------------------------------------- Director
Douglas F. Cobb
ALAN COLNER* April 6, 2000
---------------------------------------- Director
Alan Colner
MICHAEL E. GELLERT* April 6, 2000
---------------------------------------- Director
Michael E. Gellert
J. DAVID GRISSOM* April 6, 2000
---------------------------------------- Director
J. David Grissom
GEOFFREY P. MOTT* April 6, 2000
---------------------------------------- Director
Geoffrey P. Mott
JACK TYRRELL* April 6, 2000
---------------------------------------- Director
Jack Tyrrell
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ CONNIE C. BREESER
--------------------------------------
Connie C. Breeser
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
PRIMIS, INC.
Our audits of the consolidated financial statements of PRIMIS, Inc. referred
to in our report dated March 10, 2000 except as to Note 11 which the date is
April 4, 2000 appearing in this Registration Statement on Form S-1 also included
an audit of the financial statement schedule in this Form S-1. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
April 7, 2000
S-1
<PAGE>
SCHEDULE II
PRIMIS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C--ADDITIONS
-----------------------------
COLUMN B-- (1)--
BALANCE AT CHARGED TO (2)--CHARGED TO COLUMN D-- COLUMN E--
COLUMN A-- BEGINNING OF COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ------------ ---------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts.............. 1997 19,978 26,022 46,000
1998 46,000 458,534 55,534 449,000
1999 449,000 1,180,423 826,423 803,000
</TABLE>
S-2
<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
April 3, 2000, by and between the Registrant and David A.
Post.*
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.+
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.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
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.+
10.24 Employment and Non-Competition Agreement, dated as of
January 1, 2000 by and between the Registrant and Kathleen
G. Bergeron.*
10.25 Employment and Non-Competition Agreement, dated as of
January 1, 2000 by and between the Registrant and M. Brent
Burns.*
10.26 First Amendment to Employment and Non-Competition Agreement,
dated April 5, 2000, by and between the Registrant and
C. James Schaper.*
10.27 Form of Services Purchase Agreement, dated as of April 5,
2000, by and between the Registrant and Trans Union LLC.
10.28 Form of Channel Partner Agreement, dated as of April 5,
2000, by and between the Registrant and Trans Union LLC,
together with form of Warrant and form of Registration
Rights Agreement.
10.29 Operating Agreement, dated as of April , 2000, by and
between the Registrant and Encore Venture Partners II
(Texas), L.P. for the formation of REalitics, LLC.++
10.30 Services Purchase Agreement, dated as of April , 2000, by
and between the Registrant and REalitics, LLC.++
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.+
24.2 Power of Attorney--David A. Post
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 10.2
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT
("Agreement") is made and entered into as of the 3rd day of April, 2000, by
and between PRIMIS, INC., a Georgia corporation (the "Company"), and David A.
Post, an individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company
desires to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, it is agreed by
and between the parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on the
date hereof and ending on April 3, 2004, unless Employee's employment
terminates prior thereto as provided in Section 6 (the "Term"). Thereafter,
this Agreement shall continue in full force and effect, except that Section 6
shall no longer be applicable, and either party hereto may terminate
Employee's employment hereunder upon ninety (90) days prior written notice to
the other.
3. DUTIES. Employee shall be employed by the Company as Executive
Vice President of the Company, having responsibility for the Finance,
Strategic Planning, and Merger and Acquisition functions of the Company's
business. So long as Employee is employed hereunder, Employee agrees to
devote his full business time and energy to the business and affairs of the
Company, to perform his duties hereunder to the best of his ability and at a
level of competency consistent with the position occupied, to act on all
matters in a manner Employee reasonably believes to be in and not opposed to
the best interests of the Company, to use his best efforts, skill and ability
to promote the profitable growth of the Company, and to perform such other
duties as may be assigned to him by the Company's Chief Executive Officer,
Chairman or by the Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by Employee,
the Company shall pay compensation and provide benefits to Employee as
follows:
A. SALARY. The Company shall pay Employee an annual salary
("Salary") of Two Hundred Thousand Dollars ($ 200,000), payable not less
frequently than monthly. At least once every twelve (12) months the Board
shall review Employee's Salary and make such
<PAGE>
adjustments to the Salary as it reasonably deems appropriate, provided that
the Salary shall not be reduced.
B. INCENTIVE CASH BONUS. See bonus plan attached hereto as
Exhibit A.
C. BUSINESS EXPENSES. The Company shall reimburse Employee
for reasonable direct out-of-pocket ordinary and necessary expenses,
including trade association dues, if any, incurred by Employee in the
performance of services hereunder and for which Employee properly accounts in
accordance with the Company's regulations and procedures in effect from time
to time.
D. ADDITIONAL BENEFITS. Employee shall be entitled to
participate on the same terms and conditions as employees similarly situated
in any and all employee retirement, medical, life and disability insurance,
vacation and other benefits plans and perquisites as may be established and
in effect from time to time and made available to employees of the Company.
5. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
6. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's employment
with the Company shall terminate prior to the expiration of the Term, without
further obligation on the part of the Company, except as provided in this
Agreement, only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for misconduct, dishonesty or
fraud on Employee's part in connection with the performance of any duties
hereunder;
D. The discharge of Employee for a material breach by
Employee of any of the terms of Sections 8, 9 or 11 of this Agreement;
E. The discharge of Employee upon a determination by the
Board, acting in good faith and with reasonable justification, that
Employee's performance has been unsatisfactory, after first having given
written notice to the Employee that the Employee's performance has been
unsatisfactory (which notice shall set forth in reasonable detail the nature
of the unsatisfactory performance), and Employee having failed to cure such
unsatisfactory performance within thirty (30) days thereafter to the
reasonable satisfaction of the Company;
F. The discharge of Employee upon a determination that
Employee has been unable, for any continuous period of at least three (3)
months, or for shorter periods aggregating three (3) months during any
12-month period, to perform his duties hereunder by reason of injury, illness
or other physical or mental disability (such determination to be made by
agreement
-2-
<PAGE>
between the Company and Employee, or, in the event the Company and Employee
are unable to agree on such determination, and upon written notice thereof by
either party to the other, then each of the Company and Employee shall,
within ten (10) days after such notice is given, select a qualified and
licensed physician, and such physicians together shall select a third
licensed and qualified physician who will make such determination within
thirty (30) days after his or her appointment and whose determination shall
be binding upon all parties hereto); or
G. The discharge of Employee for conviction of Employee of
a crime involving moral turpitude.
7. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 7(B) and 7(C)
below, in the event Employee's employment with the Company shall terminate
during the Term for any reason including termination as provided in Section
6, or thereafter pursuant to Section 2: [i] Employee's Salary shall be
prorated and paid through the date of termination; and [ii] all unvested
options to purchase common stock of the Company shall cease and terminate as
of the date of termination.
B. In the event of Employee's termination pursuant to
Section 6(B) or 6(F) hereof, Employee shall be entitled to receive, at such
time as it would otherwise be payable, any Incentive Cash Bonus which would
have been payable, based upon the Company's performance over the full fiscal
year, prorated for that portion of the fiscal year during which the Employee
was employed by the Company.
C. In the event of Employee's termination pursuant to
Section 6(F), the Company agrees to continue to pay Employee's full Salary
during such period of disability, said payments to continue for a maximum of
six (6) months. Thereafter, Employee shall be paid disability benefits
pursuant to the disability insurance, if any, established by the Company and
in which Employee participates pursuant to Section 4(D) of this Agreement.
D. In the event of Employee's termination of employment
prior to the expiration of the Term, for any reason other than those reasons
set forth in Section 6 of this Agreement, the Company shall [i] pay Employee
in equal monthly installments for a period of twelve (12) months from the
date of termination (the "Severance Period"), an amount, in the aggregate,
equal to Employee's annual Salary in effect at the date of termination, which
installments shall be mitigated and reduced by the amount of any compensation
paid to Employee by another employer for services performed during the
Severance Period (and Employee agrees in good faith to seek to obtain and
maintain such other employment during the Severance Period), and [ii] pay
Employee at such time as it otherwise would have been payable, the Incentive
Cash Bonus, if any, which would have been payable, based upon the Company's
performance over the full fiscal year, prorated for that portion of the
fiscal year during which Employee was employed by the Company.
-3-
<PAGE>
8. CHANGE IN CONTROL.
A. Notwithstanding Sections 6 and 7 of this Agreement to
the contrary, if Employee's employment with the Company and/or its
subsidiaries or a successor is terminated by the Company within twelve (12)
months following a Change in Control, as defined herein, (i) for any reason
(unless such termination is pursuant to Section 6 of this Agreement) or (ii)
by Employee for Good Reason (as defined herein), Employee shall be entitled
to the following compensation and benefits:
[1] the Company shall pay to Employee all of Employee's
compensation earned or accrued through the date of termination but not paid
as of the date of termination, including base salary in effect as of the date
termination, vacation pay, and any incentive compensation which has been
awarded or allocated to Employee for a fiscal year preceding the termination
date but has not yet been paid; and
[2] the Company shall pay Employee (i) in equal
monthly installments for a period of twelve (12) months form the date of
termination, an amount, in the aggregate, equal to the Employee's Salary in
effect of the date of termination, and (ii) at such time as it otherwise
would have been payable, the Incentive Cash Bonus, if any, which would have
been payable, based upon the Company's performance over the full fiscal year,
prorated for that portion of the fiscal year during which Employee was
employed by the Company.
B. CHANGE IN CONTROL. The term "Change in Control" shall
have the same meaning as contained in Employee's Stock Option Agreement dated
the date hereof.
C. GOOD REASON. The term "Good Reason" means the occurrence
after a Change in Control of any of the following events or conditions:
[1] a significant adverse change in Employee's duties or
responsibilities form those in effect at any time within ninety (90) days
preceding the date of a Change in Control or a change in Employee's reporting
responsibilities or offices as in effect immediately before a Change in
Control (it being understood that the failure of Employee to have duties or
responsibilities after the Change in Control comparable to those in effect
immediately before the Change in Control shall constitute a significant
adverse change in duties or responsibilities);
[2] a reduction in Employee's base salary or the failure
by the Company to increase Employee's base salary each year after a Change in
Control by an amount which at least equals, on a percentage basis, the mean
average percentage increase in base salary for all officers of the Company
during the two (2) full calendar years immediately preceding a Change in
Control;
[3] the Company's failure to provide employee benefits
to Employee which are comparable to those provided to similarly situated
employees of the Company; or
[4] the taking of any action by the Company or successor
not required by law which would adversely affect Employee's participation in
or materially reduce
-4-
<PAGE>
Employee's benefits under any benefit, compensation or bonus plan or
arrangement in which Employee is participating immediately preceding the
Change in Control, or deprive Employee of any material fringe benefit enjoyed
by Employee at the time of the Change in Control.
9. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the
inducements for the Company to enter into this agreement of employment is the
understanding that the Employee will not compete or interfere, directly or
indirectly, for a period of time after the termination of Employee's
employment with the Company. Employee further recognizes and acknowledges
that, in consideration of the scope of the business of the Company and the
nature of the services Employee provides to the Company, and in order to
protect the Company's legitimate interests, Employee's covenant not to
compete must include each of the areas where the Company currently does
business, which areas include Alabama, Arizona, California, District of
Columbia, Florida, Georgia, Maryland, Michigan, Missouri, North Carolina, New
Jersey, Nevada, Ohio, Oregon, Tennessee, Texas, Virginia and Washington
(collectively, the "Territory"), to the extent Employee hereafter actively
performs, supervises or assists in the Company's business in such areas or
has material contact with customers of the Company within such areas.
Employee agrees that this Agreement shall be amended by Employee and Company
from time to time to reflect any changes in the Territory for which Employee
shall have responsibilities. In consideration of the covenants herein,
Employee agrees that for the period Employee is employed by the Company
(whether during the Term or after the Term ends) and for a one-year period
immediately following the termination of his employment with the Company for
any reason whatsoever, Employee shall not, within the Territory, in any
manner, directly or indirectly or by assisting others, engage in any business
which is the same or essentially the same as the business of the Company,
such business being the business of real estate information services,
including commercial and residential real estate appraisals, home
inspections, title services, flood determinations, energy audits, and related
property information services as an manager or as a supervisor,
administrator, executive, senior or management level employee, owner,
proprietor, shareholder or consultant performing duties the same as or
substantially similar to those performed by Employee hereunder; provided that
Employee shall not be restricted from owning less than 3% of the outstanding
shares of a company whose shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period
Employee is employed by the Company (whether during the Term or after the
Term ends) and for a one-year period immediately following the termination of
Employee's employment with the Company for any reason whatsoever, Employee
shall not (other than in the regular course of the Company's business),
within the Territory, solicit, directly or indirectly, business of the type
then being performed therein by the Company from any person, partnership,
corporation or other entity which [a] is a customer of the Company within the
Territory at the time Employee's employment with the Company terminates,
including an actively-sought prospective customer, or [b] was such a customer
within the two-year period immediately prior thereto, for the purposes of
providing products or services that are competitive with those provided by
the Company, provided that in the case of either [a] or [b], Employee had
material contact with such customer during and as a part or result of
Employee's employment with the Company.
-5-
<PAGE>
10. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period
Employee is employed by the Company (whether during the Term or after the
Term ends) and for a two-year period immediately following the termination of
Employee's employment with the Company for any reason whatsoever, Employee
shall not directly or indirectly, individually or on behalf of persons not
parties to this Agreement, aid or endeavor to solicit or induce any of the
Company's employees to leave their employment with the Company in order to
accept employment with Employee or another person, partnership, corporation
or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge,
furnish or make accessible to anyone (other than in the regular course of the
Company's business) any knowledge or information with respect to confidential
information or data of the Company, or with respect to any confidential
information or data of any of the customers of the Company, or with respect
to any other confidential aspect of the business or products or services of
the Company or its customers.
11. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees
that Company may not be adequately compensated by damages for a breach by
Employee of any of the covenants contained in Sections 8 and 9, and that, in
addition to all other remedies, the Company shall be entitled to injunctive
relief and specific performance. The covenants contained in Sections 8 and 9
shall be construed as separate covenants, and if any court shall finally
determine that the restraints provided for in any such covenants are too
broad as to the geographic area, activity or time covered, said area,
activity or time covered may be reduced to whatever extent the court deems
reasonable and such covenants shall be enforced as to such reduced area,
activity or time and Employee expressly agrees that this Agreement, as so
amended, shall be valid and binding.
12. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all
times during the term of Employee's employment and thereafter, Employee will
hold in strictest confidence and will not disclose, use, lecture upon or
publish any of the Company's Proprietary Information (defined below), except
as such disclosure, use or publication may be required in connection with his
work for the Company, or unless the Chief Executive Officer or the Board of
Directors of the Company expressly authorizes such in writing. Employee shall
and hereby does assign to the Company any rights Employee may have or acquire
in such Proprietary Information and recognizes that all Proprietary
Information shall be the sole property of the Company and its assigns and
that the Company and its assigns shall be the sole owner of all patent
rights, copyrights, trade secret rights and all other rights throughout the
world (collectively, "Proprietary Rights") in connection therewith. The term
"Proprietary Information" shall mean trade secrets, confidential knowledge,
data or any other proprietary information of the Company which the Company
treats as confidential with respect to the general public. By way of
illustration but not limitation, "Proprietary Information" includes (a)
inventions, trade secrets, ideas, processes,
-6-
<PAGE>
formulas, data, programs, other words of authorship, know-how, improvements,
discoveries, developments, designs and techniques relating to the business or
proposed products of the Company and which were learned or discovered by
Employee during the term of his employment with the Company (hereinafter
collectively referred to as "Inventions"); and (b) information regarding
plans for research, development, new products and services, marketing and
selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers which were learned or
discovered by Employee during the term of his employment with the Company,
and information regarding the skills and compensation of other employees of
the Company. For purposes of this Agreement, the term "Proprietary
Information" shall not include information that Employee can show by
competent proof (i) was known to Employee prior to disclosure by the Company;
(ii) was generally known to the public at the time Company disclosed the
information to Employee; (iii) became generally known to the public after
disclosure by the Company through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to
possess the information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in
addition, that the Company may from time to time receive from third parties
confidential or proprietary information ("Third Party Information") subject
to a duty of the Company's part to maintain the confidentiality of such
information and to use it only for certain limited purposes. During the term
of his employment and thereafter, Employee will hold Third Party Information
in the strictest confidence and will not disclose to anyone (other than
Company personnel who need to know such information in connection with their
work for the Company) or use, except in connection with his work for the
Company, Third Party Information unless expressly authorized by the Chairman
or Chief Executive Officer of the Company in writing.
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the
Company all right, title and interest in and to any and all Inventions (and
all Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived
or reduced to practice or learned by Employee, either alone or jointly with
others, during the period of his employment with the Company.
[2] Employee shall and hereby does acknowledge that all
original works of authorship which are made by Employee (solely or jointly
with others) during the term of his employment with the Company and that are
within the scope of his employment and which are protectable by copyright are
"works made for hire," as that term is defined in the United States Copyright
Act (17 U.S.C., Section 1201). Inventions assigned to or as directed by the
Company by this Section 11.C are hereinafter referred to as "Company
Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will assist
the Company in every proper way to obtain and from time to time enforce
United States and foreign Proprietary Rights relating to Company Inventions
in any and all countries. To that end Employee will execute, verify and
deliver such documents and perform such other acts (including appearances
-7-
<PAGE>
as a witness) as the Company may reasonably request for use in applying for,
obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary
Rights and the assignment thereof. In addition, Employee will execute, verify
and deliver assignments of such Proprietary Rights to the Company or its
designee. Employee's obligation to assist the Company with respect to
Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of Employee's employment, but
the Company shall compensate Employee at a reasonable rate after Employee's
termination for the time actually spent by Employee at the Company's request
on such assistance. In the event the Company is unable for any reason, after
reasonable effort, to secure Employee's signature on any document needed in
connection with the actions specified in the preceding, Employee hereby
irrevocably designates and appoints the Company and its duly authorized
officers and agents as Employee's agent and attorney in fact, to act for and
in Employee's behalf to execute, verify and file any such documents and to do
all other lawfully permitted acts to further the purposes of the preceding
paragraph thereon with the same legal force and effect as if executed by
Employee. Employee hereby waives and quitclaims to the Company any and all
claims, of any nature whatsoever, which Employee now or may hereafter have
for infringement of any Proprietary Rights assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or
unpatented, which Employee made prior to the commencement of employment with
the Company are excluded from the scope of this Agreement.
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the
employ of the Company, Employee will deliver to the Company all drawings,
notes, memoranda, specifications, devices, formulas, and documents, together
with all copies thereof, and any other material containing or disclosing any
Company Invention, Third Party Information or Proprietary Information of the
Company. Employee further agrees that any property situated on the Company's
premises and owned by the Company, including disks and other storage media,
filing cabinets or other work areas, is subject to inspection by Company
personnel at any time with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's
services are personal and unique and because Employee may have access to and
become acquainted with the Proprietary Information of the Company, the
Company shall have the right to enforce this Section 11 of the Agreement and
any of its provisions by injunctions, specific performance or other equitable
relief, without bond, without prejudice to any other rights and remedies that
the Company may have for a breach of this Agreement.
13. NOTICES. All notices and other communications hereunder shall be
in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram,
as follows, or to such other person or address as shall be hereafter
designated by notice given in accordance with this Section:
-8-
<PAGE>
If to the Company: Primis, Inc.
Attn: James Schaper
Suite 320
11475 Great Oaks Way
Alpharetta, Georgia 30022
With a copy to: Primis, Inc.
11475 Great Oaks Way
Suite 320
Alpharetta, Georgia 30022
Attn: Chief Legal Officer
If to Employee: David A. Post
720 Fawn Ridge Court
Roswell, GA 30075
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or
when attempted delivery shall be rejected, as the case may be, if made by
letter, upon deposit thereof in the mail, postage prepaid, registered or
certified, with return receipt requested, and if made by telegram, facsimile
or reputable overnight courier when sent. Notwithstanding the foregoing, any
notice or other communication hereunder which is actually received by a party
hereto shall be deemed to have been duly given or made to such party.
14. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to
insist upon compliance with any provision hereof shall not operate as, and is
not to be construed as, a waiver or amendment of such provision. The waiver
by either party of a breach of any provision of this Agreement by the other
shall not operate or be construed as a waiver of any subsequent breach,
whether occurring under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment
in writing signed by the parties hereto. All prior agreements or
understandings concerning Employee's employment by the Company are hereby
canceled and superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of the remainder of this Agreement.
-9-
<PAGE>
E. HEADINGS. The headings contained in this Agreement are
for convenience only and shall not be deemed a part of this Agreement in
construing or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia. In connection
with the enforcement of this Agreement, the parties consent to jurisdiction
in the courts of Georgia. The prevailing party in any action to enforce this
Agreement shall be entitled to attorneys' fees from the non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. ss. 9-9-2(c)(9),
as evidenced by the parties affixing their initials hereon next to this
Section 14.G., any controversy arising out of, or relating to, this Agreement
or any modification or extension of this Agreement, including any claim for
damages, rescission, specific performance or other legal or equitable relief,
shall be settled by arbitration in the City of Atlanta, State of Georgia, in
accordance with the rules then obtaining of the American Arbitration
Association. The determination of the arbitrator when made shall be binding
upon all parties bound by the terms of this Agreement. Judgment upon the
award rendered by the arbitrator may be entered in any court of competent
jurisdiction. The foregoing notwithstanding, the Company shall have the right
to seek injunctive relief from any court of competent jurisdiction in the
event of any breach or threatened breach of Sections 8, 9 or 11 of this
Agreement. Initials: Company: ______________; Employee: _____________________.
H. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this
Employment Agreement on the date set forth below but effective as of the day
and year first written on page 1 of this Agreement.
PRIMIS, INC.
By:__________________________________
Dated: ___________, 2000
Title:________________________________
Dated: ___________, 2000 _____________________________________
David A. Post
-10-
<PAGE>
EXHIBIT A
CORPORATE BONUS PLAN
EXECUTIVE/DIRECTOR LEVEL JANUARY 2000
- ---------------------------------------------------------------------------
PURPOSE
This bonus plan reflects our goal of having a portion of every employee's,
that manages/supervises others or key individual contributors, total
compensation "at risk". Specific company financial targets and individual or
functional area goals and objectives will be consistent with the overall
company operating plan for 2000.
OVERVIEW
The bonus plan consists of the following components:
1. Corporate financial objectives measured by:
a. Revenue
b. E-commerce Revenues
c. Earnings Before Interest, Tax, Depreciation, and Amortization
(EBITDA)
2. Individual and/or functional area goals and objectives
EFFECTIVE DATE
This bonus plan is effective January 1, 2000 and supercedes all prior bonus
plans and /or incentive arrangements for eligible employees. This plan pays
out annually after publication of audited financial statement.
BONUS BANDS
Eligible employees would have 25%-60% of base salary in bonus potential at
100% plan achievement.
ELIGIBLE PARTICIPANTS
This plan includes all Executives (excludes CEO) and Directors currently
employed and those beginning employment after January 1, 2000 on a pro-rata
basis.
BONUS COMPOSITE PERCENTAGES
1. Achievement of corporate financial objective = 40 - 75%
2 Achievement of individual objectives = 25 - 75%
Proportionate combination of the above comprise 100% of target bonus.
Proportions determined individually. Example: $100,000 base salary, target
bonus of 30% or $30,000 with 50% ($15,000) corporate component and 50%
($15,000) individual component.
-11-
<PAGE>
PAY-OUT SCHEDULE
1. ACHIEVEMENT OF CORPORATE 2000 FINANCIAL GOALS* PAY-OUT
---------------------------------------------------------------------------
0 - 89% 0%
90 - 99% 50%
100% 100%
101 - 110% 125%
111 - 125% 150%
126 - 150%+ 200%
2. ACHIEVEMENT OF INDIVIDUAL OBJECTIVES PAY-OUT
--------------------------------------------------------------------------
below 50% 0%
50 - 99% 50%
100% 100%
*No bonus will be paid if a minimum of 90% of the company's financial plan is
not achieved in either bonus category.
-12-
<PAGE>
[LOGO]
2000 Corporate Bonus
PLAN DESCRIPTION
-EXECUTIVE/DIRECTOR LEVEL-
EMPLOYEE NAME: David A. Post
EMPLOYEE TITLE: Executive Vice President & Chief Financial Officer
2000 TOTAL BONUS TARGET AMOUNT AT 100% OF ACHIEVEMENT OF PLAN: $100,000
- -------------------------------------------------------------
BONUS COMPONENTS
- ----------------
PRIMIS FINANCIAL TARGETS:
-------------------------
-2000 Total Revenue $TBD
-2000 E-Commerce Revenue $TBD
-2000 EBITDA $TBD
BONUS TARGET AT 100%: $75,000
--------------------
INDIVIDUAL/FUNCTIONAL AREA OBJECTIVES:
--------------------------------------
1. TBD
2. TBD
3. TBD
4. TBD
5. TBD
BONUS TARGET AT 100% ACHIEVEMENT: $ 25,000
--------------------------------
-13-
<PAGE>
BONUS PAY-OUT GUIDELINES:
1. Bonus pay-out will occur annually after publication of the audited
financial statement.
2. No pay-out will occur for corporate or individual/functional area bonus
components if a minimum of 90% of the company's financial targets are not
met.
3. Bonus pay-out for the corporate component within the performance bands will
be calculated linearly within pay-out bands.
EXAMPLE: 90% achievement pays 50% of bonus
95% achievement pays 75% of bonus
4. Participant must be an employee at the time of bonus pay-out.
5. New hires that join Primis after 1-1-2000 will be eligible for a
pro-rated bonus based start date, and new hires who join Primis after
October 1, 2000 will not be eligible for a bonus based on 2000 results.
6. The BOD and the CEO can change the plan without notice.
-14-
<PAGE>
EXHIBIT 10.24
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT ("Agreement") is
made and entered into as of the 1st day of January, 2000, by and between
PRIMIS, INC., a Georgia corporation (the "Company"), and Kathleen G. Bergeron,
an individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires to
employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee accepts
employment by the Company and agrees to serve the Company, upon the terms and
conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on the date
hereof and ending on October 11, 2003, unless Employee's employment terminates
prior thereto as provided in Section 6 (the "Term"). Thereafter, this Agreement
shall continue in full force and effect, except that Section 6 shall no longer
be applicable, and either party hereto may terminate Employee's employment
hereunder upon ninety (90) days prior written notice to the other.
3. DUTIES. Employee shall be employed by the Company as Vice President,
Human Resources. So long as Employee is employed hereunder, Employee agrees to
devote her full business time and energy to the business and affairs of the
Company, to perform her duties hereunder to the best of her ability and at a
level of competency consistent with the position occupied, to act on all matters
in a manner Employee reasonably believes to be in and not opposed to the best
interests of the Company, to use her best efforts, skill and ability to promote
the profitable growth of the Company, and to perform such other duties as may be
assigned to her by the Company's Chief Executive Officer, Chairman or by the
Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by Employee, the
Company shall pay compensation and provide benefits to Employee as follows:
A. SALARY. The Company shall pay Employee an annual salary
("Salary") of ONE HUNDRED THOUSAND DOLLARS ($100,000.00), payable not less
frequently than monthly. At least once every twelve (12) months the Board shall
review Employee's Salary and make such adjustments to the Salary as it
reasonably deems appropriate, provided that the Salary shall not be reduced.
<PAGE>
B. INCENTIVE BONUS. Paid annually as outlined in the exiting
version of the Corporate Bonus Plan for executives of the same level.
C. BUSINESS EXPENSES. The Company shall reimburse Employee for her
reasonable direct out-of-pocket ordinary and necessary expenses, including trade
association dues, if any, incurred by Employee in the performance of her
services hereunder and for which Employee properly accounts in accordance with
the Company's regulations and procedures in effect from time to time.
D. ADDITIONAL BENEFITS. Employee shall be entitled to participate
on the same terms and conditions as employees similarly situated in any and all
employee retirement, medical, life and disability insurance, vacation and other
benefits plans and perquisites as may be established and in effect from time to
time and made available to employees of the Company.
5. WITHHOLDING. The Company shall be authorized to deduct and withhold
from Employee's compensation such sums as are required by law to be deducted and
withheld.
6. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's employment with
the Company shall terminate prior to the expiration of the Term, without further
obligation on the part of the Company, except as provided in this Agreement,
only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for misconduct, dishonesty or fraud
on Employee's part in connection with the performance of any duties hereunder;
D. The discharge of Employee for a material breach by Employee of
any of the terms of Sections 8, 9 or 11 of this Agreement;
E. The discharge of Employee upon a determination by the Board,
acting in good faith and with reasonable justification, that Employee's
performance has been unsatisfactory, after first having given written notice to
the Employee that the Employee's performance has been unsatisfactory (which
notice shall set forth in reasonable detail the nature of the unsatisfactory
performance), and Employee having failed to cure such unsatisfactory performance
within thirty (30) days thereafter to the reasonable satisfaction of the
Company;
F. The discharge of Employee upon a determination that Employee
has been unable, for any continuous period of at least three (3) months, or for
shorter periods aggregating three (3) months during any 12-month period, to
perform her duties hereunder by reason of injury, illness or other physical or
mental disability (such determination to be made by agreement between the
Company and Employee, or, in the event the Company and Employee are unable to
agree on such determination, and upon written notice thereof by either party to
the other, then each of the Company
2
<PAGE>
and Employee shall, within ten (10) days after such notice is given, select a
qualified and licensed physician, and such physicians together shall select a
third licensed and qualified physician who will make such determination within
thirty (30) days after his or her appointment and whose determination shall be
binding upon all parties hereto); or
G. The discharge of Employee for conviction of Employee of a crime
involving moral turpitude.
7. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 7(B) and 7(C) below, in
the event Employee's employment with the Company shall terminate during the Term
for any of the reasons set forth in Section 6, or thereafter pursuant to Section
2: [i] Employee's Salary shall be prorated and paid through the date of
termination; and [ii] all unvested options to purchase common stock of the
Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to Section 6(B)
or 6(F) hereof, Employee shall be entitled to receive, at such time as it would
otherwise be payable, any Incentive Cash Bonus which would have been payable,
based upon the Company's performance over the full fiscal year, prorated for
that portion of the fiscal year during which the Employee was employed by the
Company.
C. In the event of Employee's termination pursuant to
Section 6(F), the Company agrees to continue to pay Employee's full Salary
during such period of disability, said payments to continue for a maximum of six
(6) months. Thereafter, Employee shall be paid disability benefits pursuant to
the disability insurance, if any, established by the Company and in which
Employee participates pursuant to Section 4(D) of this Agreement.
8. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the inducements for
the Company to enter into this agreement of employment is the understanding that
there will be no competition or interference, directly or indirectly, for a
period of time after the termination of her employment with the Company.
Employee further recognizes and acknowledges that, in consideration of the scope
of the business of the Company and the nature of the services Employee provides
to the Company, and in order to protect the Company's legitimate interests,
Employee's covenant not to compete must include each of the areas where the
Company currently does business, which areas include Alabama, Arizona,
California, District of Columbia, Florida, Georgia, Maryland, Michigan, North
Carolina, Nevada, Ohio, Oregon, Texas, Virginia and Washington (collectively,
the "Territory"), to the extent Employee hereafter actively performs, supervises
or assists in the Company's business in such areas or has material contact with
customers of the Company within such areas. In consideration of the covenants
herein, Employee agrees that for the period Employee is employed by the Company
(whether during the Term or after the Term ends) and for a one-year period
immediately following the termination of her employment with the Company for any
reason whatsoever, Employee shall not, within the Territory, in any manner,
directly or indirectly or by
3
<PAGE>
assisting others, engage in any business which is the same or essentially the
same as the business of the Company, such business being the business of real
estate information services, including commercial and residential real estate
appraisals, title exams, flood certifications and credit reports, as an manager
or as a supervisor, administrator, executive, senior or management level
employee, owner, proprietor, shareholder or consultant; provided that Employee
shall not be restricted from owning less than 3% of the outstanding shares of a
company whose shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period Employee
is employed by the Company (whether during the Term or after the Term ends) and
for a one-year period immediately following the termination of her employment
with the Company for any reason whatsoever, Employee shall not (other than in
the regular course of the Company's business), within the Territory, solicit,
directly or indirectly, business of the type then being performed therein by the
Company from any person, partnership, corporation or other entity which [a] is a
customer of the Company within the Territory at the time Employee's employment
with the Company terminates, including an actively-sought prospective customer,
or [b] was such a customer within the two-year period immediately prior thereto,
for the purposes of providing products or services that are competitive with
those provided by the Company, provided that in the case of either [a] or [b],
Employee had material contact with such customer during and as a part or result
of her employment with the Company.
9. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period Employee is
employed by the Company (whether during the Term or after the Term ends) and for
a two-year period immediately following the termination of her employment with
the Company for any reason whatsoever, Employee shall not directly or
indirectly, individually or on behalf of persons not parties to this Agreement,
aid or endeavor to solicit or induce any of the Company's employees to leave
their employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge, furnish or
make accessible to anyone (other than in the regular course of the Company's
business) any knowledge or information with respect to confidential information
or data of the Company, or with respect to any confidential information or data
of any of the customers of the Company, or with respect to any other
confidential aspect of the business or products or services of the Company or
its customers.
10. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees that
Company may not be adequately compensated by damages for a breach by Employee of
any of the covenants contained in Sections 8 and 9, and that, in addition to all
other remedies, the Company shall be entitled to injunctive relief and specific
performance. In such event, the periods of time referred to in Sections 8 and 9
shall be deemed extended for a period equal to the respective period during
which Employee is in breach thereof, in order to provide for injunctive relief
and specific performance for a period equal to the full term thereof. The
covenants contained in Sections 8 and 9 shall be construed as separate
covenants, and if any court shall finally determine that the restraints provided
for in any such covenants are too broad as to the geographic area, activity or
time covered,
4
<PAGE>
said area, activity or time covered may be reduced to whatever extent the
court deems reasonable and such covenants shall be enforced as to such
reduced area, activity or time and Employee expressly agrees that this
Agreement, as so amended, shall be valid and binding.
11. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times
during the term of her employment and thereafter, Employee will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with her work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights Employee may have or acquire in such
Proprietary Information and recognizes that all Proprietary Information shall be
the sole property of the Company and its assigns and that the Company and its
assigns shall be the sole owner of all patent rights, copyrights, trade secret
rights and all other rights throughout the world (collectively, "Proprietary
Rights") in connection therewith. The term "Proprietary Information" shall mean
trade secrets, confidential knowledge, data or any other proprietary information
of the Company which the Company treats as confidential with respect to the
general public. By way of illustration but not limitation, "Proprietary
Information" includes (a) inventions, trade secrets, ideas, processes, formulas,
data, programs, other words of authorship, know-how, improvements, discoveries,
developments, designs and techniques relating to the business or proposed
products of the Company and which were learned or discovered by Employee during
the term of her employment with the Company (hereinafter collectively referred
to as "Inventions"); and (b) information regarding plans for research,
development, new products and services, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers which were learned or discovered by her during the term
of her with the Company, and information regarding the skills and compensation
of other employees of the Company. For purposes of this Agreement, the term
"Proprietary Information" shall not include information that Employee can show
by competent proof (i) was known to Employee prior to disclosure by the Company;
(ii) was generally known to the public at the time Company disclosed the
information to Employee; (iii) became generally known to the public after
disclosure by the Company through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to possess
the information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in addition,
that the Company may from time to time receive from third parties confidential
or proprietary information ("Third Party Information") subject to a duty of the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of her employment and
thereafter, Employee will hold Third Party Information in the strictest
confidence and will not disclose to anyone (other than Company personnel who
need to know such information in connection with their work for the Company) or
use, except in connection with her work for the Company, Third Party Information
unless expressly authorized by the Chairman or Chief Executive Officer of the
Company in writing.
5
<PAGE>
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the Company all
her right, title and interest in and to any and all Inventions (and all
Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by her, either alone or jointly with others,
during the period of her employment with the Company.
[2] Employee shall and hereby does acknowledge that all
original works of authorship which are made by her (solely or jointly with
others) during the term of her employment with the Company and that are within
the scope of her employment and which are protectable by copyright are "works
made for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 1201). Inventions assigned to or as directed by the Company by
this Section 11.C are hereinafter referred to as "Company Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will assist the
Company in every proper way to obtain and from time to time enforce United
States and foreign Proprietary Rights relating to Company Inventions in any and
all countries. To that end Employee will execute, verify and deliver such
documents and perform such other acts (including appearances as a witness) as
the Company may reasonably request for use in applying for, obtaining,
perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, Employee will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee.
Employee's obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of Employee's employment, but the Company shall
compensate Employee at a reasonable rate after Employee's termination for the
time actually spent by Employee at the Company's request on such assistance. In
the event the Company is unable for any reason, after reasonable effort, to
secure Employee's signature on any document needed in connection with the
actions specified in the preceding, Employee hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Employee's
agent and attorney in fact, to act for and in Employee's behalf to execute,
verify and file any such documents and to do all other lawfully permitted acts
to further the purposes of the preceding paragraph thereon with the same legal
force and effect as if executed by Employee. Employee hereby waives and
quitclaims to the Company any and all claims, of any nature whatsoever, which
Employee now or may hereafter have for infringement of any Proprietary Rights
assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or unpatented,
which Employee made prior to the commencement of employment with the Company are
excluded from the scope of this Agreement.
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the employ
of the Company, Employee will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing any Company
Invention, Third Party Information or Proprietary Information of the Company.
Employee further agrees that any property situated on the Company's premises and
6
<PAGE>
owned by the Company, including disks and other storage media, filing cabinets
or other work areas, is subject to inspection by Company personnel at any time
with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's services are
personal and unique and because Employee may have access to and become
acquainted with the Proprietary Information of the Company, the Company shall
have the right to enforce this Section 11 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
12. NOTICES. All notices and other communications hereunder shall be in
writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
Attn: James Schaper
Suite 320
11475 Great Oaks Way
Alpharetta, Georgia 30022
With a copy to: Primis, Inc.
11475 Great Oaks Way
Suite 320
Alpharetta, Georgia 30022
Attn: Chief Legal Officer
B. If to Employee: ______________________________
______________________________
______________________________
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
7
<PAGE>
13. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to insist
upon compliance with any provision hereof shall not operate as, and is not to be
construed as, a waiver or amendment of such provision. The waiver by either
party of a breach of any provision of this Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach, whether occurring
under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not be deemed a part of this Agreement in construing
or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia. In connection
with the enforcement of this Agreement, the parties consent to jurisdiction in
the courts of Georgia. The prevailing party in any action to enforce this
Agreement shall be entitled to attorneys' fees from the non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. Section 9-9-2(c)(9),
as evidenced by the parties affixing their initials hereon next to this Section
14.G., any controversy arising out of, or relating to, this Agreement or any
modification or extension of this Agreement, including any claim for damages,
recission, specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, in accordance
with the rules then obtaining of the American Arbitration Association. The
determination of the arbitrator when made shall be binding upon all parties
bound by the terms of this Agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek injunctive relief from
any court of competent jurisdiction in the event of any breach or threatened
breach of Sections 8, 9 or 11 of this Agreement. Initials: Company:
______________________; Employee: _____________________.
H. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
on the date set forth below but effective as of the day and year first written
on page 1 of this Agreement.
PRIMIS, INC.
By:_______________________________________
Dated __________ ___, 1999 Title:____________________________________
("Company")
Dated __________ ___, 1999 _________________________________________
("Employee")
9
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT ("Agreement")
is made and entered into as of the 1st day of January, 2000, by and between
PRIMIS, INC., a Georgia corporation (the "Company"), and Michael Brent Burns, an
individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. Term. Employee's employment shall be for a term commencing on the
date hereof and ending on August 19, 1999, 2003 unless Employee's employment
terminates prior thereto as provided in Section 6 (the "Term"). Thereafter, this
Agreement shall continue in full force and effect, except that Section 6 shall
no longer be applicable, and either party hereto may terminate Employee's
employment hereunder upon ninety (90) days prior written notice to the other.
3. DUTIES. Employee shall be employed by the Company as Vice President
- - Sales. So long as Employee is employed hereunder, Employee agrees to devote
his full business time and energy to the business and affairs of the Company, to
perform his duties hereunder to the best of his ability and at a level of
competency consistent with the position occupied, to act on all matters in a
manner Employee reasonably believes to be in and not opposed to the best
interests of the Company, to use his best efforts, skill and ability to promote
the profitable growth of the Company, and to perform such other duties as may be
assigned to him by the Company's Chief Executive Officer, Chairman or by the
Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by Employee,
the Company shall pay compensation and provide benefits to Employee as follows:
A. SALARY. The Company shall pay Employee an annual salary
("Salary") of ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000), payable not
less frequently than monthly. At least once every twelve (12) months the Board
shall review Employee's Salary and make such adjustments to the Salary as it
reasonably deems appropriate, provided that the Salary shall not be reduced.
<PAGE>
B. INCENTIVE CASH BONUS. Bonus plan at Attachment 1.
C. BUSINESS EXPENSES. The Company shall reimburse Employee for
his reasonable direct out-of-pocket ordinary and necessary expenses,
including trade association dues, if any, incurred by Employee in the
performance of his services hereunder and for which Employee properly accounts
in accordance with the Company's regulations and procedures in effect from time
to time.
D. ADDITIONAL BENEFITS. Employee shall be entitled to
participate on the same terms and conditions as employees similarly situated in
any and all employee retirement, medical, life and disability insurance,
vacation and other benefits plans and perquisites as may be established and in
effect from time to time and made available to employees of the Company.
5. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
6. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's employment
with the Company shall terminate prior to the expiration of the Term, without
further obligation on the part of the Company, except as provided in this
Agreement, only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for misconduct, dishonesty or
fraud on Employee's part in connection with the performance of any duties
hereunder;
D. The discharge of Employee for a material breach by Employee of
any of the terms of Sections 8, 9 or 11 of this Agreement;
E. The discharge of Employee upon a determination by the Board,
acting in good faith and with reasonable justification, that Employee's
performance has been unsatisfactory, after first having given written notice to
the Employee that the Employee's performance has been unsatisfactory (which
notice shall set forth in reasonable detail the nature of the unsatisfactory
performance), and Employee having failed to cure such unsatisfactory performance
within thirty (30) days thereafter to the reasonable satisfaction of the
Company;
F. The discharge of Employee upon a determination that Employee
has been unable, for any continuous period of at least three (3) months, or for
shorter periods aggregating three (3) months during any 12-month period, to
perform his duties hereunder by reason of injury, illness or other physical or
mental disability (such determination to be made by agreement between the
Company and Employee, or, in the event the Company and Employee are unable to
agree on such determination, and upon written notice thereof by either party to
the other, then each of the Company and Employee shall, within ten (10) days
after such notice is given, select a qualified and licensed physician, and
such physicians together shall select a third licensed and qualified physician
who will
2
<PAGE>
make such determination within thirty (30) days after his or his appointment
and whose determination shall be binding upon all parties hereto); or
G. The discharge of Employee for conviction of Employee of a
crime involving moral turpitude.
7. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 7(B) and 7(C) below,
in the event Employee's employment with the Company shall terminate during the
Term for any of the reasons set forth in Section 6, or thereafter pursuant to
Section 2: [i] Employee's Salary shall be prorated and paid through the date of
termination; and [ii] all unvested options to purchase common stock of the
Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to Section 6(B)
or 6(F) hereof, Employee shall be entitled to receive, at such time as it would
otherwise be payable, any Incentive Cash Bonus which would have been payable,
based upon the Company's performance over the full fiscal year, prorated for
that portion of the fiscal year during which the Employee was employed by the
Company.
C. In the event of Employee's termination pursuant to
Section 6(F), the Company agrees to continue to pay Employee's full Salary
during such period of disability, said payments to continue for a maximum of six
(6) months. Thereafter, Employee shall be paid disability benefits pursuant to
the disability insurance, if any, established by the Company and in which
Employee participates pursuant to Section 4(D) of this Agreement.
8. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the inducements
for the Company to enter into this agreement of employment is the understanding
that there will be no competition or interference, directly or indirectly, for a
period of time after the termination of his employment with the Company.
Employee further recognizes and acknowledges that, in consideration of the scope
of the business of the Company and the nature of the services Employee provides
to the Company, and in order to protect the Company's legitimate interests,
Employee's covenant not to compete must include each of the areas where the
Company currently does business, which areas include Alabama, Arizona,
California, District of Columbia, Florida, Georgia, Maryland, Michigan, North
Carolina, Nevada, Ohio, Oregon, Texas, Virginia and Washington (collectively,
the "Territory"), to the extent Employee hereafter actively performs, supervises
or assists in the Company's business in such areas or has material contact with
customers of the Company within such areas. In consideration of the covenants
herein, Employee agrees that for the period Employee is employed by the Company
(whether during the Term or after the Term ends) and for a one-year period
immediately following the termination of his employment with the Company for any
reason whatsoever, Employee shall not, within the Territory, in any manner,
directly or indirectly or by assisting others, engage in any business which is
the same or essentially the same as the business of the Company, such business
being the business of real estate information services, including
3
<PAGE>
commercial and residential real estate appraisals, title exams, flood
certifications and credit reports, as an manager or as a supervisor,
administrator, executive, senior or management level employee, owner,
proprietor, shareholder or consultant; provided that Employee shall not be
restricted from owning less than 3% of the outstanding shares of a company
whose shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period
Employee is employed by the Company (whether during the Term or after the Term
ends) and for a one-year period immediately following the termination of his
employment with the Company for any reason whatsoever, Employee shall not (other
than in the regular course of the Company's business), within the Territory,
solicit, directly or indirectly, business of the type then being performed
therein by the Company from any person, partnership, corporation or other entity
which [a] is a customer of the Company within the Territory at the time
Employee's employment with the Company terminates, including an actively-sought
prospective customer, or [b] was such a customer within the two-year period
immediately prior thereto, for the purposes of providing products or services
that are competitive with those provided by the Company, provided that in the
case of either [a] or [b], Employee had material contact with such customer
during and as a part or result of his employment with the Company.
9. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period Employee
is employed by the Company (whether during the Term or after the Term ends) and
for a two-year period immediately following the termination of his employment
with the Company for any reason whatsoever, Employee shall not directly or
indirectly, individually or on behalf of persons not parties to this Agreement,
aid or endeavor to solicit or induce any of the Company's employees to leave
their employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge, furnish
or make accessible to anyone (other than in the regular course of the Company's
business) any knowledge or information with respect to confidential information
or data of the Company, or with respect to any confidential information or data
of any of the customers of the Company, or with respect to any other
confidential aspect of the business or products or services of the Company or
its customers.
10. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees
that Company may not be adequately compensated by damages for a breach by
Employee of any of the covenants contained in Sections 8 and 9, and that, in
addition to all other remedies, the Company shall be entitled to injunctive
relief and specific performance. In such event, the periods of time referred to
in Sections 8 and 9 shall be deemed extended for a period equal to the
respective period during which Employee is in breach thereof, in order to
provide for injunctive relief and specific performance for a period equal to the
full term thereof. The covenants contained in Sections 8 and 9 shall be
construed as separate covenants, and if any court shall finally determine that
the restraints provided for in any such covenants are too broad as to the
geographic area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable and
4
<PAGE>
such covenants shall be enforced as to such reduced area, activity or time and
Employee expressly agrees that this Agreement, as so amended, shall be valid and
binding.
11. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times
during the term of his employment and thereafter, Employee will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with his work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights Employee may have or acquire in such
Proprietary Information and recognizes that all Proprietary Information shall be
the sole property of the Company and its assigns and that the Company and its
assigns shall be the sole owner of all patent rights, copyrights, trade secret
rights and all other rights throughout the world (collectively, "Proprietary
Rights") in connection therewith. The term "Proprietary Information" shall mean
trade secrets, confidential knowledge, data or any other proprietary information
of the Company which the Company treats as confidential with respect to the
general public. By way of illustration but not limitation, "Proprietary
Information" includes (a) inventions, trade secrets, ideas, processes, formulas,
data, programs, other words of authorship, know-how, improvements, discoveries,
developments, designs and techniques relating to the business or proposed
products of the Company and which were learned or discovered by Employee during
the term of his employment with the Company (hereinafter collectively referred
to as "Inventions"); and (b) information regarding plans for research,
development, new products and services, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers which were learned or discovered by his during the term
of his with the Company, and information regarding the skills and compensation
of other employees of the Company. For purposes of this Agreement, the term
"Proprietary Information" shall not include information that Employee can show
by competent proof (i) was known to Employee prior to disclosure by the Company;
(ii) was generally known to the public at the time Company disclosed the
information to Employee; (iii) became generally known to the public after
disclosure by the Company through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to possess
the information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in addition,
that the Company may from time to time receive from third parties confidential
or proprietary information ("Third Party Information") subject to a duty of the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of his employment and
thereafter, Employee will hold Third Party Information in the strictest
confidence and will not disclose to anyone (other than Company personnel who
need to know such information in connection with their work for the Company) or
use, except in connection with his work for the Company, Third Party Information
unless expressly authorized by the Chairman or Chief Executive Officer of the
Company in writing.
5
<PAGE>
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the Company all
his right, title and interest in and to any and all Inventions (and all
Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by his, either alone or jointly with others,
during the period of his employment with the Company.
[2] Employee shall and hereby does acknowledge that
all original works of authorship which are made by his (solely or jointly with
others) during the term of his employment with the Company and that are within
the scope of his employment and which are protectable by copyright are "works
made for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 1201). Inventions assigned to or as directed by the Company by
this Section 11.C are hereinafter referred to as "Company Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will assist the
Company in every proper way to obtain and from time to time enforce United
States and foreign Proprietary Rights relating to Company Inventions in any and
all countries. To that end Employee will execute, verify and deliver such
documents and perform such other acts (including appearances as a witness) as
the Company may reasonably request for use in applying for, obtaining,
perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, Employee will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee.
Employee's obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of Employee's employment, but the Company shall
compensate Employee at a reasonable rate after Employee's termination for the
time actually spent by Employee at the Company's request on such assistance. In
the event the Company is unable for any reason, after reasonable effort, to
secure Employee's signature on any document needed in connection with the
actions specified in the preceding, Employee hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Employee's
agent and attorney in fact, to act for and in Employee's behalf to execute,
verify and file any such documents and to do all other lawfully permitted acts
to further the purposes of the preceding paragraph thereon with the same legal
force and effect as if executed by Employee. Employee hereby waives and
quitclaims to the Company any and all claims, of any nature whatsoever, which
Employee now or may hereafter have for infringement of any Proprietary Rights
assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or unpatented,
which Employee made prior to the commencement of employment with the Company are
excluded from the scope of this Agreement.
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the employ
of the Company, Employee will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing any Company
Invention, Third Party Information or Proprietary Information of the Company.
Employee further agrees that any property situated on the Company's premises and
6
<PAGE>
owned by the Company, including disks and other storage media, filing cabinets
or other work areas, is subject to inspection by Company personnel at any time
with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's services
are personal and unique and because Employee may have access to and become
acquainted with the Proprietary Information of the Company, the Company shall
have the right to enforce this Section 11 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
12. NOTICES. All notices and other communications hereunder shall be
in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
Attn: James Schaper
Suite 320
11475 Great Oaks Way
Alpharetta, Georgia 30022
With a copy to: Primis, Inc.
11475 Great Oaks Way
Suite 320
Alpharetta, Georgia 30022
Attn: Chief Legal Officer
B. If to Employee: ________________________________
________________________________
________________________________
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
7
<PAGE>
13. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to insist
upon compliance with any provision hereof shall not operate as, and is not to be
construed as, a waiver or amendment of such provision. The waiver by either
party of a breach of any provision of this Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach, whether occurring
under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not be deemed a part of this Agreement in construing
or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia. In connection
with the enforcement of this Agreement, the parties consent to jurisdiction in
the courts of Georgia. The prevailing party in any action to enforce this
Agreement shall be entitled to attorneys' fees from the non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. ss. 9-9-2(c)(9), as
evidenced by the parties affixing their initials hereon next to this Section
14.G., any controversy arising out of, or relating to, this Agreement or any
modification or extension of this Agreement, including any claim for damages,
recission, specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, in accordance
with the rules then obtaining of the American Arbitration Association. The
determination of the arbitrator when made shall be binding upon all parties
bound by the terms of this Agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek injunctive relief from
any court of competent jurisdiction in the event of any breach or threatened
breach of Sections 8, 9 or 11 of this Agreement. Initials: Company:
______________________; Employee: _____________________.
H. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
on the date set forth below but effective as of the day and year first written
on page 1 of this Agreement.
PRIMIS, INC.
By:_______________________________________
Dated __________ ___, 1999 Title:____________________________________
("Company")
Dated __________ ___, 1999 __________________________________________
("Employee")
9
<PAGE>
EXHIBIT 10.26
FIRST AMENDMENT TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AND NON-COMPETITION AGREEMENT
("Amendment") is made as of the _____ day of March __________, 2000, between
PRIMIS, Inc., a Georgia corporation (the "Company"), and C. JAMES SCHAPER
("Employee").
RECITALS:
The Company and Employee have entered into that certain Employment and
Non-Competition Agreement dated as of April 1, 1999 (the "Agreement");
The Board of Directors of the Company made certain changes to Employee's
compensation package, including his salary and bonus as reflected in a letter
to Employee dated January 10, 2000.
The Company and Employee agree that Section 5 of the Agreement does not
accurately reflect the intention and agreement of the parties insofar as the
"options" referred to in subclause (b) of clause (iii) of the last sentence
of Section 5 were intended to refer to options to purchase common stock of
the Company to be granted under the Company's employee stock option plan.
The Company and Employee wish to amend the Agreement to align the
provisions of the Agreement with the terms of the January 10, 2000 letter and
to clarify the parties' understanding with respect the "anti-dilution"
provisions contained in Section 5.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed to by and
between the parties as follows:
1. Section 4A of the Agreement shall be deleted in its entirety and the
following inserted in lieu thereof:
"A. SALARY. Effective January 1, 2000, the Company shall pay
Employee an annual salary ("Salary") of Two Hundred Fifty Thousand
Dollars ($250,000), payable not less frequently than monthly. At least
once every twelve months the Board, or a compensation committee made up
of some of the members of the Board, shall review Employee's salary and
make such adjustments to the Salary as it reasonably deems appropriate,
provided that the Salary shall not be reduced."
2. Section 4B of the Agreement shall be deleted in its entirety and
the following inserted in lieu thereof:
"B. INCENTIVE CASH BONUS. Employee shall be eligible to receive a
cash bonus of up to $150,000 with 80% of the bonus ($80,000) being earned
if at least [90%] of the EBITA and pre-tax goals called for by the year
2000 plan are achieved, with the
<PAGE>
remaining 20% ($30,000) of the bonus to be earned to the extent the
compensation committee determines Employee has achieved non-financial
objectives established by mutual agreement between the Executive and the
compensation committee. Provided, however, if the Company completes an
initial public offering ("IPO") in the year 2000 at a pre-IPO valuation
of at least $350 million, then two-thirds of the bonus opportunity (or
$100,000) shall be deemed to have been earned by Employee and the
remaining bonus opportunity ($50,000) shall be earned and paid, if at
all, in accordance with the 80%/20% proportion set forth above. Within
seventy-five (75) days after the end of each fiscal year thereafter, the
Company shall determine, and if appropriate, pay Employee an Incentive
Cash Bonus, in an amount equal to fifty percent (50%) of Employee's
Salary, determined by and in the reasonably exercised discretion of the
Board and based upon the Employee's achievement of specific goals
concerning the financial or other performance of the Company for such
fiscal year, established by the Board prior thereto after consultation
with Employee.
3. Subclause (b) of clause (iii) of the last sentence of Section 5 of
the Agreement shall be deleted in its entirety and the following inserted in
lieu thereof:
"(b) issue to Employee, pursuant to the Company's employee stock option
plan, options to purchase that number of shares of Common Stock that will
enable Employee to maintain his Employee's Percentage Ownership, determined
on a fully diluted basis as of the Measurement Date, at an exercise price equal
to the fair market value on the of grant."
4. Except as explicitly amended above, the Employment Agreement shall
continue in full force and effect.
5. This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which when taken together shall constitute
one and the same instrument.
[Remainder of Page Intentionally Left Bank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day, month and year first above written.
PRIMIS, INC.:
By: ___________________________________
Title: ________________________________
("Company")
----------------------------------------
C. JAMES SCHAPER
("Employee")
<PAGE>
EXHIBIT 10.27
SERVICES PURCHASE AGREEMENT
THIS SERVICES PURCHASE AGREEMENT is entered into as of the 4th day of
April, 2000, between Trans Union LLC, a Delaware limited liability company
("Trans Union"), and PRIMIS, Inc., a Georgia corporation ("PRIMIS").
RECITALS
A. Trans Union is engaged in providing consumer credit reporting and other
services, including packaged settlement services, to lenders and others on a
nationwide basis.
B. PRIMIS is engaged in providing home appraisal and valuation products and
related services (collectively, "Services") to lenders and others on a
nationwide basis.
C. Trans Union desires to purchase from PRIMIS, and PRIMIS desires to
provide to Trans Union, Services on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
1. SERVICES TO BE PROVIDED BY PRIMIS; PREFERRED PROVIDER STATUS.
(a) On the terms and subject to the conditions set forth herein, PRIMIS
shall make available to Trans Union, and Trans Union shall be entitled to
purchase from PRIMIS all of the Services currently or hereafter offered
generally by PRIMIS to its customers. Trans Union shall place orders for
Services in accordance with PRIMIS's standard procedures or in accordance with
such other procedures as the parties shall mutually agree upon.
(b) Trans Union hereby designates PRIMIS as a preferred provider with
respect to URARs and Forms 2055, including URARs and Forms 2055 to be included
in packaged settlement services provided by Trans Union to lenders and other
financial institutions in connection with home equity and other mortgage loans.
(c) PRIMIS shall deliver all Services purchased by Trans Union
electronically and Trans Union hereby accepts such method of service delivery.
2. PERFORMANCE STANDARDS. PRIMIS shall provide the Services in compliance
with all applicable state, federal and local laws and regulations and with the
Uniform Standards of Professional Appraisal Practice, as the same may be amended
from time to time. In addition, PRIMIS acknowledges that Trans Union may be
subject to certain performance standards and timelines imposed by its customers
that may be applicable to the Services to be provided by PRIMIS hereunder
("Performance Standards"). Trans Union shall notify PRIMIS from time to time of
all such Performance Standards and PRIMIS shall use its best efforts to comply
therewith.
<PAGE>
Furthermore, during the course of negotiating Performance Standards with its
customers from time to time, Trans Union shall communicate to PRIMIS all of the
relevant Performance Standards sought to be imposed on Trans Union and shall
work with PRIMIS to facilitate the adoption by Trans Union and its customers of
Performance Standards that are reasonably achievable by PRIMIS.
3. COMPENSATION FOR SERVICES.
(a) PRICING. The prices payable by Trans Union for Services hereunder
shall be as set forth from time to time in pricing supplements signed by both
parties to this Agreement. Trans Union shall be entitled to the most favorable
pricing offered by PRIMIS to any client purchasing like volumes of Services.
Concurrently with the execution of this Agreement, PRIMIS and Trans Union shall
execute and deliver to each other the first pricing supplement to this
Agreement.
(b) PAYMENT. Trans Union shall track internally the Services provided
hereunder by PRIMIS during each of Trans Union's monthly billing cycles and
shall make payment to PRIMIS by electronic funds transfer based upon its
internal monthly tracking records with respect to such Services within ten (10)
days after the end of each such billing cycle. After the first monthly payment
date, PRIMIS shall, at least five (5) days prior to the monthly payment date,
provide to Trans Union a reconciliation of Trans Union's prior monthly payment
and PRIMIS's records regarding Services actually rendered and charges incurred
by Trans Union for the previous month; Trans Union agrees to adjust its monthly
payments for proper reconciliation of preceding months' charges at each payment
date on a timely basis.
4. QUARTERLY REVIEW MEETINGS. PRIMIS shall meet no less frequently than
quarterly with Trans Union to review PRIMIS's performance under this Agreement
as well as PRIMIS's general financial and strategic performance.
5. TERM AND TERMINATION. Subject to the provisions for early termination
hereinafter provided, this Agreement shall be for a term of three (3) years
commencing on the date hereof. Either party (a non-defaulting party) may
terminate this Agreement immediately upon the occurrence of any of the following
events:
(a) a material failure by the other party to observe or perform any
material covenant or obligation under this Agreement, or the material breach of
any representation or warranty made herein by the other party, and the
continuation of such failure or breach for a period of thirty (30) days after
notice of such failure or breach has been given by the non-defaulting party;
(b) the other party admitting its inability to pay its debts as they
mature or making of an assignment for the benefit of creditors;
(c) the commencement of proceedings by or against the other party in
bankruptcy, or for corporate reorganization, or for the readjustment of debts
under laws relating to bankruptcy or for the relief of debtors now or hereafter
existing, and, in the case of proceedings
2
<PAGE>
commenced against such party, the failure to discharge such proceedings within
sixty (60) days of their commencement;
(d) the appointment of a receiver or trustee for the other party or a
substantial part of the other party's assets or the institution of any
proceedings for the dissolution or the full or partial liquidation of the other
party, which proceedings shall not have been discharged within thirty (30) days
of their commencement.
In addition, Trans Union may terminate this Agreement as provided in Section 8
herein. Upon the expiration or termination of this Agreement, PRIMIS shall
fulfill in a timely manner all outstanding orders for Services placed by Trans
Union prior to such expiration or termination and Trans Union shall pay PRIMIS
for such services as herein provided.
6. REPRESENTATIONS AND WARRANTIES OF PRIMIS. PRIMIS hereby represents and
warrants to Trans Union as follows:
(a) PRIMIS is a corporation duly organized, validly existing and in
good standing the laws of the State of Georgia, and has the full corporate power
and authority (i) to own and use its properties, (ii) to transact the business
in which it is engaged and (iii) to execute, deliver and perform this Agreement.
(b) The execution, delivery and performance of this Agreement by PRIMIS
has been duly authorized by all necessary corporate action and will not violate
any provision of its organizational documents or constitute a material breach or
violation of or default under, or require the consent of any other person under,
any material agreement to which PRIMIS is a party or is otherwise bound.
(c) This Agreement constitutes the valid and binding obligation of
PRIMIS, enforceable against PRIMIS in accordance with its terms.
7. INDEMNIFICATION.
(a) PRIMIS shall indemnify, defend and hold harmless Trans Union and
its directors, officers, employees and agents from and against any and all
losses, costs, damages, claims, suits, liabilities and expenses, including
reasonable attorneys' fees and expenses, actually suffered or incurred by any of
them arising out of or resulting from the negligence or willful misconduct of
PRIMIS and its officers, employees, agents or subcontractors.
(b) Trans Union shall indemnify, defend and hold harmless PRIMIS and
its directors, officers, employees and agents from and against any and all
losses, costs, damages, claims, suits, liabilities and expenses, including
reasonable attorneys' fees and expenses, actually suffered or incurred by any of
them arising out of or resulting from the negligence or willful misconduct of
Trans Union and its officers, employees, agents or subcontractors in (i)
ordering Services from PRIMIS and providing the information necessary for PRIMIS
to perform the Services, and (ii) the use, handling or resale of the Services as
part of Trans Union's packaged settlement services or otherwise.
3
<PAGE>
8. INSURANCE. Schedule I to this Agreement sets forth a summary of PRIMIS's
insurance policies with respect to its business. During the term of this
Agreement, PRIMIS shall maintain such insurance with respect to its business,
with such coverages and in such amounts and with reputable carriers, as is
customary for businesses similarly situated, and shall from time to time upon
Trans Union's request provide Trans Union with certificates of insurance
evidencing the same. Within twenty (20) days after the execution and delivery
hereof, PRIMIS shall provide to Trans Union a certificate of insurance listing
Trans Union as an additional insured under the General Liability policy with
respect to PRIMIS's negligence. PRIMIS shall use commercially reasonable efforts
to add Trans Union as an additional insured under PRIMIS's errors and omissions
policies as soon as practicable. Failure by PRIMIS to have Trans Union so added
to each such policy not later than the next renewal of that policy shall give
rise to Trans Union having the right to terminate this Agreement, which right
shall be exercised, at the sole discretion of Trans Union, within sixty (60)
days after Trans Union's receipt of written notice of PRIMIS's failure to add
Trans Union as an additional insured as above described. Trans Union reserves
the right to decide not to be added as an additional insured on any specific
PRIMIS insurance policy.
9. MISCELLANEOUS.
(a) INDEPENDENT CONTRACTOR. PRIMIS is engaged by Trans Union only for
the purposes and to the extent set forth in this Agreement and its relationship
to Trans Union shall be that of an independent contractor. Nothing in this
Agreement shall be construed to create a relationship of partnership or joint
venture between the parties and each of Trans Union and PRIMIS shall be
independent contractors with respect to the conduct of their respective
businesses. Nothing contained in this Agreement shall be construed to prohibit
Trans Union from obtaining appraisal and valuation services from any other
person during the term of this Agreement.
(b) SCHEDULES. Any Schedules attached hereto are an integral part of
this Agreement and reference to this Agreement shall be deemed to include any
such Schedules.
(c) SEVERABILITY. If any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
each provision of this Agreement shall be enforced to the fullest extent
permitted by law.
(d) WAIVER. No waiver of a breach of any provision of this Agreement
shall be effective unless given in writing by the party from which the waiver is
sought. No waiver by any party of a breach of any provision of this Agreement by
the other party shall operate or be construed as a waiver of any subsequent
breach of such provision by such other party or of any breach of any other
provision of this Agreement.
(e) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered personally,
including delivery by courier or overnight delivery service, or on the date
delivered by facsimile (with receipt confirmed electronically), or three (3)
days following the date when deposited in the United States mail,
4
<PAGE>
certified or registered mail, return receipt requested, postage prepaid, in each
case addressed as follows:
If to PRIMIS:
PRIMIS, Inc.
11475 Great Oaks Way, Suite 320
Alpharetta, GA 30022
Attn: Chief Legal Officer
Telephone: (770) 777-8600
Facsimile: (770) 777-8922
If to Trans Union:
Trans Union LLC
555 West Adams Street
Chicago, IL 60661
Attn: General Counsel
Telephone: (312) 466-7774
Facsimile: (312) 466-7986
or to such other address as either party shall notify the other as provided
herein.
(f) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Neither party may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the other
party.
(g) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to the
conflicts of laws provisions thereof.
(i) ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the services to be provided
hereunder and supersedes all prior and contemporaneous agreements and
understandings with respect thereto. No modifications or amendments of this
Agreement shall be valid or effective unless in writing executed by both parties
hereto.
(j) COSTS OF ENFORCEMENT. In the event any legal action is taken by
either party against the other party to enforce any of the terms and provisions
of this Agreement, the unsuccessful party to such action shall pay to the
prevailing party therein all court costs, reasonable attorneys' fees and
expenses incurred by the prevailing party.
5
<PAGE>
(k) INTERPRETATION. This Agreement is a contract of Trans Union acting
through its Resources and Property Management Division; shall be interpreted
solely with respect to the Resource and Property Management Division and no
other division or business unit of Trans Union; and any performance obligation
of Trans Union under this Agreement shall be considered a performance obligation
of the Resource and Property Management Division and no other division or
business unit of Trans Union.
(l) REPRESENTATION AND WARRANTY OF TRANS UNION. This Agreement
constitutes the valid and binding obligation of Trans Union, enforceable against
Trans Union in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PRIMIS, INC.
By:
-------------------------------------
Name:
Title:
TRANS UNION LLC
By:
-------------------------------------
Name:
Title:
6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Summary of Insurance
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
POLICY CARRIER LIMITS DEDUCTIBLE RENEWAL DATE
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Commercial General St. Paul $1,000,000/occurrence; None 04/01/01
Liability Insurance $2,000,000 aggregate
Company
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
Workers' Compensation St. Paul Statutory limits None 04/01/01
Insurance
Company
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
Automobile Liability St. Paul $1,000,000 combined single limit None 04/01/01
Insurance
Company
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
Appraisal Errors & Executive Risk $2,000,000/claim; $2,000,000 $5,000 each claim 07/01/00
Omissions Spec. Ins. Co. aggregate
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
Title Errors & Omissions Executive Risk $2,000,000/claim; $2,000,000 $5,000 each claim 10/01/00
Indemnity Inc. aggregate
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
Flood Errors & Omissions Legion $1,000,000/claim; $1,000,000 $5,000 each claim 11/ 09/00
Indemnity aggregate
Company
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
Inspections Errors & Lexington $1,000,000/claim; $1,000,000 $25,000 each claim 03/31/01
Omissions Insurance aggregate
Company
- ------------------------- ---------------- --------------------------------- ---------------------- ------------------
7
</TABLE>
<PAGE>
EXHIBIT 10.28
CHANNEL PARTNER AGREEMENT
THIS CHANNEL PARTNER AGREEMENT (the "Agreement") is entered into as of the
27th day of March, 2000, between Trans Union LLC, a Delaware limited liability
company ("Trans Union"), and PRIMIS, Inc., a Georgia corporation ("PRIMIS").
RECITALS
A. Trans Union is engaged in providing consumer credit reporting and other
services, including packaged settlement services, to lenders and others on a
nationwide basis.
B. PRIMIS is engaged in providing appraisals, home inspections, title
services, flood determinations, energy audits and other related property
information services to lenders and others on a nationwide basis.
C. Trans Union and PRIMIS desire to promote each other's products and
services and engage in certain joint or coordinated marketing and promotional
activities on the terms and conditions set forth in this Agreement.
D. In connection with this Agreement and in consideration for the
marketing, promotional and other assistance or services to be provided by Trans
Union from time to time hereunder, PRIMIS has agreed to issue to Trans Union a
Warrant (as defined in Section 6 hereof) to purchase shares of Common Stock of
PRIMIS.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
1. MARKETING AND PROMOTION. From and after the Effective Date (as defined
in Section 8):
(a) Trans Union shall use its commercially reasonable best efforts to
assist PRIMIS to market to PRIMIS's actual or potential clients a "bundled" set
of services that will include services provided by Trans Union; PROVIDED,
HOWEVER, that Trans Union shall not be required to provide any such assistance
with respect to any clients of Trans Union or lenders or financial institutions
to which Trans Union intends to actively market its own packaged settlement
services.
(b) Trans Union and PRIMIS shall use their commercially reasonable best
efforts to create a mutual understanding of opportunities that are of priority
interest for the other party and assist the other party to identify target
clients, develop proposals, jointly or, in situations in which joint efforts are
not practicable or appropriate, individually, and present such proposals to the
potential or target clients to the extent such efforts relate to products and
services that meet each party's overall price and quality criteria and are
consistent with such party's organizational objectives as determined from time
to time. Without limiting the generality of the foregoing, Trans
<PAGE>
Union will use its commercially reasonable best efforts to assist PRIMIS to
promote PRIMIS's "electronic collateral assessment" (ECA) valuation tool to
Trans Union's customers to the extent the ECA meets Trans Union's overall price
and quality criteria and such assistance is consistent with Trans Union's
organizational objectives as determined from time to time.
(c) Trans Union and PRIMIS shall use their commercially reasonable best
efforts to develop a joint marketing and business development plan each year.
Such plan shall be completed and approved by both parties within thirty (30)
days prior to the end of the previous year.
2. ADVERTISING AND PROMOTIONAL MATERIAL. Trans Union hereby consents to the
reference to Trans Union as a client of PRIMIS in any marketing, advertising and
promotional material of PRIMIS, including, without limitation, advertising in
magazines, newspapers, flyers, brochures, radio or outdoor advertising,
marketing presentations and related advertising materials and PRIMIS's web-site;
PROVIDED, HOWEVER, that Trans Union shall have the opportunity to review any
such materials that include a reference to Trans Union in advance and to approve
them prior to their release, which approval shall not be unreasonably delayed or
withheld.
3. DISCLOSURE AND PUBLICITY.
(a) PRIMIS PROSPECTUS. Trans Union hereby consents to the reference to
Trans Union in the prospectus (which terms shall include any preliminary
prospectus) to be used by PRIMIS in connection with its initial public offering
and to the description of all relationships between PRIMIS and Trans Union in
the prospectus; PROVIDED, HOWEVER, that Trans Union and its counsel shall be
given reasonable opportunity to review and comment on such description before
the registration statement of which the prospectus forms a part, or such
prospectus, is filed with the Securities and Exchange Commission and approve
such description, which approval shall not be unreasonably delayed or withheld.
Nothing herein shall prevent PRIMIS from making any disclosure that, based on
the written advice of counsel (a copy of which shall be delivered to Trans
Union), it is required to make under applicable federal securities laws and
regulations.
(b) PRESS RELEASES. If PRIMIS and Trans Union shall deem appropriate to
issue a press release regarding the relationship established by this Agreement,
they shall cooperate with each other on the preparation of and shall approve the
form and content of such press release. Any press release concerning the
relationship established by this Agreement proposed by either party during the
term hereof shall be subject to the other party's approval, which approval shall
not be unreasonably delayed or withheld.
4. JOINT RELATIONSHIPS WITH THIRD PARTY SUPPLIERS. From and after the
Effective Date and subject to all applicable law, including, without limitation,
the federal Real Estate Settlement Procedures Act (12 USC 2601 ET SEQ.) and all
regulations enacted thereunder ("RESPA"), PRIMIS and Trans Union shall use their
commercially reasonable best efforts to establish joint relationships with third
party suppliers of property data and to develop additional or enhanced "bundled"
services combining such third party data with property information services from
PRIMIS and Trans Union for particular segments of the property information
services market to the extent such efforts relate to services that meet each
party's overall price and quality criteria and are consistent with such party's
organizational objectives as determined from time to time; PROVIDED, HOWEVER,
that neither
2
<PAGE>
party hereto shall be required to enter into any exclusive relationship with any
third party. From and after the Effective Date, PRIMIS and Trans Union shall use
their commercially reasonable best efforts to jointly develop a "bundled" set of
services for the "real estate owned" (REO) segment incorporating data from a
third party supplier, PRIMIS's valuation tools and credit reports and related
information from Trans Union to the extent such set of services meets each
party's overall price and quality criteria and is consistent with such party's
organizational objectives as determined from time to time; subject, however, to
all applicable law including, without limitation, RESPA.
5. QUARTERLY REVIEW MEETINGS. From and after the Effective Date, Trans
Union and PRIMIS shall meet no less frequently than quarterly to review the
status of joint marketing projects and other initiatives under this Agreement
and to consider additional areas of cooperation.
6. ISSUANCE OF WARRANT; REGISTRATION RIGHTS AGREEMENT. In consideration of
Trans Union's marketing, promotional and other assistance and services
hereunder, PRIMIS agrees that, upon the closing of the initial public offering
of Common Stock, provided that this Agreement has not been terminated by PRIMIS
pursuant to Section 8(b) prior to such time, PRIMIS will issue to Trans Union a
warrant (the "Warrant") to purchase 190,875 shares of Common Stock (as adjusted
for a 1.8622-for-1 stock split to be effected as a stock dividend concurrently
with the initial public offering of Common Stock of PRIMIS), and otherwise on
the terms and conditions set forth on EXHIBIT A hereto. Concurrently with the
issuance of the Warrant, PRIMIS and Trans Union shall enter into the
Registration Rights Agreement (the "Registration Rights Agreement"), a form of
which is attached as EXHIBIT B hereto.
7. NONSOLICITATION.
(a) Trans Union and PRIMIS agree that if, during the term of this
Agreement, one of them is engaged by the other as a subcontractor
("Subcontractor Partner") in providing services to a customer ("Customer"), then
the Subcontractor Partner shall not directly solicit the business of Customer,
either during the course of providing those subcontracted services, or for one
hundred and eighty (180) days after the termination of such subcontracted
services. Likewise, if either Trans Union or PRIMIS originates a sales call with
a prospective customer and invites the other party hereto (the "Invitee") to
participate in such sales call, the Invitee agrees that it will neither solicit
nor accept business directly from any such prospective customer to the detriment
of the business arrangement proposed at that sales call; furthermore, the
Invitee will in good faith offer reasonable assistance to help secure the
proposed business arrangement for both parties hereto, for a one hundred and
eighty (180) day period after the sales call. Should a client or proposed client
of either PRIMIS or Trans Union reject the inclusion of the services of the
other party hereto in any business arrangement, then the party with whom the
client or proposed client wishes to contract shall be free to contract with that
client.
(b) The parties hereto agree that the covenants and agreements
contained in this Section 7 are reasonable and necessary to protect and preserve
the interests and business of the parties; that irreparable loss and damage will
be suffered by a party hereto should the other party breach any of such covenant
and agreements; that each of such covenants and agreements is separate, distinct
and severable from the other and remaining provisions of this Agreement; that
the unenforceability of
3
<PAGE>
any other such covenant or agreements or any other provision or provisions of
this Agreement; and that, in addition to other remedies available to it, each
party hereto shall be entitled to specific performance of this Agreement and
to both temporary and permanent injunctions without the necessity of posting
bond to prevent a breach or contemplated breach by the other party of any of
such covenants or agreements.
8. TERM AND TERMINATION. Subject to the provisions for early termination
hereinafter provided, this Agreement shall be for a term of three (3) years
commencing on the closing of the initial public offering of Common Stock (the
"Effective Date"; except that the provisions of Sections 3(a) shall take effect
upon the execution and delivery of this Agreement). Either party (a
non-defaulting party) may terminate this Agreement immediately upon the
occurrence of any of the following events:
(a) failure by PRIMIS to issue the Warrant and to execute and deliver
the Registration Rights Agreement by June 15, 2000;
(b) a material failure by the other party to observe or perform any
material covenant or obligation under this Agreement, or the material breach of
any representation or warranty made herein by the other party, and the
continuation of such failure or breach for a period of thirty (30) days after
notice of such failure or breach has been given by the non-defaulting party;
(c) the other party admitting its inability to pay its debts as they
mature or making of an assignment for the benefit of creditors;
(d) the commencement of proceedings by or against the other party in
bankruptcy, or for corporate reorganization, or for the readjustment of debts
under laws relating to bankruptcy or for the relief of debtors now or hereafter
existing, and, in the case of proceedings commenced against such party, the
failure to discharge such proceedings within sixty (60) days of their
commencement; or
(e) the appointment of a receiver or trustee for the other party or a
substantial part of the other party's assets or the institution of any
proceedings for the dissolution or the full or partial liquidation of the other
party, which proceedings shall not have been discharged within thirty (30) days
of their commencement.
9. REPRESENTATIONS AND WARRANTIES OF PRIMIS. PRIMIS hereby represents and
warrants to Trans Union as follows:
(a) PRIMIS is a corporation duly organized, validly existing and in
good standing the laws of the State of Georgia, and has the full corporate power
and authority (i) to own and use its properties, (ii) to transact the business
in which it is engaged and (iii) to execute, deliver and perform this Agreement.
(b) The execution, delivery and performance of this Agreement, the
Warrant and the Registration Rights Agreement by PRIMIS has been duly authorized
by all necessary corporate action and will not violate any provision of its
organizational documents or constitute a material
4
<PAGE>
breach or violation of or default under, or require the consent of any other
person under, any material agreement including, without limitation, the Second
Amended and Restated Registration Rights Agreement dated as of June 16, 1998, to
which PRIMIS is a party or is otherwise bound.
(c) This Agreement constitutes and, upon the execution and delivery
thereof by PRIMIS as contemplated herein, the Warrant and the Registration
Rights Agreement will constitute, the valid and binding obligations of PRIMIS
enforceable against PRIMIS in accordance with their respective terms.
10. MISCELLANEOUS.
(a) INDEPENDENT CONTRACTOR; NON-EXCLUSIVITY. Nothing in this Agreement
shall be construed to create a relationship of partnership or joint venture
between the parties and, to the extent Trans Union and PRIMIS perform services
for each other under this Agreement, each of Trans Union and PRIMIS shall be
independent contractors with respect to the conduct of their respective
businesses. Nothing contained in this Agreement shall be construed to prohibit
Trans Union and PRIMIS from obtaining services from or entering into any
relationship with any other person during the term of this Agreement.
(b) SCHEDULES AND EXHIBITS. Any Schedules and Exhibits attached hereto
are an integral part of this Agreement and reference to this Agreement shall be
deemed to include any such Schedules and Exhibits.
(c) SEVERABILITY. If any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
each provision of this Agreement shall be enforced to the fullest extent
permitted by law.
(d) WAIVER. No waiver of a breach of any provision of this Agreement
shall be effective unless given in writing by the party from which the waiver is
sought. No waiver by any party of a breach of any provision of this Agreement by
the other party shall operate or be construed as a waiver of any subsequent
breach of such provision by such other party or of any breach of any other
provision of this Agreement.
(e) NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered personally,
including delivery by courier or overnight delivery service, or on the date
delivered by facsimile (with receipt confirmed electronically), or three (3)
days following the date when deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, in each case
addressed as follows:
5
<PAGE>
If to PRIMIS:
PRIMIS, Inc.
11475 Great Oaks Way, Suite 320
Alpharetta, GA 30022
Attn: Chief Legal Officer
Telephone: 770-777-8600
Facsimile: 770-777-8922
If to Trans Union:
Trans Union LLC
555 West Adams Street
Chicago, IL 60661
Attn: General Counsel
Telephone: (312) 466-7774
Facsimile: (312) 466-7986
or to such other address as either party shall notify the other as provided
herein.
(f) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of Trans Union and PRIMIS and their respective
successors and permitted assigns. Neither party may assign this Agreement or any
of its rights or obligations hereunder without the prior written consent of the
other party.
(g) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois, without regard to the
conflicts of laws provisions thereof.
(i) ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the services to be provided
hereunder and supersedes all prior and contemporaneous agreements and
understandings with respect thereto. No modifications or amendments of this
Agreement shall be valid or effective unless in writing executed by both parties
hereto.
(j) COSTS OF ENFORCEMENT. In the event any legal action is taken by
either party against the other party to enforce any of the terms and provisions
of this Agreement, the unsuccessful party to such action shall pay to the
prevailing party therein all court costs, reasonable attorneys' fees and
expenses incurred by the prevailing party.
(k) INTERPRETATION. This Agreement is a contract of Trans Union acting
through its Resources and Property Management Division; shall be interpreted
solely with respect to the
6
<PAGE>
Resource and Property Management Division and no other division or business unit
of Trans Union; and any performance obligation of Trans Union under this
Agreement shall be considered a performance obligation of the Resource and
Property Management Division and no other division or business unit of Trans
Union.
(l) REPRESENTATIONS AND WARRANTIES OF TRANS UNION. This Agreement
constitutes and, upon the execution and delivery thereof by Trans Union as
contemplated herein, the Registration Rights Agreement will constitute, valid
and binding obligations of Trans Union enforceable against Trans Union in
accordance with their respective terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PRIMIS, INC.
By:
-----------------------------------------------
Name:
Title:
TRANS UNION LLC
By:
-----------------------------------------------
Name:
Title:
7
<PAGE>
THIS WARRANT AND SHARES ISSUABLE ON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS BY REASON OF EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH STATE SECURITIES LAWS AND MAY NOT BE SOLD,
PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAWS.
WARRANT
To Purchase Up To 190,875(1) Shares
of Common Stock of
PRIMIS, INC.
For value received, PRIMIS, INC., a Georgia corporation (the
"Corporation"), hereby grants to TRANS UNION LLC, a Delaware limited liability
company ("Trans Union"), or its registered assigns, the right to subscribe for
and purchase, from time to time during the Effective Period, up to 190,875
shares of duly authorized, validly issued, fully paid and non-assessable Common
Stock of the Corporation, at the Warrant Price, subject to adjustment as
hereinafter provided, upon the terms and subject to the conditions hereinafter
set forth.
1. DEFINITIONS. For the purposes of this Warrant, the following terms have
the following meanings:
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which commercial banks in Atlanta, Georgia are required by law to close.
"Channel Partner Agreement" shall mean that certain Channel Partner
Agreement, dated March 27, 2000, between Trans Union and the Corporation.
"Common Stock" shall mean the Corporation's Common Stock, par value $0.01
per share, and, in the case of a reclassification, recapitalization or other
similar change in such Common Stock or in the case of a consolidation or merger
of the Corporation with or into another Person, such consideration to which a
holder of a share of Common Stock would have been entitled upon the occurrence
of such event.
"Corporation" shall mean PRIMIS, Inc., a Georgia corporation, and its
successors and assigns.
- ---------------------------
1 Adjusted for a 1.8622-for-1 stock split to be effected in the form of a
stock dividend concurrently with the Corporation's initial public offering.
<PAGE>
"Effective Period" shall mean the period beginning on the date of issuance
hereof and ending at 5:00 p.m. Eastern Standard Time on the tenth anniversary of
the closing of the PRIMIS IPO.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute then in effect.
"Exercise Date" shall mean the date on which an exercising Holder has
submitted to the Corporation this Warrant and the subscription form attached
hereto as EXHIBIT A and, if applicable, has paid the Warrant Price as required
by Section 3.3.1 hereof.
"Fair Market Value" of a share of Common Stock as of any date shall mean,
as of any date, the average of the closing prices of Common Stock for the twenty
(20) consecutive Trading Days next preceding the date five (5) Business Days
prior to the date in question. The closing price for each day shall be:
(i) the average of the closing sale price or, in the absence of a closing
sale price, the highest bid and lowest asked prices of one share of
Common Stock quoted in the Nasdaq National Market System or any
similar system of automated dissemination of quotations of securities
prices then in common use, if so quoted; or
(ii) if not quoted as described in clause (i), the average of the highest
bid and lowest offered quotations for one share of Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and offered quotations for
Common Stock on at least five (5) of the twenty (20) consecutive
Trading Days next preceding the date five (5) days prior to the date
in question; or
(iii) if the Common Stock is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if
no sale occurred, of one share of Common Stock on the principal
securities exchange on which the Common Stock is listed or admitted
for trading.
If none of the conditions set forth above is met, the closing price of one share
of Common Stock on any day or the average of such closing prices for any period
shall be the Fair Market Value of Common Stock for such day or period as
determined by a member firm of the New York Stock Exchange selected by the
Corporation and approved by the Holder. If the Corporation and the Holder are
unable to agree on the selection of a member firm, then the issue of selection
of a member firm shall be submitted to the American Arbitration Association.
"Holder" shall mean Trans Union, as the original registered holder of this
Warrant, and any registered transferee of a Holder.
-2-
<PAGE>
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, limited liability company, limited liability
partnership, government organization or agency or political subdivision thereof,
sole proprietorship or any other form of entity not specifically listed herein.
"PRIMIS IPO" shall mean an initial offering of Common Stock to the general
public which is effected pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar Federal statute then in effect.
"Stock" shall include any and all shares, interests or other equivalents
(however designated) of, or participations in, the capital stock of the
Corporation of any class.
"Subsidiary" shall mean any corporation at least 50% of whose outstanding
capital stock shall at the time be owned directly or indirectly by the
Corporation or by one or more Subsidiaries or by the Corporation and one or more
Subsidiaries.
"Trading Day" shall mean, with respect to the Common Stock: (i) if the
Common Stock is quoted on the Nasdaq National Market System, any similar system
of automated dissemination or quotations of securities prices, or the National
Quotation Bureau Incorporated, each day on which quotations may be made on such
system; or (ii) if the Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange is
open for business; or (iii) if shares of the Common Stock are not quoted on any
system or listed or admitted for trading on any securities exchange, a Business
Day.
"Warrant" shall mean this Warrant.
"Warrant Price" shall initially mean the price per share at which shares of
Common Stock are sold to the public in the PRIMIS IPO, and thereafter such other
prices as shall result from the adjustments specified in Section 5 hereof.
"Warrant Shares" shall initially mean One Hundred Ninety Thousand Eight
Hundred and Seventy-Five (190,875) shares of Common Stock and thereafter such
number of shares of Common Stock as shall result from the adjustments specified
in Section 5 hereof.
2. DURATION. Subject to the vesting provisions of Section 3.1 hereof, the
right to exercise this Warrant to subscribe for and purchase shares of Common
Stock shall commence on date hereof and shall expire at the end of the Effective
Period.
3. VESTING; METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT; TRANSFER
AND EXCHANGE.
-3-
<PAGE>
3.1 During the Effective Period, the Holder hereof may exercise this
Warrant only to the extent that the Warrant Shares have vested. Subject to the
accelerated vesting provisions in this Section 3.1, the Warrant Shares shall
vest one hundred eighty (180) days after the date of the closing of the PRIMIS
IPO provided that the Channel Partner Agreement has not been terminated by the
Corporation pursuant to Section 8(b) thereof on or prior to such date.
Notwithstanding the foregoing, all Warrant Shares shall immediately vest
upon the occurrence of a Change in Control of the Corporation. For purposes
hereof, the term "Change in Control" shall mean:
(i) The acquisition (other than from the Corporation) by any person,
entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act (excluding, for this purpose, the Corporation or any
employee benefit plan of the Corporation which acquires beneficial
ownership of voting securities of the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
50% or more of either the then outstanding shares of Common Stock or the
combined voting power of the Corporation's then outstanding voting
securities entitled to vote generally in the election of directors;
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Corporation (as of the date hereof the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board of
Directors, provided that any person becoming a director subsequent to the
date hereof whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Corporation, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Warrant, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the shareholders of the Corporation of (A) a
reorganization, merger or consolidation, in each case, with respect to
which persons who were the shareholders of the Corporation immediately
prior to such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the outstanding Common Stock or combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Corporation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of such Common Stock or combined voting power, (B)
a liquidation or dissolution of the Corporation or (C) the sale of all or
substantially all of the assets of the Corporation.
3.2 Subject to Section 3.1 hereof, the Holder hereof may exercise this
Warrant, in whole or in part, by delivery to the Corporation at its office at
11475 Great Oaks Way, Suite 320, Alpharetta, Georgia 30022, Attention: Chief
Legal Officer (or such other address as the Corporation
-4-
<PAGE>
may specify to Holder from time to time), of (i) a written notice of Holder's
election to exercise this Warrant, which notice shall specify the number of
shares of Common Stock to be purchased, (ii) payment of the Warrant Price in the
manner provided in Section 3.3 and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as EXHIBIT A, duly executed by Holder or its agent or attorney. In the
event of any exercise of the rights represented by this Warrant, (i)
certificates for the shares of Common Stock so purchased shall be dated the date
of such exercise and delivered within a reasonable time, not exceeding 15 days
after such exercise, to or upon the written order of the Holder and in such name
or names as Holder may designate, and the Holder hereof shall be deemed for all
purposes to be the Holder of the shares of Common Stock so purchased as of the
date of such exercise, and (ii) unless this Warrant has expired, this Warrant
shall be returned to the Holder hereof within such time with a notation made on
SCHEDULE I attached to this Warrant as to the number of shares of Common Stock
for which this Warrant was exercised, the exercise date, and the number of
shares of Common Stock which remain issuable pursuant thereto.
3.3 The Warrant Price may be paid by any of the following methods, or any
combination thereof, as specified in the subscription form appearing at the end
of this Warrant as EXHIBIT A:
3.3.1 Cash payment of an amount equal to the product of the Warrant
Price and the number of shares of Common Stock to be purchased, made either by
(i) wire transfer to an account in a bank located in the United States
designated for such purpose by the Corporation or (ii) delivery of a certified
or official bank check.
3.3.2 By delivering to the Corporation shares of Common Stock already
held by the Holder, duly endorsed for transfer, having a Fair Market Value on
the Exercise Date equal to the aggregate Warrant Price for the Warrant Shares as
to which the Warrant is being exercised.
3.3.3 In a broker-assisted transaction, by delivering to the
Corporation a copy of irrevocable instructions to a broker to deliver promptly
to the Corporation an amount of sale proceeds from the sale of Warrant Shares
equal to the aggregate Warrant Price for the Warrant Shares as to which the
Warrant is being exercised.
3.4 The Corporation will, at its own expense, from time to time take
all action which may be necessary to obtain and keep effective any and all
permits, consents, orders and approvals of governmental agencies and authorities
which are or become required or necessary so that any Common Stock, immediately
upon its issuance upon the exercise of this Warrant, will be listed on each
securities exchange or listing or quotation services, if any, on which Common
Stock of the Corporation is then listed.
-5-
<PAGE>
4. STOCK FULLY PAID; RESERVATION OF SHARES.
4.1 The Corporation covenants and agrees that all shares of Common
Stock which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be fully paid and non-assessable and free from all
taxes, liens and charges with respect to issuance. The Corporation further
covenants and agrees that during the Effective Period, the Corporation will at
all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant. If the
Warrant Price is at any time less than the par value of the Common Stock, the
Corporation also covenants and agrees to cause to be taken such action (whether
by decreasing the par value of the Common Stock, the conversion of the Common
Stock from par value to no par value, or otherwise) as will permit the exercise
of this Warrant and the issuance of the Common Stock without any additional
payment by the Holder hereof (other than payment of the Warrant Price and
applicable transfer taxes, if any), which Common Stock, upon such issuance, will
be fully paid and non-assessable.
4.2 The Corporation shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder hereof against impairment. Without limiting the generality
of the foregoing, the Corporation will (a) not increase the par value of any
shares of Common Stock above the amount payable therefor upon the exercise of
this Warrant immediately prior to such increase in par value and (b) take all
such action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number and kind
of securities purchasable upon the exercise of this Warrant and the amount of
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
5.1 RECAPITALIZATION, REORGANIZATION, RECLASSIFICATION, CONSOLIDATION
OR MERGER. In case of any recapitalization or reorganization of the Corporation
or any reclassification or change of outstanding Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination), or in case of any consolidation or merger of the Corporation with
or into another corporation (other than a merger with another corporation in
which the Corporation is the surviving corporation and which does not result in
any reclassification or change (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination) of outstanding Stock issuable upon exercise of this
Warrant), the Holder of this Warrant shall be entitled to receive, upon exercise
of this Warrant, the kind and the highest amount of shares of Stock, other
securities, money and property receivable upon such recapitalization,
reorganization, reclassification, change, consolidation or merger by a Holder of
one
-6-
<PAGE>
share of Common Stock as if this Warrant had been exercised immediately
prior to such recapitalization, reorganization, reclassification, change,
consolidation or merger. The provisions of this Section 5.1 shall similarly
apply to successive recapitalizations, reorganizations, reclassifications,
changes, consolidations and mergers.
5.2 SUBDIVISION OR COMBINATION OF SHARES. If the Corporation, at any
time while this Warrant is outstanding, shall subdivide or combine any class or
classes of its Common Stock, the Warrant Price shall be proportionately reduced,
in case of subdivision of shares, to reflect the increase in the total number of
shares of Common Stock outstanding as a result of such subdivision, as at the
effective date of such subdivision, or if the Corporation shall take a record of
holders of any class or classes of its Common Stock for the purpose of so
subdividing, as at the applicable record date, whichever is earlier, or shall be
proportionately increased, in the case of combination of shares, to reflect the
reduction in the total number of shares of Common Stock outstanding as a result
of such combination, as at the effective date of such combination or, if the
Corporation shall take a record of holders of any class or classes of its Common
Stock for the purpose of so combining, as at the applicable record date,
whichever is earlier.
5.3 STOCK DIVIDENDS. If the Corporation, at any time while this Warrant
is outstanding, shall pay a dividend in, or make any other distribution of,
Common Stock, the Warrant Price shall be adjusted, as at the date the
Corporation shall take a record of the holders of such class or classes of
Common Stock, for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Warrant Price in
effect immediately prior to the record date (or if no such record is taken, then
immediately prior to such payment or other distribution), by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (plus, in the event
that the Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued fractional
shares in connection with said dividends).
5.4 TREASURY SHARES. In making any adjustments in the Warrant Price
hereinbefore provided in this Section 5, the number of shares of Common Stock at
any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or any of its
Subsidiaries.
5.5 OTHER ACTION AFFECTING COMMON STOCK. In case after the date hereof
the Corporation shall take any action affecting its Common Stock, other than an
action described in any of the foregoing Sections 5.1 through 5.3, inclusive,
and the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principles of this Section 5, then the Warrant Price and the number of shares of
Common Stock purchasable upon the exercise of this Warrant shall be adjusted in
such manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable in the circumstances.
-7-
<PAGE>
5.6 ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Warrant
Price pursuant to any provision of Section 5.2 or 5.3, the number of shares of
Common Stock purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of such shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price immediately prior to
such adjustment and the denominator of which shall be the Warrant Price
immediately thereafter. If the Corporation shall be in default under any
provision contained in the last sentence of Section 4.2 of this Warrant so that
such shares, upon issuance, would not be validly issued under applicable law at
the Warrant Price adjusted in accordance with this Section 5, the adjustment of
shares provided in the foregoing sentence shall nonetheless be made and the
Holder of this Warrant shall be entitled to purchase such greater number of
shares at the lowest price at which such shares may be validly issued under
applicable law. Such exercise shall not constitute a waiver of any claim arising
against the Corporation by reason of its default under Section 4.2 of this
Warrant.
6. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or number of shares of
Common Stock purchasable upon exercise of this Warrant shall be adjusted
pursuant to Section 5 hereof, the Corporation shall cause the independent
accounting firm then regularly engaged by it to report on its financial
statements to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Corporation made any determination
hereunder), and the Warrant Price and number of shares of Common Stock
purchasable hereunder after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail postage prepaid) to
the Holder of this Warrant promptly after each adjustment.
7. RESTRICTIONS ON TRANSFERABILITY. Subject to compliance with this Section
7, this Warrant may be transferred on the books of the Corporation by the Holder
hereof in person or by duly authorized attorney, upon surrender of this Warrant
at the principal office of the Corporation, properly endorsed and upon payment
of any necessary transfer tax or other governmental charge imposed upon such
transfer. Subject to compliance with this Section 7, this Warrant is
exchangeable at the aforesaid principal office of the Corporation for warrants
for the purchase of the same aggregate number of shares of Common Stock, each
new warrant to represent the right to purchase such number of shares of Common
Stock as the Holder hereof shall designate at the time of such exchange. All
warrants issued on transfers or exchanges shall be dated the date hereof and
shall be identical with this Warrant except as to the number of shares of Common
Stock issuable pursuant hereto.
7.1 The Warrant and the Warrant Shares issued upon exercise of the
Warrant shall not be transferred, hypothecated or assigned before satisfaction
of the conditions specified in this Section 7 (unless transferred or assigned
pursuant to Section 8), which conditions are intended to ensure compliance with
the provisions of the Securities Act and state securities or "blue sky" laws
with respect to the transfer, hypothecation or assignment of the Warrant or any
Warrant Shares. Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 7.
-8-
<PAGE>
7.2 Prior to any transfer, hypothecation or assignment or attempted
transfer, hypothecation or assignment of the Warrant or any Warrant Shares
issued upon exercise of the Warrant, the Holder of such Warrant or Warrant
Shares shall give ten (10) days prior written notice (a "Transfer Notice") to
the Corporation of such Holder's intention to effect such transfer,
hypothecation or assignment, describing the manner and circumstances of the
proposed transfer, hypothecation or assignment, and provide the Corporation with
a written opinion of counsel addressed to the Corporation that the proposed
transfer, hypothecation or assignment of the Warrant or such Warrant Shares may
be effected without registration under the Securities Act and applicable state
securities or "blue sky" laws. After receipt of the Transfer Notice and written
opinion, the Corporation shall, within five (5) days thereof, so notify the
Holder of the Warrant or such Warrant Shares in writing and such Holder shall
thereupon be entitled to transfer, hypothecate or assign the Warrant or Warrant
Shares, in accordance with the terms of the Transfer Notice. The Holder of the
Warrant or such Warrant Shares, as the case may be, giving the Transfer Notice
shall not be entitled to transfer the Warrant or such Warrant Shares until
receipt of notice from the Corporation under this Section 7.2.
8. REGISTRATION RIGHTS. The Holder of this Warrant shall be entitled to the
rights, privileges and benefits set forth in the Registration Rights Agreement
dated as of the date hereof between the initial Holder of this Warrant and the
Corporation.
9. AMENDMENT AND WAIVER. Any term, covenant, agreement or condition in this
Warrant may be amended, or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively), by a
written instrument or written instruments executed by the Corporation and the
Holder.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PRINCIPLES OF SUCH STATE.
11. REPLACEMENT. On receipt of evidence reasonably satisfactory to the
Corporation of the loss, theft, destruction or mutilation of this Warrant and in
the case of loss, theft or destruction, on delivery of an indemnity agreement or
bond reasonably satisfactory in form and amount to the Corporation or, in the
case of mutilation, on surrender and cancellation of this Warrant the
Corporation, at its expense, will execute and deliver in lieu of this Warrant a
new warrant of like tenor.
-9-
<PAGE>
12. SPECIFIC PERFORMANCE. The Holder shall have the right to specific
performance by the Corporation of the provisions of this Warrant. The
Corporation hereby irrevocably waives, to the extent that it may do so under
applicable law, any defense based on the adequacy of a remedy at law which may
be asserted as a bar to the remedy of specific performance in any action brought
against the Corporation for specific performance of this Warrant by the Holder.
Dated: ________, 2000 PRIMIS, INC.
By:
------------------------------------
Name:
Title:
Attest:
- ----------------------------------
Secretary
-10-
<PAGE>
SCHEDULE I
SCHEDULE OF WARRANT EXERCISE
<TABLE>
<CAPTION>
NUMBER OF WARRANT NUMBER OF WARRANT
EXERCISE DATE SHARES BEING EXERCISED SHARES REMAINING
<S> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
Cash Exercise Method
The undersigned registered owner of the attached Warrant irrevocably
exercises, by the Cash Exercise Method in accordance with Section 3.3.1 of the
Warrant, the attached Warrant for the purchase of _______ shares of Common
Stock, $0.01 par value, of PRIMIS, INC. (the "Corporation") and herewith makes
payment therefor, to the order of the Corporation in the amount of $___________
as payment of the aggregate Warrant Price in accordance with the terms set forth
in Section 3.3.1.
Delivery of Shares Exercise Method
The undersigned registered owner of the attached Warrant irrevocably
exercises, by the Delivery of Shares Exercise Method in accordance with Section
3.3.2 of the Warrant, the attached Warrant for the purchase of _______ shares of
Common Stock, $0.01 par value, of the Corporation, and makes payment as follows:
(a) The Warrant Price on the Exercise Date: .
-----------------
(b) The Fair Market Value of a shares of Common Stock on the Exercise Date:
.
--------------------
(c) The number of shares of Common Stock, duly endorsed for transfer, being
delivered by the Holder herewith: .
---------------------
Broker-Assisted Transaction Exercise Method
The undersigned registered owner of the attached Warrant irrevocably
exercises, by the Broker-Assisted Transaction Exercise Method in accordance with
Section 3.3.4 of the Warrant, the attached Warrant for the purchase of _______
shares of Common Stock, $0.01 par value, of the Corporation, and makes payment
as follows:
(a) The Warrant Price on the Exercise Date: .
----------------
(b) Warrant Shares to be delivered to the following broker:
----------------
.
-------------------------
(c) Attached hereto are irrevocable instructions to the foregoing broker
to deliver to the Corporation an amount of sale proceeds from the sale
of
<PAGE>
Warrant Shares delivered to said broker in accordance herewith equal
to the aggregate Warrant Price for the Warrant Shares being purchased
hereunder.
Issuance Instructions
The undersigned requests that a certificate for such Common Stock be
registered in the name of whose address is and
--------------- -----------------
that such certificate be delivered to whose address is . If such
----------------
number of shares of Common Stock is less than all of the shares of Common Stock
which may be purchased upon the exercise of the Warrant, the undersigned hereby
requests that a new Warrant representing the remaining balance of this Warrant
be registered in the name of whose address is
---------------- ------------------
and that such Warrant be delivered to whose address is
--------------- ---------.
------------------------------
Name of Registered Owner
------------------------------
Signature of Registered Owner
------------------------------
------------------------------
Address
------------------------------
------------------------------
Federal ID Number
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the _____ day of
______, 2000, by and between PRIMIS, INC., a Georgia corporation (the
"Corporation"), and TRANS UNION LLC, a Delaware limited liability company
("Trans Union").
PRELIMINARY STATEMENT
The Corporation has issued to Trans Union a warrant (the "Warrant"),
dated the date hereof, pursuant to which Trans Union has the right to purchase a
number of shares of Common Stock (such shares of Common Stock, as adjusted
pursuant to the provisions of Section 5 of the Warrant, being referred to
hereinafter as the "Shares").
Pursuant to the Warrant, the Corporation has agreed to extend certain
registration rights to Trans Union with respect to the Shares. In consideration
of the premises and mutual covenants and agreements hereinafter contained, the
parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1 DEFINITIONS. For purposes of this Agreement, capitalized terms
used and not defined elsewhere herein shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended, or any similar Federal
statute, and the rules and regulations of the Commission issued under the Act,
as they each may, from time to time, be in effect.
"COMMISSION" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Act.
"COMMON STOCK" means the shares of common stock, $0.01 par value, of the
Corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under the Exchange Act, as they each may, from time to time, be in
effect.
"HOLDER" means Trans Union, any original registered holder of Registrable
Securities, and any registered transferee of a Holder.
"WARRANT" means the Warrant, dated the date hereof, issued by the
Corporation to Trans Union.
"REGISTRABLE SECURITIES" means (i) the Shares, and (ii) any other shares of
Common Stock of the Corporation issued in respect of the Shares (because of
stock splits, stock dividends, reclassifications, recapitalizations, or similar
events).
<PAGE>
ARTICLE 2.
CAPITALIZATION
Section 2.1 CAPITALIZATION. The Corporation represents and warrants to
Trans Union that, on the date hereof, the authorized and issued and outstanding
shares of capital stock of the Corporation are as set forth on Schedule I
hereto.
ARTICLE 3.
REGISTRATION RIGHTS
Section 3.1 OPTIONAL REGISTRATIONS. If at any time or times after the date
hereof, the Corporation shall determine to register any of its Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock
under the Securities Act (whether in connection with a public offering of
securities by the Corporation (a "primary offering"), a public offering thereof
by shareholders (a "secondary offering"), or both, but not in connection with
the Corporation's initial primary offering or a registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145 or any
other similar rule or regulation of the Commission under the Securities Act is
applicable), it agrees to do the following:
(a) The Corporation shall promptly give written notice of registration
under this Section 3.1 to the Holders and will use its best efforts to effect
the registration under the Securities Act of all Registrable Securities for
which the Holders may request registration in a writing delivered to the
Corporation within thirty (30) days after receipt of such notice from the
Corporation; PROVIDED, HOWEVER, that in the case of the registration of Common
Stock by the Corporation in connection with an underwritten public offering, the
Corporation shall not be required to register Registrable Securities of the
Holders in excess of the amount, if any, of Common Stock which the principal
underwriter of an underwritten offering shall reasonably and in good faith agree
in writing to include in such offering.
(b) If any Registrable Securities are not to be registered pursuant to this
Section 3.1 because the number of Registrable Securities for which registration
has been requested by the Holders pursuant to paragraph (a) above exceeds the
amount of Registrable Securities which the principal underwriter of an
underwritten offering shall reasonably and in good faith agree in writing to
include in such offering, the Holders who have requested participation shall be
entitled to participate in such registration and offering in accordance with
Section 10 of the Second Amended and Restated Registration Rights Agreement
dated as of June 16, 1998 between the Corporation and certain shareholders.
(c) All expenses of the registration and offering and the reasonable fees
and expenses of not more than one independent counsel for the Holders shall be
borne by the Corporation, except that the Holders shall bear underwriting
commissions attributable to their Registrable Securities being registered and
transfer taxes on Registrable Securities being sold by such Holders.
(d) Without in any way limiting the types of registrations to which this
Section 3.1 shall apply, in the event that the Corporation shall effect a "shelf
registration" under Rule 415
-2-
<PAGE>
promulgated under the Securities Act or any other similar rule or regulation
("Rule 415"), the Corporation shall take all necessary action, including,
without limitation, the filing of post-effective amendments, to permit the
Holders to include their shares in such registration in accordance with all of
the terms of this Section 3.1.
Section 3.2 SELECTION OF UNDERWRITER. In the case of any registration
effectuated through an underwritten offering, the Corporation shall have the
right in its sole discretion to designate the managing underwriter or
underwriters, and each Holder whose Registrable Securities are registered for
sale through such underwritten offering shall enter into an underwriting
agreement in form and on terms customary for such transactions.
Section 3.3 STAND OFF AGREEMENT. Each Holder of Registrable Securities, if
requested by the Corporation and an underwriter of Common Stock or other
securities of the Corporation, shall agree not to sell or otherwise transfer or
dispose of any Registrable Securities or other securities of the Corporation
held by such Holder for a specified period of time (not to exceed 180 days)
following the effective date of a Registration Statement, provided all persons
holding not less than the number of shares of Common Stock held by such Holder
(including shares of Common Stock issuable upon the conversion of Shares, or
other convertible securities, or upon the exercise of options, warrants or
rights) enter into similar agreements. Such agreements shall be in writing in a
form satisfactory to the Corporation and such underwriter. The Corporation may
impose stop-transfer instructions with respect to the Registrable Securities or
other securities subject to the foregoing restriction until the end of the
standoff period.
Section 3.4 FURTHER OBLIGATIONS OF THE CORPORATION. Whenever under the
preceding sections of this Article 3 the Corporation is required to register
Registrable Securities, it agrees that it shall also do the following:
(a) Use its best efforts diligently to prepare for filing with the
Commission a registration statement and such amendments and supplements to said
registration statement and the prospectus used in connection therewith as may be
necessary to keep said registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale of securities covered
by said registration statement for the period necessary to complete the proposed
public offering (but not in excess of 180 days);
(b) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of his or its Common Stock; and
(c) Use its best efforts to register or qualify the Common Stock covered by
said registration statement under the securities or "blue-sky" laws of such
jurisdictions as any selling Holder may reasonably request, provided that the
Corporation shall not be required to register in any states which require it to
qualify to do business or subject itself to general service of process.
Section 3.5 FORM S-3 REGISTRATION. If the Corporation becomes eligible to
use Form S-3 under the Securities Act or a comparable successor form, the
Corporation shall use its best efforts to continue to qualify at all times for
registration on Form S-3 or such successor form. At any time after the
Corporation becomes eligible to use Form S-3 or such successor form, the
-3-
<PAGE>
Holders of an aggregate of not less than ten percent (10%) of Registrable
Securities then outstanding and held by the Holders shall have the right to
request and have effected a registration of shares of Registrable Securities on
Form S-3 or such successor form for a public offering of shares of Registrable
Securities so long as at least 20,000 shares of Registrable Securities (as
adjusted for stock splits, stock dividends, recapitalizations or similar events)
are proposed to be included in such registration (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended method of disposition of such shares by such Holder
or Holders). The Corporation shall not be required to cause a registration
statement requested pursuant to this Section 3.5 to become effective prior to
ninety (90) days following the effective date of a registration statement
initiated by the Corporation, if the Corporation gives written notice, made in
good faith, to the Holders of Registrable Securities to the effect that the
Corporation is commencing to prepare a Corporation initiated registration
statement (other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Commission under the Securities Act is applicable); PROVIDED, HOWEVER, that the
Corporation shall use its best efforts to achieve such effectiveness promptly
following such ninety (90) day period if the request pursuant to this Section
3.5 has been made prior to the expiration of such ninety (90) day period. The
Corporation may postpone the filing of any registration statement required
hereunder for a reasonable period of time, not to exceed sixty (60) days, if the
Corporation has been advised by legal counsel that such filing would require the
disclosure of a material transaction or other factor and the Corporation
determines reasonably and in good faith that such disclosure would have a
material adverse effect on the Corporation. The Corporation shall give notice to
all Holders of the receipt of a request for registration pursuant to this
Section 3.5 and shall provide a reasonable opportunity for such Holders to
participate in the registration. Subject to the foregoing, the Corporation will
use its best efforts to effect promptly the registration of all Registrable
Securities on Form S-3 or such successor form to the extent requested by the
Holder or Holders thereof for purposes of disposition. If so requested by any
Holder in connection with a registration under this Section 3.5, the Corporation
shall take such steps as are required to register such Holder's Registrable
Securities for sale on a delayed or continuous basis under Rule 415, and to keep
such registration effective until all of such Holder's Registrable Securities
registered thereunder are sold (but not in excess of 365 days). All expenses
incurred in connection with a registration requested pursuant to this Section
3.5, including, without limitation, all registration, qualification, printing,
and accounting and counsel fees, shall be paid by the Holders participating in
such registration on a pro-rata basis in proportion to such participation.
Notwithstanding the foregoing, the Corporation shall not be required to effect a
registration under this Section 3.5 if, in the opinion of counsel for the
Corporation, which counsel and opinion shall be reasonably acceptable to the
Holders, such Holders may then sell all Registrable Securities proposed to be
sold in the manner proposed without registration under the Securities Act.
Section 3.6 INDEMNIFICATION. Incident to any registration statement
referred to in this Article 3, and subject to applicable law, (a) the
Corporation will indemnify each underwriter, each Holder of Registrable
Securities so registered, and each person controlling any of them, against all
claims, losses, damages and liabilities, including legal and other expenses
reasonably incurred in investigating or defending against the same, arising out
of any untrue statement of a material fact contained therein, or any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of any
-4-
<PAGE>
violation by the Corporation of the Securities Act, any state securities or
"blue-sky" laws or any rule or regulation thereunder in connection with such
registration, except insofar as the same may have been caused by an untrue
statement or omission based upon information furnished in writing to the
Corporation by such underwriter, Holder, or controlling person, respectively,
expressly for use therein, and (b) with respect to such untrue statement or
omission in the information furnished in writing to the Corporation by such
Holder, such Holder will indemnify the underwriters, the Corporation, its
directors and officers, the other Holders and each person controlling any of
them against any losses, claims, damages, expenses (including legal or other
expenses) or liabilities to which any of them may become subject to the same
extent.
Section 3.7 RULE 144 REQUIREMENTS. The Corporation will use its best
efforts to file with the Commission such information as the Commission may
require under the reporting requirements of either Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, and in such event, the
Corporation shall use its best efforts to take all action as may be required as
a condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereafter in effect). The Corporation shall furnish to
any Holder of Registrable Securities upon request a written statement executed
by the Corporation as to the steps it has taken to comply with the current
public information requirement of Rule 144 or such successor rule.
Section 3.8 AMENDMENT OR WAIVER OF REGISTRATION RIGHTS. The registration
rights provided for in this Article 3 may not be waived otherwise than by a
written instrument signed by the party so waiving such rights; PROVIDED,
HOWEVER, that changes in or additions to, and any consents required by this
Article 3 may be made, and compliance with any term, covenant, condition or
provision set forth in this Article 3 may be omitted or waived (either generally
or in a particular instance and either retroactively or prospectively) by a
consent or consents in writing signed by Holders holding a majority in interest
of the Registrable Securities held by the Holders and (in the case of any such
waiver, change or addition) the Corporation. Any amendment or waiver effected in
accordance with this Section 3.8 shall be binding upon each Holder of
Registrable Securities, each transferee of a Holder under Section 3.9 and the
Corporation.
Section 3.9 TRANSFER OF RIGHTS; TERMINATION.
(a) The rights granted to Trans Union under this Agreement may be
transferred by a Holder (a) to any affiliate of a Holder or to any person or
entity acquiring Registrable Securities representing ownership of, or the right
to acquire, at least 100,000 shares of Common Stock (as adjusted for stock
splits, stock dividends, recapitalizations or similar events), or (b) to a
shareholder or partner of a Holder who receives Registrable Securities as a
distribution from such Holder. Each such transferee shall be deemed to be a
"Holder" for purposes of this Article 3.
(b) Any transferee (other than a stockholder who is already a party to an
agreement in form and substance similar to this Agreement) to whom rights under
this Agreement are transferred shall, as a condition to such transfer, deliver
to the Corporation a written instrument by which such transferee identifies
itself, gives the Corporation notice of the transfer of such rights, indicates
the Registrable Securities owned by it and agrees to be bound by the obligations
imposed upon Trans Union under this Agreement.
-5-
<PAGE>
(c) A transferee to whom rights are transferred pursuant to this Section
3.9 may not again transfer such rights to any other person or entity, other than
as provided in this Section 3.9.
ARTICLE 4.
MISCELLANEOUS
Section 4.1 SUCCEEDING SECURITIES. In the event the Common Stock of the
Corporation covered by this Agreement is converted into any other security of
the Corporation or any other corporation, the terms of this Agreement shall
apply with full force and effect to any such other security and the obligations
of the Corporation to effect registration rights shall include such other
filings, qualifications, notices and similar acts as may be necessary to enable
the Holder to realize the benefits of registration rights provided by this
Agreement.
Section 4.2 WAIVERS; MODIFICATIONS IN WRITING. No failure or delay on the
part of Trans Union, or any holder of rights under this Agreement, in exercising
any right, power, or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. No amendment, modification, supplement, terminations consent or
waiver of or to any provision of this Agreement, nor consent to any departure
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Trans Union and the Corporation. Any waiver of any provision of
this Agreement, and any consent to any departure by the Corporation from the
terms of any provisions of this Agreement, shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand on the Corporation in any case shall entitle the Corporation to any other
or further notice or demand in similar or other circumstances.
Section 4.3 NOTICES, ETC. All notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be in writing delivered to the parties at the addresses set forth
below (or such other address as may be provided by one party in a notice to the
other):
If to Trans Union:
Trans Union LLC
555 West Adams Street
Chicago, IL 60661
Attn: General Counsel
Telephone: (312) 466-7771
Facsimile: (312) 466-7986
PRIMIS, Inc.
11475 Great Oaks Way, Suite 320
Alpharetta, GA 30022
Attn: Chief Legal Officer
Telephone: (770) 777-8600
Facsimile: (770) 777-8922
-6-
<PAGE>
Notice delivered in accordance with the foregoing shall be effective (i) when
delivered, if delivered personally, by facsimile transmission (with receipt
confirmed electronically) or by courier or overnight delivery service which
regularly provides such service and regularly obtains executed receipts
evidencing delivery or (ii) three (3) days after being deposited in the United
States mail, certified or registered mail, return receipt requested and postage
prepaid.
Section 4.4 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto.
Section 4.5 HEADINGS. Article and Section headings used in this Agreement
are for convenience of reference only and shall not constitute a part of this
Agreement for any purpose or affect the construction of this Agreement.
Section 4.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
one and the same Agreement. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
Section 4.7 GOVERNING LAW. The validity of this Agreement, the
construction, interpretation, and enforcement thereof, and the rights of the
parties thereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of Georgia, without regard to
principles of conflicts of law.
Section 4.8 WAIVER OF JURY TRIAL. The Corporation hereby waives all right
to trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Agreement, or any other agreement or instrument contemplated
hereby.
Section 4.9 SPECIFIC PERFORMANCE. Trans Union and each other Holder shall
have the right to specific performance by the Corporation of the provisions of
this Agreement. The Corporation hereby irrevocably waives, to the extent that it
may do so under applicable law, any defense based on the adequacy of a remedy at
law which may be asserted as a bar to the remedy of specific performance in any
action brought against the Corporation for specific performance of this
Agreement by Trans Union or any other Holder.
Section 4.10 SEVERABILITY OF PROVISIONS. Whenever possible this Agreement
and each provision hereof shall be interpreted in such manner as to be
effective, valid and enforceable under applicable law. If and to the extent that
any such provision shall be held invalid and unenforceable by any court of
competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provisions hereof, and any determination that the
application of any provision hereof to any person or under any circumstance is
illegal and unenforceable shall not affect the legality, validity and
enforceability of such provision as it may be applied to any other person or in
any other circumstance.
Section 4.11 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first hereinabove set forth.
PRIMIS, INC.
By:
-----------------------------------------------
Name:
Title:
TRANS UNION LLC
By:
-----------------------------------------------
Name:
Title:
-8-
<PAGE>
SCHEDULE I
Authorized, Issued and Outstanding Shares of
Capital Stock of PRIMIS, INC.
as of March 24, 2000(1)
<TABLE>
AUTHORIZED SHARES:
<S> <C>
Common shares 100,000,000
Preferred shares 8,000 000
ISSUED SHARES:
Common shares 14,420,401
Preferred shares(2)
Series A 1,091,242
Series B 725,130
STOCK OPTIONS: 3,408,559
WARRANTS: 851,058
CONVERTIBLE DEBT(3): $19,733,036
</TABLE>
- -------------------
(1) Adjusted for a 1.8622-for-1 stock split to be effected as a stock
dividend concurrently with PRIMIS, Inc.'s initial public offering.
(2) Convertible into an aggregate of 3,411,574 shares of Common Stock based
on aggregate stated values and accrued dividends as of February 29, 2000.
(3) Convertible into an aggregate of 2,435,624 shares of Common Stock based
on principal amount and accrued interest as of February 29, 2000.
<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, except as to Note 11 for which date is
April 4, 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
April 7, 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
April 7, 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
April 7, 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
April 7, 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
April 7, 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
April 7, 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
April 7, 2000
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose signature
appears below appoints and constitutes C. James Schaper and Connie C. Breeser,
and each of them, his or her true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and
her and in his or her name, place and stead, in any and all capacities, to
execute any and all amendments (including post-effective amendments) to the
within registration statement (as well as any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to
file the same, together with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission and such other
agencies, offices and persons as may be required by applicable law, granting
unto each said attorney-in-fact and agent, each acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
each said attorney-in-fact and agent, each acting alone may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Executive Vice President and Chief
/s/ DAVID A. POST Financial Officer (principal
------------------------------------ financial officer and accounting April 7, 2000
David A. Post officer)
</TABLE>
