<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): September 23, 1999
DBT Online, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant specified in Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania 1-13333 85-0439411
- -----------------------------------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
</TABLE>
5550 W. Flamingo Road, Suite B-5
Las Vegas, Nevada 89103
- -------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
REGISTRANT'S TELEPHONE, INCLUDING AREA CODE: (702) 257-1112
- -------------------------------------------------------------------------------
(Former name and former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 23, 1999, DBT Online, Inc. ("DBT"), a Pennsylvania
corporation, completed its acquisition of the Online Public Records and
KnowX.com business units of Information America, Inc. ("Information America"), a
Georgia corporation. The transaction was structured as an asset purchase and was
completed under the terms of an Asset Purchase Agreement signed on August 20,
1999 among West Publishing Company ("West"), Information America and DBT. As
consideration for the two Information America business units, DBT paid $25.0
million in cash and issued warrants to purchase 329,172 shares of DBT's common
stock at an exercise price of $52.50 per share. The warrants are exercisable at
any time until March 23, 2001, and a registration statement under the Securities
Act covering the warrants must be filed by DBT within 90 days of the closing.
The adequacy of the price paid by DBT was passed upon by Credit Suisse First
Boston Corporation, which rendered a fairness opinion in connection with the
transaction. The cash funds used to complete the acquisition were obtained from
DBT's accrued reserves.
KnowX.com is a leading Internet-based public record research tool for
consumers and small office users. Its core product, Ultimate People Finder,
provides a low-cost way to locate individuals using public records. The Informed
product line offers qualified users, including commercial lending and leasing
companies, access to public information through the Internet or dial-up modems.
The acquisition gives DBT access to the consumer, small office and commercial
lending/leasing markets for public records information. Pursuant to a Business
Transition Agreement signed at closing, West will provide certain services
designed to ensure the transition of the acquired business units to DBT. Under
the Agreement, over the next twelve month period, West will, among other things,
provide DBT with operations and technical support, customer service assistance,
billing services and access to data necessary to support the acquired
businesses.
Assets acquired by DBT in the transaction include all of the fixed
assets and goodwill of the KnowX.com business unit, certain hardware and
software pertaining to the Informed product line, several operating agreements,
West's rights to the corporate name "Information America, Inc." and
substantially all of the commercially significant intellectual property of the
KnowX.com and Informed business units. DBT intends to use all of the acquired
assets in the same manner as Information America used them.
Attached as Exhibit 99.2 to this Form 8-K is a description of the
business of DBT following its acquisition of the KnowX.com and Informed business
units.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Information America, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations and of cash flows present fairly, in all material
respects, the financial position of the Online Public Records Business (a
division of Information America, Inc. including the KnowX.com and Informed
product lines) at December 31, 1998 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The Online Public Records Business is a member of a group of
affiliated companies and, as disclosed in the financial statements, has
extensive transactions and relationships with members of the group. Because of
these relationships, it is possible that the terms of these transactions are
not the same as those that would result from transactions among wholly
unrelated parties.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 9, 1999
<PAGE> 4
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 18, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash ................................................................... $ -- $--
Accounts receivable, less an allowance for doubtful accounts of $274 and
$91 as of June 18, 1999 and December 31, 1998, respectively ............ 1,133 598
Prepaids ............................................................... 112 --
------ ----
Total current assets ............................................... 1,245 598
Property and equipment, net (Note 2) ................................... 234 175
------ ----
Total assets ....................................................... $1,479 $773
====== ====
LIABILITIES AND NET INVESTMENT OF PARENT
Accrued advertising expenses ........................................... $ 778 $488
Accrued royalties ...................................................... 294 160
Accrued workforce related costs (Note 5) ............................... 47 69
------ ----
Total current liabilities .......................................... 1,119 717
Net investment of Parent (Note 3) ...................................... 360 56
------ ----
Total liabilities and net investment of Parent ..................... $1,479 $773
====== ====
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
FOR THE
SIX MONTHS ENDED FOR THE
--------------------- YEAR ENDED
JUNE 18, JUNE 19, DECEMBER 31,
1999 1998 1998
--------------------- -------------
(UNAUDITED)
REVENUES:
Online Public Records (Informed) ... $ 2,742 $ 2,678 $ 5,507
KnowX .............................. 3,485 823 2,884
------- ------- --------
Total revenues ................ $ 6,227 $ 3,501 $ 8,391
------- ------- --------
EXPENSES (NOTE 4):
Cost of revenue:
Online Public Records (Informed) 1,665 1,472 3,034
KnowX .......................... 1,283 674 1,574
Selling and marketing .............. 2,098 1,075 2,574
General and administrative ......... 2,282 1,150 3,353
------- ------- --------
Total expenses ................. 7,328 4,371 10,535
------- ------- --------
Operating loss ..................... $(1,101) $ (870) $ (2,144)
Interest expense (Note 4) .......... 71 86 161
------- ------- --------
Loss before income taxes ........... (1,172) (956) (2,305)
Income taxes ....................... -- -- --
------- ------- --------
Net loss ....................... $(1,172) $ (956) $ (2,305)
======= ======= ========
See accompanying notes to financial statements.
3
<PAGE> 6
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
--------------------------- YEAR ENDED
JUNE 18, JUNE 19, DECEMBER 31,
1999 1998 1998
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss .................................................................. $(1,172) $ (956) $(2,305)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation expense .................................................. 87 71 147
Provision for doubtful accounts ....................................... 272 -- 95
Changes in working capital:
Increase in accounts receivable ....................................... (807) (257) (153)
Increase in prepaids .................................................. (112) -- --
Increase/(decrease) in accrued workforce related costs................. (22) 80 38
Increase in accrued royalties ......................................... 134 105 65
Increase/(decrease) in accrued advertising expense .................... 290 (5) 413
------ ---- ------
NET CASH USED BY OPERATING ACTIVITIES ............................. (1,330) (962) (1,700)
------ ---- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................................ (146) -- --
------ ---- ------
NET CASH USED BY INVESTING ACTIVITIES .............................. (146) -- --
------ ---- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions, net (Note 3) ....................................... 1,476 1,268 1,502
------ ---- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 1,476 1,268 1,502
------ ---- ------
Net change in cash ........................................................ -- 306 (198)
Cash - beginning of period ................................................ -- 198 198
------ ---- ------
CASH - END OF PERIOD ...................................................... $ -- $ 504 $ --
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Online Public Records Business (the Business) is a division of
Information America, Inc. (the Parent) which in turn is a wholly owned
subsidiary of the ultimate parent, The Thomson Corporation. Information
America, Inc. is currently negotiating the sale of the Business.
The Business offers its customers two core product lines: Online
Public Records, a comprehensive online search service that identifies
relationships between people, assets and businesses focused on corporate
customers accessible through the Informed interface; and KnowX, a service which
provides Internet delivery of public records to the small business and the
consumer market.
BASIS OF PRESENTATION
These financial statements present the financial position and results
of operations of Online Public Records and KnowX as they operated as units of
Information America, Inc., including adjustments necessary for a fair
presentation of the Business. All significant intercompany transactions and
balances have been eliminated. The financial statements presented may not be
indicative of the results that would have been achieved had the Business
operated as an unaffiliated entity. Refer to Note 4, Related Party
Transactions.
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of June 18, 1999, and for each
of the six-month periods ended June 18, 1999 and June 19, 1998, including
related information set forth in the notes to financial statements, is
unaudited. In the opinion of management, this financial information reflects
the adjustments necessary for a fair presentation of the financial information
for such periods. These adjustments consist of normal, recurring items. The
results of operations for the six-month period ended June 18, 1999 should not
necessarily be taken as indicative of the results of the operations that may be
expected for the entire year.
5
<PAGE> 8
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Business' financial instruments consist primarily of short-term
trade receivables and payables for which the current carrying amount
approximates fair market value.
REVENUE RECOGNITION
Online Public Records utilizes high speed search and retrieval
technology to provide its customers with access to public record information.
The service is available to customers through dial-up interfaces or through the
Internet using the Informed interface. Customers are charged on a monthly basis
for their usage of the service.
KnowX is an Internet-based public information service targeting
small-office/home office users and consumers. Reported instantaneously via its
Web interface, searches are conducted in real time and sold via credit card.
In both cases, revenue is recognized at the time of delivery of online
information.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. The costs of additions and improvements are capitalized while
maintenance and repairs are charged to expense when incurred. Depreciation is
provided using the straight-line method, principally over the estimated useful
lives of the related assets ranging from three to five years.
Management reviews the carrying value of property and equipment for
impairment whenever events or changes in circumstance indicate that it may not
be recoverable. When events or circumstances so indicate, the associated
long-term assets are assessed for recoverability in accordance with FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and adjusted accordingly.
6
<PAGE> 9
'
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
ADVERTISING COSTS
Advertising costs, primarily consisting of Internet banner
advertising, sales brochures and direct marketing are expensed as incurred or
the first time the advertising takes place. These costs, recorded with selling
and marketing expense, amounted to approximately $845 for the year ended
December 31, 1998.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially subject the Business to
concentrations of credit risk consist principally of trade accounts receivables;
however, this risk is limited by the large number of customers in the Business'
customer base. One corporate customer accounted for approximately $880 or 10.5%
of total revenues in 1998. There are no other individual customers which
represent more than 10% of revenue.
COMPREHENSIVE INCOME
The Business does not have any items that would be classified as other
comprehensive income.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consists of the
following:
Computer hardware and software ...... $ 413
Office furniture and equipment ...... 73
----
486
Less: Accumulated depreciation ..... (311)
----
Total Property and equipment, net $ 175
=====
NOTE 3. NET INVESTMENT OF PARENT
Net operating losses funded by the Parent are invested in the Business
and have been reflected as Net Investment of Parent in the Balance Sheet. Net
contributions from the Parent consist of both cash and non-cash amounts.
Changes in the net investment of parent (divisional equity) were as follows:
7
<PAGE> 10
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
Net investment of parent - December 31, 1997 ......... $ 859
Net loss ............................................. (2,305)
Net contributions from parent ........................ 1,502
------
Net investment of parent - December 31, 1998 ......... 56
------
Net loss (unaudited) ................................. (1,172)
Net contributions from parent (unaudited) ............ 1,476
------
Net investment of parent - June 18, 1999 (unaudited).. $ 360
=======
The Parent confirmed their present intention to provide sufficient
financial resources to the Business to enable it to meet its obligations as
they fall due and carry on its business without significant curtailment of
operations as long as it continues to be a wholly owned division of Information
America, Inc.
NOTE 4. RELATED PARTY TRANSACTIONS
Services provided to the Business by the Parent include expenses
incurred and paid by the Parent on the Business' behalf, charges for periodic
Parent services provided at rates which management considers to reflect the
incremental cost of providing these services and allocations of costs based on
relative activity levels. These cost allocations including corporate
management, data center costs, sales and marketing and other general and
administrative expenses are based on a variety of factors including sales
volume, and time and effort.
The Business uses a centralized approach to cash management and
financing of the operations. There is no specific debt related to the Business;
the Business' financing requirements are met by cash transactions with the
Parent and are reflected in the Net Investment of Parent on the balance sheet.
The Parent charges interest on its net investment in the Business based on
reasonable cost of capital. Total allocated interest charges for the year ended
December 31, 1998 approximated $161.
The Business is part of a consolidated group and as such has extensive
dealings with related entities. Management considers the intercompany charges,
including the allocation of common costs from the Parent, to be reasonable.
However, the terms of transactions were determined between related parties and
may, therefore, differ from terms which would have occurred between wholly
unrelated partes and may also differ from the costs which would have been
incurred had the Business operated as a completely autonomous entity.
8
<PAGE> 11
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
Costs related to functions performed by the Parent and certain other
costs which are attributable to the Business are included in the financial
statements of the Business as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
------------------------------ YEAR ENDED
JUNE 18, JUNE 19, DECEMBER 31,
1999 1998 1998
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
COST OF REVENUE:
Royalties .................................... $ 794 $ 732 $1,501
Database center and office facilities ........ 1,416 1,210 2,505
------ ------ ------
Total cost of revenue .................... $2,210 $1,942 $4,006
====== ====== ======
OPERATING EXPENSES:
Sales and marketing .......................... $ 582 $ 819 $1,562
Executive management, finance, human resources
and other administrative support services 793 536 1,178
------ ------ ------
Total operating expenses ................. $1,375 $1,355 $2,740
====== ====== ======
</TABLE>
Revenues from related parties for the year ended December 31, 1998
total approximately $168.
NOTE 5. WORKFORCE
The Business has no legal employees. Employees of Information America,
Inc. provide services to the Business. The associated salary, commission, and
bonus amounts incurred by these related parties are charged to the Business
based upon actual amounts incurred. The costs of any fringe benefits provided
to the workforce by their employer, including any related workforce taxes, are
charged to the Business based upon estimates of actual amounts incurred.
Workforce charges have been included in the allocated costs in Note 4 above.
9
<PAGE> 12
ONLINE PUBLIC RECORDS BUSINESS
(A DIVISION OF INFORMATION AMERICA, INC.)
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
NOTE 6. INCOME TAXES
The Business is part of a consolidated tax group with its Parent.
Under the intergroup tax sharing arrangements, taxes are generally allocated as
if the Business filed a separate tax return. No taxes have been provided on the
Business' results for the year ended December 31, 1998 due to the loss for the
year.
Additionally, any deferred tax asset which would arise if the Business
was a separate legal entity would be fully provided for as of December 31,
1998. This is based upon management's best estimate, based upon the weight of
available evidence as prescribed in FAS 109, of the amounts of deferred tax
assets which, more likely than not (a likelihood of slightly more than 50%)
will not be realized.
10
<PAGE> 13
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
ACQUISITION OF
DBT ONLINE PUBLIC
ACTUAL RECORDS BUSINESS(a) PRO FORMA
---------- ------------------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 25,002 $ (25,000) $ 2
Accounts receivable, less allowance 12,074 1,133 13,207
Short-term investments 24,651 24,651
Prepaid expenses and other current assets 2,562 2,562
Prepaid income taxes 494 494
--------- --------- ---------
Total current assets 64,783 (23,867) 40,916
Property and equipment, net 21,283 500 21,783
Patents, less accumulated amortization 8,983 8,983
Goodwill, less accumulated amortization 5,335 23,974 29,309
Other assets 240 240
--------- --------- ---------
Total assets $ 100,624 $ 607 $ 101,231
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 6,367 $ 47 $ 6,414
Due to other patent interest holders 1,781 1,781
--------- --------- ---------
Total current liabilities 8,148 47 8,195
Deferred income taxes 3,154 3,154
Shareholders' Equity:
Preferred stock, $0.10 par value; no shares issued or
outstanding Common stock, $0.10 par value; 19,003
shares issued and outstanding 1,900 1,900
Additional paid-in capital 71,515 560 72,075
Retained earnings 16,130 16,130
Accumulated other comprehensive loss (223) (223)
--------- --------- ---------
Total shareholders' equity 89,322 560 89,882
--------- --------- ---------
Total liabilities and shareholders' equity $ 100,624 $ 607 $ 101,231
========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements
11
<PAGE> 14
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share amounts)
Online Public
DBT Records Pro Forma
<TABLE>
<CAPTION>
ACTUAL ACTUAL(b) ADJUSTMENTS PRO FORMA
-------- -------- ----------- --------
<S> <C> <C> <C>
Revenues $ 54,103 $ 8,391 $ $ 62,494
Royalties 6,636 6,636
--------
Total 60,739 8,391 69,130
--------
Cost of revenues 26,152 4,608 100 (a) 29,018
(1,842)(c)
Sales and marketing 6,508 2,574 9,082
Research and development 3,078 3,078
General administrative 17,317 3,353 2,397 (a) 21,625
(1,442)(d)
-------- -------- ------- --------
Total expenses 53,055 10,535 (787) 62,803
-------- -------- ------- --------
Income (loss) from operations 7,684 (2,144) 787 6,327
Interest income (expense), net 2,330 (161) (1,000)(e) 1,169
-------- -------- ------- --------
Income (loss) before income taxes 10,014 (2,305) (213) 7,496
Provision (benefit) for income taxes 3,118 (516)(f) 2,602
-------- -------- ------- --------
Net income (loss) $ 6,896 $ (2,305) $ 303 $ 4,894
======== ======== ======= ========
Net income per share (basic) $ 0.36 $ 0.26
======== ========
Weighted-average shares outstanding
(basic) 18,900 18,900
======== ========
Net income per share (diluted) $ 0.35 $ 0.25
======== ========
Weighted-average shares outstanding
(diluted) 19,612 19,612
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements
12
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Online Public
DBT Records Pro Forma
Actual Actual(b) Adjustments Pro Forma
-------- ------- ------- -------
<S> <C> <C> <C>
Revenues.................................. $ 34,595 $6,227 $ $40,822
Royalties ................................ 3,149 3,149
-------- ------- ------- -------
Total.............................. 37,744 6,227 43,971
-------- ------- ------- -------
Cost of revenues ........................... 15,181 2,948 50 (a) 17,043
(1,136)(c)
Sales and marketing......................... 5,331 2,098 7,429
Research and development.................... 2,201 2,201
General administrative...................... 9,650 2,282 1,199 (a) 12,392
(739)(d)
Merger and acquisition costs................ 817 817
-------- ------- ------- -------
Total expenses................... 33,180 7,328 (626) 39,882
-------- ------- ------- -------
Income (loss) from operations............... 4,564 (1,101) 626 4,089
Interest income (expense), net.............. 903 (71) (500)(e) 332
-------- ------- ------- -------
Income (loss) before income taxes........... 5,467 (1,172) 126 4,421
Provision (benefit) for income taxes........ 1,862 (186)(f) 1,676
-------- ------- ------- -------
Net income (loss)........................... $ 3,605 $(1,172) $ 312 $ 2,745
======== ======= ======= =======
Net income per share (basic)................ $ 0.19 $ 0.14
======== =======
Weighted-average shares outstanding
(basic)..................................... 18,947 18,947
======== =======
Net income per share (diluted).............. $ 0.18 $ 0.14
======== =======
Weighted-average shares outstanding
(diluted) .................................. 19,972 19,972
======== =======
</TABLE>
See Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements
13
<PAGE> 16
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED
JUNE 30, 1999
(dollars in thousands)
(a) Represents the acquisition of KnowX.com and Informed
The purchase price is composed of the following:
Cash ........................ $25,000
DBT Online warrants.......... 560
-------
$25,560
=======
The acquisition agreement provided for the
payment of $25,000 in cash, as well as the
issuance of warrants to purchase 329,172
shares of our common stock at $52.50 per
share. The warrants expire on March 23,
2001. The estimated fair value of the
warrants of $560 has been derived using a
standard option pricing model.
The purchase price allocation and related
effects of such allocation on the unaudited
pro forma condensed consolidated statements
of operations are as follows:
<TABLE>
<CAPTION>
PRO FORMA
DEPRECIATION AND
AMORTIZATION
--------------------------------
SIX MONTHS
YEAR ENDED ENDED
ALLOCATION LIFE DECEMBER 31, 1998 JUNE 30, 1999
------------- -------- ----------------- -------------
<S> <C> <C> <C> <C>
Accounts receivable.................. $ 1,133 --
Property and equipment............... 500 5 years $ 100 $ 50
Accrued expenses..................... (47) --
Trademarks and goodwill.............. 23,974 10 years 2,397 1,199
-------- -------- -------
Total......................... $25,560 $ 2,497 $1,249
======= ======= ======
</TABLE>
(b) Represents the historical statements of operations of
KnowX.com and Informed for the year ended
December 31, 1998 and the six months ended June 30,
1999.
14
<PAGE> 17
(c) Cost of revenues reflected in the historical
statements of operations for KnowX.com and Informed
includes allocations of costs from its parent, a
significant portion of which will not have a
continuing impact on us subsequent to the
acquisition. Those costs which will have a continuing
impact on us are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Royalties................................ $1,956 $1,447
Payroll and related expenses............. 644 297
Telephone................................ 166 68
-------- ---------
$2,766 $1,812
======== =========
</TABLE>
The pro forma adjustments to cost of
revenues for the year ended December 31,
1998 and the six months ended June 30, 1999
of $1,842 and $1,136, respectively, reduce
the cost of revenues amounts of $4,608 and
$2,948, respectively, to the historical
amount detailed above which is expected to
have a continuing impact on us.
(d) Represents employee related
expenses and administrative and
management fee allocations which
are included in the historical
statements of operations of
KnowX.com and Informed which
will not have a continuing impact on
us subsequent to the acquisition. The
pro forma adjustments are derived as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Compensation..................................... $ 1,195 $ 580
Travel and other employee benefits............... 77 71
Administrative and management fees............... 170 88
-------- ---------
$ 1,442 $ 739
======== =========
</TABLE>
15
<PAGE> 18
(e) Represents the reduction in interest
income to reflect the pro forma effect
of reduced investment balances as a
consequence of using $25,000 of our
interest earning investments to
consummate the acquisition of
KnowX.com and Informed. The pro
forma adjustment is derived using
the average rate of return of
approximately 4.0% earned during
both the year ended December 31,
1998 and the six months ended June
30, 1999.
(f) Represents the tax benefit associated
with the KnowX.com and Informed
loss before income taxes, as adjusted
for the pro forma adjustments to the
unaudited pro forma condensed
consolidated statements of
operations. The pro forma benefit for
income taxes was derived using our
effective income tax rate of 34.0%.
The effect of pro forma adjustment
(e) was not included in deriving the
pro forma income tax adjustment
because the related interest income is
tax-exempt.
16
<PAGE> 19
(c) Exhibits.
4 Common Stock Purchase Warrant of DBT Online, Inc., dated
September 23, 1999
10 Asset Purchase Agreement, dated August 20, 1999, among West
Publishing Company, Information America, Inc. and DBT Online,
Inc.*
23 Consent of PricewaterhouseCoopers LLP relating to the
Financial Statements of the Online Public Records Business
99.1 Press Release: DBT Online Completes KnowX.com & Informed
Acquisition
99.2 Description of DBT's Business Following the Acquisition of the
KnowX.com and Informed Business Units
*Previously filed with a Current Report on Form 8-K dated August 20, 1999.
17
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
DBT ONLINE, INC.
(Registrant)
By /s/ Thomas J. Hoolihan
----------------------------------
Thomas J. Hoolihan
Vice President and General Counsel
Dated: October 8, 1999
18
<PAGE> 21
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
4 Common Stock Purchase Warrant of DBT Online, Inc.,
dated September 23, 1999
10 Asset Purchase Agreement, dated August 20, 1999,
among West Publishing Company, Information America,
Inc. and DBT Online, Inc.*
23 Consent of PricewaterhouseCoopers LLP relating
to the Financial Statements of the Online Public
Records Business
99.1 Press Release: DBT Online Completes KnowX.com &
Informed Acquisition
99.2 Description of DBT's Business Following the
Acquisition of the KnowX.com and Informed Business
Units
*Previously filed with a Current Report on Form 8-K dated August 20, 1999.
19
<PAGE> 1
Exhibit 4
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
OTHERWISE SET FORTH HEREIN, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN
FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
Dated: September 23, 1999
DBT ONLINE, INC.
COMMON STOCK PURCHASE WARRANT
DBT Online, Inc., a Pennsylvania corporation (the "Company") hereby
certifies that, for value received, West Publishing Company or its registered
assigns (the "Holder"), is entitled to purchase from the Company at any time or
from time to time during the period specified in Paragraph 2 hereof, Three
Hundred Twenty-Nine Thousand One Hundred Seventy-Two (329,172) fully paid and
nonassessable shares of the Company's Common Stock, par value $.10 per share
(the "Common Stock"), at an exercise price of $52.50 per share (the "Exercise
Price"). The term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder and any Common Stock issued with respect to
such Common Stock by way of stock dividend or other distribution or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; PAYMENT FOR SHARES; ISSUANCE OF CERTIFICATES.
Subject to the provisions hereof, this Warrant may be exercised by the
Holder hereof, in whole or in part, by the surrender of this Warrant,
together with a completed exercise agreement in the form attached
hereto (the "Exercise Agreement"), to the Company during normal
business hours on any business day at the Company's principal
executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder hereof), and upon payment to the
Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares
so purchased shall be deemed to be issued to the Holder hereof or such
Holder's designee, as the record owner of such shares, as of the close
of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been
delivered, and payment shall have been made for such shares as set
forth above. Certificates for the Warrant Shares so purchased,
<PAGE> 2
representing the aggregate number of shares specified in the Exercise
Agreement, shall be delivered to the Holder hereof within a reasonable
time, not exceeding two (2) business days, after this Warrant shall
have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the Holder hereof and shall be
registered in the name of such Holder or such other name as shall be
designated by such Holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates,
deliver to the Holder a new Warrant representing the number of shares
with respect to which this Warrant shall not then have been exercised.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time, during the period commencing on September 23, 1999 (the
"Issue Date"), and ending on 5:00 p.m., New York City time on March
23, 2001 (the "Exercise Period"). Upon the expiration of the Exercise
Period, this Warrant shall be of no further force and effect and all
rights of the Holder of this Warrant shall terminate immediately.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
A. VALID AND BINDING OBLIGATION. This Warrant has been duly
authorized by all necessary corporate action on the part of the
Company and constitutes a valid and binding obligation of the
Company.
B. SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
C. RESERVATION OF SHARES. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose
of issuance upon exercise of this Warrant, a sufficient number
of shares of Common Stock to provide for the exercise of this
Warrant.
D. LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant
upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance upon exercise of
this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of
this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of
capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated
quotation system.
2
<PAGE> 3
E. PAYMENT OF TAXES. The Company shall pay all documentary stamp
taxes, if any, attributable to the initial issuance of the
shares of Common Stock upon exercise of this Warrant, provided
that the Company shall not be required to pay any tax or taxes
which may be payable with respect to any secondary transfer of a
Warrant or the shares of Common Stock issued upon exercise of
any Warrant, and in such case the Company shall not be required
to issue or deliver any certificates for shares of Common Stock,
until the person requesting the same has paid to the Company the
amount of such tax or has established to the Company's
reasonable satisfaction that such tax has been paid or that no
such tax is due.
F. SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all of the Company's assets.
4. CERTAIN ADJUSTMENTS. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from
time to time as provided in this Paragraph 4.
A. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
any time (i) subdivides (by stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise)
the shares of Common Stock acquirable hereunder into a greater
number of shares, or (ii) combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise)
the shares of Common Stock acquirable hereunder into a smaller
number of shares, then, after the date of record for effecting
such subdivision or combination, the Exercise Price in effect
immediately prior to such subdivision or combination shall be
adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately before such event, and the denominator
of which is the number of shares of Common Stock outstanding
immediately after such event.
B. ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4,
the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted by multiplying a number equal to
the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment,
and dividing the product so obtained by the adjusted Exercise
Price.
C. RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. At any time
while this Warrant remains outstanding and unexpired, in case of
any reclassification or change of outstanding securities
issuable upon exercise of this Warrant (other than a change in
par value, or from par value to no par value, or from no par
value to par value) or in case of any consolidation or merger of
the Company with or into another corporation (other than a
merger with another corporation in which the Company is a
continuing corporation and which does not result in any
3
<PAGE> 4
reclassification or change, other than a change in par value, or
from par value to no par value, or from no par value to par
value), or in the case of any sale or transfer to another
corporation of all or substantially all of the assets of the
Company, lawful provision shall be made so that the Holder of
this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, in lieu of the shares of Common Stock
of the Company theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other
securities, money or assets as may be issued or payable with
respect to or in exchange for the number of shares of Common
Stock immediately theretofore acquirable upon exercise of this
Warrant had this Warrant been exercised immediately prior to
such reclassification, change, consolidation, merger, sale or
transfer. The provisions of this Paragraph 4(C) shall apply to
successive reclassification, changes, consolidations, mergers,
sales and transfers.
D. LIQUIDATING DISTRIBUTIONS. If the Company at any time while this
Warrant remains outstanding and unexpired makes a distribution
of its assets to the Holders of its Common Stock as a dividend
in liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such
Holders made in respect of the sale of all or substantially all
of the Company's assets (other than under the circumstances
otherwise provided for in this Paragraph 4), the Holder of this
Warrant shall be entitled to receive upon the exercise hereof,
in addition to the shares of Common Stock receivable upon such
exercise, an amount in cash equal to the value of such
distribution per share of Common Stock multiplied by the number
of shares of Common Stock which, on the record date for such
distribution, are issuable upon exercise of this Warrant (with
no further adjustment being made following any event which
causes a subsequent adjustment in the number of shares of Common
Stock issuable upon the exercise hereof), and an appropriate
provision therefor should be made a part of any such
distribution. The value of a distribution which is paid in other
than cash shall be determined in good faith by the Board of
Directors of the Company.
E. MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together
with any adjustments so carried forward, shall amount to not
less than 1% of such Exercise Price. In the event that any
adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to
the nearest cent.
4
<PAGE> 5
F. NO FRACTIONAL SHARES. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share
which would otherwise be issuable in an amount equal to the same
fraction of the Market Price of a share of Common Stock on the
date of such exercise.
G. NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock issuable upon exercise of this Warrant shall be adjusted
pursuant to Paragraph 4 hereof, the Company shall cause to be
promptly mailed to the Holder by first class mail, postage
prepaid, notice of such adjustment and a certificate of an
executive officer of the Company setting forth in reasonable
detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the
number of shares of Common Stock obtainable upon exercise of
this Warrant after giving effect to such adjustment. Such notice
shall be mailed (by first class and postage prepaid) to the
Holder.
H. CERTAIN EVENTS. If any event occurs of the type contemplated
by the adjustment provisions of this Paragraph 4 but not
expressly provided for by such provisions, the Company will give
notice of such event as provided in Paragraph 4(G) hereof, and
the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the
rights of the Holder shall be neither enhanced nor diminished by
such event.
I. CERTAIN DEFINITIONS.
(a) "Market Price," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on The New York Stock
Exchange ("NYSE") for the five (5) trading days immediately preceding such
date, or (ii) if the NYSE is not the principal trading market for the shares of
Common Stock, the average of the last reported sale prices on the principal
trading market for the Common Stock during the same period as reported by
Bloomberg Financial Markets or an equivalent reliable reporting service
mutually acceptable to and hereafter designated by the Holder of this Warrant
and the Company, or (iii) if market value cannot be calculated as of such date
on any of the foregoing bases, the Market Price shall be the fair market value
as reasonably determined in good faith by (a) the Board of Directors of the
Company or, at the option of the Company, by (b) an independent investment bank
of nationally recognized standing in the valuation of businesses similar to the
business of the Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
5
<PAGE> 6
(b) "Common Stock," for purposes of this Paragraph 4, includes
the Common Stock, par value $.10 per share, and any additional class of stock
of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant
shall include only shares of Common Stock, par value $.10 per share, in respect
of which this Warrant is exercisable, or shares resulting from any subdivision
or combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to
in Paragraph 4(C) hereof, the stock or other securities or property provided
for in such Paragraph.
5. NO RIGHTS AS A SHAREHOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the
Company, either at law or equity, and the rights of the Holder
are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth
herein.
6. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
A. RESTRICTION ON TRANSFER. This Warrant and the rights granted
to the Holder hereof are transferable only to a subsidiary
or corporate affiliate of Holder, in whole or in part, upon
surrender of this Warrant, together with a properly executed
assignment in the form attached hereto, at the office or
agency of the Company referred to in Paragraph 8 below,
provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Paragraph 6(f)
hereof. Until due presentment for registration of transfer
on the books of the Company, the Company may treat the
registered Holder hereof as the owner and Holder hereof for
all purposes, and the Company shall not be affected by any
notice to the contrary.
B. WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the
Holder hereof at the office or agency of the Company
referred to in Paragraph 8 below, for new Warrants of like
tenor representing in the aggregate the right to purchase
the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right
to purchase such number of shares as shall be designated by
the Holder hereof at the time of such surrender.
C. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such
loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the
Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at
its expense, will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
D. CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange or
replacement as provided in this Paragraph 6, this Warrant
shall be promptly canceled by the Company. The Company shall
pay all taxes (other than securities transfer taxes) and all
other expenses (other than legal expenses, if any, incurred
by the Holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of
Warrants pursuant to this Paragraph 6.
6
<PAGE> 7
E. REGISTER. The Company shall maintain, at its principal
executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder hereof),
a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of
each transferee and each prior owner of this Warrant.
F. EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Warrant in connection with any
exercise, transfer, or exchange of this Warrant, this
Warrant (or, in the case of any exercise, the Warrant Shares
issuable hereunder), shall not be registered under the
Securities Act of 1933, as amended (the "Securities Act")
and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such
exercise, transfer, or exchange, that the Holder or
transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and
counsel are acceptable to the Company, to the effect that
such exercise, transfer, or exchange may be made without
registration under said Act and under applicable state
securities or blue sky laws.
G. LEGEND. Each certificate for shares obtained upon exercise
of this Warrant which have not been registered under the
Securities Act, shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"). Such
securities have been acquired for investment and may not be sold or transferred
in the absence of an effective registration statement for such securities under
the 1933 Act, unless, in the opinion of counsel satisfactory to the Company,
such registration is not required."
In addition, the certificate shall bear such additional
legend with respect to state securities or blue sky laws as reasonably
determined by counsel to the Company.
7. REGISTRATION RIGHTS.
A. REGISTRATION. The Company shall within 90 calendar days of
the Issue Date, file a registration statement under the
Securities Act covering the Warrant Shares, and use its best
efforts to cause, as soon as practicable thereafter, such
registration statement to become effective under the
Securities Act, and to at all times remain effective
throughout the period ending on the earlier of (i) the first
date on which the Holder disposes of all of the Warrant
Shares (except for a transfer to an affiliate of Holder),
(ii) the expiration of the Exercise Period if no Warrant
Shares shall then be outstanding or (iii) 180 days following
the expiration of the Exercise Period.
7
<PAGE> 8
The Company shall also use its reasonable efforts to effect
promptly all such other registration, qualification and
compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualification under the applicable Blue Sky, or other state
securities laws, and appropriate compliance with exemptive
regulations issued under the Securities Act as may be so
requested by a Holder of Registrable Securities covered by a
registration statement filed pursuant to this Paragraph 7(A) and
as would permit or facilitate the sale and distribution of all or
any portion of such Registrable Securities.
As used herein, the term "Registrable Securities" means all
Warrant Shares or any portion thereof. Registrable Securities
will cease to be such when (i) a registration statement covering
such Registrable Securities has become or been declared or
ordered effective and they have been disposed of pursuant to such
effective Registration Statement, (ii) they are sold, transferred
or distributed pursuant to and in compliance with Rule 144 (or
any similar provision then in force, but not including Rule 144A)
under the Securities Act, (iii) they have been otherwise
transferred and the Company has delivered new certificates or
other evidences of ownership for them not subject to any stop
transfer order or other restriction on transfer and not bearing a
legend restricting transfer in the absence of an effective
registration or an exemption from the registration requirements
of the Securities Act or (iv) a registration statement meeting
the requirements of Section 7(A) hereof is subsequently
terminated.
B. RIGHT TO REVIEW THE REGISTRATION STATEMENT. In connection with
the preparation and prior to the filing of each registration
statement under the Securities Act pursuant to Paragraph 7(A),
the Company will give the Holders of Registrable Securities
registered under such registration statement the right to review
and comment upon such registration statement and to request the
insertion therein of material furnished to the Company in
writing which in the reasonable judgment of such Holder of
Registrable Securities should be included; provided, however,
that such information shall not be required to be included if in
the reasonable opinion of counsel of the Company, the inclusion
of such material furnished by such Holder would be misleading or
otherwise in violation of the Securities Act or the rules and
regulations promulgated thereunder. Furthermore, a Requesting
Holder has the right to require the deletion of any reference to
such Holder by name or otherwise if such reference is not
required by the Securities Act or the rules and regulations
promulgated thereunder.
C. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to
this Paragraph 7, the Company shall:
(a) notify each Holder of Registrable Securities as to the
filing of the Registration Statement and of all amendments
or supplements thereto filed prior to the effective date of
said Registration Statement;
8
<PAGE> 9
(b) notify each Holder of Registrable Securities, promptly after
it shall receive notice thereof, of the time when said
Registration Statement becomes effective or when any
amendment or supplement to any prospectus forming a part of
said Registration Statement has been filed;
(c) notify each Holder of Registrable Securities promptly of any
request by the Commission for the amending or supplementing
of such Registration Statement or prospectus or for
additional information;
(d) prepare and promptly file with the Commission and promptly
notify each Holder of Registrable Securities of the filing
of any amendments or supplements to such Registration
Statement or prospectus as may be necessary to correct any
statements or omissions if, at any time when a prospectus
relating to the Registrable Securities is required to be
delivered under the Securities Act, any event with respect
to the Company shall have occurred as a result of which any
such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements made, in the light of the circumstances under
which they were made, not misleading; and, in addition,
prepare and file with the Commission, promptly upon the
written request of any Holder of Registrable Securities, any
amendments or supplements to such Registration Statement or
prospectus which may be reasonably necessary or advisable in
connection with the distribution of the Registrable
Securities;
(e) advise each Holder of Registrable Securities promptly after
the Company shall receive notice or obtain knowledge of the
issuance of any stop order by the Commission suspending the
effectiveness of any such Registration Statement or
amendment thereto or of the initiation or threatening of any
proceeding for that purpose, and promptly use its best
efforts to prevent the issuance of any stop order or obtain
its withdrawal promptly if such stop order should be issued;
(f) use its reasonable efforts to qualify as soon as reasonably
practicable the Registrable Securities included in the
Registration Statement for sale under the securities or
blue-sky laws of such states and jurisdictions within the
United States as shall be reasonably requested by any Holder
of Registrable Securities; provided that the Company shall
not be required in connection therewith or as a condition
thereto to qualify to do business, to become subject to
taxation or to file a consent to service of process
generally in any of the aforesaid states or jurisdictions;
and
9
<PAGE> 10
(g) furnish each Holder of Registrable Securities, as soon as
available, copies of any Registration Statement and each
preliminary or final prospectus, or supplement or amendment
required to be prepared pursuant hereto, all in such
quantities as any Holder of Registrable Securities may from
time to time reasonably request.
Each Holder of Registrable Securities agrees by acquisition
of such Registrable Securities that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in subparagraph
(d) above, such Holder will forthwith discontinue such Holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subparagraph (d) above and,
if so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice. In the event the Company shall give any
such notice, the period mentioned in the first paragraph of this Paragraph 7(A)
shall be extended by the length of the period from and including the date when
each seller of any Registrable Securities covered by such registration
statement shall have received such notice to the date on which each such seller
has received the copies of the supplemented or amended prospectus contemplated
by subparagraph (d) above.
D. INDEMNITY. (a) In connection with a Registration Statement filed
with the Commission pursuant to this Paragraph 7, the Company
will indemnify and hold harmless any seller of Registrable
Securities and each person, if any, who controls any Holder of
Registrable Securities within the meaning of the Securities Act
and any underwriter who participates in the distribution of
Registrable Securities and each person, if any, who controls any
such Holder against any loss, claim, damage or liability, joint
or several, to which such Holder or such controlling person may
become subject, under the Securities Act or otherwise, insofar
as such loss, claim, damage or liability (or action in respect
thereof) arises out of or is based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (including any preliminary prospectus and
the prospectus as a part thereof (the "Prospectus") or any
amendment or supplement thereof, or (ii) the omission or alleged
omission to state in any Registration Statement (including any
preliminary prospectus and the Prospectus as a part thereof) or
any amendment or supplement thereof a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading; and will reimburse each Holder of Registrable
Securities and each such controlling person for any legal or
other expenses reasonably incurred by such Holder of Registrable
Securities or such controlling person in connection with
investigating or defending against or appearing as a third party
witness in connection with any such loss, claim, damage,
liability or action; PROVIDED that the Company will not be
liable to any Holder of Registrable Securities in any such case
to the extent, but only 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 or omission or
10
<PAGE> 11
alleged omission made in reliance upon and in conformity with
written information furnished to the Company by such Holder of
Registrable Securities specifically stating that it is for use
in the preparation of any Registration Statement or any such
amendment or supplement thereof or any such preliminary
prospectus or the Prospectus or any such amendment thereof or
supplement thereto. This indemnity agreement is in addition to
any liability which the Company may otherwise have.
(b) Each Holder of Registrable Securities included in the
securities covered by the Registration Statement severally,
but not jointly, will indemnify and hold harmless the
Company, each of the Company's directors, each of the
Company's officers, and each person, if any, who controls
the Company within the meaning of the Securities Act, as
well as any underwriter who participates in the distribution
of securities covered by such Registration Statement against
any loss, claim, damage or liability to which the Company,
or any such director or officer or controlling person or any
underwriter may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability
(or action in respect thereof) arises out of or is based
upon (i) any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement
(including any preliminary prospectus and the Prospectus as
a part thereof) or any amendment or supplement thereof, or
(ii) the omission or alleged omission to state in the
Registration Statement (including any preliminary prospectus
and the Prospectus as a part thereof) or any amendment or
supplement thereto a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, but only to the extent 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 or on behalf
of such Holder of Registrable Securities specifically
stating that it is for use in the preparation of the
Registration Statement or any such amendment or supplement
thereof or any such preliminary prospectus or the Prospectus
or any such amendment thereof or supplement thereto; and
will reimburse any legal or other expenses reasonably
incurred by the Company or any such director or officer or
controlling person in connection with investigating or
defending against any such loss, claim, damage, liability or
action. No Holder of Registrable Securities shall be
required by this subparagraph (b) to pay an amount in excess
of the amount of proceeds received by such Holder upon the
sale of Registrable Securities included in such Registration
Statement. This indemnity agreement is in addition to any
liability which such Holder of Registrable Securities may
otherwise have.
11
<PAGE> 12
(c) Promptly after receipt by an indemnified party under this
Paragraph 7(D) of notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this
Paragraph 7(D), notify in writing the indemnifying party of
the commencement thereof within a reasonable time
thereafter, PROVIDED that the failure so to notify the
indemnifying party shall not relieve the indemnifying party
from any liability which it may have under this Paragraph
7(D), except to the extent it has been prejudiced by such
failure, or from any liability which it may have to an
indemnified party otherwise than under this Paragraph 7(D).
In case any such action, suit or proceeding 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 who shall be reasonably satisfactory
to such indemnified 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
Paragraph 7(D) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of
investigation.
E. EXPENSES. The Company shall bear all registration expenses in
connection with a registration of Registrable Securities
pursuant to this Paragraph 7.
8. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the Holder of this
Warrant shall be in writing, and shall be personally delivered, or
shall be sent by certified or registered mail or by recognized
overnight mail courier, postage prepaid and addressed, to such Holder
at the address shown for such Holder on the books of the Company, or
at such other address as shall have been furnished to the Company by
notice from such Holder. All notices, requests, and other
communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally
delivered, or shall be sent by certified or registered mail or by
recognized overnight mail courier, postage prepaid and addressed, to
the office of the Company at 4530 Blue Lake Road, Boca Raton, Florida
33431, Attention: Chief Executive Officer, or at such other address as
shall have been furnished to the Holder of this Warrant by notice from
the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by
a writing personally delivered or sent by certified or registered mail
or by recognized overnight mail courier as provided above. All
notices, requests, and other communications shall be deemed to have
been given either at the time of the receipt thereof by the person
entitled to receive such notice at the address of such person for
purposes of this Paragraph 8, or, if mailed by registered or certified
mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage
is prepaid and the mailing is properly addressed, as the case may be.
12
<PAGE> 13
9. GOVERNING LAW. This Warrant and all rights and obligations hereunder
shall be deemed to be made under and governed by the laws of the State
of Florida without giving effect to conflicts of laws principles. The
Holder hereby irrevocably consents to the venue and jurisdiction of
the State and Federal Courts located in the State of Florida, County
of Palm Beach.
10. NOTICE OF CERTAIN EVENTS. Until the date on which the Warrant shall
have been exercised, in the event that Company at any time (i)
receives an offer regarding the purchase by a third party of all or
substantially all of the knowx.com business (the "Knowx Business"), or
(ii) considers the sale to a third party or to the public of all or
substantially all of the Knowx Business, whether by merger, purchase
of assets, tender offer, purchase of shares, material licensing
transaction or otherwise (a "Transaction"), then prior to the earliest
of acceptance by the Company or its shareholders of any such
Transaction or any action by Company's Board of Directors approving or
recommending such Transaction, the Company will promptly inform the
Holder of the existence of the Transaction, the material terms of the
Transaction including price, form of consideration and terms and
conditions to the Transaction. The Holder acknowledges that any such
disclosures shall be subject to such obligations of confidentiality as
the Company may reasonably impose in connection therewith, and that
such disclosure may further subject Holder to obligations arising
under applicable securities law with respect to the disclosure of
non-public information.
11. LOCK-UP AGREEMENT. Upon execution of this Agreement, Holder shall
execute a lock-up agreement substantially in the form of Exhibit A
hereto.
12. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default by the Company in
the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate, and that the same may be
specifically enforced.
13. MISCELLANEOUS.
A. AMENDMENTS. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and
the Holder hereof.
B. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction
of any of the provisions hereof.
C. SEVERABILITY. If any provision of this Warrant is held to be
unenforceable under applicable law, such provision shall be
excluded from this Warrant and the balance hereof shall be
interpreted as if such provision were so excluded.
13
<PAGE> 14
14. SURVIVAL. All covenants and agreements of the Company that relate to
the Warrant Shares or the Registrable Securities and all rights and
duties of the Holders from time to time of the Warrant Shares or the
Registrable Securities in this Warrant shall be deemed to survive any
surrender hereof to the Company upon exercise hereof as contemplated
by Paragraph 1.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
DBT ONLINE, INC.
By: /s/ Thomas J. Hoolihan
---------------------------------------
Name: Thomas J. Hoolihan
Title: Vice President
Dated as of September 23, 1999
15
<PAGE> 16
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 199_
To: DBT Online, Inc.
The undersigned, pursuant to the provisions set forth in the within Warrant,
hereby agrees to purchase ________ shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $_________. Please issue a certificate or certificates for such
shares of Common Stock in the name of and pay any cash for any fractional share
to:
Name:
Signature:
Address:
Note: The above signature should correspond exactly with the name on the face
of the within Warrant and, if said number of shares of Common Stock shall not
be all the shares purchasable under the within Warrant, a new Warrant is to be
issued in the name of said undersigned covering the balance of the shares
purchasable thereunder less any fraction of a share paid in cash.
16
<PAGE> 17
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution
in the premises.
Dated: ________ __, 199_
In the presence of:
- -------------------------
Name: _____________________________
Signature:
Title:
Address:
Note: The above signature should correspond exactly with the name on the face
of the within Warrant.
17
<PAGE> 18
EXHIBIT A
September 23, 1999
DBT Online, Inc.
4530 Blue Lake Drive
Boca Raton, FL 33431
Credit Suisse First Boston Corporation
as Representative of the several Underwriters
11 Madison Avenue
New York, NY 10010
Dear Sirs:
As an inducement to the Underwriters to execute the Underwriting
Agreement, pursuant to which an offering will be made of the common stock, par
value $0.10 per share (the "Securities") of DBT Online, Inc. (the "Company"),
the undersigned hereby agrees that, for a period of 100 days after the public
offering (the "Commencement Date") of the Securities pursuant to the
Underwriting Agreement, the undersigned will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of
Securities or securities convertible into or exchangeable or exercisable for
any shares of Securities, or publicly disclose the intention to make any such
offer, sale, pledge or disposal, without the prior written consent of Credit
Suisse First Boston Corporation.
In furtherance of the foregoing, the Company and its transfer agent
and registrar are hereby authorized to decline to make any transfer of shares
of Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall be binding on the undersigned and the respective
successors and assigns of the undersigned. This Agreement shall lapse and
become null and void if the Commencement Date shall not have occurred on or
before November 1, 1999.
Very truly yours,
------------------------
West Publishing Company
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
DBT Online, Inc.
We hereby consent to the incorporation by reference in the Registration
Statements of DBT Online, Inc. on Form S-8 (Registration Nos. 333-11235 and
333-41313) of our report dated August 9, 1999 relating to the financial
statements of the Online Public Records Business (a division of Information
America, Inc. including the KnowX.com and Informed product lines) which appears
in this Form 8-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
October 8, 1999
<PAGE> 1
EXHIBIT 99.1
FOR FURTHER INFORMATION CONTACT:
--------------------------------
Timothy M. Leonard
Vice President and Chief Financial Officer
DBT Online, Inc.
(800) 982-5000
FOR IMMEDIATE RELEASE
DBT ONLINE COMPLETES KNOWX.COM & INFORMED ACQUISITION
BOCA RATON, FL, September 24, 1999 - DBT Online, Inc. (NYSE: DBT)
announced it has closed on the acquisition of the online public records business
of Information America of Atlanta, Ga. from The Thomson Corporation. The
acquisition includes KnowX.com (www.knowx.com), a leading Internet based public
record research tool for consumer and small office users, and Informed which
offers qualified users, including commercial lending and leasing companies,
access to public information through the Internet or dial-up modems.
DBT acquired KnowX.com and Informed as part of its strategy to expand
and diversify its customer base and enable the Company to further market its
existing products to the rapidly growing population of Internet users. The
acquisition price was $25 million in cash plus 329,172 DBT warrants with a
strike price of $52.50 and a duration of 18 months. Credit Suisse First Boston
Corporation acted as financial advisor to DBT with respect to the acquisition.
ABOUT DBT ONLINE, INC.
DBT Online, Inc. (www.dbtonline.com) is one of the country's largest
depositories of public records and other information, containing more than 4
billion records and more than 25 terabytes of data storage capacity. DBT's
customers use its online information services to detect fraudulent activity,
assist law enforcement efforts, locate people and assets, and verify information
and identities, as well as many other purposes. DBT currently has more than
14,000 customers, consisting primarily of insurance companies, law firms,
private investigators, and law enforcement and government agencies.
CONTACT: Kimberly Ferro at 212-889-1727 x106 or Susan Romeo at 212-889-1727x114
for DBT Online, Inc.
FORWARD-LOOKING STATEMENTS: Information contained above with respect to the
Company's Results of Operations, regarding expected future events and financial
results, is forward-looking and subject to risks and uncertainties. Those
statements are forward-looking statements within the meaning of Section 31E of
the Securities Exchange Act of 1934. The following important factors could
affect the future results of the Company and could cause those results to differ
materially from those expressed in the
<PAGE> 2
forward-looking statements: (i) the ability to manage DBT's rapid expansion,
(ii) protecting DBT's proprietary technology, (iii) impact of future government
regulation on the availability of public records, and (iv) the extent, timing
and success of competition from other database providers.
<PAGE> 1
EXHIBIT 99.2
BUSINESS
We are a leading nationwide provider of organized online public records
data and other information. We believe that our database is one of the country's
largest depositories of public records and other public information, containing
more than 4 billion records with more than 25 terabytes of data storage
capacity. Our customers are able to access and search our database 24 hours a
day, 365 days a year through our Internet websites or over a modem connection.
Our files store various kinds of information on individuals, businesses and
assets, including:
INFORMATION ON INDIVIDUALS
INFORMATION ON BUSINESSES AND ASSETS
o first and last names o corporation records
o current and past addresses o real property records
o known associates and relatives o motor vehicles records
o professional licenses o liens, judgments and bankruptcies
o UCC filings
o other assets
Our proprietary software tools allow our customers to quickly and
cost-effectively search our large database for information. Starting with very
little information, such as a name or address, our customers can locate and
build an extensive profile which we are able to generate into comprehensive,
easy-to-read reports.
We currently have more than 14,000 customers, consisting primarily of
insurance companies, law firms, private investigators, law enforcement and
government agencies. Our customers use our online information services to detect
fraudulent activity, assist law enforcement efforts, locate people and assets
and verify information and identities. From 1996 to 1998, our revenues increased
from $25.0 million to $60.7 million, representing a compound annual growth rate
of 55.8%, and our EBITDA increased from $3.9 million to $15.7 million,
representing a compound annual growth rate of 100.6%. Since 1996, we have
successfully introduced new services and technologies to our customers and have
completed several complementary acquisitions.
In September 1999, we acquired KnowX.com and Informed from Information
America, Inc. KnowX.com is a leading Internet-based public record research tool
for consumers and small office users. Informed offers qualified users, including
commercial lending and leasing companies, access to public information through
the Internet or dial-up modems. We believe our acquisition of KnowX.com and
Informed will expand and diversify our customer base and allow us to further
market our products to the rapidly growing population of Internet users.
In July 1999, we signed a multi-year agreement to supply US SEARCH with
public records and other information on a non-exclusive basis. US SEARCH will
use this information to deliver its products
<PAGE> 2
and services to consumers and businesses. The agreement requires US SEARCH to
purchase a minimum of $20 million of information from us over the next five and
one half years.
MARKET OVERVIEW
The market for public information includes both public records and
publicly available information. Public records primarily include information
from governmental entities or agencies, such as names and addresses of
individuals and corporations, driving records, court records, bankruptcy
filings, lien filings and real property records. Publicly available information
includes data such as professional licenses and residence directories. As the
sources of this information are often geographically dispersed and the
information is available in many different forms, locating and aggregating this
information is a timeconsuming, costly and challenging task. Moreover, verifying
the data and organizing it into a useful format presents additional difficulty.
We believe that, given the fragmented nature of public records and other
publicly available information, the ability to effectively aggregate the data
and generate easy to read reports in a timely manner represents a high
value-added service.
Historically, the primary users of public records have been law
enforcement and other governmental agencies, law firms, insurance companies and
licensed investigation companies. These entities use public records to assist
them to investigate fraudulent and criminal activity, locate individuals and
research businesses and assets. As an example of the significant amount of fraud
that occurs each year, according to a 1996 survey by The Conning Company, more
than $120 billion is lost through insurance fraud each year in the United
States, including $20 billion in property, casualty and life insurance fraud and
$95 billion in healthcare insurance fraud. We believe that businesses will
expand their efforts to combat fraud, increasing the demand for public
information services in these markets and continuing to represent a significant
growth opportunity.
In recent years, additional types of customers, including small
businesses, consumers and larger corporate customers, have been using online
public records in the ordinary course of their business to verify personal
information and to search for information related to individuals or businesses.
We believe these new market opportunities will create additional demand for
online public information search and retrieval services.
We also believe that providers of online information services are well
positioned to participate in the significant growth associated with Internet
commerce. The growth of the Internet as a global medium for communication and
information exchange is expected to continue to increase demand for content and
services that are accessed and delivered through web-based media. According to
International Data Corporation, the number of Internet users worldwide is
expected to grow from 159 million at the end of 1998 to an estimated 510 million
in 2003. International Data Corporation also estimates that the total value of
goods and services purchased over the Internet worldwide will grow from
approximately $50.4 billion in 1998 to approximately $1.3 trillion by the end of
2003. This growth is due in part to a user's ability to efficiently and rapidly
search the Internet to access and manipulate information from a wide variety of
sources. Through electronic commerce, these information services can be accessed
and delivered online in a quick, easy, and inexpensive manner. We believe that
the growth in web-based activity combined with
<PAGE> 3
the increasing demand for public records from both new and existing markets will
support significant growth for comprehensive and organized on-line methods for
accessing public information.
STRATEGY
Our business objective is to be the leading provider of organized
online public information to the corporate, consumer and governmental markets,
while enhancing proprietary customer data with public information in our
database. To achieve this objective, we intend to continue to develop long-term
customer relationships and maintain a high level of customer satisfaction, which
we believe will result in additional recurring revenues from our existing
products and an enhanced ability to introduce new products. Key elements of our
strategy are to:
DEVELOP NEW PRODUCTS AND APPLICATIONS UTILIZING OUR LARGE INFORMATION
DATABASE
We believe that we maintain one of the largest databases of public
information in the United States, which is enhanced by proprietary technology
that makes data retrieval fast and efficient. Our existing database of public
records and information, which we continually update and expand, presents
opportunities to develop new products and services at a relatively low
incremental cost. We will seek to capitalize on our relatively fixed investment
in our existing database by continuing to develop new applications that use this
data to tailor services to the needs of particular customers. For example, the
Los Angeles County Sheriffs Department asked us to develop a tool for finding
up-to-date addresses of individuals who were the subject of arrest warrants. In
response, we developed the CLAWS(sm) system, which performs daily searches of
our large databases. We are currently marketing the CLAWS system to our other
law enforcement customers. Similarly, we recently completed a large project
designed to detect voter fraud for the state of Florida and are currently
marketing this service to other states. We will pursue similar additional
opportunities to fully utilize our existing database. In addition to developing
new applications, we believe that we can supply public records and information
on a wholesale basis to Internet-based businesses. For example, we recently
entered into an agreement to supply a minimum of $20 million of data to US
SEARCH over the term of the five and one half year agreement. We intend to
pursue other wholesale data supply arrangements that represent additional uses
for our data.
EXPAND OUR CUSTOMER BASE BY ENTERING NEW MARKETS
We believe our existing product portfolio, including those products
obtained through recent acquisitions, will allow us to aggressively pursue new
market opportunities. We have specifically identified and intend to pursue
growth opportunities within the consumer, lending/leasing and pre-employment
screening markets. We believe that our acquisition of KnowXcom gives us a
significant presence in the large and rapidly growing consumer and small office
markets. KnowXcont provides these customers with a low cost method of
researching important purchases, such as checking the history and ownership of a
home, before making a purchase decision. We are also currently introducing
online screening and selection services to these markets which will allow
customers to instantly verify the identity of individuals with whom they are
conducting business on the Internet. Our acquisition of Informed provides us
with an established relationship with commercial lending and leasing companies.
Lastly, through our acquisition
<PAGE> 4
of Insight, we intend to vigorously pursue customers in the pre-employment
screening market, providing both detailed verification and screening and
selection services. We will continue to seek additional opportunities to deliver
our existing product offerings to new markets.
DEVELOP MORE EFFICIENT DELIVERY METHODS TO FURTHER PENETRATE EXISTING
MARKETS
We continually seek to enhance our relationships with existing
customers by developing more efficient methods for the delivery and presentation
of our products. We recently introduced AutoTrackXP, a Windows compatible
product with an HTML-based interface. AutoTrackXP allows customers to access our
products using off-the-shelf web browser technology commonly found on today's
personal computers. We believe that the improved efficiency and ease of access
to our products afforded by AutoTrackXP will significantly expand the number of
customers using our products in industries we presently serve. In addition to
utilizing our browser technology, we expect to utilize our recently acquired
CaseLINK technology to enhance the presentation of our reports. CaseLINK
converts our data into graphic illustrations that helps users visualize
relationships among people, businesses, vehicles and other assets, creating
user-friendly reports that we believe will contribute to increased use of our
products. We intend to continue to focus on improving the delivery and
presentation of our products, which we believe will increase usage of our
services by our customers.
DEVELOP DECISIONING TOOLS TO HELP CUSTOMERS EVALUATE DATA
We are currently working to develop technologies that qualitatively and
quantitatively evaluate the records and information retrieved by our customers,
particularly in the insurance and health care industries. We believe that these
tools will assist customers in predicting patterns of behavior, which will allow
them to more effectively prevent fraudulent activity. We expect to use this
technology to link our products with customers' specific claims files or
databases to develop decision-making templates to identify potential fraudulent
claims before any payments are made with respect to those claims. We believe
these product development efforts will allow us to provide customized,
comprehensive solutions to our customers, complementing our current product
offerings and significantly increasing the value-added nature of our products.
PURSUE STRATEGIC ACQUISITIONS OF COMPLEMENTARY BUSINESSES
We continuously monitor and consider opportunities to expand our
customer base and acquire new products and technologies through acquisitions of
complementary businesses or assets. We recently completed an acquisition of
WinSHAPES, through which we obtained the CaseLINK technology, and a merger with
IRSC, which provided us with preemployment screening capabilities. We also
recently acquired KnowX.com and Informed, which we believe will enable us to
establish a significant presence in the consumer, small office and commercial
lending and leasing markets. We intend to continue to pursue additional
strategic acquisitions that enhance our products and technologies and expand our
customer base.
<PAGE> 5
DATABASES AND OPERATIONS
DATABASES
With 25 terabytes of data storage capacity and over 4 billion records,
our databases contain public records, publicly available information and other
non-public information gathered from governmental and private data sources. The
information stored in our files includes first and last names, current and past
addresses, known associates and relatives, telephone numbers, professional
licenses, corporation records, liens, judgments, bankruptcies, UCC filings and
records for real estate, motor vehicles, and other assets. While each file or
source may contain information that is geographically or topically unique, we
have created proprietary software that links the files to each other. Our
proprietary software tools allow customers to perform searches starting with
very little information, and by cross-referencing our databases, generate an
extensive profile built into one comprehensive, easy-to-read report. Customers
conduct searches through all files, or through topical or geographical files, to
retrieve possible matches to the subject of the search. For example, in order to
perform a nationwide search for an individual who has a driver's license, our
databases would search each state's driver's license file, matching similar
names in a matter of seconds. Our software then is able to combine the retrieved
information into an extensive profile on the subject of the search by
cross-referencing data received from the initial search with other records
regarding the same individual in our databases.
Customers can customize their search results in any number of ways.
Some of our customers provide us with their own proprietary data for the
retrieval of cross-referenced or similar data in our databases. Our software is
able to build a profile with information tailored to the customer's request.
Using our software, our databases will retrieve persons or assets associated
with the subject of the search, such as persons living at the same address, and
add associated information to a profile. Our software also has the ability to
sort through a comprehensive profile and generate a report which identifies, in
graphics or in writing, the relationships between people, assets or other
information which appears in a report. We have bundled many of our software
tools into specific products to facilitate frequently run searches. The
following represent our larger, more frequently accessed files, which we also
intend to use in conjunction with products we may acquire in the future.
o RECORDS ON INDIVIDUALS. We maintain information on millions of
individuals throughout the United States, including current
and previous addresses, neighbors, dates of birth, and other
information.
o RECORDS ON CORPORATIONS. We maintain information on active and
inactive businesses, based on Secretary of State filings in 43
states, including officers, directors, registered agents,
corporate status and federal employment identification
numbers.
o PROPERTY RECORDS. Our property records include information on
real property in 42 states and the U.S. Virgin Islands, such
as mailing address, parcel number, assessed values, recent and
prior sales prices and property narratives.
<PAGE> 6
o VEHICLE RECORDS. Our vehicle records include information on
vehicle registrations in 32 states, including the owner's name
and address, description, title information, vehicle
identification number, lienholder information, and historical
data.
o RECORDS ON DRIVERS. We maintain information on drivers'
licenses issued in 23 states, including drivers' license
numbers, addresses, dates of birth and zip codes.
o RECORDS ON LIENS, JUDGMENTS AND BANKRUPTCIES. We maintain
information on business and consumer bankruptcies in all 50
states and we maintain files on federal and state tax liens
and civil judgments in 31 states.
o UCC FILINGS. We maintain UCC lien filing information for 44
states, including debtor, secured party, address, state,
assignee, collateral and filing number.
o PROFESSIONAL LICENSES. We maintain professional licensing
records from 43 states, including license categories, license
numbers, business and licensee names and addresses. We also
have FAA pilots licenses and DEA-controlled substance licenses
in all 50 states.
We believe that the size and diversity of our databases are unmatched
in the industry and, combined with our ability to quickly cross-reference
between them, provide us with significant competitive advantages in the market
place. We believe we are the only major online public information provider that
maintains and continually refreshes historical information provided to us by our
data suppliers. In many cases, we have archives of data dating back more than 10
years. We also believe that we maintain superior database quality in part
because, while we do not revise data contents, we format each data file we
receive in order to make it useable on our databases.
HARDWARE CONFIGURATION
We designed and built our existing proprietary computer configuration
to create a mass-storage file system. While we currently use our proprietary
hardware configuration, we recently agreed to purchase an open-architecture,
complete mass-storage hardware and software system file system. Our new
configuration will feature database software designed by Oracle that will run on
a central processing unit produced by Sun Microsystems. EMC will provide the
mass storage file system to store the libraries of information contained in our
databases.
We will phase in our new hardware configuration over the next year in
order to minimize the risk of service disruption. The implementation of our new
hardware configuration will increase the speed of our data retrieval, the
storage capacity of our databases and the long-term serviceability of our
hardware, all of which will expand our capabilities to continue to service our
growing customer base. Our new computer configuration will continue to offer our
customers fast-index retrieval and real-time redundant fault tolerances.
<PAGE> 7
DATA SOURCES
We obtain our data from the federal and state governments and from
third party data aggregators. Many of our data suppliers send us computer
diskettes, tapes or other mediums for data storage. We convert and format all of
these data storage mediums for use with our products. We currently receive data
from over 300 vendors, which include information from all 50 states, over 3,000
counties and approximately 1,500 government agencies. Leading domestic credit
bureaus are our largest data suppliers. We also obtain site licenses and pay
variable fees based on the frequency of our customers' access to our suppliers'
databases. Our data costs are comprised of both fixed fee and variable fee
arrangements.
In order to protect our databases and to minimize the risk of service
disruptions, we create daily back-up files of the raw data in our databases, our
customers' offline search inquiries and results, saved reports and logged
transactions. We also operate a second system that is redundant to our primary
data retrieval system. In addition, we house our primary and secondary databases
in separate buildings. Our building planners have advised us that our buildings
are substantially hurricane and tsunami proof. We protect our databases from
intruders with a state of the art active security system, and we record the
entry and exit of all employees and visitors at all times with a key card
system.
PRODUCTS
We currently have four principal products:
AUTOTRACK
Our AutoTrack products provide online access, from a customer's
computer, 24 hours a day, seven days a week, to our databases. AutoTrack is able
to search a multitude of databases for information on specific search items and
combine the data into a single, easy to read report. As hundreds of databases
can be searched to build a report, we simultaneously compile information over
several internal distributed processes, which speed report compilation time
dramatically. Comprehensive database searches and in-depth report compilation
are made possible by our proprietary indexing techniques. We have implemented a
pricing plan that seeks to attract new subscribers and increase usage. The
primary components of the AutoTrack pricing structure are search and report
fees, which cost $2.00 per search and range from $7.00 to $18.00 per report. We
offer AutoTrack through two main products, AutoTrackXP and AutoTrackPlus(SM).
AutoTrackXP is our new Windows7 compatible product that allows access
to our database warehouse using off-the-shelf Web browser technology commonly
found on today's personal computers. With an Internet browser such as Netscape
Navigator7 or Microsoft Internet Explorer7, customers can access our database
using Windows point-and-click technology. Customers connect to our
www.autotrackxp.com website using a modem and any standard dial-up software
designed for connecting to the Internet. In addition to the standardized
interface, the multi-tasking Windows environment permits browsing and running of
multiple reports simultaneously, as well as allowing the customer to cut and
paste information from the browser directly into other open documents. With its
HTML-based interface, we believe that
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anyone familiar with Internet browsers can easily learn to use AutoTrackXP in
just minutes. Introduced on May 1, 1999, we expect that AutoTrackXP will
represent approximately 40% of our AutoTrack revenues by the end of 1999.
AutoTrackPlus is our original data retrieval product. Qualified
subscribers access AutoTrackPlus over a modem connection and are able to search
either national or state-specific databases. We are currently in the process of
converting our AutoTrackPlus customers to AutoTrackXP.
Our AutoTrack products are used by law enforcement, property and
casualty insurance companies and law firms in their day to day business. For
example, an investigator can run a search using AutoTrack to determine whether
there is a relationship between parties in an auto accident for which an
insurance claim has been filed to determine the likely validity of the claim.
Similarly, an investigator could research a suspected criminal's current and
former addresses as well as known associates and their addresses to assist in
the apprehension of a criminal.
KNOWX.COM
KnowX.com is a market leader of Internet-based public record research
targeting consumers and small office users. Its core product, Ultimate People
Finder, provides a low-cost way to locate individuals through public records,
while its other products provide summary and detailed public record information
on individuals and businesses. KnowX.com provides access to public records
databases that allow users to locate and research people, assets and companies.
We did not purchase any data in connection with the KnowX.com acquisition, but
we have entered into a transition services agreement with the seller which
allows us to use its databases for up to one year. Following this transition
period, we intend to use our databases to supply the public records and other
information for the KnowX.com products.
Reported instantaneously through its web interface, KnowX.com performs
searches on a real-time basis. The KnowX.com website generates its revenue
through transactions, as opposed to advertising, and enjoys repeat customer
usage of nearly 50% of all its traffic. The KnowX.com products have experienced
significant growth as Internet-accessed small businesses and consumers discover
the service and recognize its usefulness. KnowX.com reported 1998 revenues of
$2.9 million, a 508% increase from 1997 revenues of $0.5 million.
We acquired KnowX.com in September 1999 as a part of our purchase of
selected businesses from Information America. KnowX.com currently charges
customers from $1.00 to $1.50 per database search. Consumers and small office
customers use KnowX.com for a variety of purposes. For example, a consumer may
use KnowX.com to access information to locate a missing relative or to research
the history of a home which the consumer is thinking of purchasing.
INSIGHT
InSight(TM) is a Windows(R) based software, obtained in May 1999 when
we merged with IRSC, that provides access to public and publicly available
records and permits users to order manual searches such
<PAGE> 9
as searches of court records and employment, education and professional license
verifications. Its flexible interface enables users to create custom menus and
custom combined searches. The custom menu ability helps customers to focus on
the specific services most often used while the custom combined feature saves
customers time in entering search information. Using InSight's profile feature,
customers can create subject profiles, save them and use them at a later date to
obtain updated reports. InSight also allows users to capture information for
integration into other files and reports. InSight Plus(TM), which is currently
under development, is an enhanced browser-based version of InSight specifically
designed for the human resources market. Features of InSight Plus will include
integrated reports, flexible billing and the ability to obtain status
information on orders through the Internet. An important feature of Insight Plus
is the back-end processing system which we expect will improve turnaround time,
reduce costs and increase quality. Through InSight, customers can conduct a
SignalJ search, which is an instant verification tool that analyzes subject data
and produces warnings based on inconsistencies in that data. For example, a
warning would be issued if a social security number was issued prior to a date
of birth or if a telephone number prefix did not match the city provided. An
enhanced version of Signal is in development, which will take advantage of data
hosted by us and provided through AutoTrack. Users of InSight are charged on a
transaction basis with prices ranging from $3.00 to $20.00 per search or
verification.
While InSight is used for a variety of purposes, including loan
evaluation and vendor due diligence, nearly 50% of IRSC's revenues are generated
from pre-employment screening. For example, an employer could verify the
accuracy of the information contained on an applicant's employment application,
as well as review or investigate criminal records, driving history or education
credentials. InSight is subject to regulation under the Fair Credit Reporting
Act.
INFORMED
The Informed product line uses publicly available information and
high-speed search and retrieval technology to identify relationships between
people, assets and businesses. Customers use the product for a variety of
purposes, including lending and leasing transactions. The Informed software
platform enables users to access multiple databases and create easy-to-read
reports with a web-like interface. This platform simplifies the search process
for the customer, encouraging more frequent use. Currently, there are three
"packaged" Informed products: Informed Investigator, Informed Lender, and
Informed Credit Manager. We acquired the Informed product line in September 1999
as part of our purchase of selected businesses of Information America.
Typical Informed users include banks and leasing companies, in addition
to insurance companies and corporate clients. For example, a loan officer may
verify the background information provided to him by a potential borrower using
the Informed product. The pricing structure for Informed products ranges from
$5.00 for relatively simple searches to $50.00 for more complex searches that
are national in scope.
RESEARCH AND DEVELOPMENT
We continually work to develop new products and services that respond
to our customers' needs. Our recent research and development efforts currently
include, among other things, the development of
<PAGE> 10
products designed to quantitatively and qualitatively evaluate data to meet the
needs of new and existing customers.
As of June 30, 1999, our research and development staff included
personnel with special programming capabilities, including 37 people engaged in
product development and engineering, 7 people engaged in advanced technology
applications, 3 people engaged in quality assurance and testing, and 9 people in
purchasing, administrative and supporting functions.
SALES AND MARKETING
We believe that substantial opportunities exist to attract new
customers and increase our revenues from existing customers. Our marketing
objective is to stimulate demand for our products by targeting the needs of
various market segments, including law enforcement, governmental agencies,
insurance companies, banks, consumers, small businesses and leasing companies.
We have divided our sales and marketing staff into groups that concentrate on
one or two industries in order to focus our efforts. We also are expanding our
sales and marketing department in order to provide more individualized attention
to our customers and to monitor the quality and reliability of our products. Our
current-sales force includes 40 people, an increase of 30 employees since 1996.
We generally target customers with higher spend profiles with the goal of
entering into longterm agreements to provide industry specific products to these
customers. In addition, we continue to solicit new customers through trade show
advertisements, direct mail and trade publications.
We intend to make significant investments in the advertising of the
KnowX.com brand to rapidly increase our consumer customer base.
CUSTOMER SUPPORT AND TECHNICAL ASSISTANCE
Our customer support staff provides technical assistance to all of our
customers, at no charge, 24 hours a day, 365 days per year. We dedicate
specialized operators to first-time users requiring log-in assistance, repeat
users with technical problems, such as connectivity or printing malfunctions,
and customers requiring additional or new products. Our sales and marketing
personnel have trained the customer support staff to offer customers products
that other customers in their industry use.
REGULATION
GOVERNMENT REGULATION
Regulation of access to information for public use varies from state to
state. Therefore, the amount of information available in particular states may
vary. In many states, all government records are specifically made public by law
unless excluded by a specific statutory exception. These exceptions exist
primarily with respect to private criminal history information, such as arrest
records, 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 places certain restrictions on the release and use of personal data
included in state motor vehicle records.
<PAGE> 11
Though legislators and consumers appear to be increasingly scrutinizing privacy
laws, we cannot predict whether state regulation in any particular state will
change, nor whether the federal government will implement new regulations with
respect to access to specific information.
The Fair Credit Reporting Act obligates our IRSC subsidiary to provide
information to users only for permissible purposes, including credit, insurance
or employment purposes. If a creditor, insurer or employer denies an individual
credit, insurance or employment based in whole or in part on our report, then
the consumer must be notified of the basis for denial. Under the FCRA, the
consumer can ask for an opportunity to correct any inaccurate information in the
report. We are obligated to investigate any alleged inaccuracies in our reports
and correct them if necessary. In addition, along with other resellers of public
information, our IRSC subsidiary signed a consent decree with the Federal Trade
Commission. The consent decree regulates our customers' use of information. As a
result, we require that our customers specify their intended use of the
information sought from us.
SELF-REGULATION
Together with 13 other leading information industry companies, we
formed the Individual Reference Services Group, or IRSG, which worked closely
with the Federal Trade Commission and recently adopted self-regulatory
principles governing the dissemination and use of data that help identify,
verify or locate individuals. The IRSG Principles adopted by the IRSG members in
December 1997 impose significant restrictions on the access and distribution of
non-public information. In addition, the IRSG Principles require that
information from non-public sources about persons identifiable as minors are not
to be disseminated to either the public, commercial or professional markets. The
IRSG Principles provide the enforcement mechanisms, including yearly compliance
reviews by qualified independent third party auditors. In the first quarter of
1999, PricewaterhouseCoopers reviewed our Database Technologies, Inc.
subsidiary's operations and certified our compliance with the IRSG Principles.
Also, in the first quarter of 1999, Corbin & Wertz certified our IRSC
subsidiary's compliance with the IRSG Principles, and PricewaterhouseCoopers LLP
certified Information America's business as compliant with the IRSG Principles.
We screen potential customers, process orders and verify the
credentials and references of each potential customer in accordance with the
IRSG Principles. We reserve the fight to refuse, or withdraw without notice,
access to our products, and have established procedures designed to restrict
access to our system and certain products to qualified individuals. Once we
approve an application, the customer signs a subscription agreement and use
certification which governs the use of and access to our products. A standard
subscription agreement includes a disclaimer of any warranties on the data and,
except for law enforcement and other government customers, an indemnification
for liabilities resulting from the customer's use of the data.
COMPETITION
The electronic information industry is competitive, and is
characterized by rapid technological change and the entry into the field of
large, well capitalized companies, and smaller, niche competitors.
<PAGE> 12
Competition within our markets is intense and based mainly on price, speed, the
comprehensiveness of data and the ability to provide information in an
easy-to-read form. We currently compete in the investigative, pre-employment and
consumer markets.
o In the investigative market, we compete with local, regional
and national private investigation firms, such as LEXIS-NEXIS,
West Publishing, ChoicePoint, Kroll-O'Gara Company, the
Pinkerton division of Securities AB, the Proudfoot Reports
Division of ASI Solutions, Inc., and a significant number of
companies operating on either a national scale or a local or
regional basis.
o In the pre-employment market, we compete with firms offering
comprehensive public record information, such as ChoicePoint
and Avert.
o In the consumer market, we compete with free individual
locator and information services, including services offered
by Internet search engines, telephone companies and other
third parties who publish free printed or electronic
directories. We also compete with companies that offer
products similar to ours, such as US SEARCH.
Our competitors in these markets often offer a wide variety of
information services, ranging from news to legal databases, that allow them to
offer their products to similar customer bases.
PATENT EXPLOITATION AND ENFORCEMENT BUSINESS
In addition to our online public records business, we operate in the
patent exploitation and enforcement business through our Patlex subsidiary,
which exploits and enforces two partially owned laser patents. These laser
patents include a Gas Discharge Laser Patent and a Brewster Angle Window Patent.
Patlex's patent exploitation and enforcement business involves the
identification of laser products and laser applications that infringe the laser
patents, the execution of licensing agreements with third parties and the
enforcement of the laser patents. The Gas Discharge Laser Patent generates
substantially all of Patlex's revenues and expires in November 2004. The
Brewster Angle Window Patent expires in May 2005. Upon the expiration of the
laser patents, Patlex will lose its right to prevent others from exploiting
these inventions and to receive royalty payments. We do not expect to derive any
revenues from the patent exploitation and enforcement business following the
expiration of the laser patents.
PATENT EXPLOITATION
Substantially all of Patlex's revenues consist of royalty income
derived from the licensing of the laser patents. As the exclusive licensing
agent, Patlex actively monitors the laser industry to identify manufacturers and
users who exploit the laser patents without Patlex's authorization. Patlex then
enters into agreements that compel the unauthorized manufacturers and users to
report and pay royalties. Generally, these agreements are either licensing
agreements or settlement agreements. The licensing agreements allow users and
manufacturers to use the laser patents on an ongoing basis. By contrast,
settlement agreements require payment of a lump sum of money for past
infringement, but do not permit the continued use of the
<PAGE> 13
laser patents. Manufacturers and sellers of products that incorporate the laser
patent technology typically enter into licensing agreements while licensees that
use, but do not manufacture or sell, the Laser Patent technology, tend to enter
into settlement agreements.
As of December 31, 1998, Patlex had agreements with a total of 189
laser manufacturers representing a wide cross-section of industries. Of such
agreements, 184 were licensing agreements and the remaining 5 were settlement
agreements.
The market for Patlex's licensing agreements prior to the expiration of
the laser patents depends on the state of the commercial laser industry. Factors
contributing to fluctuation in the number of laser patent license agreements
include Patlex's 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. We believe that 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 to use the laser
patents. In addition, as a result of licensing efforts to date, royalties from
past infringement are expected to be minimal in the future.
PATENT ENFORCEMENT
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. We believe that the major period of litigating the validity
and enforceability of the laser patents has passed. However, the laser patents
may be subject to subsequent challenges.
PROPERTY AND EQUIPMENT
We currently lease approximately 150,000 square feet of office space in
Boca Raton, Florida, to conduct our online public records business. Our patent
enforcement business currently leases approximately 3,000 square feet in Las
Vegas, Nevada. Our IRSC subsidiary currently leases 8,250 square feet of office
space in Fullerton, California. Our WinSHAPES subsidiary currently leases 2,500
square feet of office space in Seattle, Washington. We believe that these
facilities are adequate for our current needs.
EMPLOYEES
As of June 30, 1999, we had 359 full-time employees. We consider our
relationships with our employees to be good. None of our employees are covered
by collective bargaining agreements.
LEGAL PROCEEDINGS
Along with our IRSC subsidiary, its former chairman and principal
shareholder, we are party to a lawsuit against a group of eight companies that
formerly conducted business with IRSC. These eight companies allege that IRSC
was obligated to enter into a merger agreement with them and that the former
chairman of IRSC was obligated to work for the company surviving the merger. The
companies also allege
<PAGE> 14
that we interfered with the obligations of IRSC and its former chairman by
acquiring IRSC. When these companies threatened to sue, we filed a lawsuit
against them in federal court in May 1999 to establish jurisdiction of the
action in Florida. We believe we have meritorious defenses to these companies'
claims.
We also have initiated a lawsuit against High Tech Data Services and
its affiliates and principals, with whom we had a non-competition and
non-disclosure agreement. Our lawsuit alleges that High Tech violated the
non-competition and non-disclosure agreement, infringed our trade and service
marks and misappropriated our trade secrets. The court has scheduled a trial in
October 1999 to decide our lawsuit.
From time to time, we are involved in litigation in the ordinary course
of business, including litigation in connection with non-competition agreements
our employees sign and the alleged infringement of intellectual property rights.
Except for the IRSC and High Tech litigations discussed above, we are not
currently involved in, and do not know of, any material litigation against us.
ACQUISITION OF KNOWX.COM AND INFORMED
On September 23, 1999, we acquired KnowX.com and Informed for $25
million in cash and warrants to acquire 329,172 shares of our common stock. The
warrants have an exercise price of $52.50 per share and are exercisable at any
time until March 23, 2001. The acquisition agreement contains customary
representations and warranties and indemnification provisions. In connection
with our acquisition of KnowX.com and Informed, West Publishing, the parent of
Information America, Inc., has entered into a non-competition agreement with us.
Also in connection with the acquisition, we have entered into employment
agreements with certain key employees of KnowX.com. In addition, we have entered
into a transition service agreement with West Publishing which will allow us to
use their data to support the KnowX.com and Informed products for a period of up
to one year, after which we will only use our databases. The transition services
agreement will also require West Publishing to provide us with technical support
during such transition period.
