<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1997
REGISTRATION NO. 333-24613
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DBT ONLINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
PENNSYLVANIA 6794 85-0439411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
------------------------
5550 WEST FLAMINGO ROAD, SUITE B-5
LAS VEGAS, NV 89103
(702) 257-1112
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
FRANK BORMAN
CHAIRMAN OF THE BOARD
5550 WEST FLAMINGO ROAD, SUITE B-5
LAS VEGAS, NV 89103
(702) 257-1112
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies of all communications to:
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<S> <C> <C>
JAMES W. MCKENZIE, JR. TIMOTHY M. LEONARD MORTON A. PIERCE
MORGAN, LEWIS & BOCKIUS LLP DATABASE TECHNOLOGIES, INC. DEWEY BALLANTINE
2000 ONE LOGAN SQUARE 100 E. SAMPLE ROAD, SUITE 200 1301 AVENUE OF THE AMERICAS
PHILADELPHIA, PA 19103-6993 POMPANO BEACH, FL 33064 NEW YORK, NY 10019-6092
(215) 963-5000 (954) 781-5221 (212) 259-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES
AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE
IN WHICH SUCH OFFER SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 29, 1997
1,640,000 Shares
(DBT ONLINE LOGO)
Common Stock
($.10 par value)
------------------
Of the shares of Common Stock (the "Common Stock") of DBT Online, Inc. (the
"Company") offered hereby (the "Offering"), 1,000,000 shares are being sold by
the Company and 640,000 shares are being sold by the Selling Shareholders named
herein under "Principal and Selling Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"DBTO." On April 29, 1997, the closing price of the Common Stock, as reported by
the Nasdaq National Market, was $36.50 per share. See "Price Range of Common
Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Company(1) Shareholders
----------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total (2)........................... $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $550,000.
(2) The Selling Shareholders have granted the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase a
maximum of 246,000 additional shares of Common Stock to cover
over-allotments of shares. If the option is exercised in full, the total
Price to Public will be $ , Underwriting Discounts and Commissions
will be $ , and Proceeds to Selling Shareholders will be
$ .
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the shares of Common
Stock will be ready for delivery on or about , 1997, against
payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON INVEMED ASSOCIATES, INC.
Prospectus dated , 1997.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS, PENALTY BIDS AND PASSIVE MARKET MAKING. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, all references to
the "Company" (i) for periods prior to August 20, 1996 refer to Database
Technologies, Inc., a Florida corporation, and (ii) for periods subsequent to
August 20, 1996 refer to DBT Online, Inc., a Pennsylvania corporation, and its
subsidiaries. Prospective investors should consider carefully, among other
things, the information set forth under "Risk Factors." This Prospectus contains
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, that address, among other things, growth strategy, computer system
capabilities, availability of data, customer demand and use of proceeds. These
statements may be found under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as in the Prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including without
limitation those discussed in "Risk Factors" and matters set forth in the
Prospectus generally.
THE COMPANY
The Company is a holding company which operates its business through two
wholly-owned subsidiaries, Database Technologies, Inc. ("DBT") and Patlex
Corporation ("Patlex"). DBT is an on-line provider of integrated database
services. Patlex is engaged in the exploitation and enforcement of two laser
patents. The Company intends to continue to grow DBT's business utilizing the
net proceeds received by the Company from the Offering.
OVERVIEW OF DBT
DBT is an on-line provider of integrated database services and related
reports primarily to law enforcement and other governmental agencies, law firms,
insurance companies and licensed investigation companies. DBT develops
proprietary software which contains unique algorithms and utilizes advanced
microprocessor-based technology to locate, cross-reference and retrieve records
from multiple data sources. DBT limits access to its computer system to approved
customers who may access DBT's services via their desktop computers and generate
reports which are delivered in an organized, comprehensive and easy-to-read
format. To generate the reports, DBT's computers simultaneously access thousands
of data sources containing billions of public records as if they were part of a
single database. The Company believes that the large number of databases to
which DBT has access and the ability of its computer system to identify,
cross-reference and cross-check relevant data in a timely and cost-effective
manner differentiate DBT from its competitors.
DBT was established in February 1992 and has grown rapidly since its system
first went on-line in January 1993. For the year ended December 31, 1996, DBT's
revenues were $16,321,300, an increase of 102%, and system utilization was
approximately 11.5 million minutes, an increase of 98%, by comparison to the
previous year. For the three months ended March 31, 1997, DBT's revenues were
$6,081,500, an increase of 82%, and system utilization was approximately 4.4
million minutes, an increase of 91%, by comparison to the same period in 1996.
As of March 31, 1997, DBT had approximately 7,800 active customers, as compared
to 4,000 active customers as of March 31, 1996, an increase of 95%.
DBT'S COMPUTER SYSTEM DESIGN
DBT's computer system is based upon a linear architecture which uses a
proprietary operating system to link multiple microprocessors. DBT internally
designs and develops software which utilizes unique algorithms to perform
thousands of complex calculations in the compilation of its comprehensive
reports. In addition, DBT designs and constructs a significant portion of its
system hardware to meet its demanding technological
3
<PAGE> 5
specifications. The Company believes DBT's operating system is distinguished
from the systems of other on-line providers by virtue of the following
characteristics:
- - Microprocessor-based server design -- DBT has developed and uses a
microprocessor-based computer system which the Company believes is more
economical to construct, expand and upgrade than mainframe systems. In
addition, DBT's operating system is fault tolerant in real time which prevents
service interruptions during customer usage.
- - Cross-referencing capability -- DBT's computer system utilizes a multi-tiered
client server methodology to interface with multiple file types and processor
resources. The unique algorithms developed by DBT allow the system to link
dissimilar categories of data through intelligent indexing.
- - Data storage capacity and update capability -- The Company believes the design
of DBT's operating system provides the capability to process data files of any
size. DBT's system currently has approximately 9.0 terabytes (each terabyte is
equal to 1,024 gigabytes) of storage capacity, of which over 7.0 terabytes are
currently utilized. DBT refreshes current data as often as updated data
becomes available, including, in some instances, multiple times daily.
- - Retrieval speed -- The system's linear architecture and distributed processing
design allows DBT to distribute workload across the system infrastructure to
utilize idle microprocessors, thereby enabling the system to perform searches,
cross references and data validity checks rapidly.
- - Reporting capabilities -- DBT's computer system efficiently compiles and
presents retrieved information in a logical and easy-to-read format which
prioritizes relevant and possibly related information and eliminates
duplicative data.
DBT'S PRODUCTS, CUSTOMERS AND PRICING
DBT currently offers its customers three primary products, each of which
utilizes DBT's advanced search and cross-referencing capabilities.
AutoTrack Plus+, DBT's premier product, provides access to billions of
national, state and county public records. Depending upon the state in which the
subject of the search is located, the information available includes current and
past addresses, telephone numbers, possible associates and neighbors, as well as
professional licenses, driving histories, business profile reports, real estate,
vehicles and other assets. Users are able to undertake a detailed search of all
relevant data based upon a limited amount of information. For example, a search
can be based upon only a first name and a birth date, or solely upon an address.
AutoTrack Jr. is a more economical means of accessing DBT's databases for
users with less extensive search needs. This product, which is primarily used to
access Florida public records, has a reduced on-line rate for customers with
specific data needs and limits the number of different databases which are
cross-referenced.
DataCase, which was introduced in December 1996, is an on-line system
providing users access to New York Unified Court System ("NYUCS") information.
The information available includes New York Supreme Court civil docket
information for 13 counties and judgment, docket and lien information for the
New York City boroughs. The NYUCS selected DBT to develop DataCase after a
competitive bidding process.
DBT has established procedures designed to restrict access to its system
and certain products to qualified individuals. Potential customers are screened
by DBT prior to being given access to AutoTrack Plus+ or AutoTrack Jr. The
screening process generally consists of a review of professional licenses,
corporation and business status, credit reports, references and other relevant
information and credentials.
Customers access DBT's system by calling a toll-free number by modem from
their computers. In general, DBT charges a per minute connection fee which
currently ranges from $.50 per minute to $1.50 per minute depending on the
product being accessed and the customer category. DBT also offers customers the
opportunity to access certain reports for a fixed fee. DBT does not currently
charge an installation or minimum monthly fee. Based on the system's retrieval
speed and DBT's current price structure, the Company believes DBT is an
economical source of on-line data.
4
<PAGE> 6
DBT'S GROWTH STRATEGY
The Company's objective is to position DBT as a primary data retrieval
source for publicly-available information and as a value-added outsourcing
partner for specialized data search, compilation and reporting. DBT has
identified a number of opportunities to leverage its system capabilities and
data access which the Company believes, if successfully implemented, will result
in increased revenues. DBT proposes to pursue these objectives through the
following initiatives:
- - Expand customer base -- DBT has traditionally relied upon customer referrals,
limited advertising and presentations at trade shows to promote its products.
The Company believes that it can substantially expand DBT's customer base by
instituting a number of targeted sales and marketing initiatives, including
hiring professional marketing personnel and a direct sales force. In addition,
the Company believes that an increased focus on corporate customers and the
offering of information tailored to their needs will increase demand for DBT's
products.
- - Improve system accessibility and utilization -- DBT is currently developing,
and expects to introduce during 1997, an intranet HTML-based delivery method
as an alternative to its DOS-based delivery method. This new delivery method
will allow customers to utilize the on-screen "point and click" method to more
easily access information and to quickly and efficiently expand searches. The
Company believes this delivery method will increase both the number of
customers able to access DBT's services and system utilization by existing
customers. In addition, DBT plans to direct its sales and customer service
staff to educate customers about additional product applications.
- - Enhance the scope and timeliness of data -- The Company believes that
increasing the amount and type of data to which DBT provides access will
enhance the value of DBT's services. DBT continually adds to its significant
volume of national, state and county data. The Company intends to take
advantage of the flexibility of its computer system design by further
increasing the size and scope of its databases.
- - Pursue selected outsourcing and data warehousing opportunities -- The Company
believes that DBT is well positioned to leverage its systems and data search
and compilation competencies to selectively pursue outsourcing and data
warehousing contracts. For example, the Company is currently seeking
opportunities to provide certain governmental agencies with customized data
search, compilation and reporting services.
- - Target new products to customer needs -- The Company will continue to develop
products specifically designed for new or related customer needs. For example,
DBT recently completed development of AutoCase which will utilize information
available through DataCase to monitor NYUCS cases previously selected by the
customer and automatically deliver on-line relevant new information on these
cases when the customer logs onto DataCase.
OVERVIEW OF PATLEX
Patlex has been engaged in the exploitation and enforcement of laser
patents since 1979. Patlex's revenues are solely derived from its 64% interest
in the royalty income from, and a 42.86% ownership interest in, two patents, the
Gas Discharge Laser Patent and the Brewster Angle Window Patent, which relate to
basic technology used in certain types of commonly used lasers and certain uses
of laser technology (the "Laser Patents"). The Gas Discharge Laser Patent, which
currently accounts for substantially all of Patlex's revenues, expires in 2004
and the Brewster Angle Window Patent expires in 2005. Upon the expiration of the
Laser Patents, Patlex will no longer receive royalty income.
1996 REORGANIZATION
On August 20, 1996, the Company was reorganized into its current structure.
At that time, shareholders of Patlex and DBT approved transactions pursuant to
which the Company was incorporated as a holding company and Patlex and DBT
became wholly-owned subsidiaries of the Company (the "Reorganization"). The
Company is the successor registrant to Patlex.
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<PAGE> 7
PRINCIPAL EXECUTIVE OFFICES
The Company's principal executive office is located at 5550 W. Flamingo
Road, Suite B-5, Las Vegas, Nevada 89103, and its telephone number is (702)
257-1112.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company........................................ 1,000,000 shares
The Selling Shareholders........................... 640,000 shares
----------
Total........................................... 1,640,000 shares
==========
Common Stock to be outstanding after the Offering.... 8,750,818 shares(1)
Use of Proceeds...................................... For working capital and general corporate
purposes, including investment in property and
equipment. The Company will not receive any
proceeds from the sale of the Common Stock by
the Selling Shareholders. See "Use of
Proceeds."
Nasdaq National Market symbol........................ DBTO
</TABLE>
- ---------------
(1) Excludes 979,634 shares issuable upon the exercise of options outstanding as
of March 31, 1997. See "Management -- Executive Compensation" and "-- Stock
Option Plan."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- ------------
PRO FORMA MARCH 31,
1994(1) 1995(2) 1996(3) 1996(4) 1997
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues and patent royalties
DBT revenues................... $2,751,100 $ 8,076,300 $16,321,300 $16,321,300 $6,081,500
Patlex patent royalties........ 2,382,000 7,696,000 1,517,500
---------- ---------- ----------- ----------- ----------
Total.................. 2,751,100 8,076,300 18,703,300 24,017,300 7,599,000
Gross profit
DBT............................ 1,894,900 4,704,000 7,947,000 7,947,000 3,234,600
Patlex......................... 1,760,000 5,748,500 1,093,700
---------- ---------- ----------- ----------- ----------
Total.................. 1,894,900 4,704,000 9,707,000 13,695,500 4,328,300
Income (loss) from operations
DBT............................ 445,200 (906,900) 194,700 331,000 665,500
Patlex......................... 1,341,000 4,092,500 839,200
Corporate...................... (626,200) (626,200) (99,400)
---------- ---------- ----------- ----------- ----------
Total.................. 445,200 (906,900) 909,500 3,797,300 1,405,300
Income (loss) before income
taxes.......................... 429,800 (983,000) 750,400 4,036,600 1,436,600
Net income (loss)................ 429,800 (1,191,700) 519,400 2,688,200 890,700
Net income (loss) per common
share.......................... $ 0.11 $ (0.27) $ 0.08 $ 0.34 $ 0.11
Weighted average shares
outstanding.................... 3,937,600 4,417,800 6,177,300 8,012,000 8,053,000
OPERATING AND FINANCIAL DATA:
DBT EBITDA(5).................... $ 690,000 $ 35,000 $ 2,582,900 $ 2,582,900 $1,365,100
DBT on-line minutes(6)........... 1,895,700 5,846,400 11,473,200 11,473,200 4,365,400
DBT active customers(7).......... 1,000 3,100 6,600 6,600 7,800
DBT employees(8)................. 31 78 117 117 122
DBT capital expenditures......... $ 961,200 $ 3,115,600 $ 5,277,400 $ 5,277,400 $1,004,100
Patlex EBITDA(5)................. $ 1,969,300 $ 6,045,900 $1,267,100
</TABLE>
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<CAPTION>
MARCH 31, 1997
------------------------------
ACTUAL AS ADJUSTED(9)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 4,614,500 $ 38,009,500
Total assets..................................................... 28,489,000 61,884,000
Total debt....................................................... -- --
Stockholders' equity............................................. 19,121,200 52,516,200
</TABLE>
- ---------------
(1) There was no income tax provision in 1994 due to the Company's S Corporation
status.
(2) The Company's results for 1995 were adversely impacted by a loss of
$1,660,100 relating to the Company's acquisition and disposition of
International Research Bureau, Inc. ("IRB") in 1995. On July 1, 1995, the
Company terminated its S Corporation election and established a deferred tax
liability of $155,200. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(3) The 1996 Statement of Operations Data includes the results of Patlex from
August 20, 1996 through December 31, 1996.
(4) The pro forma Statement of Operations Data includes the operations of Patlex
as if the Reorganization had occurred on January 1, 1996.
(5) EBITDA represents earnings before interest and financial charges, income
taxes, depreciation and amortization. The Company has included information
concerning EBITDA (which is not a measure of financial performance under
generally accepted accounting principles) because it understands that it is
used by certain investors as one measure of an issuer's financial
performance. EBITDA should not be construed as an alternative to operating
income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's performance or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) or as a measure of liquidity.
(6) DBT on-line minutes means the approximate number of minutes that customers
utilized DBT's system for the period presented.
(7) DBT active customers means the approximate number of customers who utilized
DBT's system in the last month in the period presented.
(8) DBT employees means the number of full-time employees at period end.
(9) As adjusted to reflect the sale by the Company of 1,000,000 shares of Common
Stock offered hereby.
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RISK FACTORS
The following risk factors, as well as the other information contained in
this Prospectus, should be considered carefully before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements that
involve risks and uncertainties. See "Prospectus Summary." Actual events or
results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, but not limited to, those discussed
below.
LIMITED OPERATING HISTORY; MANAGEMENT OF GROWTH
DBT was established in February 1992. Accordingly, DBT has only a limited
operating history upon which an evaluation of the Company's prospects can be
made. Such prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development, particularly companies in evolving markets. To address these risks,
the Company must, among other things, respond to competitive developments,
continue to attract, retain and motivate qualified persons, expand its
management and employee bases, continue to upgrade its computer system and
successfully market its products and services. There can be no assurance that
the Company will be able to sustain profitability or a positive cash flow from
its operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DBT has experienced rapid growth over the last three years. DBT's growth is
expected to continue to place a significant strain on the Company's managerial,
operational and financial resources. To manage this growth, the Company must
continue to implement and improve its operational and financial systems and to
attract, train and manage a growing number of employees. Although the Company
believes that it has made adequate allowances for the costs and risks associated
with this expansion, there can be no assurance that DBT's systems, procedures
and controls will be adequate to support DBT's current or future operations. The
Company's future operating results will also depend on its ability to expand its
sales and marketing organization, penetrate different and broader markets and
expand its support organization commensurate with the increasing base of its
product offerings. The failure by the Company to manage its growth effectively
could have a material adverse effect on the financial condition or results of
operations of the Company.
In addition, demand on DBT's network infrastructure, technical staff and
resources has increased with the amount of data contained in DBT's databases and
its expanding customer base. There can be no assurance that DBT's data storage
capacity and cross-referencing capability will continue to be adequate to
facilitate DBT's growth. Likewise, there can be no assurance that DBT will be
able to establish customer accounts or provide customer or technical support on
a timely basis, or that any delays will not result in a loss of customers. Any
failure on the part of DBT to retain or expand its data storage capacity, to
adjust its software to support larger volumes of data or to provide adequate
customer and technical support services could have a material adverse effect on
the financial condition or results of operations of the Company.
DEPENDENCE ON AND ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
The Company believes that its success is dependent in part on its
technology, including its proprietary operating system and software. In addition
to relying on trade secrecy laws, it is the Company's policy to require all
employees to execute confidentiality and non-compete agreements upon the
commencement of their relationships with the Company. There can be no assurance
that such measures are or will be adequate to protect the Company's proprietary
technology. Further, there can be no assurance that the Company's competitors or
potential competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. See
"Business -- DBT -- Computer System Design."
EFFECTS OF TECHNOLOGICAL CHANGES
The market for on-line database services is characterized by changing
technology and evolving industry standards. The Company's future success will
depend upon its ability to continue to enhance DBT's system and products, to add
databases and to introduce new services and products that anticipate and address
technological
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and market developments. While DBT has been successful in this regard in the
past, there can be no assurance that the Company will be successful in such
efforts in the future. For example, to improve system accessibility and
utilization, DBT is currently developing, and expects to introduce during 1997,
an intranet HTML-based delivery method as an alternative to its DOS-based
delivery method. There can be no assurance that this new delivery method will be
successfully developed in 1997, if at all. Further, even if the HTML-based
delivery system is successfully developed, there can be no assurance that it
will be generally available to customers in 1997, or that it can be completed
without substantial cost to the Company. Any failure on the part of the Company
to develop and introduce new products and product enhancements in a timely
manner in response to changing market conditions or customer requirements could
have a material adverse effect on the financial condition or results of
operations of the Company.
IMPACT OF GOVERNMENT REGULATION OF ACCESS TO RECORDS; CLAIMS ARISING FROM USE OF
INFORMATION
At the present time, a significant amount of data is provided to DBT in
accordance with public record laws, which vary from state to state. There can be
no assurance that the availability of such data will not become subject to
greater regulation in the future, including federal or state legislation
designed to protect the public from the misutilization of personal information
in the marketplace. For example, the federal Driver's Privacy Protection Act of
1994, 18 U.S.C. sec. 2721 (the "DPPA"), effective on September 13, 1997, limits
the release and use of certain personal information from state motor vehicle
records. Although the Company believes that the provisions of the DPPA do not
significantly restrict the operations of DBT, there can be no assurance that
individual states would not extend the coverage of the legislation in a way that
would adversely affect the operations of on-line providers such as DBT. Further,
there can be no assurance that existing privacy legislation will not be
expanded, or that new privacy legislation will not be enacted, in a manner that
limits the activities of DBT. Because DBT's ability to attract and retain
customers is closely related to its ability to obtain and provide information to
its customers, any increased government regulation at the state or federal level
affecting DBT's ability to acquire information could have a material adverse
effect on the financial condition or results of operations of the Company. See
"Business -- DBT -- Regulation."
In addition, the potential imposition of liability upon the Company for
information disseminated to customers could require the Company to implement
measures to reduce its exposure to such liability, including the expenditure of
resources, the discontinuation of certain product offerings, or the restriction
of access to certain customers. For example, the improper use of information
obtained from DBT's databases or the supplying of incorrect information by DBT
could result in potential liability for the Company. It is the Company's policy
that customers sign a subscription agreement with DBT which includes a
disclaimer of any warranties on the data and which provides for the
indemnification of DBT for liabilities resulting from the customer's use of the
data. However, there can be no assurance that such indemnification will provide
any protection to the Company or DBT in the event of a lawsuit. Costs associated
with this type of liability could have a material adverse effect on the
financial condition or results of operations of the Company.
INABILITY TO ACQUIRE DATA; POTENTIAL INCREASES IN THE COST OF DATA
DBT's products provide customers access to information acquired from
governmental and commercial sources, primarily on a non-exclusive basis. There
can be no assurance that DBT will continue to be able to acquire such
information or that acquisition costs will not increase in the future. DBT does
not have long-term fixed-price agreements with many of its data providers. The
inability of DBT to acquire data could decrease the amount of information which
DBT can offer its customers, thereby reducing the system utilization, which
could have a material adverse effect on the financial condition or results of
operations of the Company. In addition, significant increases in costs may have
a material adverse effect on the financial condition or results of operations of
the Company. See "Business -- DBT -- Data Sources."
DEPENDENCE ON KEY PERSONNEL
The Company's success is substantially dependent upon its key personnel
and, in particular, Hank Asher, its President, Chief Executive Officer and
principal shareholder, who led the development of DBT's software and hardware
platforms. DBT does not have "key person" life insurance policies on any of its
employees. The loss of
9
<PAGE> 11
the services of any of its executive officers or other key employees could have
a material adverse effect on the financial condition or results of operations of
the Company. 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 a material adverse effect on the financial
condition or results of operations of the Company. See "Management."
COMPETITION
The on-line database services market is highly competitive and the Company
expects competition in this market to intensify in the future. Given that the
information contained in DBT's databases is generally derived from
publicly-available records, DBT's competitors, by law, also have access to such
information. Many of DBT's current and potential competitors have longer
operating histories, larger installed customer bases and significantly greater
financial, technical, marketing and other resources than DBT. The Company
competes (or in the future is expected to compete) directly or indirectly with
Reed Elsevier PLC (Lexis/Nexis), Equifax Inc. (CDB Infotek) and The Thomson
Corporation (WESTLAW/Information America), as well as other database providers.
Such competition could have a material adverse effect on the financial condition
or results of operations of the Company. See "Business -- Competition."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results may fluctuate in the future
depending upon such factors as the level of operating costs, timing and market
acceptance of new products and enhanced versions of existing products, the rates
of new customer acquisition and customer retention, and changes in pricing
policies by DBT and its competitors. The Company has also experienced decreased
on-line usage of the system during holidays. In addition, a significant portion
of DBT's expenses are fixed; therefore, the Company's operating margins are
particularly sensitive to fluctuation in revenues. The Company also believes
that to the extent it is able to develop outsourcing or data warehousing
opportunities, payments may result in fluctuation in quarterly earnings
comparisons. Due to these factors, the Company's operating results may fall
below expectations in some future quarter. In such event, the market price of
the Company's Common Stock could be materially and adversely affected.
LACK OF LONG-TERM CUSTOMER CONTRACTS
DBT does not typically require its customers to enter into minimum usage
commitments or fixed-term subscriber agreements. No single customer of DBT
accounted for more than 3% of DBT's revenues for the year ended December 31,
1996. However, to the extent that a significant number of customers cancel
service at any one time, such cancellations could have a material adverse effect
on the financial condition or results of operations of the Company.
DEPENDENCE ON A SINGLE PRODUCT
In 1996, substantially all of DBT's revenues were generated from customers
accessing AutoTrack Plus+. Any substantial decrease in demand for this product
could have a material adverse effect on the financial condition or results of
operations of the Company. See "Business -- DBT -- Products."
NATURAL DISASTER; SERVICE INTERRUPTIONS; SECURITY RISKS
The Company's principal computer operations facility is located in Pompano
Beach, Florida. In the event a natural disaster, fire, power failure,
telecommunication or technical failure or other emergency disrupts the Company's
computer operations or communication with its customers, the Company's ability
to provide services to its customers may be jeopardized. Should access be
unavailable for an extended time, customers may seek other sources of
information and there can be no assurance that DBT would be able to continue its
relationships with such customers in the future. In addition, computer break-ins
or other disruptions could jeopardize the security of information stored in and
transmitted through DBT's computer systems. The Company currently maintains
business interruption insurance; however, the potential short-term and long-term
loss of revenues
10
<PAGE> 12
resulting from any accident, incident or system failure could have a material
adverse effect on the financial condition or results of operations of the
Company.
POSSIBLE VOLATILITY OF STOCK PRICE; LOW TRADING VOLUME
The market price of the Company's Common Stock has been volatile and the
Company expects that the price of its Common Stock may be subject to significant
fluctuations in response to general economic and market conditions, quarterly
variations in financial results and customer growth and usage, new pricing
strategies, the announcement of technological innovations, changes in data
providers, or strategic partnerships or new product offerings by the Company or
its competitors. These fluctuations may have a material adverse effect on the
market price of the Common Stock. Although the Common Stock is listed on the
Nasdaq National Market, there has been low trading volume and there can be no
assurance that an active trading market will develop. See "Price Range of Common
Stock."
PATLEX LASER PATENTS: UNCERTAINTIES OF ENFORCEABILITY, COMPETING TECHNOLOGIES
AND LIMITED DURATION
The Laser Patents, which had a book value of approximately $13,220,500 at
December 31, 1996 are Patlex's most significant assets. The royalties received
from licensees of the Laser Patents represented 32% of the Company's revenues on
a pro forma basis for the year ended December 31, 1996. The book value of the
Laser Patents represented approximately 65% of the book value of all of Patlex's
assets as of December 31, 1996. 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 in the courts and before the United
States Patent and Trademark Office. 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.
As Patlex's revenues are solely derived from the royalties it receives
under its license agreements, any advance in technology which would render the
Gas Discharge Laser Patent obsolete could adversely affect Patlex's future
revenues and could have a material adverse effect on the financial condition or
results of operations of the Company. Although the Company does not believe that
there exist any recent advances in laser technology that may materially
adversely affect Patlex's future patent royalty revenues, there has been a
gradual increase in diode laser technology that has inhibited growth of Patlex's
laser technology in low power laser applications.
The Gas Discharge Laser Patent, which contributes substantially all of
Patlex's revenues, expires in November 2004 and the Brewster Angle Window Patent
expires in May 2005. The Company has no present intention to diversify or expand
Patlex's business activity, and, accordingly, upon the expiration of the
Brewster Angle Window Patent, Patlex would have no net Laser Patent royalties
and, consequently, would be compelled to wind up its business affairs. See
"Business -- Patlex."
CONTROL BY INSIDERS
Hank Asher, the President, Chief Executive Officer and principal
shareholder of the Company, will beneficially own approximately 27.5% of the
Common Stock outstanding after the Offering (or 25.9% if the Underwriters'
over-allotment option is exercised in full). In addition, the Company's
directors and senior management will beneficially own approximately 52.2% of the
Common Stock outstanding after the Offering (or 49.6% if the Underwriters'
over-allotment option is exercised in full). As a result, Mr. Asher,
individually, and the Company's directors and senior management, collectively,
will continue to have significant influence over the policies and affairs of the
Company and the outcome of corporate actions requiring stockholder approval,
including the election of directors, the adoption of amendments to the Company's
Articles of Incorporation and Bylaws and the approval of mergers and sales of
the Company's assets. This significant influence could diminish the relative
voting power of the other shareholders and, accordingly, reduce their individual
and collective ability to influence the affairs of the Company. See "Certain
Transactions and Relationships," "Principal and Selling Shareholders" and
"Description of Capital Stock."
11
<PAGE> 13
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial amount of shares by existing shareholders
could adversely affect the market price of the Common Stock. Immediately after
the Offering, the 1,640,000 shares of Common Stock offered hereby will be
available for sale in the public market without restriction. Of the total
outstanding shares of Common Stock upon completion of the Offering, 4,724,452
shares (4,484,006 shares if the over-allotment option is exercised in full) will
be held by "affiliates," as that term is defined in the Securities Act of 1933,
as amended (the "Securities Act"), and are therefore subject to the volume and
manner of sale limitations of Rule 144 of the Securities Act. No prediction can
be made as to the effect, if any, that future sales of any of these shares of
Common Stock, or the availability of these shares for future sale, will have on
the market price of the Common Stock prevailing from time to time. Sales of a
substantial number of these shares of Common Stock in the public market
following the Offering, or the perception that such sales could occur, could
adversely affect market prices for the Common Stock. See "Shares Eligible for
Future Sale."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock
since the Reorganization. The Company currently intends to retain its earnings
for future growth, including growth through potential strategic acquisitions or
alliances and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment of any future dividends will be determined by
the Company's board of directors in light of conditions then existing, including
the Company's earnings, financial condition and capital requirements, business
conditions, corporate law requirements and other factors. See "Dividend Policy."
HOLDING COMPANY STRUCTURE
The Company is a holding company and has no significant operations other
than those incidental to its ownership of the capital stock of its subsidiaries.
As a holding company, the Company's results of operations depend on the results
of operations of its subsidiaries. Moreover, the Company is 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 the Company
intends to declare cash dividends on the Common Stock in the future, to fund the
payment of cash dividends. In addition, claims of creditors of the Company's
subsidiaries, including trade creditors, will generally have priority as to the
assets of such subsidiaries over the claims of the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws may have the effect, either alone
or in combination with each other, of making more difficult or discouraging a
tender offer or takeover attempt that is opposed by the Company's board of
directors. These provisions include (i) a provision requiring that the Company's
board of directors be divided into three classes, each serving a staggered
three-year term; (ii) certain restrictions on the persons eligible to call a
special meeting of shareholders; (iii) certain limitations on the size of the
Company's board of directors; and (iv) the ability of the Company's board of
directors to authorize the issuance of preferred stock in series. See
"Description of Capital Stock."
Certain provisions of Pennsylvania law could have the effect of deterring
takeovers. The Company in its Bylaws has opted out of subchapters E, F, G, H, I
and J of the Pennsylvania Business Corporation Law of 1988, as amended.
Generally, these subchapters provide special protections against acquisitions of
publicly-held corporations subject to the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $33,395,000, after deduction of the estimated underwriting
discounts and commissions and estimated expenses of the Offering payable by the
Company (assuming a public offering price of $36.50 per share). The Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Shareholders.
The Company intends to use the net proceeds of the Offering for working
capital and general corporate purposes, including investment in property and
equipment.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock
since the Reorganization. The Company does not anticipate paying any cash
dividends in the foreseeable future. The Company currently intends to retain
future earnings to finance operations and the expansion of DBT's business. Any
future determination to pay cash dividends will be at the discretion of the
Company's board of directors and will be dependent upon the Company's financial
condition, operating results, capital requirements and such other factors as the
Company's board of directors deems relevant.
PRICE RANGE OF COMMON STOCK
Prior to September 28, 1995, there was no trading market for the Patlex
common stock. From September 28, 1995 and until March 17, 1996, the Patlex
common stock was listed on the Nasdaq Small-Cap Market under the symbol "PTLX."
From March 18, 1996 until August 19, 1996, the Patlex common stock was listed on
the Nasdaq National Market under the symbol "PTLX." The Company's Common Stock
began trading on the Nasdaq National Market on August 20, 1996 under the symbol
"DBTO."
The following table sets forth the high and low sales prices for the
Company's Common Stock and/or Patlex's common stock, for the period indicated,
as reported on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
Third Quarter (beginning September 28, 1995)............... $ 4.25 $ 4.00
Fourth Quarter............................................. 18.00 4.00
1996
First Quarter.............................................. $47.50 $13.25
Second Quarter............................................. 55.50 30.25
Third Quarter.............................................. 48.00 35.75
Fourth Quarter............................................. 42.50 22.50
1997
First Quarter.............................................. $45.75 $29.75
Second Quarter (through April 29, 1997).................... 44.75 35.56
</TABLE>
On December 7, 1995, the last full trading day prior to the announcement of
the execution of a letter of intent with respect to a merger between Patlex and
DBT, the closing price of Patlex Common Stock as reported on the Nasdaq
Small-Cap Market was $5.25 per share. On August 19, 1996, the last full trading
day prior to the consummation of the Reorganization, the last reported sale
price of Patlex Common Stock as reported on the Nasdaq National Market was
$39.00. The last reported sale price of the Company's Common Stock on April 29,
1997, as reported on the Nasdaq National Market was $36.50.
The number of record holders of the Company's Common Stock as of April 29,
1997 was 506. The Company believes that a larger number of beneficial owners
hold such shares of Common Stock in depository or nominee form.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth as of March 31, 1997: (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect the issuance and sale of 1,000,000 shares of Common Stock
offered by the Company in the Offering (at an assumed public offering price of
$36.50 per share). This table should be read in conjunction with "Selected
Consolidated Financial and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Cash and cash equivalents........................................... $ 4,614,500 $38,009,500
=========== ===========
Total debt.......................................................... -- --
----------- -----------
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized; no
shares issued or outstanding................................... -- --
Common stock, $.10 par value, 40,000,000 shares authorized;
7,750,818 shares issued and outstanding, actual; 8,750,818
shares issued and outstanding, as adjusted..................... 775,100 875,100
Additional paid-in capital........................................ 18,210,000 51,505,000
Retained earnings................................................. 136,100 136,100
----------- -----------
Total stockholders' equity................................ 19,121,200 52,516,200
----------- -----------
Total capitalization...................................... $19,121,200 $52,516,200
=========== ===========
</TABLE>
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial and other data should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The consolidated
financial data presented below as of December 31, 1992 and for the period from
February 18, 1992 (date of inception) to December 31, 1992 and as of and for the
fiscal years ended December 31, 1993, 1994, 1995 and 1996 have been derived from
the audited consolidated financial statements of the Company, certain of which
are included elsewhere in this Prospectus. The consolidated financial data for
the three months ended March 31, 1996 and 1997 and as of March 31, 1997 are
derived from the unaudited consolidated financial statements of the Company
included elsewhere in this Prospectus and reflect all adjustments (which consist
of only normal recurring adjustments) necessary for a fair presentation of
interim periods. Operating results for the three months ended March 31, 1997 are
not necessarily indicative of results for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------------------------------- -------------------------
1992(1) 1993 1994 1995(2) 1996(3) 1996 1997
---------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 1,800 $ 477,400 $2,751,100 $ 8,076,300 $16,321,300 $3,349,800 $6,081,500
Patent royalties................. 2,382,000 1,517,500
---------- ---------- ---------- ----------- ----------- ---------- ----------
Total revenues and
royalties.............. 1,800 477,400 2,751,100 8,076,300 18,703,300 3,349,800 7,599,000
---------- ---------- ---------- ----------- ----------- ---------- ----------
Cost of revenues................. 27,300 180,000 856,200 3,372,300 8,996,300 1,552,500 3,270,700
Selling and promotion............ 1,800 7,900 287,100 1,025,700 1,930,400 315,900 593,000
Research and development......... 38,900 120,000 552,700 1,017,000 2,052,300 398,500 529,700
General and administrative....... 82,700 175,400 609,900 1,908,100 4,814,800 767,100 1,800,300
Loss on IRB transaction.......... 1,660,100
---------- ---------- ---------- ----------- ----------- ---------- ----------
Total expenses........... 150,700 483,300 2,305,900 8,983,200 17,793,800 3,034,000 6,193,700
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) from operations.... (148,900) (5,900) 445,200 (906,900) 909,500 315,800 1,405,300
Interest income (expense) and
other income, net.............. 162,800 82,900 (15,400) (76,100) (159,100) (35,400) 31,300
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) before income
taxes.......................... 13,900 77,000 429,800 (983,000) 750,400 280,400 1,436,600
Provision for income taxes(4).... 208,700 231,000 105,500 545,900
---------- ---------- ---------- ----------- ----------- ---------- ----------
Net income (loss)................ $ 13,900 $ 77,000 $ 429,800 $(1,191,700) $ 519,400 $ 174,900 $ 890,700
========== ========== ========== =========== =========== ========== ==========
Net income (loss) per common
share.......................... $ .00 $ .02 $ 0.11 $ (0.27) $ 0.08 $ 0.03 $ 0.11
========== ========== ========== =========== =========== ========== ==========
Weighted average shares
outstanding.................... 2,953,200 3,445,400 3,937,600 4,417,800 6,177,300 5,127,600 8,053,000
========== ========== ========== =========== =========== ========== ==========
OPERATING AND FINANCIAL DATA:
DBT EBITDA(5)............................................. $ 690,000 $ 35,000 $ 2,582,900 $ 715,000 $1,365,100
DBT on-line minutes(6).................................... 1,895,700 5,846,400 11,473,200 2,302,500 4,365,400
DBT active customers(7)................................... 1,000 3,100 6,600 4,000 7,800
DBT employees(8).......................................... 31 78 117 88 122
DBT capital expenditures.................................. $ 961,200 $ 3,115,600 $ 5,277,400 $1,010,700 $1,004,100
Patlex EBITDA(5).......................................... $ 1,969,300 $1,267,100
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 6,000 $ 300 $ 156,300 $ 1,642,700 $ 6,965,600 $4,614,500
Total assets.................................. 45,800 260,800 1,524,500 6,557,200 29,556,000 28,489,000
Total debt.................................... 11,000 684,700 2,641,600 2,981,300
Stockholders' equity.......................... 14,900 138,500 552,300 2,598,400 18,230,500 19,121,200
</TABLE>
- ---------------
(1) For the period from February 18, 1992 through December 31, 1992.
(2) The Company's results for 1995 were adversely impacted by a loss of
$1,660,100 relating to the Company's acquisition and disposition of IRB in
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) The 1996 Statement of Operations Data includes the results of Patlex from
August 20, 1996, the date of the Reorganization, through December 31, 1996.
(4) There was no income tax provision in fiscal years 1992, 1993 and 1994 due to
the Company's S Corporation status. On July 1, 1995, the Company terminated
its S Corporation election and established a deferred tax liability of
$155,200.
(5) EBITDA represents earnings before interest and financial charges, income
taxes, depreciation and amortization. The Company has included information
concerning EBITDA (which is not a measure of financial performance under
generally accepted accounting
15
<PAGE> 17
principles) because it understands that it is used by certain investors as
one measure of an issuer's financial performance. EBITDA should not be
construed as an alternative to operating income (as determined in accordance
with generally accepted accounting principles), as an indicator of the
Company's performance or cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) or as a measure
of liquidity.
(6) DBT on-line minutes means the approximate number of minutes that customers
utilized DBT's system for the period presented.
(7) DBT active customers means the approximate number of customers who utilized
DBT's system in the last month in the period presented.
(8) DBT employees means the number of full-time employees at period end.
16
<PAGE> 18
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1996 gives effect to the Reorganization as if it had
occurred at January 1, 1996. See "Prospectus Summary -- The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Unaudited Pro Forma Consolidated Statement of Operations should
be read in conjunction with the Consolidated Financial Statements and related
Notes thereto included elsewhere in this Prospectus.
The Unaudited Pro Forma Consolidated Statement of Operations has been
prepared by the Company based, in part, on the unaudited financial information
of Patlex adjusted where necessary to the Company's basis of accounting policies
used in the Consolidated Financial Statements. The Unaudited Pro Forma
Consolidated Statement of Operations is not intended to be indicative of the
results that would have occurred if the Reorganization had occurred on January
1, 1996, or which may be realized in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
HISTORICAL PRE-REORGANIZATION PRO FORMA PRO FORMA
COMPANY PATLEX(1) ADJUSTMENTS CONSOLIDATED
----------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................ $16,321,300 $ 16,321,300
Patent royalties.................... 2,382,000 $ 5,314,000 7,696,000
----------- ----------- --------- -----------
Total revenue and royalties.... 18,703,300 5,314,000 24,017,300
Cost of revenues.................... 8,996,300 1,141,000 $ 184,500(2) 10,321,800
Sales and promotion................. 1,930,400 1,930,400
Research and development............ 2,052,300 2,052,300
General and administrative.......... 4,814,800 1,789,000 (688,300)(3) 5,915,500
----------- ----------- --------- -----------
Total operating expenses....... 17,793,800 2,930,000 (503,800) 20,220,000
Income from operations.............. 909,500 2,384,000 503,800 3,797,300
Interest income (expense), net...... (159,100) 229,400 169,000(4) 239,300
----------- ----------- --------- -----------
Income before income taxes.......... 750,400 2,613,400 672,800 4,036,600
Provision (benefit) for income
taxes............................. 231,000 1,123,300 (5,900)(5) 1,348,400
----------- ----------- --------- -----------
Net income.......................... $ 519,400 $ 1,490,100 $ 678,700 $ 2,688,200
=========== =========== ========= ===========
Net income per common share......... $ 0.34
===========
Weighted average shares
outstanding....................... 8,012,000
===========
</TABLE>
- ---------------
(1) Reflects results of Patlex for the period January 1, 1996 to August 20,
1996, the date of the Reorganization.
(2) Adjustment to record increase in amortization expense of the patents
resulting from the excess of the purchase price of Patlex over the assets
and liabilities acquired.
(3) Adjustment to eliminate the one-time costs of the Reorganization including
investment banking, attorney, accounting and printing expenses.
(4) Adjustment to eliminate interest expense from the reduction in debt offset
by a related loss of interest income from a reduction of invested balances.
(5) Adjustment to record the income tax effect of the patent amortization and
interest expense.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto, and other financial information
included elsewhere in this Prospectus. This Prospectus contains certain
statements regarding future trends, the accuracy of which is subject to many
risks and uncertainties. Such trends, and their anticipated impact upon the
Company, could differ materially from those presented in this Prospectus.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" and elsewhere in the Prospectus.
OVERVIEW OF THE COMPANY AND 1996 REORGANIZATION
The Company is a holding company with two wholly-owned operating
subsidiaries, Database Technologies, Inc. and Patlex Corporation, which are
respectively engaged in the provision of on-line integrated database services
and the patent exploitation and enforcement business. The Company was
reorganized into its current structure on August 20, 1996.
On August 20, 1996, the shareholders of Patlex approved a plan of
reorganization pursuant to which the Company was reorganized into a holding
company and Patlex became a wholly-owned subsidiary of the Company. Also on
August 20, 1996, another wholly-owned subsidiary of the Company merged with and
into DBT and DBT became a wholly-owned subsidiary of the Company (the
"Reorganization"). The Company is the successor registrant to Patlex.
For accounting purposes the Reorganization was 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
Reorganization were recorded at their fair values as of August 20, 1996.
DBT
DBT's revenues are principally derived from the billing of on-line charges
based upon per minute connection fees and from the billing of individual report
fees. DBT does not currently charge an installation or fixed monthly fee to its
customers. Users access the database by calling a toll free number by modem from
their computers. The per minute connection fee currently ranges from $0.50 per
minute to $1.50 per minute depending on the product. On-line charges are
recorded as revenues by DBT as incurred. Customers are billed monthly.
Cost of revenues currently represents the largest portion of DBT's total
costs and expenses. Cost of revenues includes the costs associated with the
acquisition of data, depreciation on computer equipment, communication costs,
salaries and other costs related to the maintenance of the system. The Company's
data acquisition costs are generally fixed and consequently are not directly
correlated with DBT's revenues. Substantially all data acquisition costs are
expensed as incurred.
Selling and promotion expenses include all expenses incurred by DBT's
marketing and sales staff and customer and technical support personnel,
advertising costs and expenses relating to DBT's participation at industry trade
shows and conventions.
Research and development expenses include all expenses incurred by DBT's
computer programming personnel related to improvements in DBT's computer system
and the development of new products. Research and development costs are charged
to expense when incurred.
General and administrative expenses include all expenses incurred by DBT
relating to administrative and executive salaries, accounting, insurance and
other general expenses of DBT.
PATLEX
Patlex's revenues consist of royalties and income derived from the
exploitation and enforcement of its existing patents. Patlex's cost of revenues
consists of the amortization of the patent assets. General and administrative
expenses include all administrative expenses, executive salaries, other
personnel costs and other
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<PAGE> 20
general expenses. Patlex does not have any selling and promotion expenses or
research and development expenses.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company's consolidated results of operations for the three months ended
March 31, 1997 include the results of operations of Patlex, which was acquired
by the Company on August 20, 1996.
REVENUES
The Company's revenues increased 127% to $7,599,000 for the three months
ended March 31, 1997 from $3,349,800 for the same period in 1996. DBT
contributed $6,081,500 to the Company's revenues and Patlex contributed
$1,517,500 to the Company's revenues.
The increase in DBT's revenues was attributable to an increase in the
number of active customers and the number of minutes users spent on-line. DBT's
active customers (defined as the approximate number of customers utilizing the
system in the last month in the period presented) increased 95% to 7,800 at
March 31, 1997 from 4,000 at March 31, 1996.
Total system usage was 4.4 million minutes for the three months ended March
31, 1997, up from 2.3 million minutes for the same period in 1996, an increase
of 91%. Revenues from on-line charges were $5,838,100 and $3,152,500 for the
three months ended March 31, 1997 and 1996, respectively, an increase of 85%.
COST OF REVENUES
The Company's cost of revenues increased 111% to $3,270,700 for the three
months ended March 31, 1997 from $1,552,500 for the same period in 1996. As a
percentage of total revenues, cost of revenues decreased to 43% for the three
months ended March 31, 1997 from 46% for the same period in 1996. For the three
months ended March 31, 1997, Patlex's cost of revenues, which consisted solely
of the amortization of its patents, was $423,800. In addition to the
consolidation of Patlex, the increase in the Company's cost of revenues was due
primarily to increases in both purchased data costs and depreciation expense as
DBT continued to invest both in its computer facilities and in the expansion of
its databases. The Company expects this trend to continue.
SELLING AND PROMOTION EXPENSES
DBT's selling and promotion expenses increased 88% to $593,000 for the
three months ended March 31, 1997 from $315,900 for the same period in 1996. The
increase was primarily due to increases in payroll and trade show expenses. As a
percentage of total revenues, selling and promotion expenses decreased to 7.8%
for the three months ended March 31, 1997 from 9.4% for the same period in 1996.
RESEARCH AND DEVELOPMENT EXPENSES
DBT's research and development expenses increased 33% to $529,700 for the
three months ended March 31, 1997 from $398,500 for the same period in 1996.
This increase was caused by an increase in payroll and related expenses. As a
percentage of total revenues, research and development expenses were 7.0% for
the three months ended March 31, 1997, a decrease from 11.9% for the same period
in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses increased 135% to
$1,800,300 for the three months ended March 31, 1997 from $767,100 for the same
period in 1996. This increase was due to increases in payroll and related
expenses. As a percentage of total revenues, general and administrative expenses
remained relatively consistent at 23.7% and 22.9% for the three months ended
March 31, 1997 and 1996, respectively. Patlex's general and administrative
expenses, which consisted principally of salaries, were $254,500 for the three
months ended March 31, 1997. The Company's corporate expenses, which consisted
principally of corporate insurance, public company related expenses and legal
fees were $99,400.
INTEREST INCOME (EXPENSE), NET
Net interest income was $31,300 for the three months ended March 31, 1997
compared to interest expense of $35,400 for the same period in 1996. The net
interest income is due to the Company's repayment of all its outstanding debt in
the three months ended March 31, 1997 and its positive cash flow from
operations.
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<PAGE> 21
INCOME TAXES
The Company's effective income tax rate was 38% for the three months ended
March 31, 1997 compared to 37.6% for the same period in 1996.
NET INCOME
The Company had net income of $890,700 for the three months ended March 31,
1997 compared to $174,900 for the same period in 1996.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Results of operations of Patlex from August 20, 1996 through December 31,
1996 are included in the Company's consolidated results of operations for the
year ended December 31, 1996.
REVENUES
The Company's revenues increased 132% to $18,703,300 in 1996 from
$8,076,300 in 1995. DBT contributed $16,321,300 to the Company's revenues and
Patlex contributed $2,382,000 to the Company's revenues. The Company's revenues
increased 194% in 1995 up from $2,751,100 in 1994.
The increase in DBT's revenues was attributable to an increase in the
number of active customers and the number of minutes users spent on line. During
1996, DBT's active customers increased 113% to 6,600 as of December 31, 1996
from 3,100 as of December 31, 1995. During 1995, DBT's active customers
increased 210% to 3,100 active customers from 1,000 active customers as of
December 31, 1994.
During the year ended December 31, 1996, total system usage was 11.5
million minutes, up from 5.8 million minutes in 1995 and 1.8 million minutes in
1994, an increase of 98% and 222%, respectively. Revenues from on-line charges
in 1996 were $15,397,400, compared to $7,259,310 in 1995, and $2,233,644 in
1994, an increase of 112% and 225%, respectively. In 1996, DBT's from on-line
charges per revenue per average active customer was $3,000. By comparison in
1995 and 1994, DBT's revenue from on-line charges per average active customer
was $3,500 and $3,250, respectively.
COST OF REVENUES
The Company's cost of revenues increased 167% to $8,996,300 in 1996 from
$3,372,300 in 1995. As a percentage of total revenues, cost of revenues
increased to 48% from 42% in 1995. In 1996 Patlex's cost of revenues, which
consisted solely of the amortization of its patents, was $622,300. In addition
to the consolidation of Patlex, the increase in the Company's cost of revenues
was due primarily to increases in both purchased data costs and depreciation
expense as DBT continued to invest both in its computer facilities and in the
expansion of its databases. The Company expects this trend to continue.
DBT's cost of revenues increased 294% to $3,372,300 in 1995 from $856,200
in 1994 and increased to 42% as a percentage of total revenues from 31% in 1994.
The increase was due primarily to increases in both purchased data costs and
depreciation expense.
SELLING AND PROMOTION EXPENSES
DBT's selling and promotion expenses increased 88% to $1,930,400 in 1996
from $1,025,700 in 1995. The increase was primarily due to increases in payroll
and trade show expenses. As a percentage of total revenues, selling and
promotion decreased slightly to 10.3% in 1996 from 12.7% in 1995.
DBT's selling and promotion expenses increased 257% to $1,025,700 in 1995
from $287,100 in 1994. The increase was primarily due to increases in payroll
and trade show expenses. As a percentage of total revenues, selling and
promotion increased to 12.7% in 1995 from 10.4% in 1994.
RESEARCH AND DEVELOPMENT EXPENSES
DBT's research and development expenses increased 102% and 84% in 1996 and
1995, respectively, to $2,052,300 in 1996 from $1,017,000 in 1995 and $552,700
in 1994. These increases were caused by increases in payroll and related
expenses. As a percentage of DBT's total revenues, research and development
expenses were consistent in 1996 and 1995, at 12.6% for both years, a decrease
from 20.1% in 1994.
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<PAGE> 22
GENERAL AND ADMINISTRATIVE EXPENSES
DBT's general and administrative expenses increased 98% in 1996 and 213% in
1995 to $3,769,600 in 1996 from $1,908,100 in 1995 and $609,900 in 1994. The
increases were due to increases in payroll and related expenses. As a percentage
of DBT's total revenues, general and administrative expenses remained relatively
consistent at 23.1%, 23.6% and 22.2% in 1996, 1995 and 1994, respectively.
Patlex's general and administrative expenses, which consisted principally of
salaries, were $419,000 for the period from August 20, 1996 through December 31,
1996. The Company's corporate expenses, which consisted principally of corporate
insurance, public company related expenses and legal fees, were $626,200.
INTEREST EXPENSE
Net interest expense was $159,100 in 1996 compared to $76,100 and $15,400
in 1995 and 1994, respectively. The increases resulted primarily from increases
in the Company's average outstanding debt during each of 1996 and 1995 which was
used to finance the Company's growth.
INCOME TAXES
The Company's effective income tax rate was 32% in 1996. The rate was
positively affected by a research tax credit enacted in July 1996 offset
slightly by certain non-deductible Reorganization expenses. The 1995 income tax
expense reflected the decision by the Company to revoke its S Corporation
election and to begin paying taxes on its earnings. As a consequence of this
election, the Company established a deferred tax liability of $155,200. There
was no income tax expense in 1994 due to the Company's S Corporation status.
LOSS ON IRB TRANSACTION
The Company's consolidated statements of operations reflects, in 1995, an
expense of $1,660,100 corresponding to the costs incurred by DBT in a
transaction with International Research Bureau, Inc. ("IRB"). Effective July 1,
1995, DBT purchased for cash and stock all of the outstanding shares of IRB's
common stock. 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 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 was granted a covenant not to compete. Management's
estimate of the fair value of the acquired assets, totaling $198,600, was
recorded on DBT's balance sheet. The costs associated with this transaction
included a cash payment of $1,000,000 and the issuance of DBT common stock
valued at $485,700 (after accounting for the returned shares). The Company's
expense of $1,660,100 was calculated after writing down the Company's investment
in IRB and other costs totaling $373,000.
NET INCOME
In 1996 the Company had net income of $519,400 compared to a loss of
$1,191,700 in 1995 and income of $429,800 in 1994. Results for 1995 were
adversely impacted by a loss of $1,660,100 relating to the Company's acquisition
and disposition of IRB in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $1,841,600 and $243,300 for the
three months ended March 31, 1997 and 1996, respectively. The Company's capital
expenditures of $1,004,100 and $1,010,700 for the three months ended March 31,
1997 and 1996, respectively, were primarily attributable to the acquisition of
computer equipment for DBT. The Company had working capital at March 31, 1997 of
$3,537,400 (including
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<PAGE> 23
cash and cash equivalents of $4,614,500) compared to $4,117,800 (including cash
and cash equivalents of $6,965,600) at December 31, 1996. The decrease in
working capital at March 31, 1997 was principally due to the repayment by the
Company during the first quarter of 1997 of its debt, which had an outstanding
balance of $2,981,300 at December 31, 1996.
The Company's cash flow from operations was $1,476,200 and $1,506,900 in
1996 and 1995, respectively. The Company's capital expenditures of $5,300,700
and $3,115,600 in 1996 and 1995, respectively, were primarily attributable to
the acquisition of computer equipment for DBT. The Company had working capital
at December 31, 1996 of $4,117,800 (including cash and cash equivalents of
$6,965,600) compared to $508,500 (including cash and cash equivalents of
$1,642,700) in 1995. The increase in 1996 was due to both the Company's growth
and the acquisition of Patlex on August 20, 1996. The Company had total debt
outstanding of $2,981,300 as of December 31, 1996, which was repaid in the first
quarter of 1997.
The Company expects to fund future working capital requirements from its
existing cash balances and cash generated from operations. If necessary, other
sources of capital available to the Company may include access to the capital
markets, additional bank borrowings and lines of credit.
INFLATION
The rate of inflation has not had a material impact on the operations of
the Company. Moreover, if inflation remains at its recent levels, it is not
expected to have a material impact on the operations of the Company for the
foreseeable future.
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BUSINESS
The Company is a holding company which operates its business through two
wholly-owned subsidiaries, DBT and Patlex. DBT is an on-line provider of
integrated database services and Patlex is engaged in the exploitation and
enforcement of the Laser Patents.
DBT
OVERVIEW
DBT is an on-line provider of integrated database services and related
reports primarily to law enforcement and other governmental agencies, law firms,
insurance companies and licensed investigation companies. DBT develops
proprietary software which contains unique algorithms and utilizes advanced
microprocessor-based technology to locate, cross-reference and retrieve records
from multiple data sources. DBT limits access to its computer system to approved
customers who may access DBT's services via their desktop computers and generate
reports which are delivered in an organized, comprehensive and easy-to-read
format. To generate the reports, DBT's computers simultaneously access thousands
of data sources containing billions of public records as if they were part of a
single database. The Company believes that the large number of databases to
which DBT has access and the ability of its computer system to identify,
cross-reference and cross-check relevant data in a timely and cost-effective
manner differentiate DBT from its competitors.
INDUSTRY OVERVIEW
The market for on-line information research services is evolving and
subject to rapid technological change. The primary users of the public records
and investigative information provided by DBT are law enforcement and other
governmental agencies, law firms, insurance companies and licensed investigation
companies. The Company believes that the increasing volume of publicly available
data will drive demand for comprehensive and organized methods for accessing
that information and that the market for on-line information research services
will demonstrate strong growth for the foreseeable future. Factors which the
Company believes will contribute to this market growth include (i) the
increasing need for more reliable and efficient investigative search methods and
(ii) the demand of customers for information research services capable of
cross-referencing and cross-checking research results.
DBT faces significant competition in the on-line information research
services market. Although many of its competitors are established,
well-capitalized companies with larger installed customer bases, DBT is able to
compete due to its advanced technological capabilities and the need of various
industries and governmental agencies for comprehensive and timely sources of
investigative data. The Company believes DBT will be able to increase its market
share based on its growth strategy described below.
COMPUTER SYSTEM DESIGN
DBT's computer system is based upon a linear architecture which uses a
proprietary operating system to link multiple microprocessors. DBT internally
designs and develops software which utilizes unique algorithms to perform
thousands of complex calculations in the compilation of its comprehensive
reports. In addition, DBT designs and constructs a significant portion of its
system hardware to meet its demanding technological specifications. The Company
believes DBT's operating system is distinguished from the systems of other
on-line providers by virtue of the following characteristics:
- - Microprocessor-based server design -- DBT has developed and uses a
microprocessor-based computer system which the Company believes is more
economical to construct, expand and upgrade than mainframe systems. In
addition, DBT's operating system is fault tolerant in real time which prevents
service interruptions during customer usage.
- - Cross-referencing capability -- DBT's computer system utilizes a multi-tiered
client server methodology to interface with multiple file types and processor
resources. The unique algorithms developed by DBT allow the system to link
dissimilar categories of data through intelligent indexing.
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- - Data storage capacity and update capability -- The Company believes the design
of DBT's operating system provides the capability to process data files of any
size. DBT's system currently has approximately 9.0 terabytes (each terabyte is
equal to 1,024 gigabytes) of storage capacity, of which over 7.0 terabytes are
currently utilized. DBT refreshes current data as often as updated data
becomes available, including, in some instances, multiple times daily.
- - Retrieval speed -- The system's linear architecture and distributed processing
design allows DBT to distribute workload across the system infrastructure to
utilize idle microprocessors, thereby enabling the system to perform searches,
cross references and data validity checks rapidly.
- - Reporting capabilities -- DBT's computer system efficiently compiles and
presents retrieved information in a logical and easy-to-read format, which
prioritizes relevant and possibly related information and eliminates
duplicative data.
GROWTH STRATEGY
The Company's objective is to position DBT as a primary data retrieval
source for publicly-available information and as a value-added outsourcing
partner for specialized data search, compilation and reporting. DBT has
identified a number of opportunities to leverage its system capabilities and
data access which the Company believes, if successfully implemented, will result
in increased revenues. DBT proposes to pursue these objectives through the
following initiatives:
- - Expand customer base -- DBT has traditionally relied upon customer referrals,
limited advertising and presentations at trade shows to promote its products.
The Company believes that it can substantially expand DBT's customer base by
instituting a number of targeted sales and marketing initiatives, including
hiring professional marketing personnel and a direct sales force. In addition,
the Company believes that an increased focus on corporate customers and the
offering of information tailored to their needs will increase demand for DBT's
products.
- - Improve system accessibility and utilization -- DBT is currently developing,
and expects to introduce during 1997, an intranet HTML-based delivery method
as an alternative to its DOS-based delivery method. This delivery method will
allow customers to utilize the on-screen "point and click" method to more
easily access information and to quickly and efficiently expand searches. The
Company believes this delivery method will increase both the number of
customers able to access DBT's services and system utilization by existing
customers. In addition, DBT plans to direct its sales and customer service
staff to educate customers about additional product applications.
- - Enhance the scope and timeliness of data -- The Company believes that
increasing the amount and type of data to which DBT provides access will
enhance the value of DBT's services. DBT continually adds to its significant
volume of national, state and county data. The Company intends to take
advantage of the flexibility of its computer system design by further
increasing the size and scope of its databases.
- - Pursue selected outsourcing and data warehousing opportunities -- The Company
believes that DBT is well positioned to leverage its systems and data search
and compilation competencies to selectively pursue outsourcing and data
warehousing contracts. For example, the Company is currently seeking
opportunities to provide certain governmental agencies with customized data
search, compilation and reporting services.
- - Target new products to customer needs -- The Company will continue to develop
products specifically designed for new or related customer needs. For example,
DBT recently completed development of AutoCase which will utilize information
available through DataCase to monitor NYUCS cases previously selected by the
customer and automatically deliver on-line any relevant new information on
these cases when the customer logs onto DataCase.
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DATA SOURCES
DBT acquires its data from both governmental and commercial sources. DBT is
actively seeking additional sources to expand the scope of its product
offerings. DBT purchases new data based on availability, customer needs and the
potential of any new data to complement the data already available on DBT's
system.
Governmental Sources. DBT acquires some of its public record data directly
from the federal, state and county governmental agencies which maintain the
data. This data is specifically made publicly available by law and is typically
provided to DBT on a "pay-as-you-go" basis, including updates to the data at
various intervals. Certain governmental agencies are limited by law in what they
charge purchasers for certain records. In addition, certain types of data which
are available in some states may be unavailable in other states due to statutory
exemptions from the public record laws of those states.
Commercial Sources. DBT also acquires data via purchase or license from
commercial sources, typically on a non-exclusive basis. These transactions
typically are covered by long-term contracts ranging in duration from
approximately two to five years. In most cases, these contracts provide for
fixed annual payments and include updates to the data at various intervals.
PRODUCTS
AUTOTRACK PLUS+. AutoTrack Plus+, DBT's premier product, provides on-line
access to billions of national, state and county public records. Customers are
able to search a particular database and then cross-reference other databases
within AutoTrack Plus+ in a comprehensive manner. Depending upon the state in
which the subject of the search is located, the information available includes
current and past addresses, telephone numbers, possible associates and
neighbors, as well as professional licenses, driving histories, business profile
reports, real estate, vehicles and other assets. Users are able to undertake a
detailed search of all relevant data based on a limited amount of information.
In 1996, substantially all of DBT's revenues were generated by the use of
AutoTrack Plus+.
AutoTrack Plus+ is an aggregation of numerous products. Some of the larger,
more frequently accessed products within AutoTrack Plus+ are as follows:
Faces of the Nation contains information on individuals throughout the
United States. With limited information, such as a surname alone, an
address alone or both a date of birth and first name, users can access
current and previous addresses, neighbors, date of birth and other
information for millions of individuals. Although the scope of this
database is national, some individuals in the United States may not be
included.
Corporations of the Nation contains information on active and inactive
businesses based on secretary of state filings in 43 states. Users can
retrieve information on officers, directors, registered agents, corporate
status and federal employment identification numbers. Searches can be
performed through the use of names, addresses, federal employer
identification numbers and corporation numbers.
Properties of the Nation contains information on real property in 37
states and the U.S. Virgin Islands. Users can receive information on situs
and mailing address, parcel number, assessed values, recent and prior sales
prices and property narratives as well as other information related to the
property.
Vehicles of the Nation contains information on vehicle registrations
in 32 states including an owner name(s) and address, description, title
information, vehicle identification number (VIN), lienholder information
and historical data. Users can base searches on information available
concerning any combination of the vehicle's license tag, model and
description, zip code, VIN, owner name, address and county.
Drivers of the Nation contains information on drivers' licenses issued
in 22 states and can be searched using a combination of name, driver's
license number, address, date of birth and zip code.
Liens/Judgments/Bankruptcies contains information on business and
consumer bankruptcies in all 50 states. Users can also locate data in 29
states relating to federal and state tax liens and civil judgments.
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Other national databases offered through AutoTrack Plus+ include "Deed
Transfers of the Nation," "TRW Business Reports," "National Business Reports"
and federal trademarks and service marks.
AutoTrack Plus+ also includes additional databases from a number of states,
with the broadest selection of databases available for Florida, Texas, New York
and California. The most substantial individual state data in AutoTrack Plus+ is
available for individuals, corporations and assets in Florida. Florida databases
provide information on drivers' licenses, vehicles, boats, worker's compensation
claims, accident reports, trademarks, concealed weapons permits, professional
licenses, UCC lien filings, corporations, real estate and much more specialized
information. Users can access data ranging from most recent property sales
prices to driving histories and can locate information on an individual's
Florida vehicles and vessels, real property, any possible Florida corporate
affiliations, Florida professional licenses, known addresses, marriages and
divorces.
Other individual state data available in AutoTrack Plus+ for various states
include citizen profiles, professional licenses, vehicle and vessel
registrations, drivers' licenses, marriages, secretary of state filings and
other specialized data. These state databases utilize the same search methods as
the national databases and users can combine searches of various state and
national databases.
Comprehensive and dossier reports allow users to efficiently and
cost-effectively gather all the relevant information available in AutoTrack
Plus+ on the subject of their search. These reports offer summaries and detailed
reports aggregating a broad spectrum of data from the national and state
databases and present this data in a clear and convenient format. These reports,
which can be either national or statewide in their scope, eliminate the user's
need for further searches and provide the most complete amount of information in
the shortest time.
AUTOTRACK JR. AutoTrack Jr. is a more economical means of accessing DBT's
databases for users with less extensive search needs. AutoTrack Jr. mostly
includes Florida databases with information on drivers' licenses, vehicle
registrations, boat registrations, accident reports, tax rolls, real estate,
worker's compensation claims and professional licenses. In addition, AutoTrack
Jr. includes a limited number of national databases.
DATACASE AND AUTOCASE. DataCase, which was introduced in December 1996, is
an on-line product providing users access to NYUCS information. The information
available includes New York Supreme Court civil docket information from twelve
New York City metropolitan area counties and Erie County, and judgment, docket
and lien information for the New York City boroughs. Users also have access to
the New York State Attorney registration information and New York county clerk
records. The NYUCS selected DBT to develop DataCase after a competitive bidding
process.
DataCase, which will likely be used predominantly by New York attorneys,
provides its users the opportunity to monitor the status of pending cases and
current case activity in the NYUCS. A user can access both motion calendars and
appearance calendars to assist in scheduling and planning. DataCase allows the
user to search the litigation histories of parties and the Company believes it
will allow users to assess litigation patterns and practices of individuals and
companies. Searches also can be performed to determine which law firms and state
justices have been involved in particular litigation. In addition, DataCase
allows users to search for information on specific court judgments and liens in
the New York City area. Searches can be performed by case name, law firm,
specific county, defendant, plaintiff or other information. Information in
DataCase is updated four times daily and is available 24 hours a day, seven days
a week.
AutoCase, utilizing the information available through DataCase, will offer
a personalized up-to-date source of information on requested cases pending in
the NYUCS. AutoCase will monitor the activity of cases selected by the customer
and automatically deliver on-line any relevant new information on these cases
when the customer logs onto DataCase. This information is updated four times
daily. The Company believes AutoCase will serve as a constant, timely and
reliable source of information relating to the status of cases in the NYUCS.
AutoCase was launched in April 1997.
PRICING
The Company's pricing plan is designed to attract new subscribers and to
increase system utilization. The primary component of the Company's pricing
structure is a per minute connection fee. Users access the database by calling a
toll-free number by modem from their computers. The per minute connection fee
currently ranges
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from $.50 per minute to $1.50 per minute depending on the product being accessed
and the customer category. DBT also offers the user the opportunity to access
certain reports for a fixed fee. DBT does not currently charge an installation
or fixed monthly fee to its customers. Based on the system's retrieval speed and
DBT's current price structure, the Company believes DBT is an economical source
of on-line data.
The following tables present DBT's quarterly system utilization and
revenues:
<TABLE>
<CAPTION>
DBT ON-LINE MINUTES
(SYSTEM UTILIZATION IN MINUTES)
-------------------------------------------------
QUARTER ENDED 1994 1995 1996 1997
---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
March 31................................ 284,400 1,033,200 2,302,400 4,365,400
June 30................................. 403,500 1,403,500 2,644,600
September 30............................ 526,000 1,701,600 3,184,000
December 31............................. 681,800 1,708,100 3,342,200
</TABLE>
<TABLE>
<CAPTION>
DBT REVENUES
-------------------------------------------------
QUARTER ENDED 1994 1995 1996 1997
---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
March 31................................ $ 383,900 $1,518,900 $3,349,800 $6,081,500
June 30................................. 559,300 1,874,500 3,789,000
September 30............................ 761,900 2,206,400 4,472,900
December 31............................. 1,046,000 2,476,500 4,709,600
</TABLE>
CUSTOMERS
DBT's customer base has increased rapidly over the last three years, from
approximately 370 active customers (defined as the approximate number of
customers who utilized the system in the last month in the period presented) as
of December 31, 1993 to approximately 6,600 active customers as of December 31,
1996 and approximately 7,800 active customers as of March 31, 1997. Initially,
DBT's products were utilized primarily by insurance companies to investigate
claims. Use of the databases later expanded to law enforcement agencies and
licensed investigation firms. Currently, DBT offers its products primarily to
law enforcement and other governmental agencies, law firms, insurance companies
and licensed investigation companies.
DBT has established procedures designed to restrict access to its system
and certain products to qualified individuals and entities. Potential customers
are screened by DBT prior to being given access to AutoTrack Plus+ or AutoTrack
Jr. The screening process generally consists of a review of professional
licenses, corporation and business status, credit reports, references and other
relevant information and credentials. Applicants that do not meet DBT's
screening criteria are denied access to the system.
Once an application has been approved, the customer signs 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 indemnification of DBT for
liabilities resulting from the customer's use of the data. As of March 31, 1997,
the Company had 15 employees dedicated to receiving phone calls from potential
customers, processing orders and verifying the credentials and references of
each potential customer.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
The Company believes that providing superior levels of customer service and
technical support is necessary to attract and retain customers and to increase
system usage. The Company has created a dedicated Technical Support Center
staffed by customer service representatives who have received extensive training
on the system and on each individual product.
Providing trouble-free product implementation to new users is an important
aspect of DBT's strategy of establishing itself as a superior service provider.
Once a new customer account or user has been approved, DBT mails each customer a
package with the software diskettes, a user manual, the toll-free phone number
of the Technical Support Center and instructions for the customer to call DBT
for a password and assistance on
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<PAGE> 29
installation. Thereafter, the user will be contacted to schedule an appointment
for installation assistance and an initial training session. During the initial
session, DBT's representative ensures that the new user has established
communication with the system and assists in review of the databases. In order
to encourage users to explore the many uses of AutoTrack Plus+, DBT currently
offers its users a demonstration period, during which the user is not charged
for connection time, and offers credits for certain report charges.
The Technical Support Center representatives resolve technical or
communication difficulties and respond to product support questions 24 hours a
day, every day of the year. Users may access the Technical Support Center via a
toll-free telephone number and are not currently charged for these inquiries.
The objective of the Technical Support Center is to provide customers with quick
and accurate answers to their questions from a single contact point. As of March
31, 1997, DBT's Technical Support Center was comprised of 35 customer service
representatives.
SALES AND MARKETING
The Company believes that substantial opportunities exist to both attract
new customers and increase its revenues from existing customers. The Company's
marketing objective is to create demand for its products by targeting the needs
of various market segments, such as law enforcement, attorneys and governmental
agencies, providing comprehensive and organized information, superior service
and reliability at a competitive price. DBT has traditionally relied upon
customer referrals, limited advertising and presentations at trade shows to
introduce potential customers to the benefits of AutoTrack Plus+ and DBT's other
products. The Company has recently begun taking a more pro-active approach
toward marketing. The Company intends to hire a marketing team and implement a
marketing program directed toward targeted market segments using direct mail
campaigns, advertising and direct contact by the sales staff.
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 many states, including Florida and Texas, the two states where DBT has
a significant amount of business, 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
generally may only be provided to law enforcement agencies for specific
purposes. The continued availability of public record data is also subject to
federal legislation. For example, the Driver's Privacy Protection Act of 1994,
effective September 13, 1997, places certain restrictions on the release and use
of certain personal data included in state motor vehicle records. DBT cannot
predict whether the degree of regulation in any particular state will change,
nor whether the federal government will implement new regulations with respect
to access to specific information. See "Risk Factors -- Impact of Government
Regulation of Access to Records; Claims Arising from Use of Information."
PATLEX
Patlex has been engaged in the patent exploitation and enforcement business
since 1979. Patlex owns a 64% interest in the royalty income from, and a 42.86%
ownership interest in, the Laser Patents which derive from patent applications
originally filed by Dr. Gordon Gould in 1959. The patent enforcement business
includes the identification of laser products 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.
Laser Patents. The Gas Discharge Laser Patent (U.S. Patent No. 4,704,583)
currently accounts for substantially all of Patlex's revenues. The Brewster
Angle Window Patent (U.S. Patent No. 4,746,201) involves the use of an optical
system including optical elements to polarize light. 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 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.
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<PAGE> 30
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. The Company 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 1977 through 1988) in which the greatest number of
lawsuits challenging the validity and scope of the Laser Patents were
prosecuted. 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. A successful challenge against the validity of the Gas
Discharge Laser Patent could have a material adverse effect on the financial
condition or results of operations of the Company.
There were no expenses relating to litigation of the Laser Patents during
1996.
Gas discharge laser applications. Gas discharge lasers are used for
applications requiring low to high power output in commercial, medical and
scientific markets. Commercial market applications account for the majority of
total gas discharge laser uses and include manufacturing-related applications
such as robotic welding, marking, drilling and cutting of sheet-metal. Gas
discharge lasers are also used in the packaging industry to mark and etch dates,
bar codes and other information on containers. Medical applications include uses
in dermatology for skin resurfacing and wrinkle removal, ophthalmology,
including refractive surgery, retinal surgery and glaucoma treatment, and
general non-invasive surgery. Research and scientific applications, which
represent the balance of gas discharge laser uses, primarily are comprised of
laboratory research and development activities.
Patent Licensing Agreements. Patlex is the exclusive licensing agent for
the Laser Patents. As licensing agent, Patlex actively pursues its patent
licenses, 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
agreements into which Patlex enters 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 any product that utilizes the inventions
claimed in the Laser Patents. As of March 31, 1997, Patlex had agreements with a
total of 231 companies, including users and manufacturers representing a
cross-section of industries in the United States. Of such agreements, 186 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.
The Company 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. No licensees accounted for more than 10% of
the Laser Patent royalties during the period from the Reorganization through
March 31, 1997; however, Laser Patent royalties fluctuate by customer from
period to period.
The market for Patlex's patent license agreements under the Laser Patents
depends on the commercial laser industry. The number of license agreements
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 only 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.
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<PAGE> 31
COMPETITION
The information services industry is very competitive and characterized by
rapid technological change and the entry of large and well-capitalized companies
as well as smaller competitors. The Company competes or may compete with large,
well-established information providers such as Reed Elsevier PLC (Lexis/Nexis),
Equifax Inc. (CDB Infotek) and The Thomson Corporation (WESTLAW/Information
America), as well as some other database providers. These competitors offer a
wide variety of information services not offered by DBT which allow them to
offer their products to larger customer bases and to more easily attract
customers to their products. However, the Company is not aware of any
competitors that provide the same comprehensive databases and cross-referenced
products that are currently available through AutoTrack Plus+. Further, the
price structures for these competitors' products are generally higher than those
of DBT and the Company believes that none of these competitors currently
provides the uniquely integrated and cross-referenced database services
available from DBT.
In addition, the Company believes that many customers purchase multiple
products from various information providers in order to maximize the information
to which they have access. Therefore, the Company believes that DBT's products
can complement services provided by its competitors. If current competitors or
others sought to compete on a larger scale with DBT, such competition could have
a material adverse effect on the financial condition or results of operations of
the Company.
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 the Company believes the laser technology
covered by the Laser Patents to be state of the art, any advance in technology
which would render one or more of the Laser Patents obsolete could adversely
affect Patlex's future patent royalty revenue and could have a materially
adverse effect on the financial condition or results of operations of the
Company.
EMPLOYEES
As of March 31, 1997, the Company had 131 full-time employees, 125 of whom
were employed by DBT and 6 of whom were employed by Patlex. The Company
considers its relationships with its employees to be good. None of the Company's
employees are covered by collective bargaining agreements.
PROPERTIES
DBT leases an aggregate of approximately 42,000 square feet in three
buildings in Pompano Beach, Florida for office space and computer operations.
Patlex leases approximately 2,600 square feet of office space in Las Vegas,
Nevada and approximately 600 square feet of space located in Las Cruces, New
Mexico.
LEGAL PROCEEDINGS
The Company may be involved in litigation from time to time in the ordinary
course of its business. DBT is not currently involved in any litigation, or, to
its knowledge, is any material litigation currently threatened.
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. On February
28, 1996, a special verdict adverse to Patlex was returned and judgment in the
total amount of $192,800 was entered on July 10, 1996. Patlex appealed the
decision to the United States Court of Appeals for the Third Circuit which
affirmed the United States District Court's decision on March 27, 1997. Patlex
has accrued the amount of the REFAC judgment plus interest through March 31,
1997.
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<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information as of March 31, 1997 concerning the
Company's executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Frank Borman.................. 69 Chairman of the Board of Directors
Hank Asher.................... 46 President, Chief Executive Officer and Director
Thomas L. Simpson............. 53 Chief Operating Officer and Director
Timothy M. Leonard............ 38 Vice President, Finance, Treasurer and Chief Financial Officer
J. Henry Muetterties.......... 44 Vice President, Secretary and General Counsel
Charles A. Asher.............. 44 Director
Gary E. Erlbaum............... 52 Director
Jack Hight.................... 71 Director
Kenneth G. Langone............ 61 Director
Eugene L. Step................ 68 Director
Sari Zalcberg................. 43 Director
</TABLE>
Frank Borman has been Chairman of the Company since August 1996, and
President of Patlex since 1988. From September 1995 until August 1996, he also
served as Chief Executive Officer and a director of Patlex. He served as
Chairman and Chief Executive Officer of Patlex from 1988 to December 1992, and
as Chairman of AutoFinance Group, Inc. ("AFG") from December 1992 to September
1995, during the period that Patlex was a subsidiary of AFG. He served as Vice
Chairman of the Board of Directors of Texas Air Corporation from 1986 to 1991.
From 1969 to 1986, he served in various capacities for Eastern Airlines,
including President, Chief Executive Officer and Chairman of the Board of
Directors. Mr. Borman served in the United States Air Force from 1950 to 1970.
Mr. Borman currently serves as a director of The Home Depot, Inc., Outboard
Marine Corporation, Thermo Instruments Systems and American Superconductor
Corporation and is also a member of the Board of Trustees of the National
Geographic Society.
Hank Asher has been President, Chief Executive Officer and a director of
the Company since August 1996. He has been the President, 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.
Thomas L. Simpson was elected Chief Operating Officer and a director of the
Company in February 1997. Mr. Simpson had been Senior Vice President, Chief
Operating Officer and Secretary of GMIS Inc., a developer of software for the
health care payor market, from May 1995 until January 1997. Prior to that, Mr.
Simpson held various financial management positions at Alco Standard
Corporation, a distributor of office products, from 1986 to 1995, including his
most recent position as Chief Financial Officer of Unisource, Inc., a
distributor of paper products.
Timothy M. Leonard was elected Vice President, Finance, Treasurer and Chief
Financial Officer of the Company in February 1997. From June 1994 until January
1997, he served in various capacities for GMIS Inc., including Director of
Finance from June 1994 through May 1995 and Vice President, Finance and Chief
Financial Officer from May 1995 through January 1997. Mr. Leonard worked for
Ernst & Young LLP from 1981 through June 1994.
J. Henry Muetterties has been the Vice President, General Counsel and
Secretary of the Company since August 1996. From May 1989 through August 1996,
he was the Vice President, General Counsel and Secretary of Patlex and was 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.
Charles A. Asher has been a director of the Company since August 1996, and
was a director of DBT from 1994 to August 1996. He practices law in South Bend,
Indiana.
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Gary E. Erlbaum has been a director of the Company since August 1996, and
was a director of Patlex from September 1995 to August 1996. He has been
involved with Patlex since May 1972, serving as a Patlex director from 1983 to
December 1992, and as a director of AFG from December 1992 to September 1995,
during the period that Patlex was a subsidiary of AFG. 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. Since 1983,
he has been the President of Greentree Properties Corporation, which is engaged
in real estate and business ventures. He is also a director of several
privately-owned companies.
Jack Hight has been a director of the Company since August 1996 and was
Chairman of the Board of DBT from 1995 to August 1996. Since 1981, Mr. Hight has
held various positions at Intec Systems, Inc., which he founded, including his
current position of Chief Financial Officer and Chairman of the Board. 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.
Kenneth G. Langone has been a director of the Company since August 1996,
and was a director of Patlex from September 1995 to August 1996. He has been
involved with Patlex since 1979, serving as a Patlex director from 1979 to
December 1992, and as a director of AFG from December 1992 to September 1995,
during the period that Patlex was a subsidiary of AFG. Since 1974, Mr. Langone
is Chairman of the Board, Chief Executive Officer and President 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 also serves
as a of director of St. Jude Medical, Inc., Unifi, Inc. and United States
Satellite Broadcasting Co. He is also a director of several private
corporations.
Eugene L. Step became a director of the Company in March 1997. From 1973 to
1992, Mr. Step served in various senior management positions with Eli Lilly &
Co., most recently as Executive Vice President, President of the Pharmaceutical
Division and a member of the Board of Directors and its Executive Committee. Mr.
Step is a past Chairman of the Board of the Pharmaceutical Manufacturers
Association and a past President of the International Federation of
Pharmaceutical Manufacturers Association. Mr. Step also serves as a director of
Cell Genesys, Inc., Scios, Inc., Medco, Inc., Pathogenesis, Inc. and Guidant
Corp.
Sari Zalcberg has been a director of the Company since August 1996, and was
a director of DBT from 1995 to August 1996. 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.
Hank Asher, Charles Asher and Sari Zalcberg are siblings.
The Company's Bylaws, as amended and restated (the "Bylaws"), divide the
Company's 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, Ms. Zalcberg,
Mr. Step and Mr. Langone will hold office until the annual meeting of
shareholders to be held in 1997, Messrs. Charles Asher, Borman and Hight will
hold office until the annual meeting of shareholders to be held in 1998, and
Messrs. Hank Asher, Simpson and Erlbaum will hold office until the annual
meeting of shareholders to be held in 1999. Officers serve at the discretion of
the Company's board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's board of directors has an Executive Committee, an Audit
Committee, a Compensation Committee and a Nominating Committee. The Executive
Committee is authorized to approve certain actions by the Company. The members
of the Executive Committee are Messrs. Hank Asher, Borman, Erlbaum and Hight.
The Audit Committee is charged with the responsibility of reviewing the
Company's accounting policies, practices and controls. The Audit Committee is
also responsible for making recommendations to the board of directors regarding
the selection of independent auditors, and for reviewing the results and scope
of audits and
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<PAGE> 34
other services provided by the Company's independent auditors. The members of
the Audit Committee are Ms. Zalcberg and Messrs. Erlbaum and Hight.
The Compensation Committee reviews the compensation policies of the Company
and acts as Plan Administrator of the Company's Amended and Restated Stock
Option Plan. The members of the Compensation Committee are Messrs. Charles
Asher, Hight and Langone.
The Nominating Committee identifies and reviews the qualifications of
candidates to serve on the board of directors. All nine members of the board
serve as members of the Nominating Committee.
COMPENSATION OF DIRECTORS
During 1996, the Company's directors did not receive any compensation for
serving as directors. In 1997, Directors who are employees of the Company
receive no compensation for serving on the board of directors. Non-employee
directors of the Company receive annual compensation of $16,000 and $1,000 for
each meeting of the board of directors attended, up to a maximum annual
compensation of $20,000. All directors will be reimbursed for expenses
associated with the attendance at the board of directors' meetings.
EXECUTIVE COMPENSATION
The following table sets forth compensation information concerning the
Chief Executive Officer of the Company at December 31, 1996 and the four other
most highly compensated executive officers of the Company for the fiscal year
ended December 31, 1996. For the periods presented in the summary compensation
table, Mr. Asher was compensated by DBT and the other four named executive
officers were compensated by Patlex.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION OTHER SECURITIES
------------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ------------------------------------------- ---- -------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Hank Asher................................. 1996 $110,000 $ 0 $ * 0 $ 0
President and Chief Executive Officer
Frank Borman............................... 1996 145,000 0 * 0 7,569
Chairman of the Board, 1995 140,000 0 * 100,000 4,867
President of Patlex 1994 140,000 0 * 0 3,179
Richard Laitinen(3)........................ 1996 100,632 31,093 37,080 0 5,283
Vice President, Treasurer, 1995 93,042 19,384 16,864 20,000 5,862
and Chief Financial Officer 1994 90,332 15,055 15,808 0 1,575
J. Henry Muetterties....................... 1996 113,923 35,199 53,202 0 5,393
Vice President, Secretary, 1995 105,330 21,944 19,091 20,000 4,249
and General Counsel 1994 102,262 17,044 17,896 0 1,464
Donald E. Shumate(3)....................... 1996 83,543 22,450 15,899 0 2,789
Vice President and 1995 77,242 12,874 13,517 10,000 5,450
Controller 1994 74,992 6,249 12,186 0 840
</TABLE>
- ---------------
* Value of perquisites and other personal benefits paid does not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
the executive officer.
(1) For fiscal year 1996, includes amounts contributed to Patlex's Deferred
Compensation Plan for Mr. Laitinen ($19,759), Mr. Muetterties ($22,368) and
Mr. Shumate ($15,899). This amount includes $17,321 paid to Mr. Laitinen and
$30,834 paid to Mr. Muetterties for certain costs in connection with
employment by Patlex and relocation to Las Vegas, Nevada.
(2) For fiscal year 1996, includes amounts received as company matching
contributions under Patlex's 401(k) savings plan by Mr. Borman ($4,400), Mr.
Laitinen ($4,297), Mr. Muetterties ($4,864) and Mr. Shumate ($1,614), and
amounts paid by Patlex for life insurance premiums for Mr. Borman ($3,169),
Mr. Laitinen ($986), Mr. Muetterties ($529) and Mr. Shumate ($1,175).
(3) Messrs. Laitinen and Shumate ceased being executive officers of the Company
on February 18, 1997.
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<PAGE> 35
AGGREGATED OPTIONS EXERCISED IN THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND
YEAR-END OPTION VALUES
The following table sets forth certain information with regard to the
aggregated options to purchase Company Common Stock exercised in the year ended
December 31, 1996 and the option values as of the end of that year for the Chief
Executive Officer and other named executive officers of the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SAR'S IN-THE-MONEY
HELD AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END(#) YEAR END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hank Asher................. -- -- -- -- -- --
Frank Borman............... -- -- 100,000 -- $ 2,500,000 --
Richard Laitinen(1)........ 20,000 $ 772,500 -- -- -- --
J. Henry Muetterties....... -- -- 20,000 -- $ 500,000 --
Donald E. Shumate(1)....... 10,000 $ 375,000 -- -- -- --
</TABLE>
- ---------------
(1) Messrs. Laitinen and Shumate ceased being executive officers of the Company
on February 18, 1997.
EMPLOYMENT AGREEMENTS
In March 1991, Patlex entered into an employment agreement with Mr. Borman,
which provided for an initial three-year term commencing on January 1, 1991 with
automatic one-year extensions on the anniversary of the commencement date,
unless either Patlex or Mr. Borman gives notice to the other that the term of
the agreement will not be extended. The employment agreement contains certain
restrictive covenants, including provisions relating to noncompetition,
nonsolicitation and the nondisclosure of proprietary information, during the
executive's employment with the Company and for specified periods thereafter.
The current annual compensation rate for Mr. Borman is $160,000.
During 1992, Patlex entered into employment agreements with Messrs.
Laitinen, Muetterties and Shumate. Each of the agreements has been extended
through December 1999. The current annual compensation rate for Messrs.
Laitinen, Muetterties and Shumate is $104,035, $117,775 and $86,368,
respectively, and each executive is entitled to a minimum annual bonus of
$10,000 and other incentive compensation. The employment agreements contain
certain restrictive covenants, including provisions relating to noncompetition,
nonsolicitation and the nondisclosure of proprietary information, during the
relevant executive's employment with the Company and for specified periods
thereafter.
STOCK OPTION PLAN
The Amended and Restated Stock Option Plan (the "Plan") provides for the
grant of options to purchase Common Stock to be made to employees, officers,
directors and independent contractors of the Company and its subsidiaries. The
purpose of the Plan is to recognize the contributions made to the Company by its
employees and certain consultants or advisors, to provide these individuals with
additional incentives to devote themselves to the Company's future success and
to improve the Company's ability to attract, retain and motivate individuals
upon whom the Company'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 the Company's board of directors and to devote
themselves to the future success of the Company. A committee (the "Committee"),
consisting of not less than two persons appointed by the board of directors,
which persons shall be "disinterested persons" as defined in Rule 16b-3 of the
Exchange Act and "outsider directors" as defined in Section 162(m) of the
Internal Revenue Code of 1986, as amended, is responsible for administering the
Plan. 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.
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<PAGE> 36
Under the Plan the maximum number of shares available for granting options
is 1,500,000 shares and the maximum number of shares that may be granted to any
one individual during any calendar year shall be 375,000 shares.
The Plan provides for the grant of incentive stock options ("ISOs") to
officers and employees of the Company and its subsidiaries and nonqualified
stock options ("NQSOs") to officers, employees (including employees who are also
directors) and key advisors, such as consultants, independent contractors and
principals of organizations involved with the Company and its subsidiaries.
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.
Upon a change of control, which is defined in the Plan to include a change
in the beneficial ownership of 40% or more of the voting power of the Company,
the commencement or announcement of an intention to commence a tender offer for
40% or more of the voting power of the Company, a sale or exchange of
substantially all assets, dissolution or liquidation, or a merger or
consolidation where the Company does not survive, all outstanding options will
accelerate automatically and become fully exercisable. Upon a change of control
where the Company does not survive, all outstanding stock options shall be
assumed or replaced with comparable options of the surviving corporation. The
Committee is responsible for determining the comparability and its decision is
final and binding. Notwithstanding the foregoing, upon a change of control, the
Committee may require option holders to surrender their outstanding options for
cash or Company stock.
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<PAGE> 37
CERTAIN TRANSACTIONS
Invemed Associates, Inc. ("Invemed"), from time to time, has provided
financial advisory services to the Company, for which customary compensation has
been received. In connection with the September 1995 merger between AFG and
KeyCorp and the related spinoff of Patlex, Invemed provided certain financial
advisory services to AFG for which Invemed received fees of approximately
$2,470,000. Kenneth G. Langone, a director and shareholder of the Company, is
Chairman of the Board, Chief Executive Officer and President of Invemed, and is
the principal shareholder of Invemed's parent. In addition, Invemed is acting as
an Underwriter in connection with the Offering. See "Underwriting."
In November 1995, DBT extended a loan to Hank Asher, in return for an
unsecured demand note, bearing interest at 8%, payable to DBT in the amount of
$200,000, which was repaid in December 1996. In addition, during 1995, advances
totaling $54,100 were made to Mr. Asher, without interest, which were repaid in
January 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 agreement provided the financing
for DBT's entry into the Texas market. The agreement provided for a loan to DBT
of $200,000, which was repaid in 1995. 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 10% of specified revenues from Texas
operations. Through December 31, 1996, the Company had paid $59,900 relating to
such royalties.
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.
In connection with the relocation to Las Vegas, Nevada, Patlex extended
bridge loans to Messrs. Laitinen and Shumate in the amounts of $75,000 and
$80,000, respectively. The loans bear interest at 8.25% and are due in full on
or before December 31, 1997. The interest payments are deducted weekly from the
salaries of Messrs. Laitinen and Shumate. Also in connection with its
relocation, Patlex sold its office facility situated in Las Cruces, New Mexico
to a limited liability company owned by the two sons of Frank Borman, Chairman
of the Board of the Company and President of Patlex. The sale was an arms-length
transaction based on an independent appraisal of the property in the amount of
$400,000.
36
<PAGE> 38
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of March 31, 1997 and as adjusted to reflect
the sale of the shares of Common Stock offered hereby (i) by each person who
beneficially owns more than 5% of the outstanding shares of the Common Stock,
(ii) by each of the Company's executive officers and directors, (iii) by each of
the Selling Shareholders, and (iv) by all of the current executive officers and
directors of the Company as a group. Unless otherwise noted, each person named
in the table has sole voting and investment power as to shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES SHARES BENEFICIALLY
OWNED BEING OWNED
PRIOR TO OFFERING OFFERED AFTER OFFERING
--------------------- ------- ---------------------
NAME NUMBER PERCENT NUMBER NUMBER PERCENT
- ----------------------------------------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Hank Asher(1)............................ 2,768,229 35.7% 361,174 2,407,055 27.5%
Charles A. Asher......................... 984,411 12.7 129,531 854,880 9.8
Frank Borman(2).......................... 114,200 1.5 10,257 103,943 1.2
Christiane Breton........................ 52,503 * 14,446 38,057 *
Gary E. Erlbaum(3)....................... 360,672 4.6 72,230 288,442 3.3
Jack Hight(4)............................ 135,001 1.7 36,115 98,886 1.1
Kenneth G. Langone(5).................... 935,000 11.9 935,000 10.6
Richard Laitinen......................... 15,157 * 15,157 *
Timothy M. Leonard....................... 0 0
J. Henry Muetterties(6).................. 24,910 * 24,910 *
Donald E. Shumate........................ 13,525 * 13,525 *
Thomas L. Simpson........................ 0 0
Eugene L. Step........................... 0 0
Sari Zalcberg............................ 52,493 * 16,247 36,246 *
All current executive officers and
directors as a group (11 persons)(7)... 5,374,916 66.4 625,554 4,749,362 52.2
</TABLE>
- ---------------
* Less than 1%
The address of each 5% shareholder is c/o Database Technologies, Inc., 100 E.
Sample Road, Suite 200, Pompano Beach, FL 33064.
(1) All of such shares are owned by Asher Investment Partners, a Delaware
general partnership, of which one general partner is Hank Asher,
individually, and the other general partner is Asher Holdings, Inc., a
Delaware corporation, of which Hank Asher is 100% shareholder.
(2) Includes 100,000 shares issuable upon exercise of presently exercisable
options.
(3) Includes (i) 21,933 shares owned by SPSP Corporation of which Mr. Erlbaum is
a director, President and 36.7% shareholder, (ii) 1,875 shares held by
trusts for which Mr. Erlbaum serves as trustee or co-trustee, (iii) 166,480
shares owned by 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. Of
the shares being offered, 7,223 shares are being offered by SPSP Corporation
and 41,893 shares are being offered by the Erlbaum Family L.P.
(4) Includes (i) 5,000 shares owned by Mr. Hight's wife and (ii) 25,000 shares
issuable upon exercise of presently exercisable options.
(5) Includes 450,000 shares owned by Invemed Associates, Inc. and 100,000 shares
issuable upon exercise of presently exercisable options. Mr. Langone is
Chairman of the Board, Chief Executive Officer and President of Invemed and
the principal shareholder of Invemed's parent corporation.
(6) Includes 20,000 shares issuable upon exercise of presently exercisable
options.
(7) Includes 345,000 shares issuable upon exercise of presently exercisable
options.
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company 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. As of March 31, 1997, there were 7,750,818
shares of the Company's Common Stock outstanding held of record by 515 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 the 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 the Company out of assets or funds
of the Company legally available for such purposes subject to any dividend
preferences which may be attributable to any issued and outstanding preferred
stock. Holders of 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 Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable. In the event of the liquidation, dissolution or winding
up of the Company, holders of Common Stock are entitled to share ratably in the
assets available for distribution.
PREFERRED STOCK
The Company's 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 the Company
has no plans to issue a new series of Preferred Stock. The Company's 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, each of which could adversely
affect the voting power of the holders of 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 the Company.
PENNSYLVANIA LAW
The Company, in the Bylaws, has opted out of subchapters E, F, G, H, I and
J of the Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL").
Generally, these subchapters provide special protections against acquisitions of
publicly-held corporations subject to the Exchange Act.
CLASSIFIED BOARD OF DIRECTORS
The Company's Bylaws divide the Company's 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.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The 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.
38
<PAGE> 40
SPECIAL MEETINGS
The Bylaws provide that special meetings of shareholders of the Company may
be called only by the Company's board of directors or by the President. This
provision may make it more difficult for shareholders to take an action opposed
by the board.
AMENDMENTS TO THE BYLAWS
The 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 Bylaws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1741 of the PBCL provides the Company the power to indemnify any
officer or director acting in his or her capacity as a representative of the
Company 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 the Company.
Generally, the only limitation on the ability of the Company 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 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 arises or arose from any threatened, pending or completed proceeding
by or in the right of the Company (a derivative action) by reason of the fact
that such director or officer is or was serving as a director, officer or
employee of the Company or, at the request of the Company, 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 Bylaws authorize the Company to take steps to ensure that all persons
entitled to the indemnification are properly indemnified, including, if the
Company's board of directors so determines, purchasing and maintaining
insurance.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is LaSalle National
Trust, N.A., Chicago, Illinois.
39
<PAGE> 41
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,750,818 shares of
Common Stock outstanding. Of these shares, the 1,640,000 shares of Common Stock
sold in the Offering and the remaining shares of the Company not held by
"affiliates" of the Company will be freely tradeable without restriction or
further registration under the Securities Act. Of the total outstanding shares
of Common Stock upon completion of the Offering, 4,724,452 shares (4,484,006
shares if the over-allotment option is exercised in full) are held by
"affiliates," as that term is defined in the Securities Act, and are therefore
subject to the limitations of Rule 144 of the Securities Act.
In general, under Rule 144 as currently in effect on the date hereof, a
person who has beneficially owned shares for at least one year, including an
"affiliate," as that term is defined in the Securities Act, is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of Common Stock of the
Company (approximately 87,500 shares immediately following this Offering), or
(ii) the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. A shareholder who is deemed not to have
been an "affiliate" of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned restricted shares for at least two years,
would be entitled to sell such shares under Rule 144(k) without regard to the
volume limitations, manner of sale provisions or public information
requirements.
The Company, its officers and directors, the Selling Shareholders and
certain other shareholders have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file or cause to be
filed with the Securities and Exchange Commission (the "Commission") a
registration statement under the Securities Act relating to, any Common Stock or
securities or other rights convertible into or exchangeable or exercisable for
any shares of Common Stock or publicly disclose the intention to make any such
offer, sale, pledge, disposal or filing, without the prior written consent of
Credit Suisse First Boston Corporation, for a period of two years after the date
of this Prospectus. See "Underwriting."
40
<PAGE> 42
UNDERWRITING
Upon the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation is acting as representative (the "Representative"), have
severally but not jointly agreed to purchase from the Company and the Selling
Shareholders the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ----------
<S> <C>
Credit Suisse First Boston Corporation............................
Invemed Associates, Inc...........................................
---------
Total................................................... 1,640,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides that,
in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Selling Shareholders have granted to the Underwriters an option,
expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 246,000 additional shares from the Selling
Shareholders at the public offering price, less the underwriting discount and
commissions, all as set forth on the cover page of this Prospectus. Such option
may be exercised only to cover over-allotments in the sale of the shares of
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
it was obligated to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Shareholders have been advised by the
Representative that the Underwriters propose to offer shares of the Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus and, through the Representative, to certain dealers at such price
less a concession of $ per share, and the Underwriters and such dealers may
allow a discount of $ per share on sales to certain other dealers.
In accordance with Rule 2720 of the National Association of Securities
Dealers, Inc. ("NASD") Conduct Rules, there will be no discretionary sales by
any of the Underwriters.
The Company, its officers and directors, the Selling Shareholders and
certain other shareholders have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file or cause to be
filed with the Commission a registration statement under the Securities Act
relating to, any shares of the Common Stock or securities or other rights
convertible into or exchangeable or exercisable for any shares of Common Stock
or publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of the Representative, for
a period of two years after the date of this Prospectus.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Exchange Act. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position for the Underwriters. Stabilizing transactions permit bids to purchase
the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of shares
of Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. In "passive" market making, market
makers in the Common Stock who are Underwriters or prospective underwriters may,
subject to certain limitations, make bids or purchases of shares of Common Stock
41
<PAGE> 43
until the time, if any, at which a stabilizing bid is made. Penalty bids permit
the Underwriters to reclaim a selling concession from a syndicate member when
the shares of Common Stock originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the shares of Common Stock to be higher than
they would otherwise be in the absence of such transactions. These transactions
may be effected on The Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
Invemed has provided financial advisory services to the Company in the
past, for which customary compensation has been received. Kenneth G. Langone, a
director and shareholder of the Company, is Chairman of the Board, Chief
Executive Officer and President of Invemed and is the principal shareholder of
Invemed's parent. Invemed is a shareholder of the Company. See "Principal and
Selling Shareholders" and "Certain Transactions." By virtue of Invemed's
beneficial ownership of voting securities of the Company, Invemed may be deemed
to be an affiliate of the Company under the NASD Conduct Rules. The Offering,
therefore, is being conducted in accordance with the applicable provisions of
Rule 2720 of the NASD Conduct Rules.
Credit Suisse First Boston Corporation has provided financial advisory
services to the Company in the past, including certain financial advisory
services to Patlex in connection with the Reorganization, for which customary
compensation has been received.
42
<PAGE> 44
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Common Stock are effected. Accordingly, any resale of the
Common Stock in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the Selling
Shareholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Following a
decision of the U.S. Supreme Court, it is possible that Ontario purchasers will
not be able to rely upon the remedies set out in Section 12(2) of the United
States Securities Act of 1933 where securities are being offered under a U.S.
private placement memorandum such as this document.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuers' directors and officers, as well as the experts named
herein and the Selling Shareholders, may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order #95/17, a copy of which may be obtained from the Company. Only one such
report must be filed in respect of Common Stock acquired on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.
43
<PAGE> 45
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1996 and
December 31, 1995, included in this Prospectus and the related financial
statement schedule incorporated by reference in the Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and incorporated by reference in the Registration
Statement, and are included and incorporated by reference in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The statements of operations, changes in stockholders' equity and cash
flows of DBT for the year ended December 31, 1994, included in this Prospectus,
and the related financial statement schedule incorporated by reference in the
Registration Statement, have been audited by Ahearn, Jasco + Company, P.A.,
independent auditors, as stated in their reports appearing herein and
incorporated by reference in the Registration Statement, and are included and
incorporated by reference in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Patlex as of June 30, 1996 and 1995, and for
the years then ended incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their reports
appearing therein and incorporated herein by reference. Such financial
statements are incorporated by reference herein in reliance upon such reports
given upon authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices
located at 7 World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Company's Common Stock is quoted on The Nasdaq National
Market. Reports, proxy statements and other information concerning the Company
can be inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a web site that
contains all information filed electronically by the Company. The address of the
Commission's web site is http://www.sec.gov.
This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act, with respect to the securities offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Company and the
securities offered hereby. Copies of the Registration Statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described above. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
44
<PAGE> 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-9111) are incorporated by reference in this Prospectus:
(1) Annual Report on Form 10-K for the year ended December 31, 1996.
(2) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
(3) The financial statements of Patlex as of June 30, 1995 and 1996
and for the fiscal years then ended included in the Current Report on Form
8-K/A-1 filed November 4, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
into this Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to the
documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus incorporates)
are available without charge to each person to whom a Prospectus is delivered
upon written or oral request. Requests should be directed to DBT Online, Inc.,
c/o J. Henry Muetterties, 5550 West Flamingo Road, Suite B-5, Las Vegas, Nevada
89103.
45
<PAGE> 47
DBT ONLINE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet as of March 31, 1997 (Unaudited)........................... F-2
Consolidated Statements of Operations for the three months ended March 31, 1997 and
1996 (Unaudited).................................................................... F-3
Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and
1996 (Unaudited).................................................................... F-4
Notes to Consolidated Financial Statements (Unaudited)................................ F-5
Report of Deloitte & Touche LLP, Independent Auditors................................. F-6
Report of Ahearn, Jasco + Company, P.A., Independent Auditors......................... F-7
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................... F-8
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and
1994................................................................................ F-9
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.................................................... F-10
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and
1994................................................................................ F-11
Notes to Consolidated Financial Statements............................................ F-12
</TABLE>
F-1
<PAGE> 48
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 4,614,500
Accounts receivable, less allowance of $260,500............................... 3,531,800
Prepaid expenses and other current assets..................................... 441,100
-----------
Total current assets.................................................. 8,587,400
Property and equipment, net..................................................... 6,395,300
Patents, less amortization of $1,046,100........................................ 12,796,700
Other assets.................................................................... 709,600
-----------
Total assets.......................................................... $28,489,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................................... $ 2,834,600
Due to other patent interest holders.......................................... 1,385,200
Income taxes payable.......................................................... 481,600
Customer deposits............................................................. 348,600
-----------
Total current liabilities............................................. 5,050,000
Deferred income taxes........................................................... 4,317,800
-----------
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized; no shares issued
or outstanding............................................................. --
Common stock, $.10 par value, 40,000,000 shares authorized; 7,750,818 shares
issued and outstanding..................................................... 775,100
Additional paid in capital.................................................... 18,210,000
Retained earnings............................................................. 136,100
-----------
Total stockholders' equity............................................ 19,121,200
-----------
Total liabilities and stockholders' equity............................ $28,489,000
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 49
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues.......................................................... $ 6,081,500 $ 3,349,800
Patent royalties.................................................. 1,517,500 --
---------- ----------
Total revenues and royalties............................ 7,599,000 3,349,800
Cost of revenues.................................................. 3,270,700 1,552,500
Selling and promotion............................................. 593,000 315,900
Research and development.......................................... 529,700 398,500
General and administrative........................................ 1,800,300 767,100
---------- ----------
Total expenses.......................................... 6,193,700 3,034,000
---------- ----------
Income from operations............................................ 1,405,300 315,800
Interest income (expense), net.................................... 31,300 (35,400)
---------- ----------
Income before income taxes........................................ 1,436,600 280,400
Provision for income taxes........................................ 545,900 105,500
---------- ----------
Net income........................................................ $ 890,700 $ 174,900
========== ==========
Net income per common share....................................... $ 0.11 $ 0.03
========== ==========
Weighted average shares outstanding............................... 8,053,000 5,127,600
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 50
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 890,700 $ 174,900
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 1,127,500 399,200
Deferred taxes................................................ (21,400) (21,300)
Changes in operating assets and liabilities:
Accounts receivable......................................... (1,134,200) (389,900)
Prepaid expenses and other current assets................... (66,000) (23,500)
Accounts payable and accrued liabilities.................... 1,181,400 80,700
Due to other patent interest holders........................ (26,100) --
Income taxes payable........................................ (136,600) --
Customer deposits........................................... 26,300 23,200
----------- ----------
Net cash provided by operating activities................ 1,841,600 243,300
Cash flows from investing activities:
Property and equipment purchased................................. (1,004,100) (1,010,700)
Increase in deposits, and other.................................. (207,300) (82,600)
----------- ----------
Net cash used in investing activities.................... (1,211,400) (1,093,300)
Cash flows from financing activities:
Net change in bank line-of-credit................................ (200,000) 500,000
Repayments on long-term debt..................................... (2,781,300) (278,500)
----------- ----------
Net cash (used in) provided by financing activities...... (2,981,300) 221,500
----------- ----------
Net decrease in cash and cash equivalents.......................... (2,351,100) (628,500)
Cash and cash equivalents at beginning of period................. 6,965,600 1,642,700
----------- ----------
Cash and cash equivalents at end of period....................... $ 4,614,500 $1,014,200
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 51
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the amounts of
DBT Online, Inc. (the "Company") and its wholly-owned subsidiaries, Database
Technologies, Inc., a Florida corporation ("DBT") and Patlex Corporation (since
August 20, 1996, date of merger), a Pennsylvania corporation ("Patlex"). The
interim consolidated financial statements as of March 31, 1997 and for the three
months ended March 31, 1997 and 1996 are unaudited. All significant intercompany
accounts and transactions have been eliminated. The accompanying consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods presented. Such adjustments
consist solely of normal recurring accruals. Results for the interim periods are
not necessarily indicative of results for a full year.
2. PRO FORMA INFORMATION
On August 20, 1996, the former shareholders of Patlex approved a plan of
reorganization pursuant to which the Company was reorganized into a holding
company structure and each share of Patlex was converted into a share of the
Company. Also on August 20, 1996, a wholly-owned subsidiary of the Company
merged with DBT. Pursuant to the terms of the merger and reorganization, the
former shareholders of Patlex own approximately 33.2% of the Company and the
former owners of DBT own 66.8% of the Company, based on the shares and options
outstanding at August 20, 1996. For accounting purposes, the transaction is
treated as a purchase of Patlex with DBT as the accounting acquirer.
If the merger and reorganization had been completed on January 1, 1996, pro
forma results for the three months ended March 31, 1996 would be as follows (the
pro forma information is not necessarily indicative of the combined results of
operations that would have occurred had the merger and reorganization been
completed as of January 1, 1996):
<TABLE>
<S> <C>
Revenues......................................... $5,159,800
Net Income....................................... $ 534,600
Net Income Per Common Share...................... $ 0.07
</TABLE>
F-5
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of DBT Online, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of DBT Online,
Inc. (the "Company") and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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, such consolidated financial statements present fairly, in
all material respects, the financial position of DBT Online, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 26, 1997
F-6
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Database Technologies, Inc.:
We have audited the statements of operations, changes in stockholders'
equity, and cash flows of Database Technologies, Inc. (the "Company") for the
year ended December 31, 1994. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 Company's results of operations and cash flows for
the year ended December 31, 1994 in conformity with generally accepted
accounting principles.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
January 20, 1995
F-7
<PAGE> 54
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 6,965,600 $ 1,642,700
Accounts receivable, less allowance: 1996 -- $250,000;
1995 -- $17,500............................................... 2,397,600 839,400
Due from principal shareholder................................... -- 200,000
Prepaid expenses and other current assets........................ 375,100 253,900
----------- -----------
Total current assets..................................... 9,738,300 2,936,000
Property and equipment, net........................................ 6,064,300 3,128,700
Patents, less amortization: 1996 -- $622,300....................... 13,220,500 --
Other assets....................................................... 532,900 492,500
----------- -----------
Total assets............................................. $29,556,000 $ 6,557,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......................... $ 1,653,200 $ 968,500
Current portion of long-term debt................................ 1,415,500 1,010,300
Bank line-of-credit.............................................. 200,000 100,000
Due to other patent interest holders............................. 1,411,300 --
Income taxes payable............................................. 618,200 --
Customer deposits................................................ 322,300 207,300
Deferred income taxes............................................ -- 141,400
----------- -----------
Total current liabilities................................ 5,620,500 2,427,500
----------- -----------
Long-term debt, less current portion............................... 1,365,800 1,531,300
Deferred income taxes.............................................. 4,339,200 --
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares authorized; no
shares issued or outstanding.................................. -- --
Common stock, 40,000,000 shares authorized; 7,723,806 shares $.10
par value and 5,127,624 shares $.001 par value issued and
outstanding at December 31, 1996 and 1995, respectively....... 772,400 5,100
Additional paid-in capital....................................... 18,212,700 3,867,300
Accumulated deficit.............................................. (754,600) (1,274,000)
----------- -----------
Total stockholders' equity............................... 18,230,500 2,598,400
----------- -----------
Total liabilities and stockholders' equity............... $29,556,000 $ 6,557,200
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 55
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Revenues............................................... $16,321,300 $ 8,076,300 $2,751,100
Patent royalties....................................... 2,382,000 -- --
----------- ----------- ----------
Total revenues and royalties................. 18,703,300 8,076,300 2,751,100
----------- ----------- ----------
Cost of revenues....................................... 8,996,300 3,372,300 856,200
Selling and promotion.................................. 1,930,400 1,025,700 287,100
Research and development............................... 2,052,300 1,017,000 552,700
General and administrative............................. 4,814,800 1,908,100 609,900
Loss on IRB transaction................................ -- 1,660,100 --
----------- ----------- ----------
Total expenses............................... 17,793,800 8,983,200 2,305,900
----------- ----------- ----------
Income (loss) from operations.......................... 909,500 (906,900) 445,200
Interest expense, net.................................. (159,100) (76,100) (15,400)
----------- ----------- ----------
Income (loss) before income taxes...................... 750,400 (983,000) 429,800
Provision for income taxes............................. 231,000 208,700 --
----------- ----------- ----------
Net income (loss)...................................... $ 519,400 $(1,191,700) $ 429,800
=========== =========== ==========
Net income (loss) per common share..................... $ 0.08 $ (0.27) $ 0.11
=========== =========== ==========
Weighted average shares outstanding.................... 6,177,300 4,417,800 3,937,600
=========== =========== ==========
Pro Forma:
Provision for income taxes........................... $ 247,600 $ 122,300
=========== ==========
Net income (loss).................................... $(1,230,600) $ 307,500
=========== ==========
Net income (loss) per common share................... $ (0.28) $ 0.08
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 56
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL RETAINED
NUMBER PAID-IN EARNINGS
OF SHARES PAR VALUE CAPITAL (DEFICIT) TOTAL
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994........... 3,937,645 $ 3,900 $ 78,600 $ 56,000 $ 138,500
S Corporation distributions........ -- -- -- (16,000) (16,000)
Net income......................... -- -- -- 429,800 429,800
--------- -------- ----------- ----------- -----------
Balance at December 31, 1994......... 3,937,645 3,900 78,600 469,800 552,300
S Corporation distributions........ -- -- -- (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..................... 192,551 200 485,500 -- 485,700
Issuance of common stock for
cash............................ 997,428 1,000 3,072,500 -- 3,073,500
Net loss........................... -- -- -- (1,191,700) (1,191,700)
--------- -------- ----------- ----------- -----------
Balance at December 31, 1995......... 5,127,624 5,100 3,867,300 (1,274,000) 2,598,400
Adjustment for change in par
value........................... 507,700 (507,700)
Stock issued for acquisition....... 2,565,851 256,600 14,491,700 14,748,300
Exercise of stock options.......... 30,331 3,000 140,000 143,000
Stock options issued for services,
net of income taxes............. -- -- 221,400 -- 221,400
Net income......................... -- -- -- 519,400 519,400
--------- -------- ----------- ----------- -----------
Balance at December 31, 1996......... 7,723,806 $ 772,400 $18,212,700 $ (754,600) $18,230,500
========= ======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 57
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 519,400 $(1,191,700) $ 429,800
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 3,016,500 941,900 244,800
Deferred taxes.................................. (536,000) 141,400 --
Stock options issued for services............... 355,000 -- --
Loss on IRB transaction......................... -- 1,660,100 --
Changes in operating assets and liabilities (net of
effect of acquisition in 1996):
Accounts receivable and other receivables....... (922,000) (789,300) (240,100)
Prepaid insurance and expenses.................. (69,600) (143,900) (32,700)
Accounts payable and accrued liabilities........ (126,700) 752,900 189,500
Due to other patent interest holders............ 120,800 -- --
Income taxes payable............................ (996,200) -- --
Customer deposits............................... 115,000 135,500 61,500
----------- ----------- -----------
Net cash provided by operating
activities............................... 1,476,200 1,506,900 652,800
Cash flows from investing activities:
Property and equipment purchased................ (5,300,700) (3,115,600) (961,200)
IRB transaction................................. -- (1,373,000) --
Cash acquired in acquisition.................... 8,505,100 -- --
Increase in deposits, and other................. (40,400) (240,900) (116,000)
----------- ----------- -----------
Net cash used in investing activities...... 3,164,000 (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............... 100,000 100,000 --
Exercise of stock options....................... 143,000 -- --
Proceeds from long-term debt borrowings......... 1,500,000 2,364,000 775,000
Repayments on long-term debt.................... (1,260,300) (507,100) (101,300)
Repayment of note payable, shareholder and
other......................................... 200,000 -- (77,400)
S Corporation distributions..................... -- (321,400) (16,000)
----------- ----------- -----------
Net cash provided by financing
activities............................... 682,700 4,709,000 580,400
----------- ----------- -----------
Net increase in cash and cash equivalents............ 5,322,900 1,486,400 156,000
Cash and cash equivalents at beginning of year....... 1,642,700 156,300 300
----------- ----------- -----------
Cash and cash equivalents at end of year............. $ 6,965,600 $ 1,642,700 $ 156,300
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 58
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DBT Online, Inc. (the "Company"), through its Database Technologies, Inc.
("DBT") subsidiary is engaged principally in the electronic information
retrieval industry which provides on-line, real-time access to public records.
The Company, through its Patlex Corporation ("Patlex") subsidiary, is involved
in the patent enforcement and exploitation business whereby the Company collects
royalty fees from a group of laser patents. The Company is a holding company
created in connection with a merger consummated on August 20, 1996 that was
treated as a purchase by DBT of Patlex (a reverse acquisition) and a
recapitalization of DBT.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and the accompanying notes. Actual results
could differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
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.
Patents -- The patent costs are amortized on a straight-line basis over the
remaining lives of the patents.
Revenue Recognition -- The Company recognizes revenue at the time of
customer access. Accounts receivable are primarily with law enforcement
agencies, insurance companies, and similar users of public records. Patent
royalties are recognized pursuant to license agreements that require the
licensees to periodically report activity to the Company. 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.
Research and Development Costs -- Costs for research and development
activities are expensed as incurred and aggregated $2,052,300, $1,017,000 and
$552,700 for years ended December 31, 1996, 1995 and 1994, respectively.
Fair Value of Financial Instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable approximates fair
value due to their short-term nature. The carrying amount of long-term debt
approximates fair value due to its stated interest rate approximating a market
rate.
Net Income (Loss) per Common Share -- Net income (loss) per common share is
determined by dividing net income by the weighted average shares outstanding.
The weighted average shares outstanding include the effect of stock options, if
dilutive.
Reclassifications -- Certain 1994 and 1995 amounts were reclassified to
conform with the 1996 presentation.
New Accounting Pronouncements -- The Company adopted the provisions of
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," in 1996. The effects of adopting SFAS No. 121 were not material
in relation to the Company's financial statements.
In accordance with SFAS No. 121, management reviews long-lived assets for
possible impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. If there is an indication of
impairment, management prepares an estimate of future cash flows (undiscounted
and without
F-12
<PAGE> 59
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest charges) expected to result from the use of the asset and its eventual
disposition. If these cash flows are less than the carrying amount of the asset,
an impairment loss is recognized to write down the asset to its estimated fair
value. Assets, if any, for which management has committed to a plan to dispose
of the assets, whether by sale or abandonment, are reported at the lower of
carrying amount or fair value less cost to sell. Preparation of estimated
expected future cash flows is inherently subjective and is based on management's
best estimate of assumptions concerning future conditions.
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," in
1996 (See Note 11).
2. ACQUISITION
On August 20, 1996, the former shareholders of Patlex approved a plan of
reorganization pursuant to which the Company was reorganized into a holding
company structure and each share of Patlex was converted into a share of the
Company. Also on August 20, 1996, a wholly-owned subsidiary of the Company
merged with Database Technologies, Inc. Pursuant to the terms of the merger and
reorganization, the former shareholders of Patlex own approximately 33.2% of the
Company and the former owners of Database Technologies, Inc. own 66.8% of the
Company, based on the shares and options outstanding at August 20, 1996. For
accounting purposes, the transaction is treated as a purchase of Patlex with DBT
as the accounting acquirer.
The purchase price was determined based on the 2,947,714 shares of Company
common stock and stock options issued (based on the number of shares of Patlex
common stock and options to purchase Patlex common stock outstanding immediately
prior to the merger, as prescribed by the merger agreement) which were valued at
$14,060,000 together with transaction costs of $689,000 and has been allocated
to Patlex's assets and liabilities based upon their estimated fair values at
August 20, 1996. A summary of such allocation follows:
<TABLE>
<S> <C>
Current Assets, including cash of $8,505,100............................ $ 8,966,000
Investment in Patents................................................... 13,844,000
Other Assets............................................................ 27,000
Current Liabilities..................................................... (3,715,000)
Other Liabilities....................................................... (4,373,000)
-----------
Total purchase price.......................................... $14,749,000
==========
</TABLE>
As a consequence of this transaction, the consolidated financial statements
include the results of operations for Patlex for the period from August 20,
1996, forward.
If the merger and reorganization had been completed on January 1, 1995, pro
forma results for the years ended December 31, 1996 and 1995 would be as follows
(the pro forma information is not necessarily indicative of the consolidated
results of operations that would have occurred had the merger and reorganization
been completed as of January 1, 1995):
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenue................................................... $24,017,300 $15,094,300
Net Income................................................ 2,688,200 801,300
Net Income Per Common Share............................... 0.34 0.11
</TABLE>
F-13
<PAGE> 60
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Computer equipment.......................................... $9,041,800 $3,999,500
Office furniture and equipment.............................. 442,500 232,000
Leasehold improvement....................................... 169,500 76,200
---------- ----------
Total cost.................................................. 9,653,800 4,307,700
Less: Accumulated depreciation.............................. (3,589,500) (1,179,000)
---------- ----------
Property and equipment, net................................. $6,064,300 $3,128,700
========== ==========
</TABLE>
Depreciation expense was $2,394,200, $885,200 and $236,200 for the years
ended December 31, 1996, 1995 and 1994, respectively.
4. PATENTS
Patlex owns a 64% income interest in laser patent revenue relating to
certain patents relating to laser technology. 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 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 Gas Discharge Laser Patent expires in November 2004 and the Brewster
Angle Window Patent expires in May 2005. Upon the expiration of the applicable
patent, Patlex loses 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.
5. LINE-OF-CREDIT AND DEBT
The Company has a $600,000 revolving line-of-credit with a commercial bank,
bearing interest at a rate of 1% over prime (8.25% and 9.50% at December 31,
1996 and 1995, respectively) and expiring March 31, 1997. The line-of-credit is
secured by substantially all assets of DBT and is personally guaranteed by the
principal shareholder of the Company. Outstanding borrowings on the
line-of-credit were $200,000 and $100,000 at December 31, 1996 and 1995,
respectively.
F-14
<PAGE> 61
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt consists of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Note payable to a commercial bank with monthly principal
installments of $7,680 plus interest at 7.65% at December
31, 1996. The note matures in November 1997............... $ 84,400 $ 176,600
Note payable to a commercial bank with monthly principal
installments of $6,944 plus interest at 7.65% at December
31, 1996. The note matures in November 1997............... 76,400 159,700
Note payable to a commercial bank with monthly principal
installments of $27,778 plus interest at 7.74% at December
31, 1996. The note matures in July 1998................... 527,800 861,100
Note payable to a commercial bank with monthly principal
installments of $41,667 plus interest at 7.95% at December
31, 1996. The note matures in June 1999................... 1,250,000 0
Note payable to a commercial bank with monthly principal
installments of $35,111 plus interest at 7.85% at December
31, 1996. The note matures in December 1998............... 842,700 1,264,000
Note payable to a consortium of individuals, which is
non-interest bearing. The note was paid off in 1996....... 0 80,200
---------- ----------
Total debt.................................................. 2,781,300 2,541,600
Less: current portion....................................... 1,415,500 1,010,300
---------- ----------
Long-term portion........................................... $1,365,800 $1,531,300
========== ==========
</TABLE>
All debt with the commercial bank was personally guaranteed by the
principal shareholder of the Company and secured by substantially all assets of
the Company. In addition, the Company must maintain certain financial ratios and
comply with specified covenants.
Subsequent to December 31, 1996, the Company paid off its line-of-credit
and all of its long-term debt. In addition, the line-of-credit is no longer
guaranteed by the principal shareholder of the Company.
6. STOCKHOLDERS' EQUITY
In connection with the acquisition of Patlex, the Company issued to the
former DBT shareholders 2.95 shares of its common stock for each DBT common
share. This exchange was accounted for as a stock split and, accordingly, all
share information presented in the accompanying financial statements has been
restated. In addition, the par value of the Company's common stock issued in
connection with the merger and reorganization was increased to $0.10 from the
$.001 par value of DBT's common stock.
F-15
<PAGE> 62
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Current:
Federal...................................................... $667,000 $ 61,000
State........................................................ 100,000 6,300
-------- --------
767,000 67,300
Deferred:
Federal...................................................... (492,700) (9,300)
State........................................................ (43,300) (4,500)
Deferred tax liability established July 1, 1995................ 155,200
-------- --------
(536,000) 141,400
-------- --------
Provision for income taxes..................................... $231,000 $208,700
======== ========
</TABLE>
Included in the 1995 provision is $155,200 in deferred income taxes
established resulting from the termination of the S Corporation election. There
was no provision for income tax in 1994 due to the Company's S Corporation
status.
Deferred income taxes reflect the net income tax effects of temporary
differences between the carrying amounts of assets and the liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Annual changes in these temporary differences constitute the principal
reconciling items between pretax accounting income and taxable income.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Deferred tax liabilities:
Patents.................................................... $4,503,400
Cash basis accounting...................................... 102,400 $157,900
Purchased data............................................. 102,400 108,300
---------- --------
4,708,200 266,200
Deferred tax assets:
Depreciation............................................... 171,500 124,800
Research and development tax credits....................... 110,000
IRB loss carryforward...................................... 196,000
Reserves and other......................................... 87,500
---------- --------
565,000 124,800
Valuation allowance........................................ (196,000)
---------- --------
Net deferred income tax liability............................ $4,339,200 $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.
F-16
<PAGE> 63
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax computed at the federal statutory rate to
income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Federal statutory rate................................................. 34% (34)%
Non deductible merger expenses......................................... 7 --
Loss on IRB transaction................................................ -- 61
Research and development tax credit.................................... (15) --
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.................. 6 (2)
--- ---
32% 21%
=== ===
</TABLE>
The Company paid income taxes of $1,809,202 and $16,500 in 1996 and 1995,
respectively. No income taxes were paid in 1994.
8. DUE FROM PRINCIPAL SHAREHOLDER
During 1995, the Company lent $200,000 to its principal shareholder. The
loan was unsecured, bearing interest at prime and was repaid in 1996.
9. IRB TRANSACTION
Effective July 1, 1995, the Company purchased for cash and stock all of the
outstanding shares of common stock of International Research Bureau, Inc.
("IRB"). Subsequent to the acquisition, the Company reevaluated 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. Factors which
led the Company's management to this evaluation included the conclusions that
the Company's technology was superior to IRB's and that IRB's data was
duplicative of data which the Company 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 the Company's ownership of IRB was temporary, DBT has
accounted for its investment in IRB using the equity method.
As a result of these transactions, the Company acquired IRB's customer list
for its on-line business and a covenant not to compete. The assets of the
Company given up included cash of $1,000,000; common stock 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.
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company may be involved in litigation from time to time in the ordinary
course of its business. DBT is not currently involved in any litigation, or to
its knowledge, is any material litigation currently threatened.
Due to the nature of Patlex's business, and especially its involvement in
the enforcement of patent rights, Patlex is from time to time 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 to the United
States District Court from Patent and Trademark Office rulings adverse to
Patlex's interest. 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.
F-17
<PAGE> 64
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 eight 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 were denied, and judgment in the total amount of
$192,780.76 was entered on July 10, 1996. The Company appealed the decision to
the United States Court of Appeals for the Third Circuit and that appeal is
expected to be decided in 1997. Patlex has accrued the amount of the REFAC
judgment plus interest through December 31, 1996.
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 a loan to DBT in February 1994 of $200,000 which was repaid in 1995
and a royalty agreement to share in the revenues of the Texas expansion up to
$800,000, computed as 10% of specified revenues from Texas operations. Through
December 31, 1996, the Company had paid $59,900 relating to such royalties.
EMPLOYMENT AGREEMENTS
In March 1991, Patlex entered into an employment agreement with its
chairman, Mr. Borman, effective January 1, 1991. The agreement provides for
minimum annual compensation of $145,000 and provides for an initial three-year
employment period which is automatically extended for an additional year on its
anniversary date unless the Company notifies him it does not wish to extend the
term of the agreement. Patlex has entered into employment agreements with its
chief financial officer, controller and vice-president/general counsel which
have been extended through December 31, 1999 and provided for a base
compensation in 1996 of $103,000, $111,000, and $84,000, respectively, plus
bonuses and other incentive compensation.
LEASES
The Company leases all of its office space under agreements expiring on
various dates through 2001. Certain of these leases contain three-year renewal
options.
Future minimum payments under operating leases that have non-cancelable
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
--------------------------------------------------------------------------
<S> <C>
1997.................................................................... $305,700
1998.................................................................... 210,900
1999.................................................................... 63,700
2000.................................................................... 52,800
2001.................................................................... 26,400
--------
Total........................................................... $659,500
========
</TABLE>
F-18
<PAGE> 65
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense was $327,700, $284,700 and $62,500, respectively, for the
years ended December 31, 1996, 1995, and 1994.
11. STOCK OPTIONS
The Company has incentive and non-qualified stock option plans for
directors and key employees and has 900,000 shares of Common Stock reserved for
issuance under these plans. The incentive and non-qualified options become
exercisable as determined by the Board of Directors and have a term of ten
years.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Acquired in connection with the acquisition and
reorganization........................................... 350,000 $ 4.75
Granted.................................................... 516,000 40.00
Exercised.................................................. (30,000) 4.75
Canceled................................................... (11,000) 40.00
------- ------
Outstanding at December 31, 1996........................... 320,000 4.75
505,000 40.00
Exercisable at December 31, 1996........................... 320,000 4.75
45,000 40.00
</TABLE>
The options with a $4.75 exercise price have a remaining contractual life
of 8.8 years and those with a $40 exercise price have a remaining contractual
life of 9.6 years.
In addition, there are 31,978 options outstanding (all exercisable) for
which no consideration will accrue to the Company. Of those outstanding, 332
options were exercised in 1996.
The Company accounts for stock options issued to employees in accordance
with Accounting Principles Board Opinion No. 25 ("APB No. 25"), Accounting for
Stock Issued to Employees. The Company's employee stock options are issued with
exercise prices which equal the market price of the Company's common stock on
the date of grant and, consequently, no compensation expense is recognized.
SFAS No. 123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB No. 25 to present pro forma
disclosures of net income and earnings per share as if compensation cost was
measured at the date of grant based on the fair value of the award. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996: a
risk-free interest rate of 6.5%, no dividend yield, a volatility factor of the
expected market price of the Company's common stock of 47% and a
weighted-average expected life of the option of 6 years. The fair value per
option is approximately $20 at December 31, 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-19
<PAGE> 66
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
net income and net income per share would have been reduced to the following pro
forma amounts for the year ended December 31, 1996, as follows:
<TABLE>
<S> <C>
Net income:
As reported............................................................. $519,400
Pro forma............................................................... 179,400
Net income per share:
As reported............................................................. $ .08
Pro forma............................................................... .03
</TABLE>
The above pro forma amounts reflect only the effect of stock options
granted subsequent to January 1, 1996. Accordingly, the pro forma amounts may
not be representative of the future effects on reported net income and earnings
per share that will result from the future granting of stock options, since the
pro forma compensation expense is allocated over the periods in which options
become exercisable and new option awards are granted each year.
12. BUSINESS SEGMENTS
With the acquisition of Patlex in August 1996, the Company operates in two
major segments: electronic information retrieval industry and the patent
enforcement and exploitation business. Information concerning the segments in
which the Company operates is shown in the table below. Operating profit is
derived as total revenues less operating expenses; interest expense and general
corporate expenses have not been considered. Identifiable assets by segment are
those assets that are used in the Company's operations in each segment. General
corporate assets consist primarily of cash and cash equivalents.
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Revenues:
DBT................................................................... $16,321,300
Patlex................................................................ 2,382,000
-----------
Consolidated revenues......................................... $18,703,300
===========
Operating profit:
DBT................................................................... $ 194,700
Patlex................................................................ 1,341,000
-----------
Segment operating profit...................................... 1,535,700
Interest expense........................................................ (159,100)
General corporate expense............................................... (626,200)
-----------
Consolidated income before income taxes............................... $ 750,400
===========
Identifiable assets:
DBT................................................................... $ 9,000,900
Patlex................................................................ 20,292,500
-----------
Total identifiable assets..................................... 29,293,400
General corporate assets.............................................. 262,600
-----------
Consolidated assets........................................... $29,556,000
===========
</TABLE>
F-20
<PAGE> 67
DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Capital expenditures:
DBT................................................................... $ 5,277,400
Patlex................................................................ 23,300
-----------
Consolidated capital expenditures............................. $ 5,300,700
===========
Depreciation and amortization of identifiable assets:
DBT................................................................... $ 2,388,200
Patlex................................................................ 628,300
-----------
Consolidated depreciation and amortization of identifiable
assets....................................................... $ 3,016,500
===========
</TABLE>
13. PRO FORMA INCOME TAXES AND EARNINGS (UNAUDITED)
As discussed in Note 7, 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 Consolidated 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 consolidated statements
of operations reflect the amount of income taxes, the resulting income after
taxes, and earning per share 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
of the IRB transaction as the deferred tax asset arising from this loss has been
fully allowanced.
F-21
<PAGE> 68
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Selected Consolidated Financial and
Other Data.......................... 15
Unaudited Pro Forma Consolidated
Statement of Operations............. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 23
Management............................ 31
Certain Transactions.................. 36
Principal and Selling Shareholders.... 37
Description of Capital Stock.......... 38
Shares Eligible for Future Sale....... 40
Underwriting.......................... 41
Notice to Canadian Residents.......... 43
Experts............................... 44
Legal Matters......................... 44
Additional Information................ 44
Incorporation of Certain Documents by
Reference........................... 45
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
(DBT ONLINE LOGO)
1,640,000 SHARES
COMMON STOCK
($.10 PAR VALUE)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
INVEMED ASSOCIATES, INC.
------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1 Form of Underwriting Agreement
3.1** Amended and Restated Articles of Incorporation
3.2** Amended and Restated Bylaws
5 Opinion of Morgan, Lewis & Bockius LLP regarding the
legality of the shares being registered
10.1+ Employment Agreement dated March 11, 1990 between Patlex and
Frank Borman
10.2+ Employment Agreement dated September 15, 1992 between Patlex
and Richard Laitinen
10.3+ Employment Agreement dated September 14, 1992 between Patlex
and J. Henry Muetterties
10.4+ Security and Escrow Agreement dated September 29, 1992
between Patlex and NGN Acquisition Corporation
10.5+ Standard Form of Licensing Agreement
10.6+ Purchase Agreement dated December 11, 1979 between Patlex
and Gordon Gould
10.7+ Agreement dated January 31, 1982 among Patlex, Refac
Technology Development Corporation, Refac International
Limited, Gordon Gould, NGN Acquisition Corporation and the
partnership of Lerner, David, Littenberg & Samuel
10.8+ Agreement dated October 1, 1984 among Patlex, Refac
Technology Development Corporation, East West Trade
Services, Ltd. and Refac International, Ltd.
10.9+ Agreement dated 1986 among Patlex and NGN Acquisition
Corporation, Gordon Gould and Apollo Lasers, Inc.
10.10+ Letter of Clarification dated January 31, 1990 among Patlex,
Gordon Gould and NGN Acquisition Corporation
10.11+ Stock Purchase Agreement dated May 14, 1991 among Patlex,
Sydney M. Irmas and certain other shareholders
10.12** Amended and Restated Stock Option Plan
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ahearn, Jasco + Company, P.A.
23.3 Consent of Ernst & Young LLP
23.4 Consent of Morgan, Lewis & Bockius LLP (included in its
opinion filed as Exhibit 5)
24 Powers of Attorney (included on the signature page)
99.1++ Appendix: Description of Image Material under Rule 304 of
Reg. S-T.
</TABLE>
- ---------------
* To be filed by amendment.
** Incorporated by reference to the Company's Registration Statement on Form S-4
(File No. 333-2000).
+ Incorporated by reference to the Form 10-KSB of Patlex Corporation for the
year ended June 30, 1995.
++ Previously filed.
II-1
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Pompano Beach, Florida
on May 29, 1997.
DBT ONLINE, INC.
By: /s/ HANK ASHER
------------------------------------
Hank Asher
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
* Chairman of the Board of May 29, 1997
- ----------------------------------------------------- Directors
Frank Borman
/s/ HANK ASHER President, Chief Executive May 29, 1997
- ----------------------------------------------------- Officer and Director
Hank Asher (Principal Executive Officer)
/s/ THOMAS L. SIMPSON Chief Operating Officer and May 29, 1997
- ----------------------------------------------------- Director
Thomas L. Simpson
* Director May 29, 1997
- -----------------------------------------------------
Charles A. Asher
* Director May 29, 1997
- -----------------------------------------------------
Gary E. Erlbaum
* Director May 29, 1997
- -----------------------------------------------------
Jack Hight
* Director May 29, 1997
- -----------------------------------------------------
Kenneth G. Langone
* Director May 29, 1997
- -----------------------------------------------------
Eugene L. Step
* Director May 29, 1997
- -----------------------------------------------------
Sari Zalcberg
/s/ TIMOTHY M. LEONARD Vice President, Finance, May 29, 1997
- ----------------------------------------------------- Treasurer and Chief
Timothy M. Leonard Financial Officer (Principal
Financial and Accounting
Officer)
*By: /s/ THOMAS L. SIMPSON May 29, 1997
- -----------------------------------------------------
Thomas L. Simpson
Attorney in Fact
</TABLE>
II-2
<PAGE> 1
DB DRAFT OF 4/27/97
1,640,000 SHARES
DBT ONLINE, INC.
COMMON STOCK ($.10 PAR VALUE)
UNDERWRITING AGREEMENT
May ____, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION,
As Representative of the Several Underwriters,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. DBT Online, Inc., a Pennsylvania corporation
("Company"), proposes to issue and sell 1,000,000 shares of its common stock,
$.10 par value ("Securities"), and the shareholders listed in Schedule A hereto
("Selling Shareholders") propose severally to sell an aggregate of 640,000
outstanding shares of the Securities (such 1,640,000 Securities being
hereinafter referred to as the "Firm Securities"). Certain of the Selling
Shareholders also propose to sell to the Underwriters, at the option of the
Underwriters, an aggregate of not more than 246,000 additional outstanding
shares of the Company's Securities, in the respective amounts set forth on
Schedule A (such 246,000 additional shares being hereinafter referred to as the
"Optional Securities"). The Firm Securities and the Optional Securities are
herein collectively referred to as the "Offered Securities". The Company and the
Selling Shareholders hereby agree with the several Underwriters named in
Schedule B ("Underwriters") as follows:
2. Representations and Warranties of the Company and the Selling
Shareholders.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
<PAGE> 2
(i) A registration statement (No. 333-24613) relating to the
Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (A)
has been declared effective under the Securities Act of 1933, as
amended ("Act"), and is not proposed to be amended or (B) is proposed
to be amended by amendment or post-effective amendment. If such
registration statement (the "initial registration statement") has been
declared effective, either (A) an additional registration statement
(the "additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration
statement has been filed and the Company does not propose to amend it,
and if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any) to each
such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c)
("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (A) if the Company has advised
the Representative that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (B) if the Company has advised the
Representative that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by
the Commission. If an additional registration statement has not been
filed prior to the execution and delivery of this Agreement but the
Company has advised the Representative that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of
2
<PAGE> 3
which such registration statement is filed and becomes effective
pursuant to Rule 462(b). "Effective Date" with respect to the initial
registration statement or the additional registration statement (if
any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
material incorporated by reference therein, including all information
contained in the additional registration statement (if any) and deemed
to be a part of the initial registration statement as of the Effective
Time of the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are hereinafter referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, including all
material incorporated by reference in such prospectus, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act. No stop
order suspending the effectiveness of such Registration Statement or
any part thereof has been issued and no proceeding for that purpose has
been instituted or, to the best knowledge of the Company, threatened by
the Commission.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (A)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, (B)
on the Effective Date of the Additional Registration Statement (if
any), each Registration Statement conformed or will conform, in all
respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (C) on the date of this Agreement, the
Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at
3
<PAGE> 4
the time of filing of the Prospectus pursuant to Rule 424(b) or (if no
such filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included, and on each
Closing Date (as hereinafter defined) each Registration Statement and
the Prospectus will conform, in all respects to the requirements of the
Act and the Rules and Regulations, and neither of such documents
includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made)
not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this
Agreement: (A) on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will
conform in all respects to the requirements of the Act and the Rules
and Regulations, neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading, and no Additional
Registration Statement has been or will be filed and (B) on each
Closing Date, the Initial Registration Statement and the Prospectus
will conform in all respects to the requirements of the Act and the
Rules and Regulations, neither of such documents will include any
untrue statement of a material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading, and no Additional
Registration Statement has been or will be filed. The two preceding
sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representative
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(c).
(iii) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the
Commonwealth of Pennsylvania, with power and authority (corporate and
other) to own, lease and operate its properties and conduct its
business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership, leasing or operation of
property or the conduct of its business requires such qualification.
(iv) The Company's only subsidiaries are listed on Exhibit 1
hereto. Each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with power and authority
(corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; and each
subsidiary of the Company is duly qualified to do business
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<PAGE> 5
as a foreign corporation in good standing in all other jurisdictions in
which its ownership, leasing or operation of property or the conduct of
its business requires such qualification; all of the issued and
outstanding capital stock of each subsidiary of the Company has been
duly authorized and validly issued and is fully paid and nonassessable;
and the capital stock of each subsidiary is owned by the Company,
directly or through the Company's subsidiaries, free and clear of any
mortgage, pledge, lien, security interest, claim, encumbrance or defect
of any kind.
(v) The Firm Securities to be sold by the Company have been
duly authorized and will be, when issued and paid for in accordance
with this Agreement, validly issued, fully paid and nonassessable and
no further approval or authority of the shareholders or the Board of
Directors of the Company is or will be required for the issuance and
sale of the Offered Securities as contemplated by this Agreement; the
Offered Securities to be sold by the Selling Shareholders and all other
outstanding shares of capital stock of the Company have been duly
authorized, are validly issued, fully paid and nonassessable and have
been issued in compliance with applicable federal and state securities
laws; the authorized and outstanding capital stock of the Company
conforms to the descriptions thereof contained in the Prospectus under
the captions "Capitalization" and "Description of Capital Stock"; and
the shareholders of the Company have no preemptive or similar rights
with respect to the Offered Securities or any other securities of the
Company.
(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
third party that would give rise to a valid claim against the Company
or any Underwriter for a brokerage commission, finder's fee or other
like payment in connection with the transactions contemplated by this
Agreement.
(vii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
third party (whether acting in an individual, fiduciary or other
capacity) granting such third party the right to require the Company to
file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such third party or
to require the Company to include such securities in the Offered
Securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act.
(viii) On the date each Registration Statement was first filed
with the Commission, and at the Effective Time, the Company met the
conditions for use of Form S-3 under the Act and the Rules and
Regulations.
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<PAGE> 6
(ix) The Securities are listed on the Nasdaq Stock Market's
National Market.
(x) Except as disclosed in the Prospectus, no consent,
approval, authorization, order, registration or qualification of, or
filing with, any third party (whether acting in an individual,
fiduciary or other capacity) or any governmental, regulatory or
accrediting agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities, except
such as have been obtained and made under the Act and such as may be
required under state securities laws.
(xi) The execution, delivery and performance of this
Agreement, and the consummation of the transactions herein contemplated
have been duly authorized by all necessary corporate action on the part
of the Company and, to the extent required, its shareholders and do not
and will not conflict with or result in a breach or violation of any of
the terms and provisions of, and do not and will not constitute a
default (or an event which with the giving of notice or the lapse of
time or both could reasonably be likely to constitute a default) under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any assets or properties of the Company or any of its
subsidiaries (including any individual institution within such entity)
under (A) the charter, by-laws or other organizational documents of the
Company or any subsidiary, (B) any statute, any rule, regulation,
requirement, order or decree of any governmental, regulatory or
accrediting agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their
properties, assets or operations, or (C) any indenture, mortgage, loan
or credit agreement, note, lease, permit, license or other agreement or
instrument to which the Company or any subsidiary is a party or by
which the Company or any subsidiary is bound or to which any of the
properties, assets or operations of the Company or any subsidiary is
subject.
(xii) This Agreement has been duly authorized, executed and
delivered by the Company.
(xiii) The Company and its subsidiaries have good and
marketable title to all real properties and all other properties and
assets owned by them, in each case free and clear of any mortgage,
pledge, lien, security interest, claim or other encumbrance or defect
that could individually or in the aggregate materially affect the value
thereof, materially interfere with the use made or to be made thereof
by them, or have a material adverse effect on the condition (financial
or other), business, prospects, results of operations or general
affairs of the Company and its subsidiaries taken as a whole; and the
Company and its subsidiaries hold any leased real or personal property
under valid, subsisting and enforceable leases or subleases with no
exceptions that would materially
6
<PAGE> 7
interfere with the use made or to be made thereof by them; neither the
Company nor any subsidiaries is in default under any such lease or
sublease; and no material claim of any sort has been asserted by anyone
adverse to the rights of the Company or any subsidiary under any such
lease or sublease or affecting or questioning the right of such entity
to the continued possession of the leased or subleased properties under
any such lease or sublease.
(xiv) The Company and its subsidiaries possess all approvals,
authorizations, certificates, permits and licenses (collectively,
"Licenses") issued by appropriate governmental, regulatory or
accrediting agencies or bodies as are necessary to own, lease or
operate their properties and conduct the business now operated by them
as described in the Prospectus, and all such Licenses are in full force
and effect. The Company and its subsidiaries are in substantial
compliance with their respective obligations under such Licenses and
neither the Company nor any of its subsidiaries has received notice of
any proceedings, investigations or inquiries (or is aware of any facts
that would form a reasonable basis for any proceedings, investigations
or inquiries) relating to the revocation, modification, termination or
suspension of any such License or impairment of the rights of the
Company or such subsidiaries thereunder that, if determined adversely
to the Company or any of its subsidiaries, could individually or in the
aggregate have a material adverse effect on the condition (financial or
other), business, prospects, results of operations or general affairs
of the Company and its subsidiaries taken as a whole.
(xv) No labor dispute with the employees of the Company or any
subsidiary exists or, to the best knowledge of the Company, is imminent
that could individually or in the aggregate have a material adverse
effect on the condition (financial or other), business, prospects,
results of operations or general affairs of the Company and its
subsidiaries taken as a whole.
(xvi) The Company and its subsidiaries are the exclusive
owners of or have obtained valid licenses at commercially reasonable
rates for all trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, copyright
registrations, patents, inventions, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, computer software, systems or procedures), confidential
information and any other intellectual property or rights described in
the Prospectus as being owned, licensed or used by the Company or any
of its subsidiaries or that are necessary for the conduct of their
businesses as described in the Prospectus (collectively, "Intellectual
Property") and the Company is not aware of any claim (or of any facts
that would form a reasonable basis for any claim) to the contrary or
any challenge by any third party to the rights of the Company or any of
its subsidiaries with respect to any such Intellectual Property or to
the validity or scope of any such Intellectual Property and neither the
Company nor any of its subsidiaries has any claim
7
<PAGE> 8
against a third party with respect to the infringement by such third
party to any such Intellectual Property that, if determined adversely
to the Company or any of its subsidiaries, could individually or in the
aggregate have a material adverse effect on the condition (financial or
other), business, prospects, results of operations or general affairs
of the Company and its subsidiaries taken as a whole. The Company and
its subsidiaries have a good faith belief in the distinctiveness and
enforceability of all trademarks, service marks and trade names and in
the validity and enforceability of all patents included in the
Intellectual Property. The Intellectual Property includes all
intellectual property and similar rights necessary or advisable for the
conduct of the business of the Company as now conducted as described in
the Prospectus or as planned to be conducted. The Company has taken,
and will take, all actions which are necessary or advisable in order to
protect the Intellectual Property, and to acquire Intellectual
Property, consistent with prudent commercial practices in the database
services industry.
(xvii) The properties, assets and operations of the Company
and its subsidiaries are in compliance with all applicable federal,
state, local and foreign environmental laws, rules and regulations,
orders, decrees, judgments, permits and licenses relating to public and
worker health and safety, and to the protection and clean-up of the
natural environment and to the protection or preservation of natural
resources and of plant and animal species, and activities or conditions
related thereto, including, without limitation, those relating to the
production, extraction, processing, manufacturing, generation,
handling, disposal, transportation or release of hazardous materials
(collectively, "Environmental Laws"). With respect to such properties,
assets and operations (including any previously owned, leased or
operated properties, assets or operations with respect to such prior
period of ownership or operation), there are no past, present or, to
the best knowledge of the Company, reasonably anticipated future
events, conditions, circumstances, activities, practices, incidents,
actions or plans of the Company or any of its subsidiaries that may
interfere with or prevent compliance or continued compliance by the
Company and its subsidiaries with applicable Environmental Laws.
Neither the Company nor any of its subsidiaries is the subject of any
federal, state, local or foreign investigation, and neither the Company
nor any of its subsidiaries has received any notice or claim (or is
aware of any facts that would be expected to result in any such claim),
nor entered into any negotiations or agreements with any third party,
relating to any liability or potential liability or remedial action or
potential remedial action under Environmental Laws, nor are there any
pending, reasonably anticipated or, to the best knowledge of the
Company, threatened actions, suits or proceedings against or affecting
the Company, any of its subsidiaries or their properties, assets or
operations in connection with any such Environmental Laws. The term
"hazardous materials" shall mean those substances that are regulated by
or form the basis for liability under any applicable Environmental
Laws.
8
<PAGE> 9
(xviii) Except as disclosed in the Prospectus, there are no
pending actions, suits, proceedings or investigations against or
affecting the Company or any of its subsidiaries or any of their
respective properties, assets or operations that, if determined
adversely to the Company or any of its subsidiaries, could individually
or in the aggregate have a material adverse effect on the condition
(financial or other), business, prospects, results of operations or
general affairs of the Company and its subsidiaries taken as a whole,
or could materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits, proceedings or investigations are threatened or,
to the best knowledge of the Company, contemplated.
(xix) The financial statements and related schedules and notes
included in each Registration Statement and the Prospectus comply with
the requirements of the Act and the Rules and Regulations, present
fairly the financial position of the Company and its consolidated
subsidiaries as of the dates shown and their results of operations and
cash flows for the periods shown, and such financial statements have
been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis. The
other financial information and statistical data set forth in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited consolidated
financial statements included in the Registration Statements. The pro
forma financial statements and other pro forma financial information
included in the Prospectus present fairly the information shown
therein, have been prepared in all respects in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma basis
described therein and, in the opinion of the Company, the assumptions
used provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein,
the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(xx) Since the dates as of which information is given in each
Registration Statement and the Prospectus, (A) neither the Company nor
any of its subsidiaries has incurred any material liability or
obligation (indirect, direct or contingent) or entered into any
material, verbal or written agreement or other transaction that is not
in the ordinary course of business or that could result in a material
reduction in the future earnings of the Company; (B) there has been no
change, except as contemplated by the Prospectus, in the indebtedness
of the Company, no change in the capital stock of the Company and no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock; and (C) there has been no
material adverse change, nor any development or event involving a
prospective material
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<PAGE> 10
adverse change, in the condition (financial or other), business,
prospects or results of operations or general affairs of the Company
and its subsidiaries taken as a whole.
(xxi) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be, an
"investment company" as defined in the Investment Company Act of 1940,
as amended.
(xxii) Except as set forth in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible
into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the
Company any such capital stock or any such convertible or exchangeable
securities or obligations or (C) obligations of the Company to issue
such shares, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or obligations.
(xxiii) Each "employee benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
in which employees of the Company or any subsidiary participate or as
to which the Company or any subsidiary has any liability (the "ERISA
Plans") is in compliance with the applicable provisions of ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"). Neither the
Company nor any subsidiary has any liability, with respect to the ERISA
Plans or otherwise and whether or not contingent, under Title IV of
ERISA, nor does the Company expect that any such liability will be
incurred. Neither the Company nor any subsidiary has any liability,
whether or not contingent, with respect to any ERISA Plan that provides
post-retirement welfare benefits. The descriptions of the Company's
stock option, stock bonus and other stock plans or arrangements, and of
the options or other rights granted and exercised thereunder, set forth
in the Prospectus are accurate and complete.
(xxiv) The Company and its subsidiaries have filed on a timely
basis all federal, state, local and foreign tax returns required to be
filed, such returns are complete and correct, and all taxes shown by
such returns or otherwise assessed that are due and payable have been
paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company and its subsidiaries in respect of
any tax liability for any year not finally determined are adequate to
meet any assessments or reassessments for additional taxes; and there
has been no tax deficiency asserted and the Company is not aware of any
facts that would form a reasonable basis for the assertion of any tax
deficiency against the Company or any of its subsidiaries that could
individually or in the aggregate have a material adverse effect on the
condition (financial or other),
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<PAGE> 11
business, prospects, results of operations or general affairs of the
Company and its subsidiaries taken as a whole.
(xxv) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient for purposes of the prevention
or detection of errors or irregularities in amounts that could be
expected to be material to the Company's consolidated financial
statements and the recording of transactions so as to permit the
preparation of such consolidated financial statements in conformity
with generally accepted accounting principles.
(xxvi) Neither the Company nor any of its subsidiaries is in
violation of (A) its charter, by-laws or other organizational documents
or (B) any applicable law, ordinance, administrative or governmental or
regulatory rule, regulation or any order, decree or judgment of any
court or governmental, regulatory or accrediting agency or body having
jurisdiction over the Company or any subsidiary; and no event of
default or event that, but for the giving of notice or the lapse of
time or both, would constitute an event of default exists, or upon
consummation of the transactions contemplated by this Agreement or the
Prospectus, including, without limitation, the use of proceeds from the
sale of the Offered Securities in the manner contemplated by the
description under the caption "Use of Proceeds" contained in the
Prospectus will exist, under any indenture, mortgage, loan or credit
agreement, note, lease, permit, license or other agreement or
instrument to which the Company or any subsidiary is a party or by
which the Company or any subsidiary is bound or to which any of the
properties, assets or operations of the Company or any subsidiary is
subject. There are no statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statements or the Prospectus or to be filed as exhibits to the
Registration Statements that are not described or filed as required.
(xxvii) The Company and its subsidiaries carry or are entitled
to the benefits of insurance in such amounts and covering such risks as
is generally maintained by companies of established repute engaged in
the same or similar business, and all such insurance is in full force
and effect.
(xxviii) The Company has not taken and will not take, directly
or indirectly, any action designed to or that could cause or result in
stabilization or manipulation of the price of the Offered Securities to
facilitate the sale or resale of the Offered Securities.
(xxix) The Company has obtained the written agreement of each
officer, director and shareholder of the Company listed on Exhibit 2
hereto, in form reasonably satisfactory to the Underwriters, that such
person will not, for a period of [two] years after the date of the
public offering of the Offered Securities, offer, sell, contract to
sell, pledge or otherwise dispose of, directly or
11
<PAGE> 12
indirectly or request or demand the filing with the Commission of a
registration statement under the Act relating to any shares of the
Securities of the Company or securities or other rights convertible
into or exchangeable or exercisable for any shares of Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC.
(b) Each Selling Shareholder severally represents and warrants to, and
agrees with, the several Underwriters that:
(i) Such Selling Shareholder has and on each Closing Date
hereinafter mentioned will have valid and unencumbered title to the
Offered Securities to be delivered by such Selling Shareholder on such
Closing Date and full right, power and authority to enter into this
Agreement and the Custody Agreement (the "Custody Agreement") and
Irrevocable Power of Attorney (the "Power of Attorney") entered into by
such Selling Shareholder in connection with the transactions
contemplated hereby and to sell, assign, transfer and deliver the
Offered Securities to be delivered by such Selling Shareholder on such
Closing Date hereunder; and upon the delivery of and payment for the
Offered Securities on each Closing Date hereunder the several
Underwriters will acquire valid and unencumbered title to the Offered
Securities to be delivered by such Selling Shareholder on such Closing
Date.
(ii) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (A)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all respects to the
requirements of the Act and the Rules and Regulations and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all respects to the requirements of the
Act and the Rules and Regulations did not include, or will not include,
any untrue statement of a material fact and did not omit, or will not
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, and on each Closing Date, each Registration
Statement and the Prospectus will conform, in all respects to the
requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be
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<PAGE> 13
stated therein or necessary to make the statements therein not
misleading. If the Effective Time of the Initial Registration Statement
is subsequent to the execution and delivery of this Agreement: (A) on
the Effective Date of the Initial Registration Statement, the Initial
Registration Statement and the Prospectus will conform in all respects
to the requirements of the Act and the Rules and Regulations, neither
of such documents will include any untrue statement of a material fact
or will omit to state any material fact required to be stated therein
or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made)
not misleading and (B) on each Closing Date, the Initial Registration
Statement and the Prospectus will conform, in all respects to the
requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a
material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances
under which they were made) not misleading. The two preceding sentences
do not apply to statements in or omissions from a Registration
Statement or the Prospectus based upon written information furnished to
the Company by any Underwriter through the Representative specifically
for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(c).
(iii) This Agreement, the Custody Agreement and Power of
Attorney have each been duly authorized, executed and delivered by or
on behalf of such Selling Shareholder and the Custody Agreement and
Power of Attorney constitute the legal, valid and binding obligations
of such Selling Shareholder enforceable against such Selling
Shareholder in accordance with their respective terms.
(iv) No consent, approval, authorization, order, registration
or qualification of, or filing with, any third party (whether acting in
an individual, fiduciary or other capacity) or any governmental or
regulatory agency or body or court is required to be obtained or made
by such Selling Shareholder for the consummation of the transactions
contemplated by this Agreement, the Custody Agreement and Power of
Attorney in connection with the sale of the Offered Securities, except
such as have been obtained and made under the Act and such as may be
required under state securities laws.
(v) The execution, delivery and performance by such Selling
Shareholder of this Agreement, the Custody Agreement and Power of
Attorney, the sale of the Offered Securities being sold by such Selling
Shareholder do not and will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute or will
constitute a default (or an event which with the giving of notice or
the lapse of time or both could reasonably be likely to constitute a
default) under, or result in the creation or imposition of any lien,
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<PAGE> 14
charge or encumbrance upon the Offered Securities to be sold by such
Selling Shareholder under (A) any statute, any rule, regulation,
requirement, order or decree of any governmental or regulatory agency
or body, or any court, domestic or foreign, having jurisdiction over
such Selling Shareholder or any of his or her properties, assets or
operations or (B) any indenture, mortgage, loan or credit agreement,
note, lease, permit, license or other agreement or instrument to which
such Selling Shareholder is a party or by which such Selling
Shareholder is bound or to which any of the properties, assets or
operations of such Selling Shareholder is subject, and such Selling
Shareholder has full power and authority to authorize, issue and sell
the Offered Securities as contemplated by this Agreement.
(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between such Selling
Shareholder and any third party that would give rise to a valid claim
against such Selling Shareholder or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with the
transactions contemplated by this Agreement, the Custody Agreement and
Power of Attorney.
(vii) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or that could
cause or result in stabilization or manipulation of the price of the
Offered Securities to facilitate the sale or resale of the Offered
Securities.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and each Selling
Shareholder agree, severally and not jointly, to sell to each Underwriter, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
and each Selling Shareholder, at a purchase price of $[ ] per share,
that number of Firm Securities (rounded up or down, as determined by Credit
Suisse First Boston Corporation ("CSFBC") in its discretion, in order to avoid
fractions) obtained by multiplying 1,000,000 Firm Securities in the case of the
Company and the number of Firm Securities set forth opposite the name of such
Selling Shareholder in Schedule A hereto, in the case of a Selling Shareholder,
in each case by a fraction the numerator of which is the number of Firm
Securities set forth opposite the name of such Underwriter in Schedule B hereto
and the denominator of which is the total number of Firm Securities.
Certificates in negotiable form for the Offered Securities to be sold
by the Selling Shareholders hereunder have been placed in custody, for delivery
under this Agreement, under the Custody Agreements made with [ ], as
custodian ("Custodian"). Each Selling Shareholder agrees that the shares
represented by the certificates held in custody for the Selling Shareholders
under such Custody Agreements are subject to the interests of the Underwriters
hereunder, that the arrangements made by the Selling Shareholders for such
custody are to that extent irrevocable, and that the
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<PAGE> 15
obligations of the Selling Shareholders hereunder shall not be terminated by
operation of law, whether by the death of any individual Selling Shareholder or
the occurrence of any other event, or in the case of a trust, by the death of
any trustee or trustees or the termination of such trust. If any individual
Selling Shareholder or any such trustee or trustees should die, or if any other
such event should occur, or if any of such trusts should terminate, before the
delivery of the Offered Securities hereunder, certificates for such Offered
Securities shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death or other event or termination had
not occurred, regardless of whether or not the Custodian shall have received
notice of such death or other event or termination.
The Company and the Custodian will deliver the Firm Securities to the
Representative for the accounts of the Underwriters, against payment of the
purchase price in Federal (same day) funds by official bank check or checks or
wire transfer to a bank acceptable to CSFBC drawn to the order of the Company in
the case of 1,000,000 shares of Firm Securities and the Custodian in the case of
640,000 shares of Firm Securities, at the office of Dewey Ballantine, 1301
Avenue of the Americas, New York, New York 10019, at 10:00 A.M., New York time,
on May ____, 1997, or at such other time not later than seven full business days
thereafter as CSFBC and the Company determine, such time being herein referred
to as the "First Closing Date". The certificates for the Firm Securities so to
be delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the office of Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, New York 10010-3629 at least 24 hours prior to the
First Closing Date.
In addition, upon written notice from CSFBC given to the Company and
the Selling Shareholders from time to time not more than 30 days subsequent to
the date of the Prospectus, the Underwriters may purchase all or less than all
of the Optional Securities at the purchase price per Security to be paid for the
Firm Securities. The Selling Shareholders agree, severally and not jointly, to
sell to the Underwriters the respective numbers of Optional Securities obtained
by multiplying the number of Optional Securities specified in such notice by a
fraction the numerator of which is the number of shares set forth opposite the
names of such Selling Shareholders in Schedule A hereto under the caption
"Number of Optional Securities to be Sold" and the denominator of which is the
total number of Optional Securities (subject to adjustment by CSFBC to eliminate
fractions). Such Optional Securities shall be purchased from each Selling
Shareholder for the account of each Underwriter in the same proportion as the
number of Firm Securities set forth opposite such Underwriter's name bears to
the total number of Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not
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<PAGE> 16
previously exercised may be surrendered and terminated at any time upon notice
by CSFBC to the Company and the Selling Shareholders.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Custodian will deliver
the Optional Securities being purchased on each Optional Closing Date to the
Representative for the accounts of the several Underwriters, against payment of
the purchase price therefor in Federal Reserve (same day) funds by official bank
check or checks or wire transfer to an account at a bank acceptable to CSFBC
drawn to the order of the Custodian in the case of the 246,000 Optional
Securities, at the office of Dewey Ballantine, 1301 Avenue of the Americas, New
York, New York 10019. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at the office of CSFBC, Eleven Madison Avenue, New York,
New York 10010-3629, at a reasonable time in advance of such Optional Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Shareholders. The
Company agrees with the several Underwriters and the Selling Shareholders and,
with respect to clauses (k) and (l) below, the Selling Shareholders agree with
the Company and the several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to
by CSFBC, subparagraph(4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of
this Agreement or (B) the fifteenth business day after the Effective
Date of the Initial Registration Statement. The Company will advise
CSFBC promptly of any such filing pursuant to Rule 424(b). If the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement and an additional registration
statement is necessary to register a portion of the Offered Securities
under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective
amendment thereto with the Commission pursuant to and in accordance
with Rule 462(b) on or prior to
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<PAGE> 17
10:00 P.M., New York time, on the date of this Agreement or, if
earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or supplementation
without CSFBC's prior consent; and the Company will also advise CSFBC
promptly of the effectiveness of each Registration Statement (if the
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of
any stop order proceedings in respect of a Registration Statement and
will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs or a condition
exists as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will promptly notify
CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect
such compliance. Neither CSFBC's consent to, nor the Underwriters'
delivery of, any such amendment or supplement shall constitute a waiver
of any of the conditions set forth in Section 6 hereof.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its security holders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
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<PAGE> 18
(e) The Company will furnish to the Representative copies of
each Registration Statement (two of which will be signed and will
include all exhibits and a signed accountant's report of Deloitte &
Touche LLP, each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any Underwriter or
dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other such documents shall be so furnished
as soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will, in cooperation with CSFBC and counsel
for the Underwriters, arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company
will furnish to the Representative and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each fiscal
year, a copy of its annual report to shareholders for such year; and
the Company will furnish to the Representative (i) as soon as
available, a copy of each report and any definitive proxy statement of
the Company filed with the Commission under the Securities Exchange Act
of 1934, as amended, or mailed to shareholders and (ii) from time to
time, such other information concerning the Company as CSFBC may
reasonably request.
(h) For a period of [two] years after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file or cause to be filed with the Commission a
registration statement under the Act relating to, any shares of its
Securities or securities or other rights convertible into or
exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposal or filing, without the prior written consent of CSFBC.
(i) The Company will apply the net proceeds of the Offering
and sale of the Offered Securities contemplated hereunder in the manner
set forth in the Prospectus under the caption "Use of Proceeds".
(j) The Company agrees with each Selling Shareholder and the
Underwriters that the Company will pay all expenses incident to the
performance of the obligations of the Company and each Selling
Shareholder
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<PAGE> 19
under this Agreement for any filing fees and other expenses (including
fees and disbursements of counsel) incurred by them in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda
relating thereto, for the filing fee incident to, and the reasonable
fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers,
Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company
in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities, for any transfer taxes on the
sale by the Selling Shareholders of the Offered Securities to the
Underwriters and for expenses incurred in printing and distributing
preliminary prospectuses and the Prospectus (including any amendments
and supplements thereto) or related documents.
(k) Each Selling Shareholder agrees to deliver to CSFBC
(Attention: Transactions Advisory Group) on or prior to the First
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(l) Each Selling Shareholder agrees, for a period of [two]
years after the date of the initial public offering of the Offered
Securities, not to offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or request or demand the filing
with the Commission of a registration statement under the Act relating
to any shares of the Securities of the Company or securities or other
rights convertible into or exchangeable or exercisable for any shares
of Securities, or publicly disclose the intention to make any such
offer, sale, pledge, disposition or filing, without the prior written
consent of CSFBC.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Shareholders herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Shareholders of their obligations hereunder and to the following additional
conditions precedent:
(a) The Representative shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective
19
<PAGE> 20
amendment to the registration statement to be filed shortly prior to
such Effective Time), of Deloitte & Touche LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a
review of interim financial information as described in
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Registration Statements;
(iii) on the basis of the review referred to in
clause (ii) above, a reading of the latest available interim
financial statements of the Company, a reading of the minutes
of all meetings of the shareholders and directors (including
each committee thereof) of the Company and its subsidiaries,
inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements
included in the Registration Statements and the
Prospectus do not comply as to form in all material
respects with the applicable accounting requirements
of the Act and the related published Rules and
Regulations or any material modifications should be
made to such unaudited financial statements for them
to be in conformity with generally accepted
accounting principles;
(B) the information set forth in the
Prospectus under the captions "Summary Consolidated
Financial and Other Data" and "Selected Consolidated
Financial and Other Data" does not agree with the
amounts set forth in the unaudited consolidated
financial statements or the audited consolidated
financial statements, as the case may be, from which
it was derived or were not determined on a basis
substantially consistent with that of the
corresponding amounts in the unaudited statements or
the audited statements included in the Registration
Statements and the Prospectus;
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<PAGE> 21
(C) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three days
prior to the date of this Agreement, there was any
decrease in stockholders' equity or change in the
capital stock or any increase in short-term
indebtedness or long-term debt of the Company and its
consolidated subsidiaries or, at the date of the
latest available balance sheet read by such
accountants, there was any decrease in consolidated
net current assets or net assets, as compared with
amounts shown on the latest balance sheet included in
the Registration Statements and the Prospectus; or
(D) for the period from the closing date of
the latest income statement included in the
Registration Statements and the Prospectus to the
closing date of the latest available income statement
read by such accountants there were any decreases, as
compared with the corresponding period of the
previous year and with the period of corresponding
length ended the date of the latest income statement
included in the Registration Statements and the
Prospectus, in consolidated net revenues or
consolidated net income, or in the total or per share
amounts of consolidated net income or income from
operations, or any increases or decreases, as the
case may be, in other items specified by the
Representative;
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectus discloses
have occurred;
(iv) they have proved the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the unaudited pro forma statement of operations
included in the Registration Statements and the Prospectus and
on the basis of the foregoing procedure and a reading of the
unaudited pro forma financial statements included in the
Registration Statements and the Prospectus, a reading of the
minutes of all meetings of the stockholders and directors
(including each committee thereof) of the Company and its
subsidiaries, inquiries of officials of the Company who have
responsibility for financial and accounting matters about (i)
the basis for the determination of the pro forma adjustments
and (ii) whether the unaudited pro forma consolidated
statement of operations complies as to form in all material
respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X under the Act and other specified
procedures, nothing came to their attention that caused them
to believe that the pro forma financial statements included in
the Registration Statements and the Prospectus do not comply
in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Act or
that the
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<PAGE> 22
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such financial
statements or on the pro forma basis described in the notes
thereto;
(v) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
and the Prospectus (in each case to the extent that such
dollar amounts, percentages, numerical data and other
financial information are derived from the general accounting
records of the Company and its subsidiaries subject to the
internal controls of the Company's accounting system or are
derived from such records by analysis or computation) with the
results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages,
numerical data and other financial information to be in
agreement with such results.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statements is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time; (ii) if the Effective Time of the Initial Registration
Statements is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration Statement is
subsequent to such execution and delivery, "Registration Statements"
shall mean the Initial Registration Statement and the additional
registration statement as proposed to be filed or as proposed to be
amended by the post-effective amendment to be filed shortly prior to
its Effective Time; and (iii) "Prospectus" shall mean the prospectus
included in the Registration Statements.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date as shall
have been consented to by CSFBC. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and Section
5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration
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<PAGE> 23
Statement shall have been issued and no proceedings for that purpose
shall have been instituted or, to the knowledge of any Selling
Shareholder, the Company or the Representative, shall be contemplated
by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, prospects, results of operations or
general affairs of the Company or its subsidiaries which, in the
judgment of a majority in interest of the Underwriters including the
Representative, is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the
sale of and payment for the Offered Securities; (ii) any downgrading in
the rating of any debt securities of the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on the New York Stock Exchange, or any
setting of minimum prices for trading on such exchange, or any
suspension of trading of any securities of the Company on any exchange
or in the over-the-counter market; (iv) any banking moratorium declared
by U.S. Federal or New York authorities; or (v) any outbreak or
escalation of major hostilities in which the United States is involved,
any declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of a majority
in interest of the Underwriters including the Representative, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(d) The Representative shall have received an opinion, dated
such Closing Date, of Morgan, Lewis & Bockius LLP, counsel for the
Company, to the effect that:
(i) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws
of the Commonwealth of Pennsylvania, with power and authority
(corporate and other) to own, lease and operate its properties
and conduct its business as described in the Prospectus; and
the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its
business requires such qualifications.
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<PAGE> 24
(ii) The Offered Securities delivered on such Closing
Date by the Company have been duly authorized and will be,
when issued and paid for in accordance with this Agreement,
validly issued, fully paid and nonassessable and the Offered
Securities delivered on such Closing Date by the Selling
Shareholders have been duly authorized, validly issued, fully
paid and nonassessable; no further approval or authority of
the shareholders or the Board of Directors of the Company is
or will be required for the issuance and sale of the Offered
Securities as contemplated by this Agreement; to the best
knowledge of such counsel, the shareholders of the Company
have no preemptive or similar rights with respect to the
Offered Securities; and all outstanding shares of the capital
stock of the Company have been duly authorized, are validly
issued, are fully paid and non-assessable and have been issued
in compliance with applicable federal and state securities
laws; the authorized and outstanding shares of capital stock
of the Company are as set forth in the Prospectus under the
captions "Capitalization" and "Description of Capital Stock"
and conform to the descriptions thereof contained in the
Prospectus.
(iii) All of the issued and outstanding capital stock
of each of the Company's subsidiaries has been duly authorized
and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries.
(iv) To the knowledge of such counsel, except as
disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any third
party (whether acting in an individual, fiduciary or other
capacity) granting such third party the right to require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned
by such third party or to require the Company to include such
securities in the Offered Securities registered pursuant to
the Registration Statement or in any securities being
registered pursuant to any other registration statement filed
by the Company under the Act.
(v) To the knowledge of such counsel, except as
disclosed in the Prospectus, no consent, approval,
authorization, order, registration or qualification of, or
filing with, any third party (whether acting in an individual,
fiduciary or other capacity) or any governmental, regulatory
or accrediting agency or body or any court is required for the
consummation of the transactions contemplated by this
Agreement in connection with the issuance and sale of the
Offered Securities, except such as have been obtained and made
under the Act and such as may be required under state
securities laws.
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<PAGE> 25
(vi) This Agreement has been duly authorized,
executed and delivered by or on behalf of the Company.
(vii) The execution, delivery and performance of this
Agreement or the Custody Agreement and the consummation of the
transactions herein and therein contemplated have been duly
authorized by all necessary corporate action on the part of
the Company and, to the extent required, its shareholders and
do not and will not conflict with or result in a breach or
violation of any of the terms and provisions of, and do not
and will not constitute a default (or an event which with the
giving of notice or the lapse of time or both could reasonably
be likely to constitute a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any assets or properties of the Company or any of its
subsidiaries (including any individual institution within such
entity) under, and neither the Company nor any of its
subsidiaries is in violation of (A) the charter, by-laws or
other organizational documents of the Company or any
subsidiary, (B) to the best knowledge of such counsel, any
statute, any rule, regulation, requirement, order or decree of
any governmental, regulatory or agency or body or any court
having jurisdiction over the Company or any subsidiary or any
of their properties, assets or operations or (C) to the best
knowledge of such counsel, any indenture, mortgage, loan or
credit agreement, note, lease, permit, license or other
agreement or instrument to which the Company or any such
subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties, assets
or operations of the Company or any subsidiary is subject.
(viii) Except as set forth in the Prospectus, there
are no outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any capital stock
of the Company, (B) warrants, rights or options to subscribe
for or purchase from the Company any such capital stock or any
such convertible or exchangeable securities or obligations or
(C) obligations of the Company to issue such shares, any such
convertible or exchangeable securities or obligations, or any
such warrants, rights or obligations.
(ix) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the
application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940, as amended.
(x) Such counsel has participated in the preparation
of the Registration Statements and the Prospectus and has no
reason to believe
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<PAGE> 26
that any part of the Registration Statement or any amendment
thereto, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or
any amendment or supplement thereto, as of its issue date or
as of such Closing Date, contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading (it being understood that such
counsel need express no opinion as to the financial statements
and schedules or other financial data contained in the
Registration Statements and the Prospectus). There are no
statutes, regulations, contracts or other documents that are
required to be described in the Registration Statements or the
Prospectus or to be filed as exhibits to the Registration
Statements that are not described or filed as required.
(xi) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the initial
Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and each Registration
Statement and the Prospectus, and each amendment or supplement
thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the transactions
contemplated hereby as the Representative and counsel to the
Underwriters may reasonably request. In rendering such opinion, such
counsel may rely as to matters governed by the laws of jurisdictions
other than the laws of jurisdictions in which such counsel are admitted
to practice and the federal laws of the United States upon the opinions
of counsel reasonably satisfactory to the Representative and counsel to
the Underwriters.
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<PAGE> 27
(e) The Representative shall have received an opinion, dated
such Closing Date, of J. Henry Muetterties, Vice President, Secretary
and General Counsel of the Company, to the effect that:
(i) Each of the Company's subsidiaries has been duly
incorporated and is a validly existing corporation in good
standing under the laws of the jurisdiction of its
incorporation, with power and authority (corporate or other)
to own, lease and operate its properties and to conduct is
business as described in the Prospectus; and each of the
Company's subsidiaries is duly qualified to do business as a
foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualifications.
(ii) All of the issued and outstanding capital stock
of each of the Company's subsidiaries is owned by the Company,
directly or through subsidiaries, free and clear of any
mortgage, pledge, lien, security interest, claim, encumbrance
or defect of any kind; and there are no rights granted to or
in favor of any third party (whether acting in an individual,
fiduciary or other capacity) other than the Company to acquire
any such capital stock, any additional capital stock or any
other securities of any subsidiary.
(iii) The Company and its subsidiaries possess all
Licenses issued by appropriate governmental or regulatory
agencies or bodies as are necessary to own, lease or operate
their properties and conduct the business now operated by
them, and all such Licenses are in full force and effect. The
Company and its subsidiaries are in substantial compliance
with their respective obligations under such Licenses, subject
to such qualifications as are described in the Prospectus, and
neither the Company nor any of its subsidiaries has received
notice of any proceedings, investigations or inquiries (or is
aware of any facts that would form a reasonable basis for any
proceedings, investigations or inquiries) relating to the
revocation, modification, termination or suspension of any
such License or impairment of the rights of the Company or
such subsidiaries thereunder that, if determined adversely to
the Company or any of its subsidiaries, could individually or
in the aggregate have a material adverse effect on the Company
and its subsidiaries taken as a whole.
(iv) The execution, delivery and performance of this
Agreement or the Custody Agreement and the consummation of the
transactions herein and therein contemplated have been duly
authorized by all necessary corporate action on the part of
the Company and, to the extent required, its shareholders and
do not and will not conflict with
27
<PAGE> 28
or result in a breach or violation of any of the terms and
provisions of, and do not and will not constitute a default
(or an event which with the giving of notice or the lapse of
time or both could reasonably be likely to constitute a
default) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any assets or properties of
the Company or any of its subsidiaries (including any
individual institution within such entity) under, and neither
the Company nor any of its subsidiaries is in violation of (A)
the charter, by-laws or other organizational documents of the
Company or any subsidiary, (B) to the best knowledge of such
counsel, any statute, any rule, regulation, requirement, order
or decree of any governmental, regulatory or agency or body or
any court having jurisdiction over the Company or any
subsidiary or any of their properties, assets or operations or
(C) to the best knowledge of such counsel, any indenture,
mortgage, loan or credit agreement, note, lease, permit,
license or other agreement or instrument to which the Company
or any such subsidiary is a party or by which the Company or
any subsidiary is bound or to which any of the properties,
assets or operations of the Company or any subsidiary is
subject.
(v) Except as disclosed in the Prospectus, there are
no pending or, to the best knowledge of such counsel,
threatened actions, suits, proceedings or investigations
against or affecting the Company or any of its subsidiaries or
any of their respective properties, assets or operations that
could materially and adversely affect the ability of the
Company to perform its obligations under this Agreement or
which are otherwise material in the context of the sale of the
Offered Securities.
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the transactions
contemplated hereby as the Representative and counsel to the
Underwriters may reasonably request. In rendering such opinion, such
counsel may rely as to matters governed by the laws of jurisdictions
other than the laws of jurisdictions in which such counsel are admitted
to practice and the federal laws of the United States upon the opinions
of counsel reasonably satisfactory to the Representative and counsel to
the Underwriters.
(f) The Representative shall have received an opinion, dated
such Closing Date, of Morgan, Lewis & Bockius LLP, counsel for the
Selling Shareholders, to the effect that:
(i) To the best knowledge of such counsel, each
Selling Shareholder has valid and unencumbered title to the
Offered Securities delivered by such Selling Shareholder on
such Closing Date and has full right, power and authority to
enter into this Agreement and the
28
<PAGE> 29
Custody Agreement and Power of Attorney and to sell, assign,
transfer and deliver the Offered Securities delivered by such
Selling Shareholder on such Closing Date; and, to the best
knowledge of such counsel, upon the delivery of and payment
for the Offered Securities on such Closing Date the several
Underwriters will have acquired valid and unencumbered title
to the Offered Securities delivered by such Selling
Shareholder on such Closing Date;
(ii) This Agreement, the Custody Agreement and Power
of Attorney have each been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder and the
Custody Agreement and Power of Attorney constitute the legal,
valid and binding obligations of such Selling Shareholder
enforceable against such Selling Shareholder in accordance
with their respective terms.
(iii) To the best knowledge of such counsel, no
consent, approval, authorization, order, registration or
qualification of, or filing with, any third party (whether
acting in an individual, fiduciary or other capacity) or any
governmental or regulatory agency or body or any court is
required to be obtained or made by such Selling Shareholder
for the consummation of the transactions contemplated by this
Agreement, the Custody Agreement and the Power of Attorney in
connection with the sale of the Offered Securities sold by
such Selling Shareholders, except such as have been obtained
and made under the Act and such as may be required under state
securities laws.
(iv) The execution, delivery and performance by such
Selling Shareholder of this Agreement, the Custody Agreement
and Power of Attorney, the sale of the Offered Securities
being sold by such Selling Shareholder and the consummation by
such Selling Shareholder of any of the other transactions
herein or therein contemplated, do not and will not conflict
with or result in a breach or violation of any of the terms
and provisions of, and do not and will not constitute or will
constitute a default (or an event which with the giving of
notice or the lapse of time or both could reasonably be likely
to constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon the Offered
Securities to be sold by such Selling Shareholder under, to
the best knowledge of such counsel, (A) any statute, any rule,
regulation, requirement, order or decree of any governmental
or regulatory agency or body, or any court having jurisdiction
over such Selling Shareholder or any of its properties, assets
or operations or (B) any indenture, mortgage, loan or credit
agreement, note, lease, permit, license or other agreement or
instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder
29
<PAGE> 30
is bound or to which any of the properties, assets or
operations of such Selling Shareholder is subject.
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the transactions
contemplated hereby as the Representative and counsel to the
Underwriters may reasonably request. In rendering such opinion, such
counsel may rely as to matters governed by the laws of jurisdictions
other than the laws of jurisdictions in which such counsel are admitted
to practice and the federal laws of the United States upon the opinions
of counsel reasonably satisfactory to the Representative and counsel to
the Underwriters.
(g) The Representative shall have received from Dewey
Ballantine, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the validity of the Offered
Securities delivered on such Closing Date, the Registration Statements,
the Prospectus and other related matters as the Representative may
require, and the Selling Shareholders and the Company shall have
furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(h) The Representative shall have received a certificate,
dated such Closing Date, of the President or any Vice-President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: (A) the representations and warranties
of the Company in this Agreement are true and correct as though made on
such Closing Date; (B) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date; (C) no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; (D) the Additional Registration
Statement (if any) satisfying the requirements of subparagraphs (1) and
(3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment
of the applicable filing fee in accordance with Rule 111(a) or (b)
under the Act, prior to the time the Prospectus was printed and
distributed to any Underwriter; (E) subsequent to the dates as of which
information is given in the Registration Statements and the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, prospects, results of operations or
general affairs of the Company and its subsidiaries taken as a whole;
and (F) they have carefully examined the Registration Statements and
the Prospectus and neither any Registration Statement nor the
Prospectus or any amendment or supplement thereto, as of their
respective effective or issue dates and as of such Closing Date,
contained an untrue statement of a material fact or omitted to state
any material fact
30
<PAGE> 31
required to be stated therein or necessary to make the statements
therein not misleading.
(i) The Representative shall have received a letter, dated
such Closing Date, of Deloitte & Touche LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three days prior to such Closing Date for the purposes of this
subsection.
(j) The Representative shall have received such other
opinions, certificates, letters and other documents from or on behalf
of the Company or the Selling Shareholders as the Representative shall
reasonably request.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof, only if they are reasonably satisfactory
in form and substance to CSFBC and counsel for the Underwriters. The Company and
the Selling Shareholders will furnish the Representative with such conformed
copies of such opinions, certificates, letters and documents as the
Representative reasonably requests. CSFBC may in its sole discretion waive on
behalf of the Underwriters compliance with any conditions to the obligations of
the Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through the
Representative specifically for use therein, it being understood and agreed that
the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below.
Insofar as the foregoing indemnity agreement, or the representations
and warranties contained in Section 2(a)(ii), may permit indemnification for
liabilities under the Act of any person who is an Underwriter or a partner or
controlling person of an
31
<PAGE> 32
Underwriter within the meaning of Section 15 of the Act and who, at the date of
this Agreement, is a director, officer or controlling person of the Company, the
Company has been advised that in the opinion of the Commission such provisions
may contravene Federal public policy as expressed in the Act and may therefore
be unenforceable. In the event that a claim for indemnification under such
agreement or such representations and warranties for any such liabilities
(except insofar as such agreement provides for the payment by the Company of
expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such a
person, the Company will submit to a court of appropriate jurisdiction (unless
in the opinion of counsel for the Company the matter has already been settled by
controlling precedent) the question of whether or not indemnification by it for
such liabilities is against public policy as expressed in the Act and therefore
unenforceable, and the Company will be governed by the final adjudication of
such issue.
(b) The Selling Shareholders, severally and not jointly, will indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Selling Shareholders will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by an Underwriter
through the Representative specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter consists of
the information described as such in subsection (c) below.
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and each Selling Shareholder against any losses, claims,
damages or liabilities to which the Company or such Selling Shareholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent,
32
<PAGE> 33
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representative
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company and each Selling Shareholder in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred, it being understood and agreed that the
only such information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter: (i) the
legend concerning over-allotments and stabilizing on the inside front cover page
and (ii) the information appearing under the caption "Underwriting" with respect
to (A) concession and discount figures and (B) discretionary sales.
(d) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In case any such action
is brought against any indemnified party and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action.
(e) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages
or liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholders on
the
33
<PAGE> 34
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Shareholders on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Shareholders bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Shareholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders under
this Section shall be in addition to any liability which the Company and the
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company and the Selling Shareholders for
the purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such
34
<PAGE> 35
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC, the
Company and the Selling Shareholders for the purchase of such Offered Securities
by other persons are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter,
the Company or the Selling Shareholders, except as provided in Section 9
(provided that if such default occurs with respect to Optional Securities after
the First Closing Date, this Agreement will not terminate as to the Firm
Securities or any Optional Securities purchased prior to such termination). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Shareholders, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, any Selling
Shareholder, the Company or any of their respective Representative, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company and the Selling Shareholders shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling
Shareholders, and the Underwriters pursuant to Section 7 shall remain in effect,
and if any Offered Securities have been purchased hereunder the representations
and warranties in Section 2 and all obligations under Section 5 shall also
remain in effect. If the purchase of the Offered Securities by the Underwriters
is not consummated for any reason other than solely because of the termination
of this Agreement pursuant to Section 8 or the occurrence of any event specified
in clause (iii), (iv) or (v) of Section 6(c), the Company and the Selling
Shareholders will, jointly and severally, reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representative at Eleven Madison Avenue, New York, N.Y. 10010-3629,
Attention: Investment Banking Department - Transactions Advisory Group, or, if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at DBT Online,
35
<PAGE> 36
Inc., 100 E. Sample Road, Suite 200, Pompano Beach, Florida 33064, Attention:
[ ], or, if sent to the Selling Shareholders or any of them, will be
mailed, delivered or telegraphed and confirmed to [ ] at [ ]
provided, however, that any notice to an Underwriter pursuant to Section 7
will be mailed, delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. Representation. The Representative will act for the several
Underwriters in connection with the transactions contemplated by this Agreement,
and any action under this Agreement taken by the Representative will be binding
upon all the Underwriters. The Custodian will act for the Selling Shareholders
in connection with such transactions, and any action under or in respect of this
Agreement taken by the Custodian will be binding upon all the Selling
Shareholders.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company and the Selling Shareholders hereby submit to the
non-exclusive jurisdiction of the Federal and state courts in the Borough of
Manhattan in The City of New York in any suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
36
<PAGE> 37
If the foregoing is in accordance with the Representative's
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Selling Shareholders, the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
DBT ONLINE, INC.
By________________________________
Name:
Title:
SELLING SHAREHOLDERS:
__________________________________
HANK E. ASHER
__________________________________
CHARLES A. ASHER
__________________________________
FRANK BORMAN
__________________________________
CHRISTIANE BRETON
__________________________________
GARY E. ERLBAUM
__________________________________
JACK HIGHT
__________________________________
SARI ZALCBERG
37
<PAGE> 38
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON
CORPORATION
By__________________________________
Name:
Title:
Acting on behalf of themselves and
as the Representative of the
several Underwriters.
38
<PAGE> 39
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FIRM OPTIONAL
SECURITIES TO SECURITIES TO
SELLING SHAREHOLDER BE SOLD BE SOLD
<S> <C> <C>
Hank E. Asher
Charles A. Asher
Frank Borman
Christiane Breton
Gary E. Erlbaum
Jack Hight
Sari Zalcberg
--------------- ----------------
Total..............................
=============== ================
</TABLE>
39
<PAGE> 40
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
FIRM SECURITIES
UNDERWRITER TO BE PURCHASED
---------------------
<S> <C>
Credit Suisse First Boston Corporation.................
Invemed Associates, Inc. ..............................
---------------------
Total..........................................
=====================
</TABLE>
40
<PAGE> 41
EXHIBIT 1
SUBSIDIARIES
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
Database Technologies, Inc. Florida
Patlex Corporation Pennsylvania
41
<PAGE> 1
EXHIBIT 5
OPINION OF MORGAN, LEWIS & BOCKIUS LLP
MAY 29, 1997
DBT Online, Inc.
5550 West Flamingo Road, Suite B-5
Las Vegas, NV 89103
RE: DBT Online, Inc. -- Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for DBT Online, Inc., a Pennsylvania corporation
(the "Company"), in connection with the preparation of the registration
statement (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), relating to the public offering of up to 1,886,000 shares
of the Company's common stock, $.10 par value (the "Common Stock"), of which up
to 1,000,000 shares of Common Stock (the "Company Shares") are to be newly
issued and sold by the Company, and of which 886,000 shares of Common Stock (the
"Selling Shareholder Shares"), including 246,000 shares purchasable by the
underwriters upon exercise of their over-allotment option, are presently issued
and outstanding and are to be sold by the selling shareholders (the "Selling
Shareholders") listed in the Registration Statement under "Principal and Selling
Shareholders." This opinion is being furnished pursuant to Item 601(b)(5) of
Regulation S-K under the Act.
In rendering the opinion set forth below, we have reviewed (a) the
Registration Statement and the exhibits thereto; (b) the Company's Restated
Certificate of Incorporation, as amended; (c) the Company's By-Laws; (d) certain
records of the Company's corporate proceedings as reflected in its minute books;
and (e) such statutes, records and other documents as we have deemed relevant.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and conformity with
the originals of all documents submitted to us as copies thereof. 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. Our opinion set
forth below is limited to the Business Corporation Law of the Commonwealth of
Pennsylvania.
Based upon the foregoing, we are of the opinion that the Selling
Shareholder Shares are validly issued, fully paid and nonassessable, and the
Company Shares, upon issuance by the Company in the manner and for the
consideration contemplated in the Registration Statement, will be validly
issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the references to this Firm under the caption
"Legal Matters" 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
Securities and Exchange Commission thereunder.
The opinion expressed herein is solely for your benefit and may be relied
upon only by you.
Very truly yours,
/s/ MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-24613 of DBT Online, Inc. on Form S-3 of our report dated March 26, 1997,
relating to the consolidated financial statements of DBT Online, Inc. and
subsidiaries as of and for the years ended December 31, 1996 and 1995, appearing
in the Prospectus, which is part of this Registration Statement, and of our
report dated March 26, 1997, relating to the consolidated financial statement
schedule for the years ended December 31, 1996 and 1995, incorporated by
reference in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
May 28, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-24613 of DBT Online, Inc. on Form S-3 of our report dated January 20, 1995
relating to the financial statements of Database Technologies, Inc. for the year
ended December 31, 1994, appearing in the Prospectus, which is part of this
Registration Statement, and of our report dated January 20, 1995, relating to
the financial statement schedule for the year ended December 31, 1994,
incorporated by reference in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
AHEARN, JASCO + COMPANY, P.A.
Pompano Beach, Florida
May 28, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference of our report dated August 9, 1996 with respect to
the financial statements of Patlex Corporation included in DBT Online, Inc.'s
filing on Form 8-K/A-1 dated November 4, 1996, filed with the Securities and
Exchange Commission, in this Amendment No. 3 to Registration Statement No.
333-24613 of DBT Online, Inc. on Form S-3.
ERNST & YOUNG LLP
Chicago, Illinois
May 28, 1997