EXHIBIT 99.1
THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE THE SOLICITATION OF THE SALE OF, OR
AN OFFER TO SELL, OR A SOLICITATION OF THE PURCHASE OF, OR AN OFFER TO PURCHASE,
ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY
NOT LAWFULLY BE MADE.
PRIVATE OFFERING MEMORANDUM
ebank Financial Services, Inc., which we refer to in this Exchange Offer as
"we," "us," or the company, hereby offers, upon the terms and subject to the
conditions set forth in this Offering Memorandum and in the accompanying Letter
of Transmittal (the "Exchange Offer"), to exchange any and all of our issued and
outstanding 8% Series A Convertible Preferred Stock, $0.01 par value ("Series A
Preferred"), together with the warrants to purchase shares of our Common Stock
issued in connection with the issuance of the Series A Preferred (the "Original
Warrants"), for shares of our Common Stock, $0.01 par value ("Common Stock") and
new warrants to purchase shares of our Common Stock with a lower exercise price
of $1.75 per share (the "New Warrants"). In accordance with the existing
conversion ratio under the terms of the Series A Preferred, the exchange ratio
will be one share of Common Stock for one share of Series A Preferred. With
respect to the Original Warrants, we will issue to you in the exchange New
Warrants to purchase the same number of shares of Common Stock, but with an
exercise price of $1.75 per share of Common Stock, a new term of three years
from the effective date of the exchange, and having the additional terms
described herein under the heading "The Exchange Offer- What are the principal
differences between the Original Warrants and the New Warrants?" We will also
issue shares of Common Stock in satisfaction of any unpaid dividends accrued
through May 31, 2003 on the Series A Preferred to any holder tendering shares of
Series A Preferred and Original Warrants. This Exchange Offer is being conducted
as a private placement primarily to qualified accredited investors. The overall
effect of the Exchange Offer is that we are asking you to exercise the existing
conversion feature of all of your Series A Preferred shares now, in response to
this offer, and if you agree to do so, we also will exchange your Original
Warrants for New Warrants having a lower exercise price and the additional terms
as described herein.
The Exchange Offer is not conditioned upon a minimum number of Series A
Preferred and Original Warrants being tendered. However, in order to
participate in the Exchange Offer you must tender/convert all of your shares of
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Series A Preferred, and in connection therewith we will exchange all of your
Original Warrants for New Warrants. In addition, the Exchange Offer is subject
to conditions that we describe under the caption "The Exchange Offer-Are there
any conditions to the Exchange Offer?"
The Exchange Offer will expire at 5:00 p.m., Atlanta, Georgia time, on Friday,
June 13, 2003 (the "Expiration Date"), unless we extend or withdraw the Exchange
Offer. We will transmit shares of Common Stock and New Warrants to holders
participating in the Exchange Offer promptly after the Expiration Date.
As of May 12, 2003, there are 2,410,000 issued and outstanding shares of Series
A Preferred and 1,215,000 shares of Common Stock available for purchase under
the Original Warrants. There is no established trading market for either the
Series A Preferred or the Original Warrants. Our Common Stock, into which the
Series A Preferred shares are convertible and for which the Original Warrants
are exercisable, is quoted on the OTC Bulletin Board under the symbol "EBDC." On
May 12, 2003, the most recent practicable date prior to publication of this
Offering Memorandum, the last reported sale price of our Common Stock was $1.55
per share, the closing bid price was $1.50 per share and the number of shares of
Common Stock outstanding was 2,060,639.
Pursuant to Rule 13e-4 of the General Rules and Regulations under the Exchange
Act of 1934, as amended (the "Exchange Act"), we have filed with the Securities
and Exchange Commission (the "SEC") a Schedule TO, which contains additional
information with respect to the Exchange Offer. Our Schedule TO, including
exhibits and any amendments, may be examined, and copies may be obtained, at the
places and in the manner set forth in the section of this Offering Memorandum
entitled "Where You Can Find Additional Information."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THESE SECURITIES (I) ARE NOT BANK ACCOUNTS OR DEPOSITS; (II) ARE NOT FEDERALLY
INSURED BY THE FDIC; AND (III) ARE NOT INSURED BY ANY OTHER STATE OR FEDERAL
AGENCY.
THE DATE OF THIS OFFERING MEMORANDUM IS MAY 15, 2003.
IMPORTANT INFORMATION
---------------------
No dealer, salesperson or other person has been authorized by us to give any
information or to make any representations not contained in this Offering
Memorandum and the related Letter of Transmittal, in connection with the
solicitation and the offering made by this Offering Memorandum. If given or
made, such information or representations should not be relied upon as having
been authorized by us.
We are making this Exchange Offer primarily to accredited investors through this
private placement memorandum pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act of 1933 (the "Securities Act")
and Rule 506 promulgated under the Securities Act.
The securities offered pursuant to this Exchange Offer, like the shares of
Series A Preferred Stock and Original Warrants which are the subject of the
Exchange Offer, will be subject to restrictions on transferability and resale,
and they may not be transferred or resold except as permitted under the
Securities Act and applicable state securities laws, pursuant to registration or
exemption therefrom. All investors will be required to undertake, pursuant to
the Letter of Transmittal, that they will not resell the securities except
pursuant to an effective registration statement or an exemption from
registration under the Securities Act. Certificates for the securities will bear
a legend to that effect. Any such sales must also comply with any applicable
state securities law requirements. Investors should be aware that they will be
required to bear the financial risks of an investment in the securities offered
pursuant to the Exchange Offer for an indefinite period of time.
This Offering Memorandum incorporates important business and financial
information about us that is not included or delivered with this document. This
information is available without charge to holders of Series A Preferred and
Original Warrants upon written or oral request made to us. Such requests should
be delivered to the attention of our Chief Financial Officer at our principal
executive offices, 0000 Xxxxx Xxxxx Xxxx, Xxxxx 000, Xxxxxxx Xxxxxxx 00000. Our
telephone number is (000) 000-0000. In order to obtain timely delivery of any
such information, you must request it no later than five business days prior to
the Expiration Date of the Exchange Offer. See also the section entitled "Where
You Can Find Additional Information."
Our Board of Directors has approved the Exchange Offer. However, neither we nor
our Board of Directors makes any recommendation to you as to whether to tender
or refrain from tendering Series A Preferred and Original Warrants, and none of
us have authorized any person to make such a recommendation. We have no
agreements, written or oral, with any of our directors, officers or affiliates
with respect to them participating in the Exchange Offer. If such persons elect
to participate in the Exchange Offer, they will do so on the same terms as are
available to all other holders of Series A Preferred and Original Warrants. Our
directors who own Series A Preferred and Original Warrants have indicated to us
that they had not yet decided whether or not to tender their Series A Preferred
and Original Warrants. For additional information, see the section of this
Offering Memorandum entitled "What is the position of the company's directors
concerning the Exchange Offer?" You are advised to evaluate carefully all
information in the Exchange Offer, consult with your own investment and tax
advisors and make your own decision as to whether to tender all or none of your
Series A Preferred and Original Warrants.
Recipients of this Exchange Offer are not to construe the contents of this
Offering Memorandum, or of any prior or subsequent communications from us or any
of our employees, agents, or affiliates, as investment, legal, or tax advice.
Each investor should consult its own counsel, accountant, and other professional
advisors about legal, tax, and other related matters concerning its
participation in the Exchange Offer.
The delivery of this Offering Memorandum will not, under any circumstances,
create any implication that there has been no change in our affairs since the
date of this Offering Memorandum or that the information in this Offering
Memorandum is correct as of any subsequent date.
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TABLE OF CONTENTS
SUMMARY OF THE EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PURPOSE OF THE EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE EXCHANGE OFFER
What is the Exchange Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
How do I participate in the Exchange Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
What is the guaranteed delivery procedure?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
What is the position of the company's directors concerning the Exchange Offer?. . . . . . . . . . . 8
Why do I need to complete the Investor Questionnaire? . . . . . . . . . . . . . . . . . . . . . . . 8
Will the shares of Common Stock and the New Warrants be freely transferable?. . . . . . . . . . . . 9
What are the principal differences between Series A Preferred and Common Stock? . . . . . . . . . . 9
What are the principal differences between the Original Warrants and the New Warrants?. . . . . . . 10
How long will the Exchange Offer be open, and can it be amended or withdrawn by us? . . . . . . . . 10
Are there any conditions to the Exchange Offer? . . . . . . . . . . . . . . . . . . . . . . . . . . 11
What if I do not exchange my Series A Preferred shares and Original Warrants for Common Stock
and a New Warrant?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Will I pay brokerage commissions in the Exchange Offer? . . . . . . . . . . . . . . . . . . . . . . 13
When will Series A Preferred shares and Original Warrants be accepted for exchange, and when will
shares of Common Stock and New Warrant agreements be delivered? . . . . . . . . . . . . . . . . . . 13
What are my rights to withdraw my tender of Series A Preferred shares and Original Warrants?. . . . 14
How will the Company account for the Exchange Offer, and if it is consummated, the transaction with
the New Investor? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Who is the Exchange Agent?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Will the Company pay soliciting fees or reimburse any expenses in the Exchange Offer? . . . . . . . 15
What are the Company's expected expenses of the Exchange Offer? . . . . . . . . . . . . . . . . . . 15
PRICE RANGES OF SERIES A PREFERRED SHARES, ORIGINAL WARRANTS AND COMMON
STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
HISTORICAL FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
UNAUDITED HISTORICAL AND PRO FORMA CONDENSED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . 17
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
INFORMATION CONCERNING OUR DIRECTORS AND EXECUTIVE OFFICERS AND
CERTAIN BENEFICIAL OWNERS OF OUR SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TRANSACTIONS AND ARRANGEMENTS CONCERNING OUR SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . 25
LEGAL MATTERS; REGULATORY APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CERTAIN ADDITIONAL INFORMATION ABOUT US. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
WHERE YOU CAN FIND ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SUMMARY OF THE EXCHANGE OFFER
We are providing this summary of the Exchange Offer for your convenience. It
highlights the information in this Offering Memorandum and the accompanying
Letter of Transmittal, but you should realize that it does not describe all of
the details of the Exchange Offer. We urge you to read the entire Offering
Memorandum and the accompanying Letter of Transmittal because they contain the
full details of the Exchange Offer. We have included references to the sections
of the Offering Memorandum where a more complete discussion is set forth.
The Exchange Offer
--------------------
We are offering to exchange one new share of our Common Stock for each share of
our presently issued and outstanding Series A Preferred and, in connection
therewith, to exchange New Warrants for the Original Warrants issued in
connection with the purchase of Series A Preferred, with such New Warrants
covering the same number of shares as the Original Warrants having an exercise
price of $1.75 per share, having a new term of three years from the effective
date of the exchange (subject to earlier expiration if the closing market price
for our Common Stock equals or exceeds $5.00 per share for 20 consecutive
trading days) and having the additional terms described herein under the heading
"The Exchange Offer - What are the principal differences between the Original
Warrants and the New Warrants?". We will issue shares of Common Stock in
satisfaction of unpaid dividends accrued on the Series A Preferred through May
31, 2003 to any holder tendering shares of Series A Preferred and Original
Warrants. To participate in the Exchange Offer, a holder of Series A Preferred
and Original Warrants must validly tender ALL (and not less than all) of both of
the shares of Series A Preferred and Original Warrants held by him or her to
Xxxxxxxxx, Xxxxxx & Company (the "Exchange Agent") by the Expiration Date. See,
"The Exchange Offer - What is the Exchange Offer?"
Expiration Date
----------------
The Exchange Offer will expire at 5:00 p.m., Atlanta, Georgia time, on June 13,
2003, unless extended or earlier terminated by us. If we extend the Expiration
Date, the Expiration Date will be the time and date to which the Exchange Offer
has been extended. See, "The Exchange Offer - How long will the Exchange Offer
be open, and can it be amended or withdrawn by us?"
Purpose of the Exchange Offer
---------------------------------
The purpose of the Exchange Offer is to procure the conversion into Common Stock
all of the issued and outstanding shares of Series A Preferred in order to
reduce or eliminate the fixed dividend burden imposed by the shares of Series A
Preferred. We believe this Exchange Offer, if successful, will likely be
accretive to our earnings per share of Common Stock and will simplify our
capital structure, thereby enhancing our ability to raise additional capital
through future offerings. Following the planned filing of a resale registration
statement under registration rights granted in conjunction with the issuance of
Series A Preferred shares, we also believe that the issuance of Common Stock
pursuant to the Exchange Offer will likely improve the liquidity of trading in
our Common Stock in the over-the-counter market, which also may enhance our
ability to raise additional capital. See, "Purpose of the Exchange Offer."
Conditions to the Exchange Offer
------------------------------------
We will not be required to accept for exchange, or issue Common Stock and New
Warrants in exchange for, any Series A Preferred and Original Warrants tendered.
We may terminate or amend the Exchange Offer as provided in this Offering
Memorandum or in the Letter of Transmittal, or may postpone (subject to the
requirements of the Exchange Act for prompt exchange or return of the Series A
Preferred and Original Warrants) the acceptance for exchange of, and exchange
of, the Series A Preferred and Original Warrants tendered at any time on or
after the date of this Offering Memorandum and before acceptance for exchange or
exchange of any Series A Preferred and Original Warrants. See "The Exchange
Offer - Are there any conditions to the Exchange Offer?"
1
Procedures for tendering Series A Preferred and Original Warrants
-------------------------------------------------------------------------
To participate in the Exchange Offer, you must validly tender ALL of your shares
of Series A Preferred, together with the accompanying Original Warrants, by
taking two actions. First, you must complete, execute and deliver to our
Exchange Agent the Letter of Transmittal and Investor Questionnaire that
accompany this Offering Memorandum. Second, you must deliver to our Exchange
Agent your original Series A Preferred stock certificate(s) together with the
agreement(s) evidencing all of the Original Warrants which were issued with your
Series A Preferred stock. Series A Preferred stock certificates and Original
Warrant agreements should not be sent directly to us. See "The Exchange Offer -
How do I participate in the Exchange Offer?"
If your shares of Series A Preferred are registered in the name of a broker,
dealer, commercial bank, trust company or nominee, we urge you to contact them
promptly if you wish to participate in the Exchange Offer.
Withdrawals of Tenders
------------------------
You may withdraw shares of Series A Preferred and Original Warrant agreements
you have tendered for exchange at any time before the Expiration Date, after
which your tender will be irrevocable. See "The Exchange Offer - What are my
rights to withdraw my tender of Series A Preferred and Original Warrants?"
Acceptance and Delivery of Common Stock and New Warrants
----------------------------------------------------------------
If you accept our Exchange Offer, we will deliver stock certificates
representing shares of Common Stock and a New Warrant agreement promptly after
the Expiration Date. See, "The Exchange Offer - When will Series A Preferred
shares and Original Warrants be accepted for exchange, and when will shares of
Common Stock and New Warrant agreements be delivered?"
Certain Federal Income Tax Considerations
---------------------------------------------
We urge you to consult your own tax advisors as to the specific tax consequences
of the Exchange Offer. In general, however, we believe that the exchange of
Series A Preferred for Common Stock and the exchange of Original Warrants for
New Warrants will be tax-free to holders for federal income tax purposes.
Holders may, however, be required to recognize taxable gain on account of the
accrued dividends on their exchanged shares of Series A Preferred, which
dividends will be paid through the issuance of additional shares of Common Stock
to the extent accrued through May 31, 2003. See "Certain Federal Income Tax
Considerations."
The Dealer Manager and Exchange Agent
------------------------------------------
Xxxxxxxxx, Xxxxxx & Company will perform the functions of both Dealer Manager
and Exchange Agent for the Exchange Offer. We have engaged the services of
Xxxxxxxxx, Xxxxxx & Company to contact you in order to assure that you are aware
of the terms and conditions of this Exchange Offer and to solicit your
consideration of such terms and conditions. You should direct questions about
the Exchange Offer to Xxxxxxxxx, Xxxxxx & Company, attention Xxx Xxxxx. The
phone number and address of Xxxxxxxxx, Xxxxxx & Company are as follows: 0000
Xxxxxxxxx Xxxx, XX, Xxxxx 0000, Xxxxxxx, XX 00000; Tel: 000.000.0000; and Fax:
000.000.0000.
Soliciting Fees
----------------
We will compensate Xxxxxxxxx, Xxxxxx & Company for soliciting tenders of shares
of Series A Preferred and Original Warrants. We agreed to furnish such
compensation through the amendment of previously issued warrants to purchase a
total of 126,874 shares of our Common Stock. The amended warrants will have an
exercise price of $1.75 per share and a term of three years from the effective
date of the exchange. We will also reimburse Xxxxxxxxx, Xxxxxx & Company for
out-of-pocket expenses incurred in connection with the Exchange Offer. See "The
Exchange Offer - Will the Company pay soliciting fees or reimburse any expenses
in the Exchange Offer?"
2
Additional Information
----------------------
You should refer to the section of this Offering Memorandum entitled "Certain
Additional Information About Us" for a description of certain SEC filings
containing important additional information about us which you should consider
in deciding whether or not to tender securities held by you in response to the
Exchange Offer, copies of which are included in the Annexes to this Offering
Memorandum. You also should refer to the section of this Offering Memorandum
entitled "Where You Can Find Additional Information" for a description of how
you can obtain certain additional information included in the Schedule TO filed
by us with the SEC in connection with the Exchange Offer which is not presented
in this Offering Memorandum.
For a complete description of the rights and preferences of shares of Series A
Preferred, the Original Warrants, the New Warrants and shares of Common Stock,
see the sections of this Offering Memorandum entitled "The Exchange Offer - What
are the principal differences between Series A Preferred and Common Stock?" and
"The Exchange Offer -What are the principal differences between the Original
Warrants and the New Warrants?" You should also refer to the Description of
Capital Stock attached as Annex A hereto and to the form of New Warrant attached
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as Annex B.
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INTRODUCTION
We are offering to exchange one new share of our Common Stock for each share of
our presently issued and outstanding Series A Preferred and, in connection
therewith, to exchange New Warrants having an exercise price of $1.75 per share
to purchase the same number of shares of Common Stock as were subject to each
holder's Original Warrants issued in connection with the purchase of the Series
A Preferred. We will also issue shares of Common Stock in satisfaction of any
unpaid dividends accrued through May 31, 2003 on the Series A Preferred to any
holder tendering shares of Series A Preferred and Original Warrants. To
participate in the Exchange Offer, a holder of Series A Preferred and Original
Warrants must validly tender ALL of his or her shares of Series A Preferred and
Original Warrants, together with the completed Letter of Transmittal and
Investor Questionnaire, to Xxxxxxxxx, Xxxxxx & Company (the "Exchange Agent") by
the Expiration Date.
As of May 12, 2003, there are 2,410,000 issued and outstanding shares of Series
A Preferred and 1,215,000 shares of Common Stock available for purchase under
the Original Warrants. There is no established trading market for either the
Series A Preferred or the Original Warrants. Our Common Stock, into which the
Series A Preferred shares are convertible and for which the Original Warrants
are exercisable, is quoted on the OTC Bulletin Board under the symbol "EBDC." On
May 12, 2003, the most recent practicable date prior to publication of this
Offering Memorandum, the last reported sale price of our Common Stock was $1.55
per share, the closing bid price was $1.50 per share and the number of shares of
Common Stock outstanding was 2,060,639.
As more fully described under "Transactions and Arrangements Concerning Our
Securities," we entered into a stock purchase agreement dated as of February 26,
2003 (the "Stock Purchase Agreement", a copy of which is attached as Annex C
-------
hereto) pursuant to which we agreed, subject to the fulfillment of certain
conditions, to sell an aggregate of 1,200,000 shares of our Common Stock for an
aggregate consideration of $1,080,000 to Xxxxxxxx Investments, L.P., a Georgia
limited partnership in which Xxxxxxx X. Xxxxxxxx, Xx. is the general partner
(the "New Investor"). Pursuant to the Stock Purchase Agreement, we also agreed
(subject to completion of the underlying stock purchase) to grant an option to
the New Investor that would permit the New Investor to maintain ownership of up
to 20% of our issued and outstanding Common Stock, which right expires July 1,
2006, subject to potential extension in conjunction with the term of any new
options, warrants or rights to purchase Common Stock issued by us prior to July
1, 2006. The obligation of the New Investor to complete the purchase of shares
under the Stock Purchase Agreement is conditioned upon, among other things, all
of our outstanding shares of Series A Preferred being retired and cancelled,
unless that condition is waived by the New Investor. Similarly, we are not
obligated to close the transaction contemplated by the Stock Purchase Agreement
if less than 80% of the outstanding shares of Series A Preferred are retired and
cancelled. The closing of the Stock Purchase Agreement may be terminated by
either party if, through no fault of the terminating party, the closing of such
transaction has not occurred on or before June 26, 2003. The closing of the
transaction contemplated by the Stock Purchase Agreement is not a condition to
the closing of the Exchange Offer.
We have determined to undertake the Exchange Offer in order to enhance our
capital structure by eliminating the Series A Preferred dividend and, we
believe, increasing the liquidity of our outstanding Common Stock. We believe
that the completion of the Exchange Offer will provide additional financial
flexibility to enable us to more effectively execute our business and
operational plans in the future. If the transaction contemplated by the Stock
Purchase Agreement is consummated, we believe that the additional liquidity and
working capital which it will provide will similarly enhance our overall capital
structure by providing additional working capital without the mandatory dividend
requirements associated with the Series A Preferred. We cannot assure you that
either of these transactions will be successfully completed.
PURPOSE OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to procure the conversion into Common Stock
of all of the issued and outstanding shares of Series A Preferred, in accordance
with the original one-share-for-one-share conversion ratio associated with such
shares, in order to reduce or eliminate the fixed dividend burden imposed by the
shares of Series A Preferred. The Series A Preferred bear dividends at a rate of
8% per annum, which we have the option of paying either in cash or through the
issuance of additional shares of our Common Stock, and we historically have
elected to pay in shares of Common Stock. The dividend requirement reduces
earnings attributable to our Common Stock, thereby reducing our earnings per
share of Common Stock in any period in which we have reportable
4
earnings. The ongoing payment of these dividends in shares of our Common Stock
also has the effect of reducing the pro rata equity interest in the Company held
by all other owners of Common Stock. The elimination of the Series A Preferred
and its associated dividend requirement would eliminate the dilutive impacts on
our owners of Common Stock associated with those dividends. We believe that the
elimination of the Series A Preferred and its associated dividend requirement
would therefore enhance our ability to raise additional capital to enable us to
more effectively execute our business and operational plans in the future.
Finally, following the planned filing of a resale registration statement under
registration rights granted in conjunction with the issuance of Series A
Preferred shares, we believe the issuance of additional shares of Common Stock
pursuant to the Exchange Offer will likely improve the liquidity of trading in
our Common Stock, which also may enhance our ability to raise additional
capital.
The conversion of 100% of the Series A Preferred is a condition to the New
Investor's obligation to close the transaction contemplated by the Stock
Purchase Agreement. The Exchange Offer may assist us in satisfying this
condition. While we believe that the additional liquidity that would be
provided through completion of the planned transaction with the New Investor
would be beneficial to us, we also believe that shareholders will benefit
significantly from the conversion of all outstanding Series A Preferred to
Common Stock through the Exchange Offer. Accordingly, we intend to complete the
Exchange Offer regardless of whether or not we close the transaction with the
New Investor. Additionally, we intend to accept all shares of Series A
Preferred tendered by holders in response to the Exchange Offer (and to exchange
each such holder's Original Warrants for New Warrants) regardless of the number
of shares tendered (subject to the requirement that each holder must tender ALL
of his or her shares and Original Warrants in order to participate).
All Series A Preferred shares acquired by us pursuant to the Exchange Offer will
be retired and cancelled, restored to the status of authorized but unissued
shares of our preferred stock, and may be issued as part of another series of
our preferred stock in accordance with the our Articles of Incorporation, as
amended.
Subject to Rule 13e-4 under the Exchange Act, which generally prohibits an
offeror from purchasing subject shares other than through the offer for at least
ten business days following the expiration of the offer, we expressly reserve
the right in the future to purchase additional Series A Preferred and Original
Warrants not tendered pursuant to the Exchange Offer. Such purchases may be made
through privately negotiated transactions, tender offers or otherwise. Any such
purchases may be made on the same terms as, or on terms more or less favorable
to holders of Series A Preferred and Original Warrants than, the terms of the
Exchange Offer. Any possible future purchases by us will depend on many factors,
including the results of the Exchange Offer, our business and financial position
and general economic conditions.
Except as disclosed herein or in the our periodic reports filed under the
Exchange Act, or as may occur in the ordinary course of our business, we
currently have no plans or proposals that relate to or would result in:
(i) an extraordinary transaction, such as a merger, reorganization or
liquidation, involving us or our subsidiary;
(ii) a purchase, sale or transfer of a material amount of our assets or
of our subsidiary's assets;
(iii) a material change in our dividend rate or policy, indebtedness or
capitalization;
(iv) a change in our present Board of Directors or management;
(v) a material change in our corporate structure or business;
(vi) a suspension of our obligation to file reports under the Exchange
Act;
(vii) a class of our equity securities ceasing to be authorized to be
quoted on the OTC Bulletin Board;
(viii) a class of our equity securities becoming eligible for
termination of registration under Section 12(g)(4) of the Exchange
Act;
(ix) the acquisition by any person of our securities or the disposition
of our securities; or
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(x) a change in our Articles of Incorporation, as amended, bylaws or
other governing instruments or other action that could impede the
acquisition of control of the company.
THE EXCHANGE OFFER
WHAT IS THE EXCHANGE OFFER?
We are offering to exchange one new share of our Common Stock for each share of
our presently issued and outstanding Series A Preferred and, in connection
therewith, to exchange New Warrants having an exercise price of $1.75 per share
to purchase the same number of shares of Common Stock as were subject to each
holder's Original Warrants issued in connection with the purchase of the Series
A Preferred. We also will issue shares of Common Stock in satisfaction of unpaid
dividends accrued on the Series A Preferred through May 31, 2003 to any holder
tendering shares of Series A Preferred and Original Warrants pursuant to the
Exchange Offer. To participate in the Exchange Offer, a holder of Series A
Preferred and Original Warrants must validly tender ALL (and not less than all)
of the shares of Series A Preferred and Original Warrants held by him or her,
together with the completed Letter of Transmittal and Investor Questionnaire,
attached hereto as Xxxxx X, and Xxxxx X, respectively, to Xxxxxxxxx, Xxxxxx &
------- -------
Company (the "Exchange Agent") by the Expiration Date.
The Exchange Offer is made pursuant to the terms and subject to the conditions
set forth in this Offering Memorandum and the accompanying Letter of
Transmittal. This Offering Memorandum, the Letter of Transmittal and the
Investor Questionnaire are being sent to all persons and entities that, as of
May 12, 2003, were registered holders of our outstanding Series A Preferred and
registered holders of our Original Warrants. Although there is no fixed record
date for determining registered holders of shares of Series A Preferred and the
Original Warrants entitled to participate in the Exchange Offer, only holders of
Series A Preferred and Original Warrants who are the registered holders thereof
(or such person's legal representative or attorney-in-fact) as of such date or
who hold sale and transfer documents with respect to such Series A Preferred and
Original Warrants from the registered holder thereof as of such date (which
documents are satisfactory to us and to the Exchange Agent), may participate in
the Exchange Offer. However, since there is no established trading market for
either the Series A Preferred shares or the Original Warrants, and since all of
such securities are "restricted securities" which originally were issued without
registration pursuant to a private placement exemption and may not be resold
without registration or an available resale exemption, we do not anticipate that
any material issues will arise concerning transfers of such securities between
May 15, 2003 and the Expiration Date.
The Exchange Offer is not conditioned on any minimum number of Series A
Preferred shares and Original Warrants being tendered or upon us obtaining any
other financing (including without limitation, consummation of the planned
transaction with New Investor). The Exchange Offer is, however, subject to other
conditions. See "Are there any conditions to the Exchange Offer?"
To validly tender shares of Series A Preferred and your Original Warrants, you
must (i) complete, execute and deliver to the Exchange Agent the Letter of
Transmittal attached as Annex I to this Offering Memorandum, (ii) complete,
--------
execute and deliver to the Exchange Agent the Investor Questionnaire attached as
Annex K to this Offering Memorandum and (iii) deliver to the Exchange Agent the
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Series A Preferred stock certificates and Original Warrants representing ALL
(and not less than all) of such securities held by you as of the date of such
delivery. If your Series A Preferred is held in nominee name (such as through
your broker), you will need to coordinate your tender through your broker or
other nominee. You will provide instructions to your broker or other nominee and
they will then tender your shares of Series A Preferred to us. We are not
required to accept for exchange any shares of Series A Preferred or Original
Warrants that have not been validly tendered, or that the Exchange Agent has not
received, by the Expiration Date. You will not have statutory appraisal or
dissenters' rights in connection with the Exchange Offer.
Although we have no current plan or intention to do so, we reserve the right in
our sole discretion to purchase or make offers for any shares of Series A
Preferred or any Original Warrants that remain outstanding after the expiration
of the Exchange Offer, subject to the requirements of Rule 13e-4(f)(6) of the
Exchange Act. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
6
HOW DO I PARTICIPATE IN THE EXCHANGE OFFER?
Your acceptance of the Exchange Offer pursuant to the procedure set forth below
will constitute an agreement between you and us in accordance with the terms and
subject to the conditions set forth herein, in the Letter of Transmittal and in
the New Warrant agreements (a form of which is attached as Annex B to this
-------
Offering Memorandum).
To be tendered validly, ALL (and not less than all) of the certificate(s)
representing a holder's Series A Preferred and the agreement(s) representing
such holder's Original Warrants, together with the properly completed Letter of
Transmittal (or facsimile thereof) and Investor Questionnaire (or facsimile
thereof), executed by the registered holder thereof, and any other documents
required by the Letter of Transmittal, must be received by the Exchange Agent at
the address set forth below prior to 5:00 p.m., Atlanta, Georgia time, on the
Expiration Date.
Alternatively, if time does not permit you to provide the Exchange Agent with a
Letter of Transmittal or other required documents prior to 5:00 p.m., Atlanta,
Georgia time, on the Expiration Date, or if certificate(s) representing your
Series A Preferred shares and/or Original Warrant agreement(s) are not available
for delivery prior to such time to the Exchange Agent, you may comply with the
guaranteed delivery procedure set forth below.
The method of delivery of Series A Preferred certificate(s), Original Warrant
agreement(s) and other documents to the Exchange Agent is at the election and
risk of the holder, but if such delivery is by mail, we strongly suggest that
the mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent before the Expiration Date.
If the Letter of Transmittal is signed by a person other than a registered
holder of any certificate(s) representing Series A Preferred shares listed
thereon, such certificate(s) must be endorsed or accompanied by appropriate
stock powers or other instruments of transfer satisfactory to us and to the
Exchange Agent, in each case signed exactly as the name or names of the
registered holder or holders appear on such Series A Preferred shares.
If the Letter of Transmittal or the guaranteed delivery form or any
certificate(s) representing Series A Preferred shares or any stock powers or
other transfer instruments are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by us, proper evidence satisfactory to us of their
authority to so act must be submitted to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of tendered Series A Preferred shares and Original
Warrants will be resolved by us, and our determination will be final and
binding. We reserve the absolute right to reject any or all tenders that are not
in proper form or the acceptance of which would, in the opinion of our counsel,
be unlawful or violate any applicable regulations, including any applicable
requirements of federal or state securities laws. We also reserve the right to
waive any irregularities of tender as to particular shares of Series A Preferred
or Original Warrant agreements. Our interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding. Unless waived by us, any irregularities in connection
with tenders must be cured prior to the Expiration Date. Neither we, the
Exchange Agent, nor any other person will be under any duty to give notification
of any defects or irregularities in such tenders or incur any liability for
failure to give such notification. Tenders of Series A Preferred and Original
Warrants will not be deemed to have been made until such irregularities have
been cured or waived. Any Series A Preferred or Original Warrants received by
the Exchange Agent that are not properly tendered, and as to which the
irregularities have not been cured or waived, will be returned by the Exchange
Agent to the tendering holder, unless otherwise provided in the Letter of
Transmittal, promptly following the Expiration Date.
If your Series A Preferred shares or Original Warrants are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender Series A Preferred and Original Warrants in the Exchange
Offer, you should contact such registered holder promptly and instruct such
registered holder to tender on your behalf. If you wish to tender directly, you
must, prior to completing and executing the Letter of Transmittal and tendering
Series A Preferred and Original Warrants, make appropriate arrangements to
register ownership of the
7
Series A Preferred and Original Warrants in your own name. You should be aware
that the transfer of registered ownership may take considerable time. You should
refer to the section of this Offering Memorandum entitled "Legal Matters"
Regulatory Approval" for information concerning certain banking regulatory
requirements that you may have to satisfy if your participation in the Exchange
Offer could cause you to become a beneficial owner of more than 10% of our
Common Stock.
WHAT IS THE GUARANTEED DELIVERY PROCEDURE?
If you desire to tender your Series A Preferred and Original Warrants and
certificates representing such Series A Preferred shares or the Original Warrant
agreements are not immediately available, or time will not permit your
certificates or any other required documents to reach the Exchange Agent before
5:00 p.m., Atlanta, Georgia time, on the Expiration Date, a tender may be
validly effected if:
(a) The tender is made by or through a firm that is a member of a
registered national securities exchange or a member of the National Association
of Securities Dealers (the "NASD"), a commercial bank or trust company having an
office or correspondent in the United States or that is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions");
(b) Prior to 5:00 p.m., Atlanta, Georgia time, on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed and
duly executed guaranteed delivery form (by facsimile transmission, mail or hand
delivery), setting forth your name and address and the number of Series A
Preferred shares and Original Warrants tendered, stating that the tender is
being made thereby and guaranteeing that, within five business days after the
Expiration Date, the certificate(s) representing such Series A Preferred shares
and agreement(s) representing such Original Warrants, accompanied by a properly
completed and duly executed Letter of Transmittal and Investor Questionnaire and
all other documents required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) The certificate(s) for all tendered Series A Preferred shares and
agreement(s) representing Original Warrants, as well as a properly completed and
duly executed Letter of Transmittal and Investor Questionnaire and all other
documents required by the Letter of Transmittal, are received by the Exchange
Agent within five business days after the Expiration Date.
WHAT IS THE POSITION OF THE COMPANY'S DIRECTORS CONCERNING THE EXCHANGE OFFER?
Our Board of Directors, including a majority of those directors who do not hold
any shares of Series A Preferred or Original Warrants, has approved the Exchange
Offer. However, neither we nor our Board of Directors makes any recommendation
to you as to whether to tender or refrain from tendering Series A Preferred and
Original Warrants, and none of us have authorized any person to make such a
recommendation. We have no agreements, written or oral, with any of our
directors, officers or affiliates with respect to them participating in the
Exchange Offer. If such persons elect to participate in the Exchange Offer, they
will do so on the same terms as are available to all other holders of Series A
Preferred and Original Warrants. Our directors who own Series A Preferred and
Original Warrants have indicated to us that they had not yet decided whether or
not to tender their Series A Preferred and Original Warrants. Instead, such
directors will base their respective decisions on their personal assessment of
the market, economic or business conditions and other personal factors. You are
advised to evaluate carefully all information in the Exchange Offer, consult
with your own investment and tax advisors and make your own decision as to
whether to tender all or none of your Series A Preferred shares and Original
Warrants.
WHY DO I NEED TO COMPLETE THE INVESTOR QUESTIONNAIRE?
We anticipate that the issuance of shares of Common Stock and New Warrants upon
exchange of Series A Preferred shares and Original Warrants pursuant to the
Exchange Offer will be made pursuant to Section 4(2) of the Securities Act and
Rule 506 of SEC Regulation D and, therefore, will be exempt from registration
under the Securities Act. In order to ensure compliance with the statutory and
regulatory qualifications for this exemption, we must, among other things,
ensure that no more that 35 investors who do not qualify as "accredited
investors" as defined by Rule 501 of Regulation D are participants in the
Exchange Offer. We also must take steps to ensure that each Exchange Offer
participant who is not an accredited investor, either alone or with his or her
purchaser representative(s), has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks of
tendering securities and participating in the Exchange Offer. We need the
information which we are asking you to provide through the Investor
Questionnaires attached as Annex K hereto (one form for individual
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8
investors and another to be completed by investors who are legal entities rather
than natural persons), in order to comply with these requirements of the Rule
506 private offering exemption. Accordingly, we are requiring every holder of
Series A Preferred shares and Original Warrants who wishes to participate in the
Exchange Offer to return a duly executed Investor Questionnaire along with a
completed Letter of Transmittal and tender of the subject securities as a
condition to such participation.
WILL THE SHARES OF COMMON STOCK AND THE NEW WARRANTS BE FREELY TRANSFERABLE?
As stated above, we anticipate that the issuance of shares of Common Stock and
New Warrants upon exchange of Series A Preferred shares and Original Warrants
pursuant to the Exchange Offer will be made pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D and, therefore, will be exempt from
registration under the Securities Act. As a result, these securities will be
subject to restrictions on transferability and resale, and they may not be
transferred or resold except pursuant to an effective registration or as
permitted pursuant to an available exemption under the Securities Act and
applicable state securities laws. However, the registration rights we granted
in each of the previous private offerings of "capital units" consisting of
shares of the Series A Preferred and Original Warrants will apply to these
securities and will assist you in selling shares of Common Stock we will issue
in exchange for the Series A Preferred shares, as well as the Common Stock
underlying the New Warrants. Pursuant to the terms of your existing registration
rights agreements, we will file a shelf registration statement covering the
resale by you of such shares of Common Stock. We intend to file such shelf
registration statement with the SEC as soon as practicable after the close of
the Exchange Offer. Please see "Transactions and Arrangements Concerning Our
Securities" for a more detailed description of the registration rights
agreements.
WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN SERIES A PREFERRED AND COMMON STOCK?
The principal differences between Series A Preferred stock and Common Stock are:
Voting. Holders of Series A Preferred stock do not have any voting rights
except to the extent required by law. Holders of Common Stock are entitled to
one vote per share on all matters on which shareholders of the company are
entitled to vote, including election of directors.
Dividends. Series A Preferred stock has cumulative dividends at a rate of
8% per share per year, payable in cash or in additional shares of Common Stock,
at our option. Your right to receive dividends on the Series A Preferred is
senior to the rights of holders of our Common Stock to receive any dividends we
may declare from time to time on such Common Stock. Subject to the preference
rights of the holders of any outstanding shares of preferred stock, holders of
Common Stock are entitled to receive ratably the dividends and other
distributions, if any, as our board of directors may declare out of funds
legally available for that purpose.
Conversion. Each share of Series A Preferred stock is convertible into one
share of Common Stock at any time at the option of the holder. In addition, we
may require such conversion of the Series A Preferred when the closing price of
our Common Stock equals or exceeds $10.00 per share for 15 consecutive trading
days. Common Stock is not convertible into any other security.
Liquidation. In the event of any liquidation of the company, the holders
of Series A Preferred shares will be entitled to receive an amount equal to the
original issue price of the Series A Preferred plus all accrued but unpaid
dividends on the Series A Preferred through the date of such event, prior to any
payments being made to the holders of our Common Stock. In the event of any
liquidation of the company, holders of Common Stock will be entitled to share
equally and ratably in our assets, if any, remaining after the payment of all
our debts and liabilities and satisfaction of the liquidation preference
(including any accrued but unpaid dividends) of any outstanding preferred stock.
For a more complete description of the terms of the Common Stock and the Series
A Preferred Stock, please refer to the company's "Description of Capital Stock"
attached as Annex A to this Offering Memorandum.
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9
WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN THE ORIGINAL WARRANTS AND THE NEW
WARRANTS?
We previously issued all of the Series A Preferred shares and Original Warrants
in three private offerings that closed between June 5, 2001 and January 28,
2002. In the private offering that closed on June 5, 2001, we issued Original
Warrants to purchase an aggregate of 1,000,000 shares of our Common Stock. The
warrants issued in that private offering are immediately exercisable for $3.50
per share and will terminate on the earlier of five years from their date of
issuance or 30 days after we notify the holder that the closing price of our
Common Stock has equaled or exceeded $5.00 per share for 20 consecutive trading
days. In the two subsequent private offerings that closed on June 26, 2001 and
January 28, 2002, respectively, we issued Original Warrants to purchase an
aggregate of 195,000 and 20,000 shares of our Common Stock, respectively. The
warrants issued in each of these private offerings are immediately exercisable
for $4.00 per share and terminate on the earlier of five years from their date
of issuance or 30 days after we notify the holder that the closing price of our
Common Stock has equaled or exceeded $5.50 per share for 20 consecutive trading
days.
The New Warrants will be identical to the Original Warrants, except that the New
Warrants will be immediately exercisable for $1.75 per share and will terminate
on the earlier of three years from the date of issuance or 30 days after we
notify the holder that the closing price of Common Stock has equaled or exceeded
$5.00 per share for 20 consecutive trading days.
For a more complete description of the terms of the Original Warrants and the
New Warrants, please refer to the company's "Description of Capital Stock"
attached as Annex A to this Offering Memorandum and the form of New Warrant
--------
Agreement attached as Annex B.
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HOW LONG WILL THE EXCHANGE OFFER BE OPEN, AND CAN IT BE AMENDED OR WITHDRAWN BY
US?
The Exchange Offer will expire at 5:00 p.m., Atlanta, Georgia time, on Friday,
June 13, 2003 (the "Expiration Date"), subject to extension by us, in which
event the Expiration Date will be the time and date to which the Exchange Offer
has been extended. We will notify Xxxxxxxxx, Xxxxxx & Company, the Exchange
Agent for the Exchange Offer, of any extension by oral or written notice, and
will make a public announcement thereof by press release, in each case prior to
9:00 a.m., Atlanta, Georgia time, on the next business day after the previously
scheduled Expiration Date (or at such earlier date and time as we may
determine).
We reserve the right to:
- delay accepting any Series A Preferred shares and Original Warrants for
exchange or to extend or terminate the Exchange Offer and not accept for
exchange any Series A Preferred shares and Original Warrants by giving oral
or written notice of such delay or termination to the Exchange Agent;
- reject all tendered Series A Preferred shares and Original Warrants and to
explore other solutions if any of the conditions set forth below under the
caption "Are there any conditions to the Exchange Offer?" are not met
(including any Series A Preferred shares and Original Warrants tendered by
an individual or entity which does not qualify as an "accredited investor"
for purposes of the securities laws exemption condition discussed below);
or
- amend the terms of the Exchange Offer in any manner, including altering the
Series A Preferred conversion ratio or otherwise changing the consideration
offered in exchange for the Series A Preferred shares or Original Warrants
in the Exchange Offer (provided that any such changed consideration must be
paid with regard to all Series A Preferred shares and Original Warrants
accepted in the Exchange Offer).
If the Exchange Offer is amended in a manner determined by us to constitute a
material change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of Series A Preferred shares and Original
Warrants of the amendment and, depending upon the significance of the amendment
and the manner of disclosure to the holders of the Series A Preferred and
Original Warrants, we will extend if necessary the Exchange Offer for a period
of time to be determined in accordance with Rules 13e-4(d)(2) and 13e-4(e)(2)
under the Exchange Act. These rules have been interpreted by the SEC as
requiring that the minimum period during which the Exchange Offer must remain
open following an announcement of a material change in the terms of the Exchange
10
Offer or information concerning the Exchange Offer (other than a change in
price, a change in the amount of securities sought, or a change in certain fees)
will depend on the facts and circumstances, including the relative materiality
of such change or information.
If a material change in the Exchange Offer relates to a change in the exchange
ratio, Rule 13e-4(f)(1) requires the Exchange Offer to remain open for a period
of not less than ten business days following the announcement of any such change
if the Exchange Offer would otherwise expire within such ten business-day
period. For purposes of the Exchange Offer, "business day" means any day other
than a Saturday, Sunday or federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Atlanta, Georgia time. The rights reserved by
us in this paragraph are in addition to our rights set forth below under the
caption "Are there any conditions to the Exchange Offer?"
ARE THERE ANY CONDITIONS TO THE EXCHANGE OFFER?
We will not be required to accept for exchange, or issue Common Stock or New
Warrants in exchange for, any Series A Preferred shares and Original Warrants
tendered. We may terminate or amend the Exchange Offer as provided in this
Offering Memorandum or in the Letter of Transmittal, or may postpone (subject to
the requirements of the Exchange Act for prompt exchange or return of the Series
A Preferred shares and the Original Warrants) the acceptance for exchange of,
and exchange of, the Series A Preferred shares and Original Warrants tendered at
any time on or after the date of this Offering Memorandum and before acceptance
for exchange or exchange of any Series A Preferred and Original Warrants.
Securities Laws Exemption Condition
Notwithstanding any other provision of the Exchange Offer, and in addition to
(and not in limitation of) our rights to extend or amend the Exchange Offer, we
will not be required to accept any Series A Preferred shares and Original
Warrants tendered for exchange, and we may terminate or amend the Exchange
Offer, or postpone our acceptance and cancellation of any Series A Preferred
shares and Original Warrants tendered for exchange, in each case, subject to
Rule 13e-4(f)(5) under the Exchange Act, if at any time before the Expiration
Date, we determine that we are unable to rely on the exemption from registration
contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated under the Securities Act, and related registration exemptions under
any other applicable state securities laws, with respect to any such securities.
One of the requirements of this exemption is that no more than 35
"non-accredited" investors participate in the Exchange Offering. A
non-accredited investor is any person or entity that does not meet certain
categories qualifying such person as an "accredited investor" pursuant to the
definition of such term contained in Rule 501 of Regulation D. Categories
qualifying a person or entity as an accredited investor include, without
limitation, any director or executive officer of the company; any natural person
whose individual net worth, or joint net worth with that person's spouse, at the
time of his purchase exceeds $1,000,000; any natural person who had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same income level in the
current year; and any entity in which all of the equity owners are accredited
investors. Although less than 35 non-accredited investors participated in the
previous private offerings of "capital units" consisting of shares of Series A
Preferred shares and Original Warrants, circumstances may have occurred since
that time that have increased the number of non-accredited investors who hold
such securities. Accordingly, we need to verify the present "accredited" or
"non-accredited" status of each holder of Series A Preferred shares who wishes
to participate in the Exchange Offering. In order to do so, we are requiring
(as described above) that the new Investor Questionnaire included as Annex K to
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this Offering Memorandum be completed and returned to the Exchange Agent,
together with the properly completed Letter of Transmittal and other required
materials, as a condition to each holder's participation in this Exchange
Offering.
General Conditions
Notwithstanding any other provision of the Exchange Offer and in addition to
(and not in limitation of) our rights to extend or amend the Exchange Offer, we
will not be required to accept any Series A Preferred shares and Original
Warrants tendered for exchange, and we may terminate or amend the Exchange
Offer, or postpone our acceptance and cancellation of any Series A Preferred
shares and Original Warrants tendered for exchange, in each case, subject
11
to Rule 13e-4(f)(5) under the Exchange Act, if at any time before the Expiration
Date, we determine that any of the following events has occurred and, in our
reasonable judgment, the occurrence of the event makes it inadvisable for us to
proceed with the Exchange Offer or to accept and cancel Series A Preferred
shares and Original Warrants tendered for exchange:
(1) any threatened, instituted or pending action or proceeding by any
government or governmental, regulatory or administrative agency,
authority or tribunal or any other person, domestic or foreign, before
any court, authority, agency or tribunal that directly or indirectly:
(a) challenges the making of the Exchange Offer, the acquisition of
some or all of the tendered Series A Preferred shares and
Original Warrants pursuant to the Exchange Offer, or the issuance
of Common Stock and New Warrants pursuant to the Exchange Offer,
or
(b) otherwise relates in any manner to the Exchange Offer or that, in
our reasonable judgment, could materially and adversely affect
the business, condition (financial or other), income, operations
or prospects of us or our subsidiary, or
(c) otherwise materially impairs in any way the contemplated future
conduct of our business or the business of our subsidiary or
materially impairs the benefits that we believe we will receive
from the Exchange Offer;
(2) any action is threatened, pending or taken, or any approval is
withheld, or any statute, rule, regulation, judgment, order or
injunction is threatened, proposed, sought, promulgated, enacted,
entered, amended, enforced or deemed to be applicable to the Exchange
Offer or us or our subsidiary, by any court or any authority, agency
or tribunal that, in our reasonable judgment, would or might directly
or indirectly:
(a) make the acceptance for exchange of, or issuance of Common Stock
and New Warrants for, some or all of the Series A Preferred
shares and Original Warrants illegal or otherwise restrict or
prohibit consummation of the Exchange Offer or otherwise relates
in any manner to the Exchange Offer;
(b) delay or restrict our ability, or render us unable, to accept for
exchange, or to issue Common Stock and New Warrants for, some or
all of the tendered Series A Preferred shares and Original
Warrants;
(c) materially impair the benefits that we believe we will receive
from the Exchange offer; or
(d) materially and adversely affect the business, condition
(financial or other), income, operations or prospects of us or
our subsidiary, or otherwise materially impair in any way the
contemplated future conduct of our business or the business of
our subsidiary;
(3) any general suspension of trading in, or limitation on prices for,
securities in the over-the-counter market on which our Common Stock
trades; or
(4) any change which occurs in our business, condition (financial or
other), assets, income, operations, prospects or stock ownership or in
that of our subsidiary that, in our reasonable judgment, is or may be
material to us or our subsidiary or materially impairs or may
materially impair the benefits that we believe we will receive from
the Exchange Offer.
The foregoing Securities Laws Exemption Condition and the General Conditions are
for our benefit. We may assert any of the above conditions in our sole
discretion regardless of the circumstances giving rise to them prior to the
Expiration Date. We may waive them, in whole or in part, at any time and from
time to time, prior to the Expiration Date, in our discretion, whether or not we
waive any other condition to the Exchange Offer. Our failure at any time to
exercise any of these rights will not be deemed a waiver of any such rights. The
waiver of any of these rights with
12
respect to particular facts and circumstances is not a waiver with respect to
any other facts and circumstances. Any determination we make concerning the
events described in the foregoing conditions will be final and binding upon all
parties concerned.
WHAT IF I DO NOT EXCHANGE MY SERIES A PREFERRED SHARES AND ORIGINAL WARRANTS FOR
COMMON STOCK AND A NEW WARRANT?
If you do not exchange your shares of Series A Preferred shares for shares of
Common Stock and your Original Warrants for New Warrants, then you will not
receive Common Stock nor will you receive a New Warrant with a lower exercise
price. In addition, you will continue to hold shares of Series A Preferred and
Original Warrants and the terms and rights of such securities (including your
Series A Preferred dividend rights and your right to convert Series A Preferred
stock into Common Stock on a share-for-share basis at any time) will not be
changed or otherwise affected by this Exchange Offer. For a detailed description
of the terms and rights of the Common Stock and the Original Warrants, please
refer to the company's "Description of Capital Stock" attached as Annex A to
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this Offering Memorandum.
The success of the Exchange Offer is very important to us. If less than 100% of
the Series A Preferred shares and Original Warrants are tendered for exchange,
then the ongoing accretion of the Series A Preferred dividend, which we
presently do not expect to pay in cash, will continue to dilute the interests of
holders of our Common Stock and may be expected to hamper our ability to raise
additional capital, as may be required from time to time, in order to execute
our business plan. Additionally, if less than 100% of the Series A Preferred
shares and Original Warrants are tendered for exchange, we may fail to close the
contemplated transaction with the New Investor. Our present intention is to
accept all Series A Preferred shares and Original Warrants tendered pursuant to
the Exchange Offer, regardless of whether or not 100% of the outstanding Series
A Preferred shares and Original Warrants are tendered.
WILL I PAY BROKERAGE COMMISSIONS IN THE EXCHANGE OFFER?
You will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Series A Preferred shares and Original Warrants pursuant to the
Exchange Offer. If, however, shares of Common Stock issued pursuant to the
Exchange Offer or substitute certificates evidencing shares of Series A
Preferred not exchanged are to be delivered to, or are to be issued in the name
of, any person other than the registered Series A Preferred holder, or if
tendered Series A Preferred shares are recorded in the name of any person other
than the person signing the Letter of Transmittal, then the amount of any
transfer taxes (whether imposed on the registered Series A Preferred holder or
any other person) will be payable by the tendering Series A Preferred holder.
WHEN WILL SERIES A PREFERRED SHARES AND ORIGINAL WARRANTS BE ACCEPTED FOR
EXCHANGE, AND WHEN WILL SHARES OF COMMON STOCK AND NEW WARRANT AGREEMENTS BE
DELIVERED?
Upon the satisfaction or waiver of all of the conditions of the Exchange Offer,
we will accept all Series A Preferred shares and Original Warrants properly
tendered and not withdrawn prior to 5:00 p.m., Atlanta, Georgia time, on the
Expiration Date. We will deliver or cause the Exchange Agent to deliver shares
of Common Stock and New Warrant agreements issued pursuant to the Exchange Offer
promptly after the Expiration Date.
For purposes of the Exchange Offer, we will be deemed to have accepted validly
tendered and not withdrawn Series A Preferred shares and Original Warrants when
and if we have given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of Series A Preferred
shares and Original Warrants for the purposes of receiving the Common Stock and
New Warrants pursuant to the Exchange Offer from us. Under no circumstances will
interest be paid by us by reason of any delay in delivering such Common Stock
and New Warrants.
If any tendered Series A Preferred shares and Original Warrants are not accepted
for exchange because of an invalid tender, or due to the occurrence of certain
other events set forth in this Offering Memorandum or otherwise, certificates
and agreements for any such unaccepted Series A Preferred shares and Original
Warrants will be returned, without expense, to the tendering holder thereof
promptly after the expiration or termination of the Exchange Offer.
13
WHAT ARE MY RIGHTS TO WITHDRAW MY TENDER OF SERIES A PREFERRED SHARES AND
ORIGINAL WARRANTS?
You may withdraw your tender of Series A Preferred shares and Original Warrants,
in whole but not in part, at any time prior to 5:00 p.m., Atlanta, Georgia time,
on the Expiration Date, by delivery of a written notice of withdrawal to the
Exchange Agent.
To be effective, a written notice of withdrawal (sent by hand delivery,
overnight courier, mail or facsimile transmission) must:
- be timely received by the Exchange Agent at the address set forth
herein;
- specify the name of the person having tendered the Series A Preferred
shares and Original Warrants to be withdrawn;
- indicate the certificate number or numbers of the Series A Preferred
shares and the issuance date and the exercise price of, and the number
of Common Stock underlying, the Original Warrant agreement or
agreements to which the withdrawal relates;
- specify that ALL of such shares of Series A Preferred and Original
Warrants tendered by such holder are to be withdrawn; and
- either be (i) signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including a guarantee of
signature, if required) or (ii) accompanied by evidence satisfactory
to us that the holder withdrawing such tender has succeeded to
registered ownership of such Series A Preferred shares and Original
Warrants.
Withdrawals of tenders of Series A Preferred shares and Original Warrants may
not be rescinded, and any Series A Preferred shares and Original Warrants
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. Of course, you may re-tender any withdrawn Series A Preferred
shares and Original Warrants by again following one of the tender procedures
described in this Offering Memorandum at any time prior to 5:00 p.m., Atlanta,
Georgia time, on the Expiration Date.
All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by us and our determination will be final and
binding. Neither we, the Exchange Agent nor any other person will be under any
duty to give you any notification of any defects or irregularities in any notice
of withdrawal or incur any liability for failure to give any such notification.
HOW WILL THE COMPANY ACCOUNT FOR THE EXCHANGE OFFER, AND IF IT IS CONSUMMATED,
THE TRANSACTION WITH THE NEW INVESTOR?
The exchange of Common Stock for Preferred Stock will be treated in accordance
with the terms of the Series A Preferred conversion feature. Each share of
Series A Preferred will be exchanged for one share of Common Stock. The par
value of the Series A Preferred stock converted will be charged at $.01 per
share with the balance charged to additional paid in capital. The par value of
the Common Stock issued will be credited at $.01 per share with the balance
credited to additional paid in capital.
The Exchange Offer may help us satisfy the conditions to closing of the
contemplated transaction described elsewhere herein (see "Transactions and
Arrangements Concerning Our Securities") with the New Investor. This purchase of
Common Stock, as described more fully in the Stock Purchase Agreement dated
February 26, 2003 between the company and Xxxxxxxx Investments, L.P., which is
attached as Annex C to this Offering Memorandum, requires the issuance of
--------
1,200,000 shares of the Company's Common Stock in exchange for $1,080,000. The
par value of the Common Stock issued will be credited at $.01 per share with the
balance credited to additional paid in capital.
14
WHO IS THE EXCHANGE AGENT?
Xxxxxxxxx, Xxxxxx & Company, a registered broker-dealer which we have engaged to
act as Dealer Manager with respect to the Exchange Offer, also has been
appointed by us as Exchange Agent for the Exchange Offer. All correspondence in
connection with tendering and withdrawal procedures relating to the Exchange
Offer, the Letter of Transmittal and the Investor Questionnaire should be
addressed to the Exchange Agent, as follows:
XXXXXXXXX, XXXXXX & COMPANY
ATTN: XXX XXXXX
0000 XXXXXXXXX XXXX, XX
XXXXX 0000
XXXXXXX, XX 00000
TEL: 000.000.0000
FAX: 000.000.0000
WILL THE COMPANY PAY SOLICITING FEES OR REIMBURSE ANY EXPENSES IN THE EXCHANGE
OFFER?
In connection with this Exchange Offer, we have retained Xxxxxxxxx, Xxxxxx &
Company to act as both Dealer Manager and as Exchange Agent. As payment for the
services to be rendered by Xxxxxxxxx, Xxxxxx & Company, we have agreed to amend
certain of the existing warrants to purchase our Common Stock previously issued
to Xxxxxxxxx, Xxxxxx & Company and certain of its employees in partial payment
for services rendered as placement agent in connection with the first two
private placements of the Series A Preferred and the Original Warrants. The
amended warrants will be identical to the previously issued warrants, except
that the exercise price will be lowered to $1.75 per share and the amended
warrants will terminate on the earlier of three years from the date of issuance
or 30 days after we notify the holders that the closing price of our Common
Stock has equaled or exceeded $5.00 per share for 20 consecutive trading days
(i.e., the same terms as the New Warrants to be issued in the Exchange Offer).
The total number of shares of our Common Stock underlying warrants to be so
amended is 126,874.
Additionally, we will reimburse Xxxxxxxxx, Xxxxxx & Company for its reasonable
and customary out-of-pocket expenses in connection with the Exchange Offer. In
its capacity as Dealer Manager, Xxxxxxxxx, Xxxxxx & Company may contact holders
of Series A Preferred shares and Original Warrants regarding this Exchange Offer
and may request brokers, dealers, commercial banks, trust companies and other
nominees to forward this Exchange Offer and related materials to beneficial
owners of Series A Preferred shares and Original Warrants.
Any Holder that has questions concerning the terms of this Exchange Offer may
contact the Dealer Manager/Exchange Agent at its address and telephone number
set forth above. Questions and requests for assistance or additional copies of
this Exchange Offer or the Letter of Transmittal may also be directed to the
Dealer Manager/Exchange Agent at the same address and telephone number.
Letters of Transmittal, Investor Questionnaires and all correspondence, as well
as any questions concerning tender procedures in connection with this Exchange
Offer, should be directed, sent or delivered by each holder of Series A
Preferred shares and Original Warrants, or by a beneficial owner's broker,
dealer, commercial bank, trust company or other nominee, to the Dealer
Manager/Exchange Agent at the same address or using the same telephone and
facsimile numbers set forth above.
WHAT ARE THE COMPANY'S EXPECTED EXPENSES OF THE EXCHANGE OFFER?
In addition to the compensatory arrangement described above for the Dealer
Manager/Exchange Agent, the cash expenses we expect to incur in connection with
the Exchange Offer are estimated in the aggregate to be approximately $43,000,
which includes the out-of-pocket expenses (but not the other compensation) of
the Dealer Manager/Exchange Agent, as well as printing, accounting and legal
fees and miscellaneous expenses.
15
PRICE RANGES OF SERIES A PREFERRED SHARES, ORIGINAL WARRANTS AND COMMON STOCK
SERIES A PREFERRED AND ORIGINAL WARRANTS
There is no established trading market for the Series A Preferred shares or the
Original Warrants.
COMMON STOCK
Our Common Stock, into which the Series A Preferred shares are convertible and
for which the Original Warrants are (and the new Warrants will be) exercisable,
is quoted on the OTC Bulletin Board under the symbol "EBDC." The following table
sets forth, for the periods indicated, the high and low bid prices per share of
Common Stock as reported on the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.
HIGH LOW
------ ------
2003
----
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 1.45 $ 1.10
2002
----
First Quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 2.75 $ 1.60
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . $ 2.24 $ 1.53
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 1.95 $ 1.40
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . $ 1.67 $ 1.04
2001
----
First quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 2.81 $ 1.44
Second quarter . . . . . . . . . . . . . . . . . . . . . . . $ 3.55 $ 2.62
Third quarter. . . . . . . . . . . . . . . . . . . . . . . . $ 4.62 $ 3.05
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . $ 3.70 $ 1.55
On May 12, 2003, the most recent practicable date for which we were able to
obtain quotations prior to the publication of this Offering Memorandum, the
closing bid price per share for our Common Stock on the OTC Bulletin Board was
$1.50 and the last reported sale price was $1.55.
You are urged to obtain current market quotations for shares of our Common
Stock.
16
HISTORICAL FINANCIAL STATEMENTS
AUDITED STATEMENTS FOR FISCAL YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31,
2001
Please refer to the sections of our Annual Report on Form 10-KSB for the year
ended December 31, 2002 (attached as Annex E hereto) entitled "Management's
-------
Discussion and Analysis of Financial Condition and Results of Operations" (pages
15 through 28) and "Consolidated Financial Report - Years Ended December 31,
2002 and 2001" (pages F-1 through F-27), for a presentation of our audited
financial statements and notes and management's related analysis for such
periods. Such information is incorporated herein by reference to such attached
materials.
UNAUDITED STATEMENTS FOR QUARTER ENDED MARCH 31, 2003
Please refer to the sections of our Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 2003 (attached as Annex F hereto) entitled
-------
"Consolidated Financial Statements" and "Notes to Consolidated Financial
Statements" (pages 2 through 10) and "Management's Discussion and Analysis or
Plan of Operation" (pages 11 through 16), for a presentation of our unaudited
financial statements and notes and management's related analysis for such
period. Such information is incorporated herein by reference to such attached
materials.
UNAUDITED HISTORICAL AND PRO FORMA CONDENSED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying unaudited historical and pro forma condensed consolidated
financial statements are presented to reflect the exchange of one share of
Common Stock for each outstanding share of Series A Preferred stock and a New
Warrant for each Original Warrant. These unaudited pro forma condensed
consolidated financial statements also include adjustments to show the effects
of the consummation of the anticipated transaction with the New Investor. These
unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the results of future operations. These unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the notes thereto, as well as in conjunction with our historical
consolidated financial statements and the notes thereto included in our
Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2003
(attached as Annex F hereto) and our Form 10-KSB for the year ended December 31,
-------
2002 (a copy of which is attached to this Offering Memorandum as Annex E), both
-------
of which have been filed with the SEC.
The unaudited pro forma condensed consolidated balance sheets at March 31, 2003
and December 31, 2002 have been prepared as if the Exchange Offer and the
transaction with the New Investor were effective on such dates. The unaudited
pro forma condensed consolidated statement of operations for the quarter ended
March 31, 2003 has been prepared as if the Exchange Offer and the transaction
with the New Investor were effective on January 1, 2003. The unaudited pro
forma condensed consolidated statement of operations for the year ended December
31, 2002 has been prepared as if the Exchange Offer and the transaction with the
New Investor were effective on January 1, 2002.
17
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EBANK FINANCIAL SERVICES, INC. AND SUBSIDIARY ACTUAL AND PRO
FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
CONVERSION OF
ACTUAL PREFERRED PRO FORMA
MARCH 31, STOCK INVESTOR MARCH 31,
2003 TO COMMON TRANSACTION 2003
--------------- ----------- ------------ -------------
ASSETS
------------------------------------------
Cash and due from banks $ 610,785 $ 0 $ 3,329D $ 614,114
Federal funds sold 2,285,785 0 1,080,000B 3,365,785
Interest-bearing deposits in banks 1,605,000 0 0 1,605,000
--------------- ----------- ------------ -------------
Cash and cash equivalents 4,501,570 0 1,083,329 5,584,899
Securities held-to-maturity 14,040,239 0 0 14,040,239
Other securities 510,000 0 0 510,000
Mortgage loans held for sale 0 0 0 0
Loans 76,559,405 0 0 76,559,405
Less allowance for loan losses (871,370) 0 0 (871,370)
--------------- ----------- ------------ -------------
Loans, net 75,688,035 0 0 75,688,035
Premises and equipment 608,686 0 0 608,686
Accrued interest receivable and other
assets 1,926,481 0 0 1,926,481
--------------- ----------- ------------ -------------
Total assets $ 97,275,011 $ 0 $ 1,083,329 $ 98,358,340
=============== =========== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------
Deposits:
Noninterest-bearing $ 4,855,477 $ 0 $ 0 $ 4,855,477
Interest-bearing 75,906,866 0 0 75,906,866
--------------- ----------- ------------ -------------
Total deposits 80,762,343 0 0 80,762,343
Other borrowings 9,250,000 0 0 9,250,000
Accrued interest payable and other
liabilities 418,497 43,000A 39,000B 500,497
--------------- ----------- ------------ -------------
Total liabilities 90,430,840 43,000 39,000 90,512,840
--------------- ----------- ------------ -------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Series A preferred stock, par value $.01;
8% cumulative; convertible; 10,000,000
shares authorized; 2,410,000 issued and
outstanding 24,100 (24,100)A 0 0
Common stock, par value $.01;
10,000,000 shares authorized;
2,060,639 issued and outstanding 20,607 24,100A 12,000B 56,707
Capital surplus 19,173,150 (43,000)A 1,032,329B 20,162,479
Accumulated deficit (12,283,686) 0 0 (12,283,686)
Accumulated other comprehensive loss (90,000) 0 0 (90,000)
--------------- ----------- ------------ -------------
Total stockholders' equity 6,844,171 (43,000) 1,044,329 7,845,500
--------------- ----------- ------------ -------------
Total liabilities and stockholders'
equity $ 97,275,011 $ 0 $ 1,083,329 $ 98,358,340
=============== =========== ============ =============
Fully diluted book value per share of
Common Stock $ 1.53 $ 1.38
See accompanying notes to pro forma condensed consolidated financial statements.
18
EBANK FINANCIAL SERVICES, INC. AND SUBSIDIARY ACTUAL AND PRO
FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
CONVERSION OF
ACTUAL PREFERRED PRO FORMA
DECEMBER 31, STOCK TO INVESTOR DECEMBER 31,
2002 COMMON TRANSACTION 2002
--------------- ----------- ------------ --------------
ASSETS
------------------------------------------
Cash and due from banks $ 891,528 $ 0 $ 13,500D $ 905,028
Federal funds fold 5,114,000 0 1,080,000B 6,194,000
Interest-bearing deposits in banks 627,912 0 0 627,912
--------------- ----------- ------------ --------------
Cash and cash equivalents 6,633,440 0 1,093,500 7,726,940
Securities held-to-maturity 13,638,045 0 0 13,638,045
Other securities 510,000 0 0 510,000
Mortgage loans held for sale 7,820,139 0 0 7,820,139
Loans 70,524,884 0 0 70,524,884
Less allowance for loan losses (963,301) 0 0 (963,301)
--------------- ----------- ------------ --------------
Loans, net 69,561,583 0 0 69,561,583
Premises and equipment 630,627 0 0 630,627
Accrued interest receivable and other
assets 2,623,476 0 0 2,623,476
--------------- ----------- ------------ --------------
Total assets $ 101,417,310 $ 0 $ 1,093,500 $ 102,510,810
=============== =========== ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------
Deposits:
Noninterest-bearing $ 5,010,384 $ 0 $ 0 $ 5,010,384
Interest-bearing 79,567,803 0 0 79,567,803
--------------- ----------- ------------ --------------
Total Deposits 84,578,187 0 0 84,578,187
Other borrowings 9,280,053 0 0 9,280,053
Accrued interest payable and other
liabilities 1,028,850 43,000A 39,000B 1,110,850
--------------- ----------- ------------ --------------
Total liabilities 94,887,090 43,000 39,000 94,969,090
--------------- ----------- ------------ --------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Series A preferred stock, par value $.01;
8% cumulative; convertible; 10,000,000
shares authorized; 2,410,000 issued and
outstanding 24,100 (24,100)A 0 0
Common stock, par value $.01;
10,000,000 shares authorized;
1,728,223 issued and outstanding 17,282 24,100A 12,000B 53,382
Capital surplus 19,176,474 (43,000)A 1,042,500B 20,175,974
Accumulated deficit (12,597,636) 0 0 (12,597,636)
Accumulated other comprehensive loss (90,000) 0 0 (90,000)
--------------- ----------- ------------ --------------
Total stockholders' equity 6,530,220 (43,000) 1,054,500 7,541,720
--------------- ----------- ------------ --------------
Total liabilities and stockholders'
equity $ 101,417,310 $ 0 $ 1,093,500 $ 102,510,810
=============== =========== ============ ==============
Fully diluted book value per share of
Common Stock $ 1.58 $ 1.41
See accompanying notes to pro forma condensed consolidated financial statements.
19
EBANK FINANCIAL SERVICES, INC. AND SUBSIDIARY ACTUAL AND PRO
FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2003
(UNAUDITED)
CONVERSION OF
ACTUAL MARCH PREFERRED STOCK INVESTOR PRO FORMA
31, 2003 TO COMMON TRANSACTION MARCH 31, 2003
--------------- ---------------- ------------ ---------------
INTEREST INCOME:
Loans $ 1,298,683 $ 0 $ 0 $ 1,298,683
Taxable securities 215,988 0 0 215,988
Federal funds sold 20,382 0 3,329D 23,711
Interest-bearing deposits 2,998 0 0 2,998
--------------- ---------------- ------------ ---------------
Total interest income 1,538,051 0 3,329 1,541,380
--------------- ---------------- ------------ ---------------
INTEREST EXPENSE:
Deposits 533,065 0 0 533,065
Other borrowings 84,520 0 0 84,520
--------------- ---------------- ------------ ---------------
Total interest expense 617,585 0 0 617,585
--------------- ---------------- ------------ ---------------
Net interest income 920,466 0 3,329 923,795
PROVISION FOR LOAN LOSSES 103,000 0 0 103,000
--------------- ---------------- ------------ ---------------
Net interest income after
provision for loan losses 817,466 0 3,329 820,795
--------------- ---------------- ------------ ---------------
OTHER INCOME:
Service charges and other fees 31,654 0 0 31,654
Mortgage fee income 759,675 0 0 759,675
--------------- ---------------- ------------ ---------------
Total other income 791,329 0 0 791,329
--------------- ---------------- ------------ ---------------
OTHER EXPENSE:
Salaries and employee benefits 985,703 0 0 985,703
Equipment and occupancy
expenses 174,337 0 0 174,337
Professional and other outside
services 20,203 0 0 20,203
Other operating expenses 114,601 0 0 114,601
--------------- ---------------- ------------ ---------------
Total other expenses 1,294,844 0 0 1,294,844
--------------- ---------------- ------------ ---------------
NET EARNINGS 313,951 0 3,329 317,280
Undeclared preferred stock
dividends arising during the
quarter (118,849) 118,849C 0 0
--------------- ---------------- ------------ ---------------
Net earnings attributable to
common stockholders $ 195,102 $ 118,849 $ 3,329 $ 317,280
=============== ================ ============ ===============
Basic and diluted earnings per
common share $ 0.11 $ 0.05 $ 0.00 $ 0.06
=============== ================ ============ ===============
Weighted average outstanding
common stock 1,754,078 2,410,000 1,200,000 5,364,078
See accompanying notes to pro forma condensed consolidated financial statements.
20
EBANK FINANCIAL SERVICES, INC. AND SUBSIDIARY ACTUAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)
CONVERSION OF
ACTUAL PREFERRED PRO FORMA
DECEMBER 31, STOCK TO INVESTOR DECEMBER 31,
2002 COMMON TRANSACTION 2002
--------------- ---------- ------------ --------------
INTEREST INCOME:
Loans $ 5,818,491 $ 0 $ 0 $ 5,818,491
Taxable securities 737,512 0 0 737,512
Federal funds sold 48,613 0 13,500D 62,113
--------------- ---------- ------------ --------------
Total interest income 6,604,616 0 13,500 6,618,116
--------------- ---------- ------------ --------------
INTEREST EXPENSE:
Deposits 2,337,255 0 0 2,337,255
Other borrowings 366,424 0 0 366,424
--------------- ---------- ------------ --------------
Total interest expense 2,703,679 0 0 2,703,679
--------------- ---------- ------------ --------------
Net interest income 3,900,937 0 13,500 3,914,487
PROVISION FOR LOAN LOSSES 321,719 0 0 321,719
--------------- ---------- ------------ --------------
Net interest income after provision for
loan losses 3,579,218 0 13,500 3,592,718
--------------- ---------- ------------ --------------
OTHER INCOME:
Gain on sale of Peachtree Capital
Corporation 68,825 0 0 68,825
Brokerage fees 806,479 0 0 806,479
Service charges and other fees 93,163 0 0 93,163
Mortgage fee income 2,703,991 0 0 2,703,991
--------------- ---------- ------------ --------------
Total other income 3,672,458 0 0 3,672,458
--------------- ---------- ------------ --------------
OTHER EXPENSE:
Salaries and employee benefits 3,951,283 0 0 3,951,283
Equipment and occupancy expenses 1,846,511 0 0 1,846,511
Professional and other outside services 1,876,875 0 0 1,876,875
Other operating expenses 566,684 0 0 566,684
--------------- ---------- ------------ --------------
Total other expenses 8,241,353 0 0 8,241,353
--------------- ---------- ------------ --------------
NET LOSS (989,677) 0 13,500 (976,177)
Undeclared preferred stock dividends
arising during the year (483,138) 483,138C 0 0
--------------- ---------- ------------ --------------
Net loss attributable to common
stockholders $ (1,472,815) $ 483,138 $ 13,500 $ (976,177)
=============== ========== ============ ==============
Basic and diluted loss per common share $ (0.89) $ 0.20 $ 0.01 $ (0.19)
=============== ========== ============ ==============
Weighted average outstanding common
stock 1,663,207 2,410,000 1,200,000 5,273,207
See accompanying notes to pro forma condensed consolidated financial statements.
21
CERTAIN PRO FORMA EFFECTS OF THE EXCHANGE OFFER
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
A. To record the exchange of all 2,410,000 shares of Series A Preferred stock
for 2,410,000 shares of the Company's Common Stock and the estimated
related offering costs of this Exchange Offer of $43,000 as if the exchange
occurred on the balance sheet date.
B. To record the gross proceeds from the New Investor of $1,080,000 for
1,200,000 shares of the Company's Common Stock and to record the estimated
offering costs of $39,000 from issuance of these new shares as if those
shares were issued on the balance sheet date.
C. To remove the effect of the cumulative dividends "earned" during the period
to show the effect as if the Exchange Offer had occurred as of the first
day of the period presented.
D. To reflect the estimated investment income that would have been earned
during the period on the net proceeds received from the New Investor to
show the effect as if those net proceeds had been received as of the first
day of the period and invested to earn at a weighted average federal funds
rate assumed to be 1.25%.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain United States ("U.S.") federal
income tax consequences to holders of Series A Preferred shares and Original
Warrants who exchange their shares of Series A Preferred for shares of Common
Stock and their Original Warrants for New Warrants pursuant to the Exchange
Offer. This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect, or different interpretations. This discussion does not address non-U.S.
or state or local tax considerations.
The summary of U.S. federal income tax consequences below is for general
information only and is not intended (nor should it be construed) as individual
tax advice for any holder of Series A Preferred shares and Original Warrants.
This discussion is not a substitute for an individual analysis of the tax
consequences of the exchange to any holder of Series A Preferred shares and
Original Warrants. Each holder of Series A Preferred shares and Original
Warrants should consult his or her own tax advisor regarding the particular
federal, state, local and non-U.S. tax consequences of the exchange in light of
such holder's own situation.
Exchange of Series A Preferred shares for Common Stock
--------------------------------------------------------------
The exchange of shares of Series A Preferred for shares of Common Stock will
qualify as a reorganization under section 368(a)(1)(E) of the Code. Accordingly,
the following U.S. federal income tax consequences will occur:
- we will not recognize gain or loss as a result of the Exchange Offer;
- you will not recognize gain or loss upon the receipt of shares of
Common Stock solely in exchange for the face amount of your shares of
Series A Preferred pursuant to the Exchange Offer. However, because
you will be surrendering shares of Series A Preferred stock that have
accrued but unpaid dividends at the time of the exchange, you will be
treated as having received a distribution on the Series A Preferred to
the extent that you are treated as having received shares of Common
Stock on account of such accrued but unpaid dividends. The value of
the shares of Common Stock that you receive pursuant to the Exchange
Offer will be treated as having been received for accrued and unpaid
dividends only to the extent of the lesser of (i) the total dollar
amount of accrued and unpaid dividends on the Series A Preferred
shares that you surrender in the exchange or (ii) the excess of the
aggregate fair market value of all of the shares of Common Stock
received by you pursuant to the Exchange Offer over the aggregate
issue price of all of the shares of Series A Preferred that you
surrender in the exchange. Any such portion of the value of the
22
Common Stock which you receive that is treated as a distribution for
accrued dividends as described above will be treated as a taxable
dividend (to the extent of our accumulated or current earnings and
profits, if any), then as a tax-free return of capital to the extent
of your basis in your shares of Series A Preferred, and thereafter as
capital gain;
- the aggregate tax basis of the shares of Common Stock received by you
in exchange for your shares of Series A Preferred will be the same as
the aggregate tax basis of the shares of Series A Preferred
surrendered in exchange therefore, increased by any taxable gain which
you are required to recognize (as described above) for accrued and
unpaid dividends on the shares of Series A Preferred, or otherwise,
and reduced by any amounts that are treated as a tax-free return of
capital as described above; and
- the holding period of the shares of Common Stock received by you in
exchange for your shares of Series A Preferred will include the
holding period of the shares of Series A Preferred surrendered,
provided that such shares of Series A Preferred are held as capital
assets at the effective time of the exchange.
Exchange of Original Warrants for New Warrants
----------------------------------------------------
Holders who exchange Original Warrants for New Warrants should not be required
to recognize any gain or loss for U.S. income tax purposes at the time of the
exchange. Upon your exercise of any New Warrants acquired in the exchange, your
basis in the shares of Common Stock received will equal the value of the money
(and any other property) that you transfer to the company in payment of the
warrant exercise price per share, and your holding period (for purposes of
calculating whether you will recognize long-term or short-term capital gain upon
the disposition of such shares) will begin to run on the date that you exercise
the warrant.
INFORMATION CONCERNING OUR DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN
BENEFICIAL OWNERS OF OUR SECURITIES
Our directors and executive officers and their positions and offices as of May
12, 2003 are as follows:
Xxxxx X. Xxx . . . . . . . . . . President and Chief Executive Officer and Director
Xxxx X. Xxxxxx . . . . . . . . . Director
Xxxxx X. Xxxxx . . . . . . . . . Senior Vice President and Chief Financial Officer
Xxxxxxx X. Xxxxxx. . . . . . . . Director
Xxxxxxx X. Xxxxxx. . . . . . . . Senior Vice President and Senior Credit Officer
Xxxxxx Xxxxxxxxx . . . . . . . . Director
Xxxxx X. Xxxxxxx . . . . . . . . Director
Xxxxxxx X. Xxxxx . . . . . . . . Director
Xxxxxxx X. Xxxxxxx . . . . . . . Chairman of the Board and Director
Xxx X. Xxxxx . . . . . . . . . . Director
For purposes of this Exchange Offer, the business address and business telephone
number for each of our directors and executive officers is 0000 Xxxxx Xxxxx
Xxxx, Xxxxx 000, Xxxxxxx Xxxxxxx 00000, telephone (000) 000-0000. All of our
directors and executive officers are citizens of the United States. For
additional information concerning the principal occupations and business
experience of our directors and executive officers, please refer to the sections
entitled "Nominees for Directorships" and "Other Directors and Executive
Officers" on pages 2 and 3 of our Proxy Statement for our 2003 Annual Meeting of
Shareholders, a copy of which is attached as Annex D to this Offering Memorandum
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and which information is incorporated herein by reference. During the past five
years, none of such persons (A) has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (B) was a party to any
judicial or administrative proceeding that resulted in (i) a judgment, decree or
final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or (ii) a finding of
any violation of federal or state securities laws.
For additional information concerning the beneficial ownership of our Common
Stock by our directors and executive officers, and by beneficial owners of more
than 5% of the outstanding shares of such stock, please refer to the sections
entitled "Security Ownership of Certain Beneficial Owners and Management" on
pages 8 and 9 of our
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Proxy Statement for our 2003 Annual Meeting of Shareholders, a copy of which is
attached as Annex D to this Offering Memorandum and which information is
-------
incorporated herein by reference.
Except as provided in the table below, to our knowledge after making reasonable
inquiry, none of our executive officers, directors or persons who might be
deemed to be "associates" of ours, or any associate or majority-owned
subsidiary of such persons, own any of Series A Preferred shares or Original
Warrants:
NUMBER OF SHARES OF COMMON
SERIES A PREFERRED SHARES OF STOCK UNDERLYING
SHARES COMMON ORIGINAL WARRANT(S)
BENEFICIALLY STOCK BENEFICIALLY OWNED
NUMBER OF OWNED AS A UNDERLYING AS A PERCENTAGE OF
SHARES SERIES PERCENTAGE OF ORIGINAL TOTAL SHARES OF
A PREFERRED TOTAL SERIES A WARRANT(S) COMMON STOCK
BENEFICIALLY PREFERRED SHARES BENEFICIALLY UNDERLYING ORIGINAL
NAME OF BENEFICIAL OWNER OWNED OUTSTANDING OWNED WARRANT(S)
------------------------------------- -------------- ------------------- ------------- --------------------
Xxxxxxx X. Xxxxxxx. . . . . . . . . . 80,000(1) 3.3% 40,000(1) 3.3%
Xxxxxx Xxxxxxxxx. . . . . . . . . . . 80,000(2) 3.3% 40,000(2) 3.3%
Xxxxxxx X. Xxxxx. . . . . . . . . . . 40,000 1.7% 20,000 1.6%
Xxxxx X. Xxxxxxx. . . . . . . . . . . 40,000 1.7% 20,000 1.6%
Xxx Xxxxx . . . . . . . . . . . . . . 40,000(3) 1.7% 20,000(3) 1.6%
NBC Corp. Collateral Account,
FBO Xxxxxx X. Xxxxxxxxx(4). . . . . . 200,000 8.3% 100,000 8.2%
Xxxxx X. Xxxxx(5) . . . . . . . . . . 200,000 8.3% 100,000 8.2%
All directors and executive officers
as a group (10 persons) . . . . . . . 280,000 11.6% 140,000 11.5%
__________________
(1) Xx. Xxxxxxx possesses sole voting and investment power with respect to 72,000 shares of Series A Preferred
and currently exercisable Original Warrants to purchase 36,000 shares of Common Stock. Xx. Xxxxxxx shares
voting and investment power with respect to 8,000 shares of Series A Preferred stock and currently exercisable
Original Warrants to purchase 4,000 shares of Common Stock held by Xx. Xxxxxxx'x wife.
(2) As sole trustee for two separate trusts, Xx. Xxxxxxxxx possesses sole voting and investment power with
respect to all of such shares, including 40,000 shares of Series A Preferred stock and currently exercisable
Original Warrants to purchase 20,000 shares of Common Stock in one trust, and 40,000 shares of Series A
Preferred Stock and currently exercisable Original Warrants to purchase 20,000 shares of Common Stock in the
other trust.
(3) Xx. Xxxxx shares voting and investment power with respect to (i) 40,000 shares of Series A Preferred Stock
and (ii) currently exercisable Original Warrants to purchase 20,000 shares of Common Stock, which securities
are held jointly with his wife.
(4) The address of Xxxxxx X. Xxxxxxxxx is 0000 Xxxxx Xxxxx Xxxx, Xxxxxxx, Xxxxxxx 00000. Excludes currently
exercisable warrants to purchase 25,850 shares of Common Stock issued directly to Xx. Xxxxxxxxx in his capacity
as an employee of Xxxxxxxxx, Xxxxxx & Company, pursuant to the direction from Xxxxxxxxx, Xxxxxx & Company to
issue certain of its employees a portion of the warrants which Xxxxxxxxx, Xxxxxx & Company earned as part of
its fee serving as private placement agent with respect to the original private placement of certain of the
Series A Preferred shares. See, "Transactions and Arrangements Concerning Our Securities."
(5) The address of Xxxxx X. Xxxxx is 0000 Xxxxxxx Xxxxxxx, Xxxxxxxx, Xxxxxxx 00000.
Our directors who are also holders of Series A Preferred shares and Original
Warrants as listed in the table above will receive the Exchange Offer and will
be eligible to tender their Series A Preferred and Original Warrants on the same
basis as any other holder of such Series A Preferred shares and Original
Warrants.
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Based on our records and information provided to us by our officers, directors,
associates and subsidiaries, neither we, nor any of our associates or
subsidiary, nor, to our knowledge after making reasonable inquiry, any of our or
our subsidiary's directors, executive officers or any associates or subsidiaries
thereof, have effected any transactions in the Series A Preferred shares and
Original Warrants during the 60 days before May 15, 2003.
TRANSACTIONS AND ARRANGEMENTS CONCERNING OUR SECURITIES
We entered into a stock purchase agreement dated as of February 26, 2003 (the
"Stock Purchase Agreement") pursuant to which we agreed, subject to fulfillment
of certain conditions described below, to sell 1,200,000 shares of our Common
Stock in a private placement for an aggregate consideration of $1,080,000 to
Xxxxxxxx Investments, L.P., a Georgia limited partnership in which Xxxxxxx X.
Xxxxxxxx, Xx. is the general partner (the "New Investor"). Pursuant to the
Stock Purchase Agreement, we also agreed (subject to completion of the
underlying stock purchase) to grant an option to the New Investor that would
permit the New Investor to maintain ownership of up to 20% of our issued and
outstanding Common Stock, which right expires July 1, 2006, subject to potential
extension in conjunction with the term of any new options, warrants or rights to
purchase Common Stock issued by us prior to July 1, 2006. The exercise price per
share will be equal to the lesser of: (i) the book value per share as reported
in our most recently filed Form 10-KSB prior to the date of exercise adjusted to
reflect the results of the transactions contemplated by the Stock Purchase
Agreement; provided, however, the exercise price per share calculated pursuant
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to this clause (i) will never be less than 85% of the average daily closing
price of our Common Stock for the 20 trading days immediately prior to the date
of any exercise of the option; or (ii) the most recent per share price of any
sale by the company of our capital stock that occurs subsequent to the closing
of the Stock Purchase Agreement (other than sales of stock pursuant to (A) the
exercise of any warrants outstanding on February 26, 2003, (B) the exercise of
any warrants issued in the Exchange Offer (including the New Warrants and the
amended warrants we agreed to issue to Xxxxxxxxx, Xxxxxx & Company as a portion
of its compensation for acting as Dealer Manager with respect to the Exchange
Offer), or (C) the company's 1998 Stock Incentive Plan, as such plan may be
amended from time to time). The exercise price for the option will also be
adjusted in the event of any recapitalization such as a stock split or stock
dividend.
The obligation of the New Investor to complete the purchase of shares under the
Stock Purchase Agreement is conditioned upon, among other things, all of the
outstanding Series A Preferred shares being retired and cancelled (pursuant to
the Exchange Offer or otherwise), unless that condition is waived by the New
Investor. In addition, the New Investor will be required to make a filing with
the Office of Thrift Supervision, our subsidiary bank's primary regulator. We
are not obligated to close the transaction contemplated by the Stock Purchase
Agreement if less than 80% of the outstanding Series A Preferred shares are
retired and cancelled (pursuant to the Exchange Offer or otherwise). The Stock
Purchase Agreement may be terminated by either party if, through no fault of the
terminating party, the closing of such transaction has not occurred on or before
June 26, 2003. We agreed to pay Xxxxxxxxx, Xxxxxx & Company a fee equal to 2.5%
of the total dollar amount invested by the New Investor, e.g., $27,000, if the
transaction contemplated by the Stock Purchase Agreement closes. For additional
details, please refer to the copy of the Stock Purchase Agreement attached as
Annex C to this Offering Memorandum.
--------
The closing of the transaction contemplated by the Stock Purchase Agreement is
not a condition to closing of the Exchange Offer. Subject to the conditions
described above under the heading "Are there any conditions to the Exchange
Offer?", we intend to accept all shares of Series A Preferred tendered for
exchange/conversion pursuant to the terms of the Exchange Offer, and we intend
to close the Exchange Offer with respect to all of such shares regardless of the
number of shares actually tendered and regardless of whether or not we
consummate the transaction described above with the New Investor.
From October 4, 2000 through June 5, 2001, the Company sold, through a private
placement memorandum, 500,000 "capital units" at a price of $10.00 per unit.
Each such capital unit consisted of four shares of Series A Preferred stock and
an Original Warrant to purchase two shares of Common Stock for $3.50 per share.
Each such share of Series A Preferred stock is convertible into one share of
Common Stock. The Series A preferred stock is convertible at any time at the
option of the holder. In addition, the Company can require conversion of the
Series A preferred stock if the closing price of its Common Stock equals or
exceeds $10.00 per share for fifteen consecutive trading
25
days. At the Company's election, dividends on the Series A preferred stock may
be paid in cash or in additional shares of Common Stock. The Original Warrants
issued pursuant to this private placement terminate on the earlier of five years
from their date of issue or thirty days after the Company notifies the holder
that the closing price of the Company's Common Stock has equaled or exceeded
$5.00 per share for twenty consecutive trading days.
In June 2001, the Company sold, through a private placement memorandum, 97,500
"capital units" at a price of $10.00 per unit. Each such capital unit consisted
of four shares of Series A Preferred stock and an Original Warrant to purchase
two shares of Common Stock for $4.00 per share. The Original Warrants issued
pursuant to this private placement terminate on the earlier of five years from
their date of issue or thirty days after the Company notifies the holder that
the closing price of the Company's Common Stock has equaled or exceeded $5.50
per share for twenty consecutive trading days.
In January 2002, the Company sold, through a private placement memorandum,
10,000 "capital units" at a price of $10.00 per unit. Each such capital unit
consisted of four shares of Series A Preferred stock and an Original Warrant to
purchase two shares of Common Stock for $4.00 per share. The Original Warrants
issued pursuant to this private placement terminate on the earlier of five years
or thirty days after the Company notifies the holder that the closing price of
the Company's Common Stock has equaled or exceeded $5.50 per share for twenty
consecutive trading days.
Pursuant to registration rights agreements we entered into with you and each of
the other participants in the private offerings described above, we granted
registration rights to assist you in selling shares of Common Stock underlying
the Series A Preferred shares and Original Warrants. Pursuant to the terms of
the registration rights agreements, we agreed to file a "shelf" registration
statement registering the resale by you of shares of Common Stock underlying the
Series A Preferred and Original Warrants. The registration rights terminate on
the earlier of (i) the date on which all of the holders of Series A Preferred
shares and Original Warrants no longer hold any shares of Common Stock
underlying such securities; or (ii) the date on which all of the shares of
Common Stock underlying Series A Preferred shares and Original Warrants may be
resold in a public transaction without registration under the Securities Act.
The registration rights agreements also provide that the registration rights
will cover our Common Stock issuable upon exercise of any warrants issued in
exchange for Original Warrants. Therefore, if you tender your Series A Preferred
shares and Original Warrants, the registration rights agreements will also apply
to the Common Stock issued in exchange for Series A Preferred shares pursuant to
the Exchange Offer and to the Common Stock underlying the New Warrants issued in
the Exchange Offer. It is our intention to register the resale by you of all
such shares of Common Stock pursuant to a new registration statement which we
intend to file as soon as practicable after the close of the Exchange Offer.
Xxxxxxxxx, Xxxxxx & Company (formerly, Xxxxxxxxx, Xxxxxx & Xxxxx), the
broker/dealer engaged to serve as Dealer Manager and Exchange Agent for the
Exchange Offer, also served as the placement agent for the first two private
stock offerings of Series A Preferred stock and Original Warrants described
above. In payment for services rendered in such capacity, we paid Xxxxxxxxx,
Xxxxxx & Company approximately $600,000 in cash and issued to Xxxxxxxxx, Xxxxxx
& Company and certain of its employees warrants to purchase an aggregate of
200,000 shares of Common Stock at a price of $4.00 per share. The warrants
expire five years from the date of grant.
As previously described under "Will the Company pay soliciting fees or reimburse
any expenses in the Exchange Offer?", as payment for the services to be rendered
by Xxxxxxxxx, Xxxxxx & Company as Dealer Manager and Exchange Agent with respect
to the Exchange Offer, we have agreed to amend certain of the existing warrants
to purchase shares of our Common Stock previously issued to Xxxxxxxxx, Xxxxxx &
Company and certain of its employees in partial payment for services rendered as
placement agent in connection with the first private placement of the Series A
Preferred and the Original Warrants. The amended warrants will be identical to
the previously issued warrants, except that the exercise price will be lowered
to $1.75 per share and the amended warrants will terminate on the earlier of
three years from the date of issuance or 30 days after we notify the holders
that the closing price of our Common Stock has equaled or exceeded $5.00 per
share for 20 consecutive trading days. The total number of shares of our Common
Stock underlying warrants to be so amended is 126,874.
On January 22, 2001, we issued a warrant to purchase 3,000 shares of our Common
Stock for $2.50 per share in a private placement to Xxxx Xxxxxx as compensation
for services rendered. The warrant expires five years from the date of grant.
26
On July 31, 2000, we entered into a loan agreement with The Bankers Bank for the
aggregate principal amount of $2,500,000. The loan was guaranteed by the
following current directors of the company, Messrs. Xxxxxx, Ferrero and Xxxxx,
as well as by the following former directors of the company, Xxxxxxx Xxxxxx,
Xxxxx Xxxxxxxx, Xxxx Xxxxxx and Xxxxxxx Xxxxxxxxxxx. In consideration for their
guarantees of this loan, we granted each of the guarantors a warrant to purchase
22,857 shares of our Common Stock for $3.00 per share, the closing price of our
Common Stock on the date of grant. These warrants expire ten years from the date
of grant. The loan was repaid by the company in June 2001.
For information concerning additional transactions with certain of our current
and former directors and executive officers, including information concerning
the issuance and retirement of our 9% convertible Series B-1 preferred stock and
9% convertible Series B-2 preferred stock in connection with the acquisition,
and subsequent disposition, of our former subsidiary Peachtree Capital
Corporation, see the section entitled "Certain Relationships and Related
Transactions" on pages 11 and 12 of our Proxy Statement for our 2003 Annual
Meeting of Shareholders, a copy of which is attached as Annex D to this Offering
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Memorandum and which information is incorporated herein by reference.
For information concerning outstanding options to purchase shares of our Common
Stock granted to our employees (including executive officers) and non-employee
directors pursuant to our 1998 Stock Incentive Plan, as amended, see "Note 10 -
Stock Options and Stock Warrants" on pages F-17 through F-19 of our financial
statements contained in our Annual Report on Form 10-KSB filed for the year
ended December 31, 2002, a copy of which is attached as Annex E to this Offering
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Memorandum and which information is incorporated herein by reference.
Except as otherwise described above, neither we nor any person or entity that
might be deemed to be an "associate" of ours, nor, to our knowledge, any of our
executive officers or directors is a party to any agreement, arrangement,
understanding or relationship with us or any other person relating, directly or
indirectly, to any of our securities, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
voting of any such securities, joint ventures, loan or option arrangements, puts
or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies, consents or authorizations.
LEGAL MATTERS; REGULATORY APPROVAL
Legal Matters
-------------
We are not aware of any license or regulatory permit that appears to be material
to our business and that is likely to be adversely affected by our issuance of
Common Stock and New Warrants in exchange for Series A Preferred shares and
Original Warrants as contemplated by this Exchange Offer or, except as disclosed
below, of any approval or other action by any state, federal or foreign
government or governmental agency that would be required prior to or as a result
of the exchange of such securities contemplated by this Exchange Offer. Should
any such approval or other action be required, we presently contemplate that
such approval or other action will be sought. We are unable to predict whether
we may determine that it is required to delay the exchange of Series A Preferred
shares and Original Warrants for Common Stock and New Warrants as contemplated
by this Exchange Offer pending the outcome of any such matter. There can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that the failure to
obtain any such approval or other action might not result in adverse
consequences to our business. Our obligations under this Exchange Offer to
exchange Series A Preferred shares and Original Warrants for Common Stock and
New Warrants as contemplated by this Exchange Offer are subject to conditions,
including the conditions described under the caption "The Exchange Offer- Are
there any conditions to the Exchange Offer?"
Bank Regulatory Matters
-----------------------
Federal law, including regulations issued by the Office of Thrift Supervision,
governs acquisition of control of thrift holding companies. As a general matter,
a person may not acquire control of a thrift holding company such as ebank
Financial Services, Inc. without the prior approval of the Office of Thrift
Supervision. If, as a result of the Exchange Offer, any shareholder would become
the beneficial owner of more than 10% of our Common Stock and is subject to one
or more "control factors", such shareholder may be required to reduce its
ownership interest in the company
27
or to obtain regulatory approval in order to own more than 10%. Each shareholder
whose ownership interest may be so increased is urged to consult such
shareholder's own legal counsel with respect to the consequences to such
shareholder of the Exchange Offer.
CERTAIN ADDITIONAL INFORMATION ABOUT US
Copies of our Form 10-KSB for the fiscal year ended December 31, 2002, our Proxy
Statement for our 2003 Annual Meeting of Shareholders, and our Form 10-QSB for
the fiscal quarter ended March 31, 2003 are included as Annexes E, D, and F,
-------------------
respectively, to this Offering Memorandum. Certain portions of these documents
are specifically incorporated by reference into certain sections of this
Offering Memorandum, as set forth herein. We encourage you to examine each of
these documents for additional important information which you should consider
in deciding whether or not to tender securities held by you in response to this
Exchange Offer. Any of the documents referenced as exhibits to our Form 10-KSB
are available upon request made to the company, Attention: Chief Financial
Officer, at our principal executive offices, 0000 Xxxxx Xxxxx Xxxx, Xxxxx 000,
Xxxxxxx, Xxxxxxx 00000, Telephone (000) 000-0000. We may charge you reasonable
and customary fees in connection with the copying of any such exhibits pursuant
to your request.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
In connection with the Exchange Offer, we filed a Schedule TO with the SEC
because the Exchange Offer may be viewed as a tender offer by us for our
outstanding shares of Series A Preferred and Original Warrants. This Offering
Memorandum omits certain information contained in the Schedule TO. For further
information, we refer you to the Schedule TO, including the exhibits filed with
the Schedule TO. We are subject to the informational requirements of the
Exchange Act, and file periodic reports, proxy statements and other information
with the SEC. The Schedule TO, including the exhibits thereto, as well as such
reports, proxy statements and other information, can be inspected and copied at
the public reference facilities maintained by the SEC in Washington, D.C.,
Chicago, Illinois and New York, New York. Copies of such documents can be
obtained from the SEC at prescribed rates at their offices. You may obtain
information on the operation of the SEC's Public Reference Facilities by calling
0-000-XXX-0000. The SEC also maintains a World Wide Web site that contains
registration statements, reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the SEC. The address of this site is xxxx://xxx.xxx.xxx.
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