<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996.
FILE NO. 333-13309
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
CONCORD EFS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-2462252
(State or other jurisdiction of organization) (I.R.S. Employer Identification No.)
</TABLE>
2525 HORIZON LAKE DRIVE, SUITE 120, MEMPHIS, TENNESSEE 38133 (901) 371-8000
(Address and telephone number of registrant's principal executive offices)
------------------------------------
DAN M. PALMER
CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
CONCORD EFS, INC.
2525 HORIZON LAKE DRIVE, SUITE 120
MEMPHIS, TENNESSEE 38133
(901) 371-8000
(Name, address and telephone number of agent for service)
with copies to:
<TABLE>
<S> <C>
RICHARD M. HARTER, ESQ. GLENN W. REED, ESQ.
BINGHAM, DANA & GOULD LLP GARDNER, CARTON & DOUGLAS
150 FEDERAL STREET 321 NORTH CLARK STREET
BOSTON, MASSACHUSETTS 02110 CHICAGO, ILLINOIS 60610
(617) 951-8000 (312) 245-8446
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
------------------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -----------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$0.33 1/3 Par Value......... 2,300,000 shares(1) $24.625(2) $56,637,500(2) $17,163
- -----------------------------------------------------------------------------------------------------------
Common Stock
$0.33 1/3 Par Value......... 1,150,000 shares(3) $26.1875(4) $30,115,625(4) $9,126
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amount of shares to be registered as set forth in initial filing on October
2, 1996. Includes a maximum of 300,000 shares which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Calculated in accordance with Rule 457(c) based on the average of the high
and low prices reported in the consolidated trading system on September 26,
1996.
(3) Additional shares to be registered pursuant to this Amendment No. 1.
Includes a maximum of 150,000 shares which may be purchased by the
Underwriters to cover over-allotments, if any.
(4) Calculated in accordance with Rule 457(a) and (c) based on the average of
the high and low prices reported on the consolidated trading system on
October 10, 1996.
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 SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1996
PROSPECTUS
3,000,000 SHARES
[CONCORD EFS, INC. LOGO]
COMMON STOCK
------------------------
All of the shares of the Common Stock offered hereby are being sold by
Concord EFS, Inc. (the "Company" or "Concord"). The Common Stock offered hereby
is quoted on the Nasdaq National Market under the symbol "CEFT". On October 16,
1996, the last reported sale price of the Common Stock was $27.00 per share. See
"Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
=================================================================================================
PRICE TO UNDERWRITING DISCOUNT PROCEEDS TO
PUBLIC AND COMMISSION(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total(3)......................... $ $ $
=================================================================================================
<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated offering expenses of $365,000 payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 450,000 shares of Common Stock, solely to cover
over-allotments, if any. See "Underwriting." If all such shares are
purchased, the total Price to Public, Underwriting Discount, and Proceeds to
Company will be $ , $ , and $ , respectively.
</TABLE>
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of the certificates for
the shares of Common Stock will be made on or about , 1996.
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
The date of this Prospectus is October , 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"). SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information concerning the Company may be inspected
and copies may be obtained (at prescribed rates) at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained by mail from the Public
Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed rates. In addition,
electronically filed documents, including reports, proxy and information
statements and other information regarding the Company, can be obtained from the
Commission's Web site at: http://www.sec.gov. The Company's Common Stock is
listed on the National Market System of The Nasdaq Stock Market, and reports,
proxy statements and other information concerning the Company can also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with the Commission with respect to the Common Stock being
offered pursuant to this Prospectus. As permitted by the rules and regulations
of the Commission, this Prospectus omits certain of the information contained in
the Registration Statement. For further information with respect to the Company
and the Common Stock being offered pursuant to this Prospectus, reference is
hereby made to such Registration Statement, including the exhibits filed as part
thereof. Statements contained in this Prospectus concerning the provisions of
certain documents filed with, or incorporated by reference in, the Registration
Statement are not necessarily complete, each such statement being qualified in
all respects by such reference. Copies of all or any part of the Registration
Statement, including the documents incorporated by reference therein or exhibits
thereto, may be obtained upon payment of the prescribed rates at the offices of
the Commission set forth above.
------------------------------
"EFS," "Concord EFS" and "EFS National Bank" are trademarks and trade names
of the Company. All other trademarks, brand marks and trade names used in this
Prospectus are trademarks, brand marks, trade names or registered marks of their
respective owners.
------------------------------
The Company's executive offices are located at 2525 Horizon Lake Drive,
Suite 120, Memphis, Tennessee 38133 and its telephone number is (901) 371-8000.
2
<PAGE> 4
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere, or incorporated by reference, in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes the Underwriters'
over-allotment option is not exercised. See "Underwriting." The shares of Common
Stock offered hereby involve a high degree of risk. Investors should carefully
consider the information set forth under the heading "Risk Factors."
THE COMPANY
The Company provides electronic transaction authorization, processing,
settlement and funds transfer services in selected markets. Concord's primary
activity is card services, which involves the provision of integrated electronic
transaction services for credit card, debit card and electronic benefits
transfer ("EBT") card transactions to supermarket chains, grocery stores,
convenience store merchants and other retailers. The Company believes it is one
of the few fully integrated transaction processors, supplying electronic payment
and verification terminals, cash dispensing machines ("ATMs"), processing
services, payment settlement, depository services and transaction data
compilation. In addition, the Company is one of the few companies offering full
credit and debit card processing on a nationwide basis.
The Company also provides electronic payment and banking facilities to a
large customer base in the trucking industry for use at major truck stop chains
throughout the United States. In addition to maintaining a network of over 350
ATMs at truck stops nationwide, the Company provides fuel purchase cards, ATM
bank cards and general banking services to truck drivers. The Company offers
trucking companies payroll deposit and cash forwarding services, as well as
real-time data compilation with respect to fuel volume usage, fuel expenditures,
vehicle and driver tracking and truck routine maintenance schedules. In
addition, the Company provides check verification services to grocery and other
retail merchants.
The Company's transaction payment and credit systems provide a recurring
stream of revenue from transaction fees through a highly diversified and stable
customer base. Between the years ended September 30, 1991 and December 31, 1995,
the Company's net revenue increased from $48.1 million to $127.8 million (a
compound annual growth rate of 27.6%) and its net income increased from $7.3
million to $18.3 million (a compound annual growth rate of 26.0%). Card services
(77% of net revenue for the first six months of 1996) represents the fastest
growing portion of the Company's revenues, increasing from $47.5 million in
fiscal year 1993 to $92.2 million in fiscal year 1995, during which period the
number of merchant locations served by the Company increased by approximately
26% per annum.
Concord offers merchants a cost-effective, reliable, turnkey debit and
credit card processing system. The Company is able to provide its system on a
profitable basis because of its low-cost operational structure, which includes
efficient marketing, volume purchasing arrangements with equipment and
communications vendors, and direct membership by its subsidiary, EFS National
Bank, in bank card associations (such as VISA and MasterCard) and national and
regional debit card networks (such as Interlink, MAC, Explore and NYCE). In
1992, Concord entered into an agreement with the National Grocers Association,
Inc. ("NGA") whereby Concord became the preferred vendor of the NGA for
electronic payment services for a range of applications, including both turnkey
packaged solutions and customized payment service agreements covering credit and
debit card transaction processing. The agreement has enabled Concord to increase
substantially its grocery store customer base. Currently, 6% to 7% of grocery
transactions use credit or debit card payment, and the Company believes that
this percentage is growing rapidly.
- --------------------------------------------------------------------------------
3
<PAGE> 5
The Company seeks to grow its funds transfer and payment transaction
processing business by providing a fully integrated range of transfer and
processing services at competitive prices. The principal elements of the
Company's strategy include the following:
- The Company focuses on specific markets that historically have been
underserved by the transaction processing industry, seeking a diverse
group of customers with low credit risk profiles.
- The Company seeks to be a low-cost, highly reliable provider of
electronic payment processing services by providing a fully integrated
range of relevant services, including designing equipment solutions,
selling and leasing equipment, authorizing transactions, capturing
information on its own host computer, directly participating in all major
credit and debit card associations and networks, and effecting settlement
of payment transactions and transfer of funds.
- The Company offers maximum technological versatility for the provision
of electronic processing services for a wide variety of communication
protocols and processing equipment of different manufacturers, in order
to provide a tailored solution to the customer's specific needs.
- The Company adheres to a balanced marketing approach through the use of
internal marketing specialists, independent sales representatives and a
number of independent sales organizations ("ISOs") in an effort to
provide at the most efficient cost broader access to new merchant
customers and portfolio acquisition opportunities nationwide.
Recent Company initiatives include: (i) introduction of processing services
for the emerging EBT programs for the electronic provision of food stamp and
other public assistance benefits, utilizing the Company's installed base in
grocery, convenience store and other retail merchants; (ii) installation of and
processing for a network of ATMs primarily in locations based upon the Company's
existing relationships with major truck stop chains and grocery and convenience
stores; (iii) enhancement of the Company's existing check verification programs
with access to nationwide check verification databases; and (iv) entering into a
multi-year contract to provide credit card and POS debit processing services to
Comdata Network, Inc., a subsidiary of Ceridian Corporation, in the gaming and
leisure markets.
THE OFFERING
Common Stock being offered by the Company... 3,000,000 shares
Common Stock outstanding after the
offering.................................... 60,224,807 shares(1)
Use of proceeds............................. To augment the equity capital of
EFS National Bank, for the
acquisition of merchant
processing portfolios and other
processing businesses, and for
working capital and other
general corporate purposes. See
"Use of Proceeds."
Nasdaq Stock Market Symbol.................. CEFT
- ---------------
(1) Excludes an aggregate of 3,538,690 shares of Common Stock reserved for
issuance upon exercise of options outstanding as of September 23, 1996.
4
<PAGE> 6
<TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1991(1) 1992(1) 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................... $48,144 $65,562 $75,443 $96,213 $127,762 $55,825 $74,752
Cost of operations............ 31,137 46,024 53,188 69,840 90,579 40,014 53,037
Selling, general and
administrative expenses..... 5,572 5,969 7,861 8,312 10,913 5,072 5,958
Operating income.............. 11,435 13,569 14,394 18,061 26,270 10,739 15,757
Net income.................... $ 7,273 $ 8,974 $ 9,863 $12,713 $ 18,315 $ 7,540 $10,931
Net income per share(2)....... $ 0.13 $ 0.16 $ 0.18 $ 0.23 $ 0.32 $ 0.13 $ 0.19
Weighted average common and
common equivalent shares
outstanding(2).............. 54,996 55,169 55,676 55,898 57,858 57,163 58,988
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
AS
ACTUAL ADJUSTED(3)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 77,863 $ 153,841
Total assets.......................................................... 173,267 249,245
Long-term debt........................................................ 773 773
Total stockholders' equity............................................ 106,141 182,119
<FN>
- ---------------
(1) Fiscal year 1991 ended September 30, 1991. The last calendar quarter of 1991
is not included in either the 1991 or 1992 fiscal year financial
information as set forth above.
(2) Earnings per share and related share data have been restated to reflect all
stock splits and stock dividends effected to date.
(3) Adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered hereby, at an assumed public offering price of $27.00 per share,
after deducting the underwriting discount and estimated offering expenses,
and the application of the estimated net proceeds described in "Use of
Proceeds."
</TABLE>
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. Prospective investors should consider carefully the
following risk factors, in addition to the other information contained in this
Prospectus, before purchasing the shares of Common Stock offered hereby. This
discussion also identifies important cautionary factors that could cause the
Company's actual results to differ materially from those projected in forward
looking statements of the Company made by, or on behalf of, the Company. In
particular, the Company's forward looking statements, including those regarding
expected growth in the various areas of the Company's operations, the adequacy
of the Company's capital resources, the future profitability of the Company in
connection with particular types of funds transfer processing and electronic
payment transactions, and other statements regarding trends relating to revenue
and expense items, could be affected by a number of risks and uncertainties,
including changes in the banking, trucking and retail market areas of the
general economy, changes in consumer spending and consumer credit, technological
changes in electronic processing of payment and credit transactions, and the
various risks and uncertainties described below.
RISKS OF SUSTAINING CURRENT GROWTH RATE. The Company's growth strategy
involves seeking new merchant and trucking customer relationships, the
acquisition of merchant processing portfolios from other processing service
providers and the possible acquisition of transaction processing or related
companies. The Company intends to continue seeking growth opportunities in order
to achieve greater economies of scale and increased transaction dollar volume.
The Company in the past has grown its merchant customer base primarily through
its in-house telemarketing and sales force working with independent sales
representatives nationwide. The Company has recently reorganized its marketing
efforts by adding marketing professionals focused upon certain markets, reducing
its telemarketing staff, outsourcing certain marketing activities and otherwise
expanding its relationships with independent sales organizations nationwide.
There can be no assurance that the Company's marketing efforts will be
successful in maintaining the current level of growth or expanding access to
growth opportunities. The Company has historically followed a conservative and
highly selective approach to the acceptance of new customers and the acquisition
of merchant portfolios. While the Company intends to maintain the same level of
selectivity, there can be no assurance that the Company will not suffer in the
future from higher rates of chargeback default and merchant fraud. In addition,
should the Company sustain its historical rate of growth, there can be no
assurance that the Company will be able to attract and retain adequate qualified
personnel to handle the increased transaction volume or to maintain its
historical level of reliability and responsiveness in processing services. Any
of the foregoing could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Business
Strategy," "-- Principal Services" and "-- Marketing."
RISKS OF PORTFOLIO ACQUISITIONS. The Company expects to derive a growing
portion of its future revenue from acquired merchant processing portfolios. In
its acquisition of merchant processing portfolios, the Company conducts careful
investigation to avoid portfolios in which there is a high risk of loss from
chargebacks, merchant failure or fraud. Notwithstanding the Company's diligence
and investigation, however, there is a risk that merchants contained in an
acquired portfolio will have higher risk profiles than the Company would have
selected in a new individual merchant customer. There can be no assurance that
the Company will not experience a higher rate of loss from chargebacks, merchant
failure or merchant fraud as a result of experiencing a larger portion of its
growth from the acquisition of portfolios, which could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, the acquisition of a processing portfolio is typically followed by a
certain attrition of merchants included in the portfolio, due to the transition
in processing procedures and personnel. As a result, the Company may not realize
the expected economic benefits associated with a merchant portfolio acquisition.
Moreover, the acquisition of merchant processing portfolios may require
substantial capital resources and the addition of substantial numbers of trained
personnel. The Company also faces increasing competition for portfolio
acquisition opportunities. There can be no assurance that such opportunities
will continue to be available in the future or available at costs consistent
with the Company's prior experience. See "Business -- Business
Strategy," "-- Principal Services" and "-- Marketing."
6
<PAGE> 8
CREDIT CARD SYSTEM RISKS. The Company's subsidiary, EFS National Bank, is
a member of the VISA and MasterCard organizations and is a registered processor
of Discover, American Express, Diners Club and JCB (Japan Credit Bank)
transactions. The rules of the credit card associations are set by member banks
or, in the case of Discover, American Express, Diners Club and JCB, by the card
issuers, and such banks and issuers are competitors of the Company in the
provision of transaction processing services. There can be no assurance that the
rules relating to such credit card operations will not be changed in such a way
as to materially adversely affect the Company's operations. The dramatic growth
in the availability of credit cards and the expansion of available credit under
such cards to the consuming public has been a matter of concern to U.S. federal
banking regulators and other governmental regulatory authorities. A substantial
increase in credit card delinquency or action by regulatory authorities to
substantially restrict the availability of credit card credit could materially
affect the Company's results of operations and financial condition. In addition,
from time to time, VISA, MasterCard, Discover, American Express, Diners Club and
JCB increase the organization and/or processing fees that such organizations
charge. Most of the Company's agreements with its merchant customers permit fee
increases to the Company to be passed on to the merchants. There can be no
assurance, however, that competitive pressures will not result in the Company's
absorbing a portion of such increases in the future, which event could have a
material adverse effect on the Company. See "Business -- Principal
Services"," -- Competition" and " -- Regulation of Financial Services."
CHARGEBACK RISK. In the event a billing dispute between a credit card
holder and a merchant is not resolved in favor of the merchant, the transaction
is charged back to the merchant, and the purchase price is refunded to the
cardholder. If that merchant has become bankrupt or is otherwise unable or
unwilling to pay, the Company must bear the credit risk for the full transaction
amount. Historically, the Company has maintained accounting reserves to cover
the chargeback risks, and such reserves have exceeded chargeback experience.
There can, however, be no assurance that the Company will not experience a
significant increase in chargebacks in the future, which could require the
Company to maintain larger reserves. Increases in chargebacks that are not paid
by merchants, or increases in the Company's chargeback reserves to cover
increased chargeback experience, could have a material adverse effect on the
Company's financial condition and operating results. See "Business -- Principal
Services -- Card Services."
MERCHANT FRAUD. Merchant fraud includes recording false sales transactions
or false credits. The Company attempts to minimize its exposure to merchant
fraud risk by conducting a credit review of a prospective merchant and
monitoring the merchant's practices on an ongoing basis. The Company also has
the ability to suspend a merchant's daily settlement if fraudulent activity is
suspected. In its card services, the Company under certain circumstances bears
the risk of incidents of merchant fraud. There can be no assurance that
incidents of merchant fraud will not increase in the future. Increased incidents
of merchant fraud could have a material adverse effect on the Company's
financial condition and operating results. See "Business -- Principal
Services -- Card Services."
EXPANSION OF ATM NETWORKS. The Company has only recently entered the
business of placing and operating ATMs, and the Company intends to increase its
ATM business through the placement of additional ATMs in truck stops, grocery
stores, convenience stores and other merchant locations that have been
traditionally underserved by ATMs. The placement of ATMs involves a substantial
initial capital expense and significant ongoing funding expense, and the
Company's margin of profit on ATM operations has historically been low. However,
since the implementation of surcharging by the major ATM networks in April 1996,
the Company's ATM operations have begun to be more profitable. While the
profitability of ATM operations is expected to increase due to surcharging,
there can be no assurance that such surcharges will continue to be permissible
under ATM network rules or applicable federal or state banking regulations.
Various states may restrict or regulate the placement of ATMs and the amount of
surcharge fees. In addition, there can be no assurance that ATMs placed by the
Company will receive sufficient volumes of transactions to achieve expected
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Principal Services -- Trucking
Services" and " -- New Initiatives."
CUSTOMER ATTRITION RISK. The Company, like its competitors, experiences
some turnover of customers. The Company considers this to be a normal aspect of
the competitive business environment. Although the Company has been successful
both in retaining its merchant customers by high quality customer service and in
7
<PAGE> 9
achieving growth by employing a variety of sales methods, there can be no
assurance that the Company will continue to be successful in the future in
minimizing and offsetting customer attrition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Marketing
Developments" and "Business -- Marketing."
CONTRACT EXPIRATION RISK. The Company has contractual relationships that
are subject to expiration, renewal and renegotiation. The Company has many
individual contracts for credit and debit card and/or ATM processing services.
These contracts typically have terms of two to five years' duration and renew
automatically for successive one-year terms unless expressly terminated prior to
expiration. No such individual contract is considered to be material to the
Company's earnings. The Company's recently signed contract with Comdata Network,
Inc., a subsidiary of Ceridian Corporation, for processing credit, debit and ATM
transactions has an initial term that, based upon management's estimates of the
roll-out dates for services, will expire in April 2000. The Company's
designation as the recommended (nonexclusive) electronic payment services
processor for the National Grocers Association, Inc., pursuant to an agreement
entered into in 1992, expires in December 2000. While the Company's processing
contracts are typically automatically renewable unless expressly terminated by
either party, there can be no assurance that any such contract will be renewed
or, if renewed, continued upon terms favorable to the Company. See
"Business -- Principal Services."
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the ability and
experience of its Chief Executive Officer, its President and a number of other
key management personnel who have substantial experience with the Company's
operations, the rapidly changing electronic payment processing industry and the
selected markets in which the Company offers its services. Although each of the
senior executives of the Company has extensive experience with the Company's
affairs and the Company believes it is adequately staffed with key middle
managers, there can be no assurance that the loss of the services of one or a
combination of the Company's senior executives or key managers would not have a
material adverse effect on the Company's operations. The Company's success also
depends on its ability to continue to attract, manage and retain other qualified
middle management, technical and clerical personnel as the Company grows.
Although the Company has not experienced difficulty in attracting capable
personnel in the past, there can be no assurance that the Company will be able
to attract or retain such personnel. See "Business -- Managers and Employees"
and "Management."
COMPETITION. The markets for electronic payment processing, credit and
debit card payment settlement, check authorization programs, fuel card and cash
forwarding services, and ATM services are all highly competitive. The Company's
principal competitors include major national and regional banks, local
processing banks, non-bank processors and other independent service
organizations, many of which have substantially greater capital, management,
marketing and technological resources than those of the Company. There can be no
assurance that the Company will continue to be able to compete successfully with
such competitors. The competitive pricing pressures that would result from any
increase in competition could adversely affect the Company's margins and may
have a material adverse effect on the Company's financial condition and results
of operations. In addition, the Company competes with other electronic payment
processing organizations for growth opportunities. The recent consolidation in
the banking industry in the United States has resulted in fewer opportunities
for merchant portfolio acquisitions, as many small banks have been acquired by
large banks, some of which are competitors with the Company in the provision of
processing services. There can be no assurance that the Company will be able to
compete effectively for existing growth opportunities on terms favorable to the
Company. See "Business -- Competition."
BANK AND FINANCIAL SERVICES REGULATIONS. The Company is a bank holding
company subject to regulation under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), and to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). EFS National Bank is a national
banking association established under the National Bank Act and is subject to
regulation by the Office of the Comptroller of the Currency as well as the
Federal Reserve. The Federal Deposit Insurance Corporation insures the deposits
of EFS National Bank. The restrictions imposed by such laws, the regulations
thereunder and the regulatory agencies having jurisdiction in respect thereof
limit the discretion of the Company, EFS National Bank and their affiliates in
operating their businesses. Such restrictions include restrictions upon the
Company's engaging in non-bank-related activities, restrictions upon mergers and
8
<PAGE> 10
acquisitions, restrictions upon dividends by banking entities, and other
restrictions upon intercompany transactions. Material changes in applicable
federal or state regulation of financial institutions could increase the cost to
the Company of providing its services, change the competitive environment or
otherwise adversely affect the Company. No assurance can be given that such laws
and regulations will not be amended, or interpreted differently by regulatory
authorities, or that new laws and regulations will not be adopted, the effect of
which could be to affect adversely the operations, financial condition and
prospects of the Company. Furthermore, the Company is subject to the rules and
regulations of the various credit card and debit card associations and networks.
See "Business -- Regulation of Financial Services."
SUSCEPTIBILITY TO ECONOMIC FLUCTUATIONS. The markets targeted by the
Company (supermarket chains, grocery stores, convenience store merchants and
other retailers, trucking companies and truckers) are all susceptible to adverse
changes in general economic conditions. The Company has sought historically and
intends to continue to mitigate this risk by conservative selectivity in the
markets and retailer customers which it serves, but there can be no assurance
that an adverse change in the economy will not materially adversely affect the
Company's operations and financial condition. In addition, the Company issues
fuel purchase and other forms of credit and debit cards for the account of
trucking companies, and has trucking company receivables outstanding. Although
the Company's trucking company receivables are for the most part secured by
letters of credit, bonds and insurance, economic changes having a severe impact
upon the trucking industry could adversely affect the Company. See
"Business -- Business Strategy" and "-- Principal Services."
TECHNOLOGY RISK. The Company's ability to provide its services is heavily
dependent upon its use of and access to computing and telecommunications
technology. The transaction payment processing business has been characterized
by rapid technological change, and the Company's business has benefited from its
ability to offer processing and payment services in accordance with the most
recent technological improvements. The Company's management is committed to its
ability to customize processing and payment services to a wide variety of
merchant electronic payment equipment, communication protocols, new technologies
and customer processing needs. There can be no assurance, however, that the
Company will be able to continue to incorporate new developments in payment
processing technology, or that the requirement to adapt to new technology will
not involve substantial cost and increased competitive pressure. The Company's
processing services are dependent upon long-distance and local
telecommunications carriers and access to telecommunications facilities on a
24-hour basis. Telecommunications facilities are susceptible to interruption by
natural disasters. Although the Company maintains a disaster response plan which
it considers adequate and which it regularly reviews, and although the Company
has operated following natural disasters in the past without interruption of its
processing services, there can be no assurance that a natural disaster will not
occur that causes extensive or long-term damage that interrupts the Company's
processing services or that causes the Company to incur substantial additional
expense to avoid interruption of services, either of which could have an adverse
effect on the Company's operations and financial condition. See
"Business -- Equipment and Technology."
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the offering, at an assumed initial
offering price of $27.00 per share, are estimated to be $76.0 million ($87.4
million if the Underwriters' over-allotment option is exercised in full) after
deduction of underwriting discounts and commissions and estimated offering
expenses.
The Company currently anticipates that at the completion of the offering
the Company will have cash, cash equivalents and short-term investments of
approximately $137 million (assuming the Underwriters' over-allotment option is
not exercised). Of this amount, during the period beginning in the fourth
quarter of 1996, approximately $30 million will be used as a capital
contribution to the Company's national bank subsidiary, EFS National Bank, to
augment the equity capital of EFS National Bank in order that it will remain in
compliance with the guidelines of credit card associations as its processing
transaction volume increases. It is expected that portions of this additional
EFS National Bank equity will be utilized from time to time to acquire selected
merchant payment processing portfolios from banks and other processing
organizations. The Company typically has a number of potential merchant
portfolio acquisitions under consideration at any time. The balance of the net
proceeds held by the Company will be available for working capital and general
corporate purposes, including placing additional ATMs, the possible acquisition
of transaction processing businesses and use in other subsidiaries of the
Company. The Company has no specific plans or commitments for any such
acquisition and is not currently engaged in negotiations regarding any such
acquisition. Actual allocation of the net proceeds and the balance of the
Company's current capital resources to various purposes may vary substantially
from the Company's current estimates. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Pending any such application
of proceeds, the Company intends to invest the net proceeds of the offering in
short- and medium-term, interest-bearing obligations, including those issued by
the United States government, its agencies and instrumentalities and/or
interest-bearing obligations of states and municipalities.
PRICE RANGE OF COMMON STOCK
<TABLE>
The Common Stock is traded on the Nasdaq National Market under the symbol
"CEFT." The following table sets forth, for the periods indicated, the range of
high and low sale prices for the Common Stock as reported by Nasdaq. Quotations
have been restated to reflect all stock splits and stock dividends effected to
date.
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter.......................................................... $ 5.00 $ 4.15
Second Quarter......................................................... 5.07 3.89
Third Quarter.......................................................... 5.73 4.19
Fourth Quarter......................................................... 7.55 5.48
1995
First Quarter.......................................................... $ 8.52 $ 6.52
Second Quarter......................................................... 11.89 8.00
Third Quarter.......................................................... 14.22 10.67
Fourth Quarter......................................................... 20.00 11.11
1996
First Quarter.......................................................... $19.83 $12.56
Second Quarter......................................................... 24.25 17.33
Third Quarter.......................................................... 28.50 21.50
Fourth Quarter (through October 16, 1996).............................. 28.75 22.25
</TABLE>
On October 16, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $27.00 per share. As of September 23, 1996, there
were approximately 300 holders of record of the Common Stock.
10
<PAGE> 12
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. It is the
present policy of the Company's Board of Directors to retain earnings to finance
expansion of the Company's operations, and the Company does not expect to pay
dividends in the foreseeable future.
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to give effect to the sale by the Company of 3,000,000
shares of Common Stock in the offering (at an assumed initial offering price of
$27.00 per share) and use of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the Company's
consolidated financial statements and the notes thereto, which are incorporated
by reference in this Prospectus.
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt, including current maturities.................................. $ 1,178 $ 1,178
Stockholders' equity:
Common Stock, $0.33 1/3 par value; 80,000,000 shares authorized;
56,647,653 shares issued and outstanding, 59,647,653 shares
issued and outstanding, as adjusted(1)......................... 18,883 19,883
Additional paid-in capital........................................ 6,433 81,411
Retained earnings................................................. 81,871 81,871
Unrealized losses on securities, net of taxes..................... (1,046) (1,046)
-------- --------
Total stockholders' equity, net................................ 106,141 182,119
-------- --------
Total capitalization........................................... $107,319 $183,297
======== ========
<FN>
- ---------------
(1) Excludes an aggregate of 3,538,690 shares of Common Stock reserved for
issuance upon the exercise of options outstanding as of September 23, 1996.
</TABLE>
11
<PAGE> 13
SELECTED FINANCIAL DATA
<TABLE>
The following consolidated selected statement of income and balance sheet
data for each of the five years in the period ended December 31, 1995 have been
derived from the Company's consolidated financial statements audited by Ernst &
Young LLP, independent auditors. The audited consolidated balance sheets at
December 31, 1995 and 1994 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years ended December
31, 1995 and the related notes thereto are set forth in the Company's Annual
Report on Form 10-K and are incorporated by reference in this Prospectus. The
statement of income and balance sheet data for the six months ended June 30,
1995 and 1996 were derived from the Company's unaudited condensed consolidated
financial statements as set forth in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, which are incorporated by reference in this
Prospectus, and, in the opinion of management of the Company, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of the periods. Results for the six months
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the full year. The following data should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto, which
are incorporated by reference, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which appears elsewhere herein.
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ------------------
1991(1) 1992(1) 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues.......................... $48,144 $65,562 $75,443 $96,213 $127,762 $55,825 $74,752
Cost of operations................ 31,137 46,024 53,188 69,840 90,579 40,014 53,037
Selling, general and
administrative.................. 5,572 5,969 7,861 8,312 10,913 5,072 5,958
------- ------- ------- ------- -------- ------- -------
Operating income................ 11,435 13,569 14,394 18,061 26,270 10,739 15,757
Interest income, net.............. 661 503 825 1,588 2,116 949 1,263
------- ------- ------- ------- -------- ------- -------
Income before taxes and
minority interest............. 12,096 14,072 15,219 19,649 28,386 11,688 17,020
Income taxes...................... 4,717 5,011 5,357 6,979 10,146 4,191 6,089
------- ------- ------- ------- -------- ------- -------
Income before minority
interest...................... 7,379 9,061 9,862 12,670 18,240 7,497 10,931
Minority interest................. (106) (87) 1 43 75 44 --
------- ------- ------- ------- -------- ------- -------
Net income...................... $ 7,273 $ 8,974 $ 9,863 $12,713 $ 18,315 $ 7,540 $10,931
======= ======= ======= ======= ======== ======= =======
Net income per share(2)........... $ 0.13 $ 0.16 $ 0.18 $ 0.23 $ 0.32 $ 0.13 $ 0.19
======= ======= ======= ======= ======== ======= =======
Weighted average common and
common equivalent shares
outstanding(2).................. 54,996 55,169 55,676 55,898 57,858 57,163 58,988
======= ======= ======= ======= ======== ======= =======
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1991(1) 1992(1) 1993 1994 1995 1996
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $16,318 $26,240 $34,655 $41,520 $ 68,213 $ 77,863
Total assets...................... 44,562 56,316 71,033 99,462 156,887 173,267
Long-term debt, less current
maturities...................... 55 -- -- 1,371 978 773
Total stockholders' equity........ 26,289 39,573 50,251 61,935 89,545 106,141
<FN>
- ---------------
(1) Fiscal year 1991 ended September 30, 1991. The last calendar quarter of 1991
is not included in either the 1991 or 1992 fiscal year information as set
forth above.
(2) Earnings per share and related share data have been restated to reflect all
stock splits and stock dividends effected to date.
</TABLE>
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company provides electronic transaction authorization, processing,
settlement and funds transfer services for a variety of customized customer
applications in selected markets, including supermarket chains, grocery stores,
convenience store merchants and other retailers and the trucking industry. The
Company's annual revenues and net income have grown from $48.1 million and $7.3
million, respectively, in 1991 to $127.8 million and $18.3 million in 1995.
Revenue growth has been achieved primarily through (i) increased transaction
processing on behalf of existing customers, (ii) the addition of new and
ancillary services to the Company's merchant customer base, such as check
verification, debit card processing and EBT, and (iii) the addition of new
customers in existing service areas, primarily through marketing of the
Company's services to merchants and, more recently, through acquisition of
selected merchant portfolios from other processing service providers. Management
believes the acquisition of new merchant accounts, favorable customer retention
rates, the increasing use and acceptance of credit and debit cards and the
specialized services the Company offers to the trucking industry provide the
Company with a growing revenue base.
COMPONENTS OF REVENUES AND EXPENSES
The Company derives revenues from (i) fees charged to merchants for
processing credit and debit card and EBT transactions and for providing check
verification services; (ii) the lease and sale of point-of-sale ("POS")
equipment to retail merchants; (iii) transaction fees for use of the Company's
private label fuel card and other service fees derived from the Company's
services to the trucking industry; and (iv) transaction fees and, more recently,
surcharges assessed for use of the Company's ATM machines.
Revenues from credit card services have historically constituted a
significant portion of the Company's total revenues. Such revenues consist
primarily of "discount fees" charged to merchants, which fees are a percentage
of the dollar amount of each credit card transaction processed by the Company.
The discount fee is negotiated with each merchant and typically constitutes a
bundled rate for the transaction authorization, processing, settlement and funds
transfer services provided by the Company. These revenues and fees from other
transactions are recognized at the time the merchants' transactions are
processed. Revenues related to the direct sale of POS equipment are recognized
when the equipment is shipped.
<TABLE>
The following table is a listing of revenues by service type for the
periods listed:
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Card Services......................... $47,482 $66,959 $ 92,223 $41,454 $57,735
Trucking Services..................... 12,022 12,853 16,687 7,380 10,762
Check Verification Services........... 9,279 9,954 12,168 4,359 3,667
Equipment Sales and Other............. 6,660 6,447 6,684 2,632 2,588
------- ------- -------- ------- -------
$75,443 $96,213 $127,762 $55,825 $74,752
======= ======= ======== ======= =======
</TABLE>
Cost of operations includes all costs directly attributable to the
Company's provision of services to its merchant and trucking industry customers.
The most significant component of cost of operations includes interchange and
assessment fees, which are amounts charged by the credit card associations for
clearing services, advertising and other expenses. Interchange and assessment
fees are billed primarily as a percent of dollar volume processed and, to a
lesser extent, as a per-transaction fee. Cost of operations also includes the
cost of equipment leased and sold and other miscellaneous merchant supplies and
services expenses.
The Company's selling, general and administrative expenses include salaries
and wages, telephone costs, provisions for chargebacks, merchant fraud, bad
debts, and other general administrative expenses.
13
<PAGE> 15
MARKETING DEVELOPMENTS
The Company has historically generated growth of its merchant customer base
through marketing by highly skilled senior managers, commissioned telemarketers
and outside sales representatives. To meet its growth objectives, the Company
has substantially reorganized its marketing activities since the beginning of
1996. The Company has increased the size of its marketing staff that is focused
on growth opportunities in large and middle market store chains and other
multiple store customers. Beginning July 1, 1996, the Company reduced the
portion of its in-house telemarketing staff focused upon telemarketing to
smaller potential merchant customers, and entered into arrangements with
independent sales organizations ("ISOs") to outsource a portion of such
telemarketing activity and purchase new accounts from such ISOs. The expenses
and commissions related to such telemarketing and sales activity historically
have been currently expensed in the periods in which incurred. The acquisition
cost relating to merchant contracts and portfolios purchased from ISOs will be
capitalized and amortized over the estimated useful life of the merchant
contracts, which the Company presently estimates to be five years, in order to
match acquisition costs against future revenues.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth for the periods indicated information
derived from the consolidated statements of income of the Company, expressed as
a percentage of net sales for such period, and the percentage change in such
items compared to the amount for the prior year period.
<CAPTION>
PERCENTAGE OF REVENUES PERCENTAGE INCREASE
------------------------------------------ ------------------------------
YEARS ENDED SIX MONTHS SIX MONTHS ENDED
DECEMBER 31, ENDED JUNE 30, 1994 1995 JUNE 30, 1996
----------------------- --------------- OVER OVER OVER
1993 1994 1995 1995 1996 1993 1994 JUNE 30, 1995
----- ----- ----- ----- ----- --- --- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 27.5% 32.8% 33.9%
Cost of operations........................ 70.5 72.6 70.9 71.7 7l.0 31.3 29.7 32.5
Selling, general & administrative......... 10.4 8.6 8.6 9.1 8.0 5.7 31.3 17.5
----- ----- ----- ----- -----
Operating income........................ 19.1 18.8 20.5 19.2 21.0 25.5 45.5 46.7
Interest income, net...................... 1.1 1.7 1.7 1.7 1.7 92.5 33.2 33.2
----- ----- ----- ----- -----
Income before taxes and minority
interest.............................. 20.2 20.5 22.2 20.9 22.7 29.1 44.5 45.6
Income taxes.............................. 7.1 7.3 7.9 7.5 8.1 30.3 45.4 45.3
----- ----- ----- ----- -----
Income before minority interest......... 13.1 13.2 14.3 13.4 14.6 28.5 44.0 45.8
Minority interest......................... 0.0 0.0 0.0 0.1 0.0 N/A* N/A* N/A*
----- ----- ----- ----- -----
Net income.............................. 13.1% 13.2% 14.3% 13.5% 14.6% 28.9% 44.1% 45.0%
===== ===== ===== ===== =====
<FN>
- ---------------
* As the percentage of revenue relating to minority interest rounds to 0.1% or
less, the percentage increase is not meaningful for comparative purposes.
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenue and net income for the six months ended June 30, 1996 increased 34%
and 45%, respectively, compared to revenue and net income in the same period of
the prior year. The increase in total revenue for the six months ended June 30,
1996 was attributable to the addition of new customers and additional volume
from existing customers in card services and trucking services. These increases
were partially offset by reduced revenue from check verification services in the
period. The Company owns and operates over 350 ATMs at major truck stops across
the country. ATM surcharge revenue, which began in the second quarter of 1996,
accounted for approximately 30% of the increase in trucking services revenue for
the six month period of 1996.
Net income as a percentage of revenue increased from 13.5% for the six
months ended June 30, 1995 to 14.6% for the six months ended June 30, 1996.
Approximately three quarters of this increase was due to card services revenue
growth coupled with slower increases in operational costs and selling, general
and administra-
14
<PAGE> 16
tive expenses. The remaining one quarter of the increase was attributable to net
margin on ATM surcharge revenue.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Net income increased by 44% in 1995 over net income in 1994 due to
increased revenues in all three of the Company's core businesses and decreases
in telephone and maintenance operating costs. Revenues from card services
increased 38% as a result of the addition of grocery and retail merchants and
volume increases in credit and debit card usage. Continued marketing efforts
combined with merchant association endorsements were responsible for the new
customers. Trucking services revenues rose 30% due to the growth in ATM revenues
and increases in the number of trucking customers. Revenues from check
verification services rose 22% on the addition of new merchants utilizing such
services.
Net income as a percentage of revenue increased in 1995 to 14.3% from 13.2%
in 1994 as operational costs grew at a slower rate than transaction revenue.
Savings of approximately $2.3 million in telephone and maintenance expenses were
recognized in 1995.
Selling, general and administrative expenses in the year ended December 31,
1994 were significantly affected by costs associated with the Company's
antitrust lawsuit against Deluxe Data Systems, Inc. ("Deluxe"). The lawsuit,
initiated in January 1993, alleged that Deluxe was monopolizing electronic
benefits transfer business in the state of Maryland. The dispute with Deluxe was
settled in July 1995, and the terms of the settlement had no material financial
statement impact in the fiscal year 1995.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Net income increased by 29% in 1994 over net income in 1993 due to
increased revenues in card services, trucking services and check verification
services. Card services revenues increased 41%, while trucking services and
check services revenues increased 7%. The increase in these revenues was due to
additional volume from existing customers and the addition of new customers.
Continuing marketing efforts were responsible for the new customers.
Profit margins remained consistent with the prior year as incremental
operational costs related to service volume growth and new services were offset
by increased interest income.
SELECTED QUARTERLY OPERATING RESULTS; SEASONALITY
<TABLE>
The following table sets forth certain unaudited financial data for each of
the Company's ten most recent financial quarters. This data has been derived
from unaudited financial statements that, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such quarterly information when read in conjunction with
the financial statements and related notes included elsewhere, or incorporated
by reference, in this Prospectus. The operating results for any 1996 quarter are
not necessarily indicative of results for any future period.
<CAPTION>
1994 QUARTERS ENDED 1995 QUARTERS ENDED 1996 QUARTERS ENDED
------------------------------------------ ------------------------------------------ -------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $19,639 $22,126 $25,195 $29,253 $25,928 $29,897 $33,945 $37,992 $33,895 $40,857
Operating
income.......... 3,442 3,981 4,626 6,012 4,920 5,819 6,955 8,575 6,627 9,130
Net income........ $ 2,435 $ 2,833 $ 3,289 $ 4,156 $ 3,459 $ 4,081 $ 4,840 $ 5,935 $ 4,659 $ 6,271
Net income per
share........... $ 0.05 $ 0.05 $ 0.06 $ 0.07 $ 0.06 $ 0.07 $ 0.08 $ 0.10 $ 0.08 $ 0.11
</TABLE>
The Company's operations are subject to seasonal variation relating to the
greater volume of transactions in the supermarket, grocery store and other
retailer markets served by the Company in the last quarter of the calendar year
in which the major consumer purchase holidays fall. In fiscal 1995, 29.7% of the
Company's total annual revenues were realized in the fourth quarter.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated significant cash from operating
activities. During the years ended December 31, 1995, 1994 and 1993, operating
activities generated cash of $28.3, $19.9 and $12.6 million, respectively.
During fiscal 1995, the Company invested $10.4 million in securities, net, and
$8.1 million in capital expenditures. In the six months ended June 30, 1996,
operating activities generated cash of $10.4 million, and the Company invested
$7.9 million in securities, net, and $8.7 million in capital expenditures.
Capital expenditures were primarily for new computer equipment and cash
dispensing machines (ATMs). The Company funded these purchases from cash
generated from operations.
Significant changes in accounts receivable and accounts payable result from
the day of the week on which the calendar year-end falls combined with the
increase in settlement volume from one year to the next.
Stock issued upon exercises of options under the Company's incentive stock
option plan generated $4.1 million in additional cash in 1995 and $1.6 million
in additional cash in the first six months of 1996. In connection with such
option exercises, the Company also realized a tax benefit of $4.1 million in the
1995 fiscal year and realized a tax benefit of $1.7 million in the first six
months of 1996.
At June 30, 1996, the Company had unused unsecured lines of credit of $10
million with financial institutions and held securities with a market value of
approximately $28.6 million. Such securities are available for operating needs
or as collateral to obtain short-term financing if needed.
The Company expects to fund continued growth for the foreseeable future
from the proceeds of this offering, currently available resources and future
earnings.
EFS National Bank, a national bank and wholly-owned subsidiary of the
Company, is currently in compliance with all prescribed governmental capital
requirements. However, due to the expected growth of the volume of credit card
processing, EFS National Bank will need additional equity capital in order to
remain in compliance with the guidelines of certain credit card associations.
The association guidelines for VISA, which are the most restrictive association
guidelines with respect to recommended minimum equity capital, specify that the
equity capital of a processing organization should equal or exceed the average
weekly transaction processing volume over the most recent thirteen weeks. At
June 30, 1996, EFS National Bank had equity capital of $66.5 million and was in
compliance with the VISA guidelines. The additional capital contribution which
the Company intends to make to EFS National Bank out of the net proceeds of the
offering made hereby will allow for further growth in the processing volume
without the need for additional capital contributions.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted Statement No. 121 in the first quarter of 1996 and the
effect of the adoption was not material.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-based Compensation," which provides an alternative to APB Opinion No. 25
in accounting for stock-based compensation issued to employees. For companies
that continue to account for stock-based compensation arrangements under APB
Opinion No. 25, as the Company expects to do, Statement No. 123 requires
disclosure of the pro forma effect on net income and earnings per share of its
fair value based accounting for those arrangements. The Company expects to
comply with Statement No. 123 for the current fiscal year.
EFFECTS OF INFLATION
Because of the liquidity of the Company's primarily monetary assets, they
are not significantly affected by inflation. However, the rate of inflation
affects the Company's expenses, such as those for employee compensation and
communications.
16
<PAGE> 18
BUSINESS
The Company provides electronic transaction authorization, processing,
settlement and funds transfer services in selected markets. Concord's primary
activity is card services, which involves the provision of integrated electronic
transaction services for credit card, debit card and electronic benefits
transfer ("EBT") card transactions to supermarket chains, grocery stores,
convenience store merchants and other retailers. The Company believes it is one
of the few fully integrated transaction processors, supplying electronic payment
and verification terminals, ATMs, processing services, payment settlement,
depository services and transaction data compilation. The Company is one of the
few companies offering full credit and debit card processing on a nationwide
basis.
The Company also provides electronic payment and banking facilities to a
large customer base in the trucking industry for use at major truck stop chains
throughout the United States. In addition to maintaining a network of over 350
ATMs at truck stops nationwide, the Company provides fuel purchase cards, ATM
bank cards and general banking services cards to truck drivers. The Company
offers trucking companies payroll deposit and cash forwarding services, as well
as real-time data compilation with respect to fuel volume usage, fuel
expenditures, vehicle and driver tracking and truck routine maintenance
schedules. In addition, the Company provides check verification services to
grocery and other retail merchants. The Company's transaction payment and credit
systems provide a recurring stream of revenue from transaction fees through a
highly diversified and stable customer base.
INDUSTRY OVERVIEW
The transaction processing industry makes possible on an electronic and
virtually instantaneous basis transfer of funds, transaction payment processing,
credit verification and transaction data compilation among POS terminals, ATMs,
payroll depositors, customer deposit accounts, EBT providers and credit approval
and verification databases. The processing industry has grown rapidly in recent
years as a result of the following factors:
Increased Use of Credit and Debit Cards. According to annual reports by
the VISA and MasterCard associations, credit and debit card transactions are
projected to increase in relation to cash and check transactions for the
foreseeable future. Consumer usage of VISA and MasterCard cards for purchases
and cash advances in the United States was $574.53 billion in 1995 compared to
$463.51 billion in 1994, representing an increase of 24%, and U.S. consumer
usage of the five major credit cards (VISA, MasterCard, American Express,
Discover and Diners Club) increased to $745.55 billion in 1995 from $612.91
billion in 1994, an increase of 22% (The Nilson Report, April 1996). VISA and
MasterCard charge volume is projected to exceed $950.0 billion by the year 2000
(The Nilson Report, January 1995). The Company believes that the increased use
of credit and debit card payment has been especially evident in certain retail
markets, such as grocery and convenience stores.
Spread of EBT Programs. The utilization of electronic transfer and
processing has recently expanded into public assistance programs. The Company
believes public assistance payments account for approximately 10% of all grocery
transactions in dollar volume. Accordingly, the increasing conversion of food
stamp and other assistance vouchers to EBT programs is expected to increase
substantially the use of electronic payment terminals in grocery stores and
other small retail merchant locations. EBT programs have developed to provide
public assistance benefits more efficiently and in a manner less susceptible to
theft and fraud. The first EBT program was implemented in Maryland in 1991. The
Company expects all food stamp programs in the United States to be converted to
EBT over the next three to five years. To date, 13 states have initiated EBT
programs.
Growth of Trucking Transaction Processing. To minimize the need for truck
drivers to carry cash, and to reduce the cost of purchasing fuel through use of
cash rather than credit, the Company and other payment service providers in the
early 1980s initiated special fuel card programs to cover fuel and other
authorized expenditures at participating truck stops. More recently, fuel cards
have been widely superseded by trucking company electronic payment cards, POS
payment terminals at truck stops and, most recently, ATMs at major truck stops,
to provide more rapid payment settlement for vendors to the trucking industry,
more complete and
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<PAGE> 19
current expenditure records for the trucking companies and payroll and cash
distribution facilities for drivers on the road. In 1995 the total trucking card
transaction volume in the United States processed by the seven major payment
services providers to the trucking industry was $8.36 billion (The Nilson
Report, February 1996).
Increased Use of Check Verification. Traditional check verification
programs involve check-cashing cards and a card holder database for a particular
merchant or retail chain. Recently certain national check verification databases
have been developed which allow a merchant to verify a tendered check with
respect to the check writer's history with other merchants as well. Unlike check
verification programs, check guarantee programs underwrite the credit risk of an
accepted check, though at a higher cost (typically 2.5% to 4% of the face
amount) compared to the service charge of pennies per check for verification
alone. Recently the utilization of check verification services has demonstrated
more rapid growth than the utilization of guarantee services: the dollar volume
of checks verified by the twenty-two largest verification providers increased
16% from 1994 to 1995, while the dollar volume of checks guaranteed by the
eighteen largest guarantee providers increased 4% (The Nilson Report, April
1996). Check verification programs are especially attractive to certain
high-volume, low-margin retail businesses, such as grocery and convenience
stores.
BUSINESS STRATEGY
The Company's objective is to grow its funds transfer and payment
transaction processing business, providing a fully integrated range of relevant
transfer and processing services at competitive prices. The Company seeks to
accomplish this objective by implementing the following strategies:
Focus on Selected Markets. The Company has focused on specific markets
that have been historically underserved by the processing industry: supermarket
chains, grocery stores, convenience store merchants and other small retail
stores and chains, and the trucking industry. Within these markets, the Company
seeks to identify a diverse group of customers with low credit risk histories.
Provide Low-Cost, Fully Integrated Services. The Company seeks to be a low
cost, highly-reliable provider of electronic payment processing services by
providing a fully integrated range of relevant services. To reduce overall cost,
the Company engineers and provides its own equipment solutions, sells and leases
POS equipment, authorizes its own transactions, captures all information on its
own host computer, has direct links to all major credit and debit card
associations and networks, and effects the settlement of payment transactions
and the transfer of funds to the merchant. The Company established EFS National
Bank in order to provide direct credit card association membership and debit
network sponsorship, and to directly perform the settlement of transactions. In
addition, by controlling each stage of the electronic payment transaction, the
Company seeks to provide a higher quality of service, reducing the possibility
of error. As a result, the Company believes that it has been able to establish
one of the highest customer retention rates in the industry in the provision of
such services.
Offer Technological Versatility. The Company designs its programs to be
compatible with a wide variety of communications protocols and a broad array of
electronic processing equipment. The Company offers a wide range of
communication mechanisms, depending upon the customer's location and specific
needs. For larger retailers and merchant chains, speed, reliability and
integration with other systems are crucial.
Utilize Multiple Marketing Channels. To provide broader access to new
merchant customers and portfolio acquisition opportunities nationwide at the
most efficient cost, the Company has adopted a balanced marketing approach
through the use of internal marketing specialists, independent sales
representatives and a number of ISOs. Beginning in 1996, the Company has
reorganized its marketing operations by adding marketing professionals focused
upon multistore merchants in certain specialized markets, by reducing its
in-house telemarketing staff, by outsourcing certain telemarketing operations,
and by expanding its relationships with ISOs. The Company's relationships with
trade associations and other electronic services providers have been important
elements in the Company's marketing focus. The Company's largest trade
association relationship is with the National Grocers Association, Inc.,
pursuant to which the Company is the preferred vendor for electronic payment
services to grocers. The Company also has established relationships with a
number of other industry associations.
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<PAGE> 20
PRINCIPAL SERVICES
The Company operates in the transaction processing and payment services
industry, providing targeted markets with a fully integrated range of services
and products for credit card, debit card and EBT card transactions, trucking
company services, check verification, data compilation and payment settlement.
CARD SERVICES
Card services accounted for 77% of the Company's revenue in the first six
months of 1996. The Company processes credit card transactions using VISA,
MasterCard, Discover, American Express, Diners Club and JCB cards. The Company
processes debit card transactions for banks issuing such cards, which permit
direct payment debit from the POS terminal against the card holder's deposit
account. In addition, in those states where EBT programs have been implemented,
the Company similarly processes payments effected with EBT cards against funds
made available by public assistance benefit programs through the primary EBT
third-party providers.
The bank card (e.g., VISA and MasterCard) transaction process begins when
the consumer presents the card and the merchant "swipes" the card at the POS
terminal and enters the transaction amount. The Company processes the data from
the POS terminal through the relevant electronic communications network to the
card issuer. The transaction is approved or rejected by the issuer bank, and the
response is transmitted almost instantaneously back through the Company's
processing systems to the POS terminal. The purchase transaction is then
confirmed against the authorization data retained in the Company's system,
whereupon the Company (through its subsidiary, EFS National Bank) settles the
payment by crediting the merchant with the transaction amount less the agreed
discount rate, and submits the transaction through the relevant network for
crediting by the issuing bank to EFS National Bank of the transaction amount
less the interchange and/or association fee. To complete the transaction, the
issuing bank bills the consumer for the transaction amount.
The authorization process is similar for other credit card (e.g., Discover
and American Express), debit card (e.g., Explore and NYCE) and EBT transactions.
In a credit card or EBT transaction, the credit card issuer or EBT primary
provider effects the payment settlement by crediting the merchant's account with
the issuer and credits the Company's account with the related processing service
fee. In a debit card transaction, the transaction is initiated by the consumer's
insertion of the personal identification number, and the transaction is settled
by directly debiting the cardholder's account in the payment amount plus the
surcharge (if any), crediting the merchant in the payment amount less the
processing service charge, paying the network fee and crediting the Company in
the amount of the processing service charge plus the surcharge (if applicable).
The Company's principal business is the provision of electronic payment
services to supermarket chains, grocery stores, convenience store merchants and
other retailers. The Company has been selective in the merchants to which it has
marketed its services and has historically chosen retailers whose businesses are
less economically volatile and involve less risk of chargeback and merchant
fraud. The Company will not, for instance, deal with merchants who book
transactions for delivery at a later date, such as mail-order retailers and
travel agents. No single customer of the Company accounts for a material portion
of the Company's revenues.
TRUCKING SERVICES
The Company's trucking services accounted for 14% of its revenue in the
first six months of 1996. The Company provides a variety of flexible payment
systems that enable truckers to use payment cards to purchase fuel and services
and to obtain cash advances at more than 4,000 truck stops. Through its national
bank subsidiary, EFS National Bank, the Company offers payroll and cash
distribution programs to trucking companies and truck drivers. In connection
with the issuance of ATM bank cards to truck drivers and payroll distribution
programs, EFS National Bank opens individual payroll deposit accounts and/or
full service checking accounts in the truck drivers' names. Payroll deposit
accounts are special purpose accounts for deposit by the trucking company of
payments for the drivers' accounts, with the drivers' benefits limited to the
right of withdrawal. Under this program, the trucking company transmits payment
instructions to EFS
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<PAGE> 21
National Bank, and the specified funds are made available to the designated
drivers within minutes. A substantial number of truck drivers with payroll
deposit accounts choose to open full-service checking accounts with EFS National
Bank.
The Company also provides trucking companies with private label fuel cards
for use by their drivers. When such fuel cards are utilized, the Company gathers
fuel purchase and other trucking data at the same time as it processes the
payment transaction; the data gathered by the Company include truck vehicle and
trailer identification numbers and odometer mileage, in addition to fuel volume
and expenditure information. The data gathered from aggregate transactions of a
trucking company provide current information with respect to fuel volume usage,
fuel expenditures, vehicle and driver tracking and truck routine maintenance
schedules. The trucking company customer has real-time direct access to the
Company's database for the trucking company's drivers and operations.
The Company has established over 350 ATMs at selected locations of major
truck stop chains nationwide. As the Company and its competitors place ATM cards
in truck drivers' hands, the Company's ATMs will be increasingly utilized, and
the Company will receive fees both from the use of its own ATM cards and those
of its competitors. The Company is a member of all major ATM networks, including
Cirrus and Plus.
CHECK VERIFICATION SERVICES
The Company provides check verification programs, which may be customized
to a particular merchant's needs or to a particular market. The Company's check
payment verification services accounted for approximately 5% of its revenue in
the first six months of 1996.
The traditional check verification program, which is customized to the
specific merchant or merchant chain, consists of a positive and negative file
based upon the check writing history for the checking account party with the
specific merchant or merchant chain. Under the program's negative file, if a
customer tenders a check at any one store of a merchant chain that is returned
for insufficient funds, any additional checks tendered by such customer will be
rejected at all stores of the merchant chain. Under the positive file, if a
customer cashes a check at any one store in a chain, the amount of that check
reduces for the specified time period that customer's check-cashing limit for
further check presentation at any other store of the chain.
Beginning in the fall of 1995, the Company began to offer a new check
verification program for electronic comparison of a tendered check against a
nationwide multi-merchant database which aggregates the bad check experiences of
all participating merchants. The Company has entered into arrangements with two
providers of such nationwide check history databases. For check verification
utilizing a nationwide database, the merchant "swipes" the magnetic ink bank and
account identification ("MICR") line of the check using an electronic check
reader, and the check account number is immediately compared against the
nationwide database, which will not verify the tendered check while a previous
bad check on such account remains outstanding against any other merchant using
the database. The Company is able to customize a particular merchant's use of
the nationwide database to include checking against various identification
references in addition to the check MICR, such as the driver's license number
and social security number of the purchaser. Currently, the Company's fees
deriving from check verification utilizing the nationwide databases represent an
insignificant portion of total check verification revenues; however, the Company
believes merchant use of the nationwide verification databases will increase as
their benefits become more widely known.
Check verification programs provide more limited payment assurance than
check guarantee programs but at a substantially lower cost. Typically only
approximately 1% of checks tendered to merchants are rejected for insufficient
funds or other reasons. Guarantee charges typically range from 2.5% to 4% of the
face value of a check, while check verification charges amount to only pennies
per check. In addition, electronic check verification is virtually
instantaneous, while obtaining the payment benefit under a check guarantee for a
rejected check involves substantial delay and additional merchant effort. The
Company believes that its check verification services represent a valuable
add-on product which enhances the card processing and settlement services
offered by the Company to supermarket chains, grocery stores, convenience store
merchants and other
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retailers, and are of particular value in comparison to check guarantee programs
to high-volume, low-margin retailers.
NEW INITIATIVES
Concord's relationship with supermarket chains, grocery stores, convenience
store merchants, other retailers and truck stop chains has provided the
opportunity to place ATMs in underserved locations where convenient access to
cash withdrawal is needed. On April l, 1996, the national ATM networks, Cirrus
and Plus, lifted their prohibition of surcharges on ATM transactions nationwide.
This change allows the Company, as ATM owner, to charge a fee (typically $1.00
per transaction) to the customer utilizing the ATM.
On May 2, 1996, the Company announced the execution of a processing
agreement with Comdata Network, Inc., a wholly owned subsidiary of Ceridian
Corporation and a leading payment services provider to the trucking and gaming
industries. Under the agreement, the Company will process Comdata's credit card
transactions and POS debit transactions originating principally in the gaming
industry, including casinos, cruise ships, hotels, restaurants and similar
entertainment and recreational locations, and Comdata will market the Company's
processing services to its gaming operations. The Comdata agreement is for a
term of three years. Due to the time expected to be required to complete the
roll-out of services under the Comdata contract, the Company does not expect to
realize significant revenues from the contract until the second quarter of 1997.
The contract should extend to April 1, 2000.
EQUIPMENT AND TECHNOLOGY
The Company often provides to its processing customers, on either a sale or
rental basis, POS electronic payment terminals and related equipment, and the
Company services or replaces equipment that it sells or leases. Large retail
merchant customers typically purchase POS terminals and related equipment, while
small retail merchants usually rent requisite equipment on a month-to-month or
longer term basis. Through its subsidiary, Concord Equipment Sales, Inc., the
Company maintains an inventory of POS electronic payment equipment for ready
availability to processing customers. To provide processing services for a wide
variety of customers' needs and preferences, the Company has adapted its
processing programs to, and will sell or rent to the customer, a wide variety of
electronic payment equipment manufactured by a number of the major
manufacturers.
In addition, the Company adapts its services and the POS equipment
manufactured by others to the specific communication protocols and data
collection requirements of its customers. The Company's technicians design
customized software packages to adapt POS equipment to particular retail
merchants' specifications. Although the Company does not manufacture POS
equipment, its technicians can custom design hardware for manufacture by other
parties necessary to meet customer needs.
MARKETING
The Company markets its services and products on a nationwide basis
directly and through ISOs and independent sales representatives to supermarket
chains, grocery stores, convenience store merchants and other retailers,
electronic funds transfer networks, financial institutions and trucking
companies. Historically, the Company has grown its merchant customer base
primarily through its in-house telemarketing and sales force working with
independent contractor sales representatives nationwide. During 1996, the
Company has reorganized its sales and marketing activities relating to its card
services business by adding marketing professionals focused upon multistore
merchants in certain specialized markets, by reducing the Company's in-house
telemarketing staff, by outsourcing a portion of its telemarketing activities to
independent sales organizations, and by expanding its relationships with ISOs
nationwide. The Company's strategy is to increase its in-house marketing
expertise in certain specialized market areas and broaden its access to growth
opportunities nationwide by utilizing the broader market penetration of ISOs.
The Company believes that the most promising growth opportunities currently
exist in certain small retail merchant chains in specialized markets, and in the
acquisition of merchant processing portfolios developed by smaller processing
services providers. See "Risk Factors -- Risks of Sustaining Current Growth
Rate," "Management's Discussion and
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<PAGE> 23
Analysis of Financial Condition and Results of Operations -- Marketing" and
"Business -- Business Strategy."
The Company has had success historically in marketing through key trade
association relationships, such as its relationship with the NGA, as the
recommended provider of electronic services to grocers, and through agreements
with other payment services providers. Management is committed to the
cultivation of such trade association relationships and the development of
arrangements with other service providers.
As an integrated services provider, the Company has natural cross-selling
marketing opportunities. When the Company established itself with the major
truck stop chains as an authorized issuer of payment cards and processor of card
transactions, the Company gained a substantial advantage in selling its card
payment systems to trucking companies. The Company's established relationships
with the truck stop owners also afforded an opportunity to sell the placement of
ATMs at truck stops, which in turn provided a further advantage in selling the
Company's integrated processing and banking services to trucking companies and
truck drivers. The Company's established presence in grocery stores, grocery
chains, convenience stores and other small and mid-size retailers gives it an
advantage in establishing relationships with EBT providers, whose benefits are
utilized largely at such retail locations.
The Company's sales offices are located in suburbs of Memphis, Tennessee
and Chicago, Illinois. The Company's executive officers actively participate in
the Company's marketing efforts.
COMPETITION
The markets for electronic payment processing, credit and debit card
payment settlement, check authorization programs, fuel card and cash forwarding
services, and ATM services are all highly competitive. The Company's principal
competitors include major national and regional banks, local processing banks,
non-bank processors and other independent service organizations, many of which
have substantially greater capital, management, marketing and technological
resources than those of the Company. The three largest credit and debit card
processors accounted for 49.5% of the total credit and debit card sales volume
in 1995 (The Nilson Report, April 1996). A single competitor accounted for 58.6%
of the total dollar volume of payment transaction processing for the trucking
industry in 1995 (The Nilson Report, February 1996). A single competitor
accounted for 66.6% of the total dollar volume of check verifications in the
United States in 1995 (The Nilson Report, April 1996). There can be no assurance
that the Company will continue to be able to compete successfully with such
competitors. In addition, the competitive pricing pressures that would result
from any increase in competition could adversely affect the Company's margins
and may have a material adverse effect on the Company's financial condition and
results of operations.
The Company competes in its markets in terms of price, quality, speed and
flexibility in customizing systems to meet the particular needs of customers.
The Company believes that it is one of the few fully integrated suppliers of a
broad range of hardware and processing, banking and data compilation services
for use in transactions at retail locations.
The Company also competes with other electronic payment processing
organizations for growth opportunities. The recent consolidation in banking in
the United States has resulted in fewer opportunities for merchant portfolio
acquisitions, as many small banks have been acquired by large banks, some of
which are competitors with the Company in the provision of processing services.
REGULATION OF FINANCIAL SERVICES
The Company and its subsidiaries are subject to a number of federal and
state laws. As a bank holding company, the Company is subject to regulation
under the Bank Holding Company Act (the "BHC Act"), which is administered by the
Board of Governors of the Federal Reserve. Under the BHC Act, the Company is
generally prohibited from directly engaging in any activities other than
banking, managing or controlling banks, and bank-related activities. The BHC Act
prohibits a bank holding company, with certain exceptions, from acquiring,
directly or indirectly, ownership or control of 5% or more of the voting shares
of any company which is not a bank or bank holding company. The primary
exception to this prohibition involves activities
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<PAGE> 24
which the Federal Reserve determines are closely related to banking. A bank is
also generally prohibited from engaging in certain tie-in arrangements with its
bank holding company or affiliates with respect to the lease or sale of
property, the furnishing of services, or the extension of credit. The BHC Act
contains certain restrictions concerning future mergers with other bank holding
companies and banks.
Under the BHC Act, a bank holding company is required to file with the
Federal Reserve annual and quarterly reports and such additional information as
the Federal Reserve may from time to time require. The Federal Reserve may
examine the Company's and each of its subsidiary's records, including a review
of capital adequacy in relation to guidelines established by the Federal
Reserve. If the level of capital is deemed to be inadequate, the Federal Reserve
may restrict the future expansion and operations of the Company. The Federal
Reserve possesses cease and desist powers over a bank holding company if its
actions or actions of any of its subsidiaries represent unsafe or unsound
practices or violations of law.
Transactions among the Company and its affiliates are also regulated by
federal law, including the amount of a banking affiliate's loan to, or
investments in, non-bank affiliates and the amount of advances to third parties
collateralized by securities of an affiliate. In addition, various requirements
and restrictions under federal and state laws regulate the operations of the
Company's banking affiliates, requiring the maintenance of reserves against
deposits, limiting the nature of loans and the interest that may be charged
thereon, restricting investments and other activities. The Company's banking
affiliates are also limited in the amount of dividends that they may declare.
Prior regulatory approval must be obtained before declaring any dividends if the
amount of capital, surplus and retained earnings is below certain statutory
minimums.
As a national bank established under the National Bank Act, EFS National
Bank operates under the rules and regulations of the Comptroller of the Currency
and is also a member of the Federal Reserve System, subject to provisions of the
Federal Reserve Act. The Federal Deposit Insurance Corporation insures the
domestic deposits of all subject banks, including EFS National Bank. Periodic
audits and regularly scheduled reports of financial information are required by
the various regulatory agencies with jurisdiction over the Company, EFS National
Bank and their affiliates. Federal laws also regulate certain transactions among
EFS National Bank and its affiliates, including the Company.
The Company's electronic funds transfer services sold to financial
institutions are regulated by certain state and federal banking laws. Material
changes in federal or state regulation could increase the cost to the company
providing electronic funds transfer services, change the competitive environment
or otherwise adversely affect the Company.
In addition to regulation by federal and state laws and governmental
agencies, the Company is subject to the rules and regulations of the various
credit card and debit card associations and networks, including requirements for
equity capital commensurate with processing transaction dollar volume.
MANAGERS AND EMPLOYEES
In recent years, the Company has pursued a strategy of adding key managers
and diversifying managerial responsibility for areas of the Company's
operations, in order to provide the requisite managerial depth and experience to
support the Company's growth. While the Company needs to continue to attract and
retain key personnel, the Company believes that it is well positioned for its
current operations and growth, as well as for adjustment to the loss of any
particular key persons.
As of August 31, 1996, the Company employed 445 individuals on a full and
part-time basis, including 49 data processing and technical employees, 315
employees in operations and 81 employees in sales and administration. Many of
the Company's employees are highly skilled, and the Company believes its future
success will depend in large part on its ability to attract and retain such
employees. The Company does not have employment contracts with any of its
executives or other personnel. None of the Company's employees is covered by
collective bargaining agreements. The Company considers relations with its
employees to be excellent, and the Company believes that it has been highly
successful in attracting experienced and capable personnel. However, there can
be no assurance that the Company will continue to do so.
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FACILITIES
<TABLE>
The following table sets forth certain information concerning the principal
facilities of the Company, all of which are leased:
<CAPTION>
APPROXIMATE
AREA IN LEASE
LOCATION SQUARE FEET PRIMARY USES EXPIRATION
- -------- ----------- ------------ ---------------
<S> <C> <C> <C>
Memphis, TN.............. 43,375 Corporate Offices & EFS National July 31, 2000
Bank Operations
Elk Grove, IL............ 20,330 Data Processing, Field Service month-to-month
and Customer Service Operations
Aurora, CO............... 3,072 Field Service month-to-month
West Chester, PA......... 1,300 Field Service May 31, 1997
</TABLE>
The Company believes all facilities are adequate for its purposes.
LEGAL PROCEEDINGS
The Company is a party to various routine lawsuits arising out of the
conduct of its business, none of which, either individually or in the aggregate,
are expected to have a material adverse effect upon the Company's operations,
financial condition or prospects.
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MANAGEMENT
DIRECTORS, OFFICERS AND KEY MANAGERS
<TABLE>
The directors, officers and key managers of the Company are as follows:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dan M. Palmer.......................... 53 Chairman of the Board of Directors of the
Company, and Chief Executive Officer of the
Company and EFS National Bank
Edward A. Labry III.................... 33 President of the Company and
of EFS National Bank, and Director
William E. Lucado...................... 55 Senior Vice President of the Company and
EFS National Bank
Thomas J. Dowling...................... 30 Vice President and Controller of the Company
and EFS National Bank
Richard M. Harter(1)................... 60 Secretary and Director
Joyce Kelso............................ 55 Director
Jerry D. Mooney(1)(2).................. 43 Director
David C. Anderson(1)(2)................ 54 Director
J. Richard Buchignani(1)............... 47 Director
Paul L. Whittington(1)(2).............. 60 Director
<FN>
- ---------------
(1) Member of the Board's Audit Committee.
(2) Member of the Board's Compensation Committee.
</TABLE>
The members of the Board of Directors are elected by the stockholders each
year at the annual meeting of stockholders. Executive officers of the Company
are elected by the Board of Directors on an annual basis and serve at the
discretion of the Board of Directors. There are no family relationships among
directors or executive officers of the Company.
DAN M. PALMER became Chairman of the Board of Directors in February 1991.
Mr. Palmer has been Chief Executive Officer of the Company since August 1989,
and a Director of the Company since May 1987. Mr. Palmer has been the Chief
Executive Officer of EFS National Bank and its predecessor since 1985. He joined
Union Planters National Bank in June 1982 and founded its electronic fleet
services division. He became President and Chief Executive Officer of EFS, Inc.
when the operations of the EFS division were acquired by the Company in March
1985.
EDWARD A. LABRY III joined the Company in 1984. He was made Director of
Marketing of EFS, Inc. in March 1987 and Vice President of Sales in February
1988. In August 1990, he was elected Chief Marketing Officer of the Company. He
was elected Senior Vice President of the Company in February 1991, President of
the Company in October 1994, and President of EFS National Bank in December
1994.
WILLIAM E. LUCADO joined the Company in 1991 as a Vice President. He was
named Senior Vice President, Compliance Officer for EFS National Bank in 1992,
and in 1994 he was also elected Senior Vice President of the Company. In 1995,
he was elected a Senior Vice President, Corporate Secretary, and Director of EFS
National Bank, Concord Computing Corporation, and Concord Equipment Sales, Inc.
In 1996, he was elected Assistant Secretary of the Company. Prior to joining the
Company, Mr. Lucado had been President of a management consulting firm which
served the banking industry. Mr. Lucado is responsible for compliance, risk
management and investments for the Company and its subsidiaries.
THOMAS J. DOWLING joined the Company in May 1992 as Assistant Controller.
Mr. Dowling has been Vice President and Controller of the Company since
September 1995. Prior to May 1992, he was a senior audit accountant and CPA at
Ernst & Young LLP.
RICHARD M. HARTER has been the Company's Secretary and a Director since the
formation of the Company in 1970. He is a partner of Bingham, Dana & Gould LLP,
legal counsel to the Company.
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<PAGE> 27
JOYCE KELSO has been a Director of the Company since May 1991, and was
Senior Vice President of the Company prior to her retirement on January 1, 1995.
She had previously served as Vice President in charge of Customer Service of EFS
National Bank and its predecessor since EFS, Inc. began operations, and in
August 1990, she was elected Senior Vice President of the Company. Since her
retirement, Mrs. Kelso has served as a consultant to the Company.
JERRY D. MOONEY has been a Director of the Company since August 1992. He
was the founder, President and Chief Executive Officer of ServiceMaster
Diversified Health Services, Inc. (formerly VHA Long Term Care) from 1981
through 1995 and now serves as President of Healthcare New Business Initiatives
for ServiceMaster.
DAVID C. ANDERSON has been a Director of the Company since August 1992. He
retired as Executive Vice President and Chief Financial Officer of Burlington
Northern, Inc. in Fort Worth, Texas, in October 1995. Prior to his association
with Burlington Northern, Mr. Anderson served as Senior Vice President and Chief
Financial Officer of Federal Express Corporation.
J. RICHARD BUCHIGNANI has been a Director of the Company since August 1992.
He is a partner in the Memphis office of the law firm of Wyatt, Tarrant and
Combs, legal counsel to EFS National Bank.
PAUL L. WHITTINGTON has been a Director of the Company since May 1993. He
was Managing Partner of the Memphis, Tennessee and Jackson, Mississippi offices
of Ernst & Young LLP from 1988 until his retirement in 1991.
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<PAGE> 28
UNDERWRITING
<TABLE>
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions set forth in the Underwriting Agreement by
and among the Company and the Underwriters, to purchase from the Company, and
the Company has agreed to sell to the Underwriters, the respective number of
shares of Common Stock (excluding the over-allotment option) set forth opposite
each Underwriter's name:
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
William Blair & Company, L.L.C..........................
Montgomery Securities...................................
Morgan Keegan & Company, Inc............................
Adams, Harkness & Hill, Inc.............................
---------
Total......................................... 3,000,000
=========
</TABLE>
The nature of the Underwriter's obligations under the Underwriting
Agreement is such that all shares of the Common Stock offered hereby, excluding
shares covered by the over-allotment option granted to the Underwriters, must be
purchased if any are purchased. In the event of a default by any Underwriter,
the Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the nondefaulting Underwriters pertaining to the Underwriting
Agreement may be increased or such Underwriting Agreement may be terminated.
The Underwriters have advised the Company that the Underwriters propose to
offer the Common Stock to the public initially at the public offering price set
forth on the cover page of this Prospectus and to select dealers at such price
less a concession of not more than $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.10 per
share to certain other dealers. After the public offering contemplated hereby,
the public offering and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 450,000
shares of Common Stock to cover over-allotments, at the same price per share to
be paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any such additional shares pursuant to this option, each
Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of shares of
Common Stock offered hereby.
The Company, its Chief Executive Officer and its President have each agreed
not to offer, sell or otherwise dispose of any Common Stock or any securities
convertible into Common Stock or register for sale under the Securities Act any
Common Stock for a period of 90 days after the date of this Prospectus without
the prior written consent of the Underwriters.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Common Stock
during a "cooling-off" period immediately preceding the commencement of sales in
the offering. The Commission has, however, adopted exemptions from these rules
that permit passive market making under certain conditions. The rules permit an
Underwriter or other members of the selling group, if any, to continue to make a
market in the Common Stock subject to the condition, among others, that its bid
not exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group, if any, may engage in passive market making in the Common Stock
during the cooling-off period.
27
<PAGE> 29
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
Certain principals of William Blair & Company, L.L.C., one of the
Underwriters, beneficially own an aggregate of 3,541,698 shares of Common Stock,
which will represent 5.9% of the outstanding Common Stock of the Company upon
the closing of this offering. In addition, certain mutual funds affiliated with,
and certain discretionary accounts advised by, William Blair & Company, L.L.C.
beneficially own shares of the Company's Common Stock. Accordingly, this
offering is being made in conformity with certain applicable provisions of
Schedule E to the Bylaws of the National Association of Securities Dealers, Inc.
CERTAIN LEGAL MATTERS
The validity of the Common Stock to be issued in the offering is being
passed upon for the Company by Bingham, Dana & Gould LLP, 150 Federal Street,
Boston, Massachusetts. Certain legal matters relating to the offering will be
passed upon for the Underwriters by Gardner, Carton & Douglas, 321 North Clark
Street, Chicago, Illinois. Richard M. Harter, a partner of Bingham, Dana & Gould
LLP, holds 61,437 shares of the Common Stock and is the Secretary and a Director
of the Company. At September 27, 1996, a profit sharing and retirement savings
plan established for the benefit of partners and employees of Gardner, Carton &
Douglas beneficially held 30,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Concord EFS, Inc. as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995 incorporated by reference in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein, incorporated herein by reference, and are
included in reliance upon such report, given upon the authority of such firm as
experts in auditing and accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents or
portions of documents filed by the Company with the Commission: (1) the
Company's Annual Report for the year ended December 31, 1995; (2) the Company's
Annual Report on Form 10-K for the year ended December 31, 1995; (3) the
Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31
and June 30, 1996; (4) the Company's Proxy Statement dated March 29, 1996; and
(5) the description of the Common Stock contained in the Company's Registration
Statement on Form 8-A under the Exchange Act filed on September 4, 1985,
together with any and all amendments and reports filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein or in a document,
all or a portion of which is incorporated or deemed to be incorporated by
reference herein, shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document or portion thereof which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the information that has been
incorporated by reference herein (other than exhibits to the information unless
such exhibits are incorporated by reference into the information that the
Prospectus incorporates). Such written requests should be addressed to Concord
EFS, Inc., Attention: Investor Relations, 2525 Horizon Lake Drive, Suite 120,
Memphis, Tennessee 38133. Telephone requests may be directed to Investor
Relations at (901) 371-8000.
28
<PAGE> 30
================================================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER
TO BUY ANY SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
------
<S> <C>
Available Information.................. 2
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 10
Price Range of Common Stock............ 10
Dividend Policy........................ 11
Capitalization......................... 11
Selected Financial Data................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................ 13
Business............................... 17
Management............................. 25
Underwriting........................... 27
Certain Legal Matters.................. 28
Experts................................ 28
Incorporation of Certain Documents
by Reference......................... 28
</TABLE>
================================================================================
================================================================================
3,000,000 SHARES
[CONCORD EFS, INC. LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
OCTOBER , 1996
---------------------------
WILLIAM BLAIR & COMPANY
MONTGOMERY SECURITIES
MORGAN KEEGAN &
COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
================================================================================
<PAGE> 31
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting compensation, are:
<S> <C>
SEC Registration Fee.................................... $ 26,289
NASD Fee................................................ 9,262
Nasdaq National Market Fees............................. 17,500
Transfer Agent and Registrar Fees and Expenses.......... 5,000*
Printing and Engraving Expenses......................... 60,000*
Legal Fees and Expenses................................. 190,000*
Blue Sky Fees and Expenses.............................. 10,000*
Accounting Fees and Expenses............................ 40,000*
Miscellaneous........................................... 6,949*
--------
Total................................................... $365,000
========
<FN>
- ---------------
* Estimates
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify its officers and directors and certain other
persons to the extent and under the circumstances set forth therein.
Article Seventh of the Registrant's Restated Certificate of Incorporation
provides that no director of the Registrant shall be liable for monetary damages
for breach of fiduciary duty, with certain exceptions. Article VII of the
By-Laws of the Registrant provides for advancement of expenses and
indemnification of officers and directors of the Registrant and certain other
persons against liabilities and expenses incurred by any of them to the fullest
extent permitted by the DGCL. In addition, certain of the directors and officers
of the Registrant may be entitled to indemnification and advancement of expenses
under the charter documents and by-laws of the Registrant's subsidiaries, EFS
National Bank, Concord Computing Corporation, Concord Equipment Sales, Inc., and
Network EFT, Inc.
The Registrant maintains insurance for the benefit of its directors and
officers insuring such persons against certain liabilities, including
liabilities under the securities laws, which might be incurred in connection
with the performance of their duties.
Section 10 of the Underwriting Agreement among the Registrant and the
Underwriters will provide for indemnification by the Registrant of the
Underwriters and each person, if any, who controls any Underwriter, against
certain liabilities and expenses, as stated therein, which may include
liabilities under the Securities Act. The Underwriting Agreement will also
provide that the Underwriters shall similarly indemnify the Registrant, its
directors, officers, and controlling persons, as set forth therein.
II-1
<PAGE> 32
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation dated as of September 4, 1996.
5 Opinion of Bingham, Dana & Gould LLP.
23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
24* Power of Attorney.
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(B) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
(C) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(D) The undersigned Registrant hereby undertakes that:
(1) 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 a
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 this
Registration Statement as of the time it was declared effective.
(2) For the purpose 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-2
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Memphis and the State of Tennessee as of October 17,
1996.
CONCORD EFS, INC.
/s/ DAN M. PALMER
By:-----------------------------------
Dan M. Palmer, Chairman
of the Board and Chief
Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below as of October 17, 1996
by the following persons on behalf of the Registrant and in the capacities
indicated.
<CAPTION>
<C> <S>
/s/ DAN M. PALMER Chairman of the Board and Chief Executive Officer
- ------------------------------------- (principal executive officer)
Dan M. Palmer
* President and Director
- -------------------------------------
Edward A. Labry III
* Vice President and Controller
- ------------------------------------- (principal financial and accounting officer)
Thomas J. Dowling
* Secretary and Director
- -------------------------------------
Richard M. Harter
* Director
- -------------------------------------
Joyce Kelso
* Director
- -------------------------------------
Jerry D. Mooney
* Director
- -------------------------------------
David C. Anderson
* Director
- -------------------------------------
Richard Buchignani
* Director
- -------------------------------------
Paul L. Whittington
</TABLE>
/s/ DAN M. PALMER
*By: --------------------------------
Dan M. Palmer
Attorney-in-fact
II-3
<PAGE> 34
EXHIBIT INDEX
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation dated as of September 4, 1996.
5 Opinion of Bingham, Dana & Gould LLP.
23.1 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
24* Power of Attorney.
- ---------------
* Previously filed.
II-4
<PAGE> 1
Exhibit 1.1
DRAFT OF OCTOBER 16, 1996 6:09 AM
CONCORD EFS, INC.
3,000,000 Shares Common Stock*
UNDERWRITING AGREEMENT
October ___, 1996
WILLIAM BLAIR & COMPANY, L.L.C.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
c/o William Blair & Company, L.L.C.
222 West Adams
Chicago, Illinois 60606
Ladies and Gentlemen:
SECTION 1. Introductory. Concord EFS, Inc. ("Company"), a Delaware
corporation, has an authorized capital stock consisting of 80,000,000 shares,
$0.33 1/3 par value, of Common Stock ("Common Stock"), of which ____________
shares will be outstanding as of the closing of the transaction contemplated by
this Agreement. The Company proposes to issue and sell 3,000,000 shares of its
authorized but unissued Common Stock ("Firm Shares") to you (the
"Underwriters"), each of which are acting severally and not jointly. In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to 450,000 additional shares of Common Stock ("Option Shares") as
provided in Section 4 hereof. The Firm Shares and, to the extent such option is
exercised, the Option Shares, are hereinafter collectively referred to as the
"Shares."
You have advised the Company that you propose to make a public offering of
each of your respective portions of the Shares as soon as you deem advisable
after the registration statement hereinafter referred to becomes effective, if
it has not yet become effective, and the Pricing Agreement hereinafter defined
has been executed and delivered.
Prior to the purchase and public offering of the Shares by you, the Company
and each of you shall enter into an agreement substantially in the form of
Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
form of an exchange of any standard form of written telecommunication between
the Company and the Underwriters and shall specify such applicable information
as is indicated in Exhibit A hereto. The offering of the Shares will be governed
by this Agreement, as supplemented by the Pricing Agreement. From and after the
date of the execution and delivery of the Pricing Agreement, this Agreement
shall be deemed to incorporate the Pricing Agreement.
The Company hereby confirms its agreement with the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that:
- --------
* Plus an option to acquire up to 450,000 additional shares to cover
overallotments
<PAGE> 2
(a) A registration statement on Form S-3 (File No. 333-13309)
and a related preliminary prospectus with respect to the Shares have been
prepared and filed with the Securities and Exchange Commission
("Commission") by the Company in conformity with the requirements of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "1933 Act;" all references herein
to specific rules are rules promulgated under the 1933 Act); and the
Company has so prepared and has filed such amendments thereto, if any, and
such amended preliminary prospectuses as may have been required to the date
hereof. If the Company has elected not to rely upon Rule 430A, the Company
has prepared and will promptly file an amendment to the registration
statement and an amended prospectus. If the Company has elected to rely
upon Rule 430A, it will prepare and file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the
prospectus in reliance upon Rule 430A. There have been or will promptly be
delivered to you three signed copies of such registration statement and
amendments, together with three copies of all documents incorporated by
reference therein, three copies of each exhibit filed therewith, and
conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus or prospectuses and
final forms of prospectus for each of the Underwriters.
Such registration statement (as amended, if applicable) at the
time it becomes effective and the prospectus constituting a part thereof
(including the information, if any, deemed to be part thereof pursuant to
Rule 430(b) and/or Rule 434 and the information incorporated therein by
reference), as from time to time amended or supplemented, are hereinafter
referred to as the "Registration Statement," and the "Prospectus,"
respectively, except that if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of
the Shares which differs from the Prospectus on file at the Commission at
the time the Registration Statement became or becomes effective (whether or
not such revised prospectus is required to be filed by the Company pursuant
to Rule 424(b)), the term Prospectus shall refer to such revised prospectus
from and after the time it was provided to the Underwriters for such use.
If the Company elects to rely on Rule 434 of the 1933 Act, all references
to "Prospectus" shall be deemed to include, without limitation, the form of
prospectus and the term sheet, taken together, provided to the Underwriters
by the Company in accordance with Rule 434 of the 1933 Act "Rule 434
Prospectus"). Any registration statement (including any amendment or
supplement thereto or information which is deemed part thereof) filed by
the Company under Rule 462(b) ("Rule 462(b) Registration Statement") shall
be deemed to be part of the "Registration Statement" as defined herein, and
any prospectus (including any amendment or supplement thereto or
information which is deemed part thereof) included in such registration
statement shall be deemed to be part of the "Prospectus", as defined
herein, as appropriate. The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder are hereinafter
collectively referred to as the "Exchange Act." Any reference herein to any
preliminary prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Form
S-3 under the 1933 Act ("Incorporated Documents"), as of the date of such
preliminary prospectus or Prospectus, as the case may be. Any document
filed by the Company under the Exchange Act after the effective date of the
Registration Statement or the date of the Prospectus and incorporated by
reference in the Prospectus shall be deemed to be included in the
Registration Statement and the Prospectus as of the date of such filing.
-2-
<PAGE> 3
The Incorporated Documents, when they were or are filed with the
Commission, conformed or will conform in all material respects to the
requirements of the Exchange Act and none of such documents contained or
will contain an untrue statement of a material fact or omitted or will omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(b) The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus, and each preliminary
prospectus has conformed in all material respects with the requirements of
the 1933 Act and, as of its date, has not included any untrue statement of
a material fact or omitted to state a material fact necessary to make the
statements therein not misleading; and when the Registration Statement
became or becomes effective, and at all times subsequent thereto, up to the
First Closing Date or the Second Closing Date hereinafter defined, as the
case may be, the Registration Statement, including the information deemed
to be part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A(b), if applicable, and the Prospectus and any
amendments or supplements thereto, contained or will contain all statements
that are required to be stated therein in accordance with the 1933 Act and
in all material respects conformed or will in all material respects conform
to the requirements of the 1933 Act, and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, included or
will include any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the
Company makes no representation or warranty as to information contained in
or omitted from any preliminary prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter specifically for use in the preparation thereof.
(c) The Company and its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective places of incorporation, with corporate
power and authority to own their properties and conduct their business as
described in the Prospectus; each of the Company and its subsidiaries is
duly qualified to do business as a foreign corporation under the
corporation law of, and is in good standing as such in, each jurisdiction
in which it owns or leases substantial properties, has an office, or in
which substantial business is conducted and such qualification is required
except in any such case where the failure to so qualify or be in good
standing would not have a material adverse effect upon the Company and its
subsidiaries taken as a whole; and no proceeding of which the Company has
knowledge has been instituted and continues in any such jurisdiction,
revoking, limiting or curtailing, or seeking to revoke, limit or curtail,
such power and authority or qualification.
(d) Except for Network EFT, Inc. (of which the Company
owns 99.2% of the outstanding capital stock), the Company owns directly or
indirectly 100 percent of the issued and outstanding capital stock of each
of its subsidiaries, free and clear of any claims, liens, encumbrances or
security interests and all of such capital stock has been duly authorized
and validly issued and is fully paid and nonassessable.
(e) The issued and outstanding shares of capital stock of the
Company as set forth in the Prospectus have been duly authorized and
validly issued, are fully paid and nonassessable, and conform to the
description thereof contained in the Prospectus.
-3-
<PAGE> 4
(f) The Shares have been duly authorized and when issued,
delivered and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, and will conform to the description thereof
contained in the Prospectus.
(g) The making and performance by the Company of this Agreement
and the Pricing Agreement have been duly authorized by all necessary
corporate action and will not violate any provision of the Company's
charter or bylaws and will not result in the breach, or be in
contravention, of any provision of any agreement, franchise, license,
indenture, mortgage, deed of trust, or other instrument to which the
Company or any subsidiary is a party or by which the Company, any
subsidiary or the property of any of them may be bound or affected, or any
order, rule or regulation applicable to the Company or any subsidiary of
any court or regulatory body, administrative agency or other governmental
body having jurisdiction over the Company or any subsidiary or any of their
respective properties, or any order of any court or governmental agency or
authority entered in any proceeding to which the Company or any subsidiary
was or is now a party or by which it is bound. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and
delivery of this Agreement or the Pricing Agreement or the consummation of
the transactions contemplated herein or therein, except for compliance with
the 1933 Act and blue sky laws applicable to the public offering of the
Shares by the several Underwriters and clearance of such offering with the
National Association of Securities Dealers, Inc. ("NASD"). This Agreement
has been duly executed and delivered by the Company.
(h) The accountants who have expressed their opinions with
respect to certain of the financial statements included or incorporated by
reference in the Registration Statement are independent accountants as
required by the 1933 Act.
(i) The consolidated financial statements of the Company
included or incorporated by reference in the Registration Statement present
fairly the consolidated financial position of the Company as of the
respective dates of such financial statements, and the consolidated results
of operations and cash flows of the Company for the respective periods
covered thereby, all in conformity with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed in the Prospectus. The financial information set forth in the
Prospectus under "Selected Financial Data" presents fairly on the basis
stated in the Prospectus, the information set forth therein.
The pro forma financial statements and other pro forma
information included in the Prospectus present fairly the information shown
therein, have been prepared in accordance with generally accepted
accounting principles and the Commission's rules and guidelines with
respect to pro forma financial statements and other pro forma information,
have been properly compiled on the pro forma basis described therein, and,
in the opinion of the Company, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
under the circumstances.
(j) Neither the Company nor any subsidiary is in violation of
its charter or bylaws or is in default under any consent decree or order of
any court or administrative body, or is in default with respect to any
material provision of any lease, loan agreement, franchise, license, permit
or other contract obligation to which it is a party; and there does not
exist any
-4-
<PAGE> 5
state of facts which constitutes an event of default as defined in such
documents or which, with notice or lapse of time or both, would constitute
such an event of default, in each case, except for defaults which neither
singly nor in the aggregate are material to the Company and its
subsidiaries taken as a whole.
(k) There are no material legal or governmental proceedings
pending, or to the Company's knowledge, threatened to which the Company or
any subsidiary is or may be a party or of which material property owned or
leased by the Company or any subsidiary is or may be the subject, or
related to environmental or discrimination matters which are not disclosed
in the Prospectus, or which question the validity of this Agreement or the
Pricing Agreement or any action taken or to be taken pursuant hereto or
thereto.
(l) There are no holders of securities of the Company having
rights to registration thereof or preemptive rights to purchase Common
Stock except as disclosed in the Prospectus. Holders of registration rights
have waived such rights with respect to the offering being made by the
Prospectus.
(m) The Company and each of its subsidiaries have good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except those, if any, reflected in such financial statements (or
elsewhere in the Prospectus) or which are not material to the Company and
its subsidiaries taken as a whole. The Company and each of its subsidiaries
hold their respective leased properties which are material to the Company
and its subsidiaries taken as a whole under valid and binding leases.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares.
(o) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
contemplated by the Prospectus, the Company and its subsidiaries, taken as
a whole, have not incurred any material liabilities or obligations, direct
or contingent, nor entered into any material transactions not in the
ordinary course of business and there has not been any material adverse
change in their condition (financial or otherwise) or results of operations
nor any material change in their capital stock, short-term debt or
long-term debt.
(p) The Company agrees not to sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible into Common
Stock (except Common Stock issued pursuant to currently outstanding
options, warrants or convertible securities) for a period of 90 days after
this Agreement becomes effective without the prior written consent of the
Underwriters.
(q) There is no material document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.
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(r) The Company together with its subsidiaries owns and
possesses all right, title and interest in and to, or has duly licensed
from third parties, all patents, patent rights, trade secrets, inventories,
know-how, trademarks, trade names, copyrights, service marks and other
proprietary rights ("Trade Rights") material to the business of the Company
and each of its subsidiaries taken as a whole. Neither the Company nor any
of its subsidiaries has received any notice of infringement,
misappropriation or conflict from any third party as to such material Trade
Rights which has not been resolved or disposed of and neither the Company
nor any of its subsidiaries has infringed, misappropriated or otherwise
conflicted with material Trade Rights of any third parties, which
infringement, misappropriation or conflict would have a material adverse
effect upon the condition (financial or otherwise) or results of operations
of the Company and its subsidiaries taken as a whole.
(s) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with applicable federal,
state, local and foreign laws and regulations, except where the failure to
be in compliance would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations of the Company
and its subsidiaries taken as a whole.
(t) The Company has filed all necessary federal and state
income and franchise tax returns and has paid all taxes shown as due
thereon, and there is no tax deficiency that has been, or to the knowledge
of the Company might be, asserted against the Company or any of its
properties or assets that would or could be expected to have a material
adverse affect upon the condition (financial or otherwise) or results of
operations of the Company and its subsidiaries taken as a whole.
(u) A registration statement relating to the Common Stock has
been declared effective by the Commission pursuant to the Exchange Act and
the Common Stock is duly registered thereunder. The Shares have been listed
on the Nasdaq National Market, subject to notice of issuance or sale of the
Shares, as the case may be.
(v) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940, as amended
("Investment Company Act").
(w) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported in
the Prospectus, if any, concerning the Company's business with Cuba or with
any person or affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
SECTION 3. Representations and Warranties of the Underwriters. The
Underwriters represent and warrant to the Company that the information set forth
(a) on the cover page of the
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<PAGE> 7
Prospectus with respect to price, underwriting discount and terms of the
offering and (b) under "Underwriting" in the Prospectus was furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and is correct and complete in all
material respects.
SECTION 4. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
the Firm Shares from the Company at the price per share set forth in the Pricing
Agreement. The obligation of each Underwriter to the Company shall be to
purchase from the Company that number of full shares which (as nearly as
practicable, as determined by you) bears to 3,000,000, the same proportion as
the number of Shares set forth opposite the name of such Underwriter in Schedule
A hereto bears to the total number of Firm Shares to be purchased by all
Underwriters under this Agreement. The initial public offering price and the
purchase price shall be set forth in the Pricing Agreement.
At 9:00 A.M. Chicago Time on the fourth business day, if permitted
under Rule 15c6-1 under the Exchange Act, (or the third business day if required
under Rule 15c6-1 under the Exchange Act or unless postponed in accordance with
the provisions of Section 12) following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
fourth business day, if permitted under Rule 15c6-1 under the Exchange Act, (or
the third business day if required under Rule 15c6-1 under the Exchange Act)
after execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Underwriters and
the Company, the Company will deliver to you at the offices of Gardner, Carton &
Douglas or through the facilities of The Depository Trust Company for the
accounts of the several Underwriters, certificates representing the Firm Shares
to be sold by it against payment of the purchase price therefor by delivery of
federal or other immediately available funds, by wire transfer or otherwise, to
the Company. Such time of delivery and payment is herein referred to as the
"First Closing Date." The certificates for the Firm Shares so to be delivered
will be in such denominations and registered in such names as you request by
notice to the Company and the Custodian prior to 10:00 A.M., Chicago Time, on
the third full business day preceding the First Closing Date, and will be made
available at the Company's expense for checking and packaging by the
Underwriters at 10:00 A.M., Chicago Time, on the first full business day
preceding the First Closing Date. Payment for the Firm Shares so to be delivered
shall be made at the time and in the manner described above at the offices of
counsel for the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of 450,000 Option Shares, at the
same purchase price per share to be paid for the Firm Shares, for use solely in
covering any overallotments made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time (but not more than once) within 30 days after the date of the
initial public offering upon notice by you to the Company setting forth the
aggregate number of Option Shares as to which the Underwriters are exercising
the option, the names and denominations in which the certificates for such
shares are to be registered and the time and place at which such certificates
will be delivered. Such time of delivery (which may not be earlier than the
First Closing Date), being herein referred to as the "Second Closing Date,"
shall be determined by you, but if at any time other than the First Closing
Date, shall not be earlier than three nor later than 10 full business days after
delivery of such notice of exercise. The number of Option Shares to be purchased
by each Underwriter shall be determined by multiplying the number of Option
Shares to be sold by a fraction, the
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<PAGE> 8
numerator of which is the number of Firm Shares to be purchased by such
Underwriter as set forth opposite its name in Schedule A and the denominator of
which is the total number of Firm Shares (subject to such adjustments to
eliminate any fractional share purchases as you in your absolute discretion may
make). Certificates for the Option Shares will be made available at the
Company's expense for checking and packaging at 10:00 A.M., Chicago Time, on the
first full business day preceding the Second Closing Date. The manner of payment
for and delivery of the Option Shares shall be the same as for the Firm Shares
as specified in the preceding paragraph.
SECTION 5. Covenants of the Company. The Company covenants and agrees that:
(a) The Company will advise you promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose, and will also advise you promptly of any
request of the Commission for amendment or supplement of the Registration
Statement, of any preliminary prospectus or of the Prospectus, or for
additional information.
(b) The Company will give you notice of its intention to file
or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any Rule 462(b) Registration Statement or any
amendment or supplement to the Prospectus (including any revised prospectus
which the Company proposes for use by the Underwriters in connection with
the offering of the Shares which differs from the prospectus on file at the
Commission at the time the Registration Statement became or becomes
effective, whether or not such revised prospectus is required to be filed
pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434) and
will furnish you with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement or use any such
prospectus to which you or counsel for the Underwriters shall reasonably
object.
(c) If the Company elects to rely on Rule 434 of the 1933 Act,
the Company will prepare a term sheet that complies with the requirements
of Rule 434. If the Company elects not to rely on Rule 434, the Company
will provide the Underwriters with copies of the form of prospectus, in
such numbers as the Underwriters may reasonably request, and file with the
Commission such prospectus in accordance with Rule 424(b) of the 1933 Act
by the close of business in New York City on the second business day
immediately succeeding the date of the Pricing Agreement. If the Company
elects to rely on Rule 434, the Company will provide the Underwriters with
copies of the form of Rule 434 Prospectus, in such numbers as the
Underwriters may reasonably request, by the close of business in New York
on the business day immediately succeeding the date of the Pricing
Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a result of
which the Prospectus, including any amendments or supplements, would
include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements thereto and including
any revised prospectus which the Company proposes for use by the
Underwriters in
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<PAGE> 9
connection with the offering of the Shares which differs from the
prospectus on file with the Commission at the time of effectiveness of the
Registration Statement, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) to comply with the 1933 Act, the
Company promptly will advise you thereof and will promptly prepare and file
with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance;
and, in case any Underwriter is required to deliver a prospectus nine
months or more after the effective date of the Registration Statement, the
Company upon request, but at the expense of such Underwriter, will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the 1933 Act.
(e) Neither the Company nor any of its subsidiaries will,
prior to the earlier of the Second Closing Date or termination or
expiration of the related option, incur any liability or obligation, direct
or contingent, or enter into any material transaction, other than in the
ordinary course of business, except as contemplated by the Prospectus.
(f) Neither the Company nor any of its subsidiaries will
acquire any capital stock of the Company prior to the earlier of the Second
Closing Date or termination or expiration of the related option nor will
the Company declare or pay any dividend or make any other distribution upon
the Common Stock payable to stockholders of record on a date prior to the
earlier of the Second Closing Date or termination or expiration of the
related option, except in either case as contemplated by the Prospectus.
(g) Not later than March 31, 1998 the Company will make
generally available to its security holders an earnings statement (which
need not be audited) covering a period of at least 12 months beginning
after the effective date of the Registration Statement, which will satisfy
the provisions of the last paragraph of Section 11(a) of the 1933 Act.
(h) During such period as a prospectus is required by law to be
delivered in connection with offers and sales of the Shares by an
Underwriter or dealer, the Company will furnish to you at its expense,
subject to the provisions of subsection (d) hereof, copies of the
Registration Statement, the Prospectus, each preliminary prospectus, the
Incorporated Documents and all amendments and supplements to any such
documents in each case as soon as available and in such quantities as you
may reasonably request, for the purposes contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in
qualifying or registering the Shares for sale under the blue sky laws of
such jurisdictions as you designate, and will continue such qualifications
in effect so long as reasonably required for the distribution of the
Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not currently qualified or where it would be
subject to taxation as a foreign corporation.
(j) During the period of five years hereafter, the Company will
furnish you with a copy (i) as soon as practicable after the filing
thereof, of each report filed by the Company with the Commission, any
securities exchange or the NASD; (ii) as soon as practicable after the
release thereof, of each material press release in respect of the Company;
and (iii) as soon as available, of each report of the Company mailed to
stockholders.
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<PAGE> 10
(k) The Company will use the net proceeds received by it from
the sale of the Shares being sold by it in the manner specified in the
Prospectus.
(l) If, at the time of effectiveness of the Registration
Statement, any information shall have been omitted therefrom in reliance
upon Rule 430A and/or Rule 434, then immediately following the execution
and delivery of the Pricing Agreement, the Company will prepare, and file
or transmit for filing with the Commission in accordance with such Rule
430A, Rule 424(b) and/or Rule 434, copies of an amended Prospectus, or, if
required by such Rule 430A and/or Rule 434, a post-effective amendment to
the Registration Statement (including an amended Prospectus), containing
all information so omitted. If required, the Company will prepare and file,
or transmit for filing, a Rule 462(b) Registration Statement not later than
the date of the execution of the Pricing Agreement. If a Rule 462(b)
Registration Statement is filed, the Company shall make payment of, or
arrange for payment of, the additional registration fee owing to the
Commission required by Rule 111.
(m) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the Nasdaq National Market.
SECTION 6. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as to
all of its provisions or is terminated, the Company agrees to pay (i) all costs,
fees and expenses (except legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the Underwriters other than those
contemplated by clause (ii) below) incurred in connection with the performance
of the Company's obligations hereunder, including without limiting the
generality of the foregoing, all fees and expenses of legal counsel for the
Company and of the Company's independent accountants, all costs and expenses
incurred in connection with the preparation, printing, filing and distribution
of the Registration Statement, each preliminary prospectus and the Prospectus
(including all Incorporated Documents, exhibits and financial statements) and
all amendments and supplements provided for herein, this Agreement, the Pricing
Agreement and the Blue Sky Memorandum, (ii) all costs, fees and expenses
(including legal fees not to exceed $7,500 and disbursements of counsel for the
Underwriters) incurred by the Underwriters in connection with qualifying or
registering all or any part of the Shares for offer and sale under blue sky
laws, including the preparation of a blue sky memorandum relating to the Shares
and clearance of such offering with the NASD; and (iii) all fees and expenses of
the Company's transfer agent, printing of the certificates for the Shares and
all transfer taxes, if any, with respect to the sale and delivery of the Shares
to the several Underwriters.
SECTION 7. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the First Closing Date and the Option Shares on the Second Closing Date shall
be subject to the accuracy of the representations and warranties on the part of
the Company herein set forth as of the date hereof and as of the First Closing
Date or the Second Closing Date, as the case may be, to the accuracy of the
statements of officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of their respective obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective
either prior to the execution of this Agreement or not later than 1:00
P.M., Chicago Time, on the first full business day after the date of this
Agreement, or such later time as shall have been consented to
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<PAGE> 11
by you but in no event later than 1:00 P.M., Chicago Time, on the third
full business day following the date hereof; and prior to the First Closing
Date or the Second Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
shall be pending or, to the knowledge of the Company, shall be contemplated
by the Commission. If the Company has elected to rely upon Rule 430A and/or
Rule 434A, the information concerning the initial public offering price of
the Shares and price-related information shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) within the prescribed period
and the Company will provide evidence satisfactory to the Underwriters of
such timely filing (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with
the requirements of Rules 430A and 424(b)). If a Rule 462(b) Registration
Statement is required, such Registration Statement shall have been
transmitted to the Commission for filing and become effective within the
prescribed time period and, prior to the First Closing date, the Company
shall have provided evidence of such filing and effectiveness in accordance
with Rule 462(b).
(b) The Shares shall have been qualified for sale under the
blue sky laws of such states as shall have been specified by the
Underwriters.
(c) The legality and sufficiency of the authorization, issuance
and sale or transfer and sale of the Shares hereunder, the validity and
form of the certificates representing the Shares, the execution and
delivery of this Agreement and the Pricing Agreement, and all corporate
proceedings and other legal matters incident thereto, and the form of the
Registration Statement and the Prospectus (except financial statements)
shall have been approved by counsel for the Underwriters exercising
reasonable judgment.
(d) You shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment or supplement
thereto, contains an untrue statement of fact, which, in the opinion of
counsel for the Underwriters, is material or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or necessary to make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any change, or any development involving a
prospective change, in or affecting particularly the business or properties
of the Company or its subsidiaries, whether or not arising in the ordinary
course of business, which, in the judgment of the Underwriters, makes it
impractical or inadvisable to proceed with the public offering or purchase
of the Shares as contemplated hereby.
(f) There shall have been furnished to you, on the First
Closing Date or the Second Closing Date, as the case may be, except as
otherwise expressly provided below:
(i) An opinion of Bingham, Dana & Gould LLP, counsel for
the Company, addressed to the Underwriters and dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect
that:
(1) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
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laws of the State of Delaware with corporate power and authority
to own its properties and conduct its business as described in
the Prospectus; and the Company has been duly qualified to do
business as a foreign corporation under the corporation law of,
and is in good standing as such in, every jurisdiction where the
ownership or leasing of real property requires such qualification
except where the failure so to qualify would not have a material
adverse effect upon the condition (financial or otherwise) or
results of operations of the Company and its subsidiaries taken
as a whole;
(2) an opinion to the same general effect as clause
(1) of this subparagraph (i) in respect of each subsidiary of the
Company;
(3) except as disclosed in the Registration
Statement, the Company owns of record directly or indirectly 100
percent of the outstanding capital stock of each subsidiary, and
to the best knowledge of such counsel, such stock is owned free
and clear of any claims, liens, encumbrances or security
interests;
(4) the authorized capital stock of the Company, of
which there is outstanding the amount set forth in the
Registration Statement and Prospectus (except for subsequent
issuances, if any, pursuant to stock options or other rights
referred to in the Prospectus), conforms as to legal matters in
all material respects to the description thereof in the
Registration Statement and Prospectus;
(5) the issued and outstanding capital stock of the
Company has been duly authorized and validly issued and is fully
paid and nonassessable;
(6) the certificates for the Shares to be delivered
hereunder are in due and proper form, and when duly countersigned
by the Company's transfer agent and delivered to you or upon your
order against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement and the Pricing
Agreement, the Shares represented thereby will be duly authorized
and validly issued, fully paid and nonassessable;
(7) the Registration Statement has become effective
under the 1933 Act, and, to the best knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
1933 Act, and the Registration Statement (including the
information deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A(b) and/or Rule
434, if applicable), the Prospectus and each amendment or
supplement thereto (except for the financial statements and other
statistical or financial data included therein as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the 1933 Act; and the
statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations are
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<PAGE> 13
accurate in summary form and fairly present the information
required to be presented by the 1933 Act or the rules and
regulations thereunder, in all material respects and such counsel
does not know of any statutes, rules and regulations required to
be described or referred to in the Registration Statement or the
Prospectus that are not described or referred to therein as
required;
(8) this Agreement and the Pricing Agreement and the
performance of the Company's obligations hereunder have been duly
authorized by all necessary corporate action and this Agreement
and the Pricing Agreement have been duly executed and delivered
by and on behalf of the Company, and are legal, valid and binding
agreements of the Company, except as enforceability of the same
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights and
by the exercise of judicial discretion in accordance with general
principles applicable to equitable and similar remedies and
except as to those provisions relating to indemnities or
contribution for liabilities arising under the 1933 Act or other
federal or state securities laws as to which no opinion need be
expressed; and no approval, authorization or consent of any
public board, agency, or instrumentality of the United States or
of any state or other jurisdiction is necessary in connection
with the issue or sale of the Shares by the Company pursuant to
this Agreement (other than under the 1933 Act, applicable blue
sky laws and the rules of the NASD) or the consummation by the
Company of any other transactions contemplated hereby;
(9) the execution and performance of this Agreement
will not contravene any of the provisions of, or result in a
default under, any agreement, franchise, license, indenture,
mortgage, deed of trust, or other instrument known to such
counsel, of the Company or any of its subsidiaries or by which
the property of any of them is bound and which contravention or
default would be material to the Company and its subsidiaries
taken as a whole; or violate any of the provisions of the charter
or bylaws of the Company or any of its subsidiaries or, so far as
is known to such counsel, violate any statute, order, rule or
regulation of any regulatory or governmental body having
jurisdiction over the Company or any of its subsidiaries;
(10) the Company is not an "investment company" or
a person "controlled by" an "investment company" within the
meaning of the Investment Company Act.
In addition, such counsel shall state that, in the
course of their representation of the Company in connection with the
Registration Statement, no facts have come to their attention that
have caused them to believe that either the Registration Statement
(including the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b) and/or
Rule 434, if applicable) or the Prospectus, or the Registration
Statement or the Prospectus as amended or supplemented (except as
aforesaid), as of their respective effective or issue dates, contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus
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<PAGE> 14
as amended or supplemented, if applicable, as of the First Closing
Date or the Second Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state any material
fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made; and such counsel does
not know of any legal or governmental proceedings pending or
threatened required to be described in the Prospectus which are not
described as required, nor of any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement
which are not described or filed, as required.
In rendering such opinion, such counsel may state that
they are relying upon the certificate of State Street Bank & Trust
Company, the transfer agent for the Common Stock, as to the number of
shares of Common Stock at any time or times outstanding, and that
insofar as their opinion relates to the accuracy and completeness of
factual matters contained in the Prospectus and Registration
Statement, it is based upon a general review with the Company's
representatives and independent accountants of the information
contained therein, without independent verification by such counsel of
the accuracy or completeness of such information. Such counsel may
also rely upon the opinions of other competent counsel and, as to
factual matters, on certificates of officers of the Company and of
state officials, in which case their opinion is to state that they are
so doing and copies of said opinions or certificates are to be
attached to the opinion unless said opinions or certificates (or, in
the case of certificates, the information therein) have been furnished
to the Underwriters in other form.
(ii) Such opinion or opinions of Gardner, Carton &
Douglas, counsel for the Underwriters, dated the First Closing Date or
the Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Shares to be sold by
the Company, the Registration Statement and the Prospectus and other
related matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents and shall have exhibited
to them such papers and records as they request for the purpose of
enabling them to pass upon such matters.
(iii) A certificate of the Chairman and the President
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) the representations and warranties of the
Company set forth in Section 2 of this Agreement are true and
correct as of the date of this Agreement and as of the First
Closing Date or the Second Closing Date, as the case may be, and
the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or
prior to such Closing Date; and
(2) the Commission has not issued an order
preventing or suspending the use of the Prospectus or any
preliminary prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued;
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<PAGE> 15
and to the best knowledge of the respective signers, no
proceedings for that purpose have been instituted or are pending
or contemplated under the 1933 Act.
The delivery of the certificate provided for in
this subparagraph shall be and constitute a representation and
warranty of the Company as to the facts required in the immediately
foregoing clauses (1) and (2) of this subparagraph to be set forth in
said certificate.
(iv) At the time the Pricing Agreement is executed
and also on the First Closing Date or the Second Closing Date, as the
case may be, there shall be delivered to you a letter addressed to
you, as the Underwriters, from Ernst & Young L.L.P., independent
accountants, the first one to be dated the date of the Pricing
Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a second closing) to be dated the Second
Closing Date, to the effect set forth in Schedule B. There shall not
have been any change or decrease specified in the letters referred to
in this subparagraph which makes it impractical or inadvisable in the
judgment of the Underwriters to proceed with the public offering or
purchase of the Shares as contemplated hereby.
(v) Such further certificates and documents as you
may reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Gardner, Carton & Douglas, counsel for the Underwriters, which approval shall
not be unreasonably withheld. The Company shall furnish you with such manually
signed or conformed copies of such opinions, certificates, letters and documents
as you request.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification to the Company without liability
on the part of any Underwriter or the Company, except for the expenses to be
paid or reimbursed by the Company pursuant to Sections 6 and 8 hereof and except
to the extent provided in Section 10 hereof.
SECTION 8. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Shares on the First Closing Date is not consummated because
any condition of the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, unless such
failure to satisfy such condition or to comply with any provision hereof is due
to the default or omission of any Underwriter, the Company agrees to reimburse
you upon demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been reasonably incurred by you in
connection with the proposed purchase and the sale of the Shares. Any such
termination shall be without liability of any party to any other party except
that the provisions of this Section, Section 7 and Section 11 shall at all times
be effective and shall apply.
SECTION 9. Effectiveness of Registration Statement. You and the Company
will use your, its and their best efforts to cause the Registration Statement to
become effective, if it has not yet become
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<PAGE> 16
effective, and to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 10. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the 1933 Act or the Exchange Act against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the 1933 Act, the Exchange Act
or other federal or state statutory law or regulation, at common law or
otherwise (including in settlement of any litigation if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the information deemed
to be part of the Registration Statement at the time of effectiveness pursuant
to Rule 430A and/or Rule 434, if applicable, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that (i) any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter, specifically for
use therein; or (ii) if such statement or omission was contained or made in any
preliminary prospectus and corrected in the Prospectus and (1) any such loss,
claim, damage or liability suffered or incurred by any Underwriter (or any
person who controls any Underwriter) resulted from an action, claim or suit by
any person who purchased Shares which are the subject thereof from such
Underwriter in the offering and (2) such Underwriter failed to deliver or
provide a copy of the Prospectus to such person at or prior to the confirmation
of the sale of such Shares in any case where such delivery is required by the
1933 Act. In addition to their other obligations under this Section 10(a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 10(a), it will reimburse the Underwriters on a monthly basis for
all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the 1933 Act or the Exchange Act, against any losses, claims, damages or
liabilities to which the Company, or any such director, officer or controlling
person may become subject under the 1933 Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, the
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<PAGE> 17
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto in reliance upon and in conformity with Section
3 of this Agreement or any other written information furnished to the Company by
such Underwriter specifically for use in the preparation thereof; and will
reimburse any legal or other expenses reasonably incurred by the Company, or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. In addition to
their other obligations under this Section 11(b), the Underwriters agree that,
as an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b),
they will reimburse the Company on a monthly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, or the indemnified and indemnifying parties may have
conflicting interests which would make it inappropriate for the same counsel to
represent both of them, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defense and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defense in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Underwriters in the case of paragraph (a)
representing all indemnified parties not having different or additional defenses
or potential conflicting interest among themselves who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying
-17-
<PAGE> 18
party. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability arising out of such proceeding.
(d) If the indemnification provided for in this Section is unavailable
to an indemnified party under paragraphs (a) or (b) hereof in respect of any
losses, claims, damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Underwriters from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and the
Underwriters shall be deemed to be in the same proportion in the case of the
Company as the total price paid to the Company for the Shares by the
Underwriters (net of underwriting discount but before deducting expenses), and
in the case of the Underwriters as the underwriting discount received by them
bears to the total of such amounts paid to the Company and received by the
Underwriters as underwriting discount in each case as contemplated by the
Prospectus. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section, no Underwriter shall be required
to contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section are several in proportion to their respective underwriting commitments
and not joint.
(e) The provisions of this Section shall survive any termination of this
Agreement.
Section 11. Default of Underwriters. It shall be a condition to the
agreement and obligation of the Company to sell and deliver the Shares
hereunder, and of each Underwriter to purchase the Shares hereunder, that,
except as hereinafter in this paragraph provided, each of the Underwriters shall
purchase and pay for all Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Underwriters of all such Shares in accordance with
the terms hereof. If any Underwriter or
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<PAGE> 19
Underwriters default in their obligations to purchase Shares hereunder on the
First Closing Date and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10
percent of the total number of Shares which the Underwriters are obligated to
purchase on the First Closing Date, the Underwriters may make arrangements
satisfactory to the Company for the purchase of such Shares by other persons,
including any of the Underwriters, but if no such arrangements are made by such
date the nondefaulting Underwriters shall be obligated severally, in proportion
to their respective commitments hereunder, to purchase the Shares which such
defaulting Underwriters agreed but failed to purchase on such date. If any
Underwriter or Underwriters so default and the aggregate number of Shares with
respect to which such default or defaults occur is more than the above
percentage and arrangements satisfactory to the Underwriters and the Company for
the purchase of such Shares by other persons are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter or the Company, except for the expenses to be paid by
the Company pursuant to Section 6 hereof and except to the extent provided in
Section 10 hereof.
In the event that Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Underwriters or the Company shall have the right to postpone the First Closing
Date for not more than seven business days in order that the necessary changes
in the Registration Statement, Prospectus and any other documents, as well as
any other arrangements, may be effected. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
SECTION 12. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 10 and 13 and as to all other provisions at
10:00 A.M., Chicago Time, on the day following the date upon which the Pricing
Agreement is executed and delivered, unless such a day is a Saturday, Sunday or
holiday (and in that event this Agreement shall become effective at such hour on
the business day next succeeding such Saturday, Sunday or holiday); but this
Agreement shall nevertheless become effective at such earlier time after the
Pricing Agreement is executed and delivered as you may determine on and by
notice to the Company or by release of any Shares for sale to the public. For
the purposes of this Section, the Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Shares or upon the release by you of telegrams (i) advising
Underwriters that the Shares are released for public offering, or (ii) offering
the Shares for sale to securities dealers, whichever may occur first.
SECTION 13. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you or by you by notice to the Company at any time prior to the time
this Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company to
any Underwriter (except for the expenses to be paid or reimbursed pursuant
to Section 6 hereof and except to the extent provided in Section 10 hereof)
or of any Underwriter to the Company.
(b) This Agreement may also be terminated by you prior to the
First Closing Date, and the option referred to in Section 4, if exercised,
may be cancelled at any time prior to the Second Closing Date, if (i)
trading in securities on the New York Stock Exchange shall have
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<PAGE> 20
been suspended or minimum prices shall have been established on such
exchange, or (ii) a banking moratorium shall have been declared by
Illinois, New York, or United States authorities, or (iii) there shall have
been any change in financial markets or in political, economic or financial
conditions which, in the opinions of the Underwriters, either renders it
impracticable or inadvisable to proceed with the offering and sale of the
Shares on the terms set forth in the Prospectus or materially and adversely
affects the market for the Shares, or (iv) there shall have been an
outbreak of major armed hostilities between the United States and any
foreign power which in the opinion of the Underwriters makes it impractical
or inadvisable to offer or sell the Shares. Any termination pursuant to
this paragraph (b) shall be without liability on the part of any
Underwriter to the Company or on the part of the Company to any Underwriter
(except for expenses to be paid or reimbursed pursuant to Section 6 hereof
and except to the extent provided in Section 10 hereof).
SECTION 14. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder.
SECTION 15. Notices. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o William Blair & Company, L.L.C., 222 W. Adams Street,
Chicago, Illinois 60606, with a copy to Gardner, Carton & Douglas, 321 North
Clark Street, Suite 3400, Chicago, Illinois 60610-4795 (Attention: Glenn W.
Reed); and if sent to the Company will be mailed, delivered or telegraphed and
confirmed to the Company at its corporate headquarters with a copy to Bingham,
Dana & Gould LLP, 150 Federal Street, Boston, MA 02110 (Attention: Richard M.
Harter).
SECTION 16. Successors. This Agreement and the Pricing Agreement will inure
to the benefit of and be binding upon the parties hereto and their respective
successors, personal representatives and assigns, and to the benefit of the
officers and directors and controlling persons referred to in Section 10, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 17. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 18. Applicable Law. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois.
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<PAGE> 21
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters
including you, all in accordance with its terms.
Very truly yours,
CONCORD EFS, INC.
By:_______________________________
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
By: WILLIAM BLAIR & COMPANY, L.L.C.
By__________________________________
Principal
-21-
<PAGE> 22
<TABLE>
SCHEDULE A
<CAPTION>
Number of Firm
Shares to be
Underwriter Purchased
- ----------- ---------
<S> <C>
William Blair & Company, L.L.C.
Montgomery Securities
Morgan, Keegan & Company, Inc.
Adams, Harkness & Hill, Inc.
---------
TOTAL 3,000,000
=========
</TABLE>
-22-
<PAGE> 23
SCHEDULE B
Comfort Letter of Ernst & Young LLP
(1) They are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the 1933 Act.
(2) In their opinion the consolidated financial statements of the
Company and its subsidiaries included or incorporated by reference in the
Registration Statement and the consolidated financial statements of the Company
from which the information presented under the caption "Selected Consolidated
Financial Data" has been derived which are stated therein to have been examined
by them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the Exchange Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to December 31,
1995, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiaries since December 31, 1995, a reading of the latest
available interim unaudited consolidated financial statements of the Company and
its subsidiaries (with an indication of the date thereof) and other procedures
as specified in such letter, nothing came to their attention which caused them
to believe that (i) the unaudited consolidated financial statements of the
Company and its subsidiaries included or incorporated by reference in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the Exchange Act or
that such unaudited financial statements are not fairly presented in accordance
with generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement, and (ii) at a specified date not more than five days
prior to the date thereof in the case of the first letter and not more than two
business days prior to the date thereof in the case of the second and third
letters, there was any change in the capital stock or long-term debt or
short-term debt (other than normal payments) of the Company and its subsidiaries
on a consolidated basis or any decrease in consolidated net current assets or
consolidated stockholders' equity as compared with amounts shown on the latest
unaudited balance sheet of the Company included in the Registration Statement or
for the period from the date of such balance sheet to a date not more than five
days prior to the date thereof in the case of the first letter and not more than
two business days prior to the date thereof in the case of the second and third
letters, there were any decreases, as compared with the corresponding period of
the prior year, in consolidated net sales, consolidated income before income
taxes or in the total or per share amounts of consolidated net income except, in
all instances, for changes or decreases which the Prospectus discloses have
occurred or may occur or which are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed
to by the Underwriters, with respect to certain information in the Prospectus
specified by the Underwriters, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records of
the Company and its subsidiaries.
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<PAGE> 24
EXHIBIT A
CONCORD EFS, INC.
3,000,000 Shares Common Stock*
PRICING AGREEMENT
______________, 1996
WILLIAM BLAIR & COMPANY, L.L.C.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
c/o William Blair & Company
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated ___________,
1996 (the "Underwriting Agreement") relating to the sale by the Company and the
purchase by the Underwriters of the above Shares. All terms herein shall have
the definitions contained in the Underwriting Agreement except as otherwise
defined herein.
Pursuant to Section 4 of the Underwriting Agreement, the Company
agrees with the Underwriters as follows:
1. The initial public offering price per share for the Shares shall be
$__________.
2. The purchase price per share for the Shares to be paid by the
several Underwriters shall be $_____________, being an amount equal to the
initial public offering price set forth above less $____________ per share.
Schedule A is amended as follows:
- --------
* Plus an option to acquire up to 450,000 additional shares to cover
overallotments
-24-
<PAGE> 25
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
CONCORD EFS, INC.
By________________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
MONTGOMERY SECURITIES
MORGAN KEEGAN & COMPANY, INC.
ADAMS, HARKNESS & HILL, INC.
By: WILLIAM BLAIR & COMPANY, L.L.C.
By ________________________________
Principal
-25-
<PAGE> 1
Exhibit 5
LETTERHEAD OF BINGHAM, DANA & GOULD LLP
October 17, 1996
Concord EFS, Inc.
2525 Horizon Lake Drive, Suite 120
Memphis, TN 38133
Dear Ladies and Gentlemen:
We have acted as counsel for Concord EFS, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of 3,450,000 shares (including
450,000 shares reserved to cover over-allotments, if any) of the Company's
Common Stock, par value $0.33 1/3 per share (the "Shares"), pursuant to a
Registration Statement on Form S-3, File No. 333-13309 (as amended, the
Registration Statement"), initially filed with the Securities Exchange
Commission on October 2, 1996.
As such counsel, we have reviewed the corporate proceedings of the
Company with respect to the authorization of the issuance of the Shares. We
have also examined and relied upon originals or copies, certified or otherwise
identified or authenticated to our satisfaction, of such corporate records,
instruments, agreements or other documents of the Company, and certificates of
officers of the Company as to certain factual matters, and have made such
investigation of law and have discussed with officers and representatives of
the Company such questions of fact, as we have deemed necessary or appropriate
as a basis for the opinions hereinafter expressed. In our examination, we have
assumed the genuineness of all signatures, the conformity to the originals of
all documents reviewed by us as copies, the authenticity and completeness of
all original documents reviewed by us in original or copy form and the legal
competence of each individual executing any document.
We have also assumed that an Underwriting Agreement, dated October __,
1996 substantially in the form of Exhibit 1.1 to the Registration Statement,
between the Company and William Blair & Company L.L.C., Montgomery Securities,
Morgan Keegan & Company, Inc., and Adams,
<PAGE> 2
Concord EFS, Inc.
October 17, 1996
Page 2
Harkness & Hill, Inc. (the "Underwriting Agreement"), will have been duly
executed and delivered pursuant to the authorizing resolutions of the Board of
Directors of the Company and that the Shares will be sold and transferred only
upon the payment therefor as provided in the Underwriting Agreement. We have
further assumed that the registration requirements of the Act and all applicable
requirements of state laws regulating the sale of securities will have been duly
satisfied.
This opinion is limited solely to the Delaware General Corporation Law
as applied by courts located in Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. The issuance and sale of the Shares as contemplated in the
Registration Statement have been duly authorized by the Company.
2. The Shares, when issued, sold, delivered and paid for in accordance
with the provisions of the Underwriting Agreement, will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
BINGHAM, DANA & GOULD LLP
<PAGE> 1
EXHIBIT 23.2
CONCORD EFS, INC.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" in Amendment No. 1 to the Registration Statement
(Form S-3, No 333-13309) and related Prospectus of Concord EFS, Inc. for the
registration of 3,000,000 shares of its common stock and to the incorporation by
reference therein of our report dated January 26, 1996, with respect to the
consolidated financial statements of Concord EFS, Inc. incorporated by reference
in its Annual Report (Form 10-K) for the year ended December 31, 1995, and the
related financial statement schedule included therein, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Memphis, Tennessee
October 17, 1996
