<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934 for the transition period from __________ to _______________
Commission File No. ____________
US SEARCH.COM INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4504143
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9107 Wilshire Blvd., Suite 700, Beverly Hills, California 90210
(Address of principal executive offices, including zip code)
(310) 553-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) Yes [X] No [ ], and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
There were 17,421,644 shares of outstanding Common Stock of the registrant as
of August 13, 1999.
<PAGE>
US SEARCH.COM INC.
Form 10-Q for the quarterly period ended June 30, 1999
<TABLE>
<CAPTION>
INDEX Page Number
<S> <C> <C>
Part I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Balance Sheets as of June 30, 1999 and December 31, 1998 2
Statements of Operations for the three and six month periods
ended June 30, 1999 and 1998 4
Statements of Cash Flows for the six month periods ended June
30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risks 23
Part II. OTHER INFORMATION 24
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3 Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
INDEX TO EXHIBITS 27
</TABLE>
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
US SEARCH.COM INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $33,754,000 $ 99,000
Accounts receivable,less allowance for
doubtful accounts of $87,000(1999)
and $64,000(1998)................................... 80,000 83,000
Prepaids and other
current assets...................................... 2,360,000 6,000
----------- -----------
Total current assets........................... 36,194,000 188,000
Property and equipment,
net................................................. 455,000 371,000
Other assets............................................. 34,000 16,000
----------- -----------
Total assets........................................ $36,683,000 $ 575,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable.................................... $ 3,239,000 $ 3,721,000
Accrued liabilities................................. 1,126,000 570,000
Lines of credit..................................... - 372,000
Notes payable, current portion...................... 667,000 693,000
Capital lease obligations, current portion.......... 38,000 40,000
Related-party notes payable, current portion........ 42,000 2,553,000
----------- -----------
Total current liabilities...................... 5,112,000 7,949,000
Notes payable, net of current portion.................... 85,000 269,000
Related-party notes payable, net
of current portion.................................. - 29,000
Capital lease obligations, net
of current portion.................................. 26,000 45,000
Other non-current liabilities............................ 32,000 32,000
----------- -----------
Total liabilities................................... 5,255,000 8,324,000
----------- -----------
Commitments and contingencies (Note 4)
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; authorized
1,000,000 shares; none issued and outstanding - -
Common stock, $0.001 par value; authorized
40,000,000 shares; issued and outstanding
17,421,644 shares (1999) and 9,067,820
shares (1998).................................. 17,000 15,000
Additional paid-in capital.......................... 54,001,000 (922,000)
Unearned deferred compensation...................... (1,696,000) -
Accumulated deficit................................. (20,894,000) (6,842,000)
</TABLE>
2
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<TABLE>
----------- -----------
<S> <C> <C>
Total stockholders' equity (deficit)........... 31,428,000 (7,749,000)
----------- -----------
Total liabilities and
stockholders' equity (deficit)............. $36,683,000 $ 575,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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US SEARCH.COM INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ---------------------------
1999 1998 1999 1998
-------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues......................... $ 3,983,000 $2,436,000 7,279,000 $4,240,000
Cost of services..................... 1,497,000 976,000 2,724,000 1,618,000
----------- ---------- --------- ----------
Gross profit.................... 2,486,000 1,460,000 4,555,000 2,622,000
Operating expenses:
Advertising and marketing....... 3,868,000 1,851,000 6,421,000 2,521,000
General and administrative...... 1,748,000 501,000 2,594,000 1,028,000
Charge for compensation
related to stock options. 653,000 -- 1,529,000 --
----------- ---------- --------- ----------
Total operating expenses. 6,269,000 2,352,000 10,544,000 3,549,000
----------- ---------- --------- ----------
Loss from operations............ (3,783,000) (892,000) (5,989,000) (927,000)
Interest expense................ (2,180,000) ( 46,000) (4,966,000) ( 70,000)
Amortization of debt
issue costs................ (1,493,000) -- (3,096,000) --
Other(expense)income, net....... -- 3,000 -- 9,000
----------- ---------- --------- ----------
Loss before income taxes. (7,456,000) (935,000) (14,051,000) (988,000)
Provision for income taxes...... -- -- 1,000 1,000
----------- ---------- ------------ ----------
Net loss................. $(7,456,000) $ (935,000) $(14,052,000) $ (989,000)
=========== ============= =========== ==========
Basic and diluted net
loss per share............. $(0.75) $(0.10) $ (1.44) $(0.10)
=========== ============= =========== ==========
Weighted-average shares
outstanding used in per
share calculation.......... 9,955,301 9,521,211 9,739,455 9,521,211
=========== ============= =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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US SEARCH.COM INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(14,052,000) $ (989,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization.................. 77,000 57,000
Provision for doubtful accounts................ 91,000 254,000
Charge for warrants and beneficial conversion
feature issued to majority stockholder....... 4,639,000 --
Amortization of unearned compensation.......... 1,529,000 --
Amortization of debt issue costs............... 2,546,000 --
Related-party charges.......................... 90,000
Change in assets and liabilities:
Accounts receivable.......................... (88,000) (385,000)
Accounts payable............................. (482,000) 447,000
Accrued liabilities.......................... 556,000 76,000
Prepaid and other............................ (2,372,000) (43,000)
------------ ------------
Net cash used in operating activities............. (7,556,000) (493,000)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment............. (161,000) (123,000)
------------ ------------
Net cash used in investing activities............. (161,000) (123,000)
------------ ------------
Cash flows from financing activities:
Increase in cash overdrafts.................... -- 181,000
Proceeds from line of credit................... -- 899,000
Repayments of line of credit................... (372,000) (632,000)
Proceeds from third party notes payable........ -- --
Repayments of third party notes payable........ (210,000) (78,000)
Advances from related parties.................. 200,000 290,000
Repayments to related parties.................. (2,740,000) (30,000)
Repayments of capital lease obligations........ (21,000) (14,000)
Proceeds of convertible notes.................. 5,500,000 --
Proceeds of warrant exercise..................... 2,752,000 --
Proceeds of initial public offering.............. 36,263,000 --
------------ ------------
Net cash provided by financing activities......... 41,372,000 616,000
------------ ------------
Net increase in cash and cash equivalents......... 33,655,000 --
Cash at beginning of period....................... 99,000 --
------------ ------------
Cash at end of period............................. $ 33,754,000 $ --
============ ============
Non-cash investing and financing activities:
Conversion of notes payable to common stock.... $ 5,500,000 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
5
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US SEARCH.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business:
US SEARCH.com Inc. (the "Company") provides public record information about
individuals. The Company was formed as a California S Corporation in 1994, and
converted to a C Corporation in November 1997.
In November 1997, The Kushner-Locke Company ("Kushner-Locke"), acquired 80%
of the outstanding shares of the Company in exchange for the indemnification of
various liabilities not to exceed $670,000. The Company's financial statements
are presented on a historical basis and do not reflect the push-down of Kushner-
Locke's purchase accounting adjustments.
In February 1999, the Board of Directors approved the reincorporation of
the Company in the State of Delaware and a change in the par value of the
Company's common stock which was effected prior to the closing of the initial
public offering.
In June 1999 the Company completed its initial public offering and sold
4,500,000 shares of common stock raising net proceeds from the offering of
$36,263,000. The Company's shares are now traded on the NASDAQ national market
system under the symbol "SRCH"
2. Basis of Presentation:
These unaudited financial statements and notes thereto have been condensed
and, therefore, do not contain certain information included in the Company's
annual financial statements and notes thereto. The unaudited condensed financial
statements and notes thereto should be read in conjunction with the Company's
annual financial statements and notes thereto.
The unaudited condensed financial statements reflect, in the opinion of
management, all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of the Company as of June 30,
1999, and the results of its operations and its cash flows for the three and six
month periods ended June 30, 1999 and 1998. Interim results are not necessarily
indicative of results to be expected for a full fiscal year.
Stock Split
In June 1999, the Company authorized a 906.782 for one stock split pursuant
to a stock dividend to its current stockholders which became effective on June
22, 1999. The share information in the accompanying financial statements has
been retroactively restated to reflect the effect of the stock split.
Net Loss Per Common Share
Basic net loss per common share is computed using the weighted-average
number of shares of common stock and diluted net loss per common share is
computed using the weighted average number of shares of common stock and common
equivalent shares outstanding. Common equivalent shares related to stock options
and warrants are excluded from the computation when their effect is
antidilutive. As of June 30, 1999, the number of stock options that were
antidilutive amounted to 1,548,678. The Company had no antidilutive securities
for the three and six month periods ending June 30, 1998.
6
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US SEARCH.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
3. Notes Payable:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -------------
<S> <C> <C>
Note payable to Kushner-Locke, payable on
demand bearing interest at 10% per annum...... $ -- $ 2,540,000
Note payable to third party, payable July
1999, bearing interest at 12% per annum....... 296,000 296,000
Notes payable in equal monthly installments of
$3,333 comprising principal and interest
through December 2000 bearing interest at
12.5% per annum............................... 55,000 70,000
Trade notes payable, due in monthly
installments by $13,583 comprising principal
and interest through November 1999 bearing
interest at 10.0% per annum.................... 66,000 142,000
Trade notes payable, due in blended monthly
installments through May 2000 bearing
interest at 10.0% per annum................... 151,000 186,000
Loan payable to former stockholder/executive
officer of the Company, due in monthly
installments through July 2001, non-interest
bearing....................................... 51,000 68,000
Note payable in equal monthly installments
through December 2000, bearing interest at
12.25% per annum.............................. 27,000 35,000
Loan payable to executive officer of the
Company, payable in monthly installments of
$1,100, non-interest bearing.................. 42,000 42,000
Other trade notes payable, payable through
2000 bearing interest at 10% per annum........ 106,000 165,000
----------- ------------
Total notes payable...................... $ 794,000 $ 3,544,000
=========== ============
Related-party notes payable:
Current....................................... $ 42,000 $ 2,553,000
Non-current................................... -- 29,000
Other notes payable:
Current....................................... 667,000 693,000
Non-current................................... 85,000 269,000
----------- ------------
Total notes payable...................... $ 794,000 $ 3,544,000
=========== ============
</TABLE>
7
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US SEARCH.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(unaudited)
Related-Party Convertible Subordinated Note:
In January 1999, Kushner-Locke agreed to provide a credit facility up to
$5,500,000 of bridge financing to the Company in the form of a convertible
subordinated note ("Note"). The Note bears interest at 10% per annum and matures
on the earlier of December 31, 1999 or on the date the Company completes a
private placement or initial public offering raising gross proceeds of at least
$10,000,000. The Note includes a 10% origination fee totaling $550,000 payable
to Kushner-Locke for providing the credit facility. The origination fee is
amortized on a straight line basis over the anticipated term of the Note. Notes
payable on demand to Kushner-Locke of $1,200,000 outstanding as of December 31,
1998 were converted to the Note in January 1999. The Note has a beneficial
conversion feature ("BCF") since it is convertible at a discount to the deemed
fair value of the common stock. Since conversion is at the option of the holder
at any time prior to maturity, the value assigned to the BCF is immediately
recorded as interest expense at the date of each borrowing. The BCF is
calculated using the intrinsic value methodology based on the difference between
the deemed fair value of the underlying common stock and the conversion price on
the Note of $2.21. The value assigned to the BCF is limited to the amount of
each borrowing. For the three and six-month periods ended June 30, 1999, the
Company has recorded $2,639,000 and $4,639,000, respectively, as additional
interest expense.
In June 1999, the total amount borrowed by the Company of $5,500,000 under
this convertible subordinated note was converted into 2,493,651 shares of common
stock.
In connection with the Notes, the Company granted Kushner-Locke warrants to
purchase (1) 453,391 shares of common stock at an exercise price of $2.76 per
share and (ii) 453,391 shares of common stock at an exercise price of $3.31 per
share. The warrants are exercisable at the option of the holder between January
7, 1999 and the earlier of (i) five days prior to the pricing of the Company's
stock in connection with an initial public offering; or (ii) sale of all or
substantially all of the assets of the Company or any consolidation, merger or
reorganization, as defined; or (iii) January 7, 2009. The deemed fair value of
the warrants of $2,546,000 is recorded as additional debt issue costs and has
been amortized over the expected term of the Note of six months. For the three
and six month periods ended June 30, 1999, total amortization of this debt issue
cost were $1,273,000 and $2,546,000, respectively.
In June 1999, these warrants and the warrants issued in September 1998 to
Kushner-Locke were exercised for 1,360,173 shares of common stock.
4. Commitments And Contingencies:
Strategic Alliance Commitments
The Company has several cancelable and non-cancelable distribution and
marketing agreements with various Internet companies. Terms of these agreements
provide for varying levels of exclusivity and minimum and maximum fees payable
based on the number of banners, buttons and text links displayed on affiliate
web sites. At June 30, 1999, the minimum non-cancelable payments under these
agreements are
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approximately $5,735,000 for the remainder of 1999, $9,036,000 for 2000,
$3,920,000 for 2001 and $1,000,000 for 2002.
Distribution and Marketing Agreements
In June 1999, the Company entered into a marketing agreement with Yahoo!
Inc. Under this agreement, Yahoo! agreed to integrate the Company's search
services into its Yahoo People Search Web site. The term of the agreement
expires on January 31, 2001. Under this agreement, the Company is obligated to
pay approximately $9.2 million over the term, approximately $2.0 million of
which was paid on June 30, 1999.
5. Subsequent Event:
In July 1999, the Company entered into an agreement with a supplier of
online public record data pursuant to which the Company has committed to
purchase approximately $20 million worth of such data and public record
information over a five and one-half year term.
9
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO
THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT US SEARCH'S BUSINESS, MANAGEMENT'S BELIEFS AND ASSUMPTIONS
MADE BY MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," "ESTIMATES," "LIKELY," VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT;
THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM WHAT IS
EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE THOSE SET FORTH HEREIN BELOW UNDER "FACTORS AFFECTING OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION" AS WELL AS THOSE NOTED IN
US SEARCH'S AMENDED REGISTRATION STATEMENT ON FORM S-1 (FILE No. 333-76099). US
SEARCH UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
Overview
US SEARCH provides clients with quick, easy and inexpensive access to a
broad range of public record information about individuals. We offer our
services through our Web site and our toll free telephone number.
We generate revenues by performing public record search services for
clients. Our services include individual locator, individual profile report,
nationwide civil court record search, adoption reunion and other related public
record search services. Individual locator services provide clients with the
address and phone number for individuals, as well as date of birth, date of
death, and the city, state and zip code where the death benefits were issued.
Our Internet-based "Instant Searches" provide a subset of this information in a
completely automated fashion and at a lower price. Individual profile report
services provide clients with the first and last name, alias, current and
previous address, phone number, vehicle ownership, bankruptcy, property
ownership, nationwide civil court record and corporate affiliation information
about an individual into a single report. The typical time required to complete
a search is one to three days, with "Instant Searches" requiring as little as a
few seconds or minutes. We publish the prices for our services directly on our
Web site and typically determine a client's manner of payment prior to beginning
the search process. Prices for our non-instant searches have ranged from
approximately $25 to $140 per search. Prices for "Instant Searches" have ranged
from approximately $5 to $10 per search. The prices for our services vary based
on the nature and amount of information and whether or not the search is
assisted by a search specialist.
Revenue for our services is recognized when the search results are
delivered to the client. The terms of sale do not provide for refunds after
search services have been delivered, however, in instances where the clients
indicate that the initial search result was unsuccessful, we may perform, at no
charge to the client, up to three identical searches during the one year period
following the first search. In addition, where clients desire additional
information they can request to broaden the scope of their "Instant Searches"
and we apply up to 100% of the cost of the client's "Instant Searches" towards
the cost of the more comprehensive search. For the six month period ended June
30, 1999, revenues generated from individual locator and "Instant Searches"
accounted for more than 90% of revenues. We expect the revenue
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contribution of each of our services to change over time, including with the
introduction of pre-employment background screening.
Our cost of services consists primarily of payroll expenses, including
commissions paid to sales employees, data acquisition costs, local and long
distance telephone charges associated with providing our services, and payment
processing costs. In addition, we include an allocable portion of facilities,
network and technology infrastructure. Our cost of services is likely to
increase substantially as we expand infrastructure to support an increase in
marketing and sales personnel to address existing and anticipated demand for our
services, and in addition, as we obtain access to new data and information
sources.
Our operating expenses consist primarily of advertising, marketing, general
and administrative expenses. We expect our operating expenses to increase
substantially as we attempt to expand our sales and marketing force and hire
additional administrative, sales, advertising, financial and accounting
personnel. We may also need to relocate or seek new facilities that better
address our operational and personnel needs. We may incur higher costs and
possible disruption to our business as we hire and train new personnel to
replace those lost in an expansion or relocation of our facility.
Advertising and marketing expenses constitute the largest portion of our
operating expenses. Prior to the introduction of our Internet-based services,
advertising consisted primarily of radio and television advertising. With the
growth of our Internet-based services, an increasing portion of our advertising
expenses consists of Internet-based advertising such as arrangements with
Internet search engines and popular Web sites. Production costs associated with
such advertising are expensed in the period first aired or displayed to the
public. Costs relating to actual airing or display of such advertising are
expensed in the quarter the advertising appears. We expect our advertising and
marketing expenses to significantly increase as we offer new services, attempt
to expand our US SEARCH brand and build a corporate sales force.
We have non-cancelable advertising and marketing agreements with several
Internet companies. These agreements provide for varying levels of exclusivity
and require us to make monthly minimum payments based on the number of
impressions displayed on affiliate Web sites. As of June 30, 1999, the minimum
non-cancelable payments required under these agreements are approximately $5.7
million for the remainder of 1999, $9.0 million in 2000, $3.9 million in 2001,
and $1.0 million in 2002.
Our general and administrative expenses consist primarily of compensation
and related costs for administrative personnel, fees for outside professional
advisors and an allocation of our occupancy costs and other overhead costs.
Under an administrative services agreement that terminated on June 30, 1999,
Kushner-Locke provided human resources services, accounting services and
management services, as well as the services of Peter Locke and Donald Kushner.
In connection with this agreement, we paid Kushner-Locke a monthly fee of
$35,000. We will need to hire additional human resources, finance and accounting
personnel to replace the services provided by Kushner-Locke under this
agreement. We expect that costs relating to these replacement personnel will be
comparable to the fee charged by Kushner-Locke under this agreement. We expect
the trend of increased general and administrative costs to continue as we hire
additional sales, research and executive personnel to promote new services to
corporate and professional clients.
We incurred significant net losses of approximately $1.4 million in 1996,
$399,000 in 1997 and $6.8 million in 1998. For the six months ended June 30,
1999 we
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incurred a net loss of $14.1 million. At June 30, 1999, we had an accumulated
deficit of approximately $20.9 million. We expect to incur significant
additional losses and continued negative cash flow from operations for the
foreseeable future.
We recorded a non-cash interest charge of approximately $4.6 million in the
first half of 1999 relating to the beneficial conversion feature of the
convertible subordinated note issued to Kushner-Locke in January 1999. This
charge is calculated using the deemed fair value of common stock on the date
each advance is made to us subtracting the conversion price and multiplying the
resulting amount by the number of shares into which the advance is convertible.
The value assigned to the beneficial conversion feature is no greater than the
amount of each advance made under the convertible subordinated note.
We also recorded in the first half of 1999 a non-cash charge of $2.5
million relating to warrants issued to Kushner-Locke in January 1999. This
charge represents the deemed fair value of the warrants, which is the per share
value derived by applying the Black-Scholes option pricing model to our
underlying shares of common stock and multiplying that value by the number of
shares of common stock issuable upon exercise of the warrants. This charge was
amortized over the six months the convertible subordinated note was outstanding.
During the first half of 1999, we granted certain stock options to
employees and non-employee directors and will continue to grant options under
the 1998 Stock Incentive Plan and the 1999 Non-Employee Directors' Stock Option
Plan. We recorded an unearned deferred compensation expense of approximately
$3.2 million, representing the difference between the deemed fair value of our
common stock for accounting purposes and the exercise price of such options at
the date of grant. This amount is being amortized as follows: approximately $2.1
million in 1999; $735,000 in 2000; $315,000 in 2001; $75,000 in 2002; and $1,000
thereafter.
Results of Operations
Comparison of the Three Months Ended June 30, 1999 to the Three Months Ended
June 30, 1998
Net Revenues. Our net revenues increased to approximately $4.0 million for
the three months ended June 30, 1999, or 64%, from approximately $2.4 million
for the three months ended June 30, 1998. The increase is primarily attributable
to an increase in the number of Internet-based transactions which occurred as a
result of the introduction of lower-priced "Instant Searches" and "Public Record
Profiles" driven by increased Internet-based advertising on a greater number of
Internet search engines and popular Web sites.
Gross Profit. Gross profit increased to approximately $2.5 million for the
three months ended June 30, 1999, or 70%, from approximately $1.5 million for
the three months ended June 30, 1998. Gross profit as a percentage of net
revenues were approximately 62% and 60% for the three month periods ended June
30, 1999, and June 30, 1998, respectively. Cost of services increased to
approximately $1.5 million for the three months ended June 30, 1999, or 53%,
from approximately $1.0 million for the three months ended June 30, 1998. As a
percentage of net revenues, cost of services was approximately 38% and 40% for
the three month periods ended June 30, 1999 and June 30, 1998, respectively.
Data acquisition and fulfillment costs as a percentage of revenues increased due
to the introduction of certain lower-priced public record profile products.
Telephone costs decreased as a percentage of net revenues primarily due to lower
volume of 900-number telephone billings. Labor costs decreased as a percentage
of net revenues primarily due to a higher volume of Internet transactions which
generally involve a lower labor component.
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Advertising and Marketing Expenses. Advertising and marketing expenses
increased to approximately $3.9 million for the three months ended June 30,
1999, from approximately $1.9 million for the three months ended June 30, 1998.
As a percentage of net revenues, advertising and marketing expenses increased to
approximately 97% for the three months ended June 30, 1999, from approximately
76% for the three months ended June 30, 1998. This increase is primarily
attributable to an increase in the level of Internet-based advertising.
General and Administrative Expenses. General and administrative expenses
increased to approximately $1.7 million for the three months ended June 30,
1999, from approximately $0.5 million for the three months ended June 30, 1998.
As a percentage of net revenues, general and administrative expenses increased
to approximately 44% for the three months ended June 30, 1999, from
approximately 21% for the three months ended June 30, 1998. This increase in
general and administrative expenses in absolute dollars is primarily
attributable to the cost associated with the hiring of additional management and
administrative personnel in 1999.
Charge for Compensation related to stock options. During the three month
period ended June 30, 1999, approximately $653,000 of compensation expense was
recorded in connection with options granted in 1999. We expect to incur a
charge of approximately $570,000 for the remainder of 1999, $735,000 for 2000,
$315,000 for 2001, $75,000 for 2002 and $1,000 for 2003 in connection with these
options.
Interest Expense. Interest expense increased to $2.2 million for the three
months ended June 30, 1999 from $46,000 for the three months ended June 30,
1998. Included in interest expense for the three months ended June 30, 1999 is
approximately $2.0 million relating to the beneficial conversion feature on the
convertible subordinated note issued to Kushner-Locke. In addition, the interest
expense for the three months ended June 30, 1999 also includes interest on
outstanding short term and long term debt, and other inter-company advances from
Kushner-Locke.
Amortization of debt issue costs. In connection with the convertible
subordinated note issued to Kushner-Locke, we granted to Kushner-Locke warrants
to purchase 906,782 shares of our common stock. Relating to these warrants we
have recorded a non-cash charge of $2.5 million that has been amortized over the
six month period that the convertible subordinated note was outstanding. In the
three months ended June 30, 1999, we recorded the remaining amortization of $1.3
million of such debt issue costs. Also, the $5,500,000 convertible subordinated
note includes an origination fee in the amount of $550,000 payable to Kushner-
Locke. In the three months ended June 30, 1999, the remaining $220,000 of this
origination fee was amortized.
Comparison of the Six months ended June 30, 1999 to the Six months ended June
30, 1998
Net Revenues. Our net revenues increased to approximately $7.3 million , or
72%, for the six months ended June 30, 1999 from approximately $4.2 million for
the six months ended June 30, 1998. The increase is primarily attributable to an
increase in the number of Internet-based transactions, the introduction of
lower-priced "Instant Searches" and "Public Record Profiles".
Gross Profit. Gross profit increased to approximately $4.6 million for the
six months ended June 30, 1999 from approximately $2.6 million for the six
months ended June 30, 1998. Gross profit as a percentage of net revenues
increased to approximately 63% for the six months ended June 30, 1999, from
approximately 62% in
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the six months ended June 30, 1998. Cost of services increased to approximately
$2.7 million for the six months ended June 30, 1999 from approximately $1.6
million for the six months ended June 30, 1998. As a percentage of net revenues,
cost of services decreased to 37% for the six months ended June 30, 1999 from
38% for the six months ended June 30, 1998. The decrease is primarily
attributable to lower labor costs resulting from a higher volume of Internet
transactions which generally involve a lower labor component, partially offset
by increasing data acquisition and fulfillment costs as a percentage of revenue.
Advertising and Marketing Expenses. Our advertising and marketing expenses
increased to approximately $6.4 million for the six months ended June 30, 1999
from $2.5 million for the six months ended June 30, 1998. As a percentage of net
revenues, advertising and marketing expenses increased to approximately 88% for
the six months ended June 30, 1999, from approximately 60% for the six months
ended June 30, 1998. This increase is primarily attributable to the expansion
of Internet-based advertising and increased television promotional fee
advertisements.
General and Administrative Expenses. Our general and administrative
expenses increased to approximately $2.6 million for six months ended June 30,
1999 from approximately $1.0 million for the six months ended June 30, 1998. As
a percentage of net revenues, general and administrative expenses increased to
approximately 36% for the six months ended June 30, 1999, from approximately 24%
for the six months ended June 30, 1998. This increase is primarily attributable
to the 1999 hiring of new management and administrative personnel, and to
increased research and development costs, professional fees, and administrative
services charges from Kushner-Locke.
Charge for Compensation related to stock options. During the six month
period ended June 30, 1999, approximately $1.5 million of compensation expense
was recorded in connection with stock options granted in 1999. No options were
granted in the corresponding six month period ended June 30, 1998. We expect to
incur a charge of approximately $570,000 for the remainder of 1999, $735,000 for
2000, $315,000 for 2001, $75,000 for 2002 and $1,000 for 2003 in connection with
these options.
Interest Expense. Our interest expense increased to $5.0 million for the
six months ended June 30, 1999, from $0.1 million for the six months ended June
30, 1998. Included in interest expense for the six months ended in June 30, 1999
is approximately $4.6 million relating to the beneficial conversion feature on
the convertible subordinated note issued to Kushner-Locke. In addition, the
interest expense for the six months ended June 30, 1999 also includes interest
on outstanding short term and long term debt, and other inter-company advances
from Kushner-Locke.
Amortization of debt issue costs. In connection with the convertible
subordinated note issued to Kushner-Locke, we granted to Kushner-Locke warrants
to purchase 906,782 shares of our common stock. Relating to these warrants we
have recorded a non-cash charge of $2.5 million that has been amortized over the
six month period that the convertible subordinated note was outstanding. Also,
the $5,500,000 convertible subordinated note includes an origination fee in the
amount of $550,000 payable to Kushner-Locke which was fully amortized in the
period.
We expect that interest expense and debt issue costs for the remainder of
1999 will be substantially lower than the quarter and six months ended June
30,1999, due to elimination of amounts relating to warrants, origination fee and
the beneficial conversion feature on the convertible subordinated note.
Income Taxes. As of December 31, 1998 we had approximately $3.5 million of
federal and $3.5 million of state net operating loss carryforwards to offset
future taxable income. Our net operating loss carryforwards expire beginning in
2017 for
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federal and 2002 for state. Our ability to utilize net operating loss
carryforwards may be limited in the event that a change in ownership, as defined
in the Internal Revenue Code, occurs in the future. We have recorded a full
valuation allowance against our deferred tax assets as we believe that it is
more likely than not that the deferred tax assets will not be realized based
upon our expected future results of operations.
Liquidity And Capital Resources
As of June 30, 1999, cash and cash equivalents have increased to $33.8
million from $0.1 million at December 31, 1998 primarily as a result of the
proceeds of the initial public offering.
Cash used in operations increased to $7.6 million for the six month period
ended June 30, 1999 as compared to $493,000 for the six month period ended June
30, 1998. This increase is primarily attributable to increased expenditures on
Internet-based advertising and increased general and administrative expenses
relating to the administrative services agreement and hiring of executive
personnel, and approximately $2.3 million paid to Yahoo! Inc. under our
marketing agreement with Yahoo! Inc.
Cash used in investing activities increased to $161,000 for the six month
period ended June 30, 1999 as compared to $123,000 for the six months ended June
30, 1998. This increase is primarily attributable to increased purchases of
computer hardware and software and other equipment.
Cash provided by financing activities increased to approximately $41.4
million for the six month period ended June 30, 1999 as compared to $316,000 for
the six months ended June 30, 1998. We received approximately $36.3 million as
the net proceeds of our initial public offering in 1999, $5.5 million under
convertible notes issued to Kushner-Locke, and $2.7 million in connection with
the exercise of warrants issued to Kushner-Locke. Partially offsetting these
amounts was the repayment to Kushner-Locke of $2.7 million of advances from
Kushner-Locke, plus interest, and repayment of approximately $0.6 million
related to our line of credit and other notes payable.
We require substantial working capital to fund our operations and expect to
use significant amounts of cash to fund our operating losses and capital
expenditures.
Since inception we have experienced negative cash flow from operations and
expect to continue to experience significant negative cash flow from operations
in the foreseeable future. We currently believe that our existing capital
resources will be sufficient to meet our presently anticipated cash requirements
through at least the next 12 months. After the next 12 months, we may be
required to obtain additional funds through equity or debt financing. No
assurance is given that we will not be required to raise additional financing
prior to that time. Furthermore, there is no assurance that additional financing
will be available when needed or that, if available, the financing will be on
favorable terms. If the financing is not available when required or is not
available on acceptable terms, we may be unable to develop or enhance our
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our business,
financial condition and results of operations.
Year 2000 Issue
We depend on the delivery of information over the Internet, a medium which
is susceptible to the Year 2000 Issue. The "Year 2000 Issue" is typically the
result of
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limitations of software written using two digits rather than four to define the
applicable year. If software with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the year 1900 rather than the
year 2000.
Risks
The Year 2000 Issue could result in a system failure or miscalculations
causing significant disruption of our operations, including, among other things,
interruptions in Internet traffic, accessibility of our Web site, delivery of
our service, transaction processing or searching and other features of our
services. It is possible that this disruption will continue for an extended
period of time. We depend on information contained primarily in electronic
format in databases and computer systems maintained by third parties, including
governmental agencies. The disruption of third-party systems or our systems
interacting with these third-party systems could prevent us from receiving
orders or delivering search results in a timely manner. In addition, we rely on
the integration of many systems in aggregating search data from multiple
sources. The failure of any of those systems as a result of Year 2000 compliance
issues could prevent us from delivering our products and services. Failure of
our systems or third-party systems providing information used in our services
could materially adversely affect our business, financial condition and
results of operations. We have received information from present data
suppliers that they are substantially in compliance with the Year 2000 Issue.
We have also confirmed Year 2000 compliance with key third party vendors.
Readiness for Year 2000
We are conducting an evaluation of our internal systems. Our objective is
to ensure uninterrupted transition into the Year 2000. The scope of the Year
2000 objective includes: (1) information technology ("IT") such as software and
hardware, (2) non-IT systems such as components contained in various safety
systems, facilities and utilities, and (3) readiness of key third parties,
including suppliers and customers. We are seeking written confirmation of the
Year 2000 status of our third party software. We are also utilizing internal
resources to test internally developed software for Year 2000 compliance. We may
be required to modify or replace significant portions of our software so that
our systems will function properly with respect to dates in the year 2000 and
thereafter. If we are unable to make the required modifications or conversions
in a timely and cost-effective manner or if there is a malfunction in our
systems, potential systems interruptions or delays in services may have a
material adverse effect on our business, financial condition and results of
operations. Further, if we fail to successfully resolve these issues, some or
all of our operations may shut-down, which would have a material adverse effect
on our business, financial condition and results of operations.
Third Party Readiness
We have a process in place to assess the Year 2000 readiness of our
business critical vendors and customers, and are involved in working with these
vendors and customers on Year 2000 compliance issues. Disruptions with respect
to computer systems of vendors or customers, whose systems are outside our
control, could impair our ability to provide support to our customers, and could
have a material adverse effect on our business, financial condition and results
of operations.
Costs
We estimate that the total cost of implementing and maintaining our Year
2000 compliance program will not exceed $250,000 and most of these expenses will
be
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incurred during 1999. This estimate includes implementation of redundant
hardware, software and communications systems. Our costs incurred to date with
respect to Year 2000 compliance have not been significant.
Contingency Plans
We are currently developing contingency plans to be implemented as part of
our efforts to identify and correct Year 2000 problems with our internal and
Internet-based systems. We expect to substantially complete our plan by
September 30, 1999. Within the plans, we are addressing various problems,
including disruptions to our Web-servers, significant interruption of data flow
between us and third party data providers, and failures associated with internal
systems. The contingency plans emphasize the identification and accessibility of
additional data sources for our services.
We are currently evaluating (1) the use of multiple Web-hosting sites to
assure availability of our services, (2) additional data sources, (3) manual
procedures for order processing and delivery of search results (4) standby
equipment and accelerated availability of replacement parts, and (5) increased
staffing levels for resolution of information technology issues and to manually
process orders. Failure to implement any of these plans, if and when necessary,
may have a material adverse effect on our business, financial condition and
results of operations.
FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
The following is a discussion of certain risks, uncertainties and other factors
that currently impact or may impact US SEARCH's business, operating results
and/or financial condition. Anyone making an investment decision with respect to
US SEARCH's Common Stock or other securities of US SEARCH is cautioned to
carefully consider these factors, along with the "Risk Factors" discussed in US
SEARCH's Amended Registration Statement on Form S-1 (File No. 333-76099).
We have incurred significant net losses and we may never achieve profitability
We incurred significant net losses of approximately $1.4 million in 1996,
$399,000 in 1997 and $6.8 million in 1998. For the six months ended June 30,
1999, we incurred a net loss of $14.1 million. As of June 30, 1999, we had an
accumulated deficit of approximately $20.9 million. We expect to incur
significant additional losses and continued negative cash flow from operations
for the foreseeable future. We may never achieve profitability.
Our revenues and operating results may fluctuate significantly
Our quarterly revenues and operating results have fluctuated in the past,
and may significantly fluctuate in the future due to a variety of factors, many
of which are outside of our control. These factors include:
. service interruption, delays and costs relating to expansion of our networking
infrastructure and facilities, for example, we have experienced system
interruptions in the past as well as slower response times during periods of
high calling volume;
. fluctuations in the cost of television, radio, print and Internet-based
advertising, for example, television advertising prices are generally higher
during the last quarter of calendar year due to the seasonal trends in
programming and consumer viewing patterns;
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. the inability to maintain or develop relationships with, or continue
advertising on, various key Internet companies and popular Web sites, for
example, due to capital constraints, we decreased our advertising on popular
Web sites during the quarter ended December 1998;
. delays and costs associated with unsuccessful service introductions;
. increased turnover of our personnel due to a relocation of our facilities or
for other reasons;
. loss of one or more of our database providers; and
. anticipating and responding to the introduction of new or enhanced services by
our competitors, or more generally to increase demand for our services, for
example, we reduced the price of our Internet-based services in December 1998
to further increase demand for these services.
Our limited experience offering services on the Internet could make it difficult
for us to expand this business
Our success and future growth depends on our ability to expand the nature
and number of our services offered on the Internet. Historically, we offered our
services primarily through our toll free telephone number, 1-800 U.S. SEARCH.
Since December 1998, we began offering our Internet-based "Instant Searches."
Additionally, we intend to increase the number and range of "Instant Searches"
available on our Web site. Our limited experience may make it difficult for us
to continually increase Internet traffic and transactions on our Web site. In
particular, it may be difficult for us to adequately predict consumer response
to our Internet advertising, causing us to spend more on Internet advertising
than planned. Our Internet advertising may also be ineffective in strengthening
our brand, increasing awareness of our services, or generating additional
traffic or sales. The loss of one or more marketing relationships with Internet
companies could adversely impact our ability to generate additional traffic or
sales. If we fail to generate additional traffic, or if we fail to increase
demand for our Internet-based services as a result of any additional traffic,
our business, financial condition and results of operations could be materially
adversely affected.
We depend on a limited number of service offerings for a significant portion of
our revenues
We have historically derived a substantial portion of our revenues from a
small number of service offerings, particularly our individual locator and
"Instant Searches" services. In the six months ended June 30, 1999, our
individual locator and "Instant Searches" services accounted for over 90% of our
revenue. If we are unable to continue to offer these services or if our costs of
providing these services increase such that we can no longer offer these
services at competitive prices, our business and results of operations may be
materially adversely affected.
We have substantial fixed costs which may not be offset by our revenues
A substantial portion of our operating expenses are fixed in any given
quarter, such as costs relating to management personnel, administrative support
and advertising on television programming, Internet search engines and popular
Web sites. Our advertising is typically conducted under non-cancelable fixed
term contracts. We also have minimum payment obligations under the agreement
with our key database and
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information supplier. As a result, a substantial portion of our expenses in any
given period is fixed and based in part on our expectations of future revenues
and advertising and sales productivity. We may be unable to adjust our spending
in a timely manner to compensate for any unexpected revenue shortfall. If we are
unable to generate sufficient revenues to offset our advertising costs or the
minimum payment obligations under the agreement with our key database and
information supplier, or if we are unable to lower our advertising costs to
respond to lower than expected revenues, our results of operations will suffer
and the market price of our common stock could fall.
We depend on our marketing agreements with Internet companies
An important element of our current business strategy is to maintain
relationships with an increasing number of Internet search engines and popular
Web sites for advertising and to direct and attract traffic to our Web site.
Advertising on the Internet is expensive, new and evolving. The effectiveness of
Internet-based advertising is not clear. Under our marketing and advertising
agreements, we are typically required to make payments in advance of running ads
on a Web site. Internet companies display our text, banner or logo, often
referred to as "impressions," on their Web sites. These impressions may not lead
to sales of our services, and our payment is required whether or not the
advertising was effective. We may not be able to maintain our existing marketing
relationships with other Internet companies. We may also be unable to enter into
new marketing relationships with Internet companies, which generate adequate
returns to offset related costs. Internet-based advertising expenses comprised
over 40% of our total operating expenses for the six month period ended June 30,
1999. We currently anticipate that these expenses will continue to constitute a
significant portion of our total operating expenses in future periods. Due to
our limited operating experience, we are unable to accurately forecast the
revenues these agreements will generate. Any termination of existing agreements
or failure to enter into new agreements with Internet companies on terms
favorable to us, could have a material adverse effect on our business, financial
condition and results of operations.
Our access to key Internet advertising depends on marketing agreements between
other Internet companies that are beyond our control
Advertising arrangements with one Internet company may provide us access to
another company's Web site. For example, our arrangement with Infospace provides
us with advertising on parts of the AOL and Netcenter Web sites, even though we
do not have agreements with AOL or Netcenter. Our advertising on these Web sites
depends on the continued relationship Infospace has with companies such as AOL
and Netcenter. If this relationship is terminated for any reason and if we are
either unable to enter into an agreement with these companies or unable to enter
into an agreement with another company that has an agreement providing access to
AOL and/or Netcenter, our advertising will no longer appear on their Web sites.
This could significantly reduce our advertising reach and, consequently, lower
the number of potential clients visiting our Web site which could in turn
materially adversely affect our business, financial condition and results of
operations.
Our business and financial performance may suffer if we are unsuccessful in
expanding our service offerings
Our strategy includes expanding the market awareness of our existing
services. We intend to offer a greater number of new searches available through
our Web site and to develop and promote service offerings to address the needs
of corporate and professional clients. We have very limited experience in
providing services to corporate and professional clients. Attracting these
clients will require us to hire
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new sales and marketing personnel and spend money to develop and promote these
new services. We may fail in our efforts to provide these new services in a
timely and cost- effective manner. If individual or corporate clients are
unwilling to pay for the aggregation of public record information, or if the
market for our services fails to develop or develops more slowly than
anticipated, our business and prospects will be materially adversely affected.
Implementing these measures will substantially increase our operating expenses
and will place considerable strain on our existing management and operational
resources. We will incur a substantial portion of these expenses before we
achieve any meaningful revenues or market acceptance of new services. Our new
services may not achieve a sustainable level of market acceptance or ever become
profitable. If a new service is unsuccessful, our reputation and brand position
may be damaged and this may make it more difficult to sell our existing
services. A significant amount of our future growth depends on our ability to
offer these new services.
If we are unable to expand and improve our infrastructure, facilities, and
operational capacity, we will be unable to grow and our business and our
financial condition will suffer
The recent growth of our business has placed significant strain on our
communication and networking infrastructure and existing facility. From time to
time, demand for our services following television or Internet-based advertising
has exceeded our infrastructure and operational capacity. Clients may experience
delays during times when demand for our services exceeds our operational
capacity. These instances are independent of any service interruptions related
to disruption of our Web site or other systems. For example, we have in the past
experienced longer response times to client telephone calls during periods of
high calling volume because we lacked adequate capacity through our telephone
systems and operations and support personnel to handle the increased number of
calls. Similarly, we have experienced slower Web site response times during
periods of high traffic because our Internet servers lacked adequate capacity.
If these events occur again, we may lose clients and our reputation may be
damaged. This growth has also increased the demands on our management team and
technical, sales and operational resources. We anticipate that continued growth
will require us to implement and improve our operational, financial and
management information systems. In addition, we will need to invest in new and
expanded computer, telecommunication and information systems that better address
our existing capacity constraints. We are also currently considering acquiring
new space or relocating to a larger facility that would better address our
operational and personnel needs. As we offer new services and pursue corporate
and professional markets, we will also need to increase our executive and sales
and support personnel. Our business and results of operations will be adversely
affected if we are unable to expand and continually improve our infrastructure.
We face competition from many sources
The market in which we operate is highly competitive and highly fragmented.
Currently, our competition falls into four categories:
. 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;
. fee-based Internet search services offering comparable services, such as
KnowX.com, a division of Information America;
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. firms offering more comprehensive public record information, such as LEXIS-
NEXIS, a division of Reed Elsevier Inc., The Dun & Bradstreet Corporation,
Reuters Limited, Avert, Inc. and ChoicePoint, Inc.; and
. local, regional and national private investigation firms, such as Kroll-O'Gara
Company, Pinkerton, 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.
Some of these competitors do not currently offer public record search sales over
the Internet, but they may do so in the future. There are no significant
barriers that would prevent new companies from entering the market in which we
operate. In addition, some of our current suppliers and companies with which we
have advertising agreements may compete with us in the future, which may make it
more difficult to advertise our services effectively on their Web sites.
We may be unable to respond to the competitive efforts of other companies
Many of our competitors have greater financial and marketing resources than
we do and may have significant competitive advantages through other lines of
business, their existing client base and other business relationships. These
competitors and other potential competitors may undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and devote more
resources to developing public record search services for individual or
corporate clients than we are willing or able to accomplish. Our competitors or
potential competitors may develop services that are superior to ours, develop
services less expensive than ours or that achieve greater market acceptance than
our services. We may not be able to successfully compete against our current or
future competitors with respect to any of these factors. As a response to
changes in the competitive environment, we may make pricing, service or
marketing decisions such as reducing our prices or increasing our advertising,
all of which may affect our operating results. If we are unsuccessful in
responding to our competitors, our business, financial condition and results of
operations will be materially adversely affected.
We are dependent on a limited number of third party database and other
information suppliers for information used in our services
We obtain data used in our services from a limited number of third party
suppliers. If our current suppliers raise their prices or if the information
they provide becomes unavailable or unreliable, we may need to find alternative
sources of information. The time it takes to identify and contract with suitable
alternative data suppliers, as well as integrate these data sources into our
service offerings, could cause service disruptions, increased costs and reduced
quality of our services. Additionally, costs of obtaining data that may be
necessary in our new service offerings, such as criminal background information,
could be significantly higher, on a per transaction basis, than our current
information costs. Termination of existing agreements, or, failure after
termination, to enter into new agreements with third party suppliers on terms
favorable to us, could have a material adverse effect on our business, financial
condition and results of operations. Additionally, failure to obtain the data
and information necessary for our intended service offerings at commercially
reasonable costs or at all could prevent us from offering these new services and
our business, financial condition and results of operations could be materially
adversely affected.
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Service interruptions may have a negative impact on our revenues and may damage
our reputation and decrease our ability to attract clients
We depend on the satisfactory performance, reliability and availability of
our Web site and telecommunications infrastructure to attract clients and
generate sales. Our revenues, reputation and brand would be harmed and the value
of our services to clients would be reduced if we experience technical
difficulties that result in slower response times, disruptions or unavailability
of the services. We have experienced unanticipated system interruptions in the
past and we believe that these interruptions may occur again in the future. For
example, we have experienced system disruptions and slower response times as we
change or upgrade the software and hardware running on our network. In addition,
telephone systems and networks are subject to unanticipated downtimes due to
national disasters, power outages and similar events. Our servers may be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and fulfill client orders. The occurrence of any of these
events may have a material adverse effect on our business, financial condition
and results of operations.
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Item 3. Quantitative and qualitative disclosures about market risk
US SEARCH has not used derivative financial instruments in its investment
portfolio. US SEARCH invests its excess cash in debt instruments (either
directly or through money market or mutual funds) of the U.S. Government and its
agencies, and in high-quality corporate issuers and, by policy, limits the
amount of credit exposure to any one issuer. US SEARCH protects and preserves
its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, US SEARCH's future investment income may fall
short of expectations due to changes in interest rates, or US SEARCH may suffer
losses in principal if forced to sell securities which have declined in market
value due to changes in interest rates. US SEARCH's total liabilities as of
June 30, 1999 consist primarily of notes payable and accounts payable which have
fixed interest rates and were not subject to any significant market risk.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
Changes in Securities
In June 1999, US SEARCH authorized a 906.782 for one stock split pursuant to a
stock dividend to its current stockholders which became effective on June 22,
1999.
In June 1999, US SEARCH was reincorporated in Delaware and the par value of US
SEARCH's stock was changed prior to the effectiveness of the initial public
offering.
Use of Proceeds
The effective date of the Registration Statement for US SEARCH's initial
public offering, filed on Form S-1 under the Securities Act of 1933 (File No.
333-76099), was June 24, 1999. The class of securities registered was Common
Stock. The offering commenced on June 25, 1999. The managing underwriters for
the offering were Bear, Stearns & Co. Inc., BancBoston Robertson Stephens and
Wit Capital Corporation.
Pursuant to the Registration Statement, US SEARCH sold 4,500,000 shares of
its Common Stock for an aggregate offering price of $40,500,000. Kushner-Locke,
the selling stockholder, sold 1,500,000 shares of US SEARCH's common stock for
an aggregate offering price of $13,500,000. US SEARCH did not receive any of
the proceeds from the sale of common stock by Kushner-Locke.
US SEARCH incurred expenses of approximately $4.2 million, of which $2.8
million represented underwriting discounts and commissions and approximately
$1.4 million represented other expenses related to the offering. The net
offering proceeds to US SEARCH after total expenses was approximately $36.3
million.
US SEARCH used approximately $2.7 million of the net proceeds of the
offering to repay advances and outstanding obligations to Kushner-Locke. These
advances were due on demand and bear interest at 10% per annum. US SEARCH used
approximately $296,000 of the net proceeds of this offering to repay debt under
a promissory note US SEARCH assumed on behalf of Nicholas Matzorkis, a co-
founder, due in July 1999 and bears interest at 12% per annum. US SEARCH used
approximately $2.0 million of the net proceeds of the offering to make the
required payment under its marketing agreement with Yahoo! Inc. within five days
of the closing of the offering.
US SEARCH currently has no specific plans for the remaining proceeds of the
offering. The remaining net proceeds have been invested in cash, cash
equivalents, and short-term, interest-bearing, investment-grade securities. The
use of proceeds from the offering does not represent a material change in the
use of proceeds described in the prospectus used in the offering.
Item 3. Defaults upon Senior Securities
None
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Item 4. Submission of Matters to a Vote of Security Holders.
In the quarterly period ended June 30, 1999, the following matters were
submitted to the security holders of US SEARCH:
In April 1999, in connection with the preparation for its initial public
offering, US SEARCH solicited the approval of its stockholders through a written
Consent of stockholders to approve the reincorporation of US SEARCH into
Delaware, the amendment and restatement of US SEARCH's 1998 Stock Incentive
Plan, the adoption of US SEARCH's 1999 Non-Employee Directors' Stock Option
Plan, and approve the form of indemnity agreement between US SEARCH and its
officers and directors. The number of stockholders giving their consent
represented 10,000 shares, 100% of the 10,000 shares of common stock outstanding
at that time.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
- ----------- -----------
3.1* Certificate of Incorporation
3.1.1* Certificate of Amendment of Certificate of Incorporation, dated
May 12, 1999, changing corporate name to US SEARCH.com Inc.
4.1* Form of Common Stock Certificate
10.1*+ Advertising and Promotion Agreement dated June 7, 1999 between
Yahoo! Inc. and US SEARCH.com Inc.
10.2+ Data Processing Service Agreement dated July 1, 1999 between DBT
Online, Inc. and US SEARCH.com Inc.
27.1 Financial Data Schedule
- ------------
* Filed with the Company's Registration Statement on Form S-1, File No. 333-
76099, declared effective on June 24, 1999, incorporated herein by
reference.
+ Confidentiality requested
(b) Reports on Form 8-K:
None
25
<PAGE>
SIGNATURES
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 thereunto duly authorized.
US SEARCH.COM INC.
(Registrant)
Date: August 16, 1999 /s/ WILLIAM G. LANGLEY
----------------------------
William G. Langley
Vice President, Chief Financial Officer
(Principal Financial Officer)
Date: August 16, 1999 /s/ ALAN S. MAZURSKY
----------------------------
Alan S. Mazursky
Vice President, Finance
(Principal Accounting Officer)
26
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1* Certificate of Incorporation
3.1.1* Certificate of Amendment of Certificate of Incorporation, dated
May 12, 1999, changing corporate name to US SEARCH.com Inc.
4.1* Form of Common Stock Certificate
10.1*+ Advertising and Promotion Agreement dated June 7, 1999 between
Yahoo! Inc. and US SEARCH.com Inc.
10.2+ Data Processing Service Agreement dated July 1, 1999 between DBT
Online, Inc. and US SEARCH.com Inc.
27.1 Financial Data Schedule
- ------------
* Filed with the Company's Registration Statement on Form S-1, File No. 333-
76099, declared effective on June 24, 1999, incorporated herein by
reference.
+ Confidentiality requested
27
<PAGE>
Exhibit 10.2
DATA PROCESSING SERVICE AGREEMENT
This Agreement is entered into as of July 1, 1999, by and between DBT
ONLINE, INC., a Pennsylvania Corporation, having an address at 4530 Blue Lake
Drive, Boca Raton, Florida 33431 ("DBT"), and US SEARCH.COM, INC. a Delaware
corporation, having an address at 9107 Wilshire Boulevard, Suite 700, Beverly
Hills California 90210 ("SEARCH").
WHEREAS, DBT has developed and maintains an information network consisting
of both public records and publicly available data, currently comprised of the
databases and data access gateways enumerated on Exhibit A hereto ("Network");
and
WHEREAS, DBT is engaged in providing computer-related data retrieval
services ("Gateway Services") for the benefit of its customers ("Customers"),
including information of the type provided by DBT; and
WHEREAS, SEARCH desires DBT to supply information contained in the Network
to SEARCH for resale by SEARCH to its Customers subject to the conditions set
forth herein via the Gateway Services; and
WHEREAS, DBT desires to provide SEARCH such Network information on the
terms and subject to the provisions set forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements and covenants contained herein, the parties hereto agree as follows:
1. TERM. The term of this Agreement shall be for a period commencing on the
----
date of this Agreement ("Commencement Date") and terminating on the date
("Termination Date") five (5) years and six (6) months following the Effective
Date. This Agreement may be extended for an additional two (2) years on the
same terms and conditions as provided in the Agreement by mutual written consent
of the parties.
2. APPOINTMENT AND SCOPE OF AGREEMENT. On the terms and conditions of this
----------------------------------
Agreement, SEARCH hereby authorizes DBT and DBT accepts such authorization to
provide Network information to SEARCH for distribution of such information
solely as described herein.
3. OBLIGATIONS OF DBT.
------------------
3.1 DBT shall maintain the personnel and equipment necessary to accomplish
the services and provide the products contemplated hereunder.
3.2 DBT shall use reasonable efforts to maintain the availability (in
accordance with the specifications set forth in Exhibit B) through the
Network of the data specified in Exhibit A and shall maintain data
currency updates to the Network as it does for its own subscribers.
[*] = Certain information in this exhibit has been omitted and filed separately
with the commission. Confidential treatment has been requested with
respect to the omitted portions.
1
<PAGE>
3.3 DBT shall provide Gateway Services by permitting access to the Network
in accordance with this Agreement. Gateway Services and the Network
shall be available to Customers during the days, dates and times and
at services levels that DBT makes available the Network to its own
subscriber companies. Should the Network, or any information contained
therein, be unavailable for a period of greater than two (2) hours, or
should there be other problems with the Network meet the applicable
service levels set forth in Exhibit C, then DBT shall undertake the
error correction and remediation procedures set forth in such Exhibit
C. In the event that the Network, or any information contained
therein, is unavailable for a period of greater than forty eight (48)
hours, then DBT shall reduce the minimum monthly fee for usage to
reflect the loss of use of access to such Network information for such
time as the Network, or any information contained therein remains
unavailable. Such calculation shall be based on the prior month's
usage of such Network information that had become unavailable and
shall reduce the minimum monthly fee, for such time as the Network, or
any information contained therein remains unavailable, by an amount
equal to the prior month's billings on an hourly basis for such
unavailable Network information multiplied by the number of hours in
excess of forty eight (48) that such Network information is
unavailable. Such reduction shall constitute liquidated damages and
not a penalty and are SEARCH's sole and exclusivity remedy for such
unavailability; provided, however, that DBT shall remain obligated to
perform its remediation obligations under Exhibit C.
3.4 DBT shall provide sufficient data communications connectivity to meet
the needs of Customers for access to the Network.
3.5 DBT shall be responsible for maintaining data connectivity necessary
between itself and all vendors of information offered through the
Network.
3.6 SEARCH agrees not to distribute the Network information in a new
product or service offering or material modification of an existing
product or service offering until it has been reviewed, tested and
mutually determined to reflect accurately the data supplied by DBT and
the purposes for which such information may be used under any federal,
state or local laws governing such information. DBT and SEARCH agree
to use all reasonable efforts to assure that any required review, in
accordance with this section, shall be performed within five (5)
business days.
3.7 DBT agrees that any uniquely bundled Network information product
consented to and developed by DBT subject to the specification of
SEARCH and clearly identified by SEARCH as a Unique Product prior to
its development ("Unique Product") shall not be provided to any other
company making such Unique Product available to customers primarily
over the Internet ("Competitor") for a period of one (1) year from the
date of introduction to Customers. A Competitor, as defined in this
Section, shall exclude any affiliate, subsidiary or parent of DBT or
SEARCH.
2
<PAGE>
3.8 DBT will name a senior level business manager to meet with SEARCH on a
regular basis, not less than once per calendar quarter at a location
mutually acceptable to the parties, to assure open dialog throughout
the term of this Agreement.
3.9 DBT shall comply with the Principles adopted by the Individual
Reference Services Group Industry Principles (IRSG), initially as
contained in Exhibit D of this Agreement, as such may be amended from
time to time by the IRSG during the term of this Agreement.
3.10 DBT shall perform its obligations set forth throughout this Agreement
to a standard not less than the level of performance provided by DBT
to its other subscribers who purchase similar volumes of broad based
Network information, for resale, and delivered in a similar method or
media. Without limiting the foregoing, DBT agrees to provide the
level of performance required to meet the service levels described in
Exhibit C. Any failure of the Network to comply with any applicable
service level should be remedied by DBT as set forth in Exhibit C.
3.11 DBT shall perform certain engineering services to develop gateway
interfaces or other products on a project-by-project basis subject to
development of mutually acceptable specifications from time to time
over the two years following the Effective Date of this Agreement.
Any engineering services provided by DBT [*] following the Effective
Date of this Agreement and at [*] In no event shall the rate of
increase for such services [*] and [*] in any subsequent year of
this Agreement.
3.12 In the event that a third party supplier of information to DBT ceases
to make information available to DBT for distribution to SEARCH, DBT
shall promptly notify SEARCH of such action and shall use reasonable
efforts to work with such third party supplier and SEARCH to
facilitate access to such third party information by SEARCH. In the
event that DBT efforts fail to provide access to such third party
information, the sole remedy available to SEARCH shall be that
available through Section 3.3 of this Agreement unless such third
party supplied information is not yet utilized by SEARCH. In the event
that such third party supplied information is not yet utilized by
SEARCH and SEARCH has stated its intent to utilize such third party
supplied information, the parties agree to negotiate in good faith to
abate future increases in the stated monthly minimum fee for usage
required under Section 6.2 in an amount not to exceed the anticipated
volume usage of such third party supplied information.
3.13 DBT shall use reasonable efforts to maintain year 2000 readiness as
outlined in Exhibit F.
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with
respect to the omitted portions.
3
<PAGE>
4. OBLIGATIONS OF SEARCH.
---------------------
4.1 SEARCH shall maintain all data connectivity necessary between its
computer facilities and DBT at its own expense.
4.2 SEARCH will be providing first and second level support to its
Customers regarding Network information.
4.3 In any marketing of the Network, SEARCH shall not make any
representation or warranty with respect to the Network broader than or
inconsistent with any representation or warranty made by DBT with
respect to the Network in DBT's then-current Subscriber Agreement
supplied to SEARCH, the current version of which is attached as
Exhibit E hereto, or with other written descriptions provided by DBT
to SEARCH from time to time, and agreed to by SEARCH hereunder subject
to the dispute resolution provisions outlined in Section 17 of this
Agreement.
4.4 SEARCH agrees to take reasonable care in the use and dissemination of
the data retrieved from the Network and to comply with pertinent
federal and state laws and regulations regarding use of the
information.
4.5 SEARCH agrees that it will not use or disseminate data retrieved from
the Network for use as a consumer report, as defined in the Fair
Credit Reporting Act, without the prior consent of DBT and then only
in compliance with such Act.
4.6 SEARCH shall comply with the Principles adopted by the Individual
Reference Services Group Industry Principles (IRSG) and insure that
non-Public Information provided by DBT shall not be distributed to the
general public. SEARCH shall keep complete and accurate books and
records as defined in the IRSG Principles. DBT shall have the right
to monitor SEARCHES compliance with the IRSG Principles and no more
often than twice annually, upon ten (10) business days' prior written
notice, at any time following the effective date of this Agreement to
appoint an independent, third party auditor at SEARCH's expense
reasonably acceptable to SEARCH and subject to a reasonable
confidentiality agreement with SEARCH to examine, inspect, audit,
review and make extracts from all books and records evidencing IRSG
compliance and report only its detailed findings of compliance or non-
compliance to DBT, with a copy to be supplied simultaneously to
SEARCH. In the event that it is determined by the independent auditor
that SEARCH has failed to comply with the IRSG Principles in a non-
material manner, then DBT shall allow SEARCH five (5) business days to
correct such non-compliance. Should the parties disagree either with
the auditor or between themselves as to the interpretation or
application of a particular IRSG provision, the parties may resolve
such disagreement in accordance with the dispute resolution procedures
set forth in Section 17. If the IRSG provisions change over time and
the parties disagree as to the applicability of such changed
provisions to the subject matter of this agreement, the parties
4
<PAGE>
may also use the dispute resolution procedures set forth in Section
17. Notwithstanding the foregoing, the parties agree to retain a
mutually acceptable independent arbiter, prior to engaging in the
Section 17 dispute resolution procedures, to make determinations
regarding interpretation of the IRSG guidelines.
4.7 SEARCH will name a senior level business manager to meet with DBT on a
regular basis, not less than once per calendar quarter at a location
mutually acceptable to the parties, to assure open dialog throughout
the term of this Agreement.
5. SITE OF SERVICES: RIGHTS TO INFORMATION; RESTRICTION ON USE;
-----------------------------------------------------------
CONFIDENTIALITY.
---------------
5.1 All services provided by DBT hereunder shall be performed at DBT's
facilities located at 4530 Blue Lake Drive, Boca Raton, Florida 33431
or at such other facility as DBT may choose. All services provided by
SEARCH hereunder shall be performed at SEARCH's facilities located at
9107 Wilshire Boulevard, Suite 700, Beverly Hills, California 90210 or
at such other facility as SEARCH may choose.
5.2 SEARCH acknowledges that the Network is not the product of independent
investigation by DBT but is available information maintained by
government agencies or compiled by private companies from public and
private data records and updated periodically.
5.3 Notwithstanding anything else to the contrary in this Agreement,
SEARCH shall not maintain any Network data on its premises for resale
following retrieval from DBT and delivery to the original requesting
Customer; provided, however, that SEARCH shall have the right to
maintain Network data sufficient enough to assure compliance with
IRSG. DBT shall have the right to have SEARCH's facilities inspected
from time to time, but no more often than twice annually, in
accordance with the procedures set forth in Section 4.7 to ensure
compliance with Section 5 of this Agreement.
5.4 SEARCH acknowledges that the manner in which the Network and the
information contained therein is compiled, aggregated and displayed is
proprietary to DBT and that all intellectual property rights in and to
the Network and the information contained therein including without
limitation the copy rights thereto, are and remain solely the property
of DBT and SEARCH shall obtain no right in and to the Network or
information contained therein except for the limited right and license
to use the Network and information contained therein and resell the
information contianed in the Network as specifically set forth herein.
5
<PAGE>
6 FEES AND PAYMENTS.
-----------------
6.1 As compensation for data supplied by DBT, SEARCH agrees to pay all
standard fees for services ordered by SEARCH as described in Exhibit
A, as discounted pursuant to Exhibit A.
6.2 SEARCH acknowledges that this Agreement requires a minimum monthly fee
for usage of [*] Within thirty (30) days following each anniversary of
the Effective Date, DBT will invoice SEARCH for any shortfall between
amounts paid by SEARCH to DBT during the previous year and the sum of
minimum monthly fees for such period.
6.3 DBT agrees to invoice SEARCH for all fees and charges due and SEARCH
agrees to pay all invoice fees and charges within thirty (30) days of
receipt.
6.4 SEARCH agrees to pay interest at the lessor of, the highest rate
allowable, by law, or 1 1/2% on all amounts outstanding for greater
than sixty (60) days.
6.5 To the extent applicable, SEARCH shall be responsible for and shall
pay all sales, use, excise or similar taxes arising from payments made
by SEARCH to DBT under this Agreement, excluding any taxes based on
DBT's income. Nothing herein contained shall preclude SEARCH from
contesting the applicability or payment of any such tax. SEARCH's
failure or refusal to pay any such tax shall not be a default under
this Agreement. SEARCH agrees to indemnify DBT against any amounts or
penalties imposed by the applicable taxing authority for failure to
pay any such taxes payable by SEARCH hereunder; provided that DBT
gives SEARCH prompt written notice of such claim and sole control of
the defense or settlement of such claim.
6.6 SEARCH recognizes that fees may increase during the term of this
agreement to reflect a direct pass-through of any increase in federal,
state or municipal fees assessed DBT for access to information without
prior notice to SEARCH. DBT agrees to provide SEARCH prompt written
notice of any such price changes, in advance if possible.
6.7 DBT agrees that in the event it adjusts its published pricing, as
listed on Exhibit A, to a price lower than that contained in Exhibit
A, or changes its product or service offering to offer materially less
information, slower functionality or diminished performance from the
standards offered in this Agreement, DBT shall provide a reduction
equal to the percentage discounted price set forth in Exhibit A
against current pricing. Such adjustment shall be made concurrently
with the effective date of such price modification for DBT subscribers
in general. In
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with
respect to the omitted portions.
6
<PAGE>
addition, should DBT's performance materially fall below
Specifications either on a per-product or per-service basis or
generally, then the parties agree to discuss in good faith a reduction
of the minimum monthly purchase obligations or the fees for the
applicable below-specification product or service.
6.8 SEARCH agrees pay DBT[*] within thirty (30) days following the
Effective Date as a one time administrative fee.
7. REPRESENTATIONS AND WARRANTIES.
------------------------------
7.1 Rights Warranty. DBT represents and warrants that (a) DBT has the
right to grant the licenses granted herein and to provide the Network
services, and (b) the provision of such Network services and any
information that DBT may provide to SEARCH hereunder does not violate
any applicable local, state, federal or international law.
7.2 DISCLAIMER. SEARCH ACKNOWLEDGES THAT THE INFORMATION CONTINED IN THE
NETWORK IS OBTAINED FROM NUMEROUS THIRD PARTY SOURCES AND THAT SUCH
INFORMATION IS NOT ERROR FREE. EXCEPT AS EXPRESSLY SET FORTH IN
Section 7.1, DBT AND ITS DATA SUPPLIERS MAKE NO WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OR
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OF THE SOFTWARE
OR THE INFORMATION CONTAINED IN THE NETWORK, OR WITH RESPECT TO THE
COMPLETENESS, CORRECTNESS, CURRENTNESS OF SUCH SOFTWARE OR
INFORMATION.
8. INDEMNITY.
---------
8.1 DBT shall defend, protect, indemnify and hold SEARCH harmless from and
against all costs, expenses and damages attributable to any claim that
use of any Network information provided hereunder infringes upon any
proprietary or contractual right of a third party, or breach of
applicable law by DBT related to the collection of such information
supplied to SEARCH under this Agreement provided that (i) SEARCH gives
prompt written notice of any such claim to DBT, and (ii) DBT is given
full control over the defense of such claim and receives the full
cooperation of SEARCH, at DBT's expense, in the defense thereof.
DBT'S obligation under this section shall survive any termination of
this Agreement. DBT shall not have the right to settle any claims
against SEARCH without SEARCH's advance written consent, such consent
not to be unreasonably withheld or delayed.
8.2 SEARCH shall indemnify, defend and hold DBT harmless from and against
all costs, expenses and damages incurred by DBT: (a)from any third-
party claim
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
7
<PAGE>
arising out of the use of any of the data or services contained in the
Network; (b) arising out of any breach by SEARCH of this Agreement
which causes or may cause harm to DBT in an amount greater then $5,000
for each occurrence, provided that (i) DBT gives prompt written notice
of any such claim to SEARCH, and (ii) SEARCH is given full control
over the defense of such claim and receives the full cooperation of
DBT in the defense thereof. SEARCH's obligation under this section
shall survive any termination of this Agreement. SEARCH shall not have
the right to settle any claims against DBT without DBT's advance
written consent, such consent not to be unreasonably withheld or
delayed.
9. LIMITATION OF DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
---------------------
OTHER FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL, PUNATIVE, OR
EXEMPLARY DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION LOSS OF PROFITS,
LOSS OF DATA OR EQUIPMENT DOWNTIME, ARISING BY WAY OF CONTRACT, TORT OR OTHER
CLAIMS FOR DAMAGES, EVEN IF THE PARTY IS APPRISED OF THE LIKELIHOOD OF SUCH
DAMAGES OCCURRING; PROVIDED, HOWEVER, THAT THIS SENTENCE SHALL NOT AFFECT THE
CALCULATION OF THE AMOUNT OF ANY "LOSS" IN CONNECTION WITH ANY CLAIMS MADE BY
PERSONS OTHER THAN THE PARTIES HERETO. IN NO EVENT SHALL DBT BE LIABLE FOR ANY
AMOUNT IN EXCESS OF THE COST OF SERVICES PROVIDED TO SEARCH GIVING RISE TO A
CLAIM FOR DAMAGES.
10. OWNERSHIP AND DISSEMINATION OF THE DBT NETWORK AND LICENSED DATA. SEARCH
----------------------------------------------------------------
acknowledges that DBT is the exclusive owner of all right, title and interest in
the Network, including, but not limited to its contents (except for portions
licensed from third parties) programming, software, formulas, procedures, and
manuals, and all copyrights (and renewals) therein.
11. DEFAULT.
-------
11.1 Either party hereto (hereinafter the "Defaulting Party") shall be in
default upon the occurrence of any one of the following events: (i)
failure to perform any term, condition or covenant of this Agreement
and such failure shall continue for a period of sixty (60) days after
receipt of written notice thereof; (ii) if the Defaulting Party ceases
the conduct of active business; (iii) if any proceedings under the
Federal Bankruptcy Act or other insolvency laws shall be instituted by
or against the Defaulting Party or if a receiver shall be appointed
for the Defaulting Party or any of its assets or properties; or (iv)
if the Defaulting Party shall make an assignment for the benefit of
creditors.
11.2 Upon any default, the party which is not in default may terminate this
Agreement and, if applicable, declare all fees and other charges
immediately due and payable. Any termination shall be without
prejudice to any other rights or remedies which the nondefaulting
party may have against the Defaulting Party with respect to such
default, except as limited herein. Any such termination as a result of
a
8
<PAGE>
default shall not entitle the Defaulting Party to a refund, in whole
or in part, of the fees or other charges it has paid hereunder.
11.3 No remedy referred to in this Section is intended to be exclusive,
but shall be cumulative and in addition to any other remedy referred
to herein or otherwise available to the nondefaulting party at law or
in equity, except as limited herein.
12. USE OF TRADEMARKS AND LOGOS; ADVERTISING.
----------------------------------------
12.1 Neither party shall use in any advertising, sales promotion,
letterhead, publicity or other public or media communications, any
trade name, trademark, service mark, logo or similar other
identification or abbreviation, contraction or simulation thereof
owned by the other party without the consent of the other party, which
consent shall not be unreasonably withheld.
12.2 Neither party shall advertise or in any way publicly announce through
any media that it has entered into this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
12.3 Each party shall have the right to review any and all materials
bearing such party's trade name, trademark, service mark, logo or
similar other identification or abbreviation, contraction or
simulation thereof for the purposes of exercising its right of quality
control over such items.
13. EXCUSABLE DELAY. Neither party hereunder shall be liable to the other for
---------------
any delay in the time for performance of its obligations under this Agreement if
such delay arises out of circumstances beyond its reasonable control, including
but not limited to wars, natural disasters, equipment failure or breakdown,
governmental regulation or interference, or other calamity. In the event of any
such excusable delay, the time for the performance of such obligations shall be
extended for a period equal to the length of the delay. The party whose
performance is hampered by the excusable delay shall provide written notice to
the other parties as soon as reasonably possible of the occurrence of the delay,
but in no event later than three (3) business days, provide a description
thereof, and exercise its best efforts to remove such cause of non-performance.
All other obligations not affected by the excusable delay shall be in force and
effect during the period of time that the affected obligation is suspended
during the continuance of such excusable delay. If an excusable delay arises
out of equipment failure or breakdown, and such delay results in a failure of
performance which continues for a period of seventy-five (75) consecutive days,
the non-defaulting party, by notice in writing to the other, may state its
intention to terminate this Agreement. Upon receipt of such written notice the
defaulting party will have fifteen days to cure such default and avoid
termination.
14. NOTICES. All notices required or permitted under this Agreement will
-------
be in writing, will reference this Agreement and will be deemed given: (i) when
delivered personally; (ii) five (5) business days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(iii) one day after deposit with a
9
<PAGE>
commercial overnight carrier specifying next day delivery, with written
verification of receipt, at the addresses specified below. Each party may change
its address by written notice in accordance with this Section.
To SEARCH: US SEARCH.COM, Inc.
9107 Wilshire Boulevard, Suite 700
Beverly Hills, CA 90210
ATTN: VP of Operations
To DBT: DBT Online, Inc.
4530 Blue Lake Drive,
Boca Raton, FL 33431
ATTN: General Counsel
15. RELATIONSHIP OF THE PARTIES. The parties hereto agree that the
----------------------------
relationship of the parties created by this Agreement is that of
independent contractor and not that of employer/employee, principal/agent,
partnership, joint venture or representative of the other. Except as
authorized hereunder, neither party shall represent to third parties that
it is the employer, employee, principal, agent, joint venture or partner
with, or representative of the other party.
16. NONDISCLOSURE.
-------------
16.1 The parties acknowledge that the Network, Gateway Services and the
information returned therein has been procured, compiled and developed
by DBT and its data providers at great time and expense, and that DBT
may suffer great harm if SEARCH or any of its employees, discloses any
such information in any form to a third party except as provided
herein and therefore DBT may seek such injunctive relief as it deems
necessary to protect its interests.
16.2 Each party agrees that it will use the same degree of care and
discretion to avoid disclosure or dissemination of the other party's
Confidential Information to anyone other than those employees with a
need to know for purposes of this Agreement as it uses with
information it does not wish to have published, disclosed or
disseminated. Neither party will use the other's Confidential
Information without the prior written consent of the other party. For
purposes of this Agreement, "Confidential Information" means, without
limitations: (i) any information relating to either party's product
plans, specification, designs, development, costs or trademarks, or
relating to its finances, marketing plans, business opportunities,
personnel, research or know-how; (ii) any information designated by
the disclosing party as confidential, including, without limitation,
the detailed design plans and code for the Gateway Services and the
Network.
16.3 The parties agree that they have no obligation to keep confidential
any information that: (i) is or becomes generally known or available
by publication,
10
<PAGE>
commercial use or otherwise through no fault of the receiving party;
(ii) is known and has been reduced to tangible form by the receiving
party at the time of disclosure and is not subject to restriction;
(iii) is independently developed by the receiving party; (iv) is
lawfully obtained from a third party who has the right to make such
disclosure; or (v) is released for publication by the disclosing party
in writing. In addition, the parties are permitted to describe to
SEARCH Customers the following information: the returned data elements
of the Network.
17. DISPUTE RESOLUTION.
------------------
17.1 DBT and SEARCH understand and agree that the implementation of this
Agreement will be enhanced by the timely and open resolution of any
disputes or disagreements between such parties.
17.2 Each party agrees to use its good faith efforts to cause any disputes
or disagreements between such parties to be considered, negotiated in
good faith, and resolved as soon as possible.
17.3 In the event that any dispute or disagreement between the parties
cannot be resolved to the satisfaction of the DBT project manager and
the SEARCH project manager within ten (10) days after either such
project manager has notified the other in writing of the need to
resolve the specific dispute or disagreement within such ten (10) day
period, then the dispute or disagreement shall be immediately referred
in writing to the Chief Technology Officer of DBT and the Chief
Technical Officer of SEARCH (or their respective successors) for
consideration. In the event that such officers of DBT and SEARCH
cannot resolve such dispute or disagreement to their mutual
satisfaction within ten (10) days after the latter person has received
written notice of the need to resolve the specific dispute or
disagreement within such ten (10) day period, then the dispute or
disagreement shall be immediately referred to in writing to the CEO of
DBT and the CEO of SEARCH (or their respective successors) for
consideration.
17.4 No resolution or attempted resolution of any dispute or disagreement
pursuant to this Section shall be deemed to be a waiver of any term or
provision of this Agreement or consent to any breach or default unless
such waiver or consent shall be in writing and signed by the party
claimed to have waived or consented.
17.5 In the event a dispute should arise out of the terms, conditions and
obligations of this Agreement, and such dispute has not been resolved
after exhausting the procedures described in Section 17.3 of this
Agreement, the dispute shall be finally settled under the Rules of the
Judicial Arbitration and Mediation Services/Endispute (the "Rules") by
a single arbitrator appointed in accordance with the Rules. The
arbitration shall be conducted in Boca Raton. Judgment on the
arbitrator's award may be entered in any court having jurisdiction
over one or more of the parties to the dispute or the assets of such
party or parties. Each party shall bear its own expenses. Section 16
shall apply to all communications
11
<PAGE>
regarding any arbitration proceeding. No provision of this Section
17.5 shall limit the right of a party to this Agreement to obtain
equitable relief or any provisional or ancillary remedies from a court
of competent jurisdiction before, after, or during the pendency of any
arbitration. The exercise of a remedy does not waive the right of
either party to resort to arbitration.
17.6 No action arising our of this Agreement, regardless of form, may be
brought by any party more than one (1) year after the cause of action
has accrued.
18. MISCELLANEOUS PROVISIONS.
------------------------
18.1 Section headings are for convenience only and will not be construed
as part of this Agreement. This Agreement shall be construed and
interpreted according to its fair meaning and without regard to any
presumption or other rule requiring construction against the party
drafting or causing this Agreement to be drafted.
18.2 This Agreement shall be governed by the laws of the State of New
York.
18.3 Neither party shall assign this Agreement directly or indirectly by
operation of law without the advance written consent of the other;
provided, however, that either party may assign this agreement to a
successor in interest upon the occurrence of a merger, acquisition,
reorganization, change of control or sale of all or substantially all
of the assets of the assigning party. The terms, conditions and
obligations of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and the respective permitted
successors and permitted assigns thereof. Any assignment in violation
of this Section 18.2 shall be null and void ab initio.
18.4 This Agreement together with the Exhibits hereto, which are fully
incorporated herein, contains the complete and exclusive agreement
between the parties relating to the subject matter herein. This
Agreement supersedes, and the terms of this Agreement govern, any
prior or contemporaneous agreements, understandings, representations,
communications or proposals, oral or written, between the parties
relating to the subject matter of this Agreement, all of which are
merged herein. No statements in writing subsequent to the date of
this Agreement purporting to modify or add to the items and conditions
hereof shall be binding unless consented to in writing by duly
authorized representatives of SEARCH and DBT in a document making
specific reference to this Agreement. This Agreement may by executed
in several counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
18.5 No waiver of any breach of any provision of this Agreement shall
constitute a waiver of a prior, concurrent or subsequent breach of the
same or any other provisions hereof and no waiver shall be effective
unless made in writing and signed by an authorized representative. In
the event any one or more of the
12
<PAGE>
provisions contained in this Agreement shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of
this Agreement, and this Agreement shall be construed as if such
invalid or illegal or unenforceable provision has never been contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
US SEARCH .COM, Inc. DBT Online, Inc.
By: /s/ C. Nicholas Keating, Jr. By: /s/ Andrew Perlmutter
------------------------------- --------------------------
Date: 20 July 1999 Date: 7/20/99
----------------------------- ------------------------
13
<PAGE>
Exhibit A
DBT ONLINE, INC.
PRICING
<TABLE>
<CAPTION>
Annualized Annualized Annualized
Volume Volume Volume
$[*] $[*] $[*]
<S> <C> <C> <C>
AUTOTRACK XP
Queries / Links -- Real-time $[*] $[*] $[*]
Basic Reports -- Real-time $[*] $[*] $[*]
Comprehensive -- Real-time $[*] $[*] $[*]
Criminal Records* $[*] $[*] $[*]
Civil Records* $[*] $[*] $[*]
MVR's* $[*] $[*] $[*]
Regional Bell Operating Companies -- Real-time $[*] $[*] $[*]
AUTOTRACK PLUS
Time charges (per minute or fraction thereof) $[*] $[*] $[*]
Extended Searches -- Real-time $[*] $[*] $[*]
Regional Bell Operating Companies -- Real-time $[*] $[*] $[*]
Snap Shot -- Real-time $[*] $[*] $[*]
Criminal Records* $[*] $[*] $[*]
Civil Records* $[*] $[*] $[*]
MVR's* $[*] $[*] $[*]
Business Credit Report $[*] $[*] $[*]
OTHER
Bankruptcy Search $[*] $[*] $[*]
Business Credit Report $[*] $[*] $[*]
Civil Record Search* $[*] $[*] $[*]
Criminal Record Search By County* $[*] $[*] $[*]
Criminal Record Search By State $[*] $[*] $[*]
Education Verification $[*] $[*] $[*]
Moving Violation Report* $[*] $[*] $[*]
Previous Employment Verification $[*] $[*] $[*]
Professional License Verification $[*] $[*] $[*]
Real Property Search -- On-Site $[*] $[*] $[*]
Tag / License Plate Search -- On-Site $[*] $[*] $[*]
Uniform Commercial Code Search -- On-Site $[*] $[*] $[*]
Vehicle Identification Number History $[*] $[*] $[*]
Vehicle Title History* $[*] $[*] $[*]
Workers Compensation Claim Search $[*] $[*] $[*]
All other products discounted from published pricing [*]% [*]% [*]%
* Statutory fees additional
All other product discounts do not include discounting of statutory fees
</TABLE>
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Exhibit B
- --------------------------------------------------------------------------------
AutoTrackXP(SM)
- --------------------
Price List
PRICING OVERVIEW
AutoTrackXP pricing is calculated on a per transaction basis. AutoTrackXP
has no per-minute charges, no set up fees and no printing charges.
Monthly Service Fee _______________________________________________ $[*]
Each month that an account exceeds $100 in AutoTrackXP charges, the service
fee will be waived.
STANDARD FEATURES
Searches________________________________________________________ $[*]
A Search is a query of AutoTrackXP's databases to identify an individual,
address, asset, business, etc. A Search can be conducted with just a name,
a social security number, a phone number, a driver license number, or other
criteria. Each Search will provide matches, when available, to the chosen
criteria. In addition, a Search will allow you to browse 300 records at no
charge. (To comply with privacy guidelines, Searches using a social
security number will only return records that exactly match the social
security number you enter.)
Search Extensions ______________________________________________ $[*]
Search Extensions are available after conducting a Search in Faces of the
Nation(R). The three Search Extensions are (1) the names of other people
associated with an individual's address(es), (2) the names and listed phone
numbers for the neighbors of an address(es), and (3) any other names
associated with a particular social security number.
Basic Reports __________________________________________________ $[*]
A Basic Report can be ordered after conducting a Search. This report will
include, when available, current address information, historical address
information, date of birth, information related to social security numbers,
phone numbers and more. The information in the Basic Report is derived from
a broad array of databases so it provides a solid overview of the subject
of your search.
National Comprehensive Reports ________________________________ $[*]
A National Comprehensive report can be ordered at any time after conducting
a Search. This report contains the information from the Basic Report as
well as linkages to AutoTrackXP's other extensive national and state
databases for a summary of assets, driver licenses, professional licenses,
real properties, vehicles, and more. Using advanced search techniques,
AutoTrackXP precisely identifies and integrates the information which
matches the individual. The result is a National Comprehensive Report
providing an extremely focused and thorough composite.
AutoTrackXP prices are subject to change.
DBT Online, Inc.
AutoTrackXP is a service mark of Database Technologies, Inc. (C) 1999
Database Technologies, Inc. ALL RIGHTS RESERVED. May 1,1999
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
- --------------------------------------------------------------------------------
AutoTrackXP(SM)
Associates Feature ___________________________________________ [*]
The Associates Feature is an option which can be incorporated into either
the Basic Report or the National Comprehensive Report. The Associates
Feature provides, when available, the names of an individual's relatives,
other people who have used the individual's address(es), neighbors with
listed phone numbers, as well as spouses in Florida and Texas.
Real-Time Phone Searches _____________________________________ [*] A
Real-Time Phone Search can be used to find the listed telephone number of
a person, business or government agency or to identify the name
affiliated with a particular listed telephone number. This search can be
conducted by inputting a name, city and state (adding a street name will
narrow the search results) or a telephone number. AutoTrackXP will
process the request through its direct gateway access to regional Bell
Telephone(SM) companies' Directory Assistance database information, which
contains over 117 million listings.
Business Comprehensive report _______________________________ [*] A
Business Comprehensive Report will include, when available, business-
related information from Secretaries of State and other leading business
sources. In addition, the Business Comprehensive Report will include,
when available, linkages to AutoTrackXP's other extensive national and
state databases for a summary of assets, vehicles, real-time phone
listings, trademarks, businesses linked by address and FEIN, licenses and
more. For an introductory period, the Business Comprehensive Report will
also include additional information on business executives and their
other business affiliations. The result is a Business Comprehensive
Report providing an extremely focused and thorough composite.
-----------------------------------------------
AutoTrackXP prices are subject to change.
DBT Online, Inc.
AutoTrackXP is a service mark of Database Technologies, Inc. (C) 1999
Database Technologies, Inc. ALL RIGHTS RESERVED. May 1,1999
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
- --------------------------------------------------------------------------------
AutoTrackXP(SM)
Premium Searches
- ------------------
Price List
COURT SEARCHES
Court Record Searches provide access to criminal, civil, bankruptcy, and
driving history records held by county, state, and federal courts. Most
Court Record Searches are submitted online, processed by a researcher who
visits the court to review records and the results are returned
electronically via AutoTrackXP.
County Searches
<TABLE>
<S> <C>
Seven Year Criminal Searches......................................................................... [*]
Seven Year Civil Searches (States where only a single-court search is required)...................... [*]
Historical Criminal Searches......................................................................... [*]
Historical Civil Searches (States where only a single-court search is required)...................... [*]
Civil Searches (State where a multi court search is required)........................................ [*]
</TABLE>
<TABLE>
<CAPTION>
State Number Seven Year Historical
Of Courts Civil Search Civil Search
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arkansas 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Delaware 3 Courts [*] [*]
-----------------------------------------------------------------------------------------
Georgia 3 Courts [*] [*]
-----------------------------------------------------------------------------------------
Hawaii 3 Courts [*] [*]
-----------------------------------------------------------------------------------------
Indiana 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Maine 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Maryland 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Michigan 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Mississippi 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Puerto Rico 2 Courts [*] [*]
-----------------------------------------------------------------------------------------
Tennessee 3 Courts [*] [*]
-----------------------------------------------------------------------------------------
</TABLE>
Misdemeanor Searches
<TABLE>
<S> <C>
Seven Year Criminal Searches........................................................................... [*]
*Some courts apply a surcharge fee to research this information, which
is in addition to AutoTrackXP's search fee. The total amount of the
Misdemeanor search will be displayed on the online order form prior to
placing the order.
</TABLE>
Federal Searches
<TABLE>
<S> <C>
Seven Year Criminal Search............................................................................. [*]
Seven Year Civil Searches.............................................................................. [*]
Seven Year Bankruptcy Searches......................................................................... [*]
Historical Criminal Searches........................................................................... [*]
Historical Civil Searches.............................................................................. [*]
Historical Bankruptcy Searches......................................................................... [*]
</TABLE>
AutoTrackXP prices are subject to change.
DBT Online, Inc.
AutoTrackXP is a service mark of Database Technologies, Inc. (C) 1999
Database Technologies, Inc. ALL RIGHTS RESERVED. May 1,1999
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
- --------------------------------------------------------------------------------
AutoTrackXP(SM)
New York City Searches
<TABLE>
<S> <C>
Criminal Searches (Per Borough)...........................................$[*]
Civil Searches (Per Borough)..............................................$[*]
</TABLE>
Statewide Searches
Criminal Histories............................................ See Table
<TABLE>
<CAPTION>
State Statewide State Statewide
Criminal Search Criminal Search
- ----------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
Colorado $[*] Montana $[*]
- -------------------------------------------- --------------------------------------------
Connecticut $[*] Nebraska $[*]
- -------------------------------------------- --------------------------------------------
Florida $[*] New Jersey $[*]
- -------------------------------------------- --------------------------------------------
Hawaii $[*] North Carolina $[*]
- -------------------------------------------- --------------------------------------------
Indiana $[*] North Dakota $[*]
- -------------------------------------------- --------------------------------------------
Kansas $[*] Oklahoma $[*]
- -------------------------------------------- --------------------------------------------
Maine $[*] Oregon $[*]
- -------------------------------------------- --------------------------------------------
Massachusetts $[*] Pennsylvania $[*]
- -------------------------------------------- --------------------------------------------
Michigan $[*] South Carolina $[*]
- -------------------------------------------- --------------------------------------------
Minnesota $[*] Washington $[*]
- -------------------------------------------- --------------------------------------------
Missouri $[*] Wisconsin $[*]
- -------------------------------------------- --------------------------------------------
</TABLE>
Moving Violations Records (MVR) Searches.............................. See Table
<TABLE>
<CAPTION>
State Statewide State Statewide
MVR Search MVR Search
- -------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
Alabama $[*] Montana $[*]
- -------------------------------------------- --------------------------------------------
Alaska $[*] Nebraska $[*]
- -------------------------------------------- --------------------------------------------
Arizona $[*] New Hampshire $[*]
- -------------------------------------------- --------------------------------------------
Arkansas $[*] New Jersey $[*]
- -------------------------------------------- --------------------------------------------
California $[*] New Mexico $[*]
- -------------------------------------------- --------------------------------------------
Colorado $[*] New York $[*]
- -------------------------------------------- --------------------------------------------
Connecticut $[*] Nevada $[*]
- -------------------------------------------- --------------------------------------------
Delaware $[*] North Carolina $[*]
- -------------------------------------------- --------------------------------------------
D.C. $[*] North Dakota $[*]
- -------------------------------------------- --------------------------------------------
Florida $[*] Ohio $[*]
- -------------------------------------------- --------------------------------------------
Georgia $[*] Oklahoma $[*]
- -------------------------------------------- --------------------------------------------
Hawaii $[*] Oregon $[*]
- -------------------------------------------- --------------------------------------------
Idaho $[*] Pennsylvania $[*]
- -------------------------------------------- --------------------------------------------
Illinois $[*] Rhode Island $[*]
- -------------------------------------------- --------------------------------------------
Indiana $[*] South Carolina $[*]
- -------------------------------------------- --------------------------------------------
Iowa $[*] South Dakota $[*]
- -------------------------------------------- --------------------------------------------
Kansas $[*] Tennessee $[*]
- -------------------------------------------- --------------------------------------------
Kentucky $[*] Texas $[*]
- -------------------------------------------- --------------------------------------------
Louisiana $[*] Utah $[*]
- -------------------------------------------- --------------------------------------------
Maine $[*] Vermont $[*]
- -------------------------------------------- --------------------------------------------
Maryland $[*] Virginia $[*]
- -------------------------------------------- --------------------------------------------
Massachusetts $[*] Washington $[*]
- -------------------------------------------- --------------------------------------------
Michigan $[*] West Virginia $[*]
- -------------------------------------------- --------------------------------------------
Minnesota $[*] Wisconsin $[*]
- -------------------------------------------- --------------------------------------------
Mississippi $[*] Wyoming $[*]
- -------------------------------------------- --------------------------------------------
Missouri $[*]
- -------------------------------------------- --------------------------------------------
</TABLE>
AutoTrackXP prices are subject to change.
DBT Online, Inc.
AutoTrackXP is a service mark of Database Technologies, Inc. (C) 1999
Database Technologies, Inc. ALL RIGHTS RESERVED. May 1,1999
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
EXHIBIT C
SERVICE LEVEL AGREEMENTS
Up-Time: DBT has engineered its computer systems and network to ensure fully
redundant systems and installed failovers that minimize any single point of
failure. DBT is committed to 24 by 7 up time, 365 days a year. DBT will
notify 1800USSearch of any required downtime at least 48 hours in advance.
Problem Resolution Procedures: As part of DBT's commitment to providing
reliable service DBT has instituted a series of Command, Control and
Communications (C3) procedures to monitor, identify and resolve problems as
quickly as possible. DBT will notify 1800USSearch of any unscheduled down
time, including identifying the problem, the estimated time to repair and when
the system is restored to normal operation. Specific points of contact within
1800USSearch and DBT will be identified to facilitate these procedures.
To further explain the internal DBT C3 procedures the following description is
provided for information purposes only and is not considered part of the
Service Level Agreement.
[*]
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
[*]
Communicating Change Control: DBT has established specific time windows for
non-emergency changes to be implemented, including whom to notify. These
windows are Tuesday, Thursday and Saturday, 10pm to 4am EST. Understanding
that 1800USSearch has unique business and promotional needs, DBT will work
with 1800USSearch to accommodate these needs to the extent practical by not
scheduling major changes during these key production times.
Customer Service: DBT will provide subscriber support through a dedicated 1-
800 telephone number 24 by 7, 365 days a year. DBT will further designate a
senior level Service Center Team Leader to coordinate support activities to
assure that representatives communicating with 1800USSearch staff have the
necessary information to provide satisfactory, prompt suphport.
[*] = Certain information on this page has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
EXHIBIT D
INDIVIDUAL REFERENCE SERVICES
INDUSTRY PRINCIPLES
Individual Reference Services Group
Final -- December 15, 1997
Individual Reference Services Industry Principles
Preamble:
The following principles were developed by members of the individual reference
services industry to respond, as an industry, to heightened interest in the
industry's practices. The principles represent good practices that the
undersigned companies agree to support as part of their operating practices.
While it may take up to a year for some principles to be implemented fully,
other principles are already part of the operating practices of the undersigned
companies.
Scope:
These principles apply to individual reference services, which are commercial
services that directly or as suppliers to others provide information that
assists users in identifying individuals, verifying identities and locating
individuals for various purposes.
Definitions:
. Public Record Information: Information about or related to an individual
which has been obtained originally from the records of a federal, state,
or local governmental entity that are open for public inspection.
. Publicly Available Information: Information about an individual that is
available to the general public from non-governmental sources such as
telephone directories, classified ads, newspaper reports, publications,
or other forms of information.
. Non-Public Information: Information about an individual that is of a
private nature and neither available to the general public nor obtained
from a public record.
. Appropriate or Appropriately: Describes actions or uses that are
reasonable under the circumstances reflecting a balance between the
interests of individual privacy and legitimate business, governmental,
and personal uses of information, including prevention and detection of
fraud.
Principles:
Education: Individual reference services shall individually and through
their industry groups make reasonable efforts to educate users and the
public about privacy issues associated with their services, the types of
services they offer, these principles, and the benefits of the
responsible flow of information.
Reputable Sources: Individually identifiable information shall be acquired
from only sources known as reputable in the government and private
sectors.
A. Reasonable measures shall be employed to understand an information
source's data collection practices and policies before accepting
information from that source.
B. Individually identifiable information that is collected for
marketing purposes shall not knowingly be purchased, sold or
retained for creating or inclusion in individual reference
services, unless it is PUBLIC RECORD INFORMATION or PUBLICLY
AVAILABLE INFORMATION; its use is specifically permitted by law;
or it is collected with notice to the individual that such
information will be used for inclusion in individual reference
service products.
Accuracy: Reasonable steps shall be taken to help assure the accuracy of
the information in individual reference services. The goal of
individual reference service products is to furnish customers with
accurate reproductions of information.
A. When contacted by an individual concerning an alleged inaccuracy
about that individual, the individual reference service, as
APPROPRIATE, shall either
<PAGE>
correct any inaccuracy or inform the individual of the source of the
information and, if reasonably available, where a request for
correction may be directed.
B. The individual reference service's commitment to furnish users with
reasonably accurate reproduction of information in PUBLIC RECORD
INFORMATION systems does not permit alteration of the substantive
content of PUBLIC RECORD INFORMATION products or services.
Public Record and Publicly Available Information: PUBLIC RECORD INFORMATION
and PUBLICLY AVAILABLE INFORMATION shall be usable without restriction
unless legally prohibited.
Distribution of Non-Public Information: Except as provided in section IX,
NON-PUBLIC INFORMATION will be distributed only according to the
criteria set forth below. The nature of NON-PUBLIC INFORMATION being
requested and the intended uses of such information shall determine the
level of review of the subscriber. Companies who supply information
covered by this section to individual reference services shall provide
such information only to individual reference services that adopt or
comply with these principles.
A. Selective and Limited Distribution of Non-Public Information.
Individual reference services may distribute NON-PUBLIC
INFORMATION without restriction of its contents only to qualified
subscribers.
1. Qualified subscribers for the selective and limited
distribution of NON-PUBLIC INFORMATION must satisfy the
following conditions:
a. The subscribers must state their APPROPRIATE uses for
such information.
b. The subscribers must agree to limit their use and
redissemination of such information to such APPRO
PRIATE uses.
c. The subscribers shall be reasonably identified and
meet qualification requirements that establish them
as APPROPRIATE users of the information and agree to
terms and conditions consistent with these
principles prior to accessing the information.
2. Each individual reference service shall take reasonable
steps to protect against misuse of NON-PUBLIC INFORMATION
distributed pursuant to this subsection which will include:
a. Each individual reference service shall make
available upon request an explanation of what uses of
its information are APPROPRIATE and to which types of
qualified subscribers such information is available.
b. Individual reference services shall conduct a
reasonable review of the subscriber and its intended
uses of the information prior to making NON-PUBLIC
INFORMATION available to the subscriber.
c. Individual reference services shall maintain a record
of the identity of subscribers, the types of uses,
and the terms and conditions agreed to by the
subscriber for three years after termination of each
subscriber's relationship with the individual
reference service.
d. Reasonable measures shall be employed to help assure
that qualified subscribers use NON-PUBLIC INFORMATION
APPROPRIATELY.
e. Individual reference services shall implement
reasonable mechanisms to remedy subscriber abuses of
the information.
B. Commercial and Professional Distribution of Non-Public
Information. Individual reference services, when they limit the
NON-PUBLIC INFORMATION content of their products or services as
set forth below, may distribute such products or services only
to
<PAGE>
established professional and commercial users who use the information
in the normal course and scope of their business or profession and the
use is APPROPRIATE for such activities.
1. NON-PUBLIC INFORMATION products or services distributed
pursuant to this subsection shall not include:
a. Information that reflects credit history, financial
history, medical records, mother's maiden name identified
as such, or similar information;
b. Certain information like social security number and birth
information unless truncated in an APPROPRIATE and industry
consistent manner.
2. Users shall agree to terms and conditions consistent with
these principles prior to accessing the NON-PUBLIC
INFORMATION, shall agree to use such information solely in the
normal course and scope of their business or profession and
that the use is APPROPRIATE for such activities and that they
shall limit their use and redissemination of such information
to such uses and in accordance with these principles.
3. Individual reference services shall take reasonable steps to
protect against misuse of the NON-PUBLIC INFORMATION
distributed pursuant to this subsection which will include:
a. If not previously established, the individual reference
service shall take reasonable steps to identify the user
and to establish the user as an established professional or
commercial entity.
b. Reasonable measures shall be employed to help assure that
commercial and professional customers use NON-PUBLIC
INFORMATION APPROPRIATELY.
c. Individual reference services shall implement reasonable
mechanisms to remedy subscriber abuses of the information.
d. Individual reference services shall maintain a record of
the identity of subscribers and the terms and conditions
agreed to by the subscriber for three years after
termination of each subscriber's relationship with the
individual reference service.
C. General Distribution of Non-Public Information. Individual reference
services, when they limit the NON-PUBLIC INFORMATION content of their
products or services as set forth in this subparagraph, may distribute
such products or services to any person.
1. NON-PUBLIC INFORMATION distributed pursuant to this
subparagraph shall not knowingly include information that
reflects social security number, mother's maiden name
identified as such, non-published telephone number, or non-
published address information obtained from telephone
companies, birth information, credit history, financial
history, medical records, or similar information, nor will
the service be retrievable by a social security number.
2. The individual reference service shall take reasonable steps
to protect against the misuse of NON-PUBLIC INFORMATION.
Security: Individual reference services shall maintain
facilities and systems to protect information from unauthorized
access and persons who may exceed their authorization. In addition
to physical and electronic security, individual reference services
shall reasonably implement:
1. Employee and contractor supervision -- Employees and
contractors shall be required to sign confidentiality
agreements and be subject to supervision.
2. Reviews -- System reviews shall be made at APPROPRIATE
intervals to assure that employees are complying with
policies.
Openness: Each individual reference service shall have an information
practices policy statement that describes what types of information
it has, from what types of sources, how it is collected, the type
of entities to whom it may be disclosed and the type of uses to
which it is put, and shall make its
<PAGE>
policy statement available upon request. Consumers shall be
notified about these practices in various ways such as:
1. Web sites;
2. Advertisements; or
3. Company or industry-initiated educational efforts.
Choice: Each individual reference service shall upon request inform
individuals of the choices, if any, available to limit access or
use of information about them in its data base, provided, however,
that in the case of NON-PUBLIC INFORMATION distributed to the
general public (section V.C of these principles), an individual
reference service shall provide an opportunity for an individual to
limit the general public's access or use of such NON-PUBLIC
INFORMATION.
Access: Upon request and reasonable terms, an individual reference
service shall:
A. Inform an individual about the nature of PUBLIC RECORD and
PUBLICLY AVAILABLE INFORMATION that it makes available in
its products and services and the sources of such
information;
B. Provide individuals with NON-PUBLIC INFORMATION contained
in products and services that specifically identifies them
and that are distributed as part of an individual
reference service to users under section V. of these
Principles unless the information was obtained on a
limited use basis from a governmental agency or if its
disclosure is limited by law or legally recognized
privilege; and
C. Direct individuals to a consumer-reporting agency
regulated by the Fair Credit Reporting Act where such
agency is the source of the information about the
individual.
Children: Where an individual is identified in the product or service
as being under the age of 18, no NON-PUBLIC INFORMATION about
that individual shall be provided for other than selective and
limited distribution purposes or for the purposes of locating
missing children.
Assurance of Compliance: The signers of these principles shall have
completed within 15 months of the effective date of these
principles, and on a periodic basis thereafter, at least once
every year, an assurance review done by a reasonably qualified
independent professional service. The independent professional
service shall apply assurance criteria consistent with these
principles and approved by the signers as a group. Individual
reference services shall have a reasonable opportunity to
respond to any concerns expressed in such assurance review. A
summary reflecting both the [original] report and any
subsequent actions taken or response made by the company shall
be publicly available.
<PAGE>
Exhibit E
DATABASE TECHNOLOGIES, INC.
SUBSCRIBER AGREEMENT
This Agreement is entered into as of the last date set forth below, by and
between Database Technologies, Inc. ("DBT") with its principal address at 4530
Blue Lake Drive, Boca Raton, Florida, 33431 and _______________________________
("Subscriber") with its principal address at __________________________________
and applies to Subscriber's use of all services provided by DBT.
For purposes of this Agreement, all references to DBT shall include DBT's
directors, officers, employees, agents, affiliates and assigns. The services
provided by DBT shall include, without limitation, all online services, data
retrieval services, gateway access, customer service and documentation provided
by DBT from time to time (collectively, the "Services"). All information
provided by DBT in connection with the Services, including, without limitation,
all data, reports and files are collectively referred to as the "Information".
1. SERVICES. Based upon the uses which Subscriber has certified to DBT on
Subscriber's Intended Use Certification (the "Use Certification"), DBT shall
provide Subscriber with the Services designated by Subscriber from time to time,
in consideration for the fees for the Services as set forth in Section 3
pursuant to the attached Terms and Conditions (the "Terms and Conditions") which
shall govern Subscriber's use of the Services and the Information. Subscriber
shall not use the Information obtained through the Services for credit granting,
credit monitoring, account review, insurance underwriting, employment or any
other purpose prohibited by the Fair Credit Reporting Act, 15 U.S.C. Sec. 1681,
et seq, ("FCRA"), and similar state statutes. DBT reserves the right to
immediately terminate this Agreement and Subscriber's access to the Services and
the Information if Subscriber violates this Section 1 or any other provision of
this Agreement or if Subscriber's use of the Services is other than as set forth
in Subscriber's Use Certification.
2. ELIGIBILITY. Subscriber acknowledges that DBT does not provide the Services
and Information to the general public. Subscriber represents and warrants that
Subscriber is either a (i) licensed professional in good standing; (ii) a
company with a genuine and legitimate business need for the Services and
Information for the uses identified by Subscriber in Subscriber's Use
Certification; or (iii) a duly constituted law enforcement or other governmental
agency. Subscriber shall provide proof of licensure upon request of DBT.
Subscriber shall use the Services and the Information only in the ordinary
course of Subscriber's business in a manner appropriate for such business, for
the uses identified to DBT by Subscriber in Subscriber's Use Certification.
Subscriber shall promptly notify DBT of any change in Subscriber's status
affecting Subscriber's eligibility to use the Services.
3. FEES AND CHARGES. For the Services and the license hereunder, Subscriber
shall pay DBT the applicable rates announced by DBT from time to time either in
writing or online or as specifically agreed upon in writing by DBT and
Subscriber (the "DBT Price List"). DBT may make changes, additions and deletions
to the Services and the Information at any time without prior notice and such
changes shall not affect the rate set forth on the DBT Price List. DBT reserves
the right to alter the DBT Price List at any time upon fifteen (15) days notice.
DBT shall invoice Subscriber for all fees and charges incurred and such invoices
are due and payable upon receipt.
4. TERM AND TERMINATION. This Agreement may be terminated at any time by
either party upon thirty (30) days prior written notice to the other party.
Notwithstanding the foregoing, if Subscriber breaches this Agreement, DBT shall
have the right to terminate this Agreement immediately either with or without
notice. Any termination of this Agreement shall not affect any fees or charges
then due to DBT from Subscriber. Upon any such termination, Subscriber shall
cease using the Services and shall delete from Subscriber's computers and other
media all copies of any Software provided by DBT in connection with this
Agreement and return to DBT, within ten (10) days thereafter, all Software,
manuals and documentation provided in connection with the use of the Services.
5. NOTICES. Except for any changes to the DBT Price List or as otherwise
provided herein, any notice required or permitted to be sent under this
Agreement shall be in writing and delivered personally, sent by prepaid regular
first-class certified mail return receipt requested, or by overnight courier to
the addresses specified above, or such address either party may specify in
writing, and shall be effective on the date received.
6. ASSIGNMENT. Subscriber may not assign or sublicense this Agreement or any
rights hereunder, without the prior written consent of DBT.
7. SEVERABILITY. Should any term or condition of this Agreement be declared
illegal or unenforceable, such illegality or unenforceability shall not affect
any other term or condition hereof.
8. SURVIVAL. The provisions of Sections 3, 8 and 10 hereof and Sections 1, 2,
3, 5, 6, 7 and 8 of the Terms and Conditions shall survive the termination of
this Agreement, for any reason.
9. ENTIRE AGREEMENT. This Agreement, the DBT Price List and the attached Terms
and Conditions are the exclusive agreement of the parties with respect to the
subject matter hereof and supersede all prior negotiations, representations and
statements. This Agreement may be amended only upon the written consent of both
parties.
10. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida, without reference to its
principles of conflicts of laws.
Notwithstanding DBT's prior signature, this Agreement does not constitute an
offer to provide Services by DBT and shall not be binding until Subscriber
(i) has been accepted by DBT following the Subscriber Qualification Process; and
(ii) has been issued a user identification number and password by DBT.
<TABLE>
<CAPTION>
DATABASE TECHNOLOGIES, INC.
<S> <C>
_____________________________
(SUBSCRIBER)
BY:__________________________ BY: ___________________________
TITLE: ______________________ TITLE: ________________________
DATE: _______________________ DATE: _________________________
</TABLE>
<PAGE>
TERMS AND CONDITIONS
THE FOLLOWING TERMS AND CONDITIONS GOVERN THE USE OF ALL ONLINE SERVICES
PROVIDED BY DATABASE TECHNOLOGIES, INC. ("DBT"). YOU MAY NOT USE SUCH SERVICES,
OR THE INFORMATION AVAILABLE FROM SUCH SERVICES, WITHOUT FIRST ACCEPTING THESE
TERMS AND CONDITIONS.
1. SOFTWARE LICENSE; LICENSE TO USE SERVICES AND INFORMATION; RESTRICTIONS ON
USE. For so long as Subscriber subscribes to the applicable DBT Services and
fully complies with the terms of the Subscriber Agreement, DBT shall make
available to Subscriber, from time to time, certain software and modifications
and updates to such software (collectively, the "Software") in connection with
the Services, in order to access the Information. DBT hereby grants Subscriber a
limited, revocable, non-exclusive, non-transferable license to use the Software,
and to access and use the Services and the Information, for internal research
and investigative purposes only, and not for resale, for the uses specified by
Subscriber in the Subscriber Qualification Process. Subscriber may make one copy
of the Software for backup or archival purposes, provided that Subscriber
duplicates on such backup copy the copyright notice and other identifying
information on the Software. Subscriber must notify DBT in writing if it wishes
to make any additional copies of the Software so that DBT may properly track
such Software. Subscriber may download a portion of the Information to a storage
device for the purpose of printing Reports. Subscriber shall not sell, copy,
reproduce or transfer the Information in bulk or resell the Reports. Subscriber
shall not provide access to the Services to any other party. In using the
Services and the Information, Subscriber shall comply with all applicable
federal and state laws and regulations, including, without limitation, any
reporting or use requirements under the FCRA to the extent applicable. If
Subscriber breaches these provisions, DBT may terminate Subscriber's access to
the Services and Information and seek an injunction and any other available
relief against Subscriber. DBT reserves the right to restrict Subscriber's
access to certain portions of the Services and Information.
2. DBT INTELLECTUAL PROPERTY; RIGHT AND TITLE. The Software and copyright to
the printed information supplied by DBT and the reports provided to Subscriber
by DBT containing search results of the Information (the "Reports") are and
shall remain the intellectual property of DBT and its third party suppliers.
Subscriber may print a copy of the documentation from the Software only for its
own use for the sole purpose of operating the Software. Subscriber acknowledges
that the Software, the Services, the Information and the Reports are proprietary
to DBT and contain copyrighted material, trade secrets and proprietary
information owned by or licensed to DBT. Subscriber shall not de-compile,
reverse engineer, disassemble or otherwise reduce the Software to human readable
form. Subscriber may not modify, rent, lease, loan, or distribute copies of the
Software. Subscriber may not create derivative software based upon any trade
secret or proprietary information of DBT. Subscriber acknowledges that the
license set forth herein is not a sale of DBT intellectual property and that DBT
and its suppliers continue to own all right, title and interest in and to the
Software, Services, Information and the copyright to the Reports, including but
not limited to all rights under applicable intellectual property laws.
Subscriber shall use the Services, Information and the Reports consistent with
such right, title and interest of DBT. Subscriber shall obtain no proprietary
interest in any of the Services or the Information.
3. U.S. GOVERNMENT USE. Use, duplication or disclosure of the Software by the
U.S. Government is subject to "Restricted Rights", as that term is defined in
the Department of Defense ("DOD") Supplement to the Federal Acquisition
Regulations ("DFARS") in paragraph 252.227-7013(c)(1)(ii) if to the DOD, or, if
the Software is supplied to any unit or agency of the U.S. Government other than
DOD, the Government's rights in the Software shall be as defined in
subparagraphs (c)(1) or (c)(2) of FAR 52.227-19, Commercial Computer Software-
Restricted Rights; or FAR 52.227-14, Rights in General Data Alternative III, as
applicable. Contractor: Database Technologies, Inc., 4530 Blue Lake Drive, Boca
Raton, Florida.
4. USER IDENTIFICATION; INQUIRY LOG. Subscriber shall maintain the
confidentiality of its assigned user identification numbers for the Services and
shall be responsible for all charges incurred under such numbers. Each of
Subscriber's authorized users shall be assigned a unique user identification
name or number ("ID"). The name of each user associated with each ID shall be
provided to DBT. Subscriber shall insure that no ID assigned to Subscriber's
account is used by more than one individual and that users do not otherwise
share IDs. Unless Subscriber is a duly constituted law enforcement or government
agency, DBT reserves the right to maintain and, for any legitimate reason,
review logs containing any inquiry details and other activities performed by
Subscriber.
5. INTELLECTUAL PROPERTY INDEMNITY. DBT shall indemnify, defend and hold
Subscriber harmless from and against any and all claims, losses, costs, damages
and expenses (including attorney's fees) (collectively "Losses") to the extent
arising out of any claim by any third party that the Software violates such
party's copyright, trademark or other U.S. intellectual property rights.
6. INDEMNITY. Except to the extent (i) provided in Section 5 above or (ii)
arising out of the gross negligence or willful misconduct of DBT, Subscriber
shall indemnify, defend, and hold DBT harmless from and against any Losses
resulting from claims by third parties arising out of Subscriber's use of the
Services or the Information.
7. LIMITATION OF LIABILITY. Subscriber acknowledges that DBT relies on others,
including the compilers and reporters of public records, in providing the
Services and the Information. THE SERVICES AND THE INFORMATION ARE PROVIDED `AS
IS' AND `AS AVAILABLE', WITHOUT WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. Neither DBT nor any third party source of any Information shall be
liable to Subscriber (or to any person or entity claiming through Subscriber)
for any damages arising from or caused in whole or in part from (i) errors or
omissions in the Services or the Information; (ii) any interruption in the
Services; (iii) DBT's or any third party source's negligent acts or omissions in
procuring, compiling, interpreting, reporting or delivering the Information; or
(iv) otherwise in providing the Services. Notwithstanding this paragraph, in the
event that DBT or any third party source shall be found liable for any damages
for any reason relating to Subscriber's use of the Services or the Information,
the appropriate measure of such damages shall be the cost paid by Subscriber for
the Services and the Information specifically relating to such loss.
8. NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL DBT OR ANY THIRD PARTY SUPPLIER
TO DBT BE LIABLE FOR ANY INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
EVEN IF DBT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. EXCUSABLE DELAY. The availability of Services and Information is subject to
interruption and delay ("Excusable Delay") due to causes beyond DBT's reasonable
control. DBT shall not be liable to Subscriber for any Excusable Delay.
10. ADVERTISING. Neither party shall use, in any advertising, sales promotion,
publicity or other public or media communications, any trade name, trademark,
service mark, or logo owned by the other party, without the written consent of
such party.
11. PURCHASE ORDER. If Subscriber's purchase order is used in conjunction with
this Agreement, the terms and conditions set forth in this Agreement are made a
part of and govern in the event of any conflict with the terms of such purchase
order.
12. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Subscriber Agreement to which these
Terms and Conditions are attached and made a part of.
<PAGE>
Exhibit F
Year 2000 Issues
- ------------------------------------------------------------------------------
Year 2000 Readiness Disclosure
The following statement shall be designated as a Year 2000 Readiness Disclosure
for purposes of THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT by DBT
Online, Inc. and its wholly owned subsidiary Database Technologies, Inc.
(collectively, the "Company").
The Year 2000 Issue is the issue of whether information and non-information
technology systems will be able to recognize and process date-sensitive
information in the year 2000. The Company relies, directly and indirectly, on
information technology systems, such as microprocessors, proprietary operating
systems, desktop computers, network hardware equipment and applications
software, to operate its products, manage its business data and perform a
variety of administrative services including accounting, financial reporting,
payroll and invoicing. The Company also relies on non-information technology
systems including office equipment, security systems, and telephone systems to
carry out its day-to-day operations. In addition, third parties material to the
Company's operations, such as suppliers, vendors and customers, rely on
information and non-information technology systems to manage their businesses.
All of these technology systems could potentially be affected by the Year 2000
Issue.
In order to obtain Year 2000 compliance certification from the Information
Technology Association of America, an independent industry consortium, and
minimize the risk of Year 2000 related losses, the Company began conducting a
comprehensive assessment of its Year 2000 Issues in August 1998. The assessment
has focused on six areas that, if affected by the Year 2000 Issue, could have a
material adverse effect on the Company's operations. These areas are: data
storage; DBT's product software; vendor product software used by customers;
vendor product software used internally by the Company; hardware; and other
technology systems used by the Company, including phone and security systems.
The following is a Year 2000 status report for each of these areas, based upon
the phase of the assessment completed to date:
DATA STORAGE
Approximately 1 % of the data fields used in DBT products are not Year 2000
compliant and will require modification. The Company expects to make all of
its data fields Year 2000 compliant by June 1, 1999. In addition, the
Company will adopt policies and procedures to ensure that all of its data
fields remain Year 2000 compliant in the future.
DBT PRODUCT SOFTWARE
The Company believes that its product processing software is generally
equipped to handle the Year 2000 Issue. The Company is currently in the
process of amending codes to bring the product processing software into
full Year 2000 compliance. The company expects that all of its product
software will be Year 2000 compliant by June 1, 1999.
VENDOR PRODUCT SOFTWARE USED BY CUSTOMERS
<PAGE>
Version 8.0 of pcANYWHERE, the software used to access AutoTrack PLUSSM, is
certified Year 2000 compliant. Earlier versions of pcANYWHERE will not be
made Year 2000 compliant by Symantec, the vendor. The Company plans to
begin testing to determine the costs of bringing the earlier versions of
pcANYWHERE into compliance. Alternatively, the Company may require its
customers to upgrade their communications packages to version 8.0 of
pcANYWHERE or to move to AutoTrackXPSM, which customers may access via
widely available Internet browsers. These applications and the latest
versions of Microsoft Internet Explorer and Netscape Navigator, are Year
2000 compliant.
VENDOR PRODUCT SOFTWARE USED BY THE COMPANY
The Company is currently contacting vendors of software products used by
the Company internally, including Microsoft Office and Outlook to determine
if those products are Year 2000 compliant. The Company believes that most
of these products either are currently Year 2000 compliant or that vendors
will provide software aides, supplements or replacements to make them Year
2000 compliant.
HARDWARE
All 650 of the Company's desktop machines will require an upgrade,
typically a new clocking board, in order to be made Year 2000 compliant.
The Company's servers and processors will be individually evaluated and may
also require modification. All of the Company's networking hardware is
certified Year 2000 complaint.
NON-INFORMATION TECHNOLOGY SYSTEMS
The Company's phone and security systems are Year 2000 compliant. The
Company is currently evaluating the Year 2000 readiness of its fire
suppression and HVAC systems.
The Company expects to complete its Year 2000 assessment by January 1999, and to
be fully Year 2000 compliant and obtain certification of Year 2000 compliance
from the Information Technology Association of America by September 1999. Given
the Company's plans to identify and address the Year 2000 Issues, the Company
does not believe that the Year 2000 Issue will have a material adverse effect on
its results of operations or financial condition. The Company estimates that the
total cost of addressing its Year 2000 Issue will be approximately $300,000. All
costs associated with the remediation of the Year 2000 Issues will be expensed
as incurred. The Company will develop a contingency plan for dealing with
adverse consequences associated with Year 2000 Issues by August 31, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM US SEARCH
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 33,754
<SECURITIES> 0
<RECEIVABLES> 167
<ALLOWANCES> 87
<INVENTORY> 0
<CURRENT-ASSETS> 36,194
<PP&E> 835
<DEPRECIATION> 380
<TOTAL-ASSETS> 36,683
<CURRENT-LIABILITIES> 5,112
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 31,411
<TOTAL-LIABILITY-AND-EQUITY> 36,683
<SALES> 7,279
<TOTAL-REVENUES> 7,279
<CGS> 2,724
<TOTAL-COSTS> 10,544
<OTHER-EXPENSES> 3,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,966
<INCOME-PRETAX> (14,051)
<INCOME-TAX> 1
<INCOME-CONTINUING> (14,052)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,052)
<EPS-BASIC> (1.44)
<EPS-DILUTED> (1.44)
</TABLE>
