<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1996
REGISTRATION NO. 333-2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PATLEX HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6794 85-0439411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION NO.) NO.)
</TABLE>
5550 WEST FLAMINGO ROAD, SUITE B-5
LAS VEGAS, NEVADA 89103
(702) 257-1102
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
FRANK BORMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5550 WEST FLAMINGO ROAD, SUITE B-5
LAS VEGAS, NEVADA 89103
(702) 257-1102
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
STEPHEN M. GOODMAN HANK ASHER
JAMES W. MCKENZIE, JR. MARK E. FRASER
MORGAN, LEWIS & BOCKIUS LLP DATABASE TECHNOLOGIES, INC.
2000 ONE LOGAN SQUARE 100 E. SAMPLE ROAD, SUITE 200
PHILADELPHIA, PA 19103 POMPANO BEACH, FL 33064
(215) 963-5000 (954) 781-5221
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger of a wholly-owned
subsidiary of the Registrant ("Merger Subsidiary") with and into Database
Technologies, Inc. ("DBT") pursuant to the Agreement of Merger dated February 7,
1996 among the Registrant, Patlex Corporation, DBT and Merger Subsidiary,
described in the enclosed Proxy Statement/Prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box /X/.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION
8(A), MAY DETERMINE.
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<PAGE> 2
PATLEX HOLDINGS, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN PROXY
IN FORM S-4 STATEMENT/PROSPECTUS
----------- -----------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus...... Facing Page; Cross-Reference Sheet;
Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... Cover Page of Proxy
Statement/Prospectus; Summary; Risk
Factors; Introduction; Selected
Financial Data of Patlex; Selected
Financial Data of DBT; Unaudited
Condensed Pro Forma Financial
Statements
4. Terms of the Transaction.................... Notice of Special Meeting of
Shareholders; Summary;
Introduction; The Merger;
Description of Capital Stock;
Market Prices of Securities
5. Pro Forma Financial Information............. Summary; Unaudited Condensed Pro
Forma Financial Statements
6. Material Contacts with the Company Being
Acquired.................................... The Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
Be Underwriters............................. *
8. Interests of Named Experts and Counsel...... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. *
10. Information with Respect to S-3
Registrants................................. *
11. Incorporation of Certain Information by
Reference................................... *
12. Information with Respect to S-2 or S-3
Registrants................................. *
13. Incorporation of Certain Information by
Reference................................... *
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants........... Summary; The Merger; Market Prices
of Securities; Selected Financial
Data of Patlex; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations of Patlex; Business of
Patlex; Management; Financial
Statements of Patlex
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN PROXY
IN FORM S-4 STATEMENT/PROSPECTUS
----------- -----------------------------------
<C> <S> <C>
15. Information with Respect to S-3 Companies... *
16. Information with Respect to Companies Other
Than S-2 or S-3 Companies................... *
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies................... Summary; The Merger; Market Prices
of Securities; Selected Financial
Data of DBT; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations of DBT; Business of DBT;
Management; Financial Statements of
DBT
18. Information if Proxies, Consents or
Authorizations are to be Solicited.......... Notice of Special Meeting of
Shareholders; Cover Page of Proxy
Statement/Prospectus; Summary;
Introduction; The Merger; Principal
Shareholders of DBT; Management;
Certain Relationships and Related
Transactions
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer........................... *
</TABLE>
- ---------------
* Omitted because the item is inapplicable or the answer thereto is negative.
<PAGE> 4
PRELIMINARY PROXY MATERIALS
[LETTERHEAD OF PATLEX CORPORATION]
July 19, 1996
To the Shareholders of Patlex Corporation:
Enclosed are a Notice of Special Meeting of Shareholders, a Proxy
Statement/Prospectus and a form of proxy for a special meeting of shareholders
(the "Meeting") of Patlex Corporation ("Patlex") to be held on August 20, 1996,
at 10:00 a.m., local time, at the New York Athletic Club, 180 Central Park
South, New York, New York.
At the Meeting, you will be asked to consider and vote on:
(i) A proposal to approve and adopt a Plan of Merger and
Reorganization (the "Plan of Reorganization") pursuant to which Patlex will
be reorganized (the "Reorganization") into a holding company structure,
whereby at the time of the Reorganization the holders of Patlex Common
Stock will become holders of shares of Common Stock of a new publicly-held
holding company ("Holdco") that will be renamed "DBT Online, Inc.," and
Patlex will become a wholly-owned subsidiary of Holdco;
(ii) A proposal to approve and adopt an Agreement of Merger, dated as
of February 7, 1996, as amended and restated as of June 28, 1996 (the
"Merger Agreement"), pursuant to which, immediately after the
Reorganization, DBT Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Holdco, will be merged (the "Merger") with and
into Database Technologies, Inc., a Florida corporation ("DBT"), and DBT
will become a wholly-owned subsidiary of Holdco; and
(iii) A proposal to approve and adopt an amended and restated Stock
Option Plan (the "Plan") that includes, among other things, an increase in
the number of authorized shares thereunder from 375,000 to 900,000 shares
available for granting options under the Plan.
Upon completion of the Reorganization and the Merger, the current holders
of DBT Common Shares, in the aggregate, will own approximately 66.8% of the
outstanding Holdco Common Stock and the current holders of Patlex Common Shares
will own approximately 33.2% of the outstanding Holdco Common Stock, based on
the number of shares and options outstanding as of the date hereof. Details of
the proposed transaction, including the exchange ratio for the issuance of
Holdco Common Stock to DBT shareholders in the Merger, are set forth in the
accompanying Proxy Statement/Prospectus, which you should read carefully.
All shareholders are invited to attend the Meeting in person. The
affirmative vote of the holders of a majority of the votes cast at the Meeting
will be necessary for the approval and adoption of the Merger Agreement, the
Plan of Merger and the Plan.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING, YOU ARE URGED
TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
Sincerely,
FRANK BORMAN
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 5
PATLEX CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Meeting") of Patlex Corporation ("Patlex") will be held on August 20, 1996, at
10:00 a.m., local time, at the New York Athletic Club, 180 Central Park South,
New York, New York for the following purposes:
(1) To consider and act upon a proposal to approve and adopt a Plan of
Merger and Reorganization (the "Plan of Reorganization") pursuant to which
Patlex will be reorganized (the "Reorganization") into a holding company
structure, whereby at the time of the Reorganization the holders of Patlex
Common Stock will become holders of shares of Common Stock of a new
publicly-held holding company ("Holdco") that will subsequently be renamed
"DBT Online, Inc.," and Patlex will become a wholly-owned subsidiary of
Holdco. A copy of the Plan of Reorganization is attached as Appendix A to
the Proxy Statement/Prospectus which is being delivered herewith.
(2) To consider and act upon a proposal to approve and adopt an
Agreement of Merger, dated as of February 7, 1996, as amended and restated
as of June 28, 1996 (the "Merger Agreement"), pursuant to which DBT
Acquisition Corp., a wholly-owned subsidiary of Holdco ("Merger
Subsidiary"), will be merged (the "Merger") with and into Database
Technologies, Inc., a Florida corporation ("DBT"), with DBT continuing as
the surviving corporation and a wholly-owned subsidiary of Holdco. The
terms of the Merger Agreement provide, in general, that holders of the DBT
Common Shares will receive shares of the Holdco Common Stock. Upon
completion of the Reorganization and the Merger, the current holders of DBT
Common Stock, in the aggregate, will own approximately 66.8% of the
outstanding Holdco Common Stock and holders of the Patlex Common Stock will
own approximately 33.2% of the outstanding Holdco Common Stock. A copy of
the Merger Agreement is attached as Appendix B to the Proxy
Statement/Prospectus which is being delivered herewith.
(3) To consider and act upon a proposal to approve and adopt an
amended and restated Stock Option Plan (the "Plan") that includes, among
other things, an increase in the number of authorized shares thereunder
from 375,000 to 900,000 shares available for granting options under the
Plan. A copy of the Plan, as amended and restated, is attached as Appendix
F to the Proxy Statement/Prospectus which is being delivered herewith.
(4) To transact such other business as may properly come before the
Meeting and any adjournments thereof.
The affirmative vote of the holders of a majority of the votes cast by the
holders of Patlex Common Stock present, or represented by proxy, and entitled to
vote at the Meeting is required to approve the Merger Agreement, the Plan of
Reorganization and the amendment to the Plan. If the Merger Agreement is not
approved, the Plan of Reorganization will not be implemented and the Plan will
not be amended and restated.
Only shareholders of record as of the close of business on July 16, 1996,
will be entitled to notice of the Meeting and to vote at the Meeting and any
adjournments thereof. A list of shareholders of Patlex of record as of the close
of business on July 16, 1996, will be available for inspection during normal
business hours for ten days prior to the Meeting at Patlex's executive office at
5550 West Flamingo Road, Suite B-5, Las Vegas, Nevada 89103.
By order of the board of directors,
J. Henry Muetterties, Secretary
July 19, 1996
PLEASE DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES MAY BE
VOTED IN ACCORDANCE WITH YOUR WISHES AND SO THAT THE PRESENCE OF A QUORUM MAY BE
ASSURED. THE GIVING OF SUCH PROXY DOES NOT EFFECT YOUR RIGHT TO VOTE IN PERSON
IN THE EVENT YOU ATTEND THE MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME
BEFORE IT IS VOTED.
<PAGE> 6
PROXY STATEMENT
FOR
PATLEX CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
AUGUST 20, 1996
------------------------
PATLEX HOLDINGS, INC.
(TO BE RENAMED "DBT ONLINE, INC.")
PROSPECTUS
FOR
UP TO 7,618,577 SHARES OF COMMON STOCK, PAR VALUE $.10 PER SHARE
This Proxy Statement/Prospectus of Patlex Corporation, a Pennsylvania
corporation ("Patlex"), is being furnished to holders of the common stock, par
value $.10 per share (the "Patlex Common Shares"), in connection with the
solicitation of proxies by Patlex's board of directors for use at the special
meeting of shareholders of Patlex (the "Meeting") to be held on Tuesday, August
20, 1996, at the New York Athletic Club, 180 Central Park South, New York, New
York at 10:00 a.m., local time, and any adjournments thereof.
At the Meeting, the shareholders of Patlex will be asked to approve and
adopt (i) a Plan of Merger and Reorganization (the "Plan of Reorganization")
pursuant to which Patlex will be reorganized (the "Reorganization") into a
holding company structure, whereby at the time of the Reorganization the holders
of Patlex Common Shares will become holders of shares of common stock of Patlex
Holdings, Inc., a new publicly-held holding company ("Holdco") that will
subsequently be renamed "DBT Online, Inc.," and Patlex will become a
wholly-owned subsidiary of Holdco; (ii) an Agreement of Merger, dated as of
February 7, 1996, as amended and restated as of June 28, 1996 (the "Merger
Agreement"), pursuant to which DBT Acquisition Corp., a Florida corporation and
a wholly-owned subsidiary of Holdco ("Merger Subsidiary"), will be merged (the
"Merger") with and into Database Technologies, Inc., a Florida corporation
("DBT"), with DBT continuing as the surviving corporation and a wholly-owned
subsidiary of Holdco; and (iii) the amended and restated Stock Option Plan (the
"Plan") that includes, among other things, an increase in the number of
authorized shares thereunder from 375,000 to 900,000 shares available for
granting options under the Plan. If the Merger Agreement is not approved, the
Plan of Reorganization will not be implemented and the Plan will not be amended
and restated. Copies of the Plan of Reorganization, the Merger Agreement and the
Plan are attached as hereto as Appendix A, Appendix B and Appendix F,
respectively.
This Proxy Statement/Prospectus also constitutes a prospectus of Holdco
filed as part of a Registration Statement (defined below) with the Securities
and Exchange Commission with respect to shares of common stock, par value $.10
per share (the "Holdco Common Shares") of Holdco to be issued to shareholders of
DBT pursuant to the terms of the Merger Agreement and shareholders of Patlex
pursuant to the Plan of Reorganization. Under the terms of the Plan of
Reorganization, (i) Patlex Newco, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of Holdco (the "Reorganization Subsidiary") will be
merged with and into Patlex, (ii) Patlex will become a wholly-owned subsidiary
of Holdco, and (iii) each outstanding Patlex Common Share will be converted into
the right to receive, assuming no exercise of statutory dissenters' rights, one
Holdco Common Share. Under the terms of the Merger Agreement, (i) the Merger
Subsidiary will be merged with and into DBT, (ii) DBT will become a wholly-owned
subsidiary of Holdco, and (iii) each outstanding share of DBT common stock, par
value $.01 per share (collectively, the "DBT Common Shares"), will be converted
into the right to receive, assuming no fractional shares and no exercise of
statutory dissenters' rights, the number of Holdco Common Shares equal to (x)
the product of 1.86 multiplied by the sum of the total number of Holdco Common
Shares outstanding immediately prior to the effective time of the Merger, plus
one-half the number of Holdco Common Shares issuable upon the exercise of
options outstanding immediately prior to the effective time of the Merger,
divided by (y) the total number of DBT Common Shares outstanding immediately
prior to the effective time of the Merger. Upon completion of the Merger and
Reorganization, the current holders of DBT Common Shares, in the aggregate, will
own approximately 66.8% of the outstanding Holdco Common Shares, assuming an
exchange ratio of 2.93 Holdco Common Shares for each DBT Common Share, based on
the number of shares and options outstanding as of the date hereof.
PATLEX SHAREHOLDERS VOTING UPON THE MERGER AND DBT SHAREHOLDERS RECEIVING
THE HOLDCO COMMON SHARES IN THE MERGER SHOULD CAREFULLY CONSIDER THE FACTORS
DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to the shareholders of Patlex on or about July 22, 1996.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JULY 19, 1996.
<PAGE> 7
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY HOLDCO, PATLEX OR DBT. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY TO OR FROM ANY PERSON IN
ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION ABOUT HOLDCO, PATLEX OR DBT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Patlex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information
filed with the SEC are available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, New York, New York
10048. Copies of such documents may also be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, such materials and other information
concerning Patlex can be inspected at the Nasdaq Stock Market, 1735 K Street,
N.W. Washington, D.C. 20006.
A Registration Statement on Form S-4 (together with all amendments,
schedules and exhibits thereto, the "Registration Statement") has been filed
with the SEC under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Holdco Common Shares issuable in connection with the
Merger and the Reorganization. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. The
Registration Statement, including any amendments, schedules and exhibits
thereto, is available for inspection and copying as set forth above. Statements
contained in this Proxy Statement/Prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
2
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................. 2
SUMMARY............................... 4
RISK FACTORS.......................... 10
INTRODUCTION.......................... 13
THE MERGER............................ 16
THE REORGANIZATION.................... 27
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ 32
DESCRIPTION OF HOLDCO CAPITAL STOCK... 33
COMPARISON OF SHAREHOLDER RIGHTS...... 35
MARKET PRICES OF SECURITIES........... 40
SELECTED FINANCIAL DATA OF PATLEX..... 41
SELECTED FINANCIAL DATA OF DBT........ 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF PATLEX............. 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF DBT................ 46
UNAUDITED CONDENSED PRO FORMA
FINANCIAL STATEMENTS................ 51
BUSINESS OF PATLEX.................... 57
<CAPTION>
PAGE
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<S> <C>
BUSINESS OF DBT....................... 60
MANAGEMENT............................ 64
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 67
PRINCIPAL SHAREHOLDERS OF PATLEX...... 69
PRINCIPAL SHAREHOLDERS OF DBT......... 70
AMENDED AND RESTATED STOCK OPTION
PLAN................................ 71
LEGAL OPINIONS........................ 73
EXPERTS............................... 73
INDEX TO FINANCIAL STATEMENTS......... F-1
APPENDIX A: PLAN OF MERGER AND
REORGANIZATION...................... A-1
APPENDIX B: AMENDED AND RESTATED
AGREEMENT OF MERGER................. B-1
APPENDIX C: PRINCIPAL SHAREHOLDER'S
AGREEMENT........................... C-1
APPENDIX D: PENNSYLVANIA BUSINESS
CORPORATION LAW..................... D-1
APPENDIX E: OPINION OF CS OF FIRST
BOSTON CORPORATION.................. E-1
APPENDIX F: AMENDED AND RESTATED STOCK
OPTION PLAN......................... FF-1
</TABLE>
3
<PAGE> 9
SUMMARY
The following is a summary of certain significant matters discussed
elsewhere in this Proxy Statement/Prospectus. This summary is qualified in its
entirety by reference to the more detailed information appearing in this Proxy
Statement/Prospectus and the Appendices hereto. Shareholders are urged to read
the entire Proxy Statement/Prospectus, including the Appendices hereto.
PATLEX
Patlex has been engaged in the patent exploitation and enforcement business
since late 1979. Patlex owns a 64% gross interest in the royalty income from,
and a 42.86% ownership interest in, certain patents which relate to basic
technology used in certain types of commonly used lasers and certain uses of
laser technology (the "Laser Patents"). On September 27, 1995, AutoFinance
Group, Inc. ("AFG"), as the then sole shareholder of Patlex, effected the
distribution (the "Distribution") of 95.01% of the outstanding Patlex Common
Shares to AFG shareholders. Immediately after the Distribution, AFG merged with
and into a wholly-owned subsidiary of KeyCorp ("KeyCorp"), and the AFG
shareholders received KeyCorp stock (the "AFG/KeyCorp Merger"). As a consequence
of the Distribution, Patlex became an independent, public company. Patlex's
executive offices are located at 5550 West Flamingo Road, Suite B-5, Las Vegas,
Nevada 89103, and its telephone number is (702) 257-1102. See "Business of
Patlex."
DBT
DBT is an electronic information content provider furnishing on-line,
immediate access to public records on individuals, businesses and assets. DBT's
executive offices are located at 100 E. Sample Road, Suite 200, Pompano Beach,
Florida 33064, and its telephone number is (954) 781-5221. See "Business of
DBT."
HOLDCO
Holdco is a wholly-owned subsidiary of Patlex. Prior to the Registration,
Holdco will have conducted no significant business, and after the
Reorganization, will not become an operating company. It is planned that,
following the Reorganization and Merger, Holdco will hold all the common stock
of Patlex and DBT. Holdco will change its name to "DBT Online, Inc." The
executive offices of Holdco are located at 5550 West Flamingo Road, Suite B-5,
Las Vegas, Nevada 89103, and its telephone number is (702) 257-1102.
THE MEETING
The special meeting of shareholders of Patlex (the "Meeting") will be held
on August 20, 1996 at 10:00 a.m., local time, at the New York Athletic Club, 180
Central Park South, New York, New York. Only holders of Patlex Common Shares of
record as of the close of business on July 16, 1996, will be entitled to notice
of the Meeting and to vote at the Meeting and any adjournments thereof. At such
date, there were outstanding and entitled to vote 2,565,736 Patlex Common
Shares. Each Patlex Common Share is entitled to one vote.
At the Meeting, the shareholders of Patlex will be asked to approve and
adopt (i) the Plan of Reorganization, providing for the Reorganization pursuant
to which Patlex will be reorganized into a holding company structure, whereby at
the time of the Reorganization the holders of Patlex Common Shares will become
holders of shares of Common Stock of Holdco, a new publicly-held holding company
to be renamed "DBT Online, Inc." after the Reorganization, and Patlex will
become a wholly-owned subsidiary of Holdco; (ii) the Merger Agreement, providing
for the Merger, pursuant to which the Merger Subsidiary will be merged with and
into DBT, with DBT continuing as the surviving corporation and a wholly-owned
subsidiary of Holdco; and (iii) the Plan, as amended and restated, including an
increase in the number of authorized shares thereunder from 375,000 to 900,000.
Copies of the Plan of Reorganization, the Merger Agreement and the Plan are
attached hereto as Appendix A, Appendix B and Appendix F, respectively.
4
<PAGE> 10
VOTE REQUIRED
Approval of the Merger Agreement, the Plan of Reorganization and the Plan,
as amended and restated, will require the affirmative vote of a majority of
votes cast by the holders of Patlex Common Shares present or represented by
proxy at the Meeting.
RISK FACTORS
SHAREHOLDERS OF PATLEX VOTING UPON THE MERGER AND SHAREHOLDERS OF DBT
RECEIVING HOLDCO COMMON SHARES IN THE MERGER SHOULD CAREFULLY CONSIDER CERTAIN
FACTORS IN EVALUATING THE MERGER. SEE "RISK FACTORS."
THE MERGER
Upon consummation of the Merger, the Merger Subsidiary will be merged with
and into DBT, with DBT to continue as the surviving corporation and a
wholly-owned subsidiary of Holdco. Upon consummation of the Reorganization,
Holdco will change its name to "DBT Online, Inc." and Patlex will become a
wholly-owned subsidiary of Holdco. Upon completion of the Merger and
Reorganization, the current holders of DBT Common Shares, in the aggregate, will
own approximately 66.8% of the outstanding Holdco Common Shares and the current
holders of Patlex Common Shares, in the aggregate, will own approximately 33.2%
of the outstanding Holdco Common Shares, based on the number of Patlex Common
Shares and options currently outstanding.
CONVERSION OF SHARES; EXCHANGE RATIO
Pursuant to the provisions of the Merger Agreement, each DBT Common Share
issued and outstanding prior to the Merger, assuming no fractional shares, will
be converted into the right to receive the number of Holdco Common Shares equal
to (x) the product of 1.86 multiplied by the sum of (i) the total number of
Holdco Common Shares outstanding immediately prior to the Effective Time, plus
(ii) one-half the number of Holdco Common Shares issuable upon the exercise of
options outstanding immediately prior to the Effective Time, divided by (y) the
total number of DBT Common Shares outstanding immediately prior to the Effective
Time. Based on the number of Patlex Common Shares and options outstanding as of
the date hereof, holders of DBT Common Shares, in the aggregate, will own
approximately 66.8% of the Holdco Common Shares to be outstanding after the
Merger and the Reorganization. Each Patlex Common Share outstanding as of the
consummation of the Reorganization will be converted into one share of Holdco
Common Stock, and holders of such shares, in the aggregate, will own
approximately 33.2% of the Holdco Common Shares to be outstanding after the
Merger and the Reorganization. See "The Merger -- Conversion of Shares; Exchange
Ratio."
REASONS FOR THE MERGER
See "The Merger -- Reasons for the Merger; Recommendations."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors of Patlex has approved the terms of the proposed
Merger, the Reorganization and the Plan, as amended and restated, and recommends
that the Patlex shareholders vote to approve and adopt the Merger Agreement, the
Reorganization and the Plan. See "The Merger -- Background of the Merger" and
"-- Reasons for the Merger; Recommendations" and "The Reorganization." Kenneth
G. Langone and Gary E. Erlbaum have abstained from the approval and
recommendation of the Merger. See "Introduction -- Interests of Certain Persons
in the Merger."
OPINION OF FINANCIAL ADVISOR TO PATLEX
On February 7, 1996, CS First Boston Corporation ("CS First Boston")
rendered a written opinion to the board of directors of Patlex that, as of such
date and based upon and subject to certain matters stated therein, the
consideration to be paid in the Merger was fair to Patlex from a financial point
of view. CS First Boston
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<PAGE> 11
confirmed its opinion of February 7, 1996 by delivery of a written opinion dated
the date of this Proxy Statement/Prospectus. A copy of the opinion of CS First
Boston dated the date of this Proxy Statement/Prospectus, setting forth the
assumptions and qualifications made, the matters considered and the limitations
on the review undertaken in rendering such opinion, is attached hereto as
Appendix E and should be carefully read in its entirety. See "The
Merger -- Opinion of Financial Advisor to Patlex."
THE MERGER AGREEMENT
The Merger Agreement sets forth the principal terms by which the Merger
will be consummated, and the rights of holders of DBT Common Shares to receive
Holdco Common Shares pursuant to the Merger. The Merger Agreement contains
representations, warranties and agreements of the parties, and provides specific
conditions to the consummation of the Merger and terms under which the Merger
may be terminated or abandoned. In general, the representations, warranties and
agreements made by the parties in the Merger Agreement will not continue after
the consummation of the Merger. See "The Merger -- The Merger Agreement." Hank
Asher, the President and majority shareholder of DBT, has agreed to indemnify
Patlex and Holdco for certain breaches by DBT under the Merger Agreement
pursuant to the terms of the Principal Shareholder's Agreement attached as
Appendix C hereto. See "The Merger -- Principal Shareholder's Agreement."
EFFECTIVE TIME
Following the satisfaction or waiver of all conditions to the Merger, the
parties will file Articles of Merger and all other necessary documents with the
Secretary of State of the State of Florida. The Merger will be consummated on
the date and time of such filing or such other time specified in such filing
(the "Effective Time"). See "The Merger -- Effective Time."
FRACTIONAL SHARES
No fractional Holdco Common Shares will be issued as a result of the
Merger. Each holder of a fractional interest in Holdco Common Shares will be
entitled to receive an amount of cash equal to such fraction multiplied by the
average of the closing prices of Patlex Common Shares for the five trading days
prior to the Effective Time, as reported on the Nasdaq Stock Market (the "Nasdaq
Stock Market"). See "The Merger -- Fractional Shares."
INTERESTS OF CERTAIN PERSONS IN MERGER
As contemplated by the Merger Agreement, Patlex has agreed to cause Hank
Asher, Charles Asher, Jack Hight and Sari Zalcberg, each a DBT director and
shareholder to be elected to the Holdco Board, in addition to Kenneth G.
Langone, Gary E. Erlbaum and Frank Borman, the current Patlex directors who will
remain on the Holdco Board. DBT's designees will represent four of the seven
members of the Holdco Board subsequent to the Effective Time. In addition,
Kenneth G. Langone and Gary E. Erlbaum are directors and shareholders of both
Patlex and DBT. Messrs. Langone and Erlbaum abstained from all Patlex Board
action taken with respect to the Merger. See "Introduction -- Interests of
Certain Persons in the Merger," "Principal Shareholders of Patlex" and
"Principal Shareholders of DBT."
DBT SHAREHOLDER APPROVAL
The Merger is subject to the approval of DBT's shareholders. Hank Asher,
the President of DBT is the beneficial owner of 54.5% of the outstanding DBT
Common Shares, and has agreed to vote in favor of the approval of the Merger
Agreement pursuant to the terms of the Principal Shareholder's Agreement
attached as Appendix C hereto. DBT's board of directors approved the terms of
the Merger Agreement, and it is anticipated that DBT's shareholders will approve
the Merger Agreement prior to the Meeting. In addition, two directors of Patlex,
Kenneth G. Langone and Gary E. Erlbaum, are also directors of DBT and are the
beneficial owners, in the aggregate, of 14.4% of the outstanding DBT Common
Shares, and have indicated that they will vote in favor of the Merger Agreement.
See "The Merger."
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<PAGE> 12
OPERATIONS, DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER
As a result of the Merger, the Merger Subsidiary, a wholly-owned subsidiary
of Holdco, will be merged with and into DBT with DBT continuing as the surviving
corporation, which will be a wholly-owned subsidiary of Holdco. Upon
consummation of the Reorganization immediately prior to the Merger, Holdco will
change its name to "DBT Online, Inc." As of the Effective Time of the Merger,
Holdco's board of directors will be expanded from three to seven members, and
the four new directors designated by DBT will be elected in addition to the
existing Patlex directors. It is expected that Hank Asher will become President
of Holdco after the Merger, and that Frank Borman will remain as Chairman of the
Board. See "The Merger" and "Management."
DISSENTERS' RIGHTS
Under Pennsylvania Law, the holders of Patlex Common Shares will not have
dissenters' rights in connection with the Merger. See "The Merger -- No
Dissenters' Rights." The holders of Patlex Common Shares will, however, have
dissenters' rights in connection with the proposed Reorganization. See "The
Reorganization -- Dissenters' Rights."
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for as a purchase business acquisition of
Patlex by DBT (a reverse acquisition) and a recapitalization of DBT.
Accordingly, Patlex Common Shares will be valued at Patlex's stock price at the
date the merger terms were agreed. The excess of the estimated market value of
the Common Shares over the Patlex net assets will be allocated to Patlex's
Investment in Patents. See "The Merger -- Accounting Treatment."
REGULATORY FILINGS AND APPROVALS
No regulatory approvals are required because the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder is not applicable to these transactions.
THE REORGANIZATION
If approved by the shareholders of Patlex, the Reorganization will
establish a new holding company structure for Patlex and DBT after the Merger.
Holdco is a wholly-owned subsidiary of Patlex, and the Reorganization
Subsidiary, in turn, is a wholly-owned subsidiary of Holdco. The Reorganization
Subsidiary has been formed solely for the purpose of effecting the
Reorganization. Prior to the Reorganization, the Reorganization Subsidiary will
have conducted no significant business. The Reorganization will be effected by
the merger of the Reorganization Subsidiary and Patlex. Following the
Reorganization, the separate existence of the Reorganization Subsidiary will
cease and Patlex will remain as the surviving corporation and be a wholly-owned
subsidiary of Holdco. Prior to the Reorganization, Holdco will have conducted no
significant business, and after the Reorganization, will not become an operating
company. Rather, it is planned that, following the Reorganization and Merger,
the shares of Patlex and DBT will be held directly by Holdco. Holdco will change
its name to "DBT Online, Inc." and, together with its subsidiaries, will conduct
all the operations currently conducted by Patlex and DBT.
It is anticipated that, if the Plan of Reorganization is approved by the
shareholders of Patlex, the Reorganization will become effective immediately
prior to the effective time of the Merger. If the Merger Agreement is not
approved, the Reorganization will not be implemented.
The Board of Directors and management of Patlex believe the proposed
Reorganization will afford the opportunity for increased flexibility in
financing and investments, and will permit the development of, or investment in,
new activities and businesses should such development or investment be
desirable. The holding company structure will also better define the managerial
responsibilities. See "The Reorganization -- Principal Reasons for the
Reorganization."
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<PAGE> 13
Upon the effectiveness of the Reorganization, each Patlex Common Share will
automatically be converted into one Holdco Common Share. Consequently, the
shareholders of Patlex will become shareholders of Holdco and will have the same
ownership interest in Holdco as they now have in Patlex prior to the Merger. It
will not be necessary to exchange certificates representing Patlex Common
Shares; each certificate for Patlex Common Shares will automatically represent a
certificate for a like number of shares of Holdco Common Shares. New
certificates for Holdco Common Shares will be issued in the future as
outstanding certificates are presented for transfer or upon request of any
holder of Patlex Common Shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
DBT AND PATLEX SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS
REGARDING THE TAX CONSEQUENCES OF THE MERGER WITH RESPECT TO THEIR OWN
PARTICULAR CIRCUMSTANCES.
It is anticipated that the Merger will be a tax-free reorganization for
federal income tax purposes and that no gain or loss will be recognized by
shareholders of DBT who exchange DBT Common Shares for Holdco Common Shares
pursuant to the Merger and Reorganization.
No gain or loss will be recognized for federal income tax purposes by
shareholders of Patlex who exchange their Patlex Common Shares for Holdco Common
Shares pursuant to the Reorganization and Merger. See "Certain Federal Income
Tax Consequences."
AMENDMENT AND RESTATEMENT OF THE PLAN
Shareholders are being asked to approve an amended and restated Plan to,
among other things, increase the number of shares available for issuance from
375,000 to 900,000. The Plan will be assumed by Holdco in the Reorganization and
Holdco Common Shares will be available for issuance under the Plan upon the
exercise of options. See "Management -- Stock Options" and "Amended and Restated
Stock Option Plan."
MARKET PRICE DATA
Prior to September 28, 1995, there was no trading market for the Patlex
Common Shares. On December 7, 1995, the last full trading day prior to the
public announcement of the execution of a letter of intent with respect to the
Merger, the closing price of the Patlex Common Shares as reported by the Nasdaq
Stock Market was $5.25 per share. On July 16, 1996, the most recent date for
which it was practicable to obtain market price information prior to the
printing of this Proxy Statement/Prospectus, such closing price was $35.75. See
"Market Prices of Securities." Patlex has not paid or declared any dividends
since the Patlex Common Shares became publicly traded.
DBT is a private company and accordingly no established public trading
market exists for the DBT Common Shares.
In the Reorganization, all holders of Patlex Common Shares will receive an
equal number of Holdco Common Shares on a share-for-share basis. Because the
market price of the Patlex Common Shares is subject to fluctuation, the market
value of the Holdco Common Shares that holders of DBT Common Shares will receive
in the Merger may increase or decrease prior to or after the Merger. Patlex
shareholders are urged to obtain current market quotations for Patlex Common
Shares.
COMPARATIVE PER SHARE DATA
The following table presents certain selected historical and combined pro
forma per share data for Patlex and DBT assuming the issuance of 5,091,530
Holdco Common Shares in exchange for all the outstanding DBT Common Shares at
the exchange formula under which the shareholders of DBT would receive the
number of Holdco Common Shares equal to (x) the product of 1.86 multiplied by
the sum of the total number of Holdco Common Shares outstanding plus one-half
the number of Holdco Common Shares issuable upon the exercise of options
outstanding divided by (y) the total number of DBT shares outstanding, for each
DBT Common Share. The pro forma data are presented for comparative purposes only
and are not necessarily indicative of the combined financial position or results
of operations in the future. Although Holdco is the
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<PAGE> 14
surviving corporation, for accounting purposes the transaction is being treated
as a purchase business acquisition of Patlex by DBT (a reverse acquisition) and
a recapitalization of DBT. The merger is assumed to be consummated as of the
dates indicated.
DBT's fiscal year coincides with the calendar year and Patlex's fiscal year
ends on June 30. This data should be read in conjunction with the selected
financial data, the unaudited condensed pro forma financial statements and DBT's
historical financial statements and Patlex's historical financial statements
(which, because Patlex's fiscal year ended June 30, have been recast to conform
to DBT's fiscal year ended December 31) included elsewhere in this Proxy
Statement/Prospectus.
The aggregate number of outstanding Holdco Common Shares used in these pro
forma calculations is 8,039,244.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
HISTORICAL -- DBT(1):
Book value per share(2)............................... $ 1.60 $1.50
Cash dividends paid per share......................... -- --
Net earnings (loss) per share......................... 0.10 (.79)
HISTORICAL -- PATLEX:
Book value per share(2)............................... 5.76 5.61
Cash dividends paid per share......................... -- --
Net earnings.......................................... .14 .77
PRO FORMA COMBINED -- HOLDCO:
Book value per share(2)............................... 2.16 2.09
Cash dividends paid per share......................... -- --
Net earnings (loss) per share......................... .07 .09
</TABLE>
- ---------------
(1) DBT's fiscal year end is December 31. DBT historical net income per share
and weighted average common share amounts have been restated to
retroactively reflect the 1000 for 1 stock split effected August 10, 1995.
(2) Historical book value per share at March 31, 1996 and December 31, 1995 are
computed by dividing total stockholders' equity by the number of shares
outstanding at the end of each period. Pro forma book value per share are
computed by dividing pro forma stockholders' equity by the pro forma number
of Holdco Common Shares outstanding following the Merger.
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<PAGE> 15
RISK FACTORS
The following are certain investment considerations that should be
carefully considered by holders of Patlex Common Shares voting upon the Merger
and by holders of DBT Common Shares who will receive Holdco Common Shares in the
Merger, in addition to the risks and other information described elsewhere in
this Proxy Statement/Prospectus.
RISKS RELATED TO DBT
New Products Untested in Marketplace. Both the new products and the
expansion of existing products that are being developed by DBT and expected to
be utilized in 1996 have not yet been introduced in the marketplace. There can
be no assurance that such products will be introduced when expected, if at all,
or, if introduced, that such products will be accepted in the marketplace. In
addition, DBT may not be able to accurately predict demand for new products from
either new or existing customers. Further, while DBT expects that new customers
will ultimately use not only the products to which they are initially attracted
but also DBT's other products, there can be no assurance that such cross-selling
of DBT products will be successful. Lack of acceptance by the marketplace of
DBT's new products may have an adverse effect on DBT's financial condition and
results of operations. See "Business of DBT -- Products" and "-- Customers."
Down-time of System. Users of DBT's products access the information
on-line by calling into DBT's operating system. Unavailability of access to
DBT's system for a period of time could result from technical failure or natural
disaster. Should access be unavailable for an extended time, users may seek
other sources of information and there can be no assurance that DBT would be
able to continue its relationships with such users in the future. Thus, such
down-time represents a potential short-term and long-term loss of revenues which
could have an adverse effect on DBT.
Potential Increases in the Cost of Data. DBT acquires its data from both
governmental and commercial sources. There can be no assurance that acquisition
costs will not increase in the future. In addition, there can be no assurance
that such increases, if any, can be absorbed by DBT or passed through to DBT's
customers. Significant increases in costs may have an adverse effect on DBT's
financial condition and results of operations. See "Business of DBT -- Data
Sources."
Impact of Government Regulation of Access to Records. At the present time,
most of the data used by DBT is acquired from public sources. There can be no
assurance that the availability of such information will not become subject to
regulation in the future. Because DBT's ability to attract and retain customers
is closely related to its ability to obtain and provide information to its
customers, increased government regulation with respect to DBT's ability to
acquire information could have a material adverse effect on DBT's business. See
"Business of DBT -- Government Regulation."
Dependence on Key Personnel. DBT's success is dependent upon its key
personnel and, in particular, its President, Hank Asher, who led the development
of DBT's software and hardware platforms. In addition, DBT's success will
depend, in part, on its ability to attract and retain qualified personnel in the
future. Failure to attract and retain such persons could have an adverse effect
on DBT.
Claims Arising from Improper Use of Information; Incorrect
Information. Improper use of information obtained from DBT's products or the
supply of incorrect information by DBT could result in unexpected liability of
DBT. There can be no assurance that such claims against DBT, if any, would not
be successful and that such claims, if successful, would not have a material
adverse effect on DBT's financial condition. See "Business of DBT -- Customers."
Significant Stock Ownership by Certain Shareholders. Hank Asher, the
President and majority shareholder of DBT, will own approximately 36.4% of the
Holdco Common Shares to be outstanding following the Merger. Mr. Asher will be
able to exercise considerable influence over the affairs of Holdco after the
Merger. This could diminish the relative voting power of the other shareholders
and accordingly reduce their individual and collective ability to influence the
affairs of DBT.
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<PAGE> 16
RISKS RELATED TO PATLEX
Uncertainties Relating to the Laser Patents. The Laser Patents, which had
a book value of approximately $14,883,000 at December 31, 1995 and approximately
$15,771,000 at June 30, 1995, are Patlex's most significant assets. The book
value of the Laser Patents represented approximately 67% of the book value of
all of Patlex's assets as of December 31, 1995 and 76% as of June 30, 1995.
Prior to its expiration in October 1994, the Optically Pumped Laser Patent (U.S.
Patent No. 4,053,845) accounted for approximately 28% of the laser patent
royalty revenues, the Gas Discharge Laser Patent (U.S. Patent No. 4,704,583)
accounted for approximately 62% of the laser patent royalty revenues, the Use
Patent (U.S. Patent No. 4,161,436) accounted for approximately 10% of the laser
patent royalty revenues and the Brewster Angle Window Patent (U.S. Patent No.
4,746,201) accounted for less than 0.25% of laser patent royalty revenues.
Management anticipates that the decrease in royalty revenues as a result of the
expiration of the Optically Pumped Laser Patent may be offset to some extent by
increased royalty revenues from the Use and/or Brewster Angle Window Patents.
Management has determined through its review of royalty reports filed by its
licensees and discussions with representatives of and counsel to such licensees,
that certain of its licensees are paying royalties under the Use Patent and/or
the Brewster Angle Window Patent with respect to laser products for which they
had previously been paying royalties under the Optically Pumped Laser Patent.
However, there can be no assurance of the amount of any such increase or that
such increase will occur. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Patlex." Management believes that the
Laser Patents are valid and enforceable; however, there can be no assurance that
Patlex would prevail in subsequent proceedings challenging such validity and
enforceability, or that such challenges, if made, would not involve substantial
litigation expenses. In addition, any advance in technology which would render
one or more of the Laser Patents obsolete could have a material adverse effect
on Patlex's future revenue.
Limited Duration of Patents. The Laser Patents and their expiration dates
are as follows:
<TABLE>
<CAPTION>
U.S. PATENT NO. DESCRIPTION OF PATENT EXPIRATION DATE
- --------------- --------------------------------------------- ---------------
<C> <S> <C>
4,161,436 Use Patent July 1996
4,704,583 Gas Discharge Laser Patent November 2004
4,746,201 Brewster Angle Window Patent May 2005
</TABLE>
Upon the expiration of the applicable patent, Patlex will lose the right to
exclude others from exploiting the inventions claimed therein and, accordingly,
the obligation of third parties to make royalty payments to Patlex will cease.
The Optically Pumped Laster Patent expired in October 1994. Upon the expiration
of the Use Patent in July 1996, and assuming Patlex has not acquired additional
intellectual property rights, Patlex will derive substantially all of its laser
patent royalty revenue from the Gas Discharge Laser Patent. However, management
anticipates that the laser patent royalty revenue derived under the Gas
Discharge Laser Patent and Brewster Angle Window Patent will be sufficient to
fund the operations of Patlex. Unless Patlex diversifies or expands its business
activity, upon the expiration of the Brewster Angle Window Patent in May 2005,
Patlex would have no net laser patent royalties and, consequently, would be
compelled to wind up its business affairs.
Competing Technologies. Patlex's revenue is substantially derived from the
royalties it receives under its license agreements. Any advance in technology
that would render the technology covered by one or more of the Laser Patents
obsolete could have a material adverse impact on Patlex's future revenue.
Management believes, however, the laser technology covered by the Laser Patents
is the state of the art. Management is not aware of any recent advances in laser
technology that may materially adversely affect Patlex's future patent royalty
revenues but there has been a gradual increase in diode laser technology that
has inhibited growth of Patlex's laser technology in low power laser
applications.
Limited Trading Market. Prior to September 28, 1995, there was no existing
trading market for the Patlex Common Shares and there can be no assurance as to
the continuity of any such market. Patlex Common Shares are currently listed on
the Nasdaq Stock Market, but there can be no assurance that the Holdco Common
Shares will maintain such listing. Management expects that approximately 8.0
million Holdco Common Shares will be outstanding after the Merger. There can be
no assurance that trading will be
11
<PAGE> 17
sustained after the Merger or that the volume would be sufficient for trading to
occur with any frequency. As a result, it could be difficult to make purchases
or sales of Patlex Common Shares in the market at any particular time.
RISKS RELATED TO THE MERGER
Holding Company Structure. After the Reorganization and the Merger, Holdco
will be a holding company and will have no significant operations other than
those incidental to its ownership of the capital stock of its subsidiaries. As a
holding company, Holdco's results of operations will depend on the results of
operations of its subsidiaries. Moreover, Holdco will be dependent on dividends
or other intercompany transfers of funds from its subsidiaries to meet its debt
service and other obligations and, to the extent that Holdco intends to declare
cash dividends on the Holdco Common Stock in the future, to fund the payment of
cash dividends. However, Holdco does not expect to pay cash dividends on the
Holdco Common Stock in the foreseeable future. In addition, claims of Holdco's
subsidiaries, including trade creditors, will generally have priority as to the
assets of such subsidiaries over the claims of Holdco.
Ability of DBT Shareholders to Effect Control. Based on the number of
shares and options outstanding, the holders of Patlex Common Shares before the
Merger and Reorganization will beneficially own approximately 33.2% of Holdco
Common Shares after the Merger and Reorganization and the holders of DBT Common
Shares before the Merger will beneficially own approximately 66.8% of the Holdco
Common Shares outstanding after the Merger and Reorganization. In particular,
Hank Asher, the President of DBT, will be the beneficial owner of approximately
36.4% of the Holdco Common Shares outstanding after the Merger and
Reorganization. Consequently, after the Merger, the current shareholders of DBT,
and in particular Hank Asher, will have the ability to elect a majority of the
board of directors and, in effect, control the affairs of Holdco. In addition,
the Merger Agreement provides that upon the Merger, the size of the Holdco board
of directors will be increased from three to seven members and the additional
four members of the board have been designated by DBT. Therefore, after the
Merger, a majority of the members of the Holdco board of directors will be
designees of the current shareholders of DBT.
Anti-Takeover Provisions. The Holdco board of directors has the authority
to issue up to 5,000,000 shares of Preferred Stock and to determine the prices,
rights, preferences and privileges of those shares without any further vote or
action by the shareholders. The holders of shares of Holdco Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future. Although the Holdco board of
directors has no present intention to issue shares of Preferred Stock, any
issuance of Preferred Stock, while potentially providing increased flexibility
to Holdco in connection with possible acquisitions and general corporate
matters, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of Holdco. In addition,
certain provisions of Holdco's bylaws may have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of Holdco. See "Description of Holdco Capital Stock -- Pennsylvania Law
and Certain Articles of Incorporation and Bylaws Provisions."
Volatility of Stock Price. The market price for Patlex Common Stock has
been, and the market price for Holdco Common Stock may be subject to significant
fluctuations in response to operating results of Holdco or its subsidiaries,
developments in the industries in which Holdco's subsidiaries operate, general
market movements and other factors. In addition, the stock market in recent
years has experienced price and volume fluctuations in general that may have
been unrelated to or disproportionate to the operating performance of individual
companies. These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of Holdco Common Stock.
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<PAGE> 18
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Patlex
Common Shares in connection with the solicitation of proxies by the Patlex board
of directors for use at the special meeting of the shareholders of Patlex to be
held on Tuesday, August 20, 1996, at the New York Athletic Club, 180 Central
Park South, New York, New York at 10:00 a.m., local time, and any adjournments
thereof.
This Proxy Statement/Prospectus, the Notice of Meeting and the accompanying
form of proxy are first being mailed to shareholders of Patlex on or about July
22, 1996.
Holdco has filed the Registration Statement with the SEC registering the
Holdco Common Shares to be issued to holders of DBT Common Shares in the Merger
and to holders of Patlex Common Shares in the Reorganization. This Proxy
Statement/Prospectus also constitutes the prospectus of Holdco included as part
of the Registration Statement.
PURPOSE OF THE MEETING
At the Meeting, shareholders of Patlex will be asked to consider and vote
upon a proposal to approve and adopt the Plan of Reorganization pursuant to
which Patlex will be reorganized into a holding company structure, whereby at
the time of the Reorganization the holders of Patlex Common Shares will become
holders of shares of Common Stock of Holdco, a new publicly-held holding company
to be renamed DBT Online, Inc. after the Reorganization, and Patlex will become
a wholly-owned subsidiary of Holdco.
At the Meeting, shareholders of Patlex will also be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement, providing for
the merger of the Merger Subsidiary with and into DBT. From and after the
effective date of the Merger, DBT will continue as the surviving corporation and
a wholly-owned subsidiary of Holdco. As a result of the Merger, each outstanding
DBT Common Share will be converted into the right to receive the number of
Holdco Common Shares equal to (x) the product of 1.86 multiplied by the sum of
(i) the total number of Holdco Common Shares outstanding immediately prior to
the Effective Time, plus one-half the number of Holdco Common Shares issuable
upon the exercise of options outstanding immediately prior to the Effective
Time, divided by (y) the total number of DBT Common Shares outstanding
immediately prior to the Effective Time. None of the outstanding Holdco Common
Shares received by Patlex shareholders in the Reorganization will be converted
or otherwise changed as a result of the Merger. If none of the DBT shareholders
duly elects dissenters' rights pursuant to Florida law, DBT shareholders will be
entitled to receive, in the aggregate, approximately 5,091,530 Holdco Common
Shares on the effective date of the Merger.
Finally, at the Meeting, shareholders of Patlex will be asked to consider
and vote upon a proposal to approve and adopt an amended and restated Plan,
including an increase in the number of authorized shares thereunder from 375,000
to 900,000 shares available for granting options under the Plan.
Approval of the Merger Agreement by the Patlex shareholders is one of the
conditions to the consummation of the Merger under the terms of the Merger
Agreement and under the rules of the Nasdaq Stock Market. See "The Merger -- The
Merger Agreement -- Conditions to the Merger."
THE BOARD OF DIRECTORS OF PATLEX HAS UNANIMOUSLY APPROVED THE TERMS OF THE
PROPOSED MERGER AND RECOMMENDS THAT PATLEX'S SHAREHOLDERS VOTE TO APPROVE AND
ADOPT THE MERGER AGREEMENT.
VOTING AT THE MEETING; VOTES REQUIRED
The board of directors of Patlex has fixed July 16, 1996 as the record date
(the "Record Date") for the determination of the Patlex shareholders entitled to
notice of the Meeting and to vote at the Meeting and at any adjournments
thereof. Accordingly, only holders of record of Patlex Common Shares as of the
close of business on the Record Date will be entitled to vote at the Meeting and
at any adjournments thereof. At the
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<PAGE> 19
close of business on the Record Date, there were 2,565,736 Patlex Common Shares
outstanding, each of which is entitled to one vote on each matter properly
submitted to a vote at the Meeting. Each shareholder can vote personally or by
proxy; a person acting as a proxy need not be a shareholder. Directors and
executive officers of Patlex own 25% of Patlex Common Shares outstanding on the
Record Date and have indicated that they intend to vote in favor of the
proposals.
Pursuant to the rules of the Nasdaq Stock Market, the affirmative vote of a
majority of the votes cast at the Meeting is required to approve and adopt the
Merger Agreement. Nasdaq rules require shareholder approval for the issuance of
common stock, or securities exercisable for common stock, in connection with a
transaction if the common stock has or will have upon issuance voting power
equal to or in excess of 20% of the voting power outstanding before the issuance
of such common stock or securities exercisable for common stock.
Abstentions may be specified on the proposal to approve the Merger
Agreement. Such abstentions will be considered present and entitled to vote at
the Meeting, but will not be counted as votes cast in the affirmative.
Abstentions will have no effect on the vote because the proposal requires the
approval of a majority of the votes cast at the Meeting.
Brokers that are member firms of the NYSE and who hold shares in street
name for customers have authority under the rules of the NYSE to vote those
shares with respect to certain matters if they do not receive instructions from
a beneficial owner. Patlex does not believe that brokers will have the authority
to vote shares with respect to the approval of the Merger Agreement if they have
not received instructions from the beneficial owners of such shares. If brokers
fail to send in a proxy in respect of such shares because they have not received
instructions from customers, the shares will not be considered present at the
meeting. However, assuming that sufficient shares held of record by other
persons are present (so that a quorum may be obtained) and voted (so that a
majority of the shares entitled to vote are voted), then a failure by brokers to
vote those shares will not have any effect on the outcome of the proposals to
approve the Merger Agreement.
SOLICITATION AND REVOCATION OF PROXIES
The Patlex board of directors is making the solicitation of proxies from
its shareholders hereby. All shares represented by properly executed proxies
will be voted in accordance with the directions on the proxies, unless such
proxies are revoked prior to the vote. PROXIES CONTAINING NO INSTRUCTIONS
REGARDING ANY PARTICULAR MATTER SPECIFIED THEREIN WILL BE VOTED FOR THE APPROVAL
OF SUCH MATTER. See "The Reorganization -- Dissenters' Rights." The board of
directors does not know of any other matters which may come before the Meeting.
If any other matters are properly presented for action at the Meeting, it is
intended that the named proxies will vote in accordance with their best judgment
on such matters.
The cost of soliciting proxies will be paid by Patlex. Proxies may also be
solicited by directors, officers and employees of the Company, but such persons
will not be specially compensated for such services.
A Patlex shareholder who executes and returns a proxy has the power to
revoke it at any time before it is voted. The giving of a proxy does not affect
a shareholder's right to attend and vote in person at the Meeting. A
shareholder's presence at the Meeting, however, will not in itself revoke the
shareholder's proxy. In addition to any other manner provided by law, the Patlex
shareholder giving a proxy pursuant to this solicitation may revoke such proxy
by delivering a written revocation to the Secretary of Patlex at 5550 West
Flamingo Road, Suite B-5, Las Vegas, Nevada 89103. No revocation by written
notice, however, will be effective unless and until such notice is received by
the Secretary of Patlex prior to the date of the Meeting or by the inspector of
election at the Meeting prior to the closing of the polls.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering recommendations of the Patlex and DBT Boards with respect to
the Merger, however, shareholders should be aware that certain directors,
officers and employees of Patlex and DBT have an interest in the consummation of
the Merger, as described below.
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As contemplated by the Merger Agreement, the current members of the Patlex
Board will remain as directors of the Holdco Board, and, immediately upon the
Effective Time, will cause to be elected Hank Asher, Charles Asher, Jack Hight
and Sari Zalcberg, each a DBT director and shareholder, as directors of Holdco
effective upon the Effective Time. Such elections of directors are contingent
upon the consummation of the Merger and will not be effective until the
Effective Time.
In addition, Kenneth G. Langone and Gary E. Erlbaum are directors and
shareholders of both Patlex and DBT. Messrs. Langone and Erlbaum abstained from
all Patlex and DBT board action taken with respect to the Merger. See "Principal
Shareholders of Patlex" and "Principal Shareholders of DBT."
DBT SHAREHOLDER APPROVAL
The Merger is subject to approval of DBT's shareholders. Hank Asher, the
President of DBT, who is the beneficial owner of 54.5% of the outstanding DBT
Common Shares, has agreed to vote in favor of the approval of the Merger
Agreement. In addition, two directors of Patlex, Kenneth G. Langone and Gary E.
Erlbaum, are also directors of DBT and are the beneficial owners, in the
aggregate, of 14.4% of the outstanding DBT Common Shares, and have indicated
that they intend to vote in favor of the Merger Agreement. DBT's board of
directors has unanimously approved the terms of the Merger Agreement (with
Messrs. Langone and Erlbaum abstaining), and it is anticipated that DBT's
shareholders will approve the Merger Agreement prior to the Meeting.
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THE MERGER
GENERAL
Pursuant to the Merger Agreement, the Merger Subsidiary will merge with and
into DBT. Following the Merger, DBT will be the surviving corporation and will
continue in existence as a Florida corporation, all of whose issued and
outstanding capital stock will be owned by Holdco, and the separate corporate
existence of the Merger Subsidiary will cease.
EFFECTIVE TIME
Patlex and DBT anticipate filing the Articles of Merger and all other
documents required to effect the Merger with the Secretary of State of the State
of Florida as promptly as possible after the adoption of the matters to be
considered at the Meeting and the satisfaction, or waiver, of the conditions
contained in the Merger Agreement. See "-- The Merger Agreement -- Conditions to
the Merger." The Merger will be consummated on the date and time of such filing
or such other time specified in such filing (the "Effective Time").
CONVERSION OF SHARES; EXCHANGE RATIO
The Merger Agreement provides that, upon the Effective Time of the Merger,
each outstanding DBT Common Share, except with respect to which dissenters'
rights have been duly elected pursuant to Florida law, will be converted into
the right to receive the number of Holdco Common Shares equal to (x) the product
of 1.86 multiplied by the sum of (i) the total number of Holdco Common Shares
outstanding immediately prior to the Effective Time, plus (ii) one-half the
number of Holdco Common Shares issuable upon the exercise of options outstanding
immediately prior to the Effective Time, divided by (y) the total number of DBT
Common Shares outstanding immediately prior to the Effective Time.
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Patlex and DBT. The following is a brief
discussion of the background of these negotiations and the Merger.
On September 28, 1995, the spin-off of Patlex from AFG was completed
immediately before the closing of the AFG/KeyCorp Merger. At the time of the
Distribution, Patlex became an independent publicly-traded company. Patlex began
seeking an investment opportunity which would allow it to leverage both its
present and anticipated future capital resources, and/or its expertise in
exploitation and enforcement of intellectual property rights. In the last week
of September 1995, Richard Laitinen of Patlex contacted a broker that Patlex had
previously retained to find acquisition candidates before Patlex's merger with
AFG in December 1992. Patlex was hopeful that the broker had access to a number
of businesses that might represent acquisition opportunities for Patlex and for
which Patlex could perform an acquisition analysis without incurring significant
expenses. Patlex completed and returned to the broker a buyer profile on October
5, 1995 that contained Patlex's criteria for an acquisition candidate. Beginning
in the middle of October 1995, the broker began to transmit to Patlex,
approximately once a month, lists of acquisition candidates. The broker provided
the first list, containing approximately 12 candidates, in the middle of October
1995. The lists were directed to Richard Laitinen, who discussed the potential
candidates with Frank Borman shortly after receiving them. The candidates
generally were not subject to extensive consideration, usually because the
companies were in industries that Patlex did not view as consistent with
Patlex's objective to pursue an acquisition of a company with positive cash flow
in a relatively undeveloped industry and that represented an opportunity for
Patlex to diversify its business prospects. DBT was not included as a potential
acquisition candidate in any communications from the broker. Because Patlex
determined that it would not pursue an acquisition of any of the candidates
provided by the broker, Patlex did not respond to these communications. Patlex
did not pay any compensation to the broker. In evaluating prospective
businesses, Patlex's management considered, among other factors, the following:
(a) the financial condition and results of operations of the target business;
(b) the costs associated with consummating the business combination; (c) the
growth potential; (d) the experience
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and skill of management and availability of additional personnel; (e) the
capital requirements; (f) the competitive position; (g) the stage of development
of the target business's products, processes or services; and (h) the degree of
current or potential market acceptance of the products, processes or services.
Patlex has been seeking opportunities to acquire rights to intellectual
property to develop its base of intellectual property prior to the expiration of
the patents. From May 1995 to December 1995, Patlex became aware of five
licensing opportunities but has yet to pursue any of them.
On February 15, 1995, Mr. Langone and Mr. Asher discussed the possibility
of an investment in DBT by a group of investors including Mr. Langone and
Invemed. On June 20, 1995, Messrs. Langone and Asher agreed in principle to the
terms of the investment, and on July 6, 1995, Invemed made a $500,000 loan to
DBT, which amount was applied to the investment. Pursuant to the terms of a
Stock Purchase Agreement, dated as of August 14, 1995 (the "Stock Purchase
Agreement"), Invemed, Mr. Langone and certain additional investors, including
Mr. Erlbaum, invested $2,973,500 (including the $500,000 previously loaned to
DBT) in exchange for an aggregate of 320,000 shares of DBT Common Stock, which
constituted approximately 18% of DBT's outstanding Common Stock. In addition,
pursuant to a provision of the Stock Purchase Agreement permitting Invemed to
designate two members of the DBT board of directors, Messrs. Langone and Erlbaum
became directors of DBT on August 14, 1995. On October 3, 1995, DBT's board of
directors held a meeting to discuss, among other things, a possible initial
public offering of DBT's securities.
With respect to DBT, the two companies initially entered into discussions
at the end of October 1995 concerning a possible combination at the suggestion
of Hank Asher, the President of DBT. Mr. Asher had become aware of Patlex's
autonomy on or about October 3, 1995 from Mr. Langone, who is a director and
shareholder of both companies. Since early 1995, DBT had been actively seeking
additional equity financing with the goal of commencing an initial public
offering. On or about October 19, 1995, Hank Asher made an overture to Frank
Borman, the President of Patlex, who had been made aware of the interests of
Messrs. Langone and Erlbaum in DBT. No structure, price or terms were discussed,
but as an initial matter the parties acknowledged that the combination would
best be treated as a pooling of interests for accounting purposes. The Patlex
board of directors met in early November 1995, at which time it was determined
that Messrs. Langone and Erlbaum would abstain from any board action with
respect to matters relating to a potential transaction with DBT. On November 8,
1995, a meeting was held at DBT's offices at which Frank Borman, Richard
Laitinen and Don Shumate of Patlex met with Hank Asher and Jack Hight of DBT.
The purpose of the meeting was to discuss their respective businesses as well as
to discuss the advantages that a transaction would bring to each of them.
Subsequent thereto, each party commenced an initial due diligence review of the
other and, in particular, an analysis of whether pooling accounting treatment
would be available for a combination. Mr. Asher of DBT and Mr. Borman of Patlex
negotiated the consideration to be paid in the Merger in arm's-length
negotiations. On or about November 7, 1995, Patlex contacted CS First Boston for
the specific purpose of preparing a valuation of DBT. CS First Boston was not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of Patlex. On December 7, 1995, Mr. Asher and Mr.
Borman agreed on a ratio for the ownership of the combined entity and the
parties entered into an agreement in principle for Patlex to acquire DBT in a
tax-free reorganization, at which time Patlex made a public announcement through
a press release. In the agreement in principle, the parties agreed on a ratio
for the ownership of the combined entity and to structure the transaction as a
tax free reorganization, all of which was described in the press release.
Thereafter, due diligence continued and many telephone conferences were
held among the principals of Patlex and DBT, and their representatives
throughout December 1995 and January 1996. On January 16, 1996, CS First Boston,
Patlex's financial advisor, made a presentation addressed to the Patlex board
with respect to its financial and valuation analyses of the transaction. Mr.
Borman was the only member of the Patlex board present at the presentation
because Messrs. Langone and Erlbaum had abstained from any matters relating to a
possible DBT transaction. See "-- Opinion of Financial Advisor to Patlex." The
final terms of the Merger Agreement were agreed upon on February 7, 1996, and
Patlex and DBT announced the execution of the definitive agreement at that time
through a press release. In addition, on February 7, 1996, the Patlex board
received an opinion from CS First Boston, its financial advisor, as to the
fairness as of such
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date to Patlex, from a financial point of view, of the consideration to be paid
in the Merger. See "-- Opinion of Financial Advisor to Patlex."
REASONS FOR THE MERGER; RECOMMENDATIONS
The Patlex and DBT boards of directors believe that the Merger is in the
best interests of their respective shareholders and that the consideration to be
received by the shareholders of DBT in the Merger is fair to the respective
shareholders of Patlex and DBT. Each recommends to its respective shareholders
that they vote FOR approval and adoption of the Merger Agreement. The Patlex and
DBT boards of directors believe that their respective shareholders, and
employees will benefit from the Merger. As discussed below, the Merger would
fulfill certain major strategic objectives of both Patlex and DBT.
The Patlex board of directors believes that for the reasons set forth below
the Merger offers the Patlex shareholders the opportunity to participate in the
future possible growth and anticipated profitability of DBT. Consequently, the
Patlex board of directors has determined that the Merger is in the best
interests of Patlex and its shareholders. Accordingly, the Patlex board of
directors unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby and recommends that the Patlex shareholders
vote for approval and adoption of the Merger Agreement and the transactions
contemplated thereby.
In considering the Merger, the Patlex board of directors gave considerable
weight to the extensive experience of DBT's management in the electronic
information content provider industry, DBT's product lines and DBT's potential
for expansion. DBT began its operations in Florida and has expanded
significantly in Texas and other states. Patlex sought to finance DBT's
continued nationwide expansion. In addition, Patlex considered DBT's
introduction of its computer assisted radio-linked infobase ("CARLI") product
and CARLI's potential for rapid growth. The Patlex board of directors also
considered potentially negative factors such as early stage of its product
development, the dependence on its key personnel and the size of DBT when
compared with other companies in the industry. The Patlex board of directors
concluded, however, that notwithstanding the latter considerations, a business
combination with DBT would satisfy Patlex's business objective of effecting a
business combination with a company possessing significant growth potential.
The DBT board of directors believes that the Merger is in the best
interests of DBT and its shareholders for the reasons set forth below.
Accordingly, the DBT board of directors approved and adopted the terms of the
Merger Agreement and the transactions contemplated thereby and recommends that
the DBT shareholders vote for approval and adoption of the Merger Agreement and
the transactions contemplated thereby.
In considering the Merger, the DBT board of directors noted that the
combination of DBT and Patlex, which has a strong cash flow potential, would
ensure that DBT's business is adequately capitalized for future expansion. In
this regard, the DBT board of directors noted that Patlex has approximately $3.0
million in unencumbered cash as of December 31, 1995, and revenues from Laser
Patent royalties for the year ended June 30, 1995 of $6.2 million. In addition,
the DBT board of directors considered the following:
(a) the availability of a public trading market for the Holdco Common
Shares to be received by DBT shareholders in the Merger will provide such
shareholders with substantially more investment liquidity than that
associated with their DBT Common Shares, for which there is no established
trading market;
(b) the enhanced profile of being a public company that would provide
DBT's customers, vendors and lenders greater confidence in the company; and
(c) the future prospects of DBT and potential impact that could result
if DBT is unable to obtain financial resources in the future.
In determining whether to approve the Merger, the DBT board of directors
also considered the following alternatives: (i) expanding its business by
internally generated growth and (ii) engaging in an initial public offering of
its capital stock. The DBT board of directors rejected the first alternative as
it would require DBT to raise outside capital in order to cover the costs
relating to any such expansion. The second alternative was rejected because the
Merger would give DBT's shareholders access to the public markets for the sale
of their
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shares, without incurring the additional expenses associated with an initial
public offering, which, taking into account underwriting discounts, legal,
accounting and other costs, the DBT board of directors projected to be greater
than the expenses to be incurred in connection with the Merger. The second
alternative was also rejected because of the significant up-front risk and
uncertainty to DBT and its shareholders presented by an initial public offering.
In reaching these conclusions, the respective board of directors of Patlex
and DBT considered a number of factors, including among other things: the terms
and conditions of the Merger Agreement; information with respect to the
financial condition, business operations and prospects of both Patlex and DBT on
both a historical and prospective basis, including information reflecting the
two companies on a pro forma combined basis; and the views and opinions of their
respective managements and, in the case of Patlex, its financial advisor.
In June 1996, the Boards of Directors of Patlex and DBT concluded that it
would be advisable to restructure the transaction to account for it as a
purchase transaction rather than as a pooling of interests transaction. The
boards agreed that the restructuring would not change in any material respect
the economic terms of the transaction. On June 28, 1996, Patlex and DBT entered
into the Merger Agreement.
The board of directors of Patlex considered, in its evaluation of Patlex's
business prospects, the life of the Laser Patents, the last of which expires in
May 2005. Patlex's current cash flows are adequate to fund the expansion efforts
of a small growth company. Patlex sees a combination with DBT as an opportunity
to utilize its current cash flows to promote the nation-wide growth of a
database company. DBT's board of directors considered its prospects for
opportunities to expand its customer base by purchasing and licensing access to
data and the necessary data storage systems to handle increased data, all of
which would place significant cash demands on DBT that could be satisfied by
Patlex's free cash flows.
THE PATLEX BOARD OF DIRECTORS RECOMMENDS THAT PATLEX SHAREHOLDERS VOTE TO
APPROVE THE MERGER AGREEMENT. Messrs. Langone and Erlbaum have abstained from
this recommendation. See "Introduction -- Interests of Certain Persons in the
Merger."
OPINION OF FINANCIAL ADVISOR TO PATLEX
CS First Boston was retained by Patlex to render an opinion as to the
fairness to Patlex, from a financial point of view, of the consideration to be
paid in the Merger. CS First Boston is an internationally recognized investment
banking firm and was selected by Patlex based on CS First Boston's experience
and expertise in merger and acquisition transactions and familiarity with Patlex
and its business. As part of its investment banking business, CS First Boston
regularly is engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
On February 7, 1996, CS First Boston rendered to the Board of Directors of
Patlex its written opinion, as of such date, which was confirmed in a written
opinion dated the date of this Proxy Statement/Prospectus, to the effect that,
as of such dates and based upon and subject to certain matters stated therein,
the consideration to be paid in the Merger is fair to Patlex from a financial
point of view. The consideration to be paid in the Merger was determined as a
result of arm's-length negotiations between representatives of Patlex and DBT.
The full text of CS First Boston's written opinion dated the date of this
Proxy Statement/Prospectus, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix E
to this Proxy Statement/Prospectus and is incorporated herein by reference.
HOLDERS OF PATLEX COMMON STOCK ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. CS First Boston's opinion is directed to the Patlex Board of Directors
and the fairness of the consideration to be paid in the Merger from a financial
point of view, does not address any other aspect of the Merger and does not
constitute a recommendation to any stockholder as to how such shareholder should
vote at the Special Meeting. The summary of the opinion of CS First Boston set
forth in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
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In arriving at its opinion, CS First Boston (i) reviewed the Merger
Agreement and certain publicly available business and financial information
relating to Patlex and DBT, (ii) reviewed certain other information, including
financial forecasts, provided by Patlex and DBT, (iii) held discussions with the
managements of Patlex and DBT regarding the businesses and prospects of Patlex
and DBT, (iv) considered certain financial data of DBT and compared such data
with similar data for publicly held companies in businesses similar to those of
DBT, (v) considered the financial terms of certain other similar transactions
which have recently been effected, (vi) considered certain financial effects of
the Merger on Holdco and (vii) considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
which CS First Boston deemed relevant.
In connection with its review, CS First Boston did not assume
responsibility for independent verification of any of the information provided
to or otherwise reviewed by CS First Boston and relied upon its being complete
and accurate in all respects. With respect to the financial forecasts reviewed,
CS First Boston assumed that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Patlex and DBT as to the future financial performance of Patlex
and DBT. For purposes of its opinion, CS First Boston assumed that Holdco has no
assets or liabilities. In addition, CS First Boston did not make an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Patlex or DBT, nor was CS First Boston furnished with any such evaluations or
appraisals. CS First Boston's opinion is necessarily based on financial,
economic, market and other conditions as they existed and could be evaluated on
the date of its opinion. CS First Boston performed various analyses in
connection with its opinion, including those described below. These analyses are
intended to arrive at intrinsic valuation reference ranges for DBT and Patlex
and are not necessarily dependent upon or related to the actual trading value of
the Patlex Common Stock or the Holdco Common Stock. Trading prices at any given
time may be higher or lower than the valuation reference ranges resulting from
CS First Boston's analyses. CS First Boston expressed no opinion as to what the
value of the Holdco Common Stock actually will be when and if issued to DBT's
stockholders pursuant to the Merger or the prices at which such Holdco Common
Stock will trade subsequent to the Merger.
In preparing its opinion for the Patlex Board of Directors, CS First Boston
performed a variety of financial and comparative analyses and considered a
variety of factors, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying CS First Boston's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances, and, therefore, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
CS First Boston did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, CS First
Boston believes that its analyses must be considered as a whole and that
selecting portions of its analyses or portions of the factors considered by it,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, CS First Boston made numerous assumptions with respect to Patlex,
DBT, industry performance, general business, regulatory, economic, market and
financial conditions and other matters, many of which are beyond the control of
Patlex and DBT. No company, transaction or business used in such analyses as a
comparison is identical to Patlex, Holdco, DBT or the Merger, nor is an
evaluation of the results of such analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The estimates contained in such analyses and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, because such estimates are
inherently subject to substantial uncertainty, none of Patlex, Holdco, DBT, CS
First Boston or any other person assumes responsibility for their accuracy.
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The following is a summary of the material analyses performed by CS First
Boston in connection with its opinion dated February 7, 1996, which it delivered
to the Patlex Board of Directors on that date. Subsequent to the delivery of CS
First Boston's opinion dated February 7, 1996, the Merger Agreement was amended
to provide that the Merger would be accounted for as a purchase transaction,
rather than as a pooling of interests transaction. In connection with its
opinion dated the date hereof, CS First Boston reviewed the amended and restated
Merger Agreement and reviewed and updated as it deemed necessary the analyses
performed in connection with its opinion dated February 7, 1996.
Comparable Company Analysis. CS First Boston reviewed and compared certain
actual and estimated financial and operating information of DBT with selected
publicly traded companies in the publishing and information services business
and in the database services business considered by CS First Boston to be
reasonably comparable to DBT. The publishing and information services companies
included American List, Bell & Howell, CMG Information Services, Dow Jones,
Equifax and Reuters Holding (the "Comparable Publishing Companies"). The
database services companies included Acxiom Corporation, American Business
Information Inc., America Online, Data Broadcasting and MDL Information Services
(the "Comparable Database Companies" and, together with the Comparable
Publishing Companies, the "Comparable Companies"). CS First Boston compared
enterprise values (equity value plus debt and redeemable preferred stock minus
cash and cash equivalents) as a multiple of projected fiscal 1996 sales and
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
compared equity values as a multiple of projected fiscal 1996 net income, on the
basis of estimates of selected investment banking firms. All multiples were on
the basis of closing stock prices on February 6, 1996. CS First Boston derived
the appropriate valuation range for DBT by comparing DBT's business and
performance to those of the Comparable Companies. After determining which
Comparable Companies best matched DBT's business profile (specifically,
companies with lines of business most similar to those of DBT, i.e., Equifax,
Acxiom Corporation and American Business Information Inc.), CS First Boston
multiplied DBT's relevant operating statistics for fiscal 1996 based upon the
CSFB Case described below by an appropriate range of multiples (i.e., 1.7x to
2.3x of sales, 8.0x to 11.0x of EBITDA and 16.0x to 32.0x of net income) based
upon the trading performance of the Comparable Companies that best matched DBT.
This analysis resulted in a reference range of enterprise values for DBT of
$40.0 million to $54.0 million and a reference range of equity values for DBT of
$38.3 million to $52.3 million.
Comparable Transaction Analysis. Using publicly available information, CS
First Boston analyzed the purchase prices and multiples paid or proposed to be
paid in selected merger or acquisition transactions in the information services
industry, including: Wolters Kluwer/CCH Inc.; Reed Elsevier/Mead Data Central
(Lexis/Nexis); Primark Corp./Datastream International Ltd.; Star Data
Systems/Dataline Inc. (Mead Corp.); and Equifax/Telecredit, Inc. (the
"Comparable Transactions"). CS First Boston then determined which of the
Comparable Transactions were most relevant to the Merger (specifically, Reed
Elsevier/Mead Data Central and Wolters Kluwer/CCH Inc.).
CS First Boston compared purchase prices as a multiple of the latest
available 12 months' net income and as a multiple of projected net income for
the next fiscal year, and enterprise purchase prices (purchase price plus debt
and redeemable preferred stock minus cash and cash equivalents) as a multiple of
the latest available 12 months' sales and EBITDA and as a multiple of projected
sales and EBITDA for the next fiscal year. All multiples for the Comparable
Transactions were based on information available at the time of announcement of
the transaction including, as to projected operating results, the estimates of
selected investment banking firms. This analysis of the most applicable
Comparable Transactions yielded historical sales, EBITDA and net income
multiples of 2.8x to 3.2x, 10.9x to 29.0x and 30.8x to 73.5x, respectively, and
projected sales, EBITDA and net income multiples of 2.7x to 2.9x, 13.6x to 20.7x
and 38.4x to 48.0x, respectively. CS First Boston multiplied DBT's relevant
operating statistics for fiscal 1995, and for fiscal year 1996 based on the CSFB
Case described below, by these ranges of multiples. Using such information, CS
First Boston derived a reference range of enterprise values for DBT of $30.0 to
$70.0 million and a reference range of equity values for DBT of $28.3 million to
$68.3 million.
Discounted Cash Flow Analysis of DBT. CS First Boston performed a
discounted cash flow analysis of the projected cash flow of DBT for the periods
1996 through 2000, based in part upon financial forecasts developed by CS First
Boston (the "CSFB Case") using certain operating and financial assumptions,
forecasts and other information provided by the management of DBT and assuming,
among other things,
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lower growth rates in sales and EBITDA than the information provided by DBT
management. For purposes of this analysis, CS First Boston utilized discount
rates of 20% to 25% and terminal value multiples of 17.5x to 22.5x unlevered net
income in the year 2000. This analysis resulted in a reference range of
enterprise values for DBT of approximately $35.0 million to $55.0 million and a
reference range of equity values for DBT of $33.3 million to $53.3 million.
Discounted Cash Flow Analysis of Patlex. CS First Boston performed a
discounted cash flow analysis of the projected cash flow of Patlex for the
period 1996 through 2004, based in part upon certain operating and financial
assumptions, forecasts and other information provided by the management of
Patlex. For purposes of this analysis, CS First Boston utilized discount rates
of 10.75% to 12.75%. No terminal values were included in this analysis since the
Patlex patents expire in 2005. This analysis resulted in a reference range of
enterprise values for Patlex of $17.8 million to $19.1 million and a reference
range of equity values for Patlex of $20.6 million to $21.9 million.
In connection with its analysis, CS First Boston identified publicly traded
companies which manufacture laser instruments; however, CS First Boston
determined that such companies were not comparable to Patlex due to Patlex's
limited business activity and the terminal nature of its patents. Therefore, no
valuation reference range for Patlex was calculated with respect to such
companies.
Implied Ownership and Relative Contribution Analysis. CS First Boston
calculated the ownership ratios for DBT and Patlex in Holdco implied using the
equity valuation reference ranges for DBT and Patlex (of $33.3 million to $53.3
million and $20.6 million to $21.9 million, respectively) developed by CS First
Boston on the basis of the analyses described above. CS First Boston also
calculated the ownership ratios implied using the equity valuation reference
range for DBT developed by CS First Boston and the fully diluted market
capitalization of Patlex as of December 7, 1995 (the last trading day prior to
the announcement of a potential transaction between Patlex and DBT) of $15.3
million. These two analyses resulted in implied ownership ratios for the
shareholders of Patlex in Holdco of 39.7% to 27.9% and 31.5% to 22.3%.
In addition, CS First Boston analyzed the contributions of DBT and Patlex
to the revenues, EBITDA and net income of Holdco for the 1995 through 1997
calendar years. Such analysis was based upon historical results for 1995,
financial forecasts provided by Patlex management and the CSFB Case. This
analysis indicated that during calendar years 1995, 1996 and 1997, Patlex would
contribute (i) 43%, 21% and 15%, respectively, of revenues; (ii) 71%, 47% and
37%, respectively, of EBITDA and 76%, 50% and 43%, respectively, of net income.
CS First Boston compared the ownership percentages derived from these
analyses to the percentage of the outstanding equity of Holdco (33.2%) to be
owned by the shareholders of Patlex upon consummation of the Merger pursuant to
the terms of the Merger Agreement based upon the number of DBT Common Shares,
Patlex Common Shares and options to acquire Patlex Common Shares outstanding on
February 6, 1996.
Pro Forma Effect on Holdco Earnings Per Share. CS First Boston analyzed
the pro forma effect on Holdco fully diluted earnings per share of the Merger,
based upon financial forecasts provided by Patlex management and the CSFB Case.
The analysis assumed that DBT shareholders receive 2.93 shares of Holdco Common
Stock for each share of DBT Common Stock in the Merger, and excluded transaction
costs. CS First Boston's analysis indicated that the Merger will be dilutive to
earnings per share in calendar years 1996, 1997 and 1998.
Miscellaneous. For its services in connection with the Merger, CS First
Boston will receive an aggregate fee of $350,000, of which $100,000 became
payable upon CS First Boston's engagement and the balance became payable upon
delivery of CS First Boston's opinion of February 7, 1996. Patlex also has
agreed to reimburse CS First Boston for its out-of-pocket expenses, including
the fees and expenses of legal counsel and other advisors, and to indemnify CS
First Boston and certain related persons or entities against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement. In addition, Patlex has granted to CS First
Boston a right of first refusal to act as lead manager or placement agent in
connection with any offering of securities for cash undertaken by Patlex prior
to December 31, 1997, and CS First Boston will be paid customary fees for such
services.
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In the ordinary course of its business, CS First Boston and its affiliates
may actively trade the debt and equity securities of Patlex and its successors
for their own accounts and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities. CS First Boston
served as financial advisor to AutoFinance Group, Inc. ("AFG") in connection
with AFG's distribution to its shareholders of 95.01% of the outstanding Patlex
Common Stock and AFG's concurrent Merger with KeyCorp in September 1995.
THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix B to this Proxy
Statement/Prospectus and incorporated by reference herein. Shareholders are
urged to read carefully the Merger Agreement.
Representations and Warranties. The Merger Agreement contains
representations and warranties by each of Holdco, Patlex, the Merger Subsidiary
and DBT relating to, among other things, (a) proper organization, powers and
qualifications of each corporation and similar corporate matters; (b) the
respective capital structures of each corporation, (c) the authorization,
performance and enforceability of the Merger Agreement; (d) governmental
authorizations required to effect the Merger; (e) leases; (f) the absence of
undisclosed liabilities; (g) the absence of material undisclosed encumbrances;
(h) the absence of claims and litigation; (i) compliance with applicable laws;
(j) contracts; (k) insurance coverage; (l) employee relations; (m) benefit
plans; (n) corporate records; (o) absence of material changes; (p) government
permits; (q) financial statements; (r) taxes; (s) fees payable to third parties
arising from the Merger Agreement; (t) intellectual property rights; (u)
customers; and (v) the absence of false or misleading statements in the
Registration Statement and compliance thereof with applicable provisions of the
securities laws.
The Merger Agreement contains further representations and warranties of DBT
as to relationships of DBT with related parties, of Patlex as to SEC reports,
and of Patlex and Holdco as to the authorization and issuance of Holdco Common
Shares in the Merger.
Conduct of Business Prior to Merger. Each of Patlex and DBT has agreed
that (except as expressly permitted by the Merger Agreement or to the extent the
other party otherwise consents in writing), prior to the Merger (a) it will
conduct its business in the ordinary course, consistent with past practice; (b)
it will conduct its business so as to cause the representations and warranties
made in the Merger Agreement to be true at the Closing Date of the Merger; (c)
it will not change its capital structure and will not issue or sell any capital
stock or any securities convertible into capital stock (except that options may
be exercised by any optionees holding Patlex stock options); (d) it will not
declare dividends or repurchase capital stock; (e) it will not amend its charter
or by-laws; (f) it will not, except in the ordinary course consistent with past
practice, enter into any employment contracts, increase compensation or
materially increase contributions to employee benefit plans; (g) it will not
incur or guarantee any debt; (h) it will not dispose of any assets; (i) it will
not enter into any lease or contract, except in the ordinary course consistent
with past practice; and (j) with regard to DBT only, it will not enter into
certain agreements, plans or arrangements except as consented to by Patlex.
Certain Other Covenants. Pursuant to the Merger Agreement, each of Patlex
and DBT have agreed (a) to promptly inform the other party in writing of changes
to the information set forth on the schedules called for in the Merger
Agreement; (b) to provide the other party with reasonable access to its
personnel, properties, books, contracts, documents and records; (c) to hold
shareholder meetings for the purpose of approving the Merger; (d) to obtain all
consents, approvals and authorizations required; (e) to use its reasonable best
efforts to satisfy all conditions of the Merger; and (f) to attempt to obtain
approval of the other party prior to making any public announcements.
Pursuant to the Merger Agreement, DBT has also agreed to use its reasonable
best efforts to cause a comfort letter to be delivered to Patlex from Deloitte &
Touche LLP, DBT's independent auditors.
Pursuant to the Merger Agreement, Patlex has also agreed (a) to file the
Registration Statement with the SEC to register Holdco Common Shares to be
issued in the Merger, and use its reasonable best efforts to
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cause the Registration Statement to become effective; (b) to file all applicable
state securities applications and use its reasonable best efforts to qualify
Holdco Common Shares to be issued in the Merger in such states; (c) to file a
listing application with the Nasdaq Stock Market covering Holdco Common Shares
to be issued in the Merger; and (d) to take action to cause the number of
directors comprising the full board of directors of Holdco to be increased to
seven persons and to cause four nominees of DBT to be appointed to Holdco's
board of directors.
Conditions to the Merger. The obligations of Patlex, the Merger Subsidiary
and DBT to consummate the Merger are subject to, among other things, the
satisfaction of the following conditions (unless otherwise waived); (a) the
performance by Patlex and DBT of their obligations under the Merger Agreement
and the accuracy of the representations and warranties contained therein; (b)
approval of the Merger by the shareholders of Patlex and DBT; (c) absence of any
injunctions which would prevent the consummation of the transactions
contemplated by the Merger Agreement; (d) filing of all documents required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; and (e)
effectiveness of the Registration Statement and absence of stop orders
suspending effectiveness.
Management of Patlex is not presently aware of any circumstances that would
be reasonably likely to prevent any of the conditions to the Merger from being
satisfied.
Amendments; Waiver; Termination. The Merger Agreement may be changed or
modified by written instrument duly authorized and executed by each of the
parties. In addition, each party may at any time waive the other party's
compliance with certain terms and conditions of the Merger Agreement. The Merger
Agreement may be terminated at any time prior to the Closing Date (a) by either
Patlex or DBT if there has been a material breach of representations and
warranties of, or a material failure to comply with covenants by, the other
party; (b) by either Patlex or DBT if the Effective Time of the Merger Agreement
has not occurred by August 1, 1996 unless the absence of such occurrence is due
to the failure of such party to perform or comply, in all material respects,
with its obligations under the Merger Agreement; or (c) by mutual consent of
Patlex and DBT.
EXPENSES
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
costs.
NO SOLICITATION; PURSUIT OF OTHER TRANSACTIONS
In the Merger Agreement, DBT has agreed that it will not nor will it
authorize or permit any of its officers, directors, employees, affiliates,
investment bankers or other representatives or agents to, (a) solicit,
encourage, directly or indirectly, any inquiries, discussions or proposals for,
(b) continue, propose or enter into any negotiations or discussions looking
toward, (c) enter into any agreement or understanding providing for any
acquisition of any capital stock of DBT or of any part of DBT's assets or
business, other than as contemplated or authorized hereby, or (d) provide any
information to any person for the purpose of evaluating or determining whether
to make or pursue any such inquiries or proposals with respect to any such
acquisition. DBT must immediately notify Patlex of any such inquiries or
proposals or requests for information for such purpose. DBT shall use
commercially reasonable efforts to cause the directors, officers, employees,
agents and other representatives to comply therewith.
DBT, however, is permitted to respond to, and engage in negotiations and
discussions with, a person who has approached DBT with an offer to engage in a
merger, sale of assets or material equity interests or other business
combination with DBT and which response, discussions and negotiations, in the
judgment of DBT's Board of Directors, shall be required by reason of DBT's Board
of Directors' fiduciary duties to DBT's shareholders under applicable law.
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NASDAQ LISTING
The Merger Agreement provides that Patlex will file a listing application
with the Nasdaq Stock Market regarding the Holdco Common Shares to be issued in
the Merger.
FRACTIONAL SHARES
No fractional Holdco Common Shares will be issued as a result of the
Merger. Each holder of a fractional interest in Holdco Common Shares will be
entitled to receive an amount of cash equal to such fraction multiplied by the
average of the closing prices of a Patlex Common Share for the five trading days
prior to the Effective Time, as reported on the Nasdaq Stock Market.
PRINCIPAL SHAREHOLDER'S AGREEMENT
In connection with the execution of the Merger Agreement, Hank Asher, the
President of DBT and the beneficial owner of 54.5% of the outstanding DBT Common
Shares has made certain agreements with respect to the Merger Agreement and the
effectuation of the Merger pursuant to the terms of the Principal Shareholder's
Agreement, dated February 7, 1996, among Mr. Asher, Patlex and Holdco (the
"Principal Shareholder's Agreement"). The description of the Principal
Shareholder's Agreement in this Proxy Statement/Prospectus is qualified in its
entirety by reference to the Principal Shareholder's Agreement, a copy of which
has been attached hereto as Appendix C and incorporated by reference herein.
Hank Asher has agreed, pursuant to the Principal Shareholder's Agreement,
that he will not sell, pledge, transfer, gift, assign, encumber or otherwise
alienate any DBT Common Shares owned by him of record or beneficially, or take
any voluntary action which would have the effect of removing his power to vote
such DBT Common Shares or which would be inconsistent with this Principal
Shareholder's Agreement at any time prior to the Effective Time of the Merger.
Mr. Asher has agreed to vote his shares in favor of the Merger Agreement.
The affirmative vote of at least a majority of the outstanding DBT Common Shares
is required for DBT to approve the Merger. Therefore, approval of the Merger
Agreement by the DBT shareholders has been assured. Mr. Asher has also agreed to
vote against the approval of any proposal relating to a competing merger or
business combination involving an acquisition of DBT or the purchase of all or a
substantial portion of the capital stock of DBT, or the assets of DBT, by any
person or entity other than Patlex, Holdco or the Merger Subsidiary, and against
any other transaction which is inconsistent with the obligation of DBT to
consummate the Merger in accordance with the Merger Agreement.
In furtherance of the Mr. Asher's voting obligations under the Principal
Shareholder's Agreement, he has irrevocably constituted and appointed Patlex and
Frank Borman, in his capacity as Chairman of Patlex, and any individual who
shall hereafter succeed to such office of Patlex, the true and lawful attorney
and proxy of Mr. Asher, to attend and to vote as his proxy, in accordance with
foregoing.
The Principal Shareholder's Agreement provides that Hank Asher will not,
directly or indirectly, initiate, solicit or encourage (including by way of
furnishing information) or take any other action to facilitate any inquiries or
the making of any proposal which constitutes, or may reasonably be expected to
lead to, any takeover proposal, or participate in any discussions regarding or
otherwise facilitate or agree to or endorse, or otherwise cooperate in any way
with, any takeover proposal, or any transaction which is inconsistent with the
consummation of the transactions contemplated by the Merger Agreement.
The Principal Shareholder's Agreement also provides that, for a period of
two years after the Merger, Mr. Asher shall indemnify and hold harmless Patlex,
Holdco and DBT and each of their shareholders, subsidiaries, affiliates,
officers and directors and their successors and assigns, from, against and in
respect of any and all damages, losses, deficiencies, liabilities, costs and
expenses (including reasonable expenses of investigation and litigation and
reasonable attorneys', accountants' and other professionals' fees and costs
incurred in the investigation or defense thereof or the enforcement of rights
hereunder), including consequential damages resulting from or arising out of any
(a) misrepresentation or breach of warranty made by or on behalf of DBT in the
Merger Agreement or in any certificate delivered by DBT to Patlex pursuant
thereto, and
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(b) non-fulfillment of any agreement or covenant on the part of DBT thereunder.
See "-- The Merger Agreement."
MANAGEMENT AFTER THE MERGER
Upon consummation of the Merger, DBT will become a wholly-owned subsidiary
of Holdco. It is expected that Hank Asher will become President of Holdco and
Frank Borman will remain as Chairman of the Board, pursuant to the Merger
Agreement and the Holdco board of directors will be expanded from three to seven
members, with the additional four directors to be designated by DBT. The DBT
director designees are as follows: Hank Asher, Charles Asher, Sari Zalcberg, and
Jack Hight. See "Management -- Directors and Executive Officers After the
Merger" for information regarding Messrs. H. Asher, C. Asher and Hight and Ms.
Zalcberg, and for information concerning the current directors and executive
officers of Patlex and Holdco.
REGULATORY FILINGS AND APPROVALS
No regulatory approvals are required because the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder, is not applicable to these transactions.
ACCOUNTING TREATMENT
Although Holdco is the surviving corporation, for accounting purposes the
transaction is being treated as a purchase business acquisition of Patlex by DBT
(a reverse acquisition) and a recapitalization of DBT. Assets and liabilities of
Patlex acquired in the transaction will be recorded at their fair values as of
the consummation of the Merger. All unaudited pro forma financial information
contained in this Proxy Statement/Prospectus has been prepared using reverse
acquisition method to account for the Merger. After the Merger, Holdco will
continue reporting using June 30 as its fiscal year end. See "Unaudited
Condensed Pro Forma Financial Statements."
FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that no gain or loss will be recognized by DBT
shareholders upon their receipt of Holdco Common Shares in exchange for their
DBT Common Shares, except to the extent that cash is received in lieu of a
fractional Holdco Common Share. BECAUSE THE TAX CONSEQUENCES OF THE MERGER UNDER
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS MAY VARY, DEPENDING UPON AN
INDIVIDUAL TAXPAYER'S PARTICULAR SITUATION, IT IS RECOMMENDED THAT DBT
SHAREHOLDERS CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICABLE TAX
CONSEQUENCES OF THE MERGER. See "Certain Federal Income Tax Consequences."
NO DISSENTERS' RIGHTS
Pursuant to the Pennsylvania Business Corporation Law of 1988 (the "PBCL"),
the owners of Patlex Common Shares are not entitled to dissenters' rights in
connection with the Merger.
RESALE RESTRICTIONS
All Holdco Common Shares received by former holders of DBT Common Shares in
the Merger will be freely transferable, except that Holdco Common Shares
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of DBT prior to the Merger may be resold by them only
in transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 promulgated under the Securities Act ("Rule
144") in the case of such persons who become affiliates of Holdco) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of DBT or Patlex generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
shareholders of such party. The Merger Agreement requires each of Patlex and DBT
to use its reasonable best efforts to deliver a written agreement from each of
its affiliates to the effect that such person will not offer to
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sell, transfer or otherwise dispose of any Holdco Common Shares issued to such
person in the Merger except in compliance with the federal securities laws.
THE PATLEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVING THE MERGER,
AS DESCRIBED ABOVE.
THE REORGANIZATION
GENERAL
The Patlex Board of Directors believes that as a result of the proposed
Merger with DBT it is in the best interest of Patlex and its shareholders to
carry out the Reorganization in order to reorganize the corporate structure of
Patlex by creating Holdco as a new holding company to be the publicly-held
parent of Patlex and DBT. To implement this Reorganization, the Board of
Directors has approved and adopted the Plan of Reorganization, a copy of which
is attached hereto as Appendix A and incorporated by reference herein among
Patlex, Holdco and Patlex Newco, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of Holdco (the "Reorganization Subsidiary").
Following the Reorganization, Holdco will be the publicly-held parent
corporation and will be renamed "DBT Online, Inc." Under the Plan of Merger,
each Patlex Common Share will automatically be converted into one Holdco Common
Share. Consequently, the shareholders of Patlex will become shareholders of
Holdco and immediately after the Reorganization and prior to the Merger will
have the same ownership interests in Holdco as they now have in Patlex. This
conversion will not result in the recognition of gain or loss for Federal income
tax purposes to the holders of Patlex Common Shares and will not require the
exchange of stock certificates.
Holdco does not plan to be an operating company and its assets will consist
principally of the capital stock of its subsidiaries. It will derive its income
principally from dividends from and fees for services rendered to its
subsidiaries and from interest on any loans to subsidiaries.
VOTE REQUIRED
Approval and consummation of the Reorganization require the affirmative
vote of the majority of the votes cast by the holders of Patlex Common Shares
present or represented by proxy at the Meeting.
If the Reorganization is approved, it is anticipated that it will become
effective immediately prior to the Effective Time of the Merger. If the Merger
Agreement is not approved, the Reorganization will not be implemented.
AUTHORIZED CAPITAL STOCK OF HOLDCO
The authorized capital stock of Holdco consists of 5,000,000 shares of
Preferred Stock, par value $.10 per share, and 40,000,000 shares of Common
Stock, par value $.10 per share. This is greater than the authorized capital
stock of Patlex, which has authority to issue 1,000,000 shares of Preferred
Stock, par value $.10 per share, and 10,000,000 shares of Common Stock, par
value $.10 per share. After the completion of the Merger, Holdco will have
approximately 7.6 million shares of Common Stock and no shares of Preferred
Stock outstanding. The Board of Directors believes it will be desirable to have
the greater number of Holdco Common Shares available for issuance after the
Merger in connection with possible future financing transactions, acquisitions
of other companies or business properties, stock dividends or splits, employee
benefit plans and other proper corporate purposes. Having such greater number of
authorized shares available will give Holdco greater flexibility by permitting
such shares to be issued without the expense and delay of a special meeting of
shareholders. Such a delay might deprive Holdco of the flexibility that is
important in facilitating the effective use of its shares.
The issuance of additional shares of Common Stock could also be used to
make a change in control of Holdco more difficult if the Board caused such
shares to be issued to holders who might side with the Board in opposing a
takeover bid that the Board determines is not in the best interests of Holdco
and its shareholders.
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In addition, the availability of the additional shares might discourage an
attempt by another person or entity to acquire control of Holdco through the
acquisition of a substantial number of shares of Common Stock, since the
issuance of such shares could dilute the stock ownership of such person or
entity. Further, the existence or issuance of such shares may make it more
difficult or discourage attempts to remove incumbent management. Wholly apart
from this, the Board could issue a series of preferred stock with rights and
preferences that might similarly impede or discourage proposed mergers, tender
offers or other attempts to gain control of Holdco.
The shares of Common Stock would be issuable, in the discretion of the
Board of Directors of Holdco, under circumstances it believes to be in the best
interests of Holdco and without further action by the shareholders, unless such
action is required by the Articles or Bylaws of Holdco or by applicable law or
the rules of any stock exchange on which Holdco's securities are listed. Holdco
does not have any current plans to issue any of the additional shares for any
specific purpose.
In all respects other than the number of authorized shares, the capital
stock of Holdco is identical to the capital stock of Patlex. For a description
of the capital stock of Holdco, see "Description of Holdco Capital Stock."
PRINCIPAL REASONS FOR THE REORGANIZATION
The Board of Directors and management of Patlex believe that the
Reorganization will provide an opportunity for increased flexibility in
investment and financing. The possibility of additional equity financing may be
enhanced by such flexibility and by a better comprehension on the part of
potential investors of the diversified nature and strength of the various
activities that will be carried on by Patlex on the one hand and DBT on the
other hand. The holding company structure will also better define the managerial
responsibilities for the businesses of Patlex and DBT after the Merger. A
holding company structure would facilitate further expansion and investment in
other activities and lines of business. Although Patlex has potential
acquisitions under consideration from time to time, the Reorganization is not
being proposed in contemplation of any particular acquisition other than the
Merger.
DESCRIPTION OF THE REORGANIZATION
The Boards of Directors of Patlex, Holdco and the Reorganization Subsidiary
have approved the Plan of Reorganization. The following summary of the principal
provisions of the Plan of Reorganization is qualified in its entirety by the
Plan of Reorganization, a copy of which is attached hereto as Appendix A and
incorporated herein by reference.
The Reorganization. Holdco currently is a wholly-owned subsidiary of
Patlex, and the Reorganization Subsidiary, in turn, is a wholly-owned subsidiary
of Holdco. The Reorganization will be effected by the merger of the
Reorganization Subsidiary with and into Patlex. Following such merger, the
separate existence of the Reorganization Subsidiary will cease and Patlex will
remain as the surviving corporation and be a wholly-owned subsidiary of Holdco.
Holdco will change its name to "DBT Online, Inc."
Automatic Conversion of Common Stock. When the Reorganization is effected,
each Patlex Common Share will automatically be converted into one Holdco Common
Share.
Directors and Officers of Holdco. Upon the effectiveness of the
Reorganization, the persons who are directors and executive officers of Patlex
will become the directors and executive officers of Holdco.
Following the Reorganization, the size of the Board of Directors of Patlex
will be expanded from three to seven and four designees of DBT will be elected
to the Board in connection with the Merger. See "Management."
Options and Employee Benefit Plans. Holdco will assume and continue the
Plan and assume all outstanding stock options thereunder. Each holder of an
option granted under the Plan will, following the effectiveness of the
Reorganization, be entitled to purchase a number of Holdco Common Shares equal
to the number of Patlex Common Shares such holder was entitled to purchase
immediately prior to the effectiveness of the Reorganization, upon the same
terms and conditions as under such Plan and the option agreements
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relating thereto in effect immediately prior to the Reorganization. Holdco will
also have the right to issue additional options and stock appreciation rights as
and to the extent provided by the Plan. At the Meeting, shareholders of Patlex
are also being asked to increase the number of shares available for issuance
under the Plan. See "Amended and Restated Stock Option Plan."
A vote in favor of the Reorganization will constitute a vote in favor of
the adoption and assumption by Holdco of such shareholders' resolution and the
Plan, as amended. Holdco's assumption of these plans will provide for Holdco
Common Shares rather than Patlex Common Shares, to be issued for purposes of
such plans.
Conditions to Consummation of the Reorganization. Consummation of the
transactions contemplated by the Reorganization Agreement is conditioned, among
other things, on the satisfaction of all conditions precedent to the Merger.
EXCHANGE OF STOCK CERTIFICATES NOT REQUIRED
The Patlex Common Shares will automatically be converted into Holdco Common
Shares on the effectiveness of the Reorganization, without the necessity of the
holders thereof surrendering their certificates for exchange. Certificates for
Patlex Common Shares will be deemed to represent certificates for an equal
number of shares of Holdco Common Shares. Certificates for Patlex Common Shares
presented for transfer following the effectiveness of the Reorganization will be
replaced with certificates for Holdco Common Shares. Holders of certificates of
Patlex Common Shares who wish to exchange such certificates for certificates of
Holdco Common Shares may do so by submitting their certificates for Patlex
Common Shares to one of Holdco's transfer agents with a request for exchange.
ARTICLES OF INCORPORATION
The Articles of Incorporation of Patlex following the effectiveness of the
Reorganization will be identical to those of Patlex immediately prior to such
effectiveness, except that upon effectiveness of the Reorganization the Articles
will be changed so that Article 4 will provide that the corporation's authorized
capital will be 1,000 shares of Common Stock, par value $.10 per share.
FINANCIAL STATEMENTS
A balance sheet of Holdco at April 11, 1996 is presented in the Financial
Statements included as part of this Proxy Statement/Prospectus showing that
Holdco and its subsidiaries currently have no significant assets or liabilities.
The pro forma financial statements of Patlex included herein give pro forma
effect to the Merger and the Reorganization. See "Pro Forma Financial
Information."
DISSENTERS' RIGHTS
Pursuant to the PBCL, the owners of Patlex Common Shares (collectively, the
"Eligible Shares") will have dissenters rights in connection with the merger
under PBCL Subchapter 15D (hereinafter "Subchapter 15D"), a copy of which is
attached to this Proxy Statement/Prospectus as Appendix D, and may object to the
Plan of Reorganization and demand in writing that Patlex pay the fair value of
their Eligible Shares.
FAILURE BY ANY DISSENTING SHAREHOLDER TO COMPLY WITH ANY PROCEDURE REQUIRED
BY SUBCHAPTER 15D MAY CAUSE A TERMINATION OF SUCH SHAREHOLDER'S DISSENTERS
RIGHTS. PATLEX WILL NOT GIVE ANY NOTICE OF THE FOLLOWING REQUIREMENTS OTHER THAN
AS DESCRIBED IN THIS PROXY STATEMENT/ PROSPECTUS AND AS REQUIRED BY THE PBCL.
A holder of record of Eligible Shares may assert dissenters rights as to
fewer than all of the Eligible Shares registered in such holder's name only if
the holder dissents with respect to all the Eligible Shares beneficially owned
by any one person and discloses the name and address of the person or persons on
whose behalf the holder dissents. In that event, the holder's rights shall be
determined as if the shares as to which the
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holder has dissented and the other shares were registered in the names of
different holders. A beneficial owner of Eligible Shares, who is not also the
record holder of such shares, may assert dissenters rights with respect to
shares held on the owner's behalf and shall be treated as a dissenting
shareholder under the terms of Subchapter 15D if the beneficial owner submits to
Patlex not later than the time of filing the Notice of Intention to Dissent (as
defined below) a written consent of the record holder. Such beneficial owner may
not dissent with respect to some but less than all Eligible Shares of the same
class or series so owned.
Holders of Eligible Shares (or beneficial owners thereof as provided above)
who follow the procedures of Subchapter 15D as outlined below will be entitled
to receive from Patlex the fair value of their Eligible Shares immediately
before the effective time of the Reorganization, taking into account all
relevant factors but excluding any appreciation or depreciation in anticipation
of the Reorganization. Holders of Eligible Shares (or a beneficial owner
thereof) who elect to exercise their dissenters rights must comply with all of
the following procedures to preserve those rights.
Holders of Eligible Shares (or beneficial owners thereof) who wish to
exercise dissenters rights must file a written notice of intention to demand the
fair value of their Eligible Shares if the Reorganization is effectuated (the
"Notice of Intention to Dissent"). Such dissenters must file the Notice of
Intention to Dissent with the Secretary of Patlex prior to the vote, but in no
event later than 10:00 a.m. on August 20, 1996, the time and date of the
Meeting; they must make no change in their beneficial ownership of Eligible
Shares from the date of such filing until the effective time of the
Reorganization; and they must refrain from voting their Eligible Shares for the
adoption of the Plan of Reorganization. Neither a proxy nor a vote against the
Plan of Reorganization will constitute the giving of the Notice of Intention to
Dissent. Shareholders who return signed, unvoted proxy cards will be deemed to
have voted for the proposals set forth on such cards and will not be entitled to
dissenters rights.
If the Plan of Reorganization is approved by the required vote at the
Meeting, Patlex will mail a notice (the "Notice of Approval") to all dissenters
who filed a Notice of Intention to Dissent prior to the vote on the Plan of
Reorganization and who refrained from voting for the adoption of the Plan of
Reorganization. Patlex expects to mail the Notice of Approval promptly after
effectuation of the Plan of Reorganization. The Notice of Approval will state
where and when (the "Demand Deadline") a demand for payment must be sent and
certificates for Eligible Shares must be deposited in order to obtain payment;
it will supply a form for demanding payment (the "Demand Form") which includes a
request for certification of the date on which the holder, or the person on
whose behalf the holder dissents, acquired beneficial ownership of Eligible
Shares; and it will be accompanied by a copy of Subchapter 15D. Dissenters must
ensure that the Demand Form and their certificates for Eligible Shares are
received by Patlex on or before the Demand Deadline. All mailings to Patlex are
at the risk of the dissenter. Accordingly, Patlex recommends that the Notice of
Intention to Dissent, the Demand Form and the holder's stock certificates be
sent by certified mail.
Any holder (or beneficial owner) of Eligible Shares who fails to file a
Notice of Intention to Dissent, fails to complete and return the Demand Form, or
fails to deposit stock certificates with Patlex, each within the time periods
provided above, will lose the holder's (or beneficial owner's) dissenters rights
under Subchapter 15D. A dissenter will retain all rights of a shareholder, or
beneficial owner, as the case may be, until those rights are modified by
effectuation of the Plan of Reorganization.
Upon timely receipt of the completed Demand Form, Patlex is required by the
PBCL either to remit to dissenters who have returned the Notice of Intention to
Dissent and the completed Demand Form and have deposited their certificates, the
amount Patlex estimates to be the fair value for their shares or to give written
notice that no such remittance will be made. Patlex will determine whether to
make such a remittance or to defer payment for such shares until completion of
the necessary appraisal proceedings, after giving due consideration to the
number of shares, if any, with respect to which shareholders have dissented and
any objections that may be raised with respect to the standing of the dissenting
shareholder. The remittance or notice will be accompanied by:
(1) The closing balance sheet and statement of income of Patlex for
the fiscal year ended June 30, 1995, together with the latest available
interim financial statements.
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(2) A statement of Patlex's estimate of the fair value of the Eligible
Shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter 15D.
If Patlex does not remit the amount of its estimate of the fair value of
the Eligible Shares, it will return any certificates that have been deposited,
and may make a notation on any such certificates that a demand for payment in
accordance with Subchapter 15D has been made. If shares carrying such notation
are thereafter transferred, each new certificate issued therefor may bear a
similar notation, together with the name of the original dissenting holder or
owner of such shares. A transferee of such shares will not acquire by such
transfer any rights in Patlex other than those which the original dissenter had
after making demand for payment of their fair value.
If Patlex gives notice of its estimate of the fair value of the shares as
provided above, without remitting such amount, or remits payment of its estimate
of the fair value of a dissenter's shares and the dissenter believes that the
amount remitted or stated is less than the fair value of such shares, the
dissenter may send to Patlex the dissenter's own estimate (the "Holder's
Estimate") of the fair value of the shares as contemplated by PBCL sec. 1578,
which will be deemed a demand for payment of the amount of the deficiency. If a
dissenter does not file a Holder's Estimate within 30 days after the mailing by
Patlex of its remittance or notice, the dissenter will be entitled to no more
than the amount stated in the notice or remitted to the dissenter by Patlex.
If, within 60 days after the effective time of the Reorganization or after
the timely receipt by Patlex of any Holder's Estimate, whichever is later, any
demands for payment remain unsettled, Patlex may file in the Court of Common
Pleas of Montgomery County an application for relief requesting that the fair
value of the shares be determined by the court. There is no assurance that
Patlex will file such an application. All dissenters, wherever residing, whose
demands have not been settled will be made parties to any such appraisal
proceeding. The court may appoint an appraiser to receive evidence and recommend
a decision on the issue of fair value. Each dissenter who is made a party will
be entitled to recover the amount by which the fair value of the dissenter's
shares is found to exceed the amount, if any, previously remitted, plus
interest. If Patlex fails to file an application for relief, any dissenter who
has made a demand and who has not already settled the dissenter's claim against
Patlex may do so in the name of Patlex at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid Patlex's estimate of the fair value of the shares and no more, and may
bring an action to recover any amount not previously remitted.
The costs and expenses of such court proceedings, including the reasonable
compensation and expenses of the appraiser appointed by the court, will be
determined by the court and assessed against Patlex, except that any part of the
costs and expenses may be apportioned and assessed as the court deems
appropriate against all or some of the dissenters who are parties and whose
action in demanding supplemental payment the court finds to be dilatory or in
bad faith. Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against Patlex, and in
favor of any or all dissenters, if Patlex fails to comply substantially with the
requirements of Subchapter 15D. Such fees and expenses may be assessed against
either Patlex or a dissenter, if the court finds that the party against whom the
fees and expenses are assessed acted in bad faith or in a dilatory manner. If
the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and should not be
assessed against Patlex, it may award such counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefitted.
Under the PBCL, a shareholder of Patlex has no right to obtain, in the
absence of fraud or fundamental unfairness, an injunction against the Plan of
Reorganization, nor any right to valuation and payment of the fair value of the
holder's shares because of the Plan of Reorganization, except to the extent
provided by the dissenters rights provisions of Subchapter 15D. The PBCL also
provides that absent fraud or fundamental unfairness, the rights and remedies
provided by Subchapter 15D are exclusive.
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The foregoing description of the rights of dissenters under Subchapter 15D
should be read in conjunction with Appendix D to this Proxy
Statement/Prospectus, and is qualified in its entirety by the provisions of
Subchapter 15D.
THE PATLEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVING THE PLAN OF
REORGANIZATION, AS DESCRIBED ABOVE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain federal income tax
consequences of the Reorganization and the Merger (together the "Combination")
and is based on the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, existing administrative interpretations and
court decisions. Future legislation, regulations, administrative interpretations
or court decisions could significantly change such authorities either
prospectively or retroactively. The discussion does not address all aspects of
federal income taxation that may be important to particular shareholders and may
not be applicable to shareholders who are not citizens or residents of the
United States or who acquired their Patlex or DBT shares pursuant to the
exercise of employee stock options or otherwise as compensation. This discussion
assumes that Patlex and DBT shareholders hold their respective shares of stock
as capital assets within the meaning of the Code.
Neither Patlex, DBT nor Holdco intends to secure a ruling from the Internal
Revenue Service (the "Service") with respect to the tax consequences of the
Combination. Patlex and DBT believe, based on the opinions of Morgan, Lewis &
Bockius LLP, that the Combination will constitute a tax-free transaction under
the Code as discussed below.
Tax Implications to Patlex Shareholders. No gain or loss will be
recognized by holders of Patlex stock who exchange their Patlex Common Shares
for Holdco Common Shares pursuant to the Combination except to the extent of
cash received in lieu of fractional shares. The tax basis of Holdco shares
received as a result of the Combination will be the same as the shareholder's
basis in the Patlex Common Shares surrendered in the exchange. The holding
period of the Holdco Common Shares held by former Patlex shareholders as a
result of the exchange will include the period during which such shareholder
held the Patlex Common Shares exchanged. Based on the Service's advance rulings
policy of treating cash paid in lieu of fractional share interests arising in
corporate reorganizations as having been received by the shareholders as payment
for the fractional share interests redeemed, gains and losses realized by a
shareholder with respect to the receipt of cash in lieu of a fractional share
should be capital gain or loss. To determine the amount of such gain or loss, a
portion of the tax basis in the shares of the Patlex Common Shares surrendered
will be allocated to the fractional share. The amount of such gain or loss will
be the difference between the amount of cash received for such fractional share
and the amount of such basis. In the case of individuals, long-term capital
gains are subject to a maximum tax rate of 28%.
Tax Implications to DBT Shareholders. No gain or loss will be recognized
by holders of DBT stock who exchange their DBT Common Shares for Holdco Common
Shares pursuant to the Combination except to the extent of cash received in lieu
of fractional shares. The tax basis of Holdco shares received as a result of the
Combination will be the same as the shareholder's basis in the DBT Common Shares
surrendered in the exchange. The holding period of the Holdco Common Shares held
by former DBT shareholders as a result of the exchange will include the period
during which such shareholder held the DBT Common Shares exchanged. Based on the
Service's advance rulings policy of treating cash paid in lieu of fractional
share interests arising in corporate reorganizations as having been received by
the shareholders as payment for the fractional share interests redeemed, gains
and losses realized by a shareholder with respect to the receipt of cash in lieu
of a fractional share will be capital gain or loss. To determine the amount of
such gain or loss, a portion of the tax basis in the DBT Common Shares
surrendered will be allocated to the fractional share. The amount of such gain
or loss will be the difference between the amount of cash received for such
fractional share and the amount of such basis. In the case of individuals,
long-term capital gains are subject to a maximum tax rate of 28%.
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Tax Implications to Dissenting Shareholders. Holders of Patlex shares who
exercise their dissenters rights with respect to their shares will generally be
treated as if such shares were sold at their fair market value. Accordingly,
dissenting shareholders will recognize gain or loss as a result of the
Combination. The nature and amount of such gain or loss will depend on a number
of factors and shareholders considering dissenting are strongly urged to consult
their tax advisors as to the particular tax consequences of the Combination to
them.
Tax Implications to Holdco, Patlex, the Merger Subsidiary and DBT. No gain
or loss will be recognized by either Holdco, Patlex, the Merger Subsidiary or
DBT as a result of the Combination.
Other Tax Aspects. Apart from federal income taxes, no attempt has been
made to determine any tax that may be imposed on a shareholder by the country,
state or jurisdiction in which the holder resides or is a citizen. In addition
to federal income taxes, shareholders may be subject to other taxes, such as
state or local income taxes that may be imposed by various jurisdictions.
Shareholders may also be subject to income, intangible property, estate and
inheritance taxes in their state of domicile. Shareholders should consult their
own tax advisors with regard to state income, inheritance and estate taxes.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED TO PROVIDE
ONLY A GENERAL SUMMARY, AND DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY
WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION
DOES NOT ADDRESS ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE DISPOSITION
OF STOCK IN PATLEX OR DBT BEFORE THE COMBINATION OR THE DISPOSITION OF HOLDCO
STOCK AFTER THE COMBINATION. ACCORDINGLY, EACH SHAREHOLDER IS STRONGLY URGED TO
CONSULT WITH SUCH SHAREHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO SUCH SHAREHOLDER OF THE COMBINATION, INCLUDING THE APPLICABILITY
AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
DESCRIPTION OF HOLDCO CAPITAL STOCK
The authorized capital stock of Holdco consists of 40,000,000 shares of
Common Stock, par value $.10 per share, and 5,000,000 shares of Preferred Stock,
par value $.10 per share. The holders of Holdco Common Shares will have rights
identical to the holders of Patlex Common Shares, except that the authorized
capital stock consists of 10,000,000 shares of Common Stock, par value $.10 per
share, and 1,000,000 shares of Preferred Stock, par value $.10 per share. As of
July 16, 1996, there were 2,565,736 shares of Patlex Common Stock outstanding
held of record by approximately 760 persons. No shares of Preferred Stock have
been issued and there is no present intention to issue any shares of Preferred
Stock.
COMMON STOCK
Holders of Holdco Common stock are entitled to receive, as, when and if
declared by the Board of Directors from time to time, such dividends and other
distributions in cash, stock or property of Holdco out of assets or funds of
Holdco legally available for such purposes subject to any dividend preferences
which may be attributable to preferred stock which may be authorized. Holders of
Holdco Common Stock are entitled to one vote for each share held of record on
all matters on which shareholders may vote, except with respect to the election
of directors in which case shareholders are entitled to multiply the number of
shares held of record by the number of directors to be elected and distribute
such number of votes for one or among two or more nominees.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the Holdco Common Stock. All outstanding shares of Holdco Common
Stock are fully paid and non-assessable. In the event of the liquidation,
dissolution or winding up of the Holdco, holders of Holdco Common Stock are
entitled to share ratably in the assets available for distribution.
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PREFERRED STOCK
The Holdco board of directors, without further action by the shareholders,
is authorized to issue an aggregate of 5,000,000 shares of Preferred Stock. No
shares of Preferred Stock are outstanding and Holdco has no plans to issue a new
series of Preferred Stock. The Holdco board of directors may, without
shareholder approval, issue Preferred Stock with dividend rates, redemption
prices, preferences on liquidation or dissolution, conversion rights, voting
rights and any other preferences, which rights and preferences could adversely
affect the voting power of the holders of Holdco Common Stock. Issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisition or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging or
delaying a third party from acquiring, a majority of the outstanding stock of
Holdco.
PENNSYLVANIA LAW AND CERTAIN ARTICLES OF INCORPORATION AND BYLAWS PROVISIONS
Holdco has opted out of subsections E, F, G, H, I and J of Pennsylvania's
Control-Share Acquisitions Law. Generally, the Control-Share Acquisitions Law
places certain procedural requirements and establishes certain restrictions upon
the acquisition of voting shares of a corporation which would entitle the
acquiring person to cast or direct the casting of a certain percentage of votes
in an election of directors.
CLASSIFIED BOARD OF DIRECTORS
Holdco's Bylaws, as amended and restated (the "Holdco Bylaws"), divide the
Holdco board of directors into three classes, with regular three-year staggered
terms and initial terms of three, two and one years for each of Class I, Class
II and Class III Directors, respectively.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The Holdco Bylaws provide that any action which may be taken at a meeting
of the shareholders may be taken without a meeting if (i) such action is
authorized by the unanimous written consent of all shareholders entitled to vote
at a meeting for such purposes, or (ii) such action is authorized by written
consent of such number of shareholders required by law who are entitled to vote
thereon at a meeting of the shareholders or of a class of shareholders.
SPECIAL MEETINGS
The Holdco Bylaws provide that special meetings of shareholders of Holdco
may be called only by the Board or by the President. This provision may make it
more difficult for shareholders to take action opposed by the Board.
AMENDMENTS TO THE BYLAWS
The Holdco Bylaws provide that the vote of a majority of all directors or
the vote of the majority of the outstanding stock entitled to vote is required
to alter, amend or repeal the Holdco Bylaws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1741 of the PBCL provides Holdco the power to indemnify any officer
or director acting in his capacity as a representative of Holdco who was or is a
party or is threatened to be made a party to any action or proceeding against
expenses, judgments, penalties, fines and amounts paid in settlement in
connection with such action or proceeding whether the action was instituted by a
third party or arose by or in the right of Holdco. Generally, the only
limitation on the ability of Holdco to indemnify its officers and directors is
if the act violates a criminal statute or if the act or failure to act is
finally determined by a court to have constituted willful misconduct or
recklessness.
The Holdco Bylaws provide a right to indemnification to the full extent
permitted by law, for expenses (including attorney's fees), damages, punitive
damages, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by any director or officer whether or not the indemnified
liability
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arises or arose from any threatened, pending or completed proceeding by or in
the right of Holdco (a derivative action) by reason of the fact that such
director or officer is or was serving as a director, officer or employee of
Holdco or, at the request of Holdco, as a director, officer, partner, fiduciary
or trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, unless the act or failure to act giving rise
to the claim for indemnification is finally determined by a court to have
constituted willful misconduct or recklessness. The Bylaws provide for the
advancement of expenses to an indemnified party upon receipt of an undertaking
by the party to repay those amounts if it is finally determined that the
indemnified party is not entitled to indemnification.
The Holdco Bylaws authorize the company to take steps to ensure that all
persons entitled to the indemnification are properly indemnified, including, if
the Board so determines, purchasing and maintaining insurance.
TRANSFER AGENT
The transfer agent for the Holdco Common Stock is LaSalle National Trust,
N.A., Chicago.
COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
As a result of the Merger, the shareholders of DBT, a Florida corporation,
will become shareholders of Holdco, a Pennsylvania corporation, and the rights
of the former DBT shareholders will thereafter be governed by the Articles and
By-laws of Holdco and the PBCL. The rights of the holders of DBT Common Shares
are presently governed by the DBT Certificate of Incorporation (the "DBT
Certificate") and By-laws and the Florida Business Corporation Act (the "FBCA").
The following is a summary of the material differences between the rights of DBT
shareholders and Holdco shareholders and does not purport to be a complete
statement of the differences between the rights of the shareholders of Holdco
and DBT.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the FBCA, directors generally may be removed, with or without cause,
by a vote of the holders of a majority of the shares being voted. Under the
PBCL, unless the articles or by-laws provide otherwise, directors may be removed
by the shareholders of a corporation with or without cause, and by the board of
directors for any proper cause specified in the by-laws. The Holdco Bylaws
provide that directors may be removed without cause by the Holdco shareholders.
The PBCL and the Holdco Bylaws provide that vacancies on the board of
directors, including vacancies resulting from an increase in the number of
directors, may be filled by a majority of the remaining directors, although less
than a quorum, or by a sole remaining director, and such person shall be a
director to serve for the balance of the unexpired term unless otherwise
restricted in the articles of incorporation or bylaws. The DBT Bylaws provide,
as permitted by the FBCA, that a vacancy on the board occurring during the
course of the year, including a vacancy created by an increase in the number of
directors, shall be filled until the next annual election of directors by a
majority of the remaining directors. Thus, there will be no material change in
the rights of DBT shareholders in this respect as a result of the Merger.
QUORUM OF SHAREHOLDERS
A quorum for a meeting of Holdco shareholders under the Holdco Bylaws
consists of the holders of a majority of the shares issued and outstanding which
are entitled to vote thereat, present in person or represented by proxy. Under
the FBCA, a quorum consists of a majority of the shares entitled to vote at a
meeting, present in person or represented by proxy, unless otherwise provided in
the charter or bylaws, but in no event can the quorum be less than one-third of
the outstanding shares entitled to vote at a meeting. The DBT Bylaws provide
that a quorum for a meeting of holders of DBT Common Shares consists of a
majority of the shares entitled to vote, present in person or represented by
proxy. Thus, there will be no material change in the rights of DBT shareholders
in this respect as a result of the Merger.
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ADJOURNMENT AND NOTICE OF SHAREHOLDER MEETINGS
Both the DBT Bylaws and the Holdco Bylaws provide that if a quorum is not
present or represented at a shareholders meeting, a majority in interest of the
shareholders entitled to vote may adjourn the meeting without notice other than
an announcement at the meeting. The FBCA provides that a meeting of shareholders
may be adjourned by one or more adjournments without, subject to the bylaws,
giving notice of the adjourned meeting other than by announcement at the meeting
that is adjourned. However, if the board fixes a new record date for the
adjourned meeting after the adjournment, then notice must be given to each
shareholder of record on the new record date. The PBCL provides that notice of
an adjourned meeting need not be given to shareholders unless a new record date
is fixed for the adjourned meeting or notice of the business to be transacted at
such adjourned meeting had not been previously given.
Under the FBCA and the DBT Bylaws, notice of shareholder meetings must be
given between ten and sixty days before a meeting. Under the PBCL, notice of
shareholder meetings must be given more than ten days prior to any meeting
called to consider a fundamental corporate change or five days prior to the
meeting in any other case. The Holdco Bylaws require notice to be given between
five and sixty days before a special meeting and at least five days before any
other shareholder meeting.
CALL OF SPECIAL SHAREHOLDER MEETINGS
Under the PBCL, special meetings of the shareholders may be called by the
board of directors, shareholders entitled to cast at least 20% of the votes
which all shareholders are entitled to cast at the particular meeting unless
otherwise provided in the articles of incorporation and by such officers or
other persons as may be provided in the by-laws. The Holdco Bylaws provide that
a special meeting of shareholders may be called by Holdco's Chairman of the
Board if such officer is acting as Holdco's chief executive officer and,
otherwise, the President of Holdco, the board of directors or by shareholders
entitled to cast at least 20% of the votes at such a meeting. The FBCA provides
that special meetings of shareholders may be called by the board of directors by
holders of at least one-tenth of all the shares entitled to vote at the meeting
or by a person authorized by the charter or bylaws. The DBT Bylaws provide that
special meetings of shareholders may be called by the board of directors, by the
President or at the written request of the majority of voting power of all
outstanding shares of voting stock.
SHAREHOLDER CONSENT IN LIEU OF MEETING
The DBT Bylaws provide that action by shareholders may be taken without a
meeting if a consent in writing is signed by all holders of outstanding stock
entitled to vote on such action at a meeting. The PBCL permits and the Holdco
Bylaws provide that any action which may be taken at a meeting of the
shareholders may be taken without a meeting if there is written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all the
shareholders were present and voting.
DISSENTERS' RIGHTS
The FBCA generally entitles a shareholder to exercise its appraisal rights
upon a merger or consolidation of the corporation effected pursuant to the FBCA
if the holder complies with the requirements thereof. Under the FBCA, however,
(unless required by a provision of the articles of incorporation which the DBT
Articles does not include) appraisal rights shall not apply (a) to the holders
of shares in the event of a merger or consolidation of the corporation if such
shares of the Florida corporation are listed on a national securities exchange
or held of record by more than 2,000 shareholders; or (b) in the case of a
merger in which a Florida corporation is the surviving corporation, to the
holders of shares if a vote of the holders of such shares is not necessary to
authorize such merger; (c) to a sale pursuant to an order of a court with
appropriate jurisdiction; and (d) to a sale for cash on terms requiring that all
or substantially all of the net proceeds be distributed to the shareholders in
accordance with their respective interests within one year after the date of
sale.
Under the PBCL, shareholders may perfect dissenters rights with regard to
corporate actions involving certain mergers; consolidations; the sale, lease or
exchange of substantially all the assets of the corporation
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(under limited circumstances); or the elimination of cumulative voting. However,
under the corporate laws of both states, dissenters rights are generally denied
when a corporation's shares are listed on a national securities exchange or held
of record by more than 2,000 persons. By virtue of the Merger, the shareholders
of Holdco, under Pennsylvania law, will be entitled to appraisal rights in
connection with a sale, lease, exchange or other disposition of the property and
assets of DBT that occurs outside the ordinary course, whereas under law, a
shareholder does not have the right to dissent and seek appraisal with respect
to such types of transactions.
DERIVATIVE ACTION
Derivative actions may be brought in Florida by a shareholder on behalf of,
and for the benefit of, the corporation. The FBCA provides that a shareholder
must aver in the complaint that he was a shareholder of the corporation at the
time of the transaction of which he complains. Under the FBCA, the court in a
derivative action must approve the discontinuance, compromise or settlement of
the derivative action and may direct that notice of such discontinuance,
compromise or settlement be given to shareholders whose interests may be
substantially affected thereby. The court may also require plaintiffs who hold
less than five percent of the outstanding shares with a fair value of no more
than $50,000 to give security for the reasonable expenses for which the
corporation may become liable.
Derivative actions may be brought under the PBCL by a shareholder, even if
the shareholder was not a shareholder at the time of the alleged wrongdoing, if
there is a strong prima facie case in favor of the claim asserted and if the
court determines in its discretion that serious injustice will result without
such action. With this exception, there will be no material change in the rights
of DBT shareholders to bring derivative actions as DBT shareholders.
DIVIDENDS AND DISTRIBUTIONS
Subject to any restrictions in its bylaws, the PBCL generally provides that
a corporation may make distributions to its shareholders unless after giving
effect thereto (i) the corporation would not be able to pay its debts as they
become due in the usual course of business, or (ii) the corporation's assets
would be less than the sum of its total liabilities plus the amount that would
be needed upon the dissolution of the corporation to satisfy the preferential
rights, if any, of shareholders having superior preferential rights to those
shareholders receiving the distribution.
Subject to any restrictions contained in a corporation's charter, the FBCA
generally provides that a corporation may declare and pay dividends except (i)
when the corporation is insolvent, (ii) when the payment thereof would render
the corporation insolvent or (iii) when the declaration or payment thereof would
be contrary to the corporation's articles of incorporation. Dividends may be
declared and paid (i) if in cash or property, only out of the unreserved and
unrestricted earned surplus or out of capital surplus if identified as such,
(ii) in the corporation's own treasury shares or (iii) in the corporation's own
authorized but unissued shares out of any unreserved and unrestricted surplus at
or greater than par value or stated value.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Both the FBCA and the PBCL permit a corporation to indemnify its directors
and officers against expenses, judgments, fines and amounts paid in settlement
incurred by them in connection with any pending, threatened or completed action
or proceeding (other, in the case of a Florida corporation, than an action by or
in the right of the corporation (a "derivative action")), and permit such
indemnification against expenses incurred in connection with any pending,
threatened or completed derivation action, if the director or officer has acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Furthermore, both states' laws provide that expenses incurred in
defending any action or proceeding may be paid by the corporation in advance of
the final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that the
director or officer is not entitled to be indemnified by the corporation.
37
<PAGE> 43
In both states the statutory provisions for indemnification and advancement
of expenses are non-exclusive with respect to any other rights, such as
contractual rights (and in the case of a Pennsylvania corporation, under a bylaw
or vote of shareholders or disinterested directors), to which a person seeking
indemnification or advancement of expenses may be entitled. Such contractual or
other rights may, for example, under the PBCL, provide for indemnification
against judgments, fines and amounts paid in settlement incurred by the
indemnified person in connection with derivative actions. The PBCL permits such
derivative action indemnification in any case except where the act or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness.
Both the FBCA and the PBCL permit a corporation to purchase and maintain
insurance on behalf of any director or officer of the corporation against any
liability asserted against the director or officer and incurred in such
capacity, whether or not the corporation would have the power to indemnify the
director or officer against such liability.
The DBT Articles provide that directors, officers, employees and agents of
DBT are entitled to be indemnified to the maximum extent permitted by the FBCA.
The Holdco Bylaws provide that directors and officers of Holdco (and, by
resolution of the board of directors, any other person) are entitled to be
indemnified to the maximum extent permitted by the PBCL.
DIRECTOR LIABILITY
The bylaws of a Pennsylvania corporation may include a provision limiting
the personal liability of directors for monetary damages for actions taken as a
director, except to the extent that the director has breached or failed to
perform his duties to the corporation and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The Holdco Bylaws
contain such a provision limiting the liability of its directors.
AMENDMENT TO ARTICLES OF INCORPORATION AND BYLAWS
The PBCL requires the affirmative vote of the holders entitled to cast at
least a majority of the votes actually cast on an amendment to the articles of
incorporation, provided that shareholder approval is not required for certain
non-material amendments, such as a change in the corporate name, a provision for
perpetual existence or, if the corporation has only one class of shares
outstanding, a change in the number and par value of authorized shares to effect
a stock split. Under Pennsylvania law the power to adopt, amend or repeal
by-laws may be vested by the by-laws in the directors, with certain statutory
exceptions for certain actions and subject to the power of shareholders to
change such action. Pennsylvania law provides that unless the articles of
incorporation otherwise provide, shareholders may change the bylaws without the
consent of the directors. The Holdco Bylaws provide that the Holdco Bylaws may
be amended by the Holdco shareholders or the directors.
The FBCA requires the approval of the holders of a majority of the
outstanding stock entitled to vote for any amendment to the articles of
incorporation. The DBT Articles do not provide for an increased level of
approval. The FBCA provides directors with the right to amend the bylaws unless
reserved to the shareholders by the articles of incorporation. The DBT Articles
do not give the shareholders this right.
VOTE REQUIRED FOR EXTRAORDINARY CORPORATE TRANSACTIONS
Pennsylvania law provides that if a shareholder of a corporation is a party
to a sale of assets transaction, share exchange, merger or consolidation
involving the corporation or a subsidiary, or if a shareholder is to be treated
differently in a corporate dissolution from other shareholders of the same
class, then approval must be obtained of the shareholders entitled to cast at
least a majority of the votes which all shareholders other than the interested
shareholder are entitled to cast with respect to the transaction, without
counting the votes of the interested shareholder. Such additional shareholder
approval is not required if the consideration to be received by the other
shareholders in such transaction for shares of any class is not less than the
highest amount paid by the interested shareholder in acquiring shares of the
same class, or if the proposed transaction is approved by a majority of the
board of directors other than certain directors ("disqualified directors")
affiliated or associated
38
<PAGE> 44
with, or nominated by, the interested shareholder. The PBCL provides that a
director who has held office for at least 24 months prior to the date of vote on
the proposed transaction is not a disqualified director.
Under the FBCA, a merger, consolidation, dissolution or sale or other
disposition of substantially all of a corporation's assets must be approved by
the affirmative vote of the holders of a majority of the outstanding stock
entitled to vote thereon. Additionally, the FBCA provides that no vote of the
shareholders of the surviving corporation is required, unless the articles of
incorporation provides otherwise, to approve a merger if (a) the agreement of
merger does not amend in any respect the corporation's articles of
incorporation; (b) each share of the corporation's stock outstanding immediately
prior to the merger is to remain outstanding immediately after the merger as an
identical share of the surviving corporation; and (c) the authorized but
unissued shares of common stock of the surviving corporation to be issued as a
result of the merger plus the number of shares of common stock initially
issuable upon conversion of any other shares, securities or obligations to be
issued or delivered under such plan do not exceed 20% of the shares of common
stock of the surviving corporation outstanding immediately prior to the
effective date of the merger.
Neither the Holdco Articles nor the DBT Articles contains a provision
relating to the approval of mergers, consolidations, dissolutions or sales of
assets.
INTERESTED SHAREHOLDER TRANSACTIONS
Holdco is not currently governed by the PBCL provisions relating to
interested shareholder transactions. See "Description of Holdco Capital Stock."
The FBCA provides that transactions between the beneficial owner of more than
10% of the outstanding voting shares of a corporation (an "Interested
Shareholder"), or an associate or affiliate of such Interested Shareholder, and
the corporation, including a merger or consolidation, sale, lease, exchange,
mortgage, pledge or other disposition, or issuance of shares, having a fair
market value equal to 5% or more of the aggregate fair market value of the
outstanding shares or of all the assets or net income, on a consolidated basis,
of the corporation, liquidation or dissolution, reclassifications or loans or
other financial assistance, must be approved by the affirmative vote of the
holders of two-thirds of the voting shares other than the shares beneficially
owned by the Interested Shareholder. There are a number of exceptions, including
an exception for a corporation which has not had more than 300 shareholders of
record at any time during the three years preceding the transaction.
FIDUCIARY DUTY
Under Pennsylvania law a director may, in considering the best interests of
a corporation, consider (i) the effects of any action on shareholders,
employees, suppliers, customers and creditors of the corporation, and upon
communities in which offices or other facilities of the corporation are located,
(ii) the short-term and long-term interests of the corporation, including the
possibility that the best interests of the corporation may be served by the
continued independence of the corporation; (iii) the resources, intent and
conduct of any person seeking to take control of the corporation; and (iv) all
other pertinent factors. Under Florida law a director may consider such factors
as the director deems relevant, including the long-term prospects and interests
of the corporation and its shareholders, and the social, economic, legal or
other effects of any action on the employees, suppliers, customers of the
corporation or its subsidiaries, the communities and society in which the
corporation or its subsidiaries operate and the economy of the state and the
nation.
PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS
Under the FBCA, if an acquisition of a corporation's shares ("Control
Shares") which, when added to all other shares of such corporation owned by the
acquiror or in respect to which the acquiror may exercise or direct the exercise
of voting power, would entitle the acquiror to exercise or direct the exercise
of the voting power of the corporation within any of the following ranges of
voting power: (a) one-fifth or more but less than one-third of all voting power;
(b) one-third or more but less than a majority of all voting power, or (c) a
majority or more of all voting power, then the Control Shares have voting rights
only to the extent approved by a majority vote of shares (which exclude shares
held by the acquiror, any officer of the corporation and any employee of the
corporation who is also a director), of the corporation entitled to vote. Such
provisions do not
39
<PAGE> 45
apply to shares acquired pursuant to an agreement of merger of plan of share
exchange to which the corporation is a party. The foregoing provision does apply
to DBT because DBT has less than 100 shareholders.
Additionally, the following provisions of the Holdco Articles and the
Holdco Bylaws may be considered to have anti-takeover implications: (a) the
ability of the board to fill (but only until the next annual meeting of
shareholders) the vacancies resulting from an increase in the number of
directors; and (b) the ability of the board of directors to establish the rights
of, and to issue, substantial amounts of preferred stock without the need for
shareholder approval which preferred stock, among other things, may be used to
create voting impediments with respect to changes in control of Holdco or, to
dilute the stock ownership of holders of Holdco Common Shares seeking to obtain
control of Holdco. In addition, the provisions of the Holdco Articles which
provide for staggered election of directors through a classified board of
directors may make it more difficult to effect a change in control of Holdco's
Board, and therefore may have an anti-takeover effect.
Neither Holdco nor DBT currently has a shareholders' rights plan.
Shareholders' rights plans, in a variety of forms, are common to many
corporations incorporated in the United States and serve to afford a
corporation's board of directors the opportunity to withstand an unsolicited
takeover attempt while providing the board sufficient time to evaluate the offer
and its adequacy and to consider alternative measures or transactions that may
be appropriate in responding to the offer. The PBCL permits shareholders' rights
plans in general and permits the adoption of shareholders' rights plans by a
board of directors without shareholder approval.
MARKET PRICES OF SECURITIES
PATLEX
Prior to September 28, 1995, there was no trading market for the Patlex
Common Stock. Beginning with the Distribution and until March 17, 1996, the
Patlex Common Shares were listed on The Nasdaq SmallCap Market under the symbol
"PTLX." The Patlex Common Shares began trading on The Nasdaq National Market on
March 18, 1996 under the symbol "PTLX."
The following table sets forth, for the periods indicated, the high and low
bid quotations for the Patlex Common Shares, as reported on The Nasdaq Stock
Market.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
----------------------------------------------------------- ------ ------
<S> <C> <C>
Fiscal 1996:
First quarter (beginning September 28, 1995)............. $ 4.25 $ 4.00
Second quarter........................................... $17.50 $ 4.25
Third quarter............................................ $44.50 $13.25
Fourth quarter........................................... $55.50 $30.25
Fiscal 1997:
First quarter (through July 16, 1996).................... $44.25 $35.75
</TABLE>
On December 7, 1995, the last full trading day prior to the public
announcement of the execution a letter of intent with respect to the Merger, the
closing price of Patlex Common Stock as reported by the Nasdaq Stock Market was
$5.25 per share. On July 16, 1996, the most recent date for which it was
practicable to obtain market price information prior to the printing of this
Proxy Statement/Prospectus, such closing price was $35.75. Patlex has not paid
any dividends since the stock commenced trading on September 28, 1995.
DBT
No trading market exists for the DBT Common Shares and, accordingly, there
are no published market quotations for such stock. As of July 16, 1996, there
were 18 holders of DBT Common Shares.
40
<PAGE> 46
SELECTED FINANCIAL DATA OF PATLEX
The following table presents certain selected financial information for
Patlex as of the dates and for the periods indicated. The financial data were
derived from Patlex's audited financial statements as of and for the two years
ended June 30, 1995, and Patlex's unaudited financial statements as of March 31,
1996 and for the nine months ended March 31, 1996 and 1995. In the opinion of
management of Patlex, the interim financial statements have been prepared on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results for the nine months ended March 31, 1996 are not
necessarily indicative of the results of a full fiscal year. The following
information should be read in conjunction with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Patlex" and
Financial Statements of Patlex and related notes thereto, included elsewhere in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
-------------------- ---------------------
1996 1995 1995 1994
------- ------ ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net laser patent royalties..................... $ 5,473 $4,352 $ 6,253 $ 6,795
Net earnings................................... 1,430 1,143 1,700 1,453
Cash dividends per common share................ -- 0.99 0.79
Net earnings per common share.................. 0.69 0.45 0.67 0.58
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................ $ 3,803 $ 467 $ 1,382 $ 1,704
Accounts and notes receivable, net............. 167 1,129 916 3,209
Prepaid expenses............................... 118 24 25 64
Property and equipment, net.................... 381 417 391 422
Investment in patents, less accumulated
amortization................................ 14,438 16,216 15,771 17,714
Total assets................................... 21,384 19,871 20,806 23,109
Note payable to bank, less current portion..... 224 250 243 269
Long term debt, less current portion........... -- -- -- 986
Common shareholders' equity.................... 14,559 12,572 13,129 13,929
OTHER DATA:
EBITDA(1)...................................... $ 4,217 $4,011 $ 5,276 $ 5,662
</TABLE>
- ---------------
(1) EBITDA is estimated by adding back to net earnings the following items;
depreciation, amortization, interest and income taxes and is presented
because it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA should not
be considered in isolation from, or as a substitute for, net earnings, cash
flows from operating activities or other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity.
41
<PAGE> 47
SELECTED FINANCIAL DATA OF DBT
The following table presents selected financial information for DBT as of
the dates and for the periods indicated. The financial data were derived from
DBT's audited financial statements as of and for the three years ended December
31, 1995, and for the period from inception to December 31, 1992, and from DBT's
unaudited financial statements as of March 31, 1996 and for the three months
ended March 31, 1996 and 1995. In the opinion of management of DBT, the interim
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting mainly of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. The results for the three
months ended March 31, 1996 are not necessarily indicative of the results for a
full fiscal year. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of DBT" and Financial Statements of DBT and related notes thereto,
included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31, PERIOD ENDED
------------------ ------------------------- DECEMBER 31,
1996 1995 1995 1994 1993 1992(1)
------- ------- ------- ------ ---- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 3,350 $ 1,519 $ 8,076 $2,751 $477 $ 2
Operating costs and expenses...... 2,635 1,024 6,306 1,753 363 112
Research and development costs.... 399 174 1,017 553 120 39
Loss on IRB transaction........... -- -- 1,660 -- -- --
Other income (expense)............ (35) (13) (76) (15) 83 163
Income taxes(2)................... 106 -- 209 -- -- --
Net income (loss)................. 175 308 (1,192) 430 77 14
BALANCE SHEET DATA:
Working capital................... $ (209) $ (33) $ 492 $ (5) $(36) $(19)
Trade and other receivables....... 1,500 611 1,110 321 79 2
Property and equipment, net....... 3,761 1,214 3,129 898 173 13
Total assets...................... 7,064 2,345 6,574 1,524 261 46
Long-term debt (including current
portion)....................... 2,263 878 2,542 685 11 --
Stockholders' equity.............. 2,773 861 2,598 552 138 15
OTHER DATA:
EBITDA(3)......................... $ 728 $ 445 $ 1,727 $ 690 $123 $ 27
</TABLE>
- ---------------
(1) DBT was incorporated on February 18, 1992.
(2) DBT, with the consent of its shareholders, had elected to be taxed as an S
Corporation from its date of incorporation through June 30, 1995.
(3) EBITDA is calculated by adding back to net income (loss) the following
items: depreciation, amortization, interest, income taxes, and the loss on
the IRB transaction and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance. EDITDA should not be considered in isolation from, or
as a substitute for, net income, cash flows from operating activities or
other income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
42
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PATLEX
The following discussion should be read in conjunction with "Selected
Financial Data of Patlex" and Financial Statements of Patlex and related notes
thereto included elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
Nine Months Ended March 31, 1996 Compared to the Nine Months Ended March 31,
1995
Revenues from laser patent royalties increased to $5,473,000 from
$4,352,000, an increase of $1,121,000 or 26% for the nine months ended March 31,
1996 as compared to the nine months ended March 31, 1995. The increase is
attributable to higher royalty revenues reported by the laser industry as a
whole and the signing of three new licensees, which accounted for approximately
$600,000 of the increase.
General and administrative expenses for the nine months ended March 31,
1996 increased to $1,409,000 from $745,000 for the nine months ended March 31,
1995, an increase of $664,000. The increase is primarily due to costs associated
with the proposed Merger and spin-off costs associated with the AFG/KeyCorp
Merger. These two non-recurring expenses totaled $537,000.
Net earnings for the nine months ended March 31, 1996 were $1,430,000 as
compared to $1,143,000 for the corresponding nine month period of the previous
year, an increase of $287,000 or 25%. The increase is primarily attributable to
higher royalties, and a decrease of the patent amortization expense in the
amount of $165,000, which is attributed to the expiration of the Optically
Pumped Laser Patent in October 1994. The provision for income taxes increased to
$1,413,000 from $903,000 or $510,000 due to higher pretax earnings and the
non-deductibility of expenses associated with the proposed Merger.
Year Ended June 30, 1995 Compared to the Year Ended June 30, 1994
Revenues from Laser Patent royalties for the year ended June 30, 1995
decreased from $6,795,000 to $6,253,000, a decrease of $542,000, or 8.0%,
compared to the year ended June 30, 1994. The decrease is primarily attributable
to the expiration of the Optically Pumped Laser Patent.
Amortization expense for the year ended June 30, 1995 decreased from
$2,587,000 to $1,943,000, a decrease of $644,000, or 24.9%, compared to the year
ended June 30, 1994. The decrease is attributed to the expiration of the
Optically Pumped Laser Patent.
General and administrative expenses consist of all operating expenses and
expired costs of Patlex except those other costs which are separately stated.
General and Administrative expenses for the year ended June 30, 1995 decreased
from $1,211,000 to $1,053,000, a decrease of $158,000, or 13.1%, compared to the
year ended June 30, 1994. This decrease is due primarily to reduced expenses in
the auditing of licensees and legal fees.
Interest expense for the year ended June 30, 1995 decreased from $317,000
to $182,000, a decrease of $135,000, or 42.6%, compared to the year ended June
30, 1994. The decrease resulted from a reduction of the principal of notes
payable to individuals in the amount of $1,033,000 made during the last quarter
of 1994.
Net earnings for the year ended June 30, 1995 increased from $1,453,000 to
$1,700,000, an increase of $247,000, or 17.0%, compared to the year ended June
30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, Patlex had $6,280,000 in cash and cash equivalents as
compared to $3,703,000 at June 30, 1995, an increase of $2,577,000.
Net working capital increased to $3,083,000 as of March 31, 1996 from
$1,382,000 as of June 30, 1995. Total assets increased by $578,000 from
$20,806,000 to $21,384,000. Total liabilities decreased by $852,000 from
$7,677,000 to $6,825,000 due primarily to the payment of short term debt.
43
<PAGE> 49
Patlex's patent enforcement and exploitation activities do not require
significant amounts of capital and management believes that cash flow from the
net Laser Patent royalties, taking into account the loss of Laser Patent
royalties formerly generated under the Optically Pumped Laser Patent which
expired in October 1994, is sufficient to meet Patlex's liquidity requirements.
The loss of Laser Patent royalty revenues formerly generated under the Optically
Pumped Laser Patent will be mitigated by the reduction of the amortization of
patents' expense. Patlex does not anticipate that the expiration of the
Optically Pumped Laser Patent will have a material adverse affect on Patlex's
liquidity and capital resources.
CASH FLOWS
Nine Months Ended March 31, 1996 Compared to the Nine Months Ended March 31,
1995
Cash Flows From Operating Activities
Net cash provided by operating activities for the nine months ended March
31, 1996 in the amount of $3,635,000 consisted principally of net earnings in
the amount of $1,430,000 increased by non-cash charges against earnings in the
total amount of $1,351,000 for depreciation and amortization. Additional
positive cash flows from operations consisted of $607,000 net cash collections
of trade accounts receivable over the net accruals of receivables for the
period. The balance of net positive cash flows was the result of net changes in
current assets and current liabilities in the total amount of $233,000 for the
period.
Net cash provided by operating activities for the nine months ended March
31, 1995 in the amount of $3,947,000 consisted principally of net earning in the
amount of $1,143,000 increased by non-cash charges against earnings in the total
amount of $1,542,000 for depreciation and amortization. Additional positive cash
flows from operations consisted of $1,515,000 net cash collections of trade
accounts receivable over the net accruals of receivables for the period. The
balance of net cash flows was the result of net changes in current assets and
current liabilities in the total amount of a negative $280,000 for the period.
Cash Flows From Investing Activities
There were no cash flows from investing activities during the nine month
periods ended March 31, 1996 or 1995.
Cash Flows From Financing Activities
Cash in the amount of $1,050,000 was used for the payment of notes payable
for the nine months ended March 31, 1996.
For the nine months ended March 31, 1995, cash in the amount of $1,050,000
was used for the installment payment of notes payable and $2,500,000 was paid as
dividends.
Year Ended June 30, 1995 Compared to the Year Ended June 30, 1994
Cash Flows From Operating Activities
Net cash provided by operating activities for the year ended June 30, 1995
in the amount of $5,475,000 consisted principally of net earnings in the amount
of $1,700,000 increased by non-cash charges against earnings in the total amount
of $1,964,000 for depreciation and amortization of intangibles. Additional
positive cash flows from operations consisted of $1,823,000 net cash collections
of trade accounts receivable over the net accruals of receivables for the year.
Net cash provided by operating activities for the year ended June 30, 1994
in the amount of $3,015,000 consisted principally of net earnings in the amount
of $1,453,000 increased by non-cash charges against earnings in the total amount
of $2,640,000 for depreciation and amortization of intangibles. Additional
positive cash flows from operations consisted of $23,000 net cash collections of
trade accounts receivable over the net accruals of receivables for the period.
Income taxes payable decreased in the amount of $1,439,000 while deferred income
taxes increased $343,000.
44
<PAGE> 50
Cash Flows From Investing Activities
Net cash provided by investing activities for the year ended June 30, 1995
consisted primarily of proceeds of $100,000 from the sale of an asset offset by
acquiring data processing equipment in the amount of $15,000.
Net cash provided by investing activities for the year ended June 30, 1994
consisted primarily of proceeds of $322,000 from the sale of a capital asset.
Cash Flows From Financing Activities
Net cash in the amount of $1,057,000 for the year ended June 30, 1995 was
used for the repayment of long-term debt and cash dividends in the amount of
$2,500,000 to AFG.
Net cash in the amount of $1,060,000 for the year ended June 30, 1994 was
used for the repayment of long-term debt and cash dividends in the amount of
$1,993,000 to AFG.
INFLATION
Patlex's royalty income is based on licensees' laser based sales and
therefore royalty income is expected to reflect inflation adjustments, if any,
in licensees' industries. Patlex does not believe that inflation has materially
affected its operations during the fiscal years ended June 30, 1995 and 1994.
FUTURE IMPACT OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 107 ("SFAS 107"),
"Disclosures about Fair Value of Financial Instruments," was issued by the
Financial Accounting Standards Board in December 1991. SFAS 107 requires the
disclosure of the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. If estimating fair value is not practicable,
SFAS 107 requires disclosure of descriptive information pertinent to estimating
the value of a financial instrument. SFAS 107 is effective for financial
statements issued for fiscal years ending after December 15, 1992 except for
entities with less than $150 million in total assets in the current financial
statements, for which it is effective for fiscal years ending after December 15,
1995. Patlex has not yet determined the full impact of the new accounting
standard and, in accordance with the effective date exception noted, has not
adopted SFAS 107.
In October, 1995 the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation", which will be effective for,
and reflected in, financial statements of Patlex beginning with fiscal years
ending after December 15, 1995. The Statement allows companies to expense the
fair value of employee stock options or to continue the Company's current
practice of recognizing no compensation expense since the amount an employee
must pay to acquire the Company's stock (the option exercise price) is equal to
the stock's market value at the grant date. Companies not expensing the fair
value of employee stock options will be required to disclose the pro forma
effect on operations had the fair value of the options been expensed. Patlex
anticipates implementing the disclosure requirements of the Statement in its
1996 financial statements.
45
<PAGE> 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DBT
The following discussion should be read in conjunction with "Selected
Financial Data of DBT" and Financial Statements of DBT and related notes thereto
included elsewhere in this Proxy Statement/Prospectus.
INTRODUCTION AND GENERAL
The revenues of DBT have grown rapidly since DBT was founded in 1992. As
shown in the table below, DBT's revenues, by quarter, have grown significantly
in each of the past nine calendar quarters.
<TABLE>
<CAPTION>
REVENUES
--------------------------------
QUARTER ENDED 1996 1995 1994
----------------------------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
March 31..................... $3,350 $1,519 $ 384
June 30...................... -- 1,875 559
September 30................. -- 2,206 762
December 31.................. -- 2,476 1,046
------ ------ ------
Total...................... $3,350 $8,076 $2,751
====== ====== ======
</TABLE>
These growth rates have been achieved through improvements to DBT's on-line
computer system, its targeted marketing approach, expanded use of the system by
existing customers and the addition of new database products that attract new
customers and increase usage of existing customers. Management believes that the
growth in revenues and number of customers demonstrates acceptance of DBT's
products and services by the targeted markets.
RESULTS OF OPERATIONS
DBT's results of operations are directly related to the number of customers
and the amount of time, on average, users spend on the system. The following
information presents quarterly growth in customer accounts and usage:
<TABLE>
<CAPTION>
SYSTEM USE
CUSTOMER ACCOUNTS (IN MINUTES)
------------------------------ ----------------------------------------
1996 1995 1994 1996 1995 1994
------ ------ ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31........ 5,761 1,979 786 2,265,049 1,033,244 284,333
June 30......... -- 2,607 1,004 -- 1,403,457 403,531
September 30.... -- 3,691 1,244 -- 1,701,636 525,995
December 31..... -- 4,507 1,517 -- 1,708,098 681,814
</TABLE>
46
<PAGE> 52
The following table shows the percentage relationship of revenues to
various items of costs and expenses in DBT's statements of income:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------------- ---------------
1996 1995 1995 1994
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs:
Purchased data.......................... 22.2 17.6 18.5 11.1
Depreciation, computers................. 10.6 6.9 10.2 7.9
Selling and promotion................... 9.4 11.8 12.7 10.4
General and administrative.............. 22.9 21.0 23.6 22.2
Research and development................ 11.9 11.5 12.6 20.1
Loss on IRB transaction................. -- -- 20.5 --
All other costs......................... 13.6 10.0 13.1 12.1
----- ----- ----- -----
Total costs..................... 90.6 78.8 111.2 83.8
----- ----- ----- -----
Income (Loss) from operations............. 9.4% 21.2% (11.2%) 16.2%
===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1996 Compared to the Three Months Ended March 31,
1995
DBT's revenues increased by 121% to $3,349,800 from $1,518,900 for the
three months ended March 31, 1996 as compared to the three months ended March
31, 1995. This increase correlates with the increase in the number of minutes
logged on the system by 119% for the period, to 2,265,049 total minutes for the
three months ended March 31, 1996 from 1,033,245 minutes for the three months
ended March 31, 1995. The number of customer accounts increased by 191% during
the same period, to 5,761 from 1,979. The number of customer accounts increased
at a greater rate than the number of minutes and revenues due to the fact that
many of the new customers use DBT's system for discounted, batch processing
(involving no minutes of system use).
Gross profit as a percentage of revenues declined to 54% for the three
months ended March 31, 1996, from 65% for the three months ended March 31, 1995.
This decline is primarily attributable to increased costs of purchased data and
the depreciation charge on DBT's computer equipment. As a percentage of
revenues, the cost of purchased data increased to 22.2% for the three months
ended March 31, 1996 from 17.6% for the three months ended March 31, 1995.
Depreciation of computer equipment increased to approximately 10.6% for the
three months ended March 31, 1996 from 6.9% of revenues. Purchased data is
acquired in various ways including: (1) outright purchase, (2) leasing of data
through usage charges or royalty agreements, and (3) individual access charges
incurred each time a customer accesses data provided by a third party. There is
no assurance that future costs will not continue to increase as prices charged
by certain governmental bodies and agencies change.
Certain data that is valuable due to its historical nature is capitalized.
The majority of DBT's data, however, is valuable only to the extent that it is
up-to-date. This data is expensed as incurred. Data for which customers incur a
direct charge for access is expensed as acquired. DBT believes that the cost of
its data as a percentage of revenues will increase in the future.
Selling and administrative expenses (consisting of selling and promotion
and general administrative expenses), as a percentage of revenues, remained
relatively steady during the period, decreasing to 32.3% of sales during the
three months ended March 31, 1996 from 32.8% during the three months ended March
31, 1995.
Research and development costs also remained relatively steady, as a
percentage of revenues, during the period, increasing to 11.9% during the three
months ended March 31, 1996, from 11.5% during the three months ended March 31,
1995.
47
<PAGE> 53
Operating income declined to 9.4% of revenues for the three months ended
March 31, 1996 from 21.2% of revenues for the three months ended March 31, 1995.
This decline is primarily due to relative increases in the cost of purchased
data, depreciation on DBT's computer equipment and increased telephone and other
costs.
Interest expense increased during the three months ended March 31, 1996 as
compared to the same period in 1995 due to higher borrowings. The higher
borrowings were used primarily to acquire computer equipment. Interest income
increased due to higher cash balances resulting from cash infusions from outside
investors and temporary investments of borrowed funds.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994
Revenues increased by 194% to $8,076,300 in 1995 from $2,751,100 in 1994.
This correlates with the increase of customer accounts during the same period,
which increased by 197% to 4,507 in 1995 from 1,517 in 1994. The number of
minutes logged on the system increased by 208% for the period, to 5,846,435
total minutes for 1995 from 1,895,673 total minutes for 1994.
Gross profit as a percentage of revenues declined to 58% in 1995 from 69%
in 1994. This decline is attributable to increased costs of purchased data and
the depreciation charge on DBT's computer equipment. As a percentage of
revenues, the cost of data increased to 18.5% in 1995 from 11.1% in 1994.
Depreciation of computer equipment increased to approximately 10.2% from 7.9% of
revenues. Purchased data is acquired in various ways including: (1) outright
purchase by DBT, (2) leasing of data through usage charges or royalty
agreements, and (3) individual access charges incurred each time a customer
accesses data provided by a third party. There is no assurance that future costs
will not continue to increase as prices charged by certain governmental bodies
and agencies change.
Selling and administrative expenses increased as a percentage of revenues
by approximately 3.7% for 1995 as compared to 1994. This increase is primarily
attributable to DBT's efforts to develop its customer and product-support
infrastructure, including sales and marketing professionals, a customer support
team, rent on increased facilities and other general expenses.
Research and development costs increased by approximately $460,000 in 1995
as compared to 1994. As a percentage of revenues, however, such costs declined
to approximately 12.6% in 1995 from 20.1% in 1994.
Operating income (loss) declined to (11.2%) of revenues in 1995 from
approximately 16.2% of revenues in 1994. This decline is primarily attributable
to increases in the cost of purchased data and depreciation on DBT's computer
equipment and the loss on the IRB transaction.
Interest expense increased in 1995 as compared to 1994 due to higher
borrowings. The higher borrowings were used primarily to acquire computer
equipment. Interest income increased due to higher cash balances resulting from
cash infusions from outside investors and temporary investments of borrowed
funds.
Income (loss) from operations and net income (loss) were directly affected
by the non-recurring loss on the IRB transaction. See " -- Loss on IRB
Transaction."
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1996, DBT's cash and cash equivalents were $1,014,200 and
DBT's working capital was a deficit of $208,900. The deficit is primarily
attributable to the increase in draws on DBT's bank line of credit and/or
decreases in cash and cash equivalents. These funds were used to acquire
additional property and equipment. DBT believes that its resources are
sufficient to fund operations at its current and expected levels, and DBT is not
aware of any events which will adversely effect its liquidity during 1996. See
"Recent Events." During the three months ended March 31, 1996 and during the
year ended December 31, 1995, DBT financed its growth through operations and
long-term debt borrowings. During 1995, DBT obtained additional financing
through sales of its common stock.
Cash provided by financing activities, net of distributions and repayments
of debt, totaled $221,500 for the three months ended March 31, 1996 and $4.7
million in the year ended December 31, 1995. Cash
48
<PAGE> 54
generated by operating activities was $243,300 for the three months ended March
31, 1996 and $1.5 million for the year ended December 31, 1995.
Capital expenditures during the three months ended March 31, 1996 and the
year ended December 31, 1995 included the acquisition of approximately
$1,010,700 and $3,115,600, respectively, in computer and other equipment and
acquisition of data that was capitalized for future amortization of
approximately $20,500 and $237,000, respectively. See "Business of
DBT -- Research and Development."
Most of DBT's long-term debt consists of 36-month term loans with a
commercial bank. See Note 6 to DBT's audited financial statements. DBT believes
that cash generated from operations, as well as new infusions of equity capital,
will provide DBT with sufficient liquidity to repay its obligations as they come
due. DBT's royalty agreement regarding its Texas investors is only paid to these
investors as the revenues are generated. Therefore, this agreement is self
financing and does not require the use of funds generated from other sources.
See Note 7 to DBT's audited financial statements. DBT believes that the credit
facility, cash flows from operations, and DBT's ability to raise funds from
equity investors are adequate to fund expected future growth.
DBT obtains the right to use certain of its data under agreements that
require minimum royalty payments during 1996 of approximately $500,000. DBT
anticipates cash flows from operations will provide the funds to meet these
commitments.
DBT must comply with certain significant financial ratios and restrictive
covenants for its lending institution, including: a restriction on creating
additional liens or security interests against the collateral; maintaining of a
minimum debt coverage ratio (net income divided by current debt maturities) of
1.3 times; and maintenance of a debt to net worth ratio of no more than 2.0
times. DBT believes it is in compliance with these lending covenants.
During 1995, DBT sold shares of its common stock which resulted in an
increase in shareholders' equity of approximately $3,073,200. The issuance of
the common stock resulted in a decrease in the percentage ownership of the
founding shareholders by approximately 26%.
INCOME TAXES
DBT had elected to be taxed as an S corporation through June 30, 1995,
after which it revoked its S corporation election and began directly paying
taxes on its earnings. The consequences of the S corporation termination
included (1) the accrual of the final S corporation distribution of $204,000
payable to the shareholders at June 30, 1995 and (2) the reclassification of
$230,700 of undistributed S corporation earnings to additional paid in capital.
Additionally, a charge to earnings was taken in 1995 to establish a deferred tax
liability of $155,200 for the tax bases of assets and liabilities that are
different than those recognized for financial reporting purposes. DBT's
effective tax rate for 1995 (excluding the loss on the IRB transaction) was 21%.
Management anticipates that DBT's effective tax rate for 1996 will be
approximately 38% (the current combined federal and Florida state statutory rate
for corporations).
There are proposals before the United States Congress to reinstate
retroactively the research and development tax credit to its expiration date of
June 30, 1995. If this reinstatement occurs, DBT may be entitled to a reduction
of its taxes paid for 1995 and would expect its effective tax rate for 1996 to
be reduced. DBT is unable to predict whether the current proposals will be
passed.
INFLATION
The rate of inflation has not had a material impact on the operations of
DBT. Moreover, if inflation remains at its recent levels, it is not expected to
have a material impact on the operations of DBT for the foreseeable future.
49
<PAGE> 55
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("FAS 121") which prescribes the accounting for the impairment
of certain long-lived assets. FAS 121 is effective for fiscal years beginning
after December 15, 1995. In accordance with the effective date, DBT has not yet
adopted FAS 121 but does not believe that FAS 121 will have a material impact on
DBT's financial position or results of operations when adopted.
In October 1995, FASB issued Statement No. 123, Accounting for Stock Based
Compensation ("FAS 123"). FAS 123 is effective for transactions entered into
after December 15, 1995. DBT does not currently use its stock as a means of
compensation, therefore, it is not expected that the adoption of FAS 123 will
have any effect on DBT's financial position or results of operations.
LOSS ON IRB TRANSACTION
Effective July 1, 1995, DBT purchased for cash and stock all of the
outstanding shares of common stock of International Research Bureau, Inc.
("IRB"). Subsequent to the acquisition, management of DBT re-evaluated the
future potential of IRB's core document retrieval business and concluded that
IRB's assets, other than its on-line customer list, had no future value to DBT.
Factors which led DBT's management to this evaluation included the conclusions
that DBT's technology was superior to IRB's, and that IRB's data was duplicative
of data which DBT already possessed. On December 13, 1995, IRB's shares were
transferred back to the original owners of IRB in exchange for DBT common stock.
Because DBT's ownership of IRB was temporary, DBT has accounted for its
investment in IRB using the equity method.
As a result of these transactions, DBT acquired IRB's customer list for its
on-line business and a covenant not to compete. The assets of DBT given up
included cash of $1,000,000; common stock of DBT valued at $485,600 (after
accounting for the returned shares); and investments in the operations of IRB
and other costs totaling $198,600, was recorded on DBT's balance sheet, and the
remainder of the costs incurred were charged to operations.
Pursuant to the transaction, Darrell Goodwin, an officer and 50%
shareholder of IRB, was given and retains a seat on DBT's board of directors.
RECENT EVENTS
In December 1995, DBT's Board of Directors agreed to recommend to the
shareholders to vote in favor of the Merger. Pursuant to the Merger, DBT's
shareholders would hold a majority of the stock in Holdco, a holding company
that will own all of the stock in both DBT and Patlex. As a result of the
Merger, DBT may be in a position to fund the growth of its operations through
the public capital markets and to increase its exposure to potential new
customers.
50
<PAGE> 56
UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
The following pro forma information assumes the issuance of 5,091,530
Holdco Common Shares in exchange for all of the outstanding common stock of DBT.
Although Holdco is the surviving corporation, for accounting purposes the
transaction is being treated as a purchase business acquisition of Patlex by DBT
(a reverse acquisition) and a recapitalization of DBT. The following pro forma
condensed financial statements and accompanying notes to pro forma condensed
financial statements present pro forma information with respect to this
transaction.
The Merger is assumed to be consummated as of March 31, 1996, for purposes
of the pro forma condensed balance sheet and as of January 1, 1995 for purposes
of the pro forma condensed statements of income. The pro forma condensed
financial statements are presented for illustrative purposes only and are not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated as of the dates indicated, nor
are they necessarily indicative of the future operating results or financial
position.
DBT's fiscal year coincides with the calendar year and Patlex's fiscal year
ends on June 30. The pro forma condensed financial statements are derived from
and should be read in conjunction with DBT's historical audited and unaudited
financial statements and Patlex's historical audited and unaudited financial
statements (which, because Patlex's fiscal year ended June 30, have been recast
to conform to DBT's fiscal year ending December 31) included elsewhere in this
Proxy Statement/Prospectus.
51
<PAGE> 57
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------
DBT PATLEX PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,014 $ 6,280 $ -- $ 7,294
Accounts and notes receivable, net.............. 1,255 167 -- 1,422
Receivables from related parties................ 245 -- -- 245
Prepaid expenses................................ 269 118 -- 387
------- ------- ----- -------
Total current assets....................... 2,783 6,565 -- 9,348
Property and equipment, net..................... 3,761 381 -- 4,142
Investment in patents, less accumulated
amortization.................................. -- 14,438 (2,413)(a) 16,108
4,083(b)
Other assets.................................... 520 -- -- 520
------- ------- ----- -------
Total assets.......................... $ 7,064 $ 21,384 $ 1,670 $30,118
======= ======= ===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses, and
other current liabilities..................... $ 1,880 $ 639 $ -- $ 2,519
Current portion of long-term debt and
bank line of credit........................... 964 27 -- 991
Due to other laser patents interest holders..... -- 1,470 -- 1,470
Current and deferred income taxes............... 148 626 -- 774
------- ------- ----- -------
Total current liabilities.................. 2,992 2,762 -- 5,754
Notes payable to bank........................... -- 224 -- 224
Long-term debt, less current portion............ 1,299 -- -- 1,299
Deferred income taxes........................... -- 3,839 1,633(b) 5,472
------- ------- ----- -------
Total liabilities..................... 4,291 6,825 1,633 12,749
Stockholders' equity:
Common stock.................................... 2 253 549(c) 804
Capital in excess of par value.................. 3,870 12,876 -- 17,664
(2,413)(a)
1,430(b)
2,450(b)
(549)(c)
Retained earnings (deficit)..................... (1,099) 1,430 (1,430)(b) (1,099)
------- ------- ----- -------
Total stockholders' equity................. 2,773 14,559 37 17,369
------- ------- ----- -------
Total liabilities and stockholders'
equity.............................. $ 7,064 $ 21,384 $ 1,670 $30,118
======= ======= ===== =======
</TABLE>
See notes to pro forma condensed balance sheet.
52
<PAGE> 58
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Adjustment to record elimination of the intangible resulting from the merger
with AFG, when Patlex recorded the net deferred tax liability resulting from
the differences between the financial and tax reporting bases of Patlex's
assets and liabilities. DBT as the acquiror in the Patlex/DBT merger would
assign value only to intangibles which can be identified and named.
(b) Adjustments to record the elimination of Patlex's retained earnings and
effects of the acquisition:
<TABLE>
<S> <C> <C>
Fair value of Patlex's outstanding Common Shares 2,527,049
shares at $5.25 per share (market value)...................... $13,267
Fair value of outstanding options to purchase 420,665 shares... 589
Transaction costs.............................................. 740
-------
Total purchase price...................................... 14,596
Carrying value of Patlex's net assets.................. 14,559
Less: Intangible recorded in connection with
Patlex's adoption of SFAS 109................... 2,413 12,146
------ -------
Excess of cost, over carrying value of net assets.............. $ 2,450
=======
Allocation of excess to:
Investment in Patents..................................... $ 4,083
Deferred income taxes..................................... 1,633
-------
$ 2,450
=======
</TABLE>
Patlex has not completed the determination of the fair values of its net
assets. However, Patlex believes the final valuation, particularly of its
Investments in Patents, will not result in material differences.
(c) Adjustment to restate DBT's historical stockholder's equity (a
recapitalization) to reflect the Patlex common shares which will be
outstanding immediately following the merger.
53
<PAGE> 59
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------
DBT PATLEX PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONDENSED
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net laser patents royalties...................... $ -- $1,810 $ -- $ 1,810
Revenues......................................... 3,349 -- -- 3,349
------ ------- ----- -------
Total royalties and revenues........... 3,349 1,810 -- 5,159
------ ------- ----- -------
Costs and expenses:
Costs and expenses applicable to revenues...... 1,552 -- -- 1,552
General and administrative..................... 767 561 -- 1,328
Selling and promotion.......................... 316 -- -- 316
Research and development costs................. 398 -- -- 398
Amortization of patents........................ -- 444 42(a) 486
------ ------- ----- -------
Total costs and expenses............... 3,033 1,005 42 4,080
------ ------- ----- -------
Operating income................................. 316 805 (42) 1,079
------ ------- ----- -------
Other income (deductions):
Interest income................................ 13 82 -- 95
Interest expense............................... (48) (28) -- (76)
Other net...................................... -- 4 -- 4
------ ------- ----- -------
Total other income (deductions), net... (35) 58 -- 23
------ ------- ----- -------
Earnings before income taxes..................... 281 863 (42) 1,102
Provision for income taxes....................... (106) (465) 17(b) (554)
------ ------- ----- -------
Net earnings..................................... $ 175 $ 398 $ (25) $ 548
====== ======= ===== =======
Earnings per share............................... $(0.10) $ 0.14 $ 0.07
====== ======= =======
Weighted average common and
common equivalent shares (in thousands)........ 1,736 2,908 8,039
====== ======= =======
</TABLE>
See notes to pro forma condensed statement of income.
54
<PAGE> 60
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
DBT PATLEX PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS CONDENSED
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net laser patents royalties...................... $ -- $ 7,018 $ -- $ 7,018
Revenues......................................... 8,076 -- -- 8,076
-------- ------- ----- --------
Total royalties and revenues........... 8,076 7,018 -- 15,094
-------- ------- ----- --------
Cost and expenses:
Costs and expenses applicable to revenues...... 3,372 -- -- 3,372
General and administrative..................... 1,908 1,652 -- 3,560
Selling and promotion.......................... 1,026 -- -- 1,026
Research and development costs................. 1,017 -- -- 1,017
Amortization of patents........................ -- 1,777 167(a) 1,944
-------- ------- ----- --------
Total costs and expenses............... 7,323 3,429 167 10,919
-------- ------- ----- --------
Operating income................................. 753 3,589 (167) 4,175
-------- ------- ----- --------
Other income (deductions):
Interest income................................ 32 244 -- 276
Interest expense............................... (108) (139) -- (247)
Other net...................................... -- 90 -- 90
Loss on IRB transaction........................ (1,660) -- -- (1,660)
-------- ------- ----- --------
Total other income (deductions), net... (1,736) 195 -- (1,541)
-------- ------- ----- --------
Earnings (loss) before income taxes.............. (983) 3,784 (167) 2,634
Provision for income taxes....................... (209) (1,790) 67(b) (1,932)
-------- ------- ----- --------
Net earnings (loss).............................. $ (1,192) $ 1,994 $ (100) $ 702
======== ======= ===== ========
Earnings (loss) per share........................ $ (0.79) $ 0.77 $ 0.09
======== ======= ========
Weighted average common and
common equivalent shares (in thousands)........ 1,515 2,576 8,039
======== ======= ========
</TABLE>
See notes to pro forma condensed statement of income.
55
<PAGE> 61
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(a) Adjustment to record increase in amortization due to increase in Investment
in Patents resulting from the excess of the fair market value of the Patlex
Common Shares over carrying value of net assets of Patlex.
(b) Adjustment to record tax effect of effect of amortization of Investment in
Patents.
56
<PAGE> 62
BUSINESS OF PATLEX
GENERAL
Patlex has been engaged in the patent exploitation and enforcement business
since late 1979. Patlex owns a 64% interest in the royalty income from, and a
42.86% ownership interest in, the Laser Patents, which are patents that relate
to basic technology used in certain types of commonly used lasers and certain
uses of laser technology. The patent enforcement business includes the
identification of laser products and laser applications which infringe the Laser
Patents and the execution of licensing agreements through normal commercial
negotiations or pursuant to settlements of litigation brought against infringers
of the Laser Patents. Patlex is also the exclusive licensing agent for the Laser
Patents.
THE DISTRIBUTION
On September 27, 1995, AFG, as the then sole shareholder of Patlex,
effected the Distribution, pursuant to which AFG distributed 95.01% of the
outstanding Patlex Common Shares to the holders of shares of common stock of
AFG. On September 27, 1995, immediately after the Distribution, AFG merged with
and into Key Auto, a wholly owned subsidiary of KeyCorp, a publicly traded
corporation, and the holders of AFG capital stock received common stock of
KeyCorp as a result of the AFG/KeyCorp Merger. Key Auto, as the successor to
AFG, retained the 4.99% of the outstanding Patlex Common Shares that were not
distributed in the Distribution. As a consequence of the Distribution, Patlex
became an independent, public company.
LASER PATENT INTERESTS
Patlex owns a 64% income interest and a 42.86% ownership interest in the
Laser Patents which derive from patent applications originally filed by Dr.
Gordon Gould in 1959. NGN Acquisition Corporation ("NGN"), a corporation owned
by Dr. Gould and his family, holds the remaining 57.14% ownership interest in
the Laser Patents. Other income interests in the Laser Patents are held by NGN
(20%) and Refac Financial Corporation ("REFAC") (16%). In addition to NGN's 20%
income interest, Patlex is contractually obligated to pay NGN an additional 1.5%
of the first $198,800,000 of net royalty income. As of December 31, 1995, total
royalties collected under the Laser Patents were approximately $97,445,000,
approximately $93,160,000 of which constituted net royalty income from which
other income interest payments were calculated.
Patlex has the right to receive out of the laser patent royalty revenues an
amount equal to expenses incurred and paid by Patlex which are directly related
to enforcing and litigating the Laser Patents. Such expenses are deducted from
the total laser patent royalty revenues; the resultant royalty amount
constitutes net laser patent royalties. Royalty payments payable to the Laser
Patent interest holders are computed on the basis of net royalties. The method
in which Patlex is reimbursed for enforcement and litigation expenses is the
subject of litigation initiated by REFAC.
Patlex and NGN are parties to a Security and Escrow Agreement under which
Patlex will deposit, when requested by NGN, the amounts representing NGN's
income interest in Laser Patent revenues into a separate account in order to
protect them from the claims of creditors.
Patlex's patent enforcement and exploitation activities involve the Laser
Patents described below.
PRINCIPAL LASER PATENTS
The most commercially significant of the Laser Patents is the Gas Discharge
Laser Patent (U.S. Patent No. 4,704,583), which covers gas discharge lasers. In
addition, the Laser Patents consist of the Use Patent (U.S. Patent No.
4,161,436), which covers certain common uses of many types of lasers, and the
Brewster Angle Window Patent (U.S. Patent No. 4,746,201), which involves the use
of an optical system including optical elements to polarize light. The Optically
Pumped Laser Patent (U.S. Patent No. 4,053,845) expired in October 1994. The Use
Patent expires in July 1996, the Gas Discharge Laser Patent expires in November
2004 and the Brewster Angle Window Patent expires in May 2005. Upon the
expiration of the applicable
57
<PAGE> 63
patent, Patlex will lose its right to exclude others from exploiting the
inventions claimed therein and, accordingly, the obligation of third parties to
make royalty payments to Patlex will cease. Although Patlex believes that the
decrease in royalty income as a result of the expiration of the Optically Pumped
Laser Patent may be offset to some extent by an increase in royalty income from
the Use Patent and the Brewster Angle Window Patent, there can be no assurance
of the amount of any such increase or that such increase will occur.
Patlex's ability to exploit the Laser Patents through its licensing program
has been directly tied to its successes in litigating the validity of the Laser
Patents, both in the courts and before the United States Patent and Trademark
Office. Patlex believes that the major period of litigating the validity and
enforceability of the Laser Patents has passed. The "major period" refers to the
period of time (from October 11, 1977, the issue date of the Optically Pumped
Laser Patent, through 1988) in which the greatest number of lawsuits were
prosecuted representing the greatest challenge to the validity and scope of the
Laser Patents. However, the Laser Patents may be subject to subsequent
challenges. There can be no assurance that, if challenged, Patlex would prevail
in any subsequent proceedings or that such challenges may not entail substantial
litigation expenses. If there is an unappealable successful challenge against
the validity of the Gas Discharge Laser Patent, the impact would be materially
adverse to Patlex. See "-- Legal Proceedings."
PATENT LICENSING AGREEMENTS
Patlex is the exclusive licensing agent for the Laser Patents. As licensing
agent, Patlex actively pursues its patent licensing activities, which require
manufacturers and users who exploit the inventions claimed in the Laser Patents
to report and pay royalties to Patlex. Patlex then distributes these royalties
among itself and the other parties holding interests in the royalty income.
Patlex actively monitors the laser industry to identify infringers and new laser
applications which infringe the Laser Patents. The license agreements generally
fall into three categories: (i) license agreements with manufacturers of lasers
or laser systems that use the inventions claimed in the Laser Patents; (ii)
license agreements with users of lasers or laser systems that use the inventions
claimed in the Laser Patents; and (iii) settlement agreements which require a
payment of a specific sum of money for past infringement of certain of the Laser
Patents but do not include a grant of a license to make, use or sell lasers or
laser systems that use the inventions claimed in the Laser Patents. As of
December 31, 1995, Patlex had agreements with a total of 235 companies which
represent a cross-section of industries in the United States, including users
and manufacturers. Of such agreements, 199 were licensing agreements with
manufacturers who had an obligation to report and pay royalties on the sale of
lasers or laser systems which use the Laser Patents. Patlex believes the
majority of the commercial laser manufacturers in the United States, as well as
a majority of manufacturers importing lasers into the United States, have been
licensed.
The market for Patlex's patent license agreements depends on the commercial
laser industry which fluctuates with the execution of license agreements with
new commercial entities, spin-offs creating new entities from existing
licensees, business failures, combinations between existing licensees and
termination of existing agreements for cause or by mutual consent.
The agreements with both manufacturers and users generally provide for one
or more "lump sum" payments in consideration of nonexclusive licenses for
certain applications of all of the Laser Patents and a release of all claims for
damages from past infringements. Substantially all of the licenses also provide
for future royalty payments if the licensee engages in the manufacture or sale
of lasers subject to the Laser Patents. In contrast, substantially all of the
licenses with licensees that use, but do not manufacture or sell products
covered by, the Laser Patents, provide for a one-time lump sum payment for past
infringement. As a result of licensing efforts to date, royalties from past
infringements are expected to be minimal in the future. Two licensees accounted
for 10.3% and 6.8%, respectively, of the Laser Patent royalties during the
fiscal year ended December 31, 1995. Management believes that in the event
either one or both of these licensees cease manufacturing licensed laser
products, the impact on Patlex's revenues would be temporary, as it is
anticipated that other manufacturers would satisfy the overall demand for such
licensed laser products.
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<PAGE> 64
COMPETITION
The laser industry market, consisting of manufacturers and users of lasers
and laser applications, is very competitive. Patlex, however, does not compete
against laser manufacturers and users, but rather licenses laser technology to
them. As exclusive licensing agent of the Laser Patents, Patlex does not
encounter any competition in licensing manufacturers and users of the technology
covered by the Laser Patents. Although Patlex believes the laser technology
covered by the Laser Patents to be state of the art, any advance in technology
that would render the technology covered by one or more of the Laser Patents
obsolete could have a material adverse effect on Patlex's future patent royalty
revenue. Management is not aware of any recent advances in laser technology that
may materially adversely affect Patlex's future patent royalty revenues but
there has been a gradual increase in diode laser technology that has inhibited
growth of Patlex's laser technology in low power laser applications.
EMPLOYEES
As of June 30, 1996, Patlex had five full-time employees. Patlex considers
its relationships with its employees to be good. None of Patlex's employees are
subject to a collective bargaining agreement.
PROPERTY
Patlex leases approximately 2,600 square feet at 5550 West Flamingo Road,
Suite B-5, Las Vegas, Nevada 89103 for its principal executive offices. The
lease has a five-year term with a renewal option for four additional years and
has minimum monthly rent payments of $3,750. Patlex also leases approximately
600 square feet of space located at 250 Cotorro Court, Las Cruces, New Mexico
88005, used as an office for Frank Borman. The lease has a five-year term with
minimum monthly payments of $650.
LEGAL PROCEEDINGS
Due to the nature of Patlex's business, especially its involvement in the
enforcement of patent rights, Patlex is continually involved in litigation with
alleged infringers of the Laser Patents. Patlex regards all such lawsuits as
occurring in the ordinary course of business. Furthermore, as a result of the
involvement of the United States Patent and Trademark Office in granting and
denying patent applications and in conducting reexaminations of patents, Patlex
has in the past been required to prosecute appeals of Patent and Trademark
Office rulings adverse to Patlex's interest to the United States District Court.
No such appeals are pending at this time and Patlex does not anticipate such
appeals will be necessary in the future with regard to the Laser Patents. In
connection with suits filed against alleged patent infringers to enforce a
patent, defendants often file counterclaims seeking payment by the plaintiffs of
any damages suffered by the defendants on account of the lawsuit and
reimbursement by the plaintiffs of the defendant's costs and attorney's fees.
While such counterclaims have been filed against Patlex, to date Patlex has not
incurred liability with regard to such counterclaims. Patlex may also be
required to file suits to enforce collection and compliance under its patent
license agreements with its current licensees.
In July 1989, Patlex instituted a civil action in the United States
District Court, District of New Jersey, against JEC Lasers, Inc. ("JEC Lasers").
JEC Lasers was granted a license containing terms more favorable than terms in
licenses granted by Patlex to other licensees. Patlex's complaint requested the
court to declare the license agreement to be nontransferable, based on JEC
Lasers' historical financial condition and insolvency, and enjoin the licensee
from transferring the license agreement to another laser manufacturer. A trial
was held in April 1994. The court ruled that JEC Lasers is not barred from
transferring the license agreement as part of a business combination. A judgment
embodying the court's ruling was entered in August 1994, which Patlex appealed.
The Court of Appeals affirmed the lower court's ruling.
In November 1994, REFAC Financial Corporation ("REFAC") instituted a civil
action in the United States District Court, Eastern District of Pennsylvania,
alleging that Patlex improperly calculated the royalties due REFAC. The manner
in which the royalties due REFAC are calculated has been consistent for more
than six years. Patlex believes that the royalties due REFAC have been properly
calculated, and that REFAC's claim is both without merit and time-barred. On
February 28, 1996 a special verdict adverse to Patlex was returned. Post-trial
motions have been denied but no separate judgment has been entered. The amount
of any judgment against Patlex in this action will be less than $225,000. When a
separate judgment is entered, Patlex intends to appeal any adverse judgment.
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<PAGE> 65
BUSINESS OF DBT
DBT is an electronic information content provider furnishing on-line,
immediate access to public records on individuals, businesses and assets. DBT
was established in 1992 by Hank Asher, its President, who led the development of
DBT's products. As of April 1996, DBT had approximately 6,200 customer accounts,
consisting of approximately 14,500 users, with new customer accounts being added
at a rate of over 400 per month. DBT's customer base is diverse in terms of both
size and information requirements.
DBT's strategy is to become a one-stop source of information provided in a
user-friendly format at reasonable costs. Its proprietary software allows
cross-referencing of the information. The linear architecture of its computer
systems allows for system increases in database size and capacity. To DBT's
knowledge, no other database is currently able to match the cross-referencing
capabilities of its system. DBT's reports are completely machine-generated,
using advanced technologies and algorithms to find, cross-reference and confirm
the accuracy of data.
DBT's products were initially used primarily by insurance companies to
investigate claims. Use of the database later expanded to law enforcement
agencies and investigation firms. In April 1996, insurance companies, law
enforcement agencies and investigation firms represented 13%, 28% and 28%,
respectively, of DBT's on-line usage, in minutes. See "-- Customers."
To date, DBT's capital growth has been provided mainly by private
placements and cash provided from operations. In July 1993, and June 1995, DBT
completed private placements of equity of $81,000 and $100,000, respectively,
and, in August 1995, completed a private placement of $3 million of common
stock.
STRATEGY
DBT's objective is to expand its technology, sources of data and user base.
To achieve this objective, DBT intends to (i) engage in research and development
activities to expand its existing technology, (ii) develop new products, (iii)
acquire additional information, (iv) access new sources of information and (v)
attract new customers.
DBT communicates with its customers on a regular basis both with respect to
their level of satisfaction with the existing products and their needs for
additional products.
DBT aggressively designs new products and enhances existing products,
creating new value for its customers. In addition, DBT's technical support
personnel are available 24 hours a day, 7 days a week to assist customers in
their use of the products. DBT believes that its responsiveness to customer
feedback and emphasis on customer service contributes to customer loyalty and
usage of DBT's products.
DATA SOURCES
DBT acquires its data from both governmental and commercial sources and
then formats the data for use with its products.
Costs for data are incurred in one of the following ways: (i) up front at
the time information is acquired, (ii) on a flat fee basis for updates or (iii)
at variable costs based on access. In the case of up front or flat fees,
additional costs to the supplier of such information are not generally incurred
as DBT's customers access the database. In the case of acquisitions of real-time
information, variable costs are incurred by DBT and are charged to DBT's
customers at a variable rate based upon usage by the customer.
PRODUCTS
DBT's current product line includes the following:
DBT ONLINE. The Next Generation of AutoTrack Plus+. DBT Online provides
on-line access to billions of records relating to individuals and companies,
including, but not limited to, social security numbers, current and past
addresses, telephone numbers, neighbors, relatives, associates, assets and
corporations. It is a cross-referenced system that is easy to use and accessible
at all times. Users pay a per-minute rate for on-line
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<PAGE> 66
usage. Set-up and installation fees are not charged. DBT Online is currently
used by law enforcement agencies, insurance companies, licensed investigation
firms, financial institutions, attorneys and paralegals, among others.
Within the DBT Online database, users can also access "Faces of the
Nation." Faces of the Nation is a product used for, among other things, locating
individuals in the United States. With a name, address, social security number
or date of birth and first name, users can locate current and previous
addresses, relatives and associates, neighbors, date of birth or social security
number. Although the scope of this database is national, every individual in the
United states may not be included.
DBT expects to release the following products in 1996:
NEW YORK UNIFIED COURT SYSTEM. DBT entered into a definitive agreement
with the New York Unified Court System, effective as of February 8, 1996. Under
the terms of the exclusive contract, DBT expects to provide on-line access to
the civil case management data of the New York Unified Court System. This
product will improve the efficiency of the search process for information about
the status of cases in the New York court system and is likely to be used
predominantly by New York attorneys.
CORPORATIONS OF THE NATION. This product is intended to provide
information on corporations in 45 states and will supply more expansive and
comprehensive investigative information than currently available sources.
CARLI (COMPUTER ASSISTED RADIO-LINKED INFOBASE). Law enforcement agencies
are expected to use this product which will access DBT Online and other data
sources by voice recognition and voice response systems that can be activated
while operating a vehicle. Advantages of this system include improved officer
safety and productivity for law enforcement personnel. This product is currently
in the research and development stage, including beta tests in law enforcement
vehicles.
RESEARCH AND DEVELOPMENT
DBT's aggressive research and development efforts include the following
categories:
HARDWARE AND OPERATING SYSTEM DESIGN AND IMPLEMENTATION. Utilizing the
newest and most advanced micro based technologies, DBT regularly designs, tests
and implements upgrades to its existing computer infrastructure as well as high
speed intra and inter network communications. As of April 1996, DBT maintained
5.0 terabytes of online data storage, which is being expanded.
DBT also develops enhancements to its open architecture mass storage file
system. The prominent advantages of DBT's file systems are unlimited file size,
fast index retrieval and real-time redundant fault tolerances, as well as the
ability to link dissimilar data elements through intelligent indexing. In
addition, DBT continues to refine its multi-tiered client server distributed
processing environment. DBT's systems utilize distributed processing via an open
architecture. Multi-tiered client server methodology affords the ability to
seamlessly address multiple file types and utilize idle processor resources
across DBT's system infrastructure.
DELIVERY METHODS. Additional research and development efforts focus on
DBT's delivery methods. DBT continues to develop and enhance its delivery of
products through its existing interactive session manager, providing new
products and capabilities to DBT's customers. DBT is currently developing and
testing its internet interface for users with high security requirements,
particularly law enforcement. DBT is also currently developing and testing
mobile computing solutions to DBT products. Included in this program is a
talking police car, CARLI (Computer Assisted Radio-Linked Infobase), which
affords voice activated, voice response access to DBT and other data sources.
See "-- Products."
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CUSTOMERS
DBT's customer base has increased rapidly over the last two years, from
approximately 580 customer accounts in December 1993 to approximately 6,200
customer accounts in April 1996. As of April 1996, DBT's customers included
approximately 14,500 individual users. A summary of the allocation of usage by
DBT's customers by category is presented below:
<TABLE>
<CAPTION>
PERCENTAGE
APRIL USAGE
--------------------
CUSTOMER CATEGORY MINUTES REVENUES
---------------------------------------------------------- ------- --------
<S> <C> <C>
Law Enforcement........................................... 28 16
Investigation and Insurance Claim Firms................... 28 37
Insurance Companies....................................... 13 13
Attorneys................................................. 16 16
News Media................................................ 4 5
Other..................................................... 11 13
---
Total........................................... 100% 100%
===
</TABLE>
DBT's current products are available only to law enforcement agencies,
attorneys, paralegals, licensed investigation firms, financial institutions,
insurance companies and other qualified entities. DBT reserves the right to
refuse, or withdraw without notice, access to its products. All potential
customers are screened by DBT prior to being given access to the system. The
screening process generally consists of a review of professional licenses, if
any, credit reports and other relevant information in order to verify the
intended use of information. Once an application has been approved, the customer
is asked to sign a subscription agreement with DBT which provides the terms and
conditions pursuant to which DBT grants access to its products. A standard
subscription agreement includes a disclaimer of any warranties on the data and
an indemnification of DBT for inaccuracies contained in the data.
Once a customer is ready to go on-line, DBT delivers its software along
with instructions for the customer to call DBT for a password and assistance on
the installation. DBT's technical support staff of approximately 15 people works
with the users to assure that the installation is performed properly and the
instructions for use of the database have been communicated. The technical
support staff is then available on an on-going basis, without charge, to assist
users as needed.
DBT does not charge an installation or monthly fee to its customers. Users
access the database by calling a toll free number by modem from their computers.
The cost ranges from $0.50 to $1.50 per minute. Users spend 8 minutes, on
average, on-line each time they access a database. Some of DBT's products are
charged based on a fixed fee schedule per report generated.
Once a subscriber to a DBT product, many customers expand their
subscription to include other available products.
GOVERNMENT REGULATION
Regulation of access to information for public usage varies from state to
state. Therefore, the amount of information available in particular states may
vary. In Florida and Texas, the two states in which DBT does the most
significant amount of its business, access to records is relatively
unrestricted. In those states, all government records are specifically made
public by law unless excluded by a specific statutory exception. Such exceptions
exist primarily with respect to some criminal history information, which, when
an exception is applicable, generally may only be provided to law enforcement
agencies for specific purposes. DBT cannot predict whether the degree of
regulation in any particular state will change, nor whether the federal
government will implement any regulations with respect to access to specific
information.
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MARKETING
Recently, DBT increased the size of its sales and marketing staff to
seventeen by adding five new employees. The added staff has specific skills that
will increase DBT's ability to develop and implement dynamic marketing programs.
DBT is increasing its participation in key trade shows, advertising in a
wider range of trade journals and publications, and instituting several direct
mail campaigns targeted at specific audiences. DBT also continues to pursue its
highly successful customer referral program.
COMPETITION
Many of DBT's existing and potential customers may obtain electronic access
to public records through a variety of competitors, including internal systems,
governmental agencies, and private information sources. There are approximately
eight companies providing access to some public record information. Also, a
variety of federal and state agencies offer electronic access to public records
over which they have custody.
Each of these competitors serves markets overlapping DBT's to some extent.
Their systems differ in products and services, search capability, data provided
and user-interface. However, DBT offers products and services that are presently
unavailable through any other source. These products are delivered through a
cross-referencing and indexing system developed by and unique to DBT (see
"-- Research and Development"). DBT believes that its system, products and
services strengthen its ability to compete with other online information
services.
EMPLOYEES
As of June 30, 1996, DBT employed 99 persons. None of DBT's employees are
subject to a collective bargaining agreement. DBT believes that its relations
with employees are good.
PROPERTIES
DBT leases an aggregate of approximately 18,730 square feet in two
buildings at its Pompano Beach, Florida, facility at an annual rent of $241,116.
Computer back-up files and servers are separated between the two buildings to
protect DBT from complete loss in the event of disaster.
LEGAL PROCEEDINGS
DBT may be involved in litigation from time to time in the ordinary course
of its business. DBT is not currently involved in any litigation nor, to its
knowledge, is any material litigation currently threatened.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are the directors and executive officers of Patlex
and Holdco:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Frank Borman(1)....................... 67 Chairman, President and Chief Executive Officer
Richard Laitinen...................... 51 Vice President, Chief Financial Officer and
Treasurer
J. Henry Muetterties.................. 42 Vice President, Secretary and General Counsel
Gary E. Erlbaum(1)(2)(3).............. 51 Director
Kenneth G. Langone(1)(2)(3)........... 59 Director
</TABLE>
- ---------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
Frank Borman has been Chairman and Chief Executive Officer of Patlex since
1988 and President since 1989. Mr. Borman served as a director of AFG from 1990
until September 27, 1995 and served as Chairman of AFG's Board of Directors from
December 1992 until September 27, 1995. From 1969-86, he served in various
capacities for Eastern Airlines, including President, Chief Executive Officer
and Chairman of the Board of Directors. He served as Vice Chairman of the Board
of Directors of Texas Air Corporation from 1986-1991. Mr. Borman served in the
United States Air Force from 1950-1970. Mr. Borman currently serves as a member
of the Board of Directors of The Home Depot, Inc., Outboard Marine Corporation,
Thermo Instruments Systems, American Superconductor Corporation and is also a
member of the Board of Trustees of the National Geographic Society.
Richard Laitinen was elected a Vice President of Patlex in May 1989 and
Treasurer of Patlex in 1986. From 1985 to February 1987, Mr. Laitinen was also
Vice President of Finance and Administration of Geotek (formerly known as Apollo
Lasers, Inc.). He was Comptroller of Geotek from 1979 to 1985.
J. Henry Muetterties was elected Vice President, General Counsel and
Secretary in May 1989 and has been the Corporate Licensing Counsel for Patlex
since March 1988. From 1983 to 1988, Mr. Muetterties was Senior Patent Counsel
for Allied-Signal Aerospace, a division of Allied-Signal, Inc.
Gary E. Erlbaum was elected to Patlex's Board of Directors on September 8,
1995 and served as a director of AFG from 1992 until September 27, 1995 and is
also a director of several privately-owned companies. He has been engaged since
1983 in real estate and business ventures. Mr. Erlbaum served as the Chairman of
the Board of Directors of Patlex from September 1977 to July 1981 and from
October 1981 to February 1983, and served as the President of Patlex from May
1972 to September 1977 and from December 1978 to July 1981.
Kenneth G. Langone was elected to Patlex's Board of Directors on September
8, 1995 and served as a director of AFG from 1983 until September 27, 1995. For
the past twenty years, Mr. Langone has been Chairman of the Board, President and
Managing Director of Invemed Associates, Inc. ("Invemed"), a New York Stock
Exchange member firm engaged in investment banking and brokerage. He is one of
the co-founders of The Home Depot, Inc. and has been a director of that company
since 1978. He serves on the Board of Directors of Baby Superstore, Inc., GMIS,
Inc., St. Jude Medical, Inc., Unifi, Inc. and Geisinger Foundation, and is a
member of the Board of Trustees of Bucknell University where he is Chairman of
its Investment Committee and on the Board of Overseers of New York University,
Stern School of Business.
Patlex's Bylaws divide the Board of Directors into three classes, with
regular three-year staggered terms and initial terms of three, two and one years
for each of Class III, Class II and Class I Directors, respectively.
Accordingly, Mr. Borman will hold office until the annual meeting of
shareholders to be held in 1998, Mr. Langone will hold office until the annual
meeting of shareholders to be held in 1997, and Mr. Erlbaum
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<PAGE> 70
will hold office until the annual meeting of shareholders to be held in 1996.
Officers serve at the discretion of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Patlex Board of Directors has an Executive Committee, Audit Committee
and Compensation Committee. The Executive Committee is authorized to approve
certain actions by Patlex. The members of the Patlex Executive Committee are
Messrs. Borman, Erlbaum and Langone. The Audit Committee is charged with the
responsibility of reviewing Patlex accounting policies, practice and controls.
The members of the Patlex Audit Committee are Messrs. Erlbaum and Langone. The
Compensation Committee reviews the compensation policies of Patlex and acts as
Plan Administrator of the Patlex Corporation 1995 Stock Option Plan. The members
of the Patlex Compensation Committee are Messrs. Erlbaum and Langone. The
members of the Holdco Audit Committee are Messrs. Erlbaum and Langone and the
members of the Holdco Compensation Committee are Messrs. Erlbaum and Langone.
The members of the Holdco Executive Committee will be determined after the
Merger.
COMPENSATION OF DIRECTORS
Each director of Patlex receives $20,000 per year as compensation for
service on the Board of Directors. The compensation for members of the Holdco
Board of Directors after the Merger has not been determined.
DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER
Pursuant to the terms of the Merger Agreement, upon the Effective Time of
the Merger, the Holdco board of directors will be expanded from three to seven
and the following four directors of DBT will become directors of Holdco. In
addition, it is expected that Hank Asher will become the President of Holdco and
Mr. Borman will remain Chairman of the Board.
Hank Asher has been the Chief Executive Officer and a director of DBT since
he founded the company in 1992. Prior to founding DBT, Mr. Asher performed
contract programming services for various computer companies.
Charles Asher has been a Director of DBT since 1994. He has practiced law
in South Bend, Indiana, since graduating from Indiana University School of Law
in 1977. In addition to the Bar of the State of Indiana, he is admitted to the
Bar of the U.S. Supreme Court as well as several other federal courts.
Jack Hight has been Chairman of the Board of DBT since 1995. Prior to
joining DBT in 1995, he was President, Chief Executive Officer and Chairman of
the Board of Intec Systems, Inc. which he founded in 1981. From 1978 to 1980, he
was Chairman of the Board, Chief Executive Officer and President of Information
Science, Inc., a public company. In the 1960s, Mr. Hight co-founded and was
President of Electronic Data Systems Federal Corporation before it merged with
Electronic Data Systems Corporation in 1968 prior to its initial public
offering.
Sari Zalcberg has been a director of DBT since 1995. She is the Chief
Executive Officer and sole shareholder of La Grande Trunk, Inc., a retail
concern with locations in two states. Ms. Zalcberg is also a member of the
Regional Board of Directors of the Valparaiso Banking Center of Bank One
Merrillville, N.A., an Indiana chartered Bank. She holds a Bachelor of Science
degree in biological sciences from Indiana University.
Hank Asher, Charles Asher and Sari Zalcberg are siblings.
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<PAGE> 71
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation received
by the chief executive officer and the two other most highly compensated
executive officers of Patlex for the fiscal years ended June 30, 1995, 1994 and
1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ---------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
- --------------------------------------------- ------ --------- -------- ------------------
<S> <C> <C> <C> <C>
Frank Borman................................. 1995 $ 136,328 $ -- $ 8,557
Chairman of the Board, 1994 128,680 -- 2,557
President and Chief Executive Officer 1993 120,000 -- 1,424
Richard Laitinen............................. 1995 89,318 19,384 22,767
Vice President, Chief Financial Officer and 1994 87,328 15,055 15,711
Treasurer 1993 83,595 20,696 7,881
J. Henry Muetterties......................... 1995 100,593 21,944 24,588
Vice President, Secretary and General 1994 98,862 17,044 17,593
Counsel 1993 94,635 23,429 8,656
</TABLE>
- ---------------
(1) For fiscal year 1995, amounts received under Patlex's Deferred Compensation
Plan by Mr. Laitinen ($16,035) and Mr. Muetterties ($18,381), amounts paid
by AFG under the AFG 401(k) Savings Plan to Mr. Borman ($6,000), Mr.
Laitinen ($5,878) and Mr. Muetterties ($6,000) and amounts paid by Patlex
for life insurance premiums for Mr. Borman ($2,557), Mr. Laitinen ($584) and
Mr. Muetterties ($207).
After the Merger, Hank Asher, the President of DBT, will become the
President of Holdco. The following table sets forth compensation information for
Mr. Asher for the year ended December 31, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ---------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
- ----------------------------------------------- ------ --------- -------- ---------------
<S> <C> <C> <C> <C>
Hank Asher..................................... 1995 $ 123,270 $90,000 $ --
President of DBT
</TABLE>
AGGREGATED OPTIONS EXERCISED IN 1995 AND YEAR END OPTION VALUES
The following table sets forth certain information with regard to the
aggregated options to purchase AFG Common Stock (granted during the period in
which AFG was the sole shareholder of Patlex) exercised in the fiscal year ended
June 30, 1995 and the option values as of the end of that year for the chief
executive officer and other executive officers of Patlex named in the Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS/SAR'S IN-THE-MONEY OPTIONS
SHARES HELD AT FISCAL YEAR END(#) AT FISCAL YEAR END($)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank Borman............... 6,000 $35,250 77,000 4,000 $ 643,930 $49,000
Richard Laitinen........... 625 584 -- 1,875 -- 13,706
J. Henry Muetterties....... -- -- 11,250 2,250 93,403 16,448
</TABLE>
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EMPLOYMENT AGREEMENTS
In March 1991, Patlex entered into an employment agreement with Mr. Borman,
which provided for an initial three-year employment period and automatic
extensions for additional one-year terms on the anniversary date of the
agreement unless either Patlex or Mr. Borman gives notice to the other that the
term of the agreement will not be extended. The base compensation for Mr. Borman
for the fiscal year ending June 30, 1996 is $140,000.
During 1992, Patlex entered into employment agreements with Messrs.
Laitinen and Muetterties. Each of the agreements has been extended through
December 1998. The base compensation for Messrs. Laitinen and Muetterties for
the fiscal year ending June 30, 1996 is $97,229 and $110,070, respectively, plus
bonuses and other incentive compensation.
PATLEX STOCK OPTION PLAN
The Patlex Corporation 1995 Stock Option Plan (the "Plan") was approved by
the Board of Directors as of March 1995 and by AFG as sole shareholder of Patlex
on September 8, 1995. The purpose of the Plan is to recognize the contributions
made to Patlex by its employees and certain consultants or advisors, to provide
these individuals with additional incentives to devote themselves to Patlex's
future success and to improve Patlex's ability to attract, retain and motivate
individuals upon whom Patlex's sustained growth and financial success depend.
The Plan is also intended as an additional incentive to directors who are not
employees of Patlex to serve on Patlex's Board of Directors and to devote
themselves to the future success of Patlex.
The following table sets forth the options to purchase Patlex Common Shares
which have been granted to executive officers and directors under the Plan. A
total of 350,000 options have been granted under the Plan. All options granted
under the Plan were granted on October 2, 1995, at the market price of the
Patlex Common Shares on that date.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
TO PURCHASE PATLEX
NAME COMMON SHARES
---------------------------------------------------------- --------------------
<S> <C>
Frank Borman.............................................. 100,000
Richard Laitinen.......................................... 20,000
J. Henry Muetterties...................................... 20,000
Kenneth G. Langone........................................ 100,000
Gary E. Erlbaum........................................... 100,000
All executive officers and directors as a group (5
persons)................................................ 340,000
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Invemed Associates, Inc. ("Invemed"), a company of which Mr. Langone is
majority owner, acted as a financial advisor to AFG (the parent of Patlex at
that time) in connection with the AFG/KeyCorp Merger and the Distribution and
received a fee of approximately $2,470,000 for its services from AFG in
connection therewith. Mr. Langone is also Chairman of the Board of Invemed.
Kenneth G. Langone and Gary E. Erlbaum, who are directors and shareholders
of Patlex, are members of the board of directors of DBT, and are the beneficial
owners of 200,000 shares and 49,600 shares, respectively of DBT. See
"Introduction -- Interests of Certain Persons in the Merger," "Principal
Shareholders of Patlex" and "Principal Shareholders of DBT."
In November 1995, DBT extended a loan to Hank Asher, DBT's President and
majority shareholder, in return for an unsecured demand note, bearing interest
at 8%, payable to DBT in the amount of $200,000. In addition, during 1995
advances totalling $54,100 were made to Mr. Asher, without interest, which were
repaid on January 12, 1996.
On February 7, 1994, DBT entered into a debt and royalty agreement with a
consortium of seven individuals including Jack Hight. During 1995, Mr. Hight
became a shareholder and director of DBT. The
67
<PAGE> 73
agreement provided the financing necessary for DBT to enter the Texas market
with its database services. The agreement provided for a loan to DBT of
$200,000, repayable without interest as follows: for five months beginning May
1994, 50% of specified revenues from Texas operations or $2,000, whichever is
greater, then beginning October 1994, 50% of specified revenues from Texas
operations or $5,000, whichever is greater, until the $200,000 note is repaid.
During 1995 and 1994, $94,800 and $25,000, respectively, was repaid. See Note 6
to DBT's Financial Statements. The agreement also provided for DBT to grant to
the consortium a royalty to share in the revenues of the Texas expansion up to
$800,000, computed as follows: after the $200,000 note is repaid, the consortium
will receive 10% of specified revenues from Texas operations until $800,000 is
paid.
Indar Corporation ("Indar"), a Florida corporation owned by Hank Asher,
provided management and other services to DBT under an agreement between Indar
and DBT from December 1994 until the agreement expired in November 1995. DBT
paid a total of $282,500 to Indar under the agreement.
68
<PAGE> 74
PRINCIPAL SHAREHOLDERS OF PATLEX
The following table sets forth certain information, as of February 7, 1996,
before and after giving effect to the Merger (and the Reorganization), regarding
the beneficial ownership of the Patlex Common Shares by (i) each person known by
Patlex to be the beneficial owner of more than 5% of the outstanding Patlex
Common Shares, (ii) each director and executive officer of Patlex and (iii) all
directors and executive officers of Patlex as a group. Each person named has
sole voting and investment power with respect to the shares indicated except as
otherwise stated in the notes to the table.
<TABLE>
<CAPTION>
PATLEX COMMON SHARES HOLDCO COMMON SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE THE MERGER AFTER THE MERGER
---------------------------- ----------------------------
NAME NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
- ------------------------------------------ ---------------- ------- ---------------- -------
<S> <C> <C> <C> <C>
Kenneth G. Langone(1)..................... 329,081 12.5% 915,569(7) 11.9%
Gary E. Erlbaum(2)........................ 226,659 8.6 372,108(8) 4.8
Quantum Partners LDC(3)................... 209,336 8.3 209,336 2.7
Frank Borman(4)........................... 114,200 4.3 114,200 1.5
J. Henry Muetterties(5)................... 24,911 * 24,911 *
Richard Laitinen(5)....................... 21,157 * 21,157 *
All executive officers and directors as a
group (5 persons)(6).................... 716,008 25.0 1,447,946 18.2
</TABLE>
- ---------------
* Less than 1%
(1) Includes 53,906 shares owned by Invemed Associates, Inc. of which Mr.
Langone is Chairman of the Board and a majority owner and 100,000 shares
issuable upon exercise of presently exercisable options.
(2) Includes (i) 21,933 shares owned by SPSP Corporation of which Mr. Erlbaum is
a director, President and shareholder, (ii) 11,343 shares held by trusts for
which Mr. Erlbaum serves as trustee or co-trustee, (iii) 20,000 shares owned
by the Erlbaum Family L.P., of which Mr. Erlbaum is President of the general
partner, (iv) 1,890 shares owned by Mr. Erlbaum's son, and (v) 100,000
shares issuable upon exercise of presently exercisable options.
(3) The address of Quantum Partners LDC is 888 Seventh Avenue, New York, NY
10106-0001. Share information is based on a shareholder list as of December
13, 1995.
(4) Includes 100,000 shares issuable upon exercise of presently exercisable
options.
(5) Includes 20,000 shares issuable upon exercise of presently exercisable
options.
(6) Includes an aggregate of 340,000 shares issuable upon exercise of presently
exercisable options.
(7) Includes 293,244 shares to be received by each of Mr. Langone and Invemed
Associates, Inc. in the Merger in exchange for DBT Common Shares. See
"Principal Shareholders of DBT."
(8) Includes 145,449 shares to be received in the Merger in exchange for DBT
Common Shares owned by the Erlbaum Family, L.P., of which Mr. Erlbaum is
President of the general partner. See "Principal Shareholders of DBT."
69
<PAGE> 75
PRINCIPAL SHAREHOLDERS OF DBT
At February 7, 1996, there were 18 holders of record of DBT Common Shares.
The following table sets forth certain information as of February 7, 1996,
before and after giving effect to the Merger (and the Reorganization), regarding
the beneficial ownership of DBT Common Shares by (i) each person known by DBT to
be the beneficial owner of more than 5% of the outstanding DBT Common Shares,
(ii) each director and executive officer of DBT, and (iii) all directors and
executive officers of DBT as a group. Each person named has sole voting and
investment power with respect to the shares indicated except as otherwise stated
in the notes to the table.
<TABLE>
<CAPTION>
DBT COMMON SHARES HOLDCO COMMON SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE THE MERGER AFTER THE MERGER+
---------------------------- ----------------------------
NAME NUMBER OF SHARES PERCENT NUMBER OF SHARES PERCENT
- ------------------------------------------ ---------------- ------- ---------------- -------
<S> <C> <C> <C> <C>
Hank Asher(1)(2).......................... 946,667 54.5% 2,776,049 36.4%
Charles Asher(1)(2)....................... 333,333 19.2 977,481 12.8
Kenneth G. Langone(3)..................... 200,000(4) 11.5 915,569(6) 11.9
Gary E. Erlbaum(3)........................ 49,600(5) 2.9 372,108(7) 4.8
Jack Hight(1)............................. 35,555 2.0 104,263 1.4
Sari A. Zalcberg(1)(2).................... 17,775 1.0 52,124 *
Christiane Breton......................... 17,778 1.0 52,133 *
Darrell Goodwin........................... 32,583 1.9 95,548 1.2
All executive officers and directors as a
group (8 persons)....................... 1,633,291 94.1 4,789,536 61.2
</TABLE>
- ---------------
* Less than 1%
+ Assumes an exchange ratio of approximately 2.93 Holdco Common Shares for
each one DBT Common Share, based on the number of Patlex Common Shares and
options outstanding as of February 7, 1996.
(1) Hank Asher, Charles Asher, Jack Hight and Sari A. Zalcberg have been
designated by DBT to be directors of Holdco upon the effectiveness of the
Merger.
(2) Hank Asher, Charles Asher and Sari Zalcberg are siblings.
(3) Kenneth G. Langone and Gary E. Erlbaum are also directors and shareholders
of Patlex, and have been designated by Patlex to be directors of Holdco upon
the Reorganization.
(4) Includes 100,000 shares owned by Invemed Associates, Inc. of which Mr.
Langone is the Chairman of the Board and a majority owner.
(5) Consists of 49,600 shares owned by the Erlbaum Family L.P., of which Mr.
Erlbaum is President of the general partner.
(6) Includes 329,081 Patlex Common Shares. See "Principal Shareholders of
Patlex."
(7) Includes 226,659 Patlex Common Shares. See "Principal Shareholders of
Patlex."
70
<PAGE> 76
AMENDED AND RESTATED STOCK OPTION PLAN
PROPOSED AMENDMENTS
The Patlex Corporation 1995 Stock Option Plan (the "Plan") was approved by
the Board of Directors as of March 1995 and by AFG as sole shareholder of Patlex
on September 8, 1995. The purpose of the Plan is to recognize the contributions
made to Patlex by its employees and certain consultants or advisors, to provide
these individuals with additional incentives to devote themselves to Patlex's
future success and to improve Patlex's ability to attract, retain and motivate
individuals upon whom Patlex's sustained growth and financial success depend.
The Plan is also intended as an additional incentive to directors who are not
employees of the Company to serve on Patlex's Board of Directors and to devote
themselves to the future success of Patlex.
The Plan provides for the grant of options to purchase Patlex Common Shares
to be made to employees, officers, directors and independent contractors of
Patlex. The Plan is intended to assist Patlex and its subsidiaries after the
Merger in attracting, retaining and motivating employees, officers, directors
and independent contractors of particular merit and, will provide for the grant
of options to employees of DBT after the Merger.
As a result of the Reorganization, Holdco will assume and continue the Plan
and assume all outstanding stock options thereunder. Each holder of an option
granted under the Plan will, following the effectiveness of the Reorganization,
be entitled to purchase a number of Holdco common shares equal to the number of
Patlex Common Shares such holder was entitled to purchase immediately prior to
the effectiveness of the Reorganization, upon the terms and conditions as under
the Plan and the option agreements relating thereto in effect immediately prior
to the Reorganization.
The Boards of Directors of Patlex and Holdco approved, subject to the
approval of holders of Patlex Common Stock, an amended and restated Plan
including (i) an increase in the number of authorized shares thereunder from
375,000 to 900,000 shares available for granting options under the Plan, (ii)
amendments to the provisions regarding administration of the Plan and (iii)
amendments to the provisions regarding treatment of option holders upon a change
of control in Holdco. The complete text of the Plan, as amended and restated, is
attached as Appendix F hereto.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the votes cast by the
holders of Patlex Common Shares present, or represented by proxy, and entitled
to vote at the Meeting is required to approve the amendment to the Plan.
THE PATLEX BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED
AND RESTATED PLAN. If the Merger Agreement is not approved, the Plan amendment
will not be implemented, notwithstanding Patlex shareholder approval of such
proposal. Approval of the Plan amendment by the Patlex shareholders is not a
condition to the Merger.
DESCRIPTION OF THE PLAN
Options. The Plan provides for the grant of incentive stock options
("ISOs") and nonqualified stock options ("NQSOs") to officers and employees
(including employees who are also directors) and key advisors, such as
consultants, independent contractors and principals of organizations involved
with Patlex.
Administration. A committee (the "Committee"), consisting of not less than
two persons appointed by the board of directors of Patlex, all of whom must be
"disinterested persons" as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended and "outside directors" as defined in Section 162(m) of
the Code. The Committee has the authority to administer and interpret the Plan
as well as the authority to determine (i) the individuals to whom options are
granted, (ii) the type, size and terms of the options, (iii) the timing of
grants and the duration of the exercise period, and (iv) any other matters
arising under the Plan.
71
<PAGE> 77
Shares Subject to the Plan. The aggregate number of shares of common stock
that have been or may be issued or transferred under the Plan is 900,000 shares.
Terms of Option Grants. Under the Plan, the Committee has full discretion
to determine the term, exercisability (vesting), and price of options granted
under the Plan. The Committee also has the authority to accelerate
exercisability (vesting) of options granted under the Plan. The option price for
ISOs, however, must be equal to or greater than the "fair market value" of the
stock on the date of grant. NQSOs may be issued at a price that is greater than,
equal to or less than the fair market value. The Plan limits the minimum option
price of NQSOs to 85% of the fair market value of the stock on the date of
grant.
Corporate Transactions. Upon a sale or exchange of assets, dissolution or
liquidation, or merger or consolidation where the company does not survive, all
outstanding options will accelerate automatically unless comparable substitute
options are granted or cashouts provided. The Committee is responsible to
determine the comparability and its decision is final and binding. In the event
of a sale or exchange of assets, dissolution or liquidation, or merger or
consolidation where the company does survive, the Committee may, in its sole
discretion, elect to accelerate the outstanding options.
FEDERAL INCOME TAX CONSEQUENCES
There are no federal income tax consequences to optionees or to Patlex upon
the grant of an NQSO under the Plan. Upon the exercise of NQSOs, optionees will
recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the shares at the time of exercise over the exercise price
of the NQSO, and the company generally will be entitled to a corresponding
federal income tax deduction. Upon the sale of shares of common stock acquired
by exercise of an NQSO, an optionee will have a capital gain or loss (long-term
or short-term depending upon the length of time the shares were held) in an
amount equal to the difference between the amount realized upon the sale and the
optionee's adjusted tax basis in the shares of common stock (the exercise price
plus the amount of ordinary income recognized by the optionee at the time of
exercise of the NQSO).
An optionee of an ISO will not recognize taxable income for purposes of the
regular income tax, upon either the grant or exercise of the ISO. However, for
purposes of the alternative minimum tax imposed under the Code, in the year in
which an ISO is exercised, the amount by which the fair market value of the
shares of common stock acquired upon exercise exceeds the stock option price
will be treated as an item of adjustment and included in the computation of the
recipient's alternative minimum taxable income in the year of exercise. An
optionee will recognize long-term capital gain or loss on a disposition of the
shares acquired upon exercise of an ISO provided that the optionee does not
dispose of such shares within two years from the date the ISO was granted and
within one year after such shares were transferred to him. If the optionee
satisfies the foregoing holding periods, then the company will not be allowed a
deduction by reason of the grant or exercise of the ISO. As a general rule, if
an optionee disposes of the shares acquired upon exercise of an ISO before
satisfying both holding period requirements (a "disqualifying disposition"), the
gain recognized on such a disposition will be taxed as ordinary income to the
extent of the difference between the fair market value of such shares on the
date of exercise and the option price, and the company will be entitled to a
deduction in that amount. The gain, if any, in excess of the amount recognized
as ordinary income on such a disqualifying disposition will be long-term or
short-term capital gain, depending upon the length of time the optionee held the
shares prior to the disposition.
SECTION 162(M) OF THE CODE
Under section 162(m) of the Code, Patlex may be precluded from claiming a
federal income tax deduction for total remuneration in excess of $1,000,000 paid
to the chief executive officer or to any of the other four most highly
compensated officers of a public company in any one year. An exception does
exist, however, for "performance-based compensation," including amounts received
upon the exercise of stock options pursuant to a plan approved by shareholders
that meets certain requirements. The Plan is intended to satisfy these
requirements. Options granted at below market value, however, will not qualify
as performance-based compensation for these purposes.
72
<PAGE> 78
ACCOUNTING CONSEQUENCES
There is no charge to the income of the company in connection with the
grant or exercise of an option under the Plan as long as the exercise price is
not below the market price on the date of grant, the number of shares is fixed
at the grant date, and vesting is not conditioned upon performance. Any tax
benefit received by the company upon exercise of an NQSO or as a result of a
disqualifying disposition of option shares obtained upon exercise of an ISO is
reflected as a credit to capital in excess of par value and not as income.
Earnings per share may be affected by the Plan by the effect on the calculation,
as prescribed under generally accepted accounting principles, of the number of
outstanding shares of common stock. At the time shares are actually issued as a
result of the exercise of stock options, additional dilution of earnings per
share could result.
LEGAL OPINIONS
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, will render an
opinion with respect to the validity of the Holdco Common Shares to be issued in
connection with the Merger and the Reorganization.
EXPERTS
The financial statements of Patlex Corporation at June 30, 1995 and 1994
and for each of the two years in the period ended June 30, 1995 and the balance
sheet of Patlex Holdings, Inc. at April 11, 1996, appearing in this Proxy
Statement/Prospectus and the Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given the authority of such firm as experts in accounting and
auditing.
The financial statements of DBT as of December 31, 1994 and for the year
then ended included in this Proxy Statement/Prospectus have been audited by
Ahearn, Jasco + Company, P.A., independent auditors, as stated in their report
included herein and in the Registration Statement of which this Proxy
Statement/Prospectus is a part, and have been so included in reliance upon the
authority of said firm as experts in accounting and auditing.
The financial statements of DBT as of December 31, 1995 and for the year
then ended, included in this Proxy Statement/Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
73
<PAGE> 79
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PATLEX HOLDINGS, INC.
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheet at April 11, 1996....................................................... F-3
Notes to Balance Sheet................................................................ F-4
PATLEX CORPORATION
Report of Ernst & Young LLP, Independent Auditors..................................... F-5
Balance Sheets at June 30, 1995 and 1994 and December 31, 1995........................ F-6
Statements of Earnings for the six months ended December 31, 1995 and 1994 (unaudited)
and the years ended June 30, 1995 and 1994 (audited)................................ F-7
Statements of Stockholder's Equity for the years ended June 30, 1994 and 1995
(audited) and for the six months ended December 31, 1995 (unaudited)................ F-8
Statements of Cash Flows for the six months ended December 31, 1995 and 1994
(unaudited) and the years ended June 30, 1995 and 1994 (unaudited).................. F-9
Notes to Financial Statements......................................................... F-10
DATABASE TECHNOLOGIES, INC.
Report of Deloitte & Touche LLP, Independent Auditors................................. F-19
Report of Ahearn, Jasco + Company, P.A., Independent Auditors ........................ F-20
Balance Sheets at December 31, 1995 and 1994.......................................... F-21
Statements of Income for the years ended December 31, 1995 and 1994................... F-22
Statements of Changes in Stockholders' Equity for the years ended December 31, 1995
and 1994............................................................................ F-23
Statements of Cash Flows for the years ended December 31, 1995 and 1994............... F-24
Notes to Financial Statements......................................................... F-25
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Patlex Holdings, Inc.
We have audited the accompanying balance sheet of Patlex Holdings, Inc. as
of April 11, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly in all
material respects, the financial position of Patlex Holdings, Inc. at April 11,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 11, 1996
F-2
<PAGE> 81
PATLEX HOLDINGS, INC.
(A DELAWARE CORPORATION)
BALANCE SHEET
APRIL 11, 1996
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents............................................................. $100
----
Total Assets................................................................ $100
====
STOCKHOLDER'S EQUITY
Preferred stock, $.10 par value, 5,000,000 shares authorized: none issued............. $ --
Common stock, $.10 par value, 40,000,000 shares authorized: 100 shares issued......... 10
Additional paid-in capital............................................................ 90
----
Total Stockholder's Equity.................................................. $100
====
</TABLE>
See notes to balance sheet.
F-3
<PAGE> 82
PATLEX HOLDINGS, INC.
(A DELAWARE CORPORATION)
NOTES TO BALANCE SHEET
1. ORGANIZATION
Patlex Holdings, Inc. (the Company) is a wholly-owned subsidiary of Patlex
Corporation (Patlex) that was established to hold all the common stock of Patlex
and Database Technology, Inc. (DBT) when the shareholders of Patlex approve and
adopt (i) a plan of merger and reorganization pursuant to which Patlex will be
reorganized into a holding company structure, whereby at the time of the
reorganization, the holders of Patlex common shares will become holders of
shares of common stock of the Company, a new publicly-held holding company that
will subsequently be renamed DBT Online, Inc., and Patlex will become a wholly-
owned subsidiary of the Company; (ii) an agreement of merger dated as of
February 7, 1996 pursuant to which DBT Acquisition Corp., a Florida corporation
and a wholly-owned subsidiary of the Company will be merged with and into DBT
with DBT continuing as the surviving corporation and a wholly-owned subsidiary
of the Company. This Company has not conducted any significant business since
incorporation and will not become an operating company after the merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid debt instruments with
an original maturity of three months or less at the date of purchase.
F-4
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Patlex Corporation
We have audited the accompanying balance sheets of Patlex Corporation
(Patlex) as of June 30, 1995 and 1994, and the related statements of earnings,
stockholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of Patlex's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Patlex at June 30, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 9, 1995
F-5
<PAGE> 84
PATLEX CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, ---------------------
1996 1995 1994
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 6,280 $ 3,703 $ 1,700
Accounts and notes receivable, net of allowance for
doubtful accounts of $200......................... 167 916 3,209
Prepaid expenses..................................... 118 25 64
------- ------- -------
Total current assets......................... 6,565 4,644 4,973
Property and equipment, net.......................... 381 391 422
Investment in patents, less accumulated amortization... 14,438 15,771 17,714
------- ------- -------
Total assets................................. $ 21,384 $20,806 $23,109
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities....... $ 639 $ 369 $ 129
Current portion of long-term debt.................... 27 1,044 1,058
Due to other laser patents interest holders.......... 1,470 1,612 2,082
Income taxes payable................................. 626 237 --
------- ------- -------
Total current liabilities.................... 2,762 3,262 3,269
Note payable to bank................................... 224 243 269
Long-term debt, less current portion................... -- -- 986
Deferred income taxes.................................. 3,839 4,172 4,656
------- ------- -------
Total liabilities............................ 6,825 7,677 9,180
------- ------- -------
Stockholders' equity:
Preferred stock, $.10 par value. Authorized 1,000,000
shares; no shares issued or outstanding........... -- -- --
Common stock, $.10 par value. Authorized 10,000,000
shares; issued and outstanding 2,527,049 shares
and 1,000 shares at March 31, 1996, and June 30,
1995 and 1994, respectively....................... 253 -- --
Capital in excess of par value....................... 12,876 13,129 13,929
Retained earnings.................................... 1,430 -- --
------- ------- -------
Total stockholders' equity................... 14,559 13,129 13,929
------- ------- -------
Total liabilities and stockholders' equity... $ 21,384 $20,806 $23,109
======= ======= =======
</TABLE>
See accompanying notes
F-6
<PAGE> 85
PATLEX CORPORATION
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, JUNE 30,
------------------- -------------------
1996 1995 1995 1994
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Laser patents royalties........................... $5,473 $4,352 $ 6,253 $ 6,795
------ ------ ------- -------
Costs and expenses:
General and administrative........................ 1,409 745 1,053 1,211
Amortization of patents........................... 1,333 1,498 1,943 2,587
Depreciation...................................... 18 17 21 53
Spin-off costs.................................... -- -- 200 --
------ ------ ------- -------
Total costs and expenses.................. 2,760 2,260 3,217 3,851
------ ------ ------- -------
Operating income.......................... 2,713 2,092 3,036 2,944
------ ------ ------- -------
Other income (deductions):
Interest income................................... 205 94 184 62
Interest expense.................................. (86) (153) (182) (317)
Other, net........................................ 11 13 92 16
------ ------ ------- -------
Total other income (deductions), net...... 130 (46) 94 (239)
------ ------ ------- -------
Earnings before income taxes.............. 2,843 2,046 3,130 2,705
Provision for income taxes.......................... (1,413) (903) (1,430) (1,252)
------ ------ ------- -------
Net earnings.............................. $1,430 $1,143 $ 1,700 $ 1,453
====== ====== ======= =======
Net earnings per common share............. $ 0.69 $ 0.45 $ 0.67 $ 0.58
====== ====== ======= =======
Weighted average number of common shares and common
shares equivalent outstanding (In Thousands)...... 2,062 2,524 2,524 2,524
====== ====== ======= =======
</TABLE>
See accompanying notes
F-7
<PAGE> 86
PATLEX CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994 AND 1995 AND NINE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
-------------------- IN EXCESS OF RETAINED
SHARES AMOUNT PAR VALUE EARNINGS TOTAL
--------- ------ ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993................. 1,000 $ -- $ 14,469 $ -- $14,469
Net earnings......................... -- -- -- 1,453 1,453
Dividends paid,
per common share $0.79............ -- -- (540) (1,453) (1,993)
--------- --- ------ ----- ------
Balance, June 30, 1994................. 1,000 $ -- $ 13,929 $ -- $13,929
Net earnings......................... -- -- -- 1,700 1,700
Dividends paid,
per common share $0.99............ -- -- (800) (1,700) (2,500)
--------- --- ------ ----- ------
Balance, June 30, 1995................. 1,000 $ -- $ 13,129 $ -- $13,129
Common stock distributed in
connection with spin-off.......... 2,523,388 252 (252) -- --
Exercise of stock options............ 2,661 1 (1) -- --
Net earnings......................... -- -- -- 1,430 1,430
--------- --- ------ ----- ------
Balance, March 31, 1996................ 2,527,049 $253 $ 12,876 $ 1,430 $14,559
========= === ====== ===== ======
</TABLE>
See accompanying notes
F-8
<PAGE> 87
PATLEX CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED JUNE 30,
MARCH 31,
--------------------- ---------------------
1996 1995 1995 1994
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from operations....................... $1,430 $ 1,143 $ 1,700 $ 1,453
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation.................................. 18 17 21 53
Amortization.................................. 1,333 1,498 1,943 2,587
Note discount................................. 14 27 31 48
Gain on sale of assets........................ -- -- (75 ) --
Decrease (increase) in receivables, net of
Increase (decrease) in due to other laser
patents interest holders.................... 607 1,542 1,823 23
Decrease (increase) in prepaid expenses.......... (93) 40 39 (45 )
Increase (decrease) in income taxes payable...... 389 38 237 (1,439 )
Increase (decrease) in all other current
liabilities................................... 270 20 240 (8 )
Increase (decrease) in deferred income
taxes....................................... (333) (378 ) (484 ) 343
------ ------- ------- -------
Net cash provided by operating activities.......... 3,635 3,947 5,475 3,015
------ ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............ (8) (12 ) (15 ) (1 )
Proceeds from sale of assets..................... -- -- 100 322
------ ------- ------- -------
Net cash provided by investing activities.......... (8) (12 ) 85 321
------ ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt................................ (1,050) (1,050 ) (1,057 ) (1,060 )
Dividends paid to parent corporation............. -- (2,500 ) (2,500 ) (1,993 )
------ ------- ------- -------
Net cash used in financing activities.............. (1,050) (3,550 ) (3,557 ) (3,053 )
------ ------- ------- -------
Net increase in cash............................... 2,577 385 2,003 283
Cash, beginning of period.......................... 3,703 1,700 1,700 1,417
------ ------- ------- -------
Cash, end of period................................ $6,280 $ 2,085 3,703 1,700
====== ======= ======= =======
Supplemental cash flow information:
Interest paid................................. $ 74 $ 163 $ 169 $ 238
====== ======= ======= =======
Income taxes paid............................. $1,362 $ 1,199 1,639 $ 957
====== ======= ======= =======
</TABLE>
See accompanying notes
F-9
<PAGE> 88
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information pertaining to the nine month periods ended March 31, 1996 and
1995, the interim financial statements, is unaudited. The accompanying interim
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. Such adjustments consist solely of normal recurring accruals.
Results for interim periods are not necessarily indicative for a full year.
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On September 27, 1995 AutoFinance Group, Inc., a California corporation
(AFG), as the then sole shareholder of the Company, effected the distribution of
95.01% of the outstanding shares of the Company's common stock to the holders of
shares of common stock of AFG. On September 27, 1995, AFG merged with and in to
Key Auto Inc. ("Key Auto"), an Ohio corporation and a wholly owned subsidiary of
Key Corp. Key Auto, as the successor to AFG, retained the 4.99% of the
outstanding shares of the company's common stock which were not distributed in
the distribution. As a consequence of the distribution, the Company is an
independent, public company. The consummation of the distribution was a
condition to the merger because Key Corp is not permitted under federal banking
law to acquire the assets and business of Patlex. Accounting for the
distribution of the assets and liabilities was based on the recorded amounts
which approximated net realizable value.
On December 11, 1992, Patlex Corporation (Patlex) merged with and became a
subsidiary of AutoFinance Group, Inc. (AFG). The merger was consummated by
exchanging each of the 5,180,863 common shares outstanding of Patlex at the time
of the merger for 1.4 shares of common stock of AFG. The fair values of the
assets acquired and liabilities assumed were fully allocated to Patlex.
ORGANIZATION
Patlex is engaged in enforcing and exploiting a group of laser related
patents ("the Laser Patents"), through litigation and a licensing program ("the
Patent Business"). The Patent Business includes the identification of infringers
and laser patent applications which infringe the Laser Patents and the execution
of licensing agreements through normal commercial negotiations or pursuant to
settlements of litigation brought against infringers of the patents. Patlex was
incorporated under the laws of the Commonwealth of Pennsylvania and has engaged
in the Patent Business since 1979.
Patlex conducts its patent enforcement and exploitation business in Las
Cruces, New Mexico with separate executive, legal, treasury and accounting
functions. Management of Patlex believes that Patlex's general and
administrative costs are those Patlex would incur as a separate company.
Patlex owns a 64% income interest and a 42.86% ownership interest in
several patents, the most significant of which derive from patent applications
originally filed by Dr. Gordon Gould in 1959. NGN Acquisition Corporation (NGN),
a corporation owned by Dr. Gould and his family, holds the remaining 57.14%
ownership interest in the Laser Patents. Other income interests in the Laser
Patents are held by NGN (20%) and Refac Financial Corporation (REFAC) (16%). In
addition to NGN's 20% income interest, Patlex is contractually obligated to pay
NGN an additional 1.5% of the first $198,800,000 of net royalty income. As of
March 31, 1996, total royalties collected under the Laser Patents were
approximately $100,580,000, approximately $96,295,000 of which constituted net
royalty income from which other income interests payments were calculated.
Patlex has the right to receive out of the laser patent royalty revenues an
amount equal to expenses incurred and paid by Patlex which are directly related
to enforcing and litigating the Laser Patents. Such expenses are deducted from
the total laser patent royalty revenues; the resultant royalty amount
constitutes net
F-10
<PAGE> 89
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
laser patent royalties. Royalty payments payable to the Laser Patent interest
holders are computed on the basis of net royalties.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, cash and cash equivalents
include highly liquid investments purchased with the original maturity of three
months or less.
PROVISION FOR INCOME TAXES
Patlex adopted Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes" during the year ended June 30, 1993. SFAS
109 requires a change from the deferred method of accounting for income taxes to
the liability method. Under SFAS 109, deferred tax liabilities and assets are
determined based on differences between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. As permitted under SFAS 109, prior
years' financial statements have not been restated. Because there was no
significant statement of earnings effect as a result of the adoption of SFAS
109, Patlex did not recognize a cumulative effect change in accounting
principle.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures About Fair Value of Financial Instruments," was issued by the
Financial Accounting Standards Board in December 1991. SFAS 107 requires the
disclosure of the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. If estimating fair value is not practicable,
SFAS 107 requires disclosure of descriptive information pertinent to estimating
the value of a financial instrument. SFAS 107 is effective for financial
statements issued for fiscal years ending after December 15, 1992, except for
entities with less than $150 million in total assets in the current financial
statements, for which it is effective for fiscal years ending after December 15,
1995. Patlex has not yet determined the full impact of the new accounting
standard and, in accordance with the effective date exception noted, has not
adopted SFAS 107.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Betterments and major renewals
are capitalized and included in property and equipment accounts while
expenditures for maintenance and repairs and minor renewals are charged to
expense. When assets are retired or otherwise disposed of, the assets and
related allowances for depreciation are eliminated from the accounts and any
resulting gain or loss is reflected in income.
Depreciation charges for financial reporting purposes are determined on the
straight-line basis. Accelerated depreciation is generally used for income tax
purposes.
REVENUE RECOGNITION
The basis of reporting royalty revenues is derived from Patent License
Agreements between Patlex and approximately 235 licensees. The licensees are
obligated to file periodic activity reports which reflect gross royalties due
Patlex. Included in the gross royalties reported by the licensees are amounts
due to others as
F-11
<PAGE> 90
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
explained in "Organization" herein above. Patlex reports as royalty revenue only
its share of the gross royalties reported by the licensees.
NET EARNINGS PER SHARE
Net earnings per common share for the nine month period ended March 31,
1996 presented was computed by dividing net income for the period by the
weighted average number of common shares outstanding during the period plus
common stock equivalent shares issuable upon exercise of stock options using the
treasury stock method. Pro forma net earnings and dividends per share for the
prior periods presented is computed by giving effect to the number of shares of
Patlex's common stock which would have been outstanding had the distribution
occurred two years earlier with no change in the number of shares outstanding
occurring since that date.
STOCK OPTIONS
In October, 1995 the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation", which will be effective for,
and reflected in, financial statements of Patlex beginning with fiscal years
ending after December 15, 1995. The Statement allows companies to expense the
fair value of employee stock options or to continue the Company's current
practice of recognizing no compensation expense since the amount an employee
must pay to acquire the Company's stock (the option exercise price) is equal to
the stock's market value at the grant date. Companies not expensing the fair
value of employee stock options will be required to disclose the pro forma
effect on operations had the fair value of the options been expensed. Patlex
anticipates implementing the disclosure requirements of the Statement in its
1996 financial statements.
INVESTMENT IN PATENTS
Investment in Patents is recorded at the excess of the cost basis from the
merger with AFG over the fair values of net assets acquired by AFG at the time
of the merger. Investment in Patents costs are amortized on the straight-line
method over the remaining lives of the patents at the date of the merger. (See
Note 4).
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, Patlex records
impairment losses on long-lived assets used in its operation when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No events and circumstances indicate that the
Investment in Patents might be impaired.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and Notes Receivable at March 31, 1996 and June 30, 1995 and 1994
consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -----------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Amounts due on royalties earned......................... $ 366 $1,008 $2,917
Other receivables....................................... -- 82 448
Notes receivable........................................ 1 26 44
----- ------ ------
Accounts and notes receivable........................... 367 1,116 3,409
Less: Allowance for doubtful accounts................... (200) (200) (200)
----- ------ ------
Accounts and notes receivable, net of allowance......... $ 167 $ 916 $3,209
===== ====== ======
</TABLE>
F-12
<PAGE> 91
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACCOUNTS AND NOTES RECEIVABLE -- (CONTINUED)
Patlex has agreed to pay other Laser Patents interest holders their
respective portion of all royalties on the Laser Patents collected by Patlex.
Accordingly, Patlex has accrued liabilities due to other Laser Patents interest
holders for their share of the accounts and notes receivable listed above
relating to Laser Patents royalties.
3. PROPERTY AND EQUIPMENT
Asset costs, accumulated depreciation and estimated useful lives at March
31, 1996, June 30, 1995 and 1994 are as follows (in thousands, except for
years):
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIFE MARCH 31, -------------
(YEARS) 1996 1995 1994
----------- --------- ---- ----
<S> <C> <C> <C> <C>
Land........................................... $ 207 $207 $207
Office building................................ 31 193 193 193
Furniture and equipment........................ 5 - 7 53 45 55
---- ---- ----
Total property and equipment, at cost.......... 453 445 455
Accumulated depreciation....................... (72) (54) (33)
---- ---- ----
Property and equipment, net of accumulated
depreciation................................. $ 381 $391 $422
==== ==== ====
</TABLE>
Depreciation expense was $18,000 and $17,000 for the nine months ended
March 31, 1996 and 1995 and $21,000 and $53,000 for the years ended June 30,
1995 and 1994, respectively.
4. INVESTMENT IN PATENTS
Investment in patents at March 31, 1996 and June 30, 1995 and 1994 consists
of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -------------------
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Excess of cost over fair value of net assets acquired
resulting from merger with AFG in 1992.............. $20,427 $20,427 $21,732
Less: accumulated amortization........................ (5,989) (4,656) (4,018)
------- ------- -------
$14,438 $15,771 $17,714
======= ======= =======
</TABLE>
Patlex owns a 64% income interest in laser patent revenue relating to
certain patents issued to Dr. Gordon Gould relating to laser technology.
The Laser Patents and their expiration dates are as follows:
<TABLE>
<CAPTION>
U. S.
PATENT EXPIRATION
NUMBER DESCRIPTION OF PATENT DATE
- ---------- ----------------------------- --------------
<S> <C> <C>
4,161,436 Use Patent July 1996
4,704,583 Gas Discharge Laser Patent November 2004
4,746,201 Brewster Angle Window Patent May 2005
</TABLE>
The Optically Pumped Laser Patent (U. S. Patent No. 4,053,845) expired in
October 1994. Prior to its expiration, the Optically Pumped Laser Patent
accounted for approximately 28% of the laser patent royalty revenues, the Gas
Discharge Laser patent accounted for approximately 62% of the laser patent
royalty
F-13
<PAGE> 92
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT IN PATENTS -- (CONTINUED)
revenues, the Use Patent accounted for approximately 10% of the laser patent
royalty revenues and the Brewster Angle Window Patent accounted for less than
0.25% of laser patent royalty revenues. Patlex anticipates that the decrease in
royalty revenues as a result of the expiration of the Optically pumped Laser
Patent may be offset to some extent by increased royalty revenues from the Use
and/or Brewster Angle Window Patents. Patlex's management has determined through
its review of royalty reports filed by its licensees and discussions with
representatives of, and counsel to such licensees, that certain of its licensees
are paying royalties under the Use Patent and/or the Brewster Angle Window
Patent with respect to laser products for which they had previously been paying
royalties under the Optically Pumped Laser Patent.
5. LONG-TERM DEBT
Long-term debt at March 31, 1996 and June 30, 1995 and 1994 consists of the
following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -----------------
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Mortgage payable to bank, interest at New York prime plus 1%,
(9.0% at March 31, 1996 and June 30, 1995 and 8.0% at June 30,
1994) adjusted daily, payable in monthly installments of $4,151;
first payment commencing July 24, 1991, final payment due June
2004; secured by land and building.............................. $ 251 $ 270 $ 296
Notes payable to individuals in the face amount of $1,031,000,
less unamortized discount of $14,000 at June 30, 1995 and face
amount of $2,062,000 less unamortized discount of $45,000 at
June 30, 1994, with interest paid semi-annually on the unpaid
principal balance at the rate of 7% per annum (an effective rate
of 10% after discount).......................................... -- 1,017 2,017
------- ------- -------
251 1,287 2,313
Less: Current maturities.......................................... (27) (1,044) (1,058)
------- ------- -------
$ 224 $ 243 $ 1,255
======= ======= =======
</TABLE>
The aggregate maturities of long-term debt for each of the five years from
March 31, 1996 and June 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
--------- --------
<S> <C> <C>
1996....................................... $27 $1,058
1997....................................... 33 29
1998....................................... 36 32
1999....................................... 38 35
2000....................................... 42 38
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
Patlex has employment contracts with its officers and controller which
provide for minimum salary levels. One agreement automatically renews each year
for a three-year period. The other three agreements expire on
F-14
<PAGE> 93
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
December 31, 1998. The aggregate minimum commitments at March 31, 1996, and June
30, 1995 for future salaries under these agreements are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
-------- -------
<S> <C> <C>
1996............................................ $441 $ 416
1997............................................ 441 416
1998............................................ 441 312
</TABLE>
Compensation expense is recorded over the term of these agreements in
accordance with the payment terms.
LITIGATION
Due to the nature of Patlex's business, especially its involvement in the
enforcement of patent rights, Patlex has been continually involved in litigation
with alleged infringers of patents in which Patlex owns an interest. Patlex
regards all such lawsuits as occurring in the regular course of business.
Furthermore, as a result of the involvement of the United States Patent and
Trademark Office in granting and denying patent applications and in conducting
re-examinations of patents, the Company has in the past been required to
prosecute appeals of United States Patent and Trademark Office rulings adverse
to the Company's interest to the United States District Court. No such appeals
are pending at this time and the Company does not anticipate such appeals will
be necessary in the future with regard to the Laser Patents. In connection with
suits filed against alleged patent infringers to enforce a patent, defendants
often file counterclaims seeking payment by the plaintiffs of any damages
suffered by the defendants on account of the lawsuit and reimbursement by the
plaintiffs of the defendant's costs and attorney's fees. While such
counterclaims have been filed against the Company, to date the Company has not
incurred liability with regard to such counterclaims. The Company may also be
required to file suits to enforce collection and compliance under its patent
license agreements with its current licensees.
In July 1989, Patlex instituted a civil action in the United States
District Court, District of New Jersey, against JEC Lasers, Inc. ("JEC Lasers").
JEC Lasers was granted a license containing terms more favorable than terms in
licenses granted by Patlex to other licensees. Patlex's complaint requested the
court to declare the license agreement to be nontransferable, based on JEC
Lasers' historical financial condition and insolvency, and enjoin the licensee
from transferring the license agreement to another laser manufacturer. A trial
was held in April 1994. The court ruled that JEC Lasers is not barred from
transferring the license agreement as part of a business combination. A judgment
embodying the court's ruling was entered in August 1994, which Patlex appealed.
The Court of Appeals affirmed the lower court's ruling.
In November 1994, REFAC Financial Corporation ("REFAC") instituted a civil
action in the United States District Court, Eastern District of Pennsylvania,
alleging that Patlex improperly calculated the royalties due REFAC. The manner
in which the royalties due REFAC are calculated has been consistent for more
than six years. Patlex believes that the royalties due REFAC have been properly
calculated, and that REFAC's claim is both without merit and time-barred. On
February 28, 1996, a special verdict adverse to Patlex was returned. Post-trial
motions have been denied but no separate judgment has been entered. The amount
of any judgment against Patlex in this action will be less than $225,000. When a
separate judgment is entered, Patlex intends to appeal this judgment.
STOCK OPTIONS
RIGHTS OF HOLDERS OF KEYCORP STOCK OPTIONS
Prior to the merger with AFG, Patlex had a qualified and non-qualified
employee-incentive stock option plan. Under the 1981 Incentive Stock Option
Plan, options to purchase common shares could be granted at
F-15
<PAGE> 94
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
prices not less than fair market value on the date of grant, for a period not
exceeding 10 years and were exercisable at the option of the holder. All options
were assumed by AFG in connection with that merger in 1992.
The merger agreement of KeyCorp and AFG provided that KeyCorp would assume
each AFG Option granted by AFG pursuant to its option plans (the 1989 Stock
Option and Performance Award Plan and the 1991 Stock Option Plan) which were
outstanding and unexercised, whether or not exercisable, and convert each AFG
Option into a KeyCorp Option. In addition, the distribution agreement provided
that the holder of each KeyCorp Option granted upon conversion of an AFG Option
would be entitled to receive upon exercise of such option, in addition to one
share of KeyCorp common stock, one share of Patlex common stock for every eight
shares of AFG common stock that would have been issuable except for the
conversion to the KeyCorp Option.
At March 31, 1996, a total of 70,665 shares of Patlex common stock, for
which no consideration will accrue to Patlex, is issuable upon the exercise of
KeyCorp stock options acquired by holders as a result of the merger of AFG and
KeyCorp. Each holder is entitled to receive one share of Patlex common stock for
every eight shares of KeyCorp common stock issuable upon exercise of such
options.
PATLEX STOCK OPTION PLAN
The 1995 Stock Option Plan (the "Plan"), approved by the Patlex Board of
Directors as of March 31, 1995 and approved by AFG on September 8, 1995,
provides for incentive and non-qualified stock options for designated officers,
directors, employees and key advisors of Patlex. The aggregate number of shares
of common stock that may be offered pursuant to the Plan amounts to 375,000.
Options to purchase shares of common stock can be granted at a price
determined by a committee appointed by the Board of Directors provided however,
that the purchase price of shares subject to incentive stock options shall be
equal to or greater than fair market value of shares of common stock at date of
grant and a non-qualified stock options shall not be less than 85% of fair
market value of a share of common stock at date of grant. Stock options are
exercisable at the discretion of the committee. The term of each stock option is
ten years. At March 31, 1996, 350,000 shares have been granted and are
exercisable at $4.75 per share.
Compensation expense is recognized for employee stock options when the
price per share an employee must pay to acquire shares of Patlex common stock is
less than the market price per share of Patlex common stock on the date of
grant.
7. INCOME TAXES
PROVISION FOR INCOME TAXES
Patlex adopted SFAS 109, "Accounting for Income Taxes," during 1993. SFAS
109 requires a change from the deferred method of accounting for income taxes to
the liability method. Concurrent with the accounting for the assets acquired and
liabilities assumed in the merger with AFG, a net deferred tax liability and an
increase in intangibles of $3,831,000 was recorded, principally as a result of
the difference between the financial and tax reporting basis of the investment
in patents.
The SFAS 109 adjustments recognize the deferred tax liability allocated by
AFG in the purchase price accounting and was calculated giving recognition to
AFG net operating loss carry-forwards. In 1993 and 1994, Patlex filed a
consolidated tax return with AFG. The carry-forwards were utilized in 1993 and
1994 in the consolidated tax return. Pursuant to a tax sharing agreement, Patlex
paid to its parent the book income tax provision, determined on a separate
company basis. Under the terms of the spin-off of Patlex (See Note 1), the
financial statement and the tax basis of assets and liabilities will carry over
to Patlex. As these temporary
F-16
<PAGE> 95
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
differences reverse, Patlex will pay additional current taxes. Accordingly,
deferred tax liabilities related to these temporary differences have been
provided for in the accompanying financial statements. Because in prior years
Patlex paid cash to AFG related to the deferred income tax provision, such prior
payments have been reflected as dividends in the accompanying financial
statements.
The provision for income taxes for the nine months ended March 31, 1996 and
1995 and the years ended June 30, 1995 and 1994, consists of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------ -----------------
1996 1995 1995 1994
------ ------- ------ ------
<S> <C> <C> <C> <C>
Federal:
Current...................................... $1,447 $ 1,065 $1,589 $1,580
Deferred..................................... (276) (314) (402) (540)
----- ----- ------ ------
Total federal.................................. 1,171 751 1,187 1,040
----- ----- ------ ------
State:
Current...................................... 299 216 325 322
Deferred..................................... (57) (64) (82) (110)
----- ----- ------ ------
Total state.................................... 242 152 243 212
----- ----- ------ ------
$1,413 $ 903 $1,430 $1,252
===== ===== ====== ======
</TABLE>
Patlex's deferred tax liability at March 31, 1996 and June 30, 1995 and
1994 consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, -----------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Capital loss carry-over............................... $ 905 $ 868 $ 868
Other................................................. 430 188 114
----- ----- -----
Total deferred tax assets............................... 1,335 1,056 982
Valuation allowance for deferred tax assets............. (905) (868) (868)
----- ----- -----
Net deferred tax assets................................. 430 188 114
----- ----- -----
Deferred tax liabilities:
Patents............................................... 4,139 4,201 4,652
Other................................................. 130 159 118
----- ----- -----
Total deferred tax liabilities.......................... 4,269 4,360 4,770
----- ----- -----
Net deferred tax liability.............................. $ 3,839 $4,172 $4,656
===== ===== =====
</TABLE>
Patlex has available capital loss carry-overs for federal income tax
purposes of approximately $2,125,728 which expire in 1996. For financial
reporting purposes, a valuation allowance has been provided to reduce the
deferred tax asset to an amount the Company believes is realizable.
F-17
<PAGE> 96
PATLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
The provision for income taxes differed from the statutory federal income
tax rate for the nine months ended March 31, 1996 and 1995 and years ended June
30, 1995 and 1994 as a result of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------- -------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory federal income tax rate............... 35.0% 35.0% 35.0% 35.0%
Capitalized merger costs........................ 6.5 -- 2.0 --
Patent amortization not deductible for tax
purposes...................................... 2.7 4.2 3.6 5.7
State income taxes and other.................... 5.5 4.9 5.1 5.6
---- ---- ---- ----
49.7% 44.1% 45.7% 46.3%
==== ==== ==== ====
</TABLE>
8. SIGNIFICANT LICENSEES
Of the total laser patent royalties earned from all licensees, the
following reflects the highest percentage of the total that was contributed by
two licensees for each period. The two licensees are not necessarily the same
for the periods presented.
<TABLE>
<CAPTION>
LICENSEE
---------------
NO. NO.
1 2
---- ----
<S> <C> <C>
For the year ended June 30, 1994............................. 11.2% 10.1%
For the nine months ended March 31, 1995..................... 9.4 8.5
For the year ended June 30, 1995............................. 9.9 8.5
For the nine months ended March 31, 1996..................... 9.0 7.8
</TABLE>
9. 401(k) SAVINGS PLAN
Patlex employees participated in the AFG 401(k) Savings Plan, which
commenced July 1, 1994, until the spin-off date of September 27, 1995. After the
spin-off date no Patlex employees were participants in the plan. The total
matching contribution expense of Patlex for the nine month periods ended March
31, 1996 and 1995 was $7,222 and $6,779, respectively. For the year ended June
30, 1995, the matching contribution expense was $20,243. There was no matching
contribution expense for the year ended June 30, 1994 since the plan was not in
effect until July 1, 1994.
10. PROPOSED ACQUISITION
On February 7, 1996, Patlex entered into a definitive merger agreement with
Database Technologies, Inc. ("DBT"), of Pompano Beach, Florida. The merger is
intended to be a tax-free reorganization in which the shareholders of DBT would
receive a number of shares of Patlex common stock equal to 65% of the sum of the
number of outstanding common shares plus one-half the number of Patlex options
and certain rights to receive Patlex common stock outstanding at the time of the
merger (See Note 6). Consummation of the merger is conditioned on, among other
things, receipt of the necessary shareholder and regulatory approvals and
filings with the Security and Exchange Commission.
F-18
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Database Technologies, Inc.
We have audited the accompanying balance sheet of Database Technologies,
Inc. (the "Company") as of December 31, 1995, and the related statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the management of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Database Technologies, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
January 19, 1996 (February 7, 1996, as to Note 11)
F-19
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Database Technologies, Inc.
We have audited the accompanying balance sheet of Database Technologies,
Inc. (the "Company") as of December 31, 1994, and the related statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the management of the
Company. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Database Technologies, Inc.
as of December 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
January 20, 1995
F-20
<PAGE> 99
DATABASE TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
MARCH 31, ----------- ----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 1,014,200 $ 1,642,700 $ 156,300
Accounts receivable, net of allowances of $25,000
as of March 31, 1996, $17,500 in 1995
and $8,000 in 1994.............................. 1,255,100 839,400 318,000
Receivables from related parties................... 245,200 271,000 3,100
Prepaid insurance.................................. 51,800 58,400 26,600
Other prepaid expenses............................. 216,700 124,500 12,400
--------- --------- ----------
TOTAL CURRENT ASSETS....................... 2,783,000 2,936,000 516,400
--------- --------- ----------
PROPERTY AND EQUIPMENT, net.......................... 3,761,300 3,128,700 898,300
--------- --------- ----------
OTHER ASSETS:
Purchased data, net of accumulated amortization of
$83,000 as of March 31, 1996, $65,300 in 1995
and $8,600 in 1994.............................. 280,400 277,600 97,500
Customer lists, net of accumulated amortization of
$3,300 as of March 31, 1996..................... 195,300 198,600 --
Deposits........................................... 16,200 16,300 12,200
Deferred income taxes.............................. 27,900 16,500 --
--------- --------- ----------
TOTAL OTHER ASSETS......................... 519,800 509,000 109,700
--------- --------- ----------
$ 7,064,100 $ 6,573,700 $1,524,400
========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................. $ 964,300 $ 1,010,300 $ 233,400
Bank line-of-credit................................ 600,000 100,000 --
Accounts payable and accrued liabilities........... 1,049,070 968,500 215,600
Customer deposits.................................. 230,500 207,300 71,800
Deferred income taxes.............................. 148,030 157,900 --
--------- --------- ----------
TOTAL CURRENT LIABILITIES.................. 2,991,900 2,444,000 520,800
--------- --------- ----------
LONG-TERM DEBT, less current portion................. 1,298,800 1,531,300 451,300
--------- --------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 10,000,000 shares
authorized; issued and outstanding, 1,736,274 at
March 31, 1996 and December 31, 1995, and
1,333,333 at December 31, 1994.................. 1,700 1,700 1,300
Additional paid-in capital......................... 3,870,700 3,870,700 81,200
Retained earnings (deficit)........................ (1,099,000) (1,274,000) 469,800
--------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY................. 2,773,400 2,598,400 552,300
--------- --------- ----------
$ 7,064,100 $ 6,573,700 $1,524,400
========= ========= ==========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 100
DATABASE TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES.................................. $ 3,349,800 $1,518,900 $ 8,076,300 $2,751,100
----------- ---------- ----------- ----------
COST OF REVENUES:
Purchased data.......................... 742,500 268,200 1,491,100 304,600
Depreciation, computer equipment........ 354,100 104,900 822,500 216,600
Telephone............................... 199,500 64,500 502,700 155,700
Customer support salaries............... 131,600 45,400 294,800 119,200
Other direct costs...................... 124,700 43,000 261,200 60,100
----------- ---------- ----------- ----------
TOTAL COST OF REVENUES.......... 1,552,400 526,000 3,372,300 856,200
----------- ---------- ----------- ----------
GROSS PROFIT.................... 1,797,400 992,900 4,704,000 1,894,900
----------- ---------- ----------- ----------
SELLING AND ADMINISTRATIVE EXPENSES:
Selling and promotion................... 315,900 178,500 1,025,700 287,100
General and administrative.............. 767,100 318,400 1,908,100 609,900
----------- ---------- ----------- ----------
TOTAL SELLING AND ADMINISTRATIVE
EXPENSES...................... 1,083,000 496,900 2,933,800 897,000
RESEARCH AND DEVELOPMENT
COSTS................................... 398,500 174,300 1,017,000 552,700
LOSS ON IRB TRANSACTION................... -- -- 1,660,100 --
----------- ---------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS... 315,900 321,700 (906,900) 445,200
----------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (48,600) (13,400) (108,000) (15,000)
Interest income......................... 13,200 -- 31,900 1,100
Other................................... -- -- -- (1,500)
----------- ---------- ----------- ----------
OTHER, NET...................... (35,400) (13,400) (76,100) (15,400)
----------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES......................... 280,500 308,300 (983,000) 429,800
INCOME TAX PROVISION...................... 105,500 -- 208,700 --
----------- ---------- ----------- ----------
NET INCOME (LOSS)............... $ 175,000 $ 308,300 $(1,191,700) $ 429,800
=========== ========== =========== ==========
PRO FORMA:
Provision for income taxes...... $ 112,800 $ 247,600 $ 122,300
========== =========== ==========
Net income (loss)............... $ 195,500 $(1,230,600) $ 307,500
========== =========== ==========
</TABLE>
See notes to financial statements.
F-22
<PAGE> 101
DATABASE TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------
SHARES
ISSUED ADDITIONAL RETAINED
AND PAID-IN EARNINGS
OUTSTANDING AMOUNT CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994............... 1,333,333 $1,300 $ 81,200 $ 56,000 $ 138,500
S corporation distributions............. -- -- (16,000) (16,000)
Net income for 1994..................... -- -- 429,800 429,800
--------- ------ ---------- ----------- ----------
BALANCES, December 31, 1994............. 1,333,333 1,300 81,200 469,800 552,300
S corporation distributions paid........ -- -- (117,400) (117,400)
Record distribution payable and other
adjustments upon S corporation
termination........................... -- 230,700 (434,700) (204,000)
Stock issued for acquisition of assets,
net................................... 65,200 100 485,600 -- 485,700
Issuance of common stock for cash....... 17,741 -- 100,000 -- 100,000
Issuance of common stock for cash....... 320,000 300 2,973,200 -- 2,973,500
Net loss for 1995....................... -- -- (1,191,700) (1,191,700)
--------- ------ ---------- ----------- ----------
BALANCES, December 31, 1995............. 1,736,274 1,700 3,870,700 (1,274,000) 2,598,400
Net income for the three months ended
March 31, 1996........................ -- -- 175,000 175,000
--------- ------ ---------- ----------- ----------
BALANCES, March 31, 1996................ 1,736,274 $1,700 $3,870,700 $(1,099,000) $2,773,400
========= ====== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 102
DATABASE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH YEAR ENDED
31, DECEMBER 31,
------------------------- -------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 175,000 $ 308,300 $(1,191,700) $ 429,800
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 399,200 123,700 941,900 244,800
Deferred taxes.................................. (21,270) -- 141,400 --
Loss on IRB transaction......................... -- -- 1,660,100 --
Changes in certain current assets and
liabilities:
Accounts receivable and other receivables..... (389,900) (289,700) (789,300) (240,100)
Prepaid insurance and expenses................ (23,600) (41,000) (143,900) (32,700)
Accounts payable and accrued liabilities...... 80,670 322,000 752,900 189,500
Customer deposits............................. 23,200 (2,800) 135,500 61,500
----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 243,300 420,500 1,506,900 652,800
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased.................. (1,010,700) (430,800) (3,115,600) (961,200)
IRB transaction................................... -- -- (1,373,000) --
Purchases of data................................. (20,500) (160,500) (236,800) (106,100)
Merger costs incurred............................. (62,100) -- -- --
Increase in deposits, and other................... -- -- (4,100) (9,900)
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES.................................... (1,093,300) (591,300) (4,729,500) (1,077,200)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.............................. -- -- 3,073,500 100
Net change in bank line-of-credit................. 500,000 -- 100,000 --
Proceeds from long-term debt borrowings........... -- 350,000 2,364,000 775,000
Repayments of long-term debt...................... (278,500) (156,700) (507,100) (101,300)
Repayment of note payable, shareholder and
other........................................... -- -- -- (77,400)
S corporation distributions....................... -- -- (321,400) (16,000)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 221,500 193,300 4,709,000 580,400
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (628,500) 22,500 1,486,400 156,000
CASH AND CASH EQUIVALENTS,
beginning of period............................... 1,642,700 156,300 156,300 300
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 1,014,200 $ 178,800 $ 1,642,700 $ 156,300
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash (net of amount
capitalized).................................... $ 57,200 $ 11,900 $ 98,800 $ 15,400
=========== =========== =========== ===========
Income taxes paid in cash......................... $ 55,300 $ -- $ 16,500 $ --
=========== =========== =========== ===========
</TABLE>
ADDITIONAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1995, DBT common stock was issued to acquire customer lists and
other intangible assets for a recorded value of $198,600.
Effective July 1, 1995, $230,700 of retained earnings was reclassed to
additional paid-in capital in conjunction with the termination of DBT's status
as an S corporation for income tax purposes.
See notes to financial statements.
F-24
<PAGE> 103
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Database Technologies, Inc. ("DBT" or the "Company") was incorporated in
Florida on February 18, 1992. DBT is an electronic information retrieval company
that provides its customers on-line, real-time access to public records through
computer modem access.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNAUDITED FINANCIAL STATEMENTS
The financial statements have been prepared by the Company in accordance
with the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting and, accordingly, they do not include all
the information and disclosures required by generally accepted accounting
principles. In the opinion of management, the interim financial statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting mainly of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operations for
the periods shown. The results of the three months ended March 31, 1996 are not
necessarily indicative of the results for the full fiscal year.
REVENUE RECOGNITION
Customers are charged for each minute they are active on the system.
Revenue is recognized at the time of the customer access, net of credits issued.
Accounts receivable are primarily with law enforcement agencies, insurance
companies and similar users of public records. The Company's customers are
numerous and spread over a wide geographic area. As such, the Company believes
that it does not have an abnormal concentration of credit risk within any one
market or any one geographic area.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated using
accelerated methods over the estimated useful lives of the assets. Useful lives
range from five to seven years. Expenditures for routine maintenance and repairs
are charged to expense as incurred.
PURCHASED DATA
Data acquired from third parties with an estimated useful life of a year or
more is recorded at cost and amortized over the estimated periods to be
benefited (primarily five years) using the straight-line method. Amortization
expense in 1995 totaled $56,700 and in 1994 totaled $8,600.
Other purchased data not meeting the capitalization policy is expensed as
acquired.
RESEARCH AND DEVELOPMENT COSTS
Costs for research and development activities are expensed as incurred and
totaled $956,900 and $552,700, respectively, for the years ended December 31,
1995 and 1994.
F-25
<PAGE> 104
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INCOME TAXES
Through June 30, 1995, DBT, with the consent of its shareholders, had
elected under provisions of the Internal Revenue Code to be an S corporation. In
lieu of corporation income taxes, the shareholders of an S corporation are taxed
on their proportionate share of taxable income. Therefore, no provision or
liability for income taxes was included in the accompanying financial statements
for DBT's results of operations through June 30, 1995. Effective July 1, 1995,
DBT terminated this election, which results in DBT directly paying taxes on its
earnings.
Effective July 1, 1995, the Company accounts for its income taxes in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes". Deferred tax liabilities and assets are
recognized for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. A
valuation allowance is recognized to reduce net deferred tax assets to amounts
that are more likely than not to be realized.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include
highly liquid investments purchased with an original maturity of three months or
less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at cost, which approximates fair value
because of the short-term maturity of those instruments. The fair values of the
Company's debt obligations are disclosed in Note 6.
RECLASSIFICATION
Certain 1994 amounts were reclassified to conform with the 1995
presentation.
NOTE 2 -- STOCKHOLDERS' EQUITY
Prior to August 10, 1995, DBT had 10,000 shares of no par common stock
authorized, with a stated value of $1 per share. Effective August 10, 1995, DBT
executed a 1,000 for 1 split of its common stock, which increased authorized
shares to 10,000,000, and restated its par value to $.001 per share. All share
information presented in the accompanying financial statements has been restated
to reflect this stock split.
NOTE 3 -- PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at December 31st of each
year:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Computer equipment........................... 5 years $ 3,999,500 $1,120,000
Office furniture and equipment............... 7 years 232,000 46,900
Leasehold improvements....................... 2 to 4 years 76,200 25,200
----------- ----------
Total cost.............................. 4,307,700 1,192,100
Less: Accumulated depreciation............... (1,179,000) (293,800)
----------- ----------
Property and equipment, net............. $ 3,128,700 $ 898,300
=========== ==========
</TABLE>
F-26
<PAGE> 105
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT, NET -- (CONTINUED)
Depreciation expense was $885,200 and $236,200, respectively, for the years
ended December 31, 1995 and 1994.
NOTE 4 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Accounts payable............................................... $541,100 $177,000
Accrued liabilities:
S corporation distribution payable........................... 204,000 --
Payroll and related taxes.................................... 118,700 37,100
Currently payable income taxes............................... 50,800 1,500
Other accrued expenses....................................... 53,900 --
------- -------
Total................................................ $968,500 $215,600
======= =======
</TABLE>
NOTE 5 -- TRANSACTIONS WITH SHAREHOLDERS
During 1993, a shareholder advanced funds to DBT for working capital
purposes. The balance outstanding was $74,900 at December 31, 1993 and carried
an interest rate of 7%. The loan was repaid in July 1994.
On November 3, 1995, DBT lent $200,000 to its majority shareholder. The
loan is unsecured, bears interest at 8% and is due on demand. Certain other
non-interest bearing advances totaling $54,100 were outstanding to the
shareholder at December 31, 1995. The advances were repaid on January 12, 1996.
NOTE 6 -- DEBT OBLIGATIONS
The Company has a $600,000 revolving line-of-credit with a commercial bank,
bearing interest at a rate of 1% over prime (9.5% at December 31, 1995) and
expiring March 31, 1996. The line-of-credit is secured by substantially all
assets of DBT and is personally guaranteed by the majority shareholder of the
Company. Outstanding borrowings on the line-of-credit were $100,000 at December
31, 1995, and were repaid on January 11, 1996.
F-27
<PAGE> 106
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEBT OBLIGATIONS -- (CONTINUED)
Long-term debt consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Note payable to a commercial bank with monthly principal
installments of $7,680 plus interest at 9.25% at December 31,
1995. The note matures in November 1997.......................... $ 176,600 $ 266,700
Note payable to a commercial bank with monthly principal
installments of $6,944 plus interest at 9.25% at December 31,
1995. The note matures in November 1997. ........................ 159,700 243,000
Note payable to a commercial bank with monthly principal
installments of $27,778 plus interest at 9.25% at December 31,
1995. The note matures in July 1998.............................. 861,100 --
Note payable to a commercial bank with monthly principal
installments of $35,111 plus interest at 9.25% at December 31,
1995. The note matures in December 1998.......................... 1,264,000 --
Note payable to a consortium of individuals, which are non-interest
bearing. See Note 7 for a description of the agreement and its
repayment terms.................................................. 80,200 175,000
----------- ---------
Total debt......................................................... 2,541,600 684,700
Less: current portion.............................................. (1,010,300) (233,400)
----------- ---------
Long-term portion........................................ $ 1,531,300 $ 451,300
=========== =========
</TABLE>
All debt with the commercial bank is personally guaranteed by the majority
shareholder of the Company and is secured by substantially all assets of DBT. In
addition, DBT must maintain certain financial ratios and comply with specified
covenants.
The estimated fair value of DBT's long-term debt with financial
institutions is the same as its recorded value at December 31, 1995 because the
interest rates and terms approximate current market conditions. Because of the
unique nature of the debt described in Note 7, fair value estimation is not
practicable. This debt is expected to be repaid during 1996.
Future minimum payments of long-term debt at December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1996.......................................................... $1,010,300
1997.......................................................... 915,600
1998.......................................................... 615,700
----------
$2,541,600
==========
</TABLE>
NOTE 7 -- TEXAS DEBT AND ROYALTY AGREEMENT
On February 7, 1994, a debt and royalty agreement was entered into with a
consortium of seven individuals. During 1995, one of these seven became a
shareholder and director of DBT. The agreement provided the financing necessary
for DBT to enter the Texas market with its database services. The agreement
provided for the following:
DEBT AGREEMENT
A loan to DBT of $200,000, repayable without interest as follows: for five
months beginning May 1994, 50% of specified revenues from Texas operations or
$2,000, whichever is greater, then beginning October 1994,
F-28
<PAGE> 107
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- TEXAS DEBT AND ROYALTY AGREEMENT -- (CONTINUED)
50% of specified revenues from Texas operations or $5,000, whichever is greater,
until the $200,000 note is repaid. During 1995 and 1994, $94,800 and $25,000,
respectively, was repaid (see Note 6).
ROYALTY AGREEMENT
A royalty agreement to share in the revenues of the Texas expansion up to
$800,000, computed as follows: after the $200,000 note is repaid, the consortium
will receive 10% of specified revenues from Texas operations until $800,000 is
paid.
NOTE 8 -- IRB TRANSACTION
Effective July 1, 1995, DBT purchased for cash and stock all of the
outstanding shares of common stock of International Research Bureau, Inc.
("IRB"). Subsequent to the acquisition, management of DBT re-evaluated the
future potential of IRB's core document retrieval business and concluded that
IRB's assets, other than its on-line customer list, had no future value to DBT.
Factors which led DBT's management to this evaluation included the conclusions
that DBT's technology was superior to IRB's, and that IRB's data was duplicative
of data which DBT already possessed. On December 13, 1995, IRB's shares were
transferred back to the original owners of IRB in exchange for DBT common stock.
Because DBT's ownership of IRB was temporary, DBT has accounted for its
investment in IRB using the equity method.
As a result of these transactions, DBT acquired IRB's customer list for its
on-line business and a covenant not to compete. The assets of DBT given up
included cash of $1,000,000; common stock of DBT valued at $485,700 (after
accounting for the returned shares); and investments in the operations of IRB
and other costs totaling $373,000. Management's estimate of the fair value of
the acquired assets, totaling $198,600, was recorded on DBT's balance sheet, and
the remainder of the costs incurred were charged to operations.
NOTE 9 -- INCOME TAXES
As discussed in Note 1, DBT was taxed as an S corporation from inception
through July 1, 1995. Effective that date, DBT terminated this election, which
results in DBT directly paying taxes on its earnings. As a result of this
termination, a final S corporation distribution of $204,000 was accrued,
$230,700 of undistributed S corporation earnings were reclassed to additional
paid-in capital and deferred income taxes were established for the tax bases of
assets and liabilities that are different than those recognized for financial
reporting purposes, as follows:
<TABLE>
<S> <C>
Cash basis of accounting for income taxes................................. $106,400
Purchased data, due to differences in amortization........................ 108,300
Property and equipment, due to differences in depreciation................ (59,500)
--------
Net deferred tax liability established at July 1, 1995.......... $155,200
========
</TABLE>
F-29
<PAGE> 108
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES -- (CONTINUED)
A summary of income taxes for the period from July 1, 1995 through December
31, 1995 is as follows:
<TABLE>
<S> <C>
Current:
Federal................................................................. $ 61,000
State................................................................... 6,300
Deferred.................................................................. (13,800)
--------
Income tax provision from July 1, 1995 through December 31, 1995.......... 53,500
Deferred tax liability established July 1, 1995........................... 155,200
--------
Total income tax provision...................................... $208,700
========
</TABLE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to net deferred income tax
liability at December 31, 1995 relate to the following:
<TABLE>
<S> <C>
Cash basis of accounting for income taxes................................ $ 157,900
Purchased data, due to differences in amortization....................... 108,300
Property and equipment, due to differences in depreciation............... (124,800)
Capital loss carryforward................................................ 273,000
Valuation allowance for capital loss carryforward........................ (273,000)
---------
Net deferred income tax liability.............................. $ 141,400
=========
</TABLE>
The deferred taxes appear on the accompanying balance sheet as follows:
<TABLE>
<S> <C>
Long-term deferred tax asset.............................................. $(16,500)
Current deferred tax liability............................................ 157,900
--------
Net deferred income tax liability............................... $141,400
========
</TABLE>
DBT has a capital loss carryover of approximately $700,000 for tax
purposes, which expires in 2000. This loss results from the IRB transaction. The
related deferred tax asset has been completely offset by a valuation allowance,
as it is more likely than not that this asset will not be realized prior to its
expiration.
The effective income tax rate for 1995 varied from the statutory Federal
tax rate as follows:
<TABLE>
<S> <C>
Federal statutory rate (benefit)............................................... (34)%
Loss on IRB transaction........................................................ 61%
Income taxed as an S corporation through July 1, 1995.......................... (21)%
Effect of change in tax status from S corporation.............................. 17%
State income taxes, net of federal income tax benefit.......................... (2)%
---
Effective income tax rate 21%
===
</TABLE>
NOTE 10 -- COMMITMENTS
DBT leases office space under various agreements that expire between June
1996 and October 1998; certain of these leases contain three-year renewal
options. Certain office equipment and vehicles are leased under agreements that
expire through October 1999. All of these leases are accounted for as operating
leases. Total rent expense was $284,700 and $62,500, respectively, for the years
ended December 31, 1995 and 1994.
F-30
<PAGE> 109
DATABASE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS -- (CONTINUED)
Minimum future lease payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996......................................................... $247,300
1997......................................................... 78,700
1998......................................................... 13,500
1999......................................................... 2,500
-------
$342,000
=======
</TABLE>
DBT obtains the right to use certain of its data under agreements that
require minimum royalty payments during 1996 of approximately $500,000.
NOTE 11 -- SUBSEQUENT EVENT
On February 7, 1996, DBT agreed to merge with Patlex Corporation
("Patlex"). Pursuant to the merger agreement, DBT's shareholders would hold a
majority of the stock in a holding company which will own all of the stock in
both DBT and Patlex. Patlex is engaged in the exploitation and enforcement of
certain laser patents. This merger agreement is subject to the approval of the
shareholders of both companies.
NOTE 12 -- PRO FORMA INCOME TAXES AND EARNINGS (UNAUDITED)
As discussed in Note 1, having elected status as an S corporation, the
shareholders of DBT paid the federal income tax on DBT's earnings through June
30, 1995. Additionally, DBT was exempt from Florida state income tax on its
earnings during that period, as Florida does not separately tax S corporations.
As a result, no income tax expense was provided in the historical financial
statements for taxable income attributable to DBT through June 30, 1995;
however, as disclosed in the Statement of Changes in Stockholders' Equity, S
corporation distributions were made to the shareholders to assist them in making
the corporate tax payments.
The pro forma amounts presented on the accompanying statements of income
reflect the amount of income taxes, and the resulting income after taxes, as if
DBT had not made the election to be taxed as an S corporation. The pro forma
computation of taxes for 1995 excludes the loss on the IRB transaction as the
deferred tax asset arising from this loss has been fully allowanced.
F-31
<PAGE> 110
APPENDIX A
PLAN OF MERGER
AND REORGANIZATION
MERGING
PATLEX NEWCO, INC.
(A PENNSYLVANIA CORPORATION)
WITH AND INTO
PATLEX CORPORATION
(A PENNSYLVANIA CORPORATION)
RECITALS
A. Patlex Corporation, a Pennsylvania corporation ("Patlex" or the
"Surviving Corporation"), is authorized to issue (i) 10,000,000 shares of Common
Stock, par value $.10 per share ("Patlex Common Stock"), of which at the
Effective Time (hereinafter defined) approximately shares will be
issued and outstanding, and (ii) 1,000,000 shares of Preferred Stock, par value
$.10 per share ("Patlex Preferred Stock"), of which at the Effective Time none
will be issued and outstanding.
B. Patlex Newco, Inc., a Pennsylvania corporation (the "Merging
Corporation"), will, at the Effective Time, be authorized to issue 1,000 shares
of Common Stock, without par value ("Merging Corporation Common Stock"), all of
which will be issued and outstanding and owned by Holdco.
C. Patlex Holdings, Inc., a Pennsylvania corporation ("Holdco"), will, at
the Effective Time, be authorized to issue 40,000,000 shares of Common Stock,
par value $.10 per share ("Holdco Common Stock"), of which one such share will
be issued and outstanding and owned by Patlex, and 5,000,000 shares of Preferred
Stock, par value $.10 per share, none of which will be issued and outstanding.
D. Holdco, as sole shareholder of the Merging Corporation will have adopted
resolutions approving this Plan of Merger and Reorganization (the "Plan") in
accordance with the Pennsylvania Business Corporation Law of 1988 (the "BCL").
E. The Board of Directors of the Surviving Corporation has adopted
resolutions approving this Plan in accordance with the BCL and directing that it
be submitted to the shareholders of the Surviving Corporation entitled to vote
thereon for adoption.
ARTICLE I
THE MERGER
1.01. The Merger. The Merging Corporation and the Surviving Corporation
shall effect a merger (the "Merger") in accordance with and subject to the terms
and conditions of the Plan. At the Effective Time (as defined in Section 1.02
hereof), the Merging Corporation shall be merged with and into the Surviving
Corporation, which shall be the surviving corporation of the Merger, and the
separate existence of the Merging Corporation shall cease, all with the effect
provided in BCL sec. 1929.
1.02. Effectiveness. As soon as practicable after all requisite
shareholder and other approvals have been obtained, Articles of Merger embodying
the Plan (the "Articles of Merger"), and such other documents and instruments as
are required by, and complying in all respects with, the BCL shall be delivered
to the Department of State of the Commonwealth of Pennsylvania for filing. The
Merger shall become effective at the time (the "Effective Time") set forth in
the Articles of Merger.
1.03. Patlex Common Stock. Each share of Patlex Common Stock outstanding
immediately prior to the Effective Time shall by reason of the Merger be
exchanged for or converted into one share of Holdco Common Stock and each share
of Patlex Common Stock which was previously issued and outstanding but
A-1
<PAGE> 111
which was subsequently reacquired by the Surviving Corporation and is then held
in its treasury shall by reason of the Merger be canceled.
1.04. Patlex Stock Share Certificates. Each certificate which prior to
the Merger represented a share or shares of Patlex Common Stock shall after the
Effective Time represent a corresponding share or shares of Holdco Common Stock,
and no exchange of certificates shall be required by the Merger. Any holder of
shares of Holdco Common Stock may, however, elect at any time or from time to
time to surrender any certificate formerly representing shares of Patlex Common
Stock to any transfer agent for Holdco Common Stock and receive in exchange
therefor a certificate or certificates issued by Holdco for a like number of
shares of Holdco Common Stock.
1.05. Merging Corporation Common Stock. All shares of Merging Corporation
Common Stock outstanding immediately prior to the Effective Time shall by reason
of the Merger be exchanged for or converted into all Patlex Common Stock then
outstanding, with the effect that immediately after the Effective Time Holdco
shall be the owner of all issued and outstanding Patlex Common Stock.
1.06. Articles of Incorporation. At the Effective Time the Articles of
Incorporation of the Surviving Corporation shall be amended by adding a new
Article thereto read in full as follows:
Article . Action by Written Consent. Any action which may be
taken at a meeting of shareholders or of a class of shareholders may be
taken without a meeting if a consent or consents in writing to such action,
setting forth the action so taken, shall be signed by shareholders entitled
to cast the minimum number of votes that would be necessary to authorize
the action at a meeting at which all shareholders entitled to vote thereon
were present and voting.
ARTICLE II
MISCELLANEOUS PROVISIONS
2.01. Amendment. Notwithstanding shareholder approval of this Plan, the
Plan may be amended, modified or supplemented by resolution of the board of
directors of the Merging Corporation and the Surviving Corporation, at any time
on or before filing of Articles of Merger embodying the Plan in the Department
of State of the Commonwealth of Pennsylvania, if permitted by 15 Pa.C.S.
sec. 1922(b) (relating to post-adoption amendment).
2.02. Termination. Notwithstanding shareholder approval of this Plan, the
Plan may be terminated at any time on or before the Effective Time by resolution
of the board of directors of the Surviving Corporation, if the board of
directors determines that the consummation of the Plan would for any reason be
inadvisable or not in the best interests of the Surviving Corporation or its
shareholders, employees, suppliers, customers and creditors.
A-2
<PAGE> 112
APPENDIX B
AMENDED AND RESTATED
AGREEMENT OF MERGER
AMONG
PATLEX CORPORATION
(A PENNSYLVANIA CORPORATION),
PATLEX HOLDINGS, INC.
(A PENNSYLVANIA CORPORATION),
DBT ACQUISITION CORP.
(A FLORIDA CORPORATION),
AND
DATABASE TECHNOLOGIES, INC.
(A FLORIDA CORPORATION)
FEBRUARY 7, 1996
<PAGE> 113
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS........................................................... B-1
ARTICLE II THE MERGER............................................................ B-5
2.1 The Merger............................................................ B-5
2.2 Effective Time........................................................ B-5
2.3 Effects of the Merger................................................. B-5
2.4 Articles of Incorporation and Bylaws.................................. B-5
2.5 Directors and Officers................................................ B-5
2.6 Closing............................................................... B-5
ARTICLE III CONVERSION OF SHARES AND OTHER MATTERS................................ B-6
3.1 Conversion of the DBT Shares.......................................... B-6
3.2 Dissenting Shares..................................................... B-6
3.3 Surrender and Payment................................................. B-6
3.4 Adjustments........................................................... B-7
3.5 The Holdco Merger..................................................... B-7
3.6 Holdco Name........................................................... B-8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DBT................................. B-8
4.1 Corporate Status...................................................... B-8
4.2 Authorization......................................................... B-8
4.3 Consents and Approvals................................................ B-8
4.4 Capitalization and Stock Ownership.................................... B-9
4.5 Financial Statements.................................................. B-9
4.6 Title to Assets and Related Matters................................... B-9
4.7 Real Property, Leases and Environmental Matters....................... B-9
4.8 Certain Personal Property............................................. B-10
4.9 Non-Real Estate Leases................................................ B-10
4.10 Accounts Receivable................................................... B-11
4.11 Relationships with Related Persons.................................... B-11
4.12 Liabilities........................................................... B-11
4.13 Taxes................................................................. B-11
4.14 Subsidiaries.......................................................... B-12
4.15 Legal Proceedings and Compliance with Law............................. B-12
4.16 Contracts............................................................. B-13
4.17 Insurance............................................................. B-13
4.18 Patents and Other Intellectual Property............................... B-14
4.19 Employee Relations.................................................... B-14
4.20 Employee Benefit Plans................................................ B-14
4.21 Corporate Records..................................................... B-15
4.22 Absence of Certain Changes............................................ B-16
4.23 Previous Sales; Warranties............................................ B-16
4.24 Customers and Suppliers............................................... B-16
4.25 Finder's Fees......................................................... B-16
4.26 Accuracy of Information............................................... B-16
4.27 Indar Corporation..................................................... B-16
4.28 Representations....................................................... B-17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PATLEX PARTIES.................. B-17
5.1 Corporate Status...................................................... B-17
</TABLE>
B-i
<PAGE> 114
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.2 Authorization......................................................... B-17
5.3 Consents and Approvals................................................ B-17
5.4 Capitalization and Stock Ownership.................................... B-17
5.5 Financial Statements.................................................. B-18
5.6 SEC Reports........................................................... B-18
5.7 Title to Assets and Related Matters................................... B-18
5.8 Real Property, Leases and Environmental Matters....................... B-18
5.9 Liabilities........................................................... B-19
5.10 Taxes................................................................. B-19
5.11 Subsidiaries.......................................................... B-20
5.12 Legal Proceedings and Compliance with Law............................. B-20
5.13 Intellectual Property................................................. B-21
5.14 License Agreements.................................................... B-21
5.15 Non-Real Estate Leases................................................ B-21
5.16 Accounts Receivable................................................... B-21
5.17 Previous Sales; Warranties............................................ B-21
5.18 Customers and Suppliers............................................... B-21
5.19 Contracts............................................................. B-22
5.20 Insurance............................................................. B-22
5.21 Employee Relations.................................................... B-23
5.22 Employee Benefit Plans................................................ B-23
5.23 Corporate Records..................................................... B-24
5.24 Absence of Certain Changes............................................ B-24
5.25 Finder's Fees......................................................... B-25
5.26 Accuracy of Information............................................... B-25
5.27 Representations....................................................... B-25
ARTICLE VI COVENANTS OF DBT...................................................... B-25
6.1 Operation of the Business............................................. B-25
6.2 DBT Shareholder Meeting............................................... B-25
6.3 Access................................................................ B-25
6.4 No Other Negotiations................................................. B-25
6.5 Maintenance of the Assets............................................. B-26
6.6 Employees and Business Relations...................................... B-26
6.7 Confidentiality....................................................... B-26
6.8 Expenses.............................................................. B-26
6.9 Fulfillment of Conditions............................................. B-26
6.10 Disclosure of Certain Matters......................................... B-26
6.11 Audited Financial Statements.......................................... B-26
ARTICLE VII COVENANTS OF THE PATLEX PARTIES....................................... B-27
7.1 Operation of the Business............................................. B-27
7.2 Patlex Shareholder Meeting............................................ B-27
7.3 Access................................................................ B-27
7.4 No Other Negotiations................................................. B-27
7.5 Maintenance of the Assets............................................. B-28
7.6 Employees and Business Relations...................................... B-28
7.7 Confidentiality....................................................... B-28
7.8 Expenses.............................................................. B-28
7.9 NASDAQ/Notification................................................... B-28
</TABLE>
B-ii
<PAGE> 115
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.10 Fulfillment of Conditions............................................. B-28
7.11 Disclosure of Certain Matters......................................... B-28
ARTICLE VIII COVENANTS OF THE PATLEX PARTIES AND DBT............................... B-29
8.1 Commercially Reasonable Efforts....................................... B-29
8.2 Registration Statement................................................ B-29
8.3 Affiliates............................................................ B-29
8.4 Post-Merger Board of Directors........................................ B-30
ARTICLE IX CONDITIONS PRECEDENT TO THE MERGER.................................... B-30
9.1 Conditions to Each Party's Obligations................................ B-30
9.2 Conditions to Obligations of the Patlex Parties....................... B-30
9.3 Conditions to Obligations of DBT...................................... B-31
ARTICLE X TERMINATION........................................................... B-32
10.1 Grounds for Termination............................................... B-32
10.2 Effect of Termination................................................. B-32
ARTICLE XI MISCELLANEOUS......................................................... B-32
11.1 Public Announcements.................................................. B-32
11.2 Survival.............................................................. B-33
11.3 Contents of Agreement, Amendment, Parties In Interest, Assignment, B-33
etc. .................................................................
11.4 Interpretation........................................................ B-33
11.5 Notices............................................................... B-33
11.6 Governing Law......................................................... B-35
11.7 Counterparts.......................................................... B-35
</TABLE>
EXHIBITS
A ARTICLES OF MERGER
B-iii
<PAGE> 116
AMENDED AND RESTATED AGREEMENT OF MERGER
THIS AMENDED AND RESTATED AGREEMENT OF MERGER is made as of February 7,
1996, as amended and by and among PATLEX CORPORATION, a Pennsylvania corporation
("Patlex"), PATLEX HOLDINGS, INC., a Pennsylvania corporation and a direct
wholly owned subsidiary of Patlex ("Holdco"), DBT ACQUISITION CORP, a Florida
corporation and a direct wholly owned subsidiary of Holdco (the "Merger
Subsidiary"), and DATABASE TECHNOLOGIES, INC., a Florida corporation ("DBT").
Certain terms are used herein as defined below in Article I or elsewhere in this
Agreement.
Recitals
WHEREAS, the boards of directors of Patlex, Holdco, Merger Subsidiary and
DBT each have determined that it is in the best interests of their respective
shareholders for the Merger Subsidiary to merge with and into DBT (the "Merger")
in accordance with the Articles of Merger attached hereto as Exhibit "A" (the
"Articles of Merger") and the Florida Business Corporation Act (the "FBCA"), and
on the terms and conditions set forth herein.
WHEREAS, immediately prior to the consummation of the Merger, Patlex will
merge with Patlex Newco, Inc., a Pennsylvania corporation and a direct wholly
owned subsidiary of Holdco ("Newco"), with Patlex as the surviving corporation
in the merger, pursuant to which the shareholders of Patlex will receive shares
of Common Stock of Holdco (the "Holdco Merger").
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to Patlex to enter into this Agreement, a principal shareholder of
DBT has entered into a Principal Shareholder's Agreement, between Patlex, Holdco
and Hank Asher, providing, among other things, that such shareholder will
provide indemnification to Patlex and will vote in favor of the Merger.
WHEREAS, it is the intention of the parties to this Agreement that the
Merger for federal income tax purposes shall qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended.
Witnesseth
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
any officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Articles of Merger" is defined above in the Recitals.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the most recent financial statements,
that are owned or possessed by DBT or Patlex, as the case may be.
B-1
<PAGE> 117
"Benefit Plans" means all ERISA Plans and, to the extent not otherwise
included as ERISA Plans, all stock ownership, stock option, stock purchase,
excess benefit, voluntary employees' beneficiary association, vacation,
severance pay, bonus, deferred compensation, non-cash compensation or other
similar plan, program, or arrangement, and any other employee benefit plan of
any kind, maintained by a Representing Party or which is a multiple employer
plan to which a Representing Party makes contributions with respect to its
employees, or which is a terminated plan under which a Representing Party has
any present or future Liability (other than to make current wage or salary
payments) with respect to its employees or former employees.
"Business" means the entire business, operations and facilities of DBT or
Patlex, as the case may be.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" means the Closing on the Merger and the other Transactions.
"Closing Date" is defined in Section 2.6.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Regulations promulgated thereunder.
"Confidential Information" is defined in Section 4.18(b).
"Contract" means any written or oral contract, agreement, lease, instrument
or other commitment that is binding on any Person or its property under
applicable law.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any Person or its property under applicable law.
"DBT Audited Financial Statements" is defined in Section 4.5.
"DBT Balance Sheet" is defined in Section 4.5.
"DBT Balance Sheet Date" is defined in Section 4.5.
"DBT Common Stock" means the Common Stock, $0.01 par value per share, of
DBT.
"DBT Disclosure Schedule" means the Disclosure Schedule provided by DBT in
connection with this Agreement.
"DBT Minor Contracts" is defined in Section 4.16(a).
"DBT's knowledge" or "Patlex's knowledge" means the knowledge of DBT or
Patlex, as the case may be, or of any director, officer or other employee of DBT
or of Patlex, respectively.
"DBT Party" means any corporation that is a member of any controlled group
of corporations (as defined in section 414(b) of the Code) that includes DBT,
any trade or business (whether or not incorporated) that is under common control
(as defined in section 414(c) of the Code) with DBT or any Subsidiary of DBT,
any organization (whether or not incorporated) that is a member of an affiliated
service group (as defined in section 414(m) of the Code) that includes DBT or
any Subsidiary and any other entity required to be aggregated with DBT pursuant
to the regulations under section 414 of the Code.
"DBT Share" means a share of DBT Common Stock.
"DBT Shareholder Meeting" is defined in Section 6.2.
"Default" means (i) a breach, default or violation or (ii) the occurrence
of an event that with the passage of time or the giving of notice, or both,
would constitute a breach, default or violation.
"Effective Time" is defined in Section 2.2.
B-2
<PAGE> 118
"Employment-Related Liabilities" means all debts, liabilities, duties or
obligations arising out of employment matters or relationships, including any
payroll, salary and wages, employee benefit plans, unemployment compensation,
workers compensation, withholding of any income tax, FICA, FTA or SUTA
obligations, employee health or life insurance, hospitalization, savings, bonus,
deferred compensation, incentive compensation, holiday, vacation, severance pay,
sick pay, sick leave, disability, tuition refund, service award, company car,
scholarship, relocation, patent award, claim with respect to Intellectual
Property, fringe benefit, overtime, and all attorneys' fees arising in
connection therewith.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 4.15(b).
"Environmental Law" is defined in Section 4.15(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and all regulations promulgated pursuant thereto.
"ERISA Plans" means all employee benefit plans, as defined in ERISA,
maintained by a Representing Party or to which a Representing Party makes
contributions with respect to its employees, or which is a terminated plan under
which a Representing Party has any present or future Liability.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the Regulations promulgated thereunder.
"Exchange Agent" is defined in Section 3.3(a).
"Existing Shares" is defined in Section 4.4.
"FBCA" is defined above in the Recitals.
"GAAP" means United States generally accepted accounting principles.
"Governmental Permits" is defined in Section 4.15(d).
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law and (iii)
asbestos or asbestos-containing substances.
"Holdco Common Stock" means the Common Stock, $0.10 par value per share, of
Holdco.
"Holdco Shares" means the shares of Holdco Common Stock to be issued to
holders of DBT Common Stock in connection with the Merger.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indar" means Indar Corporation, a Florida corporation.
"Intellectual Property" means all (a) patents, interests in patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, and corporate names, and
registrations and applications for registration thereof, (c) computer software,
data, and documentation, (d) trade secrets and confidential business
information, including idea, formulae, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, financial, marketing, and business data, pricing and
cost information, business and marketing plans, and customer, employee and
supplier lists and information, (e) other proprietary rights, and (f) copies and
tangible embodiments thereof (in whatever form or medium).
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
any nature, whether known or unknown, absolute or contingent, accrued or
unaccrued, due or to become due, liquidated or unliquidated.
B-3
<PAGE> 119
"License Agreements" has the meaning specified in Section 5.13(c).
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the business,
financial condition, results of operations, liquidity, assets, prospects and
products of any Representing Party, taken as a whole with all of its
Subsidiaries.
"Merger" is defined above in the Recitals.
"Merger Consideration" is defined in Section 3.1(e).
"Merger Subsidiary" is defined above in the preamble.
"Non-Real Estate Leases" is defined in Section 4.9.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Patlex Balance Sheet" is defined in Section 5.5.
"Patlex Balance Sheet Date" is defined in Section 5.5.
"Patlex Common Stock" means the Common Stock, $0.10 par value per share, of
Patlex.
"Patlex Disclosure Schedule" means the Disclosure Schedule provided by
Patlex in connection with this Agreement.
"Patlex Minor Contracts" is defined in Section 5.19(a).
"Patlex Party" means Patlex, Holdco and the Merger Subsidiary, except that
for purposes of Section 5.22 "Patlex Party" means any corporation that is a
member of any controlled group of corporations (as defined in section 414(b) of
the Code) that includes DBT, any trade or business (whether or not incorporated)
that is under common control (as defined in section 414(c) of the Code) with DBT
or any Subsidiary of DBT, any organization (whether or not incorporated) that is
a member of an affiliated service group (as defined in section 414(m) of the
Code) that includes DBT or any Subsidiary and any other entity required to be
aggregated with DBT pursuant to the regulations under section 414 of the Code.
"Patlex Shares" means the shares of Patlex Common Stock to be exchanged in
connection with the Holdco Merger.
"Patlex Shareholder Meeting" is defined in Section 7.2.
"PBCL" means the Pennsylvania Business Corporation Law of 1988, as amended.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Proxy Statement/Prospectus" is defined in Section 8.2(a).
"Real Estate Leases" is defined in Section 4.7.
"Real Property" is defined in Section 4.7.
"Registration Statement" is defined in Section 8.2(a).
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Representing Party" means DBT when used in connection with terms used in
Section 4, and Patlex and Merger Subsidiary when used in connection with terms
used in Section 5.
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"Required Consents" is defined in Section 4.3.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" is defined in Section 5.6(a).
"Securities Act" means the Securities Act of 1933, as amended, and the
Regulations promulgated thereunder.
"Subsidiary," with respect to any Person, means a corporation the voting
securities of which sufficient to elect at least a majority of its Board of
Directors are owned directly or indirectly by such Person.
"Surviving Corporation" is defined in Section 2.1.
"Termination Date" is defined in Section 10.1(b).
"Transaction Documents" means this Agreement, the Articles of Merger and
the other agreements and documents contemplated hereby and thereby.
"Transactions" means the Merger and the other transactions contemplated by
the Transaction Documents.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of the FBCA, DBT and the Merger
Subsidiary shall consummate the Articles of Merger, which provides for the
merger of the Merger Subsidiary with and into DBT at the Effective Time (defined
below). Following the Merger, DBT shall continue as the surviving corporation
(the "Surviving Corporation") and shall continue its existence under the laws of
the State of Florida, and the separate corporate existence of the Merger
Subsidiary shall cease.
2.2 Effective Time. As soon as practicable, but in any event within five
business days after the satisfaction or waiver of all conditions to the Merger,
DBT and the Merger Subsidiary shall file with the Department of State of the
State of Florida the Articles of Merger reflecting the Articles of Merger in
accordance with the FBCA. The Merger shall become effective at such time as the
Articles of Merger are so filed (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
Section 607.1106 of the FBCA.
2.4 Articles of Incorporation and Bylaws. The Articles of Incorporation
and bylaws of DBT shall be the Articles of Incorporation and bylaws respectively
of the Surviving Corporation at the Effective Time.
2.5 Directors and Officers. The persons who are the officers of DBT at
the Effective Time shall be the officers of the Surviving Corporation at the
Effective Time. The following persons shall be the directors of the Surviving
Corporation at the Effective Time: Kenneth Langone, Gary Erlbaum, Frank Borman,
Hank Asher, Charles Asher, Jack Hight and Sari Zalcberg. Such persons shall hold
such positions as directors and officers until their successors are elected or
appointed in accordance with the Articles of Incorporation and the bylaws of the
Surviving Corporation.
2.6 Closing. Unless this Agreement shall have been terminated and the
Transactions abandoned pursuant to Article X, subject to satisfaction or waiver
of the conditions to the Merger set forth in Article IX, the Closing shall take
place as promptly as practicable (and in any event within five business days)
after satisfaction or waiver of the conditions to the Merger set forth in
Article IX, at the offices of Morgan, Lewis &
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Bockius LLP, unless the parties hereto agree in writing to another date or
place. The date on which the Closing occurs is referred to herein as the
"Closing Date."
ARTICLE III
CONVERSION OF SHARES AND OTHER MATTERS
3.1 Conversion of the DBT Shares.
(a) Each DBT Share that, immediately prior to the Effective Time, is
held by DBT as treasury stock shall be cancelled, and no consideration
shall be delivered with respect thereto.
(b) Each DBT Share outstanding immediately prior to the Effective
Time, shall be converted into the right to receive the number of Holdco
Shares equal to (x) the product of 1.86 multiplied by the sum of (i) the
total number of Holdco Shares outstanding immediately prior to the
Effective Time, plus (ii) one-half the number of Holdco Shares issuable
upon the exercise of options outstanding immediately prior to the Effective
Time, divided by (y) the total number of DBT Shares outstanding immediately
prior to the Effective Time.
(c) Each share of capital stock of the Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into the right
to receive one share of DBT Common Stock.
(d) No fractional Holdco Shares shall be issued in the Merger. All
fractional Holdco Shares that a holder of DBT Shares would otherwise be
entitled to receive as a result of the Merger shall be aggregated and if a
fractional Holdco Share results from such aggregation, such holder shall be
entitled to receive, in lieu thereof, an amount in cash determined by
multiplying the average of the closing bid price of a Patlex Share as
reported on the Nasdaq Stock Market for the last five trading days prior to
the Effective Time, by the fraction of a Holdco Share to which such holder
would otherwise have been entitled, as the case may be.
(e) The consideration to be received by the DBT shareholders in
respect of each DBT Share pursuant to this Section 3.1 is hereinafter
referred to as the "Merger Consideration."
3.2 Dissenting Shares. Notwithstanding Section 3.1, DBT Shares
outstanding immediately prior to the Effective Time and held by a holder who
shall have performed all such acts as are required to qualify such holder as a
dissenter within the meaning of Section 607.1320 of the FBCA (a "Dissenter")
shall be converted into the right to receive the consideration payable in
respect thereof in accordance with the FBCA, unless such holder loses the status
and rights of a Dissenter after the Effective Time. If after the Effective Time
such holder loses the status and rights of a Dissenter, the DBT Shares held by
such holder shall be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration. DBT shall promptly
provide Patlex with copies of any written demand for payment received by DBT,
and Patlex shall have the right to participate in all negotiations and
proceedings with respect to any such demand. DBT shall not, except with the
prior written consent of Patlex, make any payment with respect to, or settle or
offer to settle, any such demand.
3.3 Surrender and Payment.
(a) Prior to the Effective Time, Patlex shall appoint an exchange
agent (the "Exchange Agent") for the purpose of exchanging certificates
representing DBT Shares for the Merger Consideration. Prior to the
Effective Time, and promptly after the Effective Time to the extent
necessary to account for any transfer of DBT Shares prior to the Effective
Time, Patlex will send, or will cause the Exchange Agent to send, to each
holder of DBT Shares (other than treasury shares of DBT, if any) at the
Effective Time a letter of transmittal for use in such exchange. The Patlex
Parties will make available to the Exchange Agent, as needed, the aggregate
Merger Consideration to be paid in respect of the DBT Shares.
(b) Each holder of DBT Shares that shall have been converted into a
right to receive the Merger Consideration, upon surrender to the Exchange
Agent of a certificate or certificates formerly representing such DBT
Shares together with a properly completed letter of transmittal covering
such certificates, will
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be entitled to receive the Merger Consideration payable in respect of such
DBT Shares. Until so surrendered, each such certificate shall, after the
Effective Time, represent for all purposes, only the right to receive such
Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the DBT Shares formerly
represented by the certificate or certificates surrendered in exchange for
the Merger Consideration, it shall be a condition to such payment that the
certificate or certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting
such payment shall pay to the Exchange Agent any transfer or other taxes
required as a result of such payment to a Person other than the registered
holder of such DBT Shares or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration
of transfers of DBT Shares. If, after the Effective Time, certificates
formerly representing DBT Shares are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the consideration
provided for, and in accordance with the procedures set forth, in this
Article III.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to this Section 3.3 that remains unclaimed by the
holders of DBT Shares six months after the Effective Time shall be returned
to Holdco, upon demand, and any such Person who has not exchanged his
certificate or certificates for the Merger Consideration in accordance with
this Article III prior to that time shall thereafter look only to the
Patlex Parties for payment of the Merger Consideration. Notwithstanding the
foregoing, no Patlex Party shall be liable to any Person for any amount
paid to a public official pursuant to applicable abandoned property laws.
(f) No dividends or other distributions with respect to securities of
DBT constituting part of the Merger Consideration shall be paid to the
holder of any unsurrendered certificates formerly representing DBT Shares
until such certificates are surrendered as provided in this Article III.
Upon such surrender, there shall be paid, without interest, to the Person
in whose name the certificates representing the securities of Holdco into
which such DBT Shares were converted are registered, all dividends and
other distributions payable in respect of such securities on a date
subsequent to, and in respect of a record date after, the Effective Time.
3.4 Adjustments. If at any time during the period between the date of
this Agreement and the Effective Time, except as contemplated by this Agreement,
the outstanding shares of capital stock of Patlex, Holdco or DBT shall have been
changed into a different number of shares or a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Merger Consideration shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
3.5 The Holdco Merger. Immediately prior to the consummation of the
Merger, in accordance with the relevant provisions of the PBCL, Patlex and Newco
shall consummate a plan of merger that provides for the merger of Newco with and
into Patlex. Following the Holdco Merger, Patlex shall continue as the surviving
corporation and shall continue its existence under the laws of the Commonwealth
of Pennsylvania, and the separate corporate existence of Newco shall cease.
(a) Each Patlex Share that, immediately prior to the effective time of
the Holdco Merger, is held by Patlex as treasury stock shall be cancelled,
and no consideration shall be delivered with respect thereto.
(b) Each Patlex Share outstanding immediately prior to the effective
time of the Holdco Merger, shall be converted into the right to receive one
share of Holdco Common Stock.
(c) Each share of capital stock of the Newco outstanding immediately
prior to the effective time of the Holdco Merger, shall be converted into
the right to receive one share of Patlex Common Stock. No fractional shares
of Holdco Common Stock shall be issued in the Holdco Merger.
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(d) Notwithstanding this Section 3.5, Patlex Shares outstanding
immediately prior to the effective time of the Holdco Merger and held by a
holder who shall have performed all such acts as are required to qualify
such holder as a dissenter within the meaning of Section 1930 of the PBCL
(a "Holdco Dissenter") shall be converted into the right to receive the
consideration payable in respect thereof in accordance with the PBCL,
unless such holder loses the status and rights of a Holdco Dissenter after
the effective time of the Holdco Merger. If after the effective time of the
Holdco Merger such holder loses the status and rights of a Holdco
Dissenter, the Patlex Shares held by such holder shall be treated as if
they had been converted as of the effective time of the Holdco Merger into
the right to receive the one share of Holdco Common Stock.
(e) Patlex shall also appoint the Exchange Agent for the purpose of
exchanging certificates representing Patlex Shares for the shares of Holdco
Common Stock issued in the Holdco Merger.
(f) Each holder of Patlex Shares that shall have been converted into a
right to receive the shares of Holdco Common Stock, upon surrender to the
Exchange Agent of a certificate or certificates formerly representing such
Patlex Shares together with a properly completed letter of transmittal
covering such certificates, will be entitled to receive the shares of
Holdco Common Stock payable in respect of such Patlex Shares. Until so
surrendered, each such certificate shall, after the effective time of the
Holdco Merger, represent for all purposes, only the right to receive such
shares of Holdco Common Stock.
(g) The Articles of Incorporation of Patlex and the bylaws of Patlex
shall be the Articles of Incorporation and bylaws respectively of the
surviving corporation at the effective time of the Holdco Merger.
3.6 Holdco Name. The Articles of Incorporation of Holdco and the bylaws
of Holdco shall be the Articles of Incorporation and bylaws respectively of
Holdco at the Effective Time, except that as of the Effective Time, the
following provision of the Articles of Incorporation of Holdco shall be amended
in its entirety to read as follows:
"1. The name of the corporation is DBT Online, Inc."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DBT
DBT hereby represents and warrants to the Patlex Parties as follows:
4.1 Corporate Status. DBT is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida, with full
corporate power and authority to conduct its business as it is now being
conducted, and to own or use the properties and assets that it purports to own
or use and its status under Florida law is active. DBT is qualified to do
business as a foreign corporation in any jurisdiction where the ownership or use
of the properties owned or used by it, or the nature of the activities conducted
by it, requires such qualification, except where the failure to so qualify would
not have a Material Adverse Effect. The Charter Documents and bylaws of DBT that
have been delivered to Patlex have been duly adopted and are correct and
complete copies of such documents as currently in effect.
4.2 Authorization. DBT has the requisite power and authority to execute
and deliver the Transaction Documents to which it is or will be a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by DBT have been duly authorized by all necessary corporate action,
except for approval by the DBT shareholders as required by the FBCA. The
Transaction Documents executed on or before the date hereof constitute, and the
Transaction Documents to be executed after the date hereof will constitute,
valid and binding obligations of DBT, enforceable against DBT in accordance with
their terms.
4.3 Consents and Approvals. Except for the consents specified in Section
4.3 of the DBT Disclosure Schedule (the "Required Consents") and except for such
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act, the Exchange
Act, the HSR Act, filings under state securities laws and the filing of the
Articles of Merger in accordance with the FBCA, neither the execution and
delivery by DBT of the Transaction Documents to which it is or
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will be a party, nor the performance of the Transactions to be performed by DBT,
will (a) require any filing, consent or approval or constitute a Default under
(i) any Regulation or Court Order to which DBT is subject, (ii) the Charter
Documents or bylaws of DBT or (iii) any Contract, Government Permit or other
document to which DBT is a party or by which the properties or other assets of
DBT may be subject, or (b) result in the triggering of any right of first
refusal or other right under any shareholder, partnership or joint venture
agreement to which DBT is a party.
4.4 Capitalization and Stock Ownership. The total authorized capital
stock of DBT consists of 10,000,000 shares of DBT Common Stock, 1,736,274 shares
of which are issued and outstanding (the "Existing Shares") and none of which
are issued and held by DBT as treasury stock. There are no existing options,
warrants, calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition of any issued or
unissued capital stock or other securities of DBT. All of the outstanding shares
of DBT Common Stock are duly and validly authorized and issued, fully paid and
non-assessable. Section 4.4 of the DBT Disclosure Schedule correctly lists the
record owners of all of the Existing Shares. DBT complied with all applicable
federal and state securities Regulations in connection with the issuance of all
of the Existing Shares. Except as set forth in Section 4.4 of the DBT Disclosure
Schedule, there are no Contracts involving the ownership, voting, issuance or
transfer of capital stock of DBT to which DBT is a party or by which DBT is
otherwise bound or affected.
4.5 Financial Statements. DBT has delivered to Patlex (a) unaudited
financial statements (draft dated January 26, 1996) consisting of a balance
sheet of DBT as of December 31, 1995, and the related statements of income,
changes in stockholders' equity and cash flows for the year ended December 31,
1995, including the notes thereto (the "DBT Interim Financial Statements"), and
(b) audited financial statements consisting of combined balance sheets of DBT
and Indar as of December 31, 1994, and the related combined statements of
income, stockholders' equity and cash flows for the year ended December 31,
1994, including the notes thereto, together with the report thereon of Ahearn,
Jasco + Company, certified public accountants (the "DBT Audited Financial
Statements"). All such unaudited and audited financial statements and notes
thereto are referred to herein collectively as the "DBT Financial Statements."
The DBT Financial Statements fairly present the financial condition, results of
operations, changes in stockholders' equity and cash flows of DBT as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, except for notes thereto and subject,
in the case of any unaudited interim financial statements, to normal, recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be adverse). The DBT Financial Statements reflect the consistent
application of such accounting principles throughout the periods involved. No
financial statements of any Person other than DBT are required by GAAP to be
included in the consolidated financial statements of the Company. The DBT
Financial Statements comply with the requirements of Regulation S-X applicable
to the Registration Statement. The balance sheet as of December 31, 1995 is
referred to herein as the "DBT Balance Sheet," and the date thereof is referred
to herein as the "DBT Balance Sheet Date."
4.6 Title to Assets and Related Matters. DBT has good and marketable
title to, or valid leasehold interests in, all of its Assets, free from any
Encumbrances except those specified in Section 4.6 of the DBT Disclosure
Schedule and any Encumbrances that, in the aggregate, are not material to DBT,
taken as a whole. The use of the Assets is not subject to any Encumbrances
(other than those excepted in the immediately preceding sentence), and such use
does not materially encroach on the property or rights of any other Person. All
Real Property (defined below) and tangible personal property of DBT are suitable
for the purposes for which they are used, in good working condition and
reasonable repair, free from any known defects, except such defects that, in the
aggregate, would not have a Material Adverse Effect.
4.7 Real Property, Leases and Environmental Matters.
(a) Section 4.7 of the DBT Disclosure Schedule contains a complete and
accurate list of all real estate currently used in the operation of the
Business as well as any other real estate that is in the possession of or
leased by DBT and the improvements (including buildings and other
structures) located on such real estate (collectively, the "Real
Property"), and lists any leases under which any such Real Property is
possessed (the "Real Estate Leases"). To the knowledge of DBT, DBT is
currently not in
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Default under any of the Real Estate Leases, and DBT is not aware of any
Default by any of the lessors thereunder, except such Defaults that, in the
aggregate, would not have a Material Adverse Effect. DBT does not own any
Real Property. Section 4.7 of the DBT Disclosure Schedule also describes
any other real estate previously owned, leased or otherwise operated by DBT
during the five years prior to the date hereof and the time periods of any
such ownership, lease or operation.
(b) No claims or regulatory actions have been asserted or assessed
against DBT or any of its property and, to the best of DBT's knowledge
after due inquiry, no claim or regulatory action is pending or threatened
against DBT or any of its property, arising out of or due to, or allegedly
arising out of or due to, (i) the release on, under, or from the property
of any Hazardous Substances; (ii) any contamination of the property,
including the presence of any Hazardous Substance that has come to be
located on or under the property from another location; (iii) any material
violation or alleged violation of any Environmental Laws with respect to
the property or DBT's Business; (iv) any injury to human health or safety
or to the environment by reason of the past or present condition of, or
past or present activities on or under, the property; or (v) the
generation, manufacture, storage, treatment, handling, transportation, or
other use, however defined, of any Hazardous Substance on the property.
(c) To the best of DBT's knowledge, DBT's storage, transportation,
handling, use, or disposal, if any, of Hazardous Substances on or under its
property or disposal elsewhere, if any, of Hazardous Substances generated
on or from its Business is currently, and all times has been, in compliance
in all material respects with all applicable Environmental Laws.
(d) To the best of DBT's knowledge:
(i) None of DBT's leased property is listed in the National
Priorities List or any other list, schedule, log, inventory or record,
however defined, maintained by any federal, state or local governmental
agency with respect to sites from which there is or has been a release
of any Hazardous Substance or any contaminator.
(ii) There are no underground or above ground storage tanks
(whether or not currently in use), urea-formaldehyde materials,
asbestos, asbestos containing materials, polychlorinated biphenyls
(PCBs), or nuclear fuels or wastes, located on or under any of DBT's
leased property.
(iii) There is no ongoing release of any Hazardous Substance on,
under, or from DBT's leased property nor any contamination of such
property.
(iv) DBT's ownership, use, and operation of its property are
currently and, at all times during DBT's ownership or operation thereof,
have been in material compliance with all applicable Environmental Laws.
(v) There are no liens against DBT's leased property arising under
any Environmental Laws.
4.8 Certain Personal Property. DBT has delivered to Patlex an asset
schedule, listing and specifying the location of all material items of tangible
personal property that were included in the DBT Balance Sheet. Since the DBT
Balance Sheet Date, DBT has not acquired any items of tangible personal property
other than (a) items having acquisition costs (per item) of less than $15,000
and (b) acquisitions in the ordinary course. All of such personal property is in
operating condition, reasonable wear and tear excepted.
4.9 Non-Real Estate Leases. Section 4.9 of the DBT Disclosure Schedule
lists all assets and property (other than Real Property) that are used as of the
date of this Agreement in the operation of the Business and that are possessed
by DBT under an existing lease, including all automobiles, machinery, equipment,
furniture and computers that are material to the Business. Section 4.9 of the
DBT Disclosure Schedule also lists the leases under which such assets and
property are possessed. All of such leases and any leases of such types that are
entered into after the date of this Agreement are referred to herein as the
"Non-Real Estate Leases." DBT is not in Default under any of the Non-Real Estate
Leases, and DBT is not aware of any Default by any of the lessors thereunder.
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4.10 Accounts Receivable. The accounts receivable of DBT are bona fide
accounts receivable created in the ordinary course of business and are good and
collectible, less an allowance for uncollectible accounts determined in
accordance with GAAP.
4.11 Relationships with Related Persons. Except as specified in Section
4.11 of the DBT Disclosure Schedule, no shareholder, officer, director or
employee of DBT, or any Affiliate of such person, has, or since January 1, 1993
has (a) had, any interest in any property (whether real, personal or mixed and
whether tangible or intangible) used in or pertaining to the Business, (b) owned
(of record or beneficially) an equity interest or any other financial or profit
interest in any Person that has (i) had business dealings or a material
financial interest in any transaction with DBT or (ii) engaged in competition
with DBT with respect to any business competing with the Business, or (c) had
any claim or right against DBT.
4.12 Liabilities. Except as specified in Section 4.12 of the DBT
Disclosure Schedule, DBT has no Liabilities, and none of the Assets of DBT are
subject to any Liabilities, except (a) to the extent specifically reflected or
reserved against in the DBT Balance Sheet, (b) current Liabilities incurred
since the DBT Balance Sheet Date that, individually or in the aggregate, are not
material to the Business or the Assets, (c) Liabilities under any Contracts
specifically disclosed on the DBT Disclosure Schedule that were not required
under GAAP to have been specifically disclosed or reserved for on the DBT
Balance Sheet, (d) Liabilities under or contemplated by this Agreement, (e)
Liabilities incurred after the date of this Agreement that are not prohibited by
Section 6.1, and (f) Liabilities incurred since the Balance Sheet Date that are
approved in writing by Patlex.
4.13 Taxes.
(a) Except as set forth in Section 4.13 of the DBT Disclosure
Schedule, DBT has duly and timely filed all foreign, federal, state, local
and other tax returns that are required to be filed and that were due, and
has paid all material taxes and assessments that have become due pursuant
to such returns or pursuant to any assessment received. The accrual for
taxes that appears in the DBT Balance Sheet is adequate provision for all
taxes of DBT for all periods or partial periods through and including the
Closing Date. These returns are true and correct in all material respects.
Except as set forth in Section 4.13 of the DBT Disclosure Schedule, all
taxes and other assessments and levies that DBT has been required by law to
withhold or to collect have been duly withheld and collected and have been
paid over to the proper governmental authorities or are properly held by
DBT for such payment. There are no proceedings or other actions pending,
and to the knowledge of DBT no proceedings or other actions are threatened,
for the assessment and collection of additional taxes of any kind for any
period for which returns have or should have been filed. DBT's status as a
"Subchapter S" corporation under the Code and under Section 220.13, Florida
Statutes, ended as of July 1, 1995. For all periods prior to July 1, 1995,
DBT was taxable as a qualifying "Subchapter S" corporation for all purposes
of the Code.
(b) DBT has filed with the appropriate governmental agencies all tax
returns required to have been filed in all jurisdictions in which DBT is
required to file tax returns, except where the failure to make such filings
would not materially adversely affect DBT's business, and all such tax
returns properly reflect in all material respects the liabilities of DBT
for taxes for the periods, property, or events covered thereby. All taxes,
including those called for by the tax returns, or heretofore or hereafter
claimed to be due by any taxing authority from DBT have been properly
accrued or paid. The accrual for taxes contained in the DBT Balance Sheet
is adequate, in all material respects, to cover the tax Liabilities of DBT
as of the DBT Balance Sheet Date and include adequate provision for all
deferred taxes, and no events have occurred subsequent to that date to make
any of such accruals materially inadequate. DBT has not received any notice
of assessment or proposed assessment in connection with any tax returns,
and there are no pending tax examinations of, or tax claims asserted
against, DBT or any of its Assets. DBT has extended, or waived the
application of, any statute of limitations of any jurisdiction regarding
the assessment or collection of any taxes. There are no tax liens (other
than any lien for current taxes not yet due and payable) on any of the
Assets of DBT. DBT has no knowledge of any basis for any additional
assessment of any taxes. DBT has made all deposits required by law to be
made with respect to
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employees' withholding and other employment taxes, including without
limitation the portion of such deposits relating to taxes imposed upon DBT.
(c) DBT has delivered or will deliver to Patlex correct and complete
copies of all federal income tax returns filed, examination reports
received, and statements of deficiencies assessed against or agreed to by
DBT related to tax years from its inception through 1995.
(d) DBT has not filed any consent under Section 341(f) of the Code
concerning collapsible corporations. DBT has not made any payments nor is
DBT obligated to make any payments that would not be deductible under
Section 280G of the Code. DBT has disclosed on its federal income tax
returns all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6621 of
the Code. Except as described in Section 4.13 to the DBT Disclosure
Schedule, DBT has not been a member of an affiliated group for which
consolidated returns were required to be filed.
(e) DBT has no net operating loss carryovers, net capital loss
carryovers, unused investment or other credit, unused foreign tax, or
excess charitable contributions, except as set forth in the federal income
tax returns delivered to Patlex pursuant to subsection (c) above.
4.14 Subsidiaries. DBT does not own, directly or indirectly, any interest
or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
4.15 Legal Proceedings and Compliance with Law.
(a) Except as disclosed in Section 4.15 of the DBT Disclosure
Schedule, there is no Litigation that is pending or, to DBT's knowledge,
threatened against or related to DBT. There has been no Default under any
Regulations applicable to DBT, including Regulations relating to pollution
or protection of the environment, except for any Defaults that would not
have a Material Adverse Effect. There has been no Default with respect to
any Court Order applicable to DBT.
(b) Without limiting the generality of Section 4.15(a), there has not
been any Environmental Condition (defined below) (i) at the premises at
which the Business of DBT has been conducted, (ii) at any property owned,
leased or operated at any time by DBT, any Person controlled by DBT or any
predecessor thereof or (iii) at any property at which wastes have been
deposited or disposed by or at the behest or direction of any of the
foregoing, nor has DBT received written notice of any such Environmental
Conditions that, in the aggregate, would have a Material Adverse Effect.
"Environmental Condition" means any condition or circumstance, including
the presence of Hazardous Substances, whether created by any third party or
otherwise, at or relating to any such property or premises that would (i)
require abatement or correction under any Environmental Law (defined
below), (ii) give rise to any civil or criminal liability under any
Environmental Law or (iii) create a public or private nuisance.
"Environmental Law" means all Regulations and Court Orders relating to
pollution or protection of the environment as well as any principles of
common law under which a party may be held liable for the release or
discharge of any materials into the environment.
(c) DBT has delivered to Patlex correct and complete copies of any
written reports, studies or assessments in the possession or control of DBT
that relate to any Environmental Condition.
(d) DBT has obtained and is in full compliance with all governmental
permits, licenses, registrations, certificates of occupancy, approvals and
other authorizations that are required for the complete operation of the
Business of DBT as currently operated (the "Government Permits"). All of
the Governmental Permits are listed in Section 4.15 of the DBT Disclosure
Schedule along with their respective expiration dates, that are required
for the complete operation of the Business of DBT as currently operated.
All of the Governmental Permits are currently valid and in full force, and
to DBT's knowledge, no revocation, cancellation or withdrawal thereof has
been threatened. DBT has filed such timely and complete renewal
applications as may be required with respect to its Governmental Permits.
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4.16 Contracts.
(a) SECTION 4.16 of the DBT Disclosure Schedule lists each Contract of
the following types to which DBT, as of the date of this Agreement, is a
party, or by which it is bound, (1) excluding any Contract that may be
terminated by DBT on not more than 30 days' notice without any liability on
the part of DBT and (2) other than with respect to subparagraphs (v) and
(vi) below, any Contract under which the executory obligation (including
any remaining payments) of DBT involves an amount of less than $100,000
(such excluded Contracts referred to in clauses (1) and (2) are referred to
in this SECTION 4.16 collectively as "DBT Minor Contracts") and excluding
this Agreement and the other Contracts expressly referred to herein:
(i) Contracts with any present or former shareholder, director,
officer, employee, partner or consultant of DBT or Affiliate thereof;
(ii) Contracts for the future purchase of, or payment for, supplies
or products, or for the lease of any Asset from or the performance of
services by a third party, or any Contracts for the sale of inventory or
products;
(iii) Contracts to sell or supply products or to perform services;
(iv) Contracts to lease to or to operate for any other party any
Asset;
(v) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers, directors,
partners, shareholders or Affiliates of DBT or any members of their
immediate families), agreements or arrangements for a line of credit or
for a guarantee of, or other undertaking in connection with, the
indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrance exists with respect
to any Assets if the Encumbrance could present an adverse impact of at
least $100,000;
(vii) Any Contract with any investment banker, broker, agent or
finder for any fees, commissions or similar payments in connection with
any transaction; and
(viii) Any other Contracts (other than DBT Minor Contracts and
those described in any of (i) through (vi) above) not made in the
ordinary course of business.
(b) To DBT's knowledge, DBT is not in Default under any Contract,
which Default, together with all other such Defaults, could result in a
Material Adverse Effect. DBT has not received any communication from, or
given any communication to, any other party indicating that DBT or such
other party, as the case may be, is in Default under any Contract where
such Default could have a Material Adverse Effect.
4.17 Insurance. SECTION 4.17 of the DBT Disclosure Schedule lists all
policies or binders of insurance held by or on behalf of DBT or relating to the
Business or any of its Assets, as of the date of this Agreement, and the DBT
Disclosure Schedule specifies with respect to each policy the insurer, the
amount of the coverage, the type of insurance, the risks insured, the expiration
date, the policy number and any pending claims thereunder. To DBT's knowledge,
there is no Default with respect to any such policy or binder, nor has there
been any failure to give any notice or present any claim under any such policy
or binder in a timely fashion or in the manner or detail required by the policy
or binder, except for any of the foregoing that would not, individually or in
the aggregate, have a Material Adverse Effect. There is no notice of nonrenewal
or cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by DBT, except for any of the foregoing
that would not, individually or in the aggregate, have a Material Adverse
Effect.
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4.18 Patents and Other Intellectual Property.
(a) DBT does not currently use as of the date of this Agreement or has
not used prior to such date in the operation of its Business (including in
the development or marketing of products and services) any Intellectual
Property that is material to its Business, except for those listed in
Section 4.18 of the DBT Disclosure Schedule. All of DBT's Intellectual
Property is owned or otherwise lawfully used by DBT, and DBT does not
infringe upon or unlawfully or wrongfully use any patent, trademark,
tradename, service mark, copyright or trade secret owned or claimed by
another Person. DBT is not in Default, and has not received any notice of
any claim of infringement or any other claim or proceeding, with respect to
any such patent, trademark, tradename, service mark, copyright or trade
secret. No current or former employee of DBT and no other Person owns or
has any proprietary, financial or other interest, direct or indirect, in
whole or in part, in any of the Intellectual Property, or in any
application therefor.
(b) DBT has taken all appropriate measures to protect and preserve the
security, confidentiality and value of its Confidential Information. To
DBT's knowledge, all Confidential Information that constitutes Intellectual
Property is currently valid and protectible and is not part of the public
domain or knowledge, nor to the knowledge of DBT, has it been used,
divulged or appropriated for the benefit of any Person other than DBT or
otherwise to the detriment of DBT. To DBT's knowledge, no employee or
consultant of DBT is subject to any contractual or legal restrictions that
might interfere with the use of their best efforts to promote the interests
of DBT. To DBT's knowledge, no employee or consultant of DBT has used in
the course of his work for DBT any information that is confidential and
owned by any other Person. For the purposes of this Agreement, the term
"Confidential Information" means those items of the Intellectual Property
that are confidential and any other confidential information owned by DBT,
including personnel information, technical information, customer lists,
other customer information and supplier information.
4.19 Employee Relations. DBT is not (a) a party to, involved in, or, to
DBT's knowledge, threatened by, any labor dispute or unfair labor practice
charge or (b) currently negotiating any collective bargaining agreement, and DBT
has not experienced any work stoppage during the last three years. DBT has
delivered to Patlex a complete and correct list of the names and salaries, bonus
and other cash compensation of all employees (including officers) of DBT whose
total cash compensation for 1994 or 1995 exceeded $100,000.
4.20 Employee Benefit Plans.
(a) SECTION 4.20 of the DBT Disclosure Schedule contains a complete
and accurate list of DBT's Benefit Plans, identifying all ERISA Plans and
all Benefit Plans that are not ERISA Plans, and a listing of all expected
annual contributions to the Benefit Plans. DBT has delivered to Patlex a
complete and correct copy of each of the Benefit Plans and of any related
trust agreements, insurance or annuity contracts, valuations, and other
funding agreements.
(b) No DBT Party sponsors or participates in a defined benefit pension
plan. DBT does not maintain and has not maintained in the past any defined
benefit pension plan, and it is not and has not been a party to any
agreement requiring it to contribute to a multi-employer plan within the
meaning of Section 3(37) of ERISA. There are no unfunded vested benefits
under any Benefit Plan which is subject to the vesting and funding
standards of ERISA and no unfunded liabilities under any ERISA Plan for all
benefits accrued through the date of the last actuarial valuation of such
ERISA Plan (calculated on the basis of the plan's normal funding
assumptions on such valuation). DBT has operated in good faith compliance
with the requirements of section 4908B of the Code or Part 6 of ERISA
("COBRA"). Other than claims for benefits in the ordinary course of its
business, to the knowledge of DBT there are no pending claims involving the
ERISA Plans by any participant covered under the ERISA Plans or otherwise
or violations of the applicable state or federal law which may result in
material liability on the part of DBT or any ERISA Plan under ERISA or any
other law, nor to the knowledge of DBT is there any reasonable basis for
such a claim. To the knowledge of any DBT Party, the Benefit Plans are not
the subject of any investigation, audit or action by the IRS, the
Department of Labor or the Pension Benefit Insurance Corporation.
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(c) To the knowledge of DBT, none of the ERISA Plans nor any of their
related trusts, nor DBT or any trustee, administrator or other "party in
interest" or "disqualified person" (within the meaning of Section 3(14) of
ERISA or Section 4975(e)(2) of the Code, respectively) with respect to the
ERISA Plans, has engaged in any "prohibited transaction" (within the
meaning of Section 406 of ERISA or Section 4975(c) of the Code), which
could subject any ERISA Plans or related trusts or any trustee,
administrator or other fiduciary of any ERISA Plan, or any other party
dealing with the ERISA Plans, to the penalties or excise tax imposed on
prohibited transactions by Section 502(i) of ERISA or Section 4975 of the
Code.
(d) In the reasonable belief of DBT, each of the Benefit plans that
are intended to be "qualified" under Section 401(a) of the Code (the
"Qualified Plans") meets the requirements of Section 401(a) of the Code,
and the trust, if any, forming a part of each Qualified Plan is exempt from
federal income tax under Section 501(a) of the Code. A favorable
determination letter has been issued by the Internal Revenue Service within
the past ten years as to the qualification under Section 401(a) of the Code
(including, but not limited to, amendments made by ERISA), with respect to
each Qualified Plan, and DBT has delivered to Patlex a true and correct
copy of all such determination letters. None of the determination letters
has been revoked or modified by the Internal Revenue Service.
(e) All contributions required by law or required in accordance with
the terms of the Qualified Plans with respect to the current plan year and
plan years ended prior to the Closing Date have been made.
(f) Except pursuant to the Benefit Plans and under COBRA, DBT does not
have any present or future liability to former employees or to their
dependents, survivors, or beneficiaries in connection with or arising out
of any plan, compensation arrangement, or practice that DBT maintained or
adopted or to which DBT contributed prior to the date hereof, and DBT has
not maintained, adopted, or contributed to any plan that provides benefits
or payments to former employees or their dependents, survivors, or
beneficiaries, except pursuant to the Benefit Plans and under COBRA. No
welfare plan within the meaning of 3(2) of ERISA provides any health, life
or other welfare coverage to any DBT Party beyond termination of employment
with any DBT Party by reason of retirement or otherwise, other than
coverage as may be required under COBRA, or under the continuation of
coverage provisions of the laws of any state or locality.
(g) DBT has satisfied in all material respects all reporting and
disclosure requirements applicable under ERISA, and the Department of Labor
and Internal Revenue Service and Pension Benefit Guaranty Corporation
regulations promulgated thereunder, with respect to all ERISA Plans and
Qualified Plans, and DBT has delivered to Patlex true and complete copies
of the most recently filed and disclosed Forms 5500-C/R (with exhibits) and
summary plan descriptions and summaries of material modification for the
ERISA Plans and Qualified Plans. In the event that a Form 5500 for any
Qualified Plan for the 1995 plan year has not been filed prior to the
Closing Date, a proper extension will be filed.
(h) No Qualified Plan has had any "unrelated business taxable income"
as defined in Sections 512 through 514 of the Code. There have been no
claims, nor notice of claims, filed under any fiduciary liability insurance
policy covering any Benefit Plan.
(i) The trustees of each Qualified Plan have completed their required
annual accounts for the plan years ending on or before December 31, 1995.
Each such accounting accurately reflects the accounting, and true and
complete copies of the trustees' reports or schedules of such accountings
have been delivered to Patlex.
4.21 Corporate Records. The minute books of DBT contain complete, correct
and current copies of its Charter Documents and bylaws and, in all material
respects, of all minutes of meetings, resolutions and other proceedings of its
Board of Directors and shareholders. The stock record book of DBT is complete,
correct and current.
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4.22 Absence of Certain Changes. Since the DBT Balance Sheet Date, DBT
has conducted its Business in the ordinary course and, except as specified on
Section 4.22 of the DBT Disclosure Schedule, there has not been with respect to
DBT:
(a) any material adverse change in its Business or Liabilities;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for merit and seniority
increases for employees made in the ordinary course of business, nor any
other change that is material to any employment or consulting arrangement;
(d) any sale, assignment or transfer of Assets, or any additions to or
transactions involving any Assets, other than those made in the ordinary
course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of DBT, except as specified in
Section 4.22 of the DBT Disclosure Schedule.
4.23 Previous Sales; Warranties. DBT has not breached any express or
implied warranties in connection with the sale or distribution of such goods,
except for breaches that, individually and in the aggregate, will not have a
Material Adverse Effect. There are no known defects in the design of, or
technology embodied in, any product or service that DBT currently markets or has
marketed in the past except for such defects that, in the aggregate, would not
have a Material Adverse Effect. DBT has provided Patlex with true and correct
copies of all material warranties made by DBT with respect to any goods that
have been sold or distributed by DBT at any time during the one year prior to
the date hereof.
4.24 Customers and Suppliers. Section 4.24 of the DBT Disclosure Schedule
lists any Contracts (other than DBT Minor Contracts) with customers or former
customers of DBT that have been terminated or cancelled during the one year
period prior to the date hereof. Section 4.24 of the DBT Disclosure Schedule
also contains a list of the names of each of the 10 customers that, in the
aggregate, for the three fiscal years ended December 31, 1993, 1994 and 1995,
were the largest dollar volume customers of products sold or services rendered
by DBT. None of such customers has given DBT notice terminating, cancelling or
stating an intent to terminate or cancel any Contract with DBT, and none of such
customers is, or has been during the one year period immediately preceding the
date of this Agreement, a related party to DBT. Section 4.24 of the DBT
Disclosure Schedule also contains a list of the 10 suppliers of DBT that, in the
aggregate, for the three fiscal years ended December 31, 1993, 1994 and 1995,
were the largest dollar volume suppliers of supplies used by DBT. None of such
suppliers has given DBT notice terminating, cancelling or stating an intent to
terminate or cancel any Contract with DBT, except in the cases of any such
suppliers as to which the cancellation or termination would not, in the
aggregate, have a Material Adverse Effect.
4.25 Finder's Fees. No Person retained by DBT is or will be entitled to
any commission or finder's or similar fee in connection with the Transactions.
4.26 Accuracy of Information. No representation or warranty by DBT in any
Transaction Document, and no information contained therein or otherwise
delivered to any Patlex Party in connection with the Transactions, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
4.27 Indar Corporation. The Consulting/Employment Agreement between DBT
and Indar, dated as of December 23, 1994, including an addendum dated February
15, 1995 (the "Indar Agreement") was terminated on November 30, 1995. DBT has no
Liability to Indar or otherwise arising out of any transaction or other
relationship, directly or indirectly, with Indar. Section 4.27 of the DBT
Disclosure Schedule contains a complete and accurate list of all payments and
indebtedness to and from Indar for the fiscal years ended December 31, 1993 and
1994, and the period since December 31, 1994.
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4.28 Representations. The representations and warranties of DBT contained
in this Agreement, disregarding all qualifications and exceptions herein
relating to materiality or Material Adverse Effect, are true and correct with
only such exceptions relating to materiality or Material Adverse Effect as would
not in the aggregate reasonably be expected to have a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PATLEX PARTIES
Patlex and the Merger Subsidiary jointly and severally hereby represent and
warrant to DBT as follows:
5.1 Corporate Status. Each Patlex Party is a corporation duly organized,
validly existing and in good standing under the laws under which it was
incorporated, with full corporate power and authority to conduct its business as
it is now being conducted, and to own or use the properties and assets that it
purports to own or use. Each Patlex Party is qualified to do business as a
foreign corporation in any jurisdiction where the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect. The Charter Documents and bylaws of each Patlex
Party that have been delivered to DBT have been duly adopted and are correct and
complete copies of such documents as currently in effect.
5.2 Authorization. Each Patlex Party has the requisite power and
authority to execute and deliver the Transaction Documents to which it is or
will be a party and to perform the Transactions to be performed by it. Such
execution, delivery and performance by each Patlex Party have been duly
authorized by all necessary corporate action, except for approval by the Patlex
shareholders in accordance with its Certificate of Incorporation and approval by
Patlex, as the sole shareholder of the Merger Subsidiary, in accordance with the
FBCA. The Transaction Documents executed on or before the date hereof
constitute, and the Transaction Documents to be executed after the date hereof
will constitute, valid and binding obligations of each Patlex Party that is or
will be a party thereto, enforceable against each such party in accordance with
their terms.
5.3 Consents and Approvals. Except for such filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, the HSR Act,
filings under state securities laws, the filing of any required notices with the
Nasdaq Stock Market to include the Holdco Shares, the filing of the Articles of
Merger in accordance with the FBCA and the approval of the shareholders of
Patlex, neither the execution and delivery by any Patlex Party of the
Transaction Documents to which it is or will be a party, nor the performance of
the Transactions to be performed by any Patlex Party, (a) will require any
filing, consent or approval or constitute a Default under (i) any Regulation or
Court Order to which any Patlex Party is subject, (ii) the Charter Documents or
bylaws of any Patlex Party or (iii) any Contract, Government Permit or other
document to which any Patlex Party is a party or by which the properties or
other assets of any Patlex Party may be subject, or (b) result in the triggering
of any right of first refusal or other right under any shareholder, partnership
or joint venture agreement to which any Patlex Party is a party.
5.4 Capitalization and Stock Ownership. The total authorized capital
stock of Patlex consists of 10,000,000 shares of Patlex Common Stock, $.10 par
value per share, 2,527,049 shares of which are issued and outstanding as of the
date of this Agreement, and 1,000,000 shares of preferred stock, $0.10 par value
per share, none of which is issued and outstanding. Patlex does not have any
shares of capital stock that are issued and held by Patlex as treasury stock.
All of the outstanding shares of Patlex Common Stock are duly and validly
authorized and issued, fully paid and non-assessable. Patlex complied with all
applicable federal and state securities Regulations in connection with the
issuance of all of the outstanding shares of Patlex Common Stock. Except as set
forth in Section 5.4 of the Patlex Disclosure Schedule, there are no Contracts
involving the ownership, voting, issuance or transfer of capital stock of Patlex
to which Patlex is a party or by which Patlex is otherwise bound or affected.
Except as disclosed in Section 5.4 of the Patlex Disclosure Schedule, there are
no outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, stock option plans, or other agreements
or commitments to which any of the Patlex Parties is a party or by which any of
the Patlex Parties is bound providing for the issuance, disposition, or
acquisition
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of any shares of capital stock of any of the Patlex Parties. None of the Patlex
Parties has any outstanding or authorized stock appreciation, phantom stock, or
similar rights. There are no voting trusts, proxies, or any other agreements or
understandings with respect to the voting of any shares of any of the Patlex
Parties.
5.5 Financial Statements. The audited financial statements and the
unaudited financial statements of Patlex included in Patlex's Annual Report on
Form 10-KSB and its Quarterly Report on Form 10-QSB that are referred to in
Section 5.6 fairly present the financial condition, results of operations,
changes in stockholders' equity and cash flow of Patlex as at the respective
dates of and for the periods referred to in such financial statements, all in
accordance with GAAP, except for notes thereto and subject, in the case of any
unaudited interim financial statements, to normal recurring year-end adjustments
(the effect of which will not, individually or in the aggregate, be adverse).
The balance sheet of Patlex as of December 31, 1995 that is included in such
financial statements is referred to herein as the "Patlex Balance Sheet," and
the date thereof is referred to herein as the "Patlex Balance Sheet Date."
5.6 SEC Reports.
(a) Patlex has delivered to DBT (i) Patlex's Annual Report on Form
10-KSB for the period ended June 30, 1995, (ii) Patlex's Quarterly Report
on Form 10-QSB for the six months ended December 31, 1995, and (iii)
Patlex's Information Statement, dated August 3, 1995, relating to the
spin-off of Patlex by AutoFinance Group, Inc. (all of such materials,
together with any amendments thereto are referred to herein as the "SEC
Reports").
(b) As of its filing date or, if applicable, its effective date, each
SEC Report complied in all material respects with the requirements of the
Regulations applicable to such SEC Report, including the Securities Act and
the Exchange Act.
(c) As of its filing date or, if applicable, its effective date, each
SEC Report filed pursuant to the Securities Act or the Exchange Act did not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
Patlex has filed all reports under the Exchange Act that were required to
be filed as of the date hereof and will have filed all such reports
required to have been filed through the Effective Time.
5.7 Title to Assets and Related Matters. Each Patlex Party has good and
marketable title to, or valid leasehold interests in, all of its Assets, free
from any Encumbrances, except any Encumbrances that, in the aggregate, are not
material to the Patlex Parties taken as a whole. The use of the Assets is not
subject to any Encumbrances (other than those specified in the preceding
sentence), and such use does not materially encroach on the property or rights
of any other Person.
5.8 Real Property, Leases and Environmental Matters.
(a) Patlex has good, marketable, insurable, fee simple title to all
its real property, free and clear of all liens, mortgages, encumbrances,
security interests, claims, and other matters affecting title to or
possession of such real property, including all encroachments, boundary
disputes, covenants, restrictions, easements, rights of way, leases, and
title objections, excepting only such easements, restrictions and covenants
listed on Section 5.8 of the Patlex Disclosure Schedule, which will not
materially interfere with or impair Patlex's intended use of any of the
real property or materially reduces the value of any of the real property.
(b) No claims or regulatory actions have been asserted or assessed
against any of the Patlex Parties or any of their property and, to the best
of Patlex's knowledge after due inquiry, no claim or regulatory action is
pending or threatened against any of the Patlex Parties or any of their
property, arising out of or due to, or allegedly arising out of or due to,
(i) the release on, under, or from the property of any Hazardous
Substances; (ii) any contamination of the property, including the presence
of any Hazardous Substance that has come to be located on or under the
property from another location; (iii) any material violation or alleged
violation of any Environmental Laws with respect to the property or
Patlex's Business; (iv) any injury to human health or safety or to the
environment by reason of the past or present condition
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of, or past or present activities on or under, the property; or (v) the
generation, manufacture, storage, treatment, handling, transportation, or
other use, however defined, of any Hazardous Substance on the property.
(c) To the best of Patlex's knowledge, Patlex's storage,
transportation, handling, use, or disposal, if any, of Hazardous Substances
on or under its property or disposal elsewhere, if any, of Hazardous
Substances generated on or from its Business is currently, and all times
has been, in compliance in all material respects with all applicable
Environmental Laws.
(d) To the best of Patlex's knowledge:
None of Patlex's property is listed in the National Priorities List
or any other list, schedule, log, inventory or record, however defined,
maintained by any federal, state or local governmental agency with
respect to sites from which there is or has been a release of any
Hazardous Substance or any contaminator.
(i) There are no underground or above ground storage tanks (whether
or not currently in use), urea-formaldehyde materials, asbestos,
asbestos containing materials, polychlorinated biphenyls (PCBs), or
nuclear fuels or wastes, located on or under any of Patlex's property.
(ii) There is no ongoing release of any Hazardous Substance on,
under, or from Patlex's property nor any contamination of such property.
(iii) Patlex's ownership, use, and operation of its property are
currently and, at all times during Patlex's ownership or operation
thereof, have been in material compliance with all applicable
Environmental Laws.
(iv) There are no liens against Patlex's property arising under any
Environmental Laws.
5.9 Liabilities. Except as specified in Section 5.9 of the Patlex
Disclosure Schedule, no Patlex Party has any Liabilities, and none of the Assets
of any Patlex Party is subject to any Liabilities, except (a) to the extent
specifically reflected or reserved against in the most recent balance sheet
included in the SEC Reports (the "Patlex Balance Sheet"), (b) Liabilities
incurred since the Patlex Balance Sheet Date that, individually or in the
aggregate, are not material to the Patlex Parties, (c) Liabilities under any
Contracts specifically disclosed on the Patlex Disclosure Schedule that were not
required under GAAP to have been specifically disclosed or reserved for on the
Patlex Balance Sheet, (d) Liabilities under or contemplated by this Agreement,
(e) Liabilities incurred after the date of this Agreement that are not
prohibited by Section 7.1, and (f) Liabilities incurred since the Patlex Balance
Sheet Date that are approved in writing by DBT.
5.10 Taxes.
(a) The Patlex Parties have filed with the appropriate governmental
agencies all tax returns required to have been filed in all jurisdictions
in which any of the Patlex Parties is required to file tax returns, except
where the failure to make such filings would not materially adversely
affect Patlex's business, and all such tax returns properly reflect in all
material respects the liabilities of the Patlex Parties for taxes for the
periods, property, or events covered thereby. All taxes, including those
called for by the tax returns, or heretofore or hereafter claimed to be due
by any taxing authority from any of the Patlex Parties, have been properly
accrued or paid. The accrual for taxes contained in the Patlex Balance
Sheet is adequate, in all material respects, to cover the tax Liabilities
of the Patlex Parties as of the Patlex Balance Sheet Date and include
adequate provision for all deferred taxes, and no events have occurred
subsequent to that date to make any of such accruals materially inadequate.
None of the Patlex Parties has received any notice of assessment or
proposed assessment in connection with any tax returns, and there are no
pending tax examinations of, or tax claims asserted against, any of the
Patlex Parties or any of their Assets. None of the Patlex Parties has
extended, or waived the application of, any statute of limitations of any
jurisdiction regarding the assessment or collection of any taxes. There are
no tax liens (other than any lien for current taxes not yet due and
payable) on any of the Assets of any of the Patlex Parties. None of the
Patlex Parties has any knowledge of any basis for any additional assessment
of any taxes. The Patlex Parties have made all deposits required by law to
be made with respect to employees'
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withholding and other employment taxes, including without limitation the
portion of such deposits relating to taxes imposed upon any of the Patlex
Parties.
(b) Patlex has delivered or will deliver to DBT correct and complete
copies of all federal income tax returns filed, examination reports
received, and statements of deficiencies assessed against or agreed to by
any of the Patlex Parties related to tax years 1989 through 1995.
(c) Patlex has not filed any consent under Section 341(f) of the Code
concerning collapsible corporations. None of the Patlex Parties has made
any payments or is not obligated to make any payments that would not be
deductible under Section 280G of the Code. Patlex has disclosed on its
federal income tax returns all positions taken therein that could give rise
to a substantial understatement of federal income tax within the meaning of
Section 6621 of the Code. Except as described in Section 5.10 of the Patlex
Disclosure Schedule, Patlex has not been a member of an affiliated group
for which consolidated returns were required to be filed.
(d) Except as described in Section 5.10 of the Patlex Disclosure
Schedule, Patlex has no net operating loss carryovers, net capital loss
carryovers, unused investment or other credit, unused foreign tax, or
excess charitable contributions, except as set forth in the federal income
tax returns delivered to DBT pursuant to subsection (b) above.
5.11 Subsidiaries. Except as described in this Section 5.11, no Patlex
Party owns, directly or indirectly, any interest or investment (whether equity
or debt) in any corporation, partnership, business, trust, joint venture or
other legal entity. Patlex is the record and beneficial owner of all of the
issued and outstanding shares of capital stock of Holdco, and Holdco is the
record and beneficial owner of all of the issued and outstanding shares of
capital stock of the Merger Subsidiary and Newco. All of such shares of Holdco,
the Merger Subsidiary and Newco are duly and validly authorized and issued,
fully paid and non-assessable. There are no existing options, warrants, calls,
commitments or other rights of any character (including conversion or preemptive
rights) relating to the acquisition of any issued or unissued capital stock or
other securities of Holdco, the Merger Subsidiary or Newco.
5.12 Legal Proceedings and Compliance with Law.
(a) Except as set forth in the SEC Reports or as subsequently
disclosed in writing to DBT, there is no Litigation that is pending or, to
any Patlex Party's knowledge, threatened against or related to any Patlex
Party. There has been no Default under any Regulations applicable to any
Patlex Party, including Regulations relating to pollution or protection of
the environment, except for any Defaults that would not have a Material
Adverse Effect. There has been no Default with respect to any Court Order
applicable to any Patlex Party.
(b) Without limiting the generality of Section 5.12(a), there has not
been any Environmental Condition (i) at the premises at which the Business
of any Patlex Party has been conducted, (ii) at any property owned, leased
or operated at any time by any Patlex Party, any Person controlled by any
Patlex Party or any predecessor thereof or (iii) at any property at which
wastes have been deposited or disposed by or at the behest or direction of
any of the foregoing, nor has any Patlex Party received written notice of
any such Environmental Conditions that, in the aggregate, would have a
Material Adverse Effect.
(c) Patlex has delivered to DBT correct and complete copies of any
written reports, studies or assessments in the possession or control of any
Patlex Party that relates to any Environmental Condition.
(d) Each Patlex Party has obtained and is in full compliance with any
Governmental Permits that are required for the complete operation of the
Business of any Patlex Party as currently operated. All of any such
Governmental Permits are currently valid and in full force, and to any
Patlex Party's knowledge, no revocation, cancellation or withdrawal thereof
has been threatened. Each Patlex Party has filed such timely and complete
renewal applications as may be required with respect to its Governmental
Permits.
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5.13 Intellectual Property.
(a) Patlex owns or has the right to use, pursuant to a valid and
enforceable license, all Intellectual Property necessary for the operation
of its Business as presently conducted. Patlex has taken all necessary
actions to protect each material item of Intellectual Property that it owns
or uses. Except as set forth on Section 5.13 of the Patlex Disclosure
Schedule, Patlex's interest in the Intellectual Property is free of liens,
mortgages, security interests, and adverse claims.
(b) Patlex has not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of
third parties, and it has never received any claim alleging any such
interference, infringement, misappropriation, or violation. To the best of
Patlex's knowledge, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any of its
Intellectual Property rights, except as described in Section 5.13 of the
Patlex Disclosure Schedule.
(c) Set forth on Section 5.13 of the Patlex Disclosure Schedule are
(i) a list and description of each material item of Intellectual Property
owned or used by Patlex, and (ii) each license from or granted to any third
party with respect to any Intellectual Property ("License Agreements").
Patlex has delivered to DBT true and complete copies of all License
Agreements and all other documentation pertaining to its Intellectual
Property.
5.14 License Agreements. Except as set forth on Section 5.14 of the
Patlex Disclosure Schedule:
(a) Each License Agreement is in full force and effect and has not
been assigned by Patlex. Each License Agreement sets forth the entire
agreement between Patlex and the licensee, and there are no amendments or
modifications of any License Agreement. To the best of Patlex's knowledge,
Patlex is not in default under any of the License Agreements.
(b) There is no outstanding litigation regarding the validity of the
U.S. Patent Nos. 4,161,436; 4,704,583; and 4,746,201, nor has any licensee
informed Patlex of its intention to challenge the validity of any of the
three U.S. Patents listed herein.
(c) Except for the accounts receivable created in the ordinary course
of business, there are no outstanding or unsatisfied obligations for the
payment of royalties, fees, or other amounts under any of the License
Agreements.
5.15 Non-Real Estate Leases. Section 5.15 of the Patlex Disclosure
Schedule lists all assets and property (other than Real Property) that are used
as of the date of this Agreement in the operation of the Business of Patlex and
that are possessed by Patlex under an existing lease, including all automobiles,
machinery, equipment, furniture and computers that are material to the Business
of Patlex. Section 5.15 of the Patlex Disclosure Schedule also lists the leases
under which such assets and property are possessed. All of such leases and any
leases of such types that are entered into after the date of this Agreement are
referred to herein as the "Non-Real Estate Leases." Patlex is not in Default
under any of the Non-Real Estate Leases, and DBT is not aware of any Default by
any of the lessors thereunder.
5.16 Accounts Receivable. The accounts receivable of Patlex are bona fide
accounts receivable created in the ordinary course of business and are good and
collectible, less an allowance for uncollectible accounts determined in
accordance with GAAP.
5.17 Previous Sales; Warranties. Patlex has not breached any express or
implied warranties in connection with the sale or distribution of such goods,
except for breaches that, individually and in the aggregate, will not have a
Material Adverse Effect. There are no known defects in the design of, or
technology embodied in, any product or service that Patlex currently markets or
has marketed in the past except for such defects that, in the aggregate, would
not have a Material Adverse Effect. Patlex has provided DBT with true and
correct copies of all material warranties made by Patlex with respect to any
goods that have been sold or distributed by Patlex at any time during the one
year prior to the date hereof.
5.18 Customers and Suppliers. Section 5.18 of the Patlex Disclosure
Schedule lists any Contracts (other than Patlex Minor Contracts) with licensees
or former licensees of Patlex that have been terminated or
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cancelled during the one year period prior to the date hereof. Section 5.18 of
the Patlex Disclosure Schedule also contains a list of the names of each of the
10 customers that, in the aggregate, for the two fiscal years ended June 30,
1994 and 1995 and the six months ended December 31, 1995, were the largest
dollar volume of royalties accrued and/or reported by licensee sold or services
rendered by Patlex. None of such customers has given Patlex notice terminating,
cancelling or stating an intent to terminate or cancel any Contract with Patlex,
and none of such customers is, or has been during the one year period
immediately preceding the date of this Agreement, a related party to Patlex.
Section 5.18 of the Patlex Disclosure Schedule also contains a list of the 10
suppliers of Patlex that, in the aggregate, for the two fiscal years ended June
30, 1994 and 1995 and the six months ended December 31, 1995, were the largest
dollar volume suppliers of supplies used by Patlex. None of such suppliers has
given Patlex notice terminating, cancelling or stating an intent to terminate or
cancel any Contract with Patlex, except in the cases of any such suppliers as to
which the cancellation or termination would not, in the aggregate, have a
Material Adverse Effect.
5.19 Contracts.
(a) Section 5.19 of the Patlex Disclosure Schedule lists each Contract
of the following types to which any Patlex Party, as of the date of this
Agreement, is a party, or by which it is bound, (1) excluding any Contract
that may be terminated by any Patlex Party on not more than 30 days' notice
without any liability on the part of any Patlex Party and (2) other than
with respect to subparagraphs (v) and (vi) below, any Contract under which
the executory obligation (including any remaining payments) of any Patlex
Party involves an amount of less than $100,000 (such excluded Contracts
referred to in clauses (1) and (2) are referred to in this Section 5.19
collectively as "Patlex Minor Contracts") and excluding this Agreement and
the other Contracts expressly referred to herein:
(i) Contracts with any present or former shareholder, director,
officer, employee, partner or consultant of any Patlex Party or
Affiliate thereof;
(ii) Contracts for the future purchase of, or payment for, supplies
or products, or for the lease of any Asset from or the performance of
services by a third party, or any Contracts for the sale of inventory or
products;
(iii) Contracts to sell or supply products or to perform services;
(iv) Contracts to lease to or to operate for any other party any
Asset;
(v) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers, directors,
partners, shareholders or Affiliates of any Patlex Party or any members
of their immediate families), agreements or arrangements for a line of
credit or for a guarantee of, or other undertaking in connection with,
the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrance exists with respect
to any Assets if the Encumbrance could present an adverse impact on the
Patlex Parties of at least $100,000;
(vii) Any Contract with any investment banker, broker, agent or
finder for any fees, commissions or similar payments in connection with
any transaction; and
(viii) Any other Contracts (other than Patlex Minor Contracts and
those described in any of (i) through (vi) above) not made in the
ordinary course of business.
(b) To any Patlex Party's knowledge, none of the Patlex Parties is in
Default under any Contract, which Default, together with all other such
Defaults, could result in a Material Adverse Impact. No Patlex Party has
received any communication from, or given any communication to, any other
party indicating that any Patlex Party or such other party, as the case may
be, is in Default under any Contract where such Default could have a
Material Adverse Effect.
5.20 Insurance. Section 5.20 of the Patlex Disclosure Schedule lists all
policies or binders of insurance held by or on behalf of any Patlex Party or
relating to its Business or any of its Assets, as of the date of this
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Agreement, and the Patlex Disclosure Schedule specifies, with respect to each
policy, the insurer, the amount of the coverage, the type of insurance, the
risks insured, the expiration date, the policy number and any pending claims
thereunder. To any Patlex Party's knowledge, there is no Default with respect to
any such policy or binder, nor has there been any failure to give any notice or
present any claim under any such policy or binder in a timely fashion Sor in the
manner or detail required by the policy or binder, except for any of the
foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that has been
received by any Patlex Party, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
5.21 Employee Relations. None of the Patlex Parties is (a) a party to,
involved in, or, to any Patlex Party's knowledge, threatened by, any labor
dispute or unfair labor practice charge or (b) currently negotiating any
collective bargaining agreement, and none of the Patlex Parties has experienced
any work stoppage during the last three years. Patlex has delivered to DBT a
complete and correct list of the names and salaries, bonus and other cash
compensation of all employees (including officers) of any Patlex Party.
5.22 Employee Benefit Plans.
(a) Section 5.22 of the Patlex Disclosure Schedule contains a complete
and accurate list of Patlex's Benefit Plans, identifying all ERISA Plans
and all Benefit Plans that are not ERISA Plans, and a listing of all
expected annual contributions to the Benefit Plans. Patlex has delivered to
DBT a complete and correct copy of each of the Benefit Plans and of any
related trust agreements, insurance or annuity contracts, valuations, and
other funding agreements.
(b) No Patlex Party sponsors or participates in a defined benefit
pension plan. Patlex does not maintain and has not maintained in the past
any defined benefit pension plan, and it is not and has not been a party to
any agreement requiring it to contribute to a multi-employer plan within
the meaning of Section 3(37) of ERISA. There are no unfunded vested
benefits under any Benefit Plan which is subject to the vesting and funding
standards of ERISA and no unfunded liabilities under any ERISA Plan for all
benefits accrued through the date of the last actuarial valuation of such
ERISA Plan (calculated on the basis of the plan's normal funding
assumptions on such valuation). Patlex has operated in good faith
compliance with the requirements of COBRA. Other than claims for benefits
in the ordinary course of its business, to the knowledge of Patlex there
are no pending claims involving the ERISA Plans by any participant covered
under the ERISA Plans or otherwise or violation of the applicable state or
federal law which may results in material liability on the part of Patlex
or any ERISA Plan under ERISA or any other law, nor to the knowledge of
Patlex is there any reasonable basis for such a claim. To the knowledge of
any DBT Party, the Benefit Plans are not the subject of any investigation,
audit or action by the IRS, the Department of Labor or the Pension Benefit
Insurance Corporation.
(c) To the knowledge of Patlex, none of the ERISA Plans nor any of
their related trusts, nor Patlex or any trustee, administrator or other
"party in interest" or "disqualified person" (within the meaning of Section
3(14) of ERISA or Section 4975(e)(2) of the Code, respectively) with
respect to the ERISA Plans, has engaged in any "prohibited transaction"
(within the meaning of Section 406 of ERISA or Section 4975(c) of the
Code), which could, subject to any ERISA Plans or related trusts or any
trustee, administrator or other fiduciary of any ERISA Plan, or any other
party dealing with the ERISA Plans, to the penalties or excise tax imposed
on prohibited transactions by Section 502(i) of ERISA or Section 4975 of
the Code.
(d) In the reasonable belief of Patlex, each of the Benefit plans that
are intended to be "qualified" under Section 401(a) of the Code (the
"Qualified Plans") meets the requirements of Section 401(a) of the Code,
and the trust, if any, forming a part of each Qualified Plan is exempt from
federal income tax under Section 501(a) of the Code. A favorable
determination letter has been issued by the Internal Revenue Service within
the past ten years as to the qualification under Section 401(a) of the Code
(including, but not limited to, amendments made by ERISA), with respect to
each Qualified Plan, and Patlex has delivered to DBT a true and correct
copy of all such determination letters. None of the determination letters
has been revoked or modified by the Internal Revenue Service.
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(e) All contributions required by law or required in accordance with
the terms of the Qualified Plans with respect to the current plan year and
plan years ended prior to the Closing Date have been made.
(f) Except pursuant to the Benefit Plans and under COBRA, Patlex does
not have any present or future liability to former employees or to their
dependents, survivors, or beneficiaries in connection with or arising out
of any plan, compensation arrangement, or practice that Patlex maintained
or adopted or to which Patlex contributed prior to the date hereof, and
Patlex has not maintained, adopted, or contributed to any plan that
provides benefits or payments to former employees or their dependents,
survivors, or beneficiaries, except pursuant to the Benefit Plans and under
COBRA. No welfare plan within the meaning of 3(2) of ERISA provides any
health, life or other welfare coverage to any Patlex Party beyond
termination of employment with any Patlex Party by reason of retirement or
otherwise, other than coverage as may be required under COBRA, or under the
continuation of coverage provisions of the laws of any state or locality.
(g) Patlex has satisfied in all material respects all reporting and
disclosure requirements applicable under ERISA, and the Department of Labor
and Internal Revenue Service and Pension Benefit Guaranty Corporation
regulations promulgated thereunder, with respect to all ERISA Plans and
Qualified Plans, and Patlex has delivered to DBT true and complete copies
of the most recently filed and disclosed Forms 5500-C/R (with exhibits) and
summary plan descriptions and summaries of material modification for the
ERISA Plans and Qualified Plans. In the event that a Form 5500 for any
Qualified Plan for the 1995 plan year has not been filed prior to the
Closing Date, a proper extension will be filed.
(h) No Qualified Plan has had any "unrelated business taxable income"
as defined in Sections 512 through 514 of the Code. There have been no
claims, nor notice of claims, filed under any fiduciary liability insurance
policy covering any Benefit Plan.
(i) The trustees of each Qualified Plan have completed their required
annual accounts for the plan years ending on or before December 31, 1995.
Each such accounting accurately reflects the accounting, and true and
complete copies of the trustees' reports or schedules of such accountings
have been delivered to DBT.
5.23 Corporate Records. The minute books of each Patlex Party contain
complete, correct and current copies of its Charter Documents and bylaws and of
all minutes of meetings, resolutions and other proceedings of its Board of
Directors and shareholders. The stock record book of each Patlex Party is
complete, correct and current.
5.24 Absence of Certain Changes. Since the Patlex Balance Sheet Date,
each Patlex Party has conducted its Business in the ordinary course and there
has not been with respect to such Patlex Party:
(a) any material adverse change in its Liabilities;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for merit and seniority
increases for employees made in the ordinary course of business, nor any
other change in any employment or consulting arrangement that is material;
(d) any sale, assignment or transfer of its Assets, or any additions
to or transactions involving any of its Assets, other than those made in
the ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of any Patlex Party, except as
specified in Section 5.24 of the Patlex Disclosure Schedule.
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5.25 Finder's Fees. No Person retained by any Patlex Party is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
5.26 Accuracy of Information. No representation or warranty by any Patlex
Party in any Transaction Document, and no information contained therein or
otherwise delivered to DBT or in connection with the Transactions, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
5.27 Representations. The representations and warranties of Patlex
contained in this Agreement, disregarding all qualifications and exceptions
herein relating to materiality or Material Adverse Effect, are true and correct
with only such exceptions relating to materiality or Material Adverse Effect as
would not in the aggregate reasonably be expected to have a Material Adverse
Effect.
ARTICLE VI
COVENANTS OF DBT
6.1 Operation of the Business. From the date hereof to the Effective
Time, DBT shall conduct its Business solely in the ordinary course, and shall
refrain from the following actions in furtherance of and in addition to such
restriction (except as contemplated by this Agreement or as approved by Patlex
in writing); amending its Charter Documents or bylaws; merging or consolidating
with, or acquiring all or substantially all of, or otherwise acquiring any
business operations of, any Person; selling or otherwise disposing of any Assets
other than in the ordinary course; entering into any Contract or otherwise
incurring any Liability, even if in the ordinary course, if DBT's executory
obligation in any such individual case, or series of related cases, exceeds
$250,000; discharging or satisfying any Encumbrance or paying or satisfying any
material Liability except pursuant to the terms thereof or compromising,
settling or otherwise modifying any material claim or litigation; making any
distribution or payment declared or made in respect of its capital stock by way
of dividends, purchase or redemption of shares or otherwise; making any capital
expenditure involving in any individual case, or series of related cases, more
than $250,000, or issuing any securities; provided, however, that the foregoing
shall not restrict DBT's ability to enter into any Contract or incur any
Liability that is described on the DBT Disclosure Schedule.
6.2 DBT Shareholder Meeting. DBT shall cause a meeting of its
shareholders (the "DBT Shareholder Meeting") to be duly called and held as soon
as reasonably practicable for the purpose of voting on the adoption of this
Agreement and the Merger as required by the FBCA. In connection with such
meeting, DBT will (a) mail to its shareholders as promptly as practicable the
Proxy Statement/Prospectus and all other proxy materials for such meeting, (b)
use all reasonable efforts to obtain the necessary approvals by its shareholders
of this Agreement and the Transactions and (c) otherwise comply with all legal
requirements applicable to such meeting.
6.3 Access. DBT shall give Patlex and its accountants, counsel and other
representatives full access, without unreasonably interfering with business
operations, to all properties, books, Contracts and records of DBT and shall
furnish to Patlex all such documents, records and information as Patlex shall
from time to time reasonably request.
6.4 No Other Negotiations. Until the earlier of the Closing or the
termination of this Agreement, DBT shall not (a) solicit, encourage, directly or
indirectly, any inquiries, discussions or proposals for, (b) continue, propose
or enter into any negotiations or discussions looking toward or (c) enter into
any agreement or understanding providing for any acquisition of any capital
stock of DBT or of any part of the Assets or the Business, other than as
contemplated or authorized hereby, nor shall DBT provide any information to any
Person (other than as contemplated by Section 6.3) for the purpose of evaluating
or determining whether to make or pursue any such inquiries or proposals with
respect to any such acquisition. DBT shall immediately notify Patlex of any such
inquiries or proposals or requests for information for such purpose. DBT shall
use commercially reasonable efforts to cause the directors, officers, employees,
agents and other representatives of DBT to comply, with the provisions of this
Section 6.4. Notwithstanding anything to the contrary in the foregoing, DBT may
respond to, and engage in negotiations and discussions with, a Person who has
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approached DBT with an offer to engage in a merger, sale of assets or material
equity interests or other business combination with DBT and which response,
discussions and negotiations, in the judgment of DBT's Board of Directors, shall
be required by reason of DBT's Board of Directors' fiduciary duties to DBT's
shareholders under applicable law.
6.5 Maintenance of the Assets. DBT shall continue to maintain and service
the Assets consistent with past practice. DBT shall not directly or indirectly,
sell or encumber all or any material part of the Assets, other than sales in the
ordinary course of business, or initiate or participate in any discussions or
negotiations or enter into any agreement to do any of the foregoing.
6.6 Employees and Business Relations. DBT shall use commercially
reasonable efforts to keep available the services of its current employees and
agents and to maintain its relations and goodwill with its suppliers, customers,
distributors and any others having business relations with it.
6.7 Confidentiality. Prior to the Effective Time and for three years from
any termination of this Agreement, DBT will hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning any
Patlex Party furnished to DBT in connection with the Transactions, except to the
extent that such information can be shown to have been (a) previously known on a
nonconfidential basis by DBT, (b) in the public domain through no fault of DBT
or (c) later acquired by DBT from sources other than Patlex so long as, to the
knowledge of DBT, such sources are not subject to a contractual or fiduciary
duty of confidentiality with respect to such information; provided that DBT may
disclose such information to its officers, directors, employees, accountants,
counsel, consultants, advisors and agents in connection with the Transactions so
long as such Persons are informed by DBT of the confidential nature of such
information and are directed by DBT to treat such information confidentially.
The obligation of DBT to hold any such information in confidence shall be
satisfied if it exercises the same care with respect to such information as it
would take to preserve the confidentiality of its own similar information. If
this Agreement is terminated, DBT will destroy or deliver to Patlex all
documents and other materials, and all copies thereof, obtained by DBT or on its
behalf from any Patlex Party in connection with this Agreement that are subject
to such confidence.
6.8 Expenses. DBT shall pay all of the legal, accounting and other
expenses incurred by DBT in connection with the Transactions.
6.9 Fulfillment of Conditions. DBT shall use commercially reasonable
efforts to fulfill the conditions specified in Article IX to the extent that the
fulfillment of such conditions is within its control. The foregoing obligation
includes (a) the execution and delivery of the Transaction Documents and (b)
taking or refraining from such actions as may be necessary to fulfill such
conditions (including conducting its Business in such manner that on the Closing
Date the representations and warranties of DBT contained herein shall be
accurate as though then made, except as contemplated by the terms hereof).
6.10 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, DBT shall give Patlex prompt written notice of
any event or development that occurs that (a) had it existed or been known on
the date hereof would have been required to be disclosed under this Agreement,
(b) would cause any of the representations and warranties of DBT contained
herein to be inaccurate or otherwise misleading, (c) gives DBT any reason to
believe that any of the conditions set forth in Article IX will not be satisfied
prior to the Termination Date, (d) is of a nature that is or may be materially
adverse to the operations, prospects or condition (financial or otherwise) of
DBT or (e) would require any amendment to the Registration Statement or
supplement to the Proxy Statement/Prospectus.
6.11 Audited Financial Statements. As soon as possible after the date
hereof, DBT shall have prepared and delivered to Patlex audited financial
statements consisting of a balance sheet of DBT as of December 31, 1995 and the
related statement of income, stockholders' equity and cash flows for the year
ended December 31, 1995, including the notes thereto, together with the report
thereon of Deloitte & Touche LLP, certified public accountants (the "1995
Audited Financial Statements"). The 1995 Audited Financial Statements will
fairly present the financial condition, results of operations, changes in
stockholders' equity and cash flow of DBT as of December 31, 1995 and for the
year then ended, all in accordance with GAAP. The
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1995 Audited Financial Statements will reflect the consistent application of
such accounting principles throughout the period involved.
ARTICLE VII
COVENANTS OF THE PATLEX PARTIES
7.1 Operation of the Business. From the date hereof to the Effective
Time, Patlex shall conduct its Business and shall cause each other Patlex Party
to conduct its Business, solely in the ordinary course, and shall refrain and
cause each other Patlex Party to refrain from the following actions in
furtherance of and in addition to such restriction (except as contemplated by
this Agreement or as approved by DBT in writing): amending its Charter Documents
or bylaws; merging or consolidating with, or acquiring all or substantially all
of, or otherwise acquiring any business operations of, any Person; selling or
otherwise disposing of any Assets other than in the ordinary course; entering
into any Contract or otherwise incurring any Liability, even if in the ordinary
course, if the Patlex Party's executory obligation in any such individual case,
or series of related cases, exceeds $100,000; discharging or satisfying any
Encumbrance or paying or satisfying any material Liability except pursuant to
the terms thereof or compromising, settling or otherwise modifying any material
claim or litigation; making any distribution or payment declared or made in
respect of its capital stock by way of dividends, purchase or redemption of
shares or otherwise, making any capital expenditure involving in any individual
case, or series of related cases, more than $100,000; or issuing any securities
other than in connection with the exercise of any options, warrants or other
rights that are outstanding on the date hereof; provided, however, that the
foregoing shall not restrict Patlex's ability to enter into any Contract or
incur any Liability that is described on the Patlex Disclosure Schedule.
7.2 Patlex Shareholder Meeting. Patlex shall cause a meeting of its
shareholders (the "Patlex Shareholder Meeting") to be duly called and held as
soon as reasonably practicable for the purpose of voting on (i) the adoption of
this Agreement and the Merger as required by Patlex's Articles of Incorporation,
and (ii) the approval of a plan of merger with respect to the Holdco Merger. In
connection with such meeting, Patlex will (a) mail to its shareholders as
promptly as practicable the Proxy Statement/Prospectus and all other proxy
materials for such meeting, (b) use all reasonable efforts to obtain the
necessary approvals by its shareholders of this Agreement and the Transactions,
and the Holdco Merger and (c) otherwise comply with all legal requirements
applicable to such meeting.
7.3 Access. Patlex shall give, and shall cause each other Patlex Party to
give, DBT and its accountants, counsel and other representatives full access,
without unreasonably interfering with business operations, to all properties,
books, Contracts and records of the Patlex Parties and shall furnish to DBT all
such documents, records and information as DBT shall from time to time
reasonably request.
7.4 No Other Negotiations. Until the earlier of the Closing or the
termination of this Agreement, none of the Patlex Parties shall (a) solicit,
encourage, directly or indirectly, any inquiries, discussions or proposals for,
(b) continue, propose or enter into any negotiations or discussions looking
toward or (c) enter into any agreement or understanding providing for any
acquisition of any capital stock of any Patlex Party other than as contemplated
or authorized hereby, nor shall any Patlex Party provide any information to any
Person for the purpose of evaluating or determining whether to make or pursue
any such inquiries or proposals with respect to any such acquisition. Each
Patlex Party shall immediately notify DBT of any such inquiries or proposals or
requests for information for such purpose. Patlex shall cause each other Patlex
Party to comply, and shall use commercially reasonable efforts to cause the
directors, officers, employees, agents and other representatives of any Patlex
Party to comply, with the provisions of this Section 7.4. Notwithstanding
anything to the contrary in the foregoing, Patlex may respond to, and engage in
negotiations and discussions with, a Person who has approached Patlex with an
offer to engage in a merger, sale of assets or material equity interests or
other business combination with Patlex and which response, discussions and
negotiations, in the judgment of Patlex's Board of Directors, shall be required
by reason of Patlex's Board of Directors' fiduciary duties to Patlex's
shareholders under applicable law.
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7.5 Maintenance of the Assets. Patlex shall, and shall cause each other
Patlex Party to, continue to maintain and service its Assets consistent with
past practice. Patlex shall not, directly or indirectly, sell or encumber all or
any material part of its Assets, other than sales in the ordinary course of
business, or initiate or participate in any discussions or negotiations or enter
into any agreement to do any of the foregoing.
7.6 Employees and Business Relations. Patlex shall use commercially
reasonable efforts to keep available the services of its current employees and
agents and to maintain its relations and goodwill with its suppliers, customers,
distributors and any others having business relations with it.
7.7 Confidentiality. Prior to the Effective Time and for three years from
any termination of this Agreement, Patlex will hold, and will use commercially
reasonable efforts to cause each other Patlex Party and the officers, directors,
employees, accountants, counsel, consultants, advisors and agents of each Patlex
Party to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all confidential
documents and information concerning DBT furnished to any Patlex Party in
connection with the Transactions, except to the extent that such information can
be shown to have been (a) previously known on a nonconfidential basis by any
Patlex Party, (b) in the public domain through no fault of any Patlex Party or
(c) later acquired by any Patlex Party from sources other than DBT so long as,
to the knowledge of any Patlex Party, such sources are not subject to a
contractual or fiduciary duty of confidentiality with respect to such
information; provided that any Patlex Party may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the Transactions so long as such Persons are informed
by any Patlex Party of the confidential nature of such information and are
directed by any Patlex Party to treat such information confidentially. The
obligation of any Patlex Party to hold any such information in confidence shall
be satisfied if it exercises the same care with respect to such information as
it would take to preserve the confidentiality of its own similar information. If
this Agreement is terminated, Patlex will, and will use commercially reasonable
efforts to cause each other Patlex Party and the officers, directors, employees,
accountants, counsel, consultants, advisors and agents of each Patlex Party to,
destroy or deliver to DBT all documents and other materials, and all copies
thereof, obtained by any Patlex Party or on its behalf from DBT in connection
with this Agreement that are subject to such confidence.
7.8 Expenses. Patlex shall pay all of the legal, accounting and other
expenses incurred by any Patlex Party in connection with the Transactions,
including the following: fees and other costs payable with respect to the
Registration Statement (including printing), Patlex's transfer agent; and fees
related to listing the Holdco Shares on The Nasdaq Stock Market.
7.9 NASDAQ/Application. Patlex shall as promptly as practicable prepare
and file an application with the National Association of Securities Dealers,
Inc. regarding the listing on the Nasdaq Stock Market of the Holdco Common Stock
to be issued in the Merger.
7.10 Fulfillment of Conditions. From the date hereof to the Closing, each
Patlex Party shall use commercially reasonable efforts to fulfill the conditions
specified in Article IX to the extent that the fulfillment of such conditions is
within its control. The foregoing obligation includes (a) the execution and
delivery of the Transaction Documents and (b) taking or refraining from such
actions as may be necessary to fulfill such conditions (including conducting the
Business of each Patlex Party in such manner that on the Closing Date the
representations and warranties of the Patlex Parties contained herein shall be
accurate as though then made).
7.11 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date, Patlex shall give DBT prompt written notice of
any event or development that occurs that (a) had it existed or been known on
the date hereof would have been required to be disclosed under this Agreement,
(b) would cause any of the representations and warranties of any Patlex Party
contained herein to be inaccurate or otherwise misleading, (c) gives Patlex any
reason to believe that any of the conditions set forth in Article IX will not be
satisfied prior to the Termination Date, (d) is of a nature that is or may be
materially adverse to the operations, prospects or condition (financial or
otherwise) of the Patlex Parties or (e) would require any amendment to the
Registration Statement or supplement to the Proxy Statement/Prospectus.
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ARTICLE VIII
COVENANTS OF THE PATLEX PARTIES AND DBT
8.1 Commercially Reasonable Efforts. Subject to the terms and conditions
of this Agreement, each party shall use commercially reasonably efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Regulations to consummate the
Transactions, including the execution and delivery of any additional instruments
necessary to consummate the Transactions.
8.2 Registration Statement.
(a) Patlex and DBT will prepare and file with the SEC as soon as
reasonably practicable after the date hereof (i) a Registration Statement
on Form S-4 to be filed under the Securities Act by Patlex in connection
with the Merger for purposes of registering the Holdco Shares to be issued
in the Merger pursuant to Article II hereof and the shares of Holdco Common
Stock to be issued in the Holdco Merger to holders of Patlex Shares (the
"Registration Statement") and (ii) a joint proxy statement and prospectus
to be filed under the Exchange Act by Patlex and to be distributed by
Patlex and DBT in connection with the Patlex Shareholder Meeting and the
DBT Shareholder Meeting (the "Proxy Statement/Prospectus"). DBT shall
cooperate with Patlex to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after such
filing. Patlex and DBT shall also take such action as may be reasonably
required to cause the Holdco Shares issuable pursuant to the Merger to be
registered or to obtain an exemption from registration under applicable
state "blue sky" or securities laws. DBT will furnish to Patlex all
information concerning itself as Patlex or its counsel may reasonably
request and that is required or customary for inclusion in the Registration
Statement.
(b) Each Patlex Party covenants to DBT that the information to be
supplied by Patlex for inclusion in the Registration Statement and the
Proxy Statement/Prospectus will not at the time the Registration Statement
becomes effective with the SEC under the Securities Act, and in the case of
the Proxy Statement/Prospectus, at the time it is mailed, and at the time
of the meetings of shareholders of Patlex and DBT to be held in connection
with the Transactions, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that no
representation, covenant or agreement is made by any Patlex Party with
respect to statements made therein based on information supplied by or on
behalf of DBT for inclusion in the Registration Statement or the Proxy
Statement/Prospectus.
(c) DBT covenants to Patlex that the information to be supplied by DBT
for inclusion in the Registration Statement and the Proxy
Statement/Prospectus will not at the time the Registration Statement
becomes effective with the SEC under the Securities Act, and in the case of
the Proxy Statement/Prospectus, at the time it is mailed, and at the time
of the meetings of shareholders of Patlex and DBT to be held in connection
with the Transactions, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that no
representation, covenant or agreement is made by DBT with respect to
statements made therein based on information supplied by Patlex or on
behalf of any Patlex Party for inclusion in the Registration Statement or
the Proxy Statement/Prospectus.
8.3 Affiliates. Prior to the date of mailing of the Proxy
Statement/Prospectus to the Patlex shareholders (the "Mailing Date"), DBT shall
identify in a letter to Patlex all Persons who might be deemed to be
"affiliates" of DBT and Patlex shall identify in a letter to DBT all Persons who
might be deemed to be "affiliates" of Patlex. Each of DBT and Patlex shall use
its best efforts to cause each Person who is identified as a possible
"affiliate" to enter into prior to the Mailing Date an agreement in form and
substance reasonably acceptable to the other party pursuant to which each such
Person acknowledges his responsibilities as an "affiliate."
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8.4 Post-Merger Board of Directors. At the Effective Time, the total
number of persons serving on the board of directors of Holdco shall be seven.
The Holdco board of directors shall be classified into three classes, with one
class elected each year, initially with two directors in each class. The persons
who will initially serve on the board of directors shall be Kenneth Langone,
Gary Erlbaum, Frank Borman, Hank Asher, Charles Asher, Jack Hight and Sari
Zalcberg.
ARTICLE IX
CONDITIONS PRECEDENT TO THE MERGER
9.1 Conditions to Each Party's Obligations. The respective obligations of
each party to consummate the Merger and the other Transactions shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) DBT Shareholder Approval. The Merger shall have been approved and
adopted by the shareholders of DBT in accordance with the provisions of
DBT's Articles of Incorporation and the FBCA.
(b) Patlex Shareholder Approval. The shareholders of Patlex shall
have approved (i) the Merger in accordance with the provisions of Patlex's
Articles of Incorporation and the PBCL, and as required by the rules of the
Nasdaq Stock Market, and (ii) the Holdco Merger.
(c) Holdco Merger. The Holdco Merger shall have become effective
under the PBCL.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceedings for that purpose shall have been instituted.
(e) Tax Opinion. The parties shall have received an opinion of
counsel to Patlex, dated as of the Effective Time, to the effect that for
federal income tax purposes (i) the Merger will constitute a
"reorganization" within the meaning of Sections 368(a) of the Code; (ii) no
gain or loss will be recognized to DBT shareholders to the extent that they
receive Holdco Shares in exchange for their DBT Common Stock pursuant to
the Merger and (iii) DBT shareholders in the Merger will include the
holding period for the DBT Common Stock in their holding period of Holdco
Shares received in the Merger.
9.2 Conditions to Obligations of the Patlex Parties. The obligations of
the Patlex Parties to consummate the Merger and the Transactions shall be
subject to the satisfaction or waiver, on or before the Effective Time, of each
of the following conditions:
(a) Representations and Warranties True. Except for changes
contemplated by this Agreement, (i) the representations and warranties of
DBT contained herein shall be true and correct in all material respects at
and as of the date hereof and (ii) such representations and warranties
shall be true and correct in all material respects at and as of the
Effective Time as though such representations and warranties were made
again at and as of the Effective Time, except to the extent that such
representations and warranties are made herein as of a specific date prior
to the Effective Time.
(b) Performance. DBT shall have performed and complied in all
material respects with the agreements contained in this Agreement required
to be performed or complied with by it on or prior to the Effective Time.
(c) Consents and Approvals. DBT shall have obtained the Required
Consents and all third party consents and approvals necessary, proper or
advisable to consummate the Merger, except for those third party consents
which would not have a Material Adverse Effect.
(d) No Governmental Order or Regulation. There shall not be in effect
any order, decree or injunction (whether preliminary, final or appealable)
of a United States federal or state court of
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competent jurisdiction, and no Regulation shall have been enacted or
promulgated by any governmental authority or agency, that prohibits
consummation of the Transactions.
(e) Legal Opinion. Patlex shall have received an opinion of counsel
to DBT, dated as of the Effective Time, in the form and substance
reasonably satisfactory to Patlex.
(f) Other Documents. Patlex shall have received executed copies of
all Transaction Documents to which DBT or any DBT shareholder is a party to
the extent that they shall not have been received prior to the Closing.
Patlex shall have received all other documents required under the terms of
any of the Transaction Documents and any other documents reasonably
requested on or prior to the Closing Date.
(g) Certificates. DBT shall have furnished to Patlex a certificate of
the chief executive officer of DBT, dated the Effective Time, certifying
compliance as of the Effective Time with the conditions set forth in
paragraphs (a) and (b) of this Section 9.2 in all material respects.
(h) Comfort Letter. Patlex and its officers and directors who sign
the Registration Statement shall have received from Deloitte & Touche LLP,
DBT's independent public certified accountants, "comfort" letters, dated
not earlier than five days preceding (i) the effective date of the
Registration Statement, and (ii) the Closing Date. Patlex shall identify
the procedures to be followed and the form of the comfort letter.
(i) Stockholders' Agreement. The Stockholders Agreement, dated August
14, 1995, among DBT and the shareholders of DBT shall have been terminated.
9.3 Conditions to Obligations of DBT. The obligations of DBT to
consummate the Merger and the Transactions shall be subject to the satisfaction
or waiver, on or before the Effective Time, of each of the following conditions:
(a) Representations and Warranties True. Except for changes
contemplated by this Agreement, (i) the representations and warranties of
the Patlex Parties contained herein shall be true and correct in all
material respects at and as of the date hereof and (ii) such
representations and warranties shall be true and correct in all material
respects at and as of the Effective Time as though such representations and
warranties were made again at and as of the Effective Time, except to the
extent that such representations and warranties are made herein as of a
specific date prior to the Effective Time.
(b) Performance. The Patlex Parties shall have performed and complied
in all material respects with the agreements contained in this Agreement
required to be performed or complied with by them on or prior to the
Effective Time.
(c) No Governmental Order or Regulation. There shall not be in effect
any order, decree or injunction (whether preliminary, final or appealable)
of a United States federal or state court of competent jurisdiction, and no
Regulation shall have been enacted or promulgated by any governmental
authority or agency, that prohibits consummation of the Merger.
(d) Legal Opinion. DBT shall have received an opinion of counsel to
Patlex, dated as of the Effective Time, in the form and substance
reasonably satisfactory to DBT.
(e) Other Documents. DBT shall have received executed copies of all
Transaction Documents to which any Patlex Party is a party to the extent
that they shall not have been received prior to the Closing. DBT shall have
received all other documents required under the terms of any of the
Transaction Documents and any other documents reasonably requested on or
prior to the Closing Date.
(f) Certificates. Patlex shall have furnished to DBT a certificate of
the chief executive officer of Patlex, dated the Effective Time, certifying
compliance as of the Effective Time with the conditions set forth in
paragraphs (a) and (b) of this Section 9.3 in all material respects.
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ARTICLE X
TERMINATION
10.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual written consent of Patlex and DBT;
(b) by either Patlex or DBT, if the Closing has not occurred by
September 30, 1996 (such date, as it may be extended from time to time by
the written agreement of Patlex and DBT, is referred to herein as the
"Termination Date"); provided, however, that the right to terminate this
Agreement under this paragraph (b) of Section 10.1 shall not be available
to any party that has breached any of its covenants, representations or
warranties in this Agreement;
(c) by DBT, if any Patlex Party shall have breached any of its
covenants hereunder in any material respect or if the representations and
warranties of any Patlex Party contained in this Agreement shall not be
true and correct, except for such changes as are contemplated by this
Agreement, in all material respects, and in either event, if such breach is
subject to cure, the Patlex Parties have not cured such breach within 10
business days of DBT's notice of an intent to terminate;
(d) by Patlex, if DBT shall have breached any of its covenants
hereunder in any material respect or if the representations and warranties
of DBT contained in this Agreement shall not be true and correct, except
for such changes as are contemplated by this Agreement, in all material
respects, and in either event, if such breach is subject to cure, DBT has
not cured such breach within 10 business days of Patlex's notice of an
intent to terminate; or
(e) by either Patlex or DBT, if at the Patlex Shareholder Meeting
(including any adjournments thereof), this Agreement and the Merger shall
fail to be approved and adopted by the affirmative vote of the holders of
Patlex Common Stock required under Patlex's Articles of Incorporation and
the PBCL.
(f) by either Patlex or DBT, if at the DBT Shareholder Meeting
(including any adjournments thereof), this Agreement and the Merger shall
fail to be approved and adopted by the affirmative vote of the holders of
DBT Common Stock required under DBT's Articles of Incorporation and the
FBCA.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, the agreements contained in Sections 6.7, 6.8, 7.7 and 7.8 shall
survive the termination hereof. In addition, any party may pursue any legal or
equitable remedies that may be available if such termination is based on a
breach of another party.
ARTICLE XI
MISCELLANEOUS
11.1 Public Announcements. Neither Patlex nor DBT will issue any press
release or make any public statement with respect to this Agreement and the
Transactions without the prior consent of the other party, except as may be
required by applicable law or Nasdaq or stock exchange regulations.
11.2 Survival. Only those agreements and covenants of the parties that
are applicable in whole or in part after the Effective Time shall survive the
Effective Time. All other representations, warranties, agreements and covenants
shall not survive the Effective Time.
11.3 Contents of Agreement, Amendment, Parties In Interest, Assignment,
etc. This Agreement sets forth the entire understanding of the parties hereto
with respect to the subject matter hereof. This Agreement may be amended,
modified or supplemented only by a written instrument duly executed by each of
the parties hereto. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the parties hereto. No party hereto shall
assign this Agreement or any right, benefit or obligation hereunder. Any term or
provision of this Agreement may be waived at any time by the party entitled to
the benefit thereof by a written instrument duly executed by such
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party. The parties hereto shall execute and deliver any and all documents and
take any and all other actions that may be deemed reasonably necessary by their
respective counsel to complete the Transactions.
11.4 Interpretation. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) "or" has the inclusive meaning
frequently identified with the phrase "and/or" and (c) "including" has the
inclusive meaning frequently identified with the phrase "but not limited to."
The section and other headings contained in this Agreement are for reference
purposes only and shall not control or affect the construction of this Agreement
or the interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
11.5 Notices. All notices that are required or permitted hereunder shall
be in writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto:
If to Patlex or the Merger Subsidiary:
Patlex Corporation
250 Cotorro Court
Las Cruces, New Mexico 88005
Attention: Frank Borman
Tel. No. (505) 524-4050
Fax. No. (505) 523-8081
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Stephen M. Goodman, Esq.
Tel. No. (215) 963-5086
Fax. No. (215) 963-5299
If to DBT:
Database Technologies, Inc.
100 E. Sample Road, Suite 200
Pompano Beach, Florida 33064
Attention: Hank Asher
Tel. No. (954) 781-5221
Fax. No. (954) 784-2861
with a required copy to:
Database Technologies, Inc.
100 E. Sample Road, Suite 200
Pompano Beach, Florida 33064
Attention: Mark E. Fraser, Esq.
Tel. No. (954) 781-5221
Fax. No. (954) 784-2861
11.6 Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Florida, without regard to its
provisions concerning conflict of laws.
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11.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, this Amended and Restated Agreement of Merger has been
executed by the parties hereto as of the day and year first written above.
DATABASE TECHNOLOGIES, INC.
By: /s/ HANK ASHER
------------------------------------
Hank Asher
President
PATLEX CORPORATION
By: /s/ FRANK BORMAN
------------------------------------
Frank Borman
Chairman, President and CEO
PATLEX HOLDINGS, INC.
By: /s/ FRANK BORMAN
------------------------------------
Frank Borman
President
DBT ACQUISITION CORP.
By: /s/ FRANK BORMAN
------------------------------------
Frank Borman
President
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<PAGE> 150
EXHIBIT A
ARTICLES OF MERGER
OF
DBT ACQUISITION CORP.
INTO
DATABASE TECHNOLOGIES, INC.
Pursuant to the provisions of Section 607.1105 of the Florida Business
Corporation Act, the undersigned corporations do hereby make and execute these
Articles of Merger for the purpose of merging DBT Acquisition Corp. into
Database Technologies, Inc. (the "Merger"):
(a) The Plan of Merger is as follows:
1. The name of each corporation to be merged is DBT Acquisition
Corp., a Florida corporation ("Acquisition"), and Database Technologies,
Inc., a Florida corporation ("DBT"). The name of the surviving
corporation is Database Technologies, Inc. (the "Surviving
Corporation").
2. At the time the Merger is effective (the "Effective Time") the
Articles of Incorporation of Acquisition and the Bylaws of DBT shall be
the Articles of Incorporation and the Bylaws of the Surviving
Corporation. The name of the Surviving Corporation shall be "Database
Technologies, Inc."
3. At the Effective Time,
(A) each issued and outstanding share of the common stock of
DBT, par value $.01 per share ("DBT Common Stock"), shall, by virtue
of the Merger and without any action by the holder thereof, be
converted into the right to receive the number of shares of the
common stock of Patlex Holdings, Inc., a Pennsylvania Corporation
("Holdco"), par value $.10 per share ("Holdco Common Stock"), equal
to (x) the product of 1.86 multiplied by the sum of (i) the total
number of shares of Holdco Common Stock outstanding immediately prior
to the Effective Time, plus (ii) one-half the number of shares of
Holdco Common Stock issuable upon the exercise of options outstanding
immediately prior to the Effective Time, divided by (y) the total
number of shares of DBT Common Stock outstanding immediately prior to
the Effective Time; and
(B) each share of capital stock of Acquisition issued and
outstanding at the Effective Time shall, by virtue of the Merger and
without any action by the holder thereof, be converted into the right
to receive one share of DBT Common Stock.
4. No fractional shares of Holdco Common Stock shall be issued in
the Merger. All fractional shares of Holdco Common Stock that a holder
of DBT Common Stock would otherwise be entitled to receive as a result
of the Merger shall be aggregated and if a fractional shares of Holdco
Common Stock results from such aggregation, such holder shall be
entitled to receive, in lieu thereof, an amount in cash determined by
multiplying the average of the closing bid price of a share of Holdco
Common Stock, as reported on the Nasdaq Stock Market for the last five
trading days prior to the Effective Time, by the fraction of a share of
Holdco Common Stock to which such holder would otherwise have been
entitled, as the case may be.
(b) The Effective Time of the Merger shall be , 1996, at
at (Eastern Time).
<PAGE> 151
(c) The Plan of Merger was duly adopted by the shareholders of DBT on
, 1996. The Plan of Merger was duly adopted by the shareholders
of Acquisition on , 1996.
Dated: , 1996.
<TABLE>
<S> <C>
DBT ACQUISITION CORP. DATABASE TECHNOLOGIES, INC.
By: By:
---------------------------------------- ----------------------------------------
Frank Borman Hank Asher
President President
</TABLE>
<PAGE> 152
APPENDIX C
PRINCIPAL SHAREHOLDER'S AGREEMENT
This Principal Shareholder's Agreement (the "Agreement") is entered into as
of the 6th day of February, 1996, between Patlex Corporation, a Pennsylvania
corporation ("Patlex"), Patlex Holdings, Inc., a Pennsylvania corporation and a
wholly-owned subsidiary of Patlex ("Holdco"), and Hank Asher (the "Principal
Shareholder").
R E C I T A L S
WHEREAS, the Principal Shareholder owns the number of shares of Common
Stock, par value $.01 per share (the "DBT Common Shares"), of Database
Technologies, Inc., a Florida corporation ("DBT"), set forth below the Principal
Shareholder's signature on the last page of this Agreement.
WHEREAS, Patlex, Holdco, DBT Acquisition Corp., a Florida corporation and a
wholly-owned subsidiary of Holdco (the "Merger Subsidiary"), and DBT intend to
enter into an Agreement of Merger (such agreement as from time to time amended
being herein the "Merger Agreement") on the date hereof, providing for the
merger (the "Merger") of DBT with and into the Merger Subsidiary pursuant to a
Plan of Merger in the form attached thereto (the "Plan of Merger"). Pursuant to
the Merger Agreement, each outstanding share of capital stock of DBT will be
converted into the right to receive Common Stock of Holdco in an amount set
forth in the Merger Agreement. The Merger Agreement contains, among other
things, representations and warranties of the parties with respect to the Merger
and conditions precedent to the obligations of the parties to consummate the
Merger.
WHEREAS, as an inducement to Patlex, Holdco and the Merger Subsidiary to
enter into the Merger Agreement, the Principal Shareholder has agreed to enter
into this Agreement.
W I T N E S S E T H:
In consideration of the mutual promises, representations and warranties,
covenants and actions herein provided, the parties hereto, each intending to be
legally bound hereby, do agree as follows:
1. Ownership of DBT Common Shares. The Principal Shareholder
represents and warrants to Patlex and Holdco (a) that he owns of record and
beneficially the number of DBT Common Shares set forth below his name on
the signature page hereof, (b) that the Principal Shareholder has sole
voting and investment power over such DBT Common Shares and (c) that the
Principal Shareholder has the capacity and all necessary power and
authority to vote the DBT Common Shares owned by such Principal Shareholder
of record or beneficially.
2. No Transfer of DBT Common Shares. The Principal Shareholder agrees
not to sell, pledge, transfer, gift, assign, encumber or otherwise alienate
any DBT Common Shares owned by such Principal Shareholder of record or
beneficially, or to take any voluntary action which would have the effect
of removing the Principal Shareholder's power to vote such DBT Common
Shares or which would be inconsistent with this Agreement. The Principal
Shareholder hereby covenants and agrees to surrender such Principal
Shareholder's DBT Common Shares for conversion in the Merger pursuant to
the terms of the Merger Agreement. The Principal Shareholder hereby
acknowledges receipt of a copy of the Merger Agreement.
3. Voting of DBT Common Shares. The Principal Shareholder agrees that
at each shareholder meeting or meetings of DBT held to consider and to vote
upon the Merger, the Plan of Merger or the
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Merger Agreement, or any adjournment thereof, or pursuant to any written
consent in lieu thereof, to vote the DBT Common Shares owned by such
Principal Shareholder of record or beneficially as follows:
(a) in favor of the adoption of the Plan of Merger, the Merger
Agreement and the approval of the Merger at each such shareholder
meeting or meetings of DBT or pursuant to such written consent;
(b) against the approval of any proposal relating to a competing
merger or business combination involving an acquisition of DBT or the
purchase of all or a substantial portion of the capital stock of DBT, or
the assets of DBT, by any person or entity other than Patlex, Holdco or
the Merger Subsidiary; and
(c) against any other transaction which is inconsistent with the
obligation of DBT to consummate the Merger in accordance with the Merger
Agreement.
4. Irrevocable Proxy. In furtherance of the Principal Shareholder's
obligations under Section 3 hereof, the Principal Shareholder does hereby
irrevocably constitute and appoint Patlex and Frank Borman, in his capacity
as Chairman of Patlex, and any individual who shall hereafter succeed to
such office of Patlex (the "Proxy"), the true and lawful attorney and proxy
of the Principal Shareholder, for him or her and in his or her name, place
and stead, with full power of substitution, for a term of one year from the
date of execution hereof (the "Term"), to attend and to vote as his proxy,
in accordance with Section 3 hereof all DBT Common Shares eligible to vote
which are held of record or beneficially by the Principal Shareholder, and
to execute any written consents of Principal Shareholder which may be
solicited therefor, as fully and with the same number of votes and with the
same effect as the Principal Shareholder could do if personally present
thereat or if personally solicited to execute such written consents. The
Principal Shareholder hereby revokes all proxies heretofore made by the
Principal Shareholder. This proxy is coupled with an interest and is
irrevocable. The Principal Shareholder hereby ratifies all that the Proxy
may or shall lawfully do in voting the DBT Common Shares in accordance
herewith at any such meeting or adjournment in respect of all matters,
proposals and questions that may properly come before the shareholders for
consideration and action.
5. Competing Transactions. The Principal Shareholder agrees not to,
directly or indirectly, initiate, solicit or encourage (including by way of
furnishing information) or take any other action to facilitate any
inquiries or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any takeover proposal, or participate in
any discussions regarding or otherwise facilitate or agree to or endorse,
or otherwise cooperate in any way with, any takeover proposal, or any
transaction which is inconsistent with the consummation of the transactions
contemplated by the Merger Agreement. The Principal Shareholder shall
promptly advise Patlex orally and in writing of any such inquiries or
proposals. As used in this paragraph, "takeover proposal" shall mean any
proposal for a merger or other business combination involving DBT or any
proposal or offer to acquire in any manner a substantial equity interest in
DBT or a substantial portion of the assets of DBT.
6. Indemnification.
(a) From and after the Closing Date, the Principal Shareholder (an
"Indemnifying Party") shall indemnify and hold harmless Patlex, Holdco
and the Surviving Corporation and each of their stockholders,
subsidiaries, affiliates, officers and directors and their successors
and assigns (an "Indemnified Party"), from, against and in respect of
any and all damages, losses, deficiencies, liabilities, costs and
expenses (including reasonable expenses of investigation and litigation
and reasonable attorneys', accountants' and other professionals' fees
and costs incurred in the investigation or defense thereof or the
enforcement of rights hereunder), including consequential damages
(collectively, the "Damages"), resulting from or arising out of any (1)
misrepresentation or breach of warranty made by or on behalf of DBT in
the Merger Agreement or in any certificate delivered by DBT to Patlex
pursuant thereto, and (2) non-fulfillment of any agreement or covenant
on the part of DBT thereunder. The consummation by any Indemnified Party
of the Closing with knowledge of a breach of warranty or covenant or
misrepresentation by any party hereto shall not constitute a waiver
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of any claim for such Indemnified Party's Damages with respect to such
breach or misrepresentation.
(b) The indemnification provided for in this Section 6 shall be
limited to claims asserted within two years from the Closing Date;
provided, however, that claims with respect to misrepresentations or
breaches of any of the representations and warranties contained in
Sections 4.11, 4.13 and 4.27 of the Merger Agreement may be asserted at
any time after the Closing Date; provided, further, that if on or before
the expiration of such indemnification period any Indemnified Party has
received notice of any matter which would be the basis for a claim of
indemnification by such Indemnified Party hereunder or a claim or demand
from a third party and shall have advised the Indemnifying Party of the
receipt of such notice, such Indemnified Party shall have the right
after the expiration of such indemnification period to assert or to
continue to assert such claim and to be indemnified with respect
thereto. The indemnification provided herein for breaches of the
representations and warranties in Sections 4.11, 4.13 and 4.27 of the
Merger Agreement shall not be limited as to time, but shall survive the
Closing Date indefinitely.
(c) The remedies provided by this Section 6, subject to the
limitations set forth herein, shall be the parties' sole and exclusive
remedies for the recovery of any Damages resulting, from or arising out
of misrepresentations, breaches of warranties, non-fulfillment of
obligations under the Merger Agreement, except those arising from or
arising out of fraud. The Indemnifying Parties agree to indemnify any
successors and assigns of Indemnified Parties to the same extent and in
the same manner and on the same terms and conditions as the Indemnified
Parties are indemnified by the Indemnifying Parties under this Section
6. In the event that any claim for indemnification under this Section 6
meets the criteria of more than one of the types of claims for which
indemnification is provided for under this Section 6, the Indemnified
Party, in its sole discretion, shall classify such claim and only be
required to include such claim, and the recoveries for indemnification
therefrom, in one of such categories.
(d) All claims for indemnification under this Section 6 shall be
asserted and resolved as follows:
(1) In the event that any claim or demand, or other circumstance
or state of facts which could give rise to any claim or demand, for
which the Indemnifying Parties may be liable to the Indemnified
Parties hereunder is asserted against or sought to be collected by a
third party (an "Asserted Liability"), the Indemnified Party shall
promptly notify the Indemnifying Party in writing of such Asserted
Liability, specifying the nature of such Asserted Liability and the
amount or the estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final amount of such
claim or demand) (the "Claim Notice"); provided, however, that no
delay on the part of Holdco in giving any such Claim Notice shall
relieve the Indemnifying Party of any indemnification obligation
hereunder unless (and then solely to the extent that) the Principal
Shareholder is prejudiced by such delay. The Indemnifying Party shall
have 30 days (or less if the nature of the Asserted Liability
requires) from his receipt of the Claim Notice (the "Notice Period")
to notify Holdco whether or not the Indemnifying Party desires, at
the Principal Shareholder's sole cost and expense and by counsel of
his own choosing, which shall be reasonably satisfactory to the
Holdco, to defend against such Asserted Liability. If the
Indemnifying Party undertakes to defend against such Asserted
Liability, the Indemnifying Party shall control the investigation,
defense and settlement thereof; provided, however, that (a) the
Indemnifying Party shall not permit to exist any Lien upon any of the
assets or properties of Holdco and (b) if any Asserted Liability is
settled by the Indemnifying Party, (i) no liability shall be imposed
on Holdco by reason of such Asserted Liability or the settlement
thereof without the prior written consent of Holdco, and (ii) the
Indemnifying Party shall not, without the prior written consent of
Holdco, consent to any settlement which (A) does not contain an
unconditional release of the Surviving Corporation, Holdco and their
affiliates and (B) with respect to any non-monetary provision of such
settlement would be reasonably likely, in Holdco's reasonable
judgment, to have an adverse effect on the business
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operations, assets, properties or prospects of Holdco or any of its
subsidiaries or affiliates. Notwithstanding the foregoing, Holdco
shall have the right to pay or settle any Asserted Liability which
the Indemnifying Party shall have undertaken to defend so long as
Holdco shall also waive any right to indemnification therefor by the
Principal Shareholder. If the Indemnifying Party undertakes to defend
against such Asserted Liability, then Holdco shall cooperate fully
with the Indemnifying Party and his counsel in the investigation,
defense and settlement thereof. If Holdco desires to participate in
any such defense it may do so at its sole cost and expense. If the
Indemnifying Party does not undertake within the Notice Period to
defend against such Asserted Liability, then the Indemnifying Party
shall have the right to participate in any such defense at his sole
cost and expense, but Holdco shall control the investigation, defense
and settlement thereof. Holdco and the Indemnifying Party agree to
make available to each other, their counsel and other
representatives, all information and documents available to them
which relate to such claim or demand. Holdco and the Principal
Shareholder also agree to render to each other such assistance and
cooperation as may reasonably be required to ensure the proper and
adequate defense of such claim or demand and Holdco shall cause its
employees likewise to so cooperate.
(2) In the event that Holdco should have a claim against the
Principal Shareholder hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a
third party, Holdco shall promptly send a Claim Notice with respect
to such claim to the Indemnifying Party. Upon the Indemnifying
Party's receipt of a Claim Notice pursuant to this Section 6, the
Indemnifying Party and Holdco shall each attempt, in good faith, to
resolve the Asserted Liability within 15 days of the Indemnifying
Party's receipt of such Claim Notice in a manner consistent with the
indemnification obligations set forth in this Section 6. If the
Indemnifying Party and Holdco are unable to resolve the Asserted
Liability with such 15-day period, they shall jointly appoint
Holdco's auditors within five days of the end of such 15-day period
to resolve the dispute within 30 days. The Indemnifying Party and
Holdco shall provide full cooperation to such firm. Such firm's
resolution of the dispute shall be conclusive and binding on Holdco
and the Principal Shareholder.
(3) The Chairman of the Board of Holdco shall make all decisions
on behalf of Holdco with respect to any claims by Holdco under this
Section 6, and to the extent that any decisions on behalf of Holdco
shall be presented to the Board of Directors of Holdco for
consideration, the Principal Shareholder on the Board of Holdco shall
abstain from any such decisions.
7. Termination. Sections 1 through 5 of this Agreement shall
terminate upon the earlier to occur of (a) the effective time of the
Merger, or (b) the termination of the Merger Agreement.
8. General Provisions.
(a) Certain Definitions. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Merger Agreement.
(b) Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for any breach of the provisions
of this Agreement and agree that the obligations of the parties
hereunder shall be specifically enforceable.
(c) Amendments. This letter agreement may not be amended except by
an instrument in writing signed by Patlex, Holdco and the Principal
Shareholder.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram or telex, or by registered or
certified mail (postage prepaid, return receipt requested), if to Patlex
or Holdco, at its address as specified in the Merger Agreement and, if
to the Principal Shareholder, to the address set forth on Schedule A
hereto.
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(e) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof and (ii) is not intended to and shall not be
deemed to confer upon any person other than the parties hereto any
rights or remedies hereunder.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida,
applicable to contracts made and to be performed in that State.
IN WITNESS WHEREOF, the parties hereto have executed this Principal
Shareholder's Agreement as of the day and year first above written.
PRINCIPAL SHAREHOLDER
/s/ HANK ASHER
--------------------------------------
Hank Asher
No. of DBT Shares:
946,667 -- owned
PATLEX CORPORATION
By: /S/ FRANK BORMAN
------------------------------------
Frank Borman
Chairman, President and CEO
PATLEX HOLDINGS, INC.
By: /S/ FRANK BORMAN
------------------------------------
Frank Borman
President
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APPENDIX D
PENNSYLVANIA BUSINESS CORPORATION LAW
SUBCHAPTER D: DISSENTERS RIGHTS
sec. 1571. Application and effect of subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting
at which a plan specified in any of section 1930, 1931(d), 1932(c) or
1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation
or solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of the
class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of
the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the liabilities
of the other corporation and
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with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that
the acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition sufficient
to elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
sec. 1572. Definitions.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger,
consolidation, division, conversion or otherwise of that issuer. A plan of
division may designate which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The successor corporation
in a division shall have the sole responsibility for payments to dissenters
and other liabilities under this subchapter except as otherwise provided in
the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
the circumstances, taking into account all relevant factors including the
average rate currently paid by the corporation on its principal bank loans.
sec. 1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
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(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
sec. 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
sec. 1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
sec. 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
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sec. 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair market value
of the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
sec. 1578. Estimate by dissenter of fair value of shares.
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
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sec. 1579. Valuation proceedings generally.
(a) General rule. Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demand for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
sec. 1580. Costs and expenses of valuation proceedings.
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
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APPENDIX E
OPINION OF CS FIRST BOSTON CORPORATION
February 7, 1996
Board of Directors
Patlex Corporation
250 Cotorro Court
Las Cruces, New Mexico 88005
Dear Sirs:
You have asked us to advise you with respect to the fairness to Patlex
Corporation ("Patlex"), from a financial point of view, of the consideration to
be paid pursuant to the terms of the Agreement of Merger, dated as of February
7, 1996 (the "Merger Agreement"), among Database Technologies, Inc.
("Database"), Patlex, Patlex Holdings, Inc., a wholly owned subsidiary of Patlex
("Holdco") and DBT Acquisition Co., a wholly owned subsidiary of Holdco ("Sub").
The Merger Agreement provides (i) that immediately prior to the consummation of
the Merger (as defined below), Patlex Newco, Inc., a wholly owned subsidiary of
Holdco, will be merged with and into Patlex, and each outstanding share of the
common stock, par value $.10 per share, of Patlex ("Patlex Common Stock") will
be converted into the right to receive one share of the common stock, par value
$.10 per share, of Holdco ("Holdco Common Stock"); and (ii) for the merger (the
"Merger") of Sub with and into Database pursuant to which Database will become a
wholly owned subsidiary of Holdco and each outstanding share of the common
stock, par value $.01 per share, of Database ("Database Common Stock") will be
converted into the right to receive that number of shares of Holdco Common Stock
equal to (x) the product of 1.86 multiplied by the sum of (A) the number of
shares of Holdco Common Stock outstanding immediately prior to the effectiveness
of the Merger plus (B) one-half the number of shares of Holdco Common Stock
issuable upon the exercise of options outstanding immediately prior to the
effectiveness of the Merger, divided by (y) the total number of shares of
Database Common Stock outstanding immediately prior to the effectiveness of the
Merger.
In arriving at our opinion, we have reviewed the Merger Agreement and
certain publicly available business and financial information relating to Patlex
and Database. We have also reviewed certain other information, including
financial forecasts, provided to us by Patlex and Database. In addition, we have
held discussions with the managements of Patlex and Database regarding the
businesses and prospects of Patlex and Database, respectively.
We have also considered certain financial data of Database, and we have
compared that data with similar data for publicly held companies in businesses
similar to that of Database. We have considered the financial terms of certain
other business combinations and other transactions which have recently been
effected and we have considered certain financial effects of the Merger on
Patlex. We also considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all respects. With respect to the financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Patlex and Database as to the future financial performance of
Patlex and Database, respectively. For purposes of our opinion, we have assumed
that Holdco has no assets or liabilities. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Patlex or Database, nor have we been furnished with any such
evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on the
date hereof. We are not expressing any opinion as to what
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the value of the Holdco Common Stock actually will be when issued to Database's
stockholders pursuant to the Merger or the prices at which such Holdco Common
Stock will trade subsequent to the Merger.
CS First Boston served as financial advisor to AutoFinance Group, Inc.
("AFG") in connection with AFG's distribution to its stockholders of 95.01% of
the outstanding Patlex Common Stock and AFG's concurrent merger with KeyCorp in
September, 1995. In addition, we will receive a fee for rendering this opinion.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of Patlex and its successors
for their own accounts and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Patlex in connection with its consideration of the Merger and is
not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid in the Merger is fair to Patlex from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
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APPENDIX F
AMENDED AND RESTATED STOCK OPTION PLAN
The purpose of the Stock Option Plan (the "Plan") is to provide designated
officers, directors and employees of Patlex Corporation and its subsidiaries
(hereinafter collectively referred to as the "Company") and consultants,
independent contractors and principals of organizations involved with the
Company on significant projects ("Key Advisors") with the opportunity to receive
grants of nonqualified stock options or, in the case of officers or other
employees of the Company, incentive stock options or a combination of each. The
Company believes that the Plan will cause the participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
shareholders and will align the economic interests of the participants with
those of the shareholders.
1. ADMINISTRATION
The Plan shall be administered and interpreted by a committee (the
"Committee") which shall consist of two or more persons appointed by the board
of directors of the Company (the "Board"), all of whom shall be "disinterested
persons" as defined under Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and "outside directors" as defined under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee shall have the sole discretion and authority to (i) determine the
individuals to whom options shall be granted under the Plan, (ii) determine the
type, size, exercise price and other terms and conditions of the options to be
granted to each such individual, (iii) determine the time when the options will
be granted and the duration of the exercise period, including the criteria for
exercisability and the acceleration of exercisability and (iv) deal with any
other matters arising under the Plan. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interests in the Plan or in any awards granted hereunder.
2. STOCK OPTIONS
Incentives under the Plan shall consist of incentive stock options and
nonqualified stock options (hereinafter collectively referred to as "Stock
Options"). All Stock Options shall be subject to the terms and conditions set
forth herein and to those other terms and conditions consistent with the Plan as
the Committee deems appropriate and as are specified in writing by the Committee
to the recipient in an instrument evidencing the grant of the Stock Option (the
"Grant Letter"). The Committee shall approve the form and provisions of each
Grant Letter. Grants of Stock Options under the plan need not be uniform as
among the officers, directors, employees or Key Advisors.
3. SHARES SUBJECT TO THE PLAN
(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company (the "Company Stock") that may be issued
or transferred under the Plan is 900,000 shares. Notwithstanding anything in the
Plan to the contrary, the maximum aggregate number of shares of the Company
Stock shall be subject to Stock Options granted under the Plan to any one
individual during any calendar year shall be 375,000 shares. The shares may be
authorized by unissued shares of Company Stock or reacquired shares of Company
Stock, including shares purchased by the Company on the open market for purposes
of the Plan. If and to the extent options granted under the Plan terminate,
expire, or are cancelled, forfeited, exchanged or surrendered without having
been exercised, the shares subject to such Stock Option shall again be available
for purposes of the Plan.
(b) If there is any change in the number or kind of shares of Company Stock
outstanding by reason of a stock dividend, a recapitalization, stock split, or
combination or exchange of shares, or merger, reorganization
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or consolidation in which the Company is the surviving corporation,
reclassification or change in par value or by reason of any other extraordinary
or unusual events affecting the outstanding Company Stock as a class without the
Company's receipt of consideration, or if the value of outstanding shares of
Company Stock is substantially reduced due to the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Stock Options, the maximum number of shares of Company Stock
that may be subject to Stock Options granted to any one individual in any
calendar year, the number of shares covered by outstanding Stock Options, and
the price per share or the applicable market value of such Stock Options and the
other terms and conditions of the Stock Options, as the Committee may deem
necessary or desirable, shall be proportionately adjusted by the Committee to
reflect any increase or decrease in the number or kind of issued shares of
Company Stock to preclude the enlargement or dilution of rights and benefits
under such Stock Options; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. The adjustments determined
by the Committee shall be final, binding and conclusive.
4. ELIGIBILITY FOR PARTICIPATION
Officers, directors and employees of the Company and Key Advisors
designated by the Committee (without participation by any Committee member in
his designation) shall be eligible to participate in the Plan (hereinafter
referred to individually as the "Participant" and collectively as the
"Participants"). The Committee shall select the individuals to receive Stock
Options (the "Optionees") from among the Participants and determine the number
of shares of Company Stock subject to a particular Stock Option in such manner
as the Committee determines, provided, however, that no Committee member shall
participate in any matter specifically pertaining to him. Nothing contained in
this Plan shall be construed to (i) limit the right of the Committee to grant
Stock Options under the Plan in connection with the acquisition, by purchase,
lease, merger, consolidation or otherwise, of the business or assets of any
corporation, firm or association, including options granted to employees thereof
who become employees of the Company, or for other proper corporate purposes or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan.
5. STOCK OPTION TERMS
(a) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Company Stock that shall be subject to each
Stock Option grant.
(b) Type of Option. The Committee, in its sole discretion, may grant
options that are intended to qualify as "incentive stock options" within the
meaning of section 422 of the Code ("Incentive Stock Options") or stock options
which are not intended to so qualify ("Nonqualified Stock Options") or any
combination of Incentive Stock Options and Nonqualified Stock Options, all in
accordance with the terms and conditions set forth herein.
(c) Purchase Price. The purchase price of Company Stock subject to a Stock
Option shall be determined by the Committee, and may be equal to, greater than
or less than the Fair Market Value (as defined below) of a share of such Stock
on the date such Stock Option is granted; provided, however, that the purchase
price of Company Stock subject to an Incentive Stock Option shall be equal to or
greater than the Fair Market Value of a share of such Stock on the date such
Stock Option is granted and the purchase rice of Company Stock subject to a
Nonqualified Stock Option shall not be less than 85% of the Fair Market Value
(as defined below) of a share of Company Stock on the date such Stock Option is
granted. During such time that the Company Stock is not listed upon an
established stock exchange or traded in the over-the-counter-market, the "Fair
Market Value" of Company Stock shall be determined by the Committee at least
annually after taking into account such factors as it shall deem appropriate. If
the Company Stock is listed upon an established stock exchange or other
recognized market source, as determined by the Committee, "Fair Market Value" on
any date of reference shall be the closing price of a share of Company Stock on
the principal exchange or other recognized market source, as determined by the
Committee on such date, or if there is no sale on such date, then the closing
price of a share of Company Stock on the last previous day on which a sale is
reported.
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(d) Option Term. The Committee shall determine the term of each Stock
Option. The term of any Stock Option shall not exceed ten years from the date of
grant.
(e) Exercisability of Options. Stock Options shall become exercisable in
accordance with the terms and conditions determined by the Committee, in its
sole discretion and specified in the Grant Letter. The Committee, in its sole
discretion, may accelerate the exercisability of any or all outstanding Stock
Options at any time for any reason.
(f) Manner of Exercise. An Optionee may exercise a Stock Option which has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Committee with accompanying payment of the purchase price in accordance with
Subsection (f) below. Such notice may instruct the Company to deliver shares of
Company Stock due upon the exercise of the Stock Option to any registered broker
or dealer designated by the Committee ("Designated Broker") in lieu of delivery
to the Optionee. Such instructions must designate the account into which the
shares are to be deposited. The Optionee may tender a notice of exercise, which
has been properly executed by the Optionee, and the aforementioned delivery
instructions to any Designated Broker.
(g) Termination of Employment or Services.
(1) Except as provided in (2) or (3) below, in the event the Optionee
ceases to be an employee or director of the Company or Key Advisor, any
Stock Option which is otherwise exercisable by the Optionee shall
automatically terminate ninety days (or such other time as may be specified
in the Grant Letter) after the date on which the Optionee ceases to be an
employee or director of the Company or a Key Advisor, but in no event later
than the date of expiration of the term of such Stock Option.
(2) In the event the Optionee ceases to be an employee or director of
the Company or Key Advisor on account of a termination for cause (as
determined in the sole judgement of the Board or its delegate), any Stock
Option held by the Optionee shall automatically terminate as of the date
the Optionee ceases to be an employee or director of the Company or a Key
Advisor (except as the Committee may otherwise provide in the Grant
Letter), but in no event later than the date of expiration of the term of
such Stock Option.
(3) In the event of the death of the Optionee or in the event the
Optionee ceases to be an employee or director of the Company or Key Advisor
on account of the Optionee having become disabled, within the meaning of
Section 22(e) of the Code, any Stock Option which was otherwise exercisable
by the Optionee on the date of death or such disability may be exercised by
the Optionee's personal representative or the Optionee, as the case may be,
at any time prior to the expiration of one year (or such other time as may
be specified in the Grant Letter) from the date of death or the date such
Optionee ceases to be an employee or director of the Company or a Key
Advisor, on account of such disability, but in no event later than the date
of expiration of the term of the Stock Option.
(h) Satisfaction of Purchase Price. The Optionee shall pay the purchase
price specified in the Grant Letter in (i) cash, (ii) with the approval of the
Committee, by delivering shares of Company Stock already owned by the Optionee
for the period necessary to avoid a charge to the Company's earnings for
financial reporting purposes and having a Fair Market Value on the date of
exercise equal to the purchase price, or (iii) through any combination of (i)
cash and (ii) shares. The Optionee shall pay the purchase price and the amount
of any federal, state or local withholding tax due, if any, at the time of
exercise. Shares of Company Stock shall not be issued or transferred upon
exercise of a Stock Option until the purchase price is fully paid and any
required withholding is made.
(i) Limits on Incentive Stock Options. Each Incentive Stock Option shall
provide that, to the extent that the aggregate Fair Market Value of the Company
Stock (on the date of the grant with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee during any calendar year under
the Plan or any other stock option plan of the Company exceeds $100,000, then
such Stock Option as to the excess shall be treated as a Nonqualified Stock
Option. An Incentive Stock Options shall not be granted to any Participant who
is not an employee of the Company or any "subsidiary" (within the meaning of
Section 424(f) of the Code). An Incentive Stock Option shall not be granted to
any employee who, at the time of
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grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or any "parent" or "subsidiary" of
the Company within the meaning of Section 424(f) of the Code, unless the
purchase price per share is not less than 110% of the Fair Market Value of
Company Stock on the date of grant and the term of the Option is not more than
five years from the date of grant.
6. TRANSFERABILITY OF STOCK OPTIONS
Only the Optionee or his or her authorized legal representative may
exercise rights under a Stock Option. Rights under an Incentive Stock Option may
not be transferred other than by will or by the laws of descent and
distribution. Rights under a Nonqualified Stock Option may not be transferred
except (i) by will or by the laws of decent and distribution, (ii) to the
Optionee's spouse or a lineal descendant or to one or more trusts for the
benefit of such family members or to partnerships in which such family members
are the only partners provided that the Optionee receives no consideration for
such transfer and the Grant Letter relating to such Stock Options continues to
be subject to the same terms and conditions that were applicable to such Stock
Option immediately prior to such transfer, and (iii) if permitted by Rule 16b-3
of the Exchange Act and if permitted in any specific case by the Committee, in
its sole discretion, pursuant to a qualified domestic relations order as defined
under the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended or the regulations thereunder. When an Optionee dies, the
personal representative or other person entitled to succeed to the rights of the
Optionee ("Successor Optionee") may exercise such rights. A Successor Optionee
must furnish proof satisfactory to the Company of his or her right to receive
the Stock Option under the Optionee's will or under the applicable laws of
descent and distribution.
7. CHANGE OF CONTROL OF THE COMPANY
As used herein, a "Change of Control" shall be deemed to have occurred if:
a. Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the voting power of the then outstanding securities
of the Company;
b. The stockholders of the Company approve an agreement providing for (i)
the merger or consolidation of the Company with another corporation where the
stockholders of the Company, immediately prior to the merger or consolidation,
would not beneficially own, immediately after the merger or consolidation shares
entitling such stockholders to 50% or more of all votes (without consideration
of the rights of any class of stock to elect directors by a separate class vote)
to which all stockholders of the surviving corporation would be entitled in the
election of directors or where the members of the Board, immediately prior to
the merger or consolidation, would not, immediately after the merger or
consolidation, constitute a majority of the Board of the surviving corporation
or (ii) the sale or other disposition of all or substantially all the assets of
the Company, or a liquidation, dissolution or statutory exchange of the Company;
c. Any person has commenced, or announced an intention to commence, a
tender offer or exchange offer for 40% or more of the voting power of the then
outstanding securities of the Company; or
d. During any period of two consecutive calendar years there is a change of
25% or more in the composition of the Board in office at the beginning of the
period except for changes approved by at least two-thirds of the directors then
in office who were directors at the beginning of the period.
8. CONSEQUENCES OF A CHANGE OF CONTROL
(a) Upon a Change of Control (i) the Company shall provide each Grantee
with outstanding Grants written notice of such Change of Control and (ii) all
outstanding Stock Options shall automatically accelerate and become fully
exercisable.
(b) In addition, upon a Change of Control described in Section 7(b)(i)
where the Company is not the surviving corporation (or survives only as a
subsidiary of another corporation), all outstanding Stock Options shall be
assumed or replaced with comparable options or rights by the surviving
corporation.
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(c) Notwithstanding the foregoing, in the event of a Change of Control, the
Committee may (i) require that Optionees surrender their outstanding Stock
Options in exchange for a payment by the Company, in cash or Company Stock as
determined by the Committee, in an amount equal to the amount by which the then
Fair Market Value of the shares of Company Stock subject to the Optionee's
outstanding Stock Options exceeds the option purchase price of the Stock Options
and (ii) terminate any or all outstanding Stock Options at such time as the
Committee deems appropriate. Such surrender shall take place as of the date of
the Change of Control or such other date as the Committee may specify, and, in
the case of a Stock Option held by a Optionee who is subject to Section 16(b) of
the Exchange Act, any such surrender or payment shall be made on such date as
the Committee shall determine consistent with Rule 16b-3 under the Exchange Act.
The Committee shall not have the right to take the actions described in this
Subsection (c) if such right would make the applicable Change of Control
ineligible for pooling of interest accounting treatment under APB No. 16 or make
such Change of Control ineligible for desired tax treatment with respect to such
Change of Control and, but for this provision, the Change of Control would
otherwise qualify for and the Company intends to use such treatment.
9. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that any amendment that increases the aggregate (or
individual limit for any single Optionee) number of shares of Company Stock that
may be issued or transferred under the Plan (other than by operation of Section
3(b), or modifies the requirements as to eligibility for participation in the
Plan, shall be subject to approval by the shareholders of the Company and
provided, further, that the Board shall not amend the Plan without shareholder
approval if such approval is required by Rule 16b-3 of the Exchange Act or
Section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date unless terminated earlier
by the Board or unless extended by the Board with the approval of the
shareholders.
(c) Termination and Amendment of Outstanding Stock Options. A termination
or amendment of the Plan that occurs after a Stock Option is granted shall not
materially impair the rights of an Optionee unless the Optionee consents or
unless the Committee acts under Section 17(b) hereof. The termination of the
Plan shall not impair the power and authority of the Committee with respect to
an outstanding Stock Option. Whether or not the Plan has terminated, an
outstanding Stock Option may be terminated or amended under Section 17(b) hereof
or may be amended by agreement of the Company and the Optionee consistent with
the Plan.
10. FUNDING OF THE PLAN
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Stock Options under this Plan.
11. RIGHTS OF OPTIONEES
Nothing in this Plan shall entitle any Optionee or other person to any
claim or right to be granted a Stock Option under this Plan. Neither this Plan
nor any action taken hereunder shall be construed as giving any Optionee any
rights to be retained by or in the employ of the Company or any other employment
rights.
12. WITHHOLDING OF TAXES
The Optionee or other person receiving such shares in connection with the
exercise of any Stock Option hereunder shall be required to pay to the Company
the amount of any federal, state or local taxes which the Company is required to
withhold with respect to the exercise of such Stock Options. The Company further
shall have the right to deduct from other wages paid to the employee by the
Company the amount of any withholding due with respect to such Stock Options.
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13. AGREEMENTS WITH OPTIONEES
Each Stock Option made under this Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee shall approve.
14. REQUIREMENTS FOR ISSUANCE OF SHARES
No Company Stock shall be issued or transferred upon exercise of any Stock
Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Stock Option granted to any Optionee hereunder on such Optionee's
undertaking in writing to comply with such restrictions on his subsequent
disposition of such shares of Company Stock as the Committee shall deem
necessary or advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
15. HEADINGS
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
16. EFFECTIVE DATE OF THE PLAN
Subject to the approval of the Company's shareholders, this Plan shall be
effective as of September 8, 1995.
17. MISCELLANEOUS
(a) Substitute Stock Options. The Committee may grant a Stock Option to an
employee of another corporation who becomes a Participant by reason of a
corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option granted by such corporation ("Substituted
Stock Options"). The terms and conditions of the substitute Stock Option may
vary from the terms and conditions required by the Plan and from those of the
Substituted Stock Options. The Committee shall prescribe the provisions of the
substitute Stock Options.
(b) Compliance with Law. The Plan, the exercise of Stock Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Stock Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to a person
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Stock Option if it is contrary to law or modify a Stock Option to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Optionees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
(c) Ownership of Stock. Except as otherwise provided by the Committee, an
Optionee or Successor Optionee shall have no rights as a shareholder with
respect to any shares of Company Stock covered by a Stock Option until the
shares are issued or transferred to the Optionee or Successor Optionee on the
stock transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and effect
of the Plan and Grant Letters issued under the Plan shall be governed
exclusively by and determined in accordance with the laws of the Commonwealth of
Pennsylvania.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1716 of the PBCL, permits indemnification of officer and directors
in certain circumstances.
The Registrant's Certificate of Incorporation and By-laws contain
provisions permitted by the PBCL (under which the Registrant is organized) that
provide that directors and officers will be indemnified by the Registrant to the
fullest extent permitted by law for all losses that may be incurred by them in
connection with any action, suit or proceeding in which they may become involved
by reason of their service as a director or officer of the Registrant. In
addition, the Registrant's Certificate of Incorporation contains provisions
permitted by the PBCL that limit the monetary liability of directors of the
Registrant for certain breaches of their fiduciary duty, and its Bylaws provide
for the advancement by the Registrant to directors and officers of expenses
incurred by them in connection with a proceeding of a type to which the duty of
indemnification applies. The Registrant has also entered into agreements with
its directors and certain officers that provide an independent right to
indemnification by the Registrant.
The Registrant has a directors' and officers' liability insurance policy
which affords officers and directors with insurance coverage for losses arising
from claims based on breaches of duty, negligence, error and other wrongful
acts.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Agreement of Merger, dated as of February 7, 1996, as amended
and restated as of June 28, 1996, among Holdco, Patlex, DBT and Merger Subsidiary is
Appendix B to the Proxy Statement/Prospectus included in Part I and is incorporated
herein by reference.
2.2 Principal Shareholder's Agreement, dated as of February 7, 1996, among Holdco,
Patlex and Hank Asher is Appendix C to the Proxy Statement/Prospectus included in
Part I and incorporated herein by reference.
3.1* Amended and Restated Articles of Incorporation of Holdco.
3.2* Amended and Restated By-laws of Holdco.
5.1* Opinion of Morgan, Lewis & Bockius LLP regarding legality of the shares of common
stock being registered.
8.1* Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.
10.1 Employment Agreement, dated March 11, 1990, between Patlex and Frank Borman is
incorporated herein by reference to Exhibit 10(i) to the Form 10-SB of Patlex filed
with the Commission on August 3, 1995.
10.2 Employment Agreement, dated September 15, 1992, between Patlex and Richard Laitinen
is incorporated herein by reference to Exhibit 10(ii) to the Form 10-SB of Patlex
filed with the Commission on August 3, 1995.
10.3 Employment Agreement, dated September 14, 1992, between Patlex and J. Henry
Muetterties is incorporated herein by reference to Exhibit 10(iii) to the Form 10-SB
of Patlex filed with the Commission on August 3, 1995.
10.4 Amended and Restated Stock Option Plan is Appendix F to the Proxy
Statement/Prospectus included in Part I and is incorporated herein by reference.
23.1* Consents of Morgan, Lewis & Bockius LLP (included in its opinions filed as Exhibits
5.1 and 8.1 hereto).
</TABLE>
II-1
<PAGE> 171
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
23.2* Consent of Ernst & Young LLP.
23.3* Consent of Ahearn, Jasco + Company, P.A.
23.4* Consent of Deloitte & Touche LLP.
24* Powers of Attorney (included on the signature page).
99.1* Form of Patlex Proxy.
</TABLE>
- ---------------
* Filed herewith.
(b) Financial Statement Schedules:
Schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the
financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(3) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 172
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(6) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 173
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Las
Cruces, New Mexico on July 16, 1996.
PATLEX HOLDINGS, INC.
By: /s/ FRANK BORMAN
------------------------------------
Frank Borman
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- ---------------
<S> <C> <C>
/s/ FRANK BORMAN Chairman, President, Chief July 16, 1996
- ------------------------------------------ Executive Officer and Director
Frank Borman (principal executive officer)
/s/ RICHARD LAITINEN Vice President, Treasurer and Chief July 16, 1996
- ------------------------------------------ Financial Officer (principal
Richard Laitinen financial and accounting officer)
* Director July 16, 1996
- ------------------------------------------
Kenneth G. Langone
* Director July 16, 1996
- ------------------------------------------
Gary E. Erlbaum
*By: /s/ FRANK BORMAN July 16, 1996
-------------------------------------
Frank Borman, attorney-in-fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PATLEX HOLDINGS, INC.
1. The name of the corporation is Patlex Holdings, Inc.
2. The name of the Commercial Registered Officer Provider is CT System,
Philadelphia County.
3. The corporation is incorporated under the provisions of the Business
Corporation Law of 1988.
4. Capital Stock.
The aggregate number of shares which the corporation shall have
authority to issue is 45,000,000 of which 40,000,000 shares of the par value of
$.10 per share shall be Common Stock and 5,000,000 shares of the par value of
$.10 per share shall be Preferred Stock. The Board of Directors may authorize
the issuance from time to time of Preferred Stock in one or more series and
with designations, preferences, qualifications, limitations, restrictions and
special or relative rights (which may differ with respect to each series) as
the Board may fix by resolution. Without limiting the foregoing, the board of
directors is authorized to fix with respect to each series:
(a) the number of shares which shall constitute the
series and the name of the series;
(b) the rate and times at which, and the preferences and
conditions under which, dividends shall be payable on
shares of the series, and the status of such
dividends as cumulative or non-cumulative and as
participating or non- participating;
(c) the prices, times and terms, if any, at or upon which
shares of the series shall be subject to redemption;
(d) the rights, if any, of holders of shares of the
series to convert such shares into, or to exchange
such shares for, shares of any other class of stock
of the corporation;
(e) the rights and preferences, if any, of the holders of
shares of the series upon any liquidation,
dissolution or winding up of the affairs of, or upon
any distribution of the assets of, the corporation;
<PAGE> 2
(f) the limitations, if any, applicable while such series
is outstanding, on the payment of dividends or making
of distributions on, or the acquisition of, the
common stock of any other class of stock which does
not rank senior to the shares of the series;
(g) the voting rights, if any, to be provided for shares
of the series.
5. The directors shall be divided into three classes, Class I, Class II
and Class III with respect to their terms of office. All classes
shall be as nearly equal in number as reasonably possible. Subject to
such limitations, when the number of Directors is changed, any
newly-created directorship or any decrease in directorships shall be
apportioned among the classes by action of the Board of Directors.
6. The shareholders of the corporation shall not have the right to
cumulate their votes for the election of directors of the corporation.
7. Subchapters E, F, G, H, I and J of Section 25 of the Business
Corporation Law of 1988 shall not be applicable to the corporation.
8. The corporation reserves the right, from time to time, to amend, alter
or repeal any provisions contained in these Articles of Incorporation
in the manner now or hereafter provided by statute for the amendment
of Articles of Incorporation.
-2-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
PATLEX HOLDINGS, INC.
ARTICLE I
Name and Seal
Section 1.01. Name. The name of the corporation is PATLEX
HOLDINGS, INC.
Section 1.02. State of Incorporation. The corporation is
incorporated under the laws of the Commonwealth of Pennsylvania.
Section 1.03. Seal. The corporate seal of the corporation
shall have inscribed thereon the name of the corporation, the year of its
organization, the words "Corporate Seal," and the name of the State of
Incorporation. The seal may be used by any person authorized by the Board of
Directors of the corporation or by these Bylaws by causing the seal or a
facsimile thereof to be impressed or affixed, or in any manner reproduced.
ARTICLE II
Offices and Fiscal Year
Section 2.01. Registered Office. The registered office of
the corporation in the Commonwealth of Pennsylvania shall be at c/o CT
Corporation, 1635 Market Street, Suite 1120, Philadelphia, PA 19103 until
otherwise established by an amendment of the articles of incorporation (the
"articles") or by the Board of Directors of the corporation (the "Board of
Directors" or the "Board") and a record of such change is filed with the
Pennsylvania Department of State in the manner provided by law.
Section 2.02. Other Offices. The corporation may also have
offices at such other places within or without the Commonwealth of Pennsylvania
as the Board of Directors may from time to time appoint or the business of the
corporation may require.
Section 2.03. Fiscal Year. The fiscal year of the
corporation shall begin on the first day of July in each year.
<PAGE> 2
ARTICLE III
Notice--Waivers--Meetings Generally
Section 3.01. Manner of Giving Notice.
(a) General Rule. Whenever written notice is required to
be given to any person under the provisions of the Business Corporation Law or
by the articles or these bylaws, it may be given to the person either
personally or by sending a copy thereof by first class or express mail, postage
prepaid, or by telegram (with messenger service specified), telex or TWX (with
answerback received) or courier service, charges prepaid, or by facsimile
transmission, to the address (or to the telex, TWX, facsimile or telephone
number) of the person appearing on the books of the corporation or, in the case
of directors, supplied by the director to the corporation for the purpose of
notice. If the notice is sent by mail, telegraph or courier service, it shall
be deemed to have been given to the person entitled thereto when deposited in
the United States mail or with a telegraph office or courier service for
delivery to that person or, in the case of telex or TWX, when dispatched or, in
the case of facsimile transmission, when received. A notice of meeting shall
specify the place, day and hour of the meeting and any other information
required by any other provision of the Business Corporation Law, the articles
or these bylaws.
(b) Bulk Mail. If the corporation has more than 30
shareholders, notice of any regular or special meeting of the shareholders, or
any other notice required by the Business Corporation Law or by the articles or
these bylaws to be given to all shareholders or to all holders of a class or
series of shares, may be given by any class of postpaid mail if the notice is
deposited in the United States mail at least 20 days prior to the day named for
the meeting or any corporate or shareholder action specified in the notice.
(c) Adjourned Shareholder Meetings. When a meeting of
shareholders is adjourned, it shall not be necessary to give any notice of the
adjourned meeting or of the business to be transacted at an adjourned meeting,
other than by announcement at the meeting at which the adjournment is taken,
unless the Board fixes a new record date for the adjourned meeting in which
event notice shall be given in accordance with Section 3.03.
Section 3.02. Notice of Meetings of Board of Directors.
Notice of a regular meeting of the Board of Directors need not be given.
Notice of every special meeting of the Board of Directors shall be given to
each director by telephone or in writing at least 24 hours (in the case of
notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in the
case of notice by telegraph, courier service or express mail) or five days (in
the case of notice by first class mail) before the time at which the meeting is
to be held. Every such notice shall state the time and place of the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board need be specified in a notice of the meeting.
2
<PAGE> 3
Section 3.03. Notice of Meetings of Shareholders.
(a) General Rule. Except as otherwise provided in
Section 3.01(b), written notice of every meeting of the shareholders shall be
given by, or at the direction of, the secretary or other authorized person to
each shareholder of record entitled to vote at the meeting at least (1) ten
days prior to the day named for a meeting (and, in case of a meeting called to
consider a merger, consolidation, share exchange or division, to each
shareholder of record not entitled to vote at the meeting) called to consider a
fundamental change under 15 Pa.C.S. Chapter 19 or (2) five days prior to the
day named for the meeting in any other case. If the secretary neglects or
refuses to give notice of a meeting, the person or persons calling the meeting
may do so. In the case of a special meeting of shareholders, the notice shall
specify the general nature of the business to be transacted.
(b) Notice of Action by Shareholders on Bylaws. In the
case of a meeting of shareholders that has as one of its purposes action on the
bylaws, written notice shall be given to each shareholder that the purpose, or
one of the purposes, of the meeting is to consider the adoption, amendment or
repeal of the bylaws. There shall be included in, or enclosed with, the notice
a copy of the proposed amendment or a summary of the changes to be effected
thereby.
(c) Notice of Action by Shareholders on Fundamental
Change. In the case of a meeting of the shareholders that has as one of its
purposes action with respect to any fundamental change under 15 Pa.C.S. Chapter
19, each shareholder shall be given, together with written notice of the
meeting, a copy or summary of the amendment or plan to be considered at the
meeting in compliance with the provisions of Chapter 19.
(d) Notice of Action by Shareholders Giving Rise to
Dissenters Rights. In the case of a meeting of the shareholders that has as
one of its purposes action that would give rise to dissenters rights under the
provisions of 15 Pa.C.S. Subchapter 15D, each shareholder shall be given,
together with written notice of the meeting:
(1) statement that the shareholders have a right
to dissent and obtain payment of the fair value of their
shares by complying with the provisions of Subchapter 15D
(relating to dissenters rights); and
(2) copy of Subchapter 15D.
3
<PAGE> 4
Section 3.04. Waiver of Notice.
(a) Written Waiver. Whenever any written notice is
required to be given under the provisions of the Business Corporation Law, the
articles or these bylaws, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of the notice. Neither the
business to be transacted at, nor the purpose of, a meeting need be specified
in the waiver of notice of the meeting.
(b) Waiver by Attendance. Attendance of a person at any
meeting shall constitute a waiver of notice of the meeting except where a
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting was not
lawfully called or convened.
Section 3.05. Modification of Proposal Contained in Notice.
Whenever the language of a proposed resolution is included in a written notice
of a meeting required to be given under the provisions of the Business
Corporation Law or the articles or these bylaws, the meeting considering the
resolution may without further notice adopt it with such clarifying or other
amendments as do not enlarge its original purpose.
Section 3.06. Exception to Requirement of Notice.
(a) General Rule. Whenever any notice or communication
is required to be given to any person under the provisions of the Business
Corporation Law or by the articles or these bylaws or by the terms of any
agreement or other instrument or as a condition precedent to taking any
corporate action and communication with that person is then unlawful, the
giving of the notice or communication to that person shall not be required.
(b) Shareholders Without Forwarding Addresses. Notice or
other communications need not be sent to any shareholder with whom the
corporation has been unable to communicate for more than 24 consecutive months
because communications to the shareholder are returned unclaimed or the
shareholder has otherwise failed to provide the corporation with a current
address. Whenever the shareholder provides the corporation with a current
address, the corporation shall commence sending notices and other
communications to the shareholder in the same manner as to other shareholders.
Section 3.07. Use of Conference Telephone and Similar
Equipment. Any director may participate in any meeting of the Board of
Directors, and the Board of Directors may provide by resolution with respect to
a specific meeting or with respect to a class of meetings that one or more
persons may participate in a meeting of the shareholders of the corporation, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence
in person at the meeting.
4
<PAGE> 5
ARTICLE IV
Shareholders
Section 4.01. Place of Meeting. All meetings of the
shareholders of the corporation shall be held at such place, within or without
the State of Incorporation, as shall be determined by the Board of Directors
from time to time.
Section 4.02. Annual Meeting. The Board of Directors may fix
and designate the date and time of the annual meeting of the shareholders, but
if no such date and time is fixed and designated by the Board, the meeting for
any calendar year shall be held on the first Thursday in December in such year,
if not a legal holiday under the laws of Pennsylvania, and, if a legal holiday,
then on the next succeeding business day, not a Saturday, at 10 o'clock A.M.
and at said meeting the shareholders then entitled to vote shall elect
directors and shall transact such other business as may properly be brought
before the meeting. If the annual meeting shall not have been called and held
within six months after the designated time, any shareholder may call the
meeting at any time thereafter.
Section 4.03. Special Meetings. Special meetings of the
shareholders may be called at any time by the President or by resolution of the
Board of Directors, which may fix the date, time and place of the meeting. If
the Board does not fix the date, time or place of the meeting, it shall be the
duty of the secretary to do so. A date fixed by the secretary shall not be
more than 60 days after the date of the adoption of the resolution of the Board
calling the special meeting.
Section 4.04. Quorum and Adjournment.
(a) General Rule. A meeting of shareholders of the
corporation duly called shall not be organized for the transaction of business
unless a quorum is present. The presence of shareholders entitled to cast at
least a majority of the votes that all shareholders are entitled to cast on a
particular matter to be acted upon at the meeting shall constitute a quorum for
the purposes of consideration and action on the matter. Shares of the
corporation owned, directly or indirectly, by it and controlled, directly or
indirectly, by the Board of Directors of this corporation, as such, shall not
be counted in determining the total number of outstanding shares for quorum
purposes at any given time.
(b) Withdrawal of a Quorum. The shareholders present at
a duly organized meeting can continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
(c) Adjournments Generally. Any regular or special
meeting of the shareholders, including one at which directors are to be elected
and one which cannot be
5
<PAGE> 6
organized because a quorum has not attended, may be adjourned for such period
and to such place as the shareholders present and entitled to vote shall
direct.
(d) Electing Directors at Adjourned Meeting. Those
shareholders entitled to vote who attend a meeting called for the election of
directors that has been previously adjourned for lack of a quorum, although
less than a quorum as fixed in this section, shall nevertheless constitute a
quorum for the purpose of electing directors.
(e) Other Action in Absence of Quorum. Those
shareholders entitled to vote who attend a meeting of shareholders that has
been previously adjourned for one or more periods aggregating at least 15 days
because of an absence of a quorum, although less than a quorum as fixed in this
section, shall nevertheless constitute a quorum for the purpose of acting upon
any matter set forth in the notice of the meeting if the notice states that
those shareholders who attend the adjourned meeting shall nevertheless
constitute a quorum for the purpose of acting upon the matter.
Section 4.05. Action by Shareholders. Except as otherwise
provided in the Business Corporation Law or the articles or these bylaws,
whenever any corporate action is to be taken by vote of the shareholders of the
corporation, it shall be authorized upon receiving the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon and, if
any shareholders are entitled to vote thereon as a class, upon receiving the
affirmative vote of a majority of the votes cast by the shareholders entitled
to vote as a class.
Section 4.06. Organization. At every meeting of the
shareholders, the chairman of the Board, if there be one, or, in the case of
vacancy in office or absence of the chairman of the Board, one of the following
persons present in the order stated: the vice chairman of the Board, if there
be one, the president, the vice presidents in their order of rank and
seniority, or a person chosen by vote of the shareholders present, shall act as
chairman of the meeting. The secretary or, in the absence of the secretary, an
assistant secretary, or, in the absence of both the secretary and assistant
secretaries, a person appointed by the chairman of the meeting, shall act as
secretary of the meeting.
Section 4.07. Voting Rights of Shareholders. Unless
otherwise provided in the articles, every shareholder of the corporation shall
be entitled to one vote for each full share having voting power standing in the
name of the shareholder on the books of the corporation.
Section 4.08. Voting and Other Action by Proxy.
(a) General Rule.
(1) every shareholder entitled to vote at a
meeting of shareholders may authorize another person to act
for the shareholder by proxy.
6
<PAGE> 7
(2) The presence of, or vote or other action at a
meeting of shareholders by a proxy of a shareholder shall
constitute the presence of, or vote or action by the
shareholder.
(3) Where two or more proxies of a shareholder
are present, the corporation shall, unless otherwise expressly
provided in the proxy, accept as the vote of all shares
represented thereby the vote cast by a majority of them and,
if a majority of the proxies cannot agree whether the shares
represented shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally
among those persons.
(b) Execution and Filing. Every proxy shall be executed
in writing by the shareholder or by the duly authorized attorney-in-fact of
the shareholder and filed with the secretary of the corporation. A telegram,
telex, cablegram, datagram or similar transmission from a shareholder or
attorney-in-fact, or a photographic, facsimile or similar reproduction of a
writing executed by a shareholder or attorney-in-fact:
(1) may be treated as properly executed for
purposes of this subsection; and
(2) shall be so treated if it sets forth a
confidential and unique identification number or other mark
furnished by the corporation to the shareholder for the
purposes of a particular meeting or transaction.
(c) Revocation. A proxy, unless coupled with an
interest, shall be revocable at will, notwithstanding any other agreement or
any provision in the proxy to the contrary, but the revocation of a proxy shall
not be effective until written notice thereof has been given to the secretary
of the corporation. An unrevoked proxy shall not be valid after three years
from the date of its execution unless a longer time is expressly provided
therein. A proxy shall not be revoked by the death or incapacity of the maker
unless, before the vote is counted or the authority is exercised, written
notice of the death or incapacity is given to the secretary of the corporation.
(d) Expenses. The corporation shall pay the reasonable
expenses of solicitation of votes, proxies or consents of shareholders by or on
behalf of the Board of Directors or its nominees for election to the Board,
including solicitation by professional proxy solicitors and otherwise.
Section 4.09. Voting by Fiduciaries and Pledgees. Shares of
the corporation standing in the name of a trustee or other fiduciary and shares
held by an assignee for the benefit of creditors or by a receiver may be voted
by the trustee, fiduciary, assignee or receiver. A shareholder whose shares are
pledged shall be entitled to vote the shares until the
7
<PAGE> 8
shares have been transferred into the name of the pledgee, or a nominee of the
pledgee, but nothing in this section shall affect the validity of a proxy given
to a pledgee or nominee.
Section 4.10. Voting by Joint Holders of Shares.
(a) General Rule. Where shares of the corporation are
held jointly or as tenants in common by two or more persons, as fiduciaries or
otherwise:
(1) if only one or more of such persons is
present in person or by proxy, all of the shares standing in
the names of such persons shall be deemed to be represented
for the purpose of determining a quorum and the corporation
shall accept as the vote of all the shares the vote cast by a
joint owner or a majority of them; and
(2) if the persons are equally divided upon
whether the shares held by them shall be voted or upon the
manner of voting the shares, the voting of the shares shall be
divided equally among the persons without prejudice to the
rights of the joint owners or the beneficial owners thereof
among themselves.
(b) Exception. If there has been filed with the
secretary of the corporation a copy, certified by an attorney at law to be
correct, of the relevant portions of the agreement under which the shares are
held or the instrument by which the trust or estate was created or the order of
court appointing them or of an order of court directing the voting of the
shares, the persons specified as having such voting power in the document
latest in date of operative effect so filed, and only those persons, shall be
entitled to vote the shares but only in accordance therewith.
Section 4.11. Voting by Corporations.
(a) Voting by Corporate Shareholders. Any corporation
that is a shareholder of this corporation may vote at meetings of shareholders
of this corporation by any of its officers or agents, or by proxy appointed by
any officer or agent, unless some other person, by resolution of the Board of
Directors of the other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by one of its
officers has been filed with the secretary of this corporation, is appointed
its general or special proxy in which case that person shall be entitled to
vote the shares.
(b) Controlled Shares. Shares of this corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
Board of Directors of this corporation, as such, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time.
8
<PAGE> 9
Section 4.12. Determination of Shareholders of Record.
(a) Fixing Record Date. The Board of Directors may fix a
time prior to the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be not
more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the corporation after any record date
fixed as provided in this subsection. The Board of Directors may similarly fix
a record date for the determination of shareholders of record for any other
purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the Board fixes a new record date for
the adjourned meeting.
(b) Determination When a Record Date is Not Fixed. If a
record date is not fixed:
(1) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day next preceding
the day on which notice is given.
(2) The record date for determining shareholders
for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution
relating thereto.
(c) Certification by Nominee. The Board of Directors may
adopt a procedure whereby a shareholder of the corporation may certify in
writing to the corporation that all or a portion of the shares registered in
the name of the shareholder are held for the account of a specified person or
persons. Upon receipt by the corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purposes set forth in the certification, to be the holders of record of the
number of shares specified in place of the shareholder making the
certification.
Section 4.13. Voting Lists.
(a) General Rule. The officer or agent having charge of
the transfer books for shares of the corporation shall make a complete list of
the shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list shall be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purposes thereof except that, if the corporation has
5,000 or more shareholders, in lieu of the making of the list the corporation
may make the information therein available at the meeting by any other means.
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(b) Effect of List. Failure to comply with the
requirements of this section shall not affect the validity of any action taken
at a meeting prior to a demand at the meeting by any shareholder entitled to
vote thereat to examine the list. The original share register or transfer
book, or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be
prima facie evidence as to who are the shareholders entitled to examine the
list or share register or transfer book or to vote at any meeting of
shareholders.
Section 4.14. Judges of Election.
(a) Appointment. In advance of any meeting of
shareholders of the corporation, the Board of Directors may appoint judges of
election, who need not be shareholders, to act at the meeting or any
adjournment thereof. If judges of election are not so appointed, the presiding
officer of the meeting may, and on the request of any shareholder shall,
appoint judges of election at the meeting. The number of judges shall be one
or three. A person who is a candidate for an office to be filled at the
meeting shall not act as a judge.
(b) Vacancies. In case any person appointed as a judge
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment made by the Board of Directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
(c) Duties. The judges of election shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with nominations
by shareholders or the right to vote, count and tabulate all votes, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders. The judges of election shall perform their
duties impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of election, the
decision, act or certificate of a majority shall be effective in all respects
as the decision, act or certificate of all.
(d) Report. On request of the presiding officer of the
meeting or of any shareholder, the judges shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate
of any fact found by them. Any report or certificate made by them shall be
prima facie evidence of the facts stated therein.
Section 4.15. Minors as Security Holders. The corporation
may treat a minor who holds shares or obligations of the corporation as having
capacity to receive and to empower others to receive dividends, interest,
principal and other payments or distributions, to vote or express consent or
dissent and to make elections and exercise rights relating to such shares or
obligations unless, in the case of payments or distributions on shares, the
corporate officer responsible for maintaining the list of shareholders or the
transfer agent of the
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corporation or, in the case of payments or distributions on obligations, the
treasurer or paying officer or agent has received written notice that the
holder is a minor.
ARTICLE V
Board of Directors
Section 5.01. Powers; Personal Liability.
(a) General Rule. Unless otherwise provided by statute,
all powers vested by law in the corporation shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of, the Board of Directors.
(b) Personal Liability of Directors.
(1) A director shall not be personally liable, as
such, for monetary damages (including, without limitation, any
judgment, amount paid in settlement, penalty, punitive damages
or expense of any nature (including, without limitation,
attorneys' fees and disbursements)) for any action taken, or
any failure to take any action, unless:
(i) the director has breached or failed to
perform the duties of his or her office under
Subchapter 17B of the Business Corporation Law or any
successor provision; and
(ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or
recklessness.
(2) The provisions of paragraph (1) shall not
apply to the responsibility or liability of a director
pursuant to any criminal statute, or the liability of a
director for the payment of taxes pursuant to local, State or
Federal law.
(c) Notation of Dissent. A director of the corporation
who is present at a meeting of the Board of Directors, or of a committee of the
Board, at which action on any corporate matter is taken on which the director
is generally competent to act, shall be presumed to have assented to the action
taken unless his or her dissent is entered in the minutes of the meeting or
unless the director files his or her written dissent to the action with the
secretary of the meeting before the adjournment thereof or transmits the
dissent in writing to the secretary of the corporation immediately after the
adjournment of the meeting. The right to dissent shall not apply to a director
who voted in favor of the action. Nothing in this section shall bar a director
from asserting that minutes of the meeting incorrectly omitted his
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or her dissent if, promptly upon receipt of a copy of such minutes, the
director notifies the secretary, in writing, of the asserted omission or
inaccuracy.
Section 5.02. Qualifications and Selection of Directors.
(a) Qualifications. Each director of the corporation
shall be a natural person of full age who need not be a resident of the
Commonwealth of Pennsylvania or a shareholder of the corporation.
(b) Election of Directors. In elections for directors,
voting need not be by ballot, unless required by vote of the shareholders
before the voting for the election of directors begins. The candidates
receiving the highest number of votes from each class or group of classes, if
any, entitled to elect directors separately up to the number of directors to be
elected by the class or group of classes shall be elected. If at any meeting
of shareholders, directors of more than one class are to be elected, each class
of directors shall be elected in a separate election.
Section 5.03. Number and Term of Office.
(a) Number. The Board of Directors shall consist of not
less than three (3) Directors nor more than seven (7) Directors, such number to
be determined from time to time by resolution of the Board of Directors.
(b) Term of Office. Each director shall hold office
until the expiration of the term for which he or she was selected and until a
successor has been selected and qualified or until his or her earlier death,
resignation or removal. A decrease in the number of directors shall not have
the effect of shortening the term of any incumbent director.
(c) Resignation. Any director may resign at any time
upon written notice to the corporation. The resignation shall be effective
upon receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation.
(d) Classified Board of Directors. The directors shall
be divided into three classes, Class I, Class II and Class III with respect to
their terms of office. All classes shall be as nearly equal in number as
reasonably possible. Subject to such limitations, when the number of Directors
is changed, any newly-created directorship or any decrease in directorships
shall be apportioned among the classes by action of the Board of Directors.
The terms of office of the Directors shall be as follows:
(1) Class I shall expire at the annual meeting of
shareholders to be held in 1997;
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(2) Class II shall expire at the annual meeting
of shareholders to be held in 1998; and
(3) Class III shall expire at the annual meeting
of shareholders to be held in 1999;
At each annual meeting of shareholders, commencing with the annual meeting to
be held in 1997, the successors of the class of Directors whose term expires at
such meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year of their elections.
Section 5.04. Vacancies.
(a) General Rule. Vacancies in the Board of Directors,
including vacancies resulting from an increase in the number of directors, may
be filled by a majority vote of the remaining members of the Board though less
than a quorum, or by a sole remaining director, and each person so selected
shall be a director to serve until the next selection of the class for which
such director has been chosen, and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.
(b) Action by Resigned Directors. When one or more
directors resign from the Board effective at a future date, the directors then
in office, including those who have so resigned, shall have power by the
applicable vote to fill the vacancies, the vote thereon to take effect when the
resignations become effective.
Section 5.05. Removal of Directors.
(a) Removal by the Shareholders. The entire Board of
Directors, or any class of the Board, or any individual director may be removed
from office only for cause by vote of a majority of the shareholders entitled
to vote thereon. In case the Board, or a class of the Board or any one or more
directors are so removed, new directors may be elected at the same meeting.
The repeal of a provision of the articles or bylaws prohibiting, or the
addition of a provision to the articles or bylaws permitting, the removal by
the shareholders of the Board, a class of the Board or any individual director
without assigning any cause shall not apply to any incumbent director during
the balance of the term for which the director was selected.
(b) Removal by the Board. The Board of Directors may
declare vacant the office of a director who has been judicially declared of
unsound mind or who has been convicted of an offense punishable by imprisonment
for a term of more than one year or if, within 60 days after notice of his or
her selection, the director does not accept the office either in writing or by
attending a meeting of the Board of Directors.
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Section 5.06. Place of Meetings. Meetings of the Board of
Directors may be held at such place within or without the Commonwealth of
Pennsylvania as the Board of Directors may from time to time appoint or as may
be designated in the notice of the meeting.
Section 5.07. Organization of Meetings. At every meeting of
the Board of Directors, the chairman of the Board, if there be one, or, in the
case of a vacancy in the office or absence of the chairman of the Board, one of
the following officers present in the order stated: the vice chairman of the
Board, if there be one, the president, the vice presidents in their order of
rank and seniority, or a person chosen by a majority of the directors present,
shall act as chairman of the meeting. The secretary or, in the absence of the
secretary, an assistant secretary, or, in the absence of the secretary and the
assistant secretaries, any person appointed by the chairman of the meeting,
shall act as secretary of the meeting.
Section 5.08. Regular Meetings. Regular meetings of the
Board of Directors shall be held at such time and place as shall be designated
from time to time by resolution of the Board of Directors.
Section 5.09. Special Meetings. Special meetings of the
Board of Directors shall be held whenever called by the chairman or by two or
more of the directors.
Section 5.10. Quorum of and Action by Directors.
(a) General Rule. A majority of the directors in office
of the corporation shall be necessary to constitute a quorum for the
transaction of business and the acts of a majority of the directors present and
voting at a meeting at which a quorum is present shall be the acts of the Board
of Directors.
(b) Action by Written Consent. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if, prior or subsequent to the action, a consent or consents thereto by
all of the directors in office is filed with the secretary of the corporation.
Section 5.11. Executive and Other Committees.
(a) Establishment and Powers. The Board of Directors
may, by resolution adopted by a majority of the directors in office, establish
one or more committees to consist of one or more directors of the corporation.
Any committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all of the powers and authority of the
Board of Directors except that a committee shall not have any power or
authority as to the following:
(1) The submission to shareholders of any action
requiring approval of shareholders under the Business
Corporation Law.
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(2) The creation or filling of vacancies in the
Board of Directors.
(3) The adoption, amendment or repeal of these
bylaws.
(4) The amendment or repeal of any resolution of
the Board that by its terms is amendable or repealable only by
the Board.
(5) Action on matters committed by a resolution
of the Board of Directors to another committee of the Board.
(b) Alternate Committee Members. The Board may designate
one or more directors as alternate members of any committee who may replace any
absent or disqualified member at any meeting of the committee or for the
purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
director to act at the meeting in the place of the absent or disqualified
member.
(c) Term. Each committee of the Board shall serve at the
pleasure of the Board.
(d) Committee Procedures. The term "Board of Directors"
or "Board," when used in any provision of these bylaws relating to the
organization or procedures of or the manner of taking action by the Board of
Directors, shall be construed to include and refer to any executive or other
committee of the Board.
Section 5.12. Compensation. The Board of Directors shall
have the authority to fix the compensation of directors for their services as
directors and a director may be a salaried officer of the corporation.
ARTICLE VI
Officers
Section 6.01. Officers Generally.
(a) Number, Qualifications and Designation. The officers
of the corporation shall be a president, one or more vice presidents, a
secretary, a treasurer, and such other officers as may be elected in accordance
with the provisions of Section 6.03. Officers may but need not be directors or
shareholders of the corporation. The president and secretary shall be natural
persons of full age. The treasurer may be a corporation, but if a natural
person shall be of full age. The Board of Directors may elect from among the
members of the Board a chairman of the Board and a vice chairman of the Board
who shall be officers of the corporation. Any number of offices may be held by
the same person.
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(b) Bonding. The corporation may secure the fidelity of
any or all of its officers by bond or otherwise.
(c) Standard of Care. In lieu of the standards of
conduct otherwise provided by law, officers of the corporation shall be subject
to the same standards of conduct, including standards of care and loyalty and
rights of justifiable reliance, as shall at the time be applicable to directors
of the corporation. An officer of the corporation shall not be personally
liable, as such, to the corporation or its shareholders for monetary damages
(including, without limitation, any judgment, amount paid in settlement,
penalty, punitive damages or expense of any nature (including, without
limitation, attorneys' fees and disbursements)) for any action taken, or any
failure to take any action, unless the officer has breached or failed to
perform the duties of his or her office under the articles, these bylaws, or
the applicable provisions of law and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The provisions
of this subsection shall not apply to the responsibility or liability of an
officer pursuant to any criminal statute or for the payment of taxes pursuant
to local, state or federal law.
Section 6.02. Election, Term of Office and Resignations.
(a) Election and Term of Office. The officers of the
corporation, except those elected by delegated authority pursuant to Section
6.03, shall be elected annually by the Board of Directors, and each such
officer shall hold office for a term of one year and until a successor has been
selected and qualified or until his or her earlier death, resignation or
removal.
(b) Resignations. Any officer may resign at any time
upon written notice to the corporation. The resignation shall be effective
upon receipt thereof by the corporation or at such subsequent time as may be
specified in the notice of resignation.
Section 6.03. Subordinate Officers, Committees and Agents.
The Board of Directors may from time to time elect such other officers and
appoint such committees, employees or other agents as the business of the
corporation may require, including one or more assistant secretaries, and one
or more assistant treasurers, each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these bylaws,
or as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any officer or committee the power to elect
subordinate officers and to retain or appoint employees or other agents, or
committees thereof, and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
Section 6.04. Removal of Officers and Agents. Any officer or
agent of the corporation may be removed by the Board of Directors with or
without cause. The removal shall be without prejudice to the contract rights,
if any, of any person so removed. Election or appointment of an officer or
agent shall not of itself create contract rights.
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Section 6.05. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification, or any other cause, may be
filled by the Board of Directors or by the officer or committee to which the
power to fill such office has been delegated pursuant to Section 6.03, as the
case may be, and if the office is one for which these bylaws prescribe a term,
shall be filled for the unexpired portion of the term.
Section 6.06. Authority. All officers of the corporation, as
between themselves and the corporation, shall have such authority and perform
such duties in the management of the corporation as may be provided by or
pursuant to resolutions or orders of the Board of Directors or, in the absence
of controlling provisions in the resolutions or orders of the Board of
Directors, as may be determined by or pursuant to these bylaws.
Section 6.07. The Chairman and Vice Chairman of the Board.
The chairman of the Board or in the absence of the chairman, the vice chairman
of the Board, shall preside at all meetings of the shareholders and of the
Board of Directors, and shall perform such other duties as may from time to
time be requested by the Board of Directors.
Section 6.08. The President. The president shall be the
chief executive officer of the corporation. The president shall have general
supervision over the business and operations of the corporation, subject
however, to the control of the Board of Directors. The president shall sign,
execute, and acknowledge, in the name of the corporation, deeds, mortgages,
bonds, contracts or other instruments, authorized by the Board of Directors,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors, or by these bylaws, to some other officer
or agent of the corporation; and, in general, shall perform all duties incident
to the office of president and such other duties as from time to time may be
assigned by the Board of Directors. The president shall from time to time make
such reports of the affairs of the corporation as the Board may require and
shall annually present to the annual meeting of the shareholders a report of
the business of the corporation for the preceding fiscal year.
Section 6.09. The Vice Presidents. The vice presidents shall
perform the duties of the president in the absence of the president and such
other duties as may from time to time be assigned to them by the Board of
Directors or the president. If there is more than one vice president, their
seniority in performing such duties and exercising such powers shall be
determined by the order in which they were first elected or appointed, or as
determined by the Board.
Section 6.10. The Secretary. The secretary or an assistant
secretary shall attend all meetings of the shareholders and of the Board of
Directors and all committees thereof and shall record all the votes of the
shareholders and of the directors and the minutes of the meetings of the
shareholders and of the Board of Directors and of committees of the Board in a
book or books to be kept for that purpose; shall see that notices are given and
records and reports properly kept and filed by the corporation as required by
law; shall be the
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custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of secretary, and such
other duties as may from time to time be assigned by the Board of Directors or
the president.
Section 6.11. The Treasurer. The treasurer shall be the
chief financial officer and shall have or provide for the custody of the funds
or other property of the corporation; shall collect and receive or provide for
the collection and receipt of moneys earned by or in any manner due to or
received by the corporation; shall deposit all funds in his or her custody as
treasurer in such banks or other places of deposit as the Board of Directors
may from time to time designate; shall, whenever so required by the Board of
Directors, render an account showing all transactions as treasurer, and the
financial condition of the corporation; and, in general, shall discharge such
other duties as may from time to time be assigned by the Board of Directors or
the president.
Section 6.12. Salaries. The salaries of the officers elected
by the Board of Directors shall be fixed from time to time by the Board of
Directors or by such officer as may be designated by resolution of the Board.
The salaries or other compensation of any other officers, employees and other
agents shall be fixed from time to time by the Board, or by the officer or
committee to which the power to elect such officers or to retain or appoint
such employees or other agents has been delegated pursuant to Section 6.03. No
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that the officer is also a director of the corporation.
ARTICLE VII
Certificates of Stock, Transfer, Etc.
Section 7.01. Share Certificates.
(a) Form of Certificates. Certificates for shares of the
corporation shall be in such form as approved by the Board of Directors, and
shall state that the corporation is incorporated under the laws of the
Commonwealth of Pennsylvania, the name of the person to whom issued, and the
number and class of shares and the designation of the series (if any) that the
certificate represents. If the corporation is authorized to issue shares of
more than one class or series, certificates for shares of the corporation shall
set forth upon the face or back of the certificate (or shall state on the face
or back of the certificate that the corporation will furnish to any shareholder
upon request and without charge), a full or summary statement of the
designations, voting rights, preferences, limitations and special rights of the
shares of each class or series authorized to be issued so far as they have been
fixed and determined and the authority of the Board of Directors to fix and
determine the designations, voting rights, preferences, limitations and special
rights of the classes and series of shares of the corporation.
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(b) Share Register. The share register or transfer books
and blank share certificates shall be kept by the secretary or by any transfer
agent or registrar designated by the Board of Directors for that purpose.
Section 7.02. Issuance. The share certificates of the
corporation shall be numbered and registered in the share register or transfer
books of the corporation as they are issued. They shall be executed in such
manner as the Board of Directors shall determine. In case any officer,
transfer agent or registrar who has signed or authenticated, or whose facsimile
signature or authentication has been placed upon, any share certificate shall
have ceased to be such officer, transfer agent or registrar because of death,
resignation or otherwise, before the certificate is issued, the certificate may
be issued with the same effect as if the officer, transfer agent or registrar
had not ceased to be such at the date of its issue. The provisions of this
Section 7.02 shall be subject to any inconsistent or contrary agreement in
effect at the time between the corporation and any transfer agent or registrar.
Section 7.03. Transfer. Transfers of shares shall be made on
the share register or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made
inconsistent with the provisions of the Uniform Commercial Code, 13 Pa.C.S.
Section Section 8101 et seq., and its amendments and supplements.
Section 7.04. Record Holder of Shares. The corporation shall
be entitled to treat the person in whose name any share or shares of the
corporation stand on the books of the corporation as the absolute owner
thereof, and shall not be bound to recognize any equitable or other claim to,
or interest in, such share or shares on the part of any other person.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The
holder of any shares of the corporation shall immediately notify the
corporation of any loss, destruction or mutilation of the certificate therefor,
and the Board of Directors may, in its discretion, cause a new certificate or
certificates to be issued to such holder, in case of mutilation of the
certificate, upon the surrender of the mutilated certificate or, in case of
loss or destruction of the certificate, upon satisfactory proof of such loss or
destruction and, if the Board of Directors shall so determine, the deposit of a
bond in such form and in such sum, and with such surety or sureties, as it may
direct.
Section 7.06. Agreements Restricting Transfer of Shares.
The Board of Directors may authorize the corporation to become party to
agreements with shareholders and others relating to transfer, repurchase and
issuance of shares of stock of the corporation; provided, however, that such
agreement must be filed with the corporation and all share certificates
affected thereby shall have clearly imprinted thereon a legend containing such
agreement or referring thereto.
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ARTICLE VIII
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 8.01. Scope of Indemnification.
(a) General Rule. The corporation shall indemnify an
indemnified representative against any liability incurred in connection with
any proceeding in which the indemnified representative may be involved as a
party or otherwise by reason of the fact that such person is or was serving in
an indemnified capacity, including, without limitation, liabilities resulting
from any actual or alleged breach or neglect of duty, error, misstatement or
misleading statement, negligence, gross negligence or act giving rise to strict
or products liability, except:
(1) where such indemnification is expressly
prohibited by applicable law;
(2) where the conduct of the indemnified
representative has been finally determined pursuant to Section
8.06 or otherwise:
(i) to constitute willful misconduct or
recklessness within the meaning of 15 Pa.C.S. Section
1746(b) or any superseding provision of law
sufficient in the circumstances to bar
indemnification against liabilities arising from the
conduct; or
(ii) to be based upon or attributable to the
receipt by the indemnified representative from the
corporation of a personal benefit to which the
indemnified representative is not legally entitled;
or
(3) to the extent such indemnification has been
finally determined in a final adjudication pursuant to Section
8.06 to be otherwise unlawful.
(b) Partial Payment. If an indemnified representative is
entitled to indemnification in respect of a portion, but not all, of any
liabilities to which such person may be subject, the corporation shall
indemnify such indemnified representative to the maximum extent for such
portion of the liabilities.
(c) Presumption. The termination of a proceeding by
judgment, order, settlement or conviction or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that the indemnified
representative is not entitled to indemnification.
(d) Definitions. For purposes of this Article:
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(1) "indemnified capacity" means any and all
past, present and future service by an indemnified
representative in one or more capacities as a director,
officer, employee or agent of the corporation, or, at the
request of the corporation, as a director, officer, employee,
agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or
other entity or enterprise;
(2) "indemnified representative" means any and
all directors and officers of the corporation and any other
person designated as an indemnified representative by the
Board of Directors of the corporation (which may, but need
not, include any person serving at the request of the
corporation, as a director, officer, employee, agent,
fiduciary or trustee of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or
enterprise);
(3) "liability" means any damage, judgment,
amount paid in settlement, fine, penalty, punitive damages,
excise tax assessed with respect to an employee benefit plan,
or cost or expense of any nature (including, without
limitation, attorneys' fees and disbursements); and
(4) "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of any
nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought
by or in the right of the corporation, a class of its security
holders or otherwise.
Section 8.02. Proceedings Initiated by Indemnified
Representatives. Notwithstanding any other provision of this Article, the
corporation shall not indemnify under this Article an indemnified
representative for any liability incurred in a proceeding initiated (which
shall not be deemed to include counter claims or affirmative defenses) or
participated in as an intervenor or amicus curiae by the person seeking
indemnification unless such initiation of or participation in the proceeding is
authorized, either before or after its commencement, by the affirmative vote of
a majority of the directors in office. This section does not apply to
reimbursement of expenses incurred in successfully prosecuting or defending an
arbitration under Section 8.06 or otherwise successfully prosecuting or
defending the rights of an indemnified representative granted by or pursuant to
this Article.
Section 8.03. Advancing Expenses. The corporation shall pay
the expenses (including attorneys' fees and disbursements) incurred in good
faith by an indemnified representative in advance of the final disposition of a
proceeding described in Section 8.01 or the initiation of or participation in
which is authorized pursuant to Section 8.02 upon receipt of an undertaking by
or on behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 8.06 that such person is not entitled
to be
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indemnified by the corporation pursuant to this Article. The financial ability
of an indemnified representative to repay an advance shall not be a
prerequisite to the making of such advance.
Section 8.04. Securing of Indemnification Obligations. To
further effect, satisfy or secure the indemnification obligations provided
herein or otherwise, the corporation may maintain insurance, obtain a letter of
credit, act as self-insurer, create a reserve, trust, escrow, cash collateral
or other fund or account, enter into indemnification agreements, pledge or
grant a security interest in any assets or properties of the corporation, or
use any other mechanism or arrangement whatsoever in such amounts, at such
costs, and upon such other terms and conditions as the Board of Directors shall
deem appropriate. Absent fraud, the determination of the Board of Directors
with respect to such amounts, costs, terms and conditions shall be conclusive
against all security holders, officers and directors and shall not be subject
to voidability.
Section 8.05. Payment of Indemnification. An indemnified
representative shall be entitled to indemnification within 30 days after a
written request for indemnification has been delivered to the secretary of the
corporation.
Section 8.06. Arbitration.
(a) General Rule. Any dispute related to the right to
indemnification, contribution or advancement of expenses as provided under this
Article, except with respect to indemnification for liabilities arising under
the Securities Act of 1933 that the corporation has undertaken to submit to a
court for adjudication, shall be decided only by arbitration in the
metropolitan area in which the principal executive offices of the corporation
are located at the time, in accordance with the commercial arbitration rules
then in effect of the American Arbitration Association, before a panel of three
arbitrators, one of whom shall be selected by the corporation, the second of
whom shall be selected by the indemnified representative and the third of whom
shall be selected by the other two arbitrators. In the absence of the American
Arbitration Association, or if for any reason arbitration under the arbitration
rules of the American Arbitration Association cannot be initiated, and if one
of the parties fails or refuses to select an arbitrator or the arbitrators
selected by the corporation and the indemnified representative cannot agree on
the selection of the third arbitrator within 30 days after such time as the
corporation and the indemnified representative have each been notified of the
selection of the other's arbitrator, the necessary arbitrator or arbitrators
shall be selected by the presiding judge of the court of general jurisdiction
in such metropolitan area.
(b) Qualifications of Arbitrators. Each arbitrator
selected as provided herein is required to be or have been a director or
executive officer of a corporation whose shares of common stock were listed
during at least one year of such service on the New York Stock Exchange or the
American Stock Exchange or quoted on the National Association of Securities
Dealers Automated Quotations System.
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(c) Burden of Proof. The party or parties challenging
the right of an indemnified representative to the benefits of this Article
shall have the burden of proof.
(d) Expenses. The corporation shall reimburse an
indemnified representative for the expenses (including attorneys' fees and
disbursements) incurred in successfully prosecuting or defending such
arbitration.
(e) Effect. Any award entered by the arbitrators shall
be final, binding and nonappealable and judgment may be entered thereon by any
party in accordance with applicable law in any court of competent jurisdiction,
except that the corporation shall be entitled to interpose as a defense in any
such judicial enforcement proceeding any prior final judicial determination
adverse to the indemnified representative under Section 8.01(a)(2) in a
proceeding not directly involving indemnification under this Article. This
arbitration provision shall be specifically enforceable.
Section 8.07. Contribution. If the indemnification provided
for in this Article or otherwise is unavailable for any reason in respect of
any liability or portion thereof, the corporation shall contribute to the
liabilities to which the indemnified representative may be subject in such
proportion as is appropriate to reflect the intent of this Article or
otherwise.
Section 8.08. Mandatory Indemnification of Directors,
Officers, etc. To the extent that an authorized representative of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 1741 or 1742 of the Business
Corporation Law or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees and
disbursements) actually and reasonably incurred by such person in connection
therewith.
Section 8.09. Contract Rights; Amendment or Repeal. All
rights under this Article shall be deemed a contract between the corporation
and the indemnified representative pursuant to which the corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment
or modification hereof shall be prospective only and shall not affect any
rights or obligations then existing.
Section 8.10. Scope of Article. The rights granted by this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification, contribution or advancement of expenses may be
entitled under any statute, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an indemnified capacity and as to
action in any other capacity. The indemnification, contribution and
advancement of expenses provided by or granted pursuant to this Article shall
continue as to a person who has ceased to be an indemnified representative in
respect of matters arising prior to such time, and shall inure to the benefit
of the heirs, executors, administrators and personal representatives of such a
person.
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Section 8.11. Reliance on Provisions. Each person who shall
act as an indemnified representative of the corporation shall be deemed to be
doing so in reliance upon the rights of indemnification, contribution and
advancement of expenses provided by this Article.
Section 8.12. Interpretation. The provisions of this Article
are intended to constitute bylaws authorized by 15 Pa.C.S. Section 1746.
Section 8.13. Changes in Pennsylvania Law. References in
this Article VIII to Pennsylvania law or to any provision thereof shall be to
such law (including without limitation to the Directors' Liability Act) as it
existed on the date this Article VIII was adopted or as such law thereafter may
be changed; provided that (a) in the case of any change which expands the
liability of Directors or limits the indemnification rights or the rights to
advancement of expenses which the corporation may provide, the rights to
limited liability, to indemnification and to the advancement of expenses
provided in this Article shall continue as theretofore to the extent permitted
by law; and (b) if such change permits the corporation without the requirement
of any further action by shareholders or Directors to limit further the
liability of Directors (or limit the liability of Officers) or to provide
broader indemnification rights or rights to the advancement of expenses than
the corporation was permitted to provide prior to such change, then liability
thereupon shall be so limited and the rights to indemnification and the
advancement of expenses shall be so broadened to the extent permitted by law.
ARTICLE IX
Dividends and Other Distributions to Shareholders
Section 9.01. Dividends. Subject to applicable law of the
State of Incorporation, and in accordance with the provisions thereof at the
pertinent applicable time, the Board of Directors of the corporation may from
time to time declare, and the corporation may pay, dividends on its outstanding
shares in cash or property other than its own shares, except when the
corporation is insolvent, or when the payment thereof would render the
corporation insolvent, or when the declaration or payment thereof would be
contrary to any restriction contained in the articles, but:
(1) Dividends may be declared and paid in cash or
property only out of unreserved and unrestricted earned
surplus of the corporation, except as otherwise provided by
statute; and
(2) No dividends shall be paid which would reduce
the remaining net assets of the corporation below the
aggregate preferential amount payable in the event of
voluntary liquidation to the holders of shares having
preferential rights to the assets of the corporation in the
event of liquidation. The Board of
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Directors may also, from time to time, distribute to the
holders of the corporation's outstanding shares having a
cumulative preferential right to receive dividends in discharge
of their cumulative dividend rights, dividends payable in cash
out of the unrestricted capital surplus of the corporation, if
at the time the corporation has no earned surplus and is not
insolvent and would not thereby be rendered insolvent. Each
such distribution, when made, shall be identified as a payment
of cumulative dividends out of capital surplus.
Section 9.02 Distributions of Shares of the Corporation. The
Board of Directors of the corporation may, from time to time, distribute pro
rata to holders of any class or classes of its issued shares, treasury shares
and authorized but unissued shares, but
(1) If distribution is made, in the corporation's
authorized but unissued shares having a par value, there shall
be transferred to stated capital at the time of such
distribution an amount of surplus at least equal to the
aggregate par value of the shares so issued;
(2) If a distribution is made in the
corporation's authorized but unissued shares without par
value, the Board of Directors may fix a stated value for the
shares so issued, and there shall be transferred to stated
capital, at the time of such distribution, an amount of
surplus equal to the aggregate stated value, if any, so fixed;
(3) The amount per share so transferred to stated
capital, or the fact that there was no such transfer, shall be
disclosed to the shareholders receiving such distribution
concurrently with the distribution thereof;
(4) No distribution of shares of any class shall
be made to holders of shares of any other class unless the
articles so provide or such distribution is authorized by the
affirmative vote or written consent of the holders of a
majority of the outstanding shares of the class in which the
distribution is to be made.
In lieu of issuing fractional shares in any such distribution,
the corporation may pay in cash the fair value thereof, as determined by the
Board of Directors, to shareholders entitled thereto.
Section 9.03. Reserves. There may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
Directors, from time to time, in their absolute discretion determine as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for the purchase
of additional property, or for such other purpose as the Board of Directors
shall
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think conducive to the interests of the corporation. The Board of Directors
may abolish or modify any such reserve.
Section 9.04 Distributions in Partial Liquidation. The Board
of Directors of the corporation may, from time to time, distribute to the
shareholders in partial liquidation, out of unrestricted capital surplus of the
corporation, a portion of its assets in cash or property, subject to the
following conditions:
(1) No such distribution shall be made at a time
when the corporation is insolvent or when such distribution
would render the corporation insolvent;
(2) No such distribution shall be made unless
such distribution shall have been authorized by the prior
affirmative vote, obtained within one (1) year of such
distribution, of the holders of at least a majority of the
outstanding shares of each class, whether or not entitled to
vote thereon by the provisions of the articles;
(3) No such distribution shall be made to the
holders of any class of shares unless all cumulative dividends
accrued on all classes of shares entitled to preferential
dividends, prior to dividends on the shares to the holders of
which such distribution is to be made, shall have been fully
paid;
(4) No such distribution shall be made to the
holders of any class of shares which would reduce the
remaining net assets of the corporation below the aggregate
preferential amount payable in the event of voluntary
liquidation to the holders of shares having preferential
rights to the assets of the corporation in the event of
liquidation;
(5) Each such distribution, when made, shall be
identified as a distribution in partial liquidation and the
amount per share disclosed to the shareholders receiving the
same concurrently with the distribution thereof.
ARTICLE X
Miscellaneous
Section 10.01. Checks. All checks, notes, bills of exchange
or other similar orders in writing shall be signed by such one or more officers
or employees of the corporation as the Board of Directors may from time to time
designate.
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Section 10.02. Contracts.
(a) General Rule. Except as otherwise provided in the
Business Corporation Law in the case of transactions that require action by the
shareholders, the Board of Directors may authorize any officer or agent to
enter into any contract or to execute or deliver any instrument on behalf of
the corporation, and such authority may be general or confined to specific
instances.
(b) Statutory Form of Execution of Instruments. Any
note, mortgage, evidence of indebtedness, contract or other document, or any
assignment or endorsement thereof, executed or entered into between the
corporation and any other person, when signed by one or more officers or agents
having actual or apparent authority to sign it, or by the president or vice
president and secretary or assistant secretary or treasurer or assistant
treasurer of the corporation, shall be held to have been properly executed for
and in behalf of the corporation, without prejudice to the rights of the
corporation against any person who shall have executed the instrument in excess
of his or her actual authority.
Section 10.03. Interested Directors or Officers; Quorum.
(a) General Rule. A contract or transaction between the
corporation and one or more of its directors or officers or between the
corporation and another corporation, partnership, joint venture, trust or other
enterprise in which one or more of its directors or officers are directors or
officers or have a financial or other interest, shall not be void or voidable
solely for that reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors that authorizes the
contract or transaction, or solely because his, her or their votes are counted
for that purpose, if:
(1) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed
or are known to the Board of Directors and the Board
authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors even though
the disinterested directors are less than a quorum;
(2) the material facts as to his or her
relationship or interest and as to the contract or transaction
are disclosed or are known to the shareholders entitled to
vote thereon and the contract or transaction is specifically
approved in good faith by vote of those shareholders; or
(3) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or
ratified by the Board of Directors or the shareholders.
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(b) Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board which
authorizes a contract or transaction specified in subsection (a).
Section 10.04. Deposits. All funds of the corporation shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by
such one or more officers or employees of the corporation as the Board of
Directors shall from time to time designate.
Section 10.05. Corporate Records.
(a) Required Records. The corporation shall keep
complete and accurate books and records of account, minutes of the proceedings
of the incorporators, shareholders and directors and a share register giving
the names and addresses of all shareholders and the number and class of shares
held by each. The share register shall be kept at either the registered office
of the corporation in the Commonwealth of Pennsylvania or at its principal
place of business wherever situated or at the office of its registrar or
transfer agent. Any books, minutes or other records may be in written form or
any other form capable of being converted into written form within a reasonable
time.
(b) Right of Inspection. Every shareholder shall, upon
written verified demand stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business for any
proper purpose, the share register, books and records of account, and records
of the proceedings of the incorporators, shareholders and directors and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to the interest of the person as a shareholder. In every instance
where an attorney or other agent is the person who seeks the right of
inspection, the demand shall be accompanied by a verified power of attorney or
other writing that authorizes the attorney or other agent to so act on behalf
of the shareholder. The demand shall be directed to the corporation at its
registered office in the Commonwealth of Pennsylvania or at its principal place
of business wherever situated.
Section 10.06. Amendment of Bylaws. These bylaws may be
amended or repealed, or new bylaws may be adopted, either (i) by vote of the
shareholders at any duly organized annual or special meeting of shareholders,
or (ii) with respect to those matters that are not by statute committed
expressly to the shareholders and regardless of whether the shareholders have
previously adopted or approved the bylaw being amended or repealed, by vote of
a majority of the Board of Directors of the corporation in office at any
regular or special meeting of directors. Any change in these bylaws shall take
effect when adopted unless otherwise provided in the resolution effecting the
change. See Section 3.03(b) (relating to notice of action by shareholders on
bylaws).
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Section 10.07. Exemption From Certain Statutory Provisions.
Subchapters E, F, G, H, I and J of Chapter 25 of the Business Corporation Law
shall not be applicable to the corporation.
ARTICLE XI
Amendments
Section 11.01. Amendment by Shareholders. These bylaws may
be altered, amended or repealed by a majority vote of all of the shares of
stock of the corporation issued and outstanding and entitled to vote at any
annual or special meetings of the shareholders duly convened after appropriate
notice to the shareholders of such proposed alteration, amendment or repeal.
Section 11.02. Amendment by the Board of Directors. These
bylaws may be altered, amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board duly convened after appropriate notice to the Directors of such proposed
alteration, amendment or repeal.
Section 11.03. Recording Amendments and Alterations. The
text of all amendments and alterations to these bylaws shall be attached to the
bylaws with a notation of the date of each such amendment or alteration and a
notation of whether such amendment or alteration was adopted by the
shareholders or the Board of Directors.
ARTICLE XII
Adoption of Bylaws - Record of Amendment
Section 12.1. Adoption. These Amended and Restated Bylaws
have been adopted and filed with the undersigned on the 28th day of June, 1996,
and shall be effective as of this date.
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<PAGE> 1
Morgan, Lewis & Bockius LLP
COUNSELORS AT LAW
May 7, 1996
Patlex Holdings, Inc.
250 Cotorro Court
Suite A
Las Cruces, New Mexico
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Patlex Holdings, Inc., a Pennsylvania corporation
(the "Company"), in connection with the preparation of the subject registration
statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), relating to the registration by the Company of up to
7,618,577 shares (the "Shares") of Common Stock, par value $.10 per share, of
the Company (the "Common Stock") issuable to the shareholders of Patlex
Corporation, a Pennsylvania corporation ("Patlex") and Database Technologies,
Inc., a Florida corporation ("DBT") in accordance with the terms of (i) the
Plan of Merger and Reorganization (the "Plan of Reorganization") providing for
the merger of Patlex Newco, Inc., a Pennsylvania corporation and wholly-owned
subsidiary of the Company ("Newco") with and into Patlex (the
"Reorganization"), after which Patlex will become a wholly-owned subsidiary of
the Company and (ii) the Agreement of Merger, dated as of February 7, 1996 (the
"Merger Agreement"), among Patlex, the Company, DBT Acquisition Corp., a
Florida corporation and wholly-owned subsidiary of the Company ("DBT
Acquisition") and DBT, providing, among other things for the merger (the
"Merger") of DBT Acquisition with and into DBT.
In connection with this opinion, we have examined the Registration Statement
and the Exhibits thereto, the Plan of Reorganization, the Merger Agreement, the
Company's Articles of Incorporation and Bylaws and certain of the Company's
corporate proceedings as reflected in its minute books. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity with the originals
of all documents submitted to us as copies thereof.
We have also assumed that the Reorganization and the Merger will be implemented
as described in the Registration Statement and in accordance with the Plan of
Reorganization and
<PAGE> 2
Patlex Holdings, Inc.
May 7, 1996
Page 2
Merger Agreement. In addition, we have made such other examinations of law and
fact as we have deemed relevant in order to form a basis for the opinion
hereinafter expressed. Merger Agreement.
In our opinion, the Shares will be legally issued, fully paid and
non-assessable shares of Common Stock of the Company when and to the extent
issued by the Company in the manner contemplated in the Registration Statement
and in accordance with the Plan of Reorganization and the Merger Agreement.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to all references to our firm in the Registration Statement. In
giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and
the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE> 1
Morgan, Lewis & Bockius LLP
COUNSELORS AT LAW
April 16, 1996
Patlex Corporation
250 Cotorro Court, Suite A
Las Cruces, NM 88005
Re: Certain Federal Income Tax Consequences of the Combination
of Database Technologies and Patlex
----------------------------------------------------------
Gentlemen:
Pursuant to an agreement and plan of Merger dated as of February 7, 1996 among
Patlex Corporation ("Patlex"), Patlex Holdings, Inc. ("Holdco") (a wholly-owned
subsidiary of Patlex), DBT Acquisition Corp. ("Merger Subsidiary") (a
wholly-owned subsidiary of Holdco) and Database Technologies, Inc. ("DBT")
(the "Merger Agreement"), Holdco will form Patlex Newco, Inc. ("Newco"), as a
wholly-owned subsidiary of Holdco. In addition, Newco will merge with and into
Patlex (the "Reorganization") and Merger Subsidiary will merge with and into
DBT (the "Merger" and together with the Reorganization, the "Combination") with
DBT and Patlex shareholders receiving Holdco common stock in exchange for their
DBT or Patlex common stock. Capitalized terms not otherwise defined in this
opinion have the meanings ascribed to such terms in the Merger Agreement or the
other documents referred to in the Merger Agreement.
We have acted as legal counsel to Patlex in connection with the Combination and
you have requested our opinion regarding certain federal income tax
consequences of the Combination. As such, and for the purpose of rendering
this opinion, we have examined and are relying upon (without any independent
investigation or review thereof) the truth and accuracy, at all relevant times,
of the statements, covenants, representations and warranties contained in the
following documents:
1. The Merger Agreement;
2. The Registration Statement of Holdco; and
3. Such other instruments and documents related to the formation,
organization and operation of and or to the consummation of the Combination as
we have deemed necessary or appropriate.
<PAGE> 2
Patlex Corporation
April 16, 1996
Page 2
In preparing our opinion, as set forth below, we have reviewed such other
documents relating to the Combination and such federal income tax authority as
we deemed relevant under the circumstances. For purposes of this opinion, we
have also assumed, with your permission and without independent investigation
that (i) original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the date of the Combination) due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness of those documents and (ii) the Reorganization and the Merger
will each be effective under state law.
Furthermore, as to certain facts (including those facts contained in the
"FACTS" section of this opinion) material to our opinion that we did not
independently establish or verify, we have relied upon the accuracy of
statements and representations of officers of each of DBT, Patlex and Holdco
(the "Certifications") contained in officer's certificates, each bearing
today's date, which certifications are set forth as follows:
1. The "FACTS" section contained herein is true, correct, and
complete in all respects.
2. The fair market value of the total consideration received by
each Patlex or DBT shareholder will be approximately equal to the fair market
value of the Patlex or DBT stock surrendered by such shareholder in the
exchange.
3. There is no plan of intention on the part of the shareholders
of Patlex or DBT who own five percent or more of Patlex or DBT stock as of the
date of the Combination, and to the best knowledge of Patlex and DBT, there is
no plan or intention on the part of the remaining shareholders of Patlex or
DBT, to sell, exchange, or otherwise dispose of a number of shares of Holdco
stock received in the Combination that would reduce Patlex or DBT shareholders'
respective ownership of Holdco stock to a number of shares of Holdco stock
having a value, as of the date of the Combination, of less than 50 percent of
the value of all of the formerly outstanding Patlex or DBT stock, respectively,
as of the same date. For purposes of this representation, shares of Patlex or
DBT stock exchanged for cash or other property or exchanged for cash in lieu of
fractional shares of Holdco stock, if any, will be treated as outstanding
Patlex or DBT stock on the date of the Combination. Moreover, shares of Patlex
or DBT stock and Holdco stock held by Patlex or DBT shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the Combination, if any,
will be considered in making this representation.
4. The payment of cash in lieu of fractional shares of Holdco
stock in the Combination is solely for the purpose of avoiding the expense and
inconvenience to Holdco of issuing fractional shares of Holdco stock and does
not represent separately bargained for consideration.
<PAGE> 3
Patlex Corporation
April 16, 1996
Page 3
5. On the date of the Combination, Patlex and DBT will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Patlex or DBT that,
if exercised or converted, would affect Holdco's acquisition or retention of
control of Patlex and DBT. For purposes of this representation, control means
the direct ownership of stock in Patlex and DBT possessing at least 80 percent
of the total combined voting power of all classes of Patlex and DBT stock
entitled to vote and at least 80 percent of the total number of shares of each
other class of Patlex and DBT stock.
6. Patlex, DBT, Newco and Merger Subsidiary and their respective
shareholders will each pay their own expenses, if any, incurred in connection
with the Combination.
7. Neither Patlex nor DBT is an investment company as defined in
section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended (the "Code").
8. On the date of the Combination, the fair market value of the
total assets of each of Patlex and DBT will exceed the sum of its respective
liabilities, plus the amount of liabilities, if any, to which the respective
assets are subject.
9. Neither Patlex nor DBT is under the jurisdiction of a court in
a case under title 11 of the United States Code, or a receivership,
foreclosure, or similar proceeding in a federal or state court.
10. In the Combination, shares of Patlex and DBT stock possessing
at least 80 percent of the total combined voting power of all classes of Patlex
and DBT stock and at least 80 percent of the total number of shares of each
other class of Patlex and DBT stock will be exchanged solely for voting stock
of Holdco. For purposes of this representation, any shares of Patlex or DBT
stock exchanged for cash or other property originating with Holdco (or a direct
or indirect subsidiary of Holdco), if any, will be treated as outstanding
Patlex or DBT stock on the date of this Combination.
11. Following the Combination, Patlex and DBT will each hold at
least 90 percent of the fair market value of its respective net assets and at
least 70 percent of the fair market value of its respective gross assets held
immediately prior to the Combination. For purposes of this representation,
amounts paid by Patlex or DBT to their respective shareholders who receive cash
or other property in the Combination, if any, amounts used by Patlex or DBT to
pay its reorganization expenses and those of its shareholders, and all
redemptions and distributions (except for regular, normal dividends), if any,
made by Patlex or DBT will be included as assets of Patlex or DBT,
respectively, immediately prior to the Combination.
<PAGE> 4
Patlex Corporation
April 16, 1996
Page 4
12. The Merger Agreement represents the full and complete
agreement between Holdco, Merger Subsidiary, DBT and Patlex regarding the
Combination, and there are no other written or oral agreements regarding the
Combination.
13. Neither Patlex nor DBT has a plan or intention to issue
additional shares of its stock that would result in Holdco losing control of
Patlex or DBT, and Holdco has no intention to cause Patlex or DBT to issue
additional shares of its stock that would result in Holdco losing control of
Patlex or DBT. For purposes of this representation, control means the direct
ownership of stock in Patlex or DBT possessing at least 80 percent of the total
combined voting power of all classes of Patlex or DBT stock entitled to vote
and at least 80 percent of the total number of shares of each other class of
Patlex or DBT stock.
14. Before the Combination, Holdco will be in control of each of
Newco and Merger Subsidiary. For purposes of this representation, control
means the direct ownership of stock in each of Newco and Merger Subsidiary
possessing at least 80 percent of the total combined voting power of all
classes of stock of Merger Subsidiary entitled to vote and at least 80 percent
of the total number of shares of each other class of stock of each of Newco and
Merger Subsidiary.
15. There is no intercorporate indebtedness existing between
Holdco and Patlex, between Holdco and DBT, between Newco and Patlex, or between
Merger Subsidiary and DBT that was issued, acquired or will be settled at a
discount.
16. To the best knowledge of Patlex and DBT (but without inquiry),
no Patlex or DBT shareholder is under the jurisdiction of a court in a case
under title 11 of the United State Code, or a receivership, foreclosure, or
similar proceeding in a federal or state court.
17. The Combination is not the result of the solicitation by a
promoter, broker, or investment house.
18. Holdco has no plan or intention to redeem or otherwise
reacquire the Holdco stock issued in the Combination.
19. The shareholders of Patlex and DBT will not retain any rights
in the Patlex or DBT stock transferred to Holdco.
20. None of the Patlex or DBT stock to be transferred by the
shareholders of Patlex and DBT to Holdco will be subject to any liabilities,
and no liabilities of the shareholders of Patlex or DBT are being assumed by
Holdco in connection with the Combination.
<PAGE> 5
Patlex Corporation
April 16, 1996
Page 5
21. There is no indebtedness between Holdco and the shareholders
of Patlex or DBT and there will be no indebtedness created in favor of the
shareholders of Patlex or DBT as a result of the Combination.
22. None of Holdco, Newco, Merger Subsidiary or any other direct
or indirect subsidiary of Holdco beneficially owns, nor has any owned during
the past five years, any stock of Patlex or DBT.
23. None of Holdco, Newco or Merger Subsidiary is an investment
company as defined in section 368(a)(2)(F)(iii) and (iv) of the Internal
Revenue Code of 1986, as amended.
24. The transfers and exchanges pursuant to the Combination will
occur under a plan agreed upon before the transaction in which the rights of
the parties are defined. All exchanges will occur on approximately the same
date.
25. Those persons who were shareholders of DBT and of Patlex
immediately before the Combination will be in control of Holdco immediately
after the Combination. For purposes of this representation, (i) control means
the direct ownership of stock in Holdco possessing at least 80 percent of the
total combined voting power of all classes of Holdco stock entitled to vote and
at least 80 percent of the total number of shares of each other class of Holdco
stock, and (ii) any contemplated future issuance of additional shares of Holdco
stock (by public offering or otherwise); any issuance of Holdco stock for
services; the exercise of any Holdco stock rights, warrants, or subscriptions;
and the sale, exchange, transfer by gift, or other disposition of any Holdco
stock to be received in the Combination shall be taken into account.
26. Holdco will remain in existence and hold each of the Patlex
and DBT stock transferred to it in the Combination in a trade or business or as
the ownership in a subsidiary engaged in a trade or business.
27. Following the Combination, Holdco will cause Patlex and DBT to
continue each of their historic businesses or use a significant portion of each
of their historic business assets in a business. Holdco has no plan or
intention to liquidate Patlex or DBT; to merge Patlex or DBT with or into
another corporation; to sell or otherwise dispose of the Patlex or DBT stock
acquired in the Combination except for transfers of Patlex or DBT stock to a
corporation controlled by Holdco; or to cause Patlex or DBT to sell or
otherwise dispose of any of its assets or of any of the assets acquired from
Merger Subsidiary, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by Patlex or DBT.
For purposes of this representation, control means the direct ownership of
stock in a corporation possessing at least 80 percent of the total combined
<PAGE> 6
Patlex Corporation
April 16, 1996
Page 6
voting power of all classes of stock entitled to vote and at least 80 percent
of the total number of shares of each other class of stock of that corporation.
28. Holdco will not be an investment company within the meanings
of section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Income
Tax Regulations.
29. Holdco's principal activity will not be the performance of
personal services that are substantially performed by persons each of whom owns
more than 10 percent of the outstanding stock of Holdco (taking into account
the attribution rules of section 318 of the Code, except that "5 percent" shall
be substituted for "50 percent" in section 318(a)(2)(C) of the Code).
30. Merger Subsidiary and Newco will have no liabilities assumed
by DBT or Patlex, respectively, and will not transfer to DBT or Patlex ,
respectively, any assets subject to liabilities, in the Combination.
31. None of the Holdco stock received in the Combination by any
shareholder of DBT or Patlex who is (or was) a service provider to DBT or
Patlex will be separate consideration for, or allocable to, past or future
services. None of the compensation received by any shareholder of DBT or
Patlex who is (or was) a service provider to DBT or Patlex is separate
consideration for, or allocable to such shareholder's shares of DBT or Patlex
stock surrendered in the Combination, and the compensation paid to any such
person will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
32. Holdco stock will not be issued for (i) services rendered to
or for the benefit of Holdco in connection with the Combination, (ii) any
indebtedness of Holdco or (iii) any interest or indebtedness of Holdco.
FACTS
Patlex has been engaged in the patent exploitation and enforcement business
since late 1979. Patlex owns a 64 percent gross interest in the royalty income
from, and a 42.86 percent ownership interest in, certain patents which relate
to basic technology used in certain types of commonly used lasers and certain
uses of laser technology.
DBT is an electronic information content provider furnishing on-line, immediate
access to public records on individuals, businesses and assets.
<PAGE> 7
Patlex Corporation
April 16, 1996
Page 7
Holdco is a wholly-owned subsidiary of Patlex. Prior to the Combination,
Holdco will have conducted no significant business, and after the Combination,
will not become an operating company.
Pursuant to the Merger Agreement dated as of February 7, 1996 among Patlex,
Holdco, Merger Subsidiary and DBT, Holdco will form Newco as a wholly-owned
subsidiary of Holdco. In addition, Newco will merge with and into Patlex in the
Reorganization, and Merger Subsidiary will merge with and into DBT in the
Merger, with DBT and Patlex shareholders receiving Holdco common stock in
exchange for their DBT or Patlex common stock.
It is planned that, following the Reorganization and Merger, Holdco will hold
all the common stock of Patlex and DBT. Holdco will then change its name to
"DBT Online, Inc."
OPINIONS
Based upon the foregoing assumptions and Certifications, and on the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial and administrative interpretations thereof, all as in
effect as of today's date, it is our opinion that for federal income tax
purposes:
1. No gain or loss will be recognized by DBT or Patlex
shareholders whose shares of DBT or Patlex are exchanged solely for Holdco
stock pursuant to the Combination, except with respect to cash received by such
DBT or Patlex shareholders in lieu of a fractional share interest in Holdco
shares.
2. The tax basis of Holdco shares received by the Patlex and DBT
shareholders in the Combination will be the same as the shareholder's basis in
the Patlex or DBT shares surrender in the exchange.
3. The holding period of the Holdco shares received in the
Combination will include the period during which such shareholder held the
Patlex or DBT shares exchanged.
4. No gain of loss will be recognized by DBT, Patlex, Holdco,
Merger Subsidiary or Newco as a result of the transaction.
* * *
Our opinions set forth herein are based upon existing law, regulations,
administrative pronouncements and judicial decisions, all as in effect as of
today's date. All such authorities
<PAGE> 8
Patlex Corporation
April 16, 1996
Page 8
are subject to change, either prospectively or retroactively. No assurance can
be provided as to the effect of any such change on our opinions. If any of the
facts, assumptions or Certifications on which our opinions are based is
incorrect, please advise us so that we may consider the effect, if any, on our
opinions.
The opinions set forth herein have no binding effect on the United States
Internal Revenue Service or the courts. No assurance can be given that, if the
matter were contested, a court would agree with the opinions set forth herein.
This opinion has been delivered to you for the purpose of satisfying the
condition set forth in Section 9.1(e) of the Merger Agreement.
We hereby consent to your use of this opinion letter as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving such consent, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 and the rules and regulations of the Securities and
Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated August 9, 1995, and April 11, 1996 on Patlex
Corporation and Patlex Holdings, Inc., respectively, included in Amendment No. 3
to the Registration Statement (Form S-4 No. 333-2000) and related Prospectus of
Patlex Holdings, Inc. for the registration of approximately 7,618,577 shares of
its common stock.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
July 16, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-2000 of Patlex Holdings, Inc. on Form S-4 of our Independent Auditors'
Report dated January 20, 1995, appearing in the Proxy Statement/Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ AHEARN, JASCO + COMPANY, P.A.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
July 17, 1996
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-2000 of Patlex Holdings, Inc. on Form S-4 of our report dated January 19,
1996 (February 7, 1996, as to Note 11), relating to the financial statements of
Database Technologies, Inc. as of and for the year ended December 31, 1995,
appearing in the Proxy Statement/Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Proxy Statement/Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
July 17, 1996
<PAGE> 1
PRELIMINARY COPY. CONFIDENTIAL,
FOR USE OF THE COMMISSION ONLY.
PROXY/VOTING INSTRUCTION CARD PATLEX CORPORATION
- ------------------------------------------------------------------------------
This Proxy is Solicited by the Board of Directors for the Special
Meeting of Shareholders, August 20, 1996, 10:00 a.m. local time, at the New
York Athletic Club, 180 Central Park South, New York, New York.
The undersigned hereby appoints Frank Borman and J. Henry Muetterties, and each
of them, proxies, with the powers the undersigned would possess if personally
present, and with full power of substitution, to vote all common shares held of
record by the undersigned in Patlex Corporation, upon all subjects that may
properly come before the meeting, including the matters described in the proxy
statement furnished herewith, subject to any directions indicated on the
reverse side of this card. IF NO DIRECTIONS ARE GIVEN, THE PROXIES WILL VOTE
IN ACCORD WITH THE DIRECTORS' RECOMMENDATIONS ON THE SUBJECTS LISTED ON THE
REVERSE SIDE OF THIS CARD AND AT THEIR DISCRETION ON ANY OTHER MATTER THAT MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
IF YOU DO NOT SIGN AND RETURN A PROXY, OR ATTEND THE MEETING AND VOTE BY
BALLOT, YOUR SHARES CANNOT BE VOTED, NOR YOUR INSTRUCTIONS FOLLOWED.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN THIS PATLEX CORPORATION
PROXY IN THE ENCLOSED ENVELOPE, MAKING SURE THAT 5550 WEST FLAMINGO ROAD
THE ADDRESS AT RIGHT SHOWS THROUGH THE WINDOW. SUITE B-5
LAS VEGAS, NV 89103
- -------------------------------------------------------------------------------
DETACH PROXY CARD HERE
<PAGE> 2
- ------------------------------------------------------------------------------
Directors recommend a vote "FOR":
- ------------------------------------------------------------------------------
1. Approval of the Plan of Merger and Reorganization pursuant to which
Patlex Corporation will be reorganized into a holding company
structure.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- ------------------------------------------------------------------------------
2. Approval of an Amended and Restated Agreement and Plan of Merger,
dated as of February 7, 1996, as amended and restated as of June 28,
1996, among Patlex Corporation, Patlex Holdings, Inc., DBT
Acquisition Corp. and Database Technologies, Inc. and related
transactions.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- ------------------------------------------------------------------------------
3. Approval of an amended and restated Stock Option Plan (the "Plan"),
that includes, among other things, an increase in the number of
authorized shares thereunder from 375,000 to 900,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- ------------------------------------------------------------------------------
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Special Meeting.
- ------------------------------------------------------------------------------
Please sign exactly as name or names
appear on this proxy. If stock is held
jointly, each holder should sign. If
signing as attorney, trustee, executor,
administrator, custodian, guardian or
corporate officer, please give full
title.
DATE ___________________________, 1996
SIGNATURE ____________________________
SIGNATURE ____________________________
Votes must be indicated (X) in Black
- ------------------------------------------------------------------------------
DETACH PROXY CARD HERE
