-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TwJ8XiSjbt7C4ByPqmxYEr0FfVZ0c6zEaxnLRkPK6ySJPHC+Nvp8bag7RU58/N4Q IJWzWIHq51/7P/dM8z9Apg== 0000931731-01-500077.txt : 20010424 0000931731-01-500077.hdr.sgml : 20010424 ACCESSION NUMBER: 0000931731-01-500077 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010420 ITEM INFORMATION: FILED AS OF DATE: 20010420 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL COURIER TECHNOLOGIES INC CENTRAL INDEX KEY: 0000774055 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 870461856 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-20771 FILM NUMBER: 1607118 BUSINESS ADDRESS: STREET 1: 348 EAST 6400 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84060 BUSINESS PHONE: 4356553617 MAIL ADDRESS: STREET 1: 348 EAST 6400 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84060 FORMER COMPANY: FORMER CONFORMED NAME: DATAMARK HOLDING INC DATE OF NAME CHANGE: 19950124 FORMER COMPANY: FORMER CONFORMED NAME: EXCHEQUER INC /DE/ DATE OF NAME CHANGE: 19950111 8-K 1 digitalc8k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): April 20, 2001 (December 15, 2000) Digital Courier Technologies, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 0-20771 87-0461856 - -------- ------- ---------- (State or Other (Commission (IRS Employer Jurisdiction of Incorporation) File Number) Identification No.) 348 East 6400 South, Salt Lake City, Utah 84107 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (801) 266-5390 ------------------------------------------------------------ (Former Name or Former Address, if Changed Since Last Report) Item 9. Regulation FD Disclosure - --------------------------------- Attached as Exhibits A and B to this Current Report are letters received from administrative entities of The Nasdaq Stock Market ("Nasdaq"), dated as of December 15, 2000 and April 9, 2001, respectively. The Company does not necessarily agree with the findings of or decisions reached by Nasdaq, and does not represent that a court or other judicial authority would, after reviewing all applicable facts, circumstances, and evidence, reach the same conclusions as Nasdaq. Further, the Company is not, by its filing hereby, endorsing or adopting the contents or conclusions of such letters. 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 hereunto duly authorized. DIGITAL COURIER TECHNOLOGIES, INC. Dated: April 20, 2001 By: /s/ Bobbie Downey --------------------- Bobbie Downey Vice President, General Counsel and Secretary EX-99.1 2 exhibita.txt ADDITIONAL EXHIBITS Exhibit A --------- Sent Via Fascimile and Overnight Commercial Courier December 15, 2000 Simon M. Lorne, Esq. Munger, Tolles & Olsen LLP 355 South Grand Avenue 35th Floor Los Angeles, CA 90071-1560 Re: Digital Courier Technologies, Inc. (Symbol: DCTIE) Nasdaq Listing Qualifications Panel Decision NQ 3461N-00 Dear Mr. Lorne: This is to inform you that, pursuant to the November 9, 2000 oral hearing before a Nasdaq Listing Qualifications Panel (the "Panel"), a determination has been made in the matter of Digital Courier Technologies, Inc. (the "Company") and its request for continued inclusion on the Nasdaq National Market notwithstanding the Company's failure to comply with the Nasdaq's filing requirement, as set forth in Nasdaq Marketplace Rule 4310(c)14), and the shareholder approval and public interest concerns raised by staff, in accordance with Nasdaq Marketplace Rules 4350(i)(1)(c) and 4300/4330(a)(3), respectively.1 After a careful review of the entire record, the Panel relied upon the following information in reaching its determination. Factual Background - ------------------ The Company describes itself as a specialist in risk management and fraud control providing highly scalable, reliable, and fully-integrated payment software and systems for businesses, internet merchants and financial institutions. The Company filed the Form 10-K for the fiscal year ended June 30, 2000 on December 7, 2000, and the Form 10-Q for the quarter ended September 30, 2000 on December 8, 2000. The Form 10-Q for the quarter ended September 30, 2000 reported total assets of $234,566,568, net tangible - -------------------------------------------------------------------------------- 1The Company was given specific notice of its failure to timely file the Form 10-K for the fiscal year ended June 30, 2000 and an opportunity to respond. It was subsequently determined that the Company was delinquent in the filing of the Form 10-Q for the quarterly period ended September 30, 2000. The Company was not provided with specific notice of the additional delinquency; however, the Company did present a plan to address the September 30, 2000 filing at the hearing. 1 assets of $14,870,080, and three month revenue and net income (loss) of $9,495,909 and $(12,513,009), respectively.2 The Company now reports approximately 40,044,444 total shares outstanding and 28,242,964 shares in the public float.3 The closing bid price for the Company's common stock on October 10, 2000, the last day of trading prior to the halt discussed below, was $2.9063 per share; consequently, the market capitalization and market value of public float were $116,252,000 and $82,081,114, respectively. The First Public Disclosure on Form 9-K - --------------------------------------- On August 18, 2000, the Company filed a Form 8-K with the Securities and Exchange Commission (the "SEC") generally disclosing that it had recently discovered the apparent existence of undisclosed interests held by certain of the Company's insiders and related parties in DataBank International Ltd. ("Databank"), an entity acquired by the Company in October 1999.4 The filing indicated that the undisclosed interests had apparently been acquired less than one year prior to the Company's purchase of DataBank at a lower price than that subsequently paid by the Company. In addition, while the Company believed the acquisition of DataBank was essential to the development of its business as it was then conducted, the Board determined that maintenance of such interests by insiders or affiliates without full disclosure to the Board was impermissible. The Form 8-K also disclosed that, on August 15, 2000, the Board of Directors accepted the resignation of Mr. Egide, the Company's former Chief Executive Officer, as Chairman of the Board and appointed Kenneth M. Woolley, a director of the Company since 1996, to the position of Chairman.5 As a result of the foregoing, the Company appointed a Special Committee of disinterested directors to conduct a review of the circumstances and retained independent legal counsel, Munger, Tolles & Olson, LLP, to assist the Special Committee and the Company in conducting a thorough investigation into the matter. The Notifications of Late Filing on Forms 12b-25 - ------------------------------------------------ On September 29, 2000, the Company filed a Notification of Late Filing on Form 12b-25 with the Securities and Exchange Commission (the "SEC") stating that it could not timely file the Form 10-K for the fiscal year ended June 30, 2000 due to the then ongoing internal investigation and the anticipated impact of the results of that investigation on the Company's financial statements for the periods following the acquisition. It further indicated that it had recently experienced a large turnover of personnel in its accounting and finance departments; consequently, certain key aspects of its audit were taking longer than expected. Thereafter, on October 11, 2000, the Company issued a press - -------------------------------------------------------------------------------- 2 The Company reported net income (loss) of $(34,252,108), $(21,364,713), and $(8,281,967) for the fiscal years ended June 30, 2000, 1999, and 1998, respectively. 3 For the reasons discussed herein, the Company's total shares outstanding were recently reduced from approximately 48,600,000 to 40,044,444 shares. 4 The Company represented that DataBank is a credit card processing company, the acquisition of which, it believed, would enable it to dramatically expand its business of processing electronic credit card payments for goods and services over the Internet. 5 Mr. Egide resigned as Chief Executive Officer on July 20, 2000. 2 release in connection with the undisclosed related party interest stating only that "[the Company] has already returned 8 million shares to its pool of shares outstanding in an effort to fix the problem, and continued internal auditing is to determine if other shares need to be returned." In response to the Company's announcements and its failure to timely file the Form 10-K for the fiscal year ended June 30, 2000, Nasdaq staff halted trading in the Company's securities pending the receipt of additional information. Trading in the Company's securities remains halted. Company Synopsis on Form 10-K for the fiscal year ended June 30, 2000 - --------------------------------------------------------------------- On December 7, 2000, the Company filed the Form 10-K for the fiscal year ended June 30, 2000, which included a summary of the events that led to the investigation by the Special Committee and the results of that investigation. The filing indicated that: "During fiscal 2000, the Company received information indicating that its Chief Executive Officer and Chairman at the time, Mr. James Egide, may have had a conflicting, undisclosed, interest in [DataBank] at the time the Company acquired it. Specifically, there were two general allegations. First, it was alleged that he had been a part of a group that had acquired 75% of the stock of DataBank (the "Group DataBank Transaction") approximately 2 months before the Company entered into a letter of intent to acquire it. That earlier purchase was for 75% of DataBank at a purchase price of $6.2 million, while the Company's subsequent acquisition, deemed fair and equitable at the time, was priced at 28,027,500 shares of the Company's common stock. Second, it was alleged that Mr. Egide did not adequately disclose to the Company his ownership position. In DataBank at or prior to the time of the Company's acquisition of DataBank. The Company's Board of Directors formed a special committee of directors, each of whom had no involvement in the transaction themselves, to investigate these allegations; as finally constituted, that committee consisted of Mr. Ken Woolley and Mr. Greg Duman (the "Special Committee"). The Special Committee, in turn, retained Munger, Tolles & Olson LLP, as outside counsel to conduct an investigation into this matter (the "Internal Investigation"). During this period, Mr. Egide resigned first as Chief Executive Officer and, later, as a director and as Chairman of the Board of Directors. Additionally, some DataBank shareholders who had received shares of the Company pursuant to the DataBank acquisition returned some or all of the DCTI shares they had received, although they did not present the Company with any signed agreement or otherwise document any right of the Company to take action with respect to the returned shares. (Approximately 7.7 million DCTI shares were received by the Company in this fashion.) All of these facts were promptly disclosed by the Company in press releases as they occurred. The investigation was conducted between August and October of 3 2000. In the process of conducting its investigation, the Special Committee's counsel retained private investigators, reviewed all relevant documents in the Company's possession and conducted interviews of some 11 individuals. On October 25, 2000, they released the "Summary and Conclusions" of their final report..." The Company's disclosure on Form 10-K continued: "The results of the investigation were inconclusive. Conflicting testimony was received as to the ownership of certain offshore entities, and dispositive evidence was not found. As to certain other factual questions, more subtle differences of interpretation were identified that could have had legal significance. For example, there were conflicting views as to whether the initial purchase of DataBank shares was made available to the Company. Moreover, there were significant uncertainties as to the legal effect of the different possible factual interpretations. In the view of counsel to the Special Committee, it was not fairly predictable what version of the facts a court would find credible. Also, it was not clear what legal conclusions a court would reach, or what remedies it would find to be available and appropriate, even if the factual questions were not in dispute. At approximately the time that the investigation was being completed, Mr. Woolley entered into discussions with certain of the stockholders who received DCTI shares in the DataBank acquisition. Ultimately, 7 stockholders agreed to return to the Company 8,637,622 DCTI shares in settlement of any claims by the Company of impropriety against them in connection with the transaction. These shares included the DCTI shares that had earlier been returned to the Company, but this time the Company's right to accept and cancel the shares was made clear. Also included in the returned shares were 1,120,000 shares returned by Mr. Don Marshall, the Company's President, and a former controlling shareholder of DataBank (before the Group DataBank Transaction). The Special Committee agreed that Mr. Marshall had no responsibility of liability with respect to any of the alleged improprieties, but he also agreed that, as the Company's President, and a former DataBank stockholder, he should not benefit through an increased percentage ownership in the Company from the return of stock by others from the DataBank transaction. Accordingly, his return of shares was designed to preserve, after the return of all the shares involved, his percentage interest in the Company at a level equal to what it was immediately before any such share returns. In the view of counsel to the Special Committee who had conducted the investigation, the settlement of claims in exchange for the return of shares was a favorable settlement for the Company in comparison to the certain expenses, and uncertain recoveries, that would have attended any litigation of the matter. After careful consideration of the final report of the Special 4 Committee's counsel, the Company's Board of Directors continues to believe that the Company paid a fair price for DataBank." The Investigative Report - ------------------------ At the hearing, the Company submitted a summary of the "Report to the Special Committee of the Board of Directors of Digital Courier Technologies, Inc. regarding the Acquisition of Databank International, Ltd. "(the "Report"), authored by Munger, Tolles & Olson LLP and dated November 15, 2000, for the Panel's consideration. On November 20, 2000, the Company submitted a copy of the full report of legal counsel (the "Report") to the Special Committee for the Panel's review. The Report provided additional detail with respect to the DataBank transactions. Specifically, the Report indicated that, in mid-2000, apparently in response to an inquiry from a significant shareholder, Brown Simpson Asset Management LLC, the Company "directed its attention to the role of Mr. Egide in relation to his purchase of an interest in DataBank, and the Company's subsequent acquisition of DataBank at a significantly higher per-share price."6 As a result of the investigation, the Company determined that, on December 18, 1998, certain individuals, which may have included James A. Egide, the Company's then Chairman and CEO, Arthur Sharpe, an individual heavily involved in real estate development on the island of St. Kitts where DataBank was incorporated, and Don Marshall, managing director of DataBank since its inception and the Company's President since July 1999, executed an agreement pursuant to which Messrs. Egide and Sharpe or their affiliates agreed to acquire 75% of the outstanding shares of DataBank from Mr. Marshall in exchange for approximately $5,250,000 in cash and Company common stock valued at $1,000,000.7 The transaction appears to have been financed, at least in part, through friends, family and business associates of Mr. Egide and was consummated on January 29, 1999.8 Although the Report revealed two conflicting versions of the events leading up to the shareholders' agreement, one by Messrs. Egide and Sharpe, the other by Mr. Marshall, it appears that Mr. Egide may have informed the Company's Board on December 15, 1998 (three days prior to the transaction referenced above) that the Company itself could acquire a 50% interest in Databank for $5,250,000 in cash, but warned that the deal must close by the end of January 1999. The Company represented that the Board declined the opportunity at that time due to an insufficient amount of cash to fund the transaction. - -------------------------------------------------------------------------------- Apparently within five weeks of the purchase of the 75% interest in DataBank by Mr. Egide, Mr. Sharpe, and/or others for approximately $6,250,000, on March 2, 1999, the Company entered into a letter of intent to acquire DataBank. Prior to completion of the transaction, on July 29, 1999, Mr. Marshall, DataBank's founder, assumed the position of 6 At the hearing, the Company represented that it was unsure as to how the shareholder became aware of the initial DataBank transaction and/or Mr. Egide's alleged involvement in it. 7 See Report, page 12. 8 See Company Correspondence to Nasdaq and attachments, dated December 12, 2000. 5 President of the Company. Thereafter, on August 13, 1999, the two entities executed a definitive agreement, pursuant to which the Company agreed to acquire DataBank in exchange for 16,600,000 shares of Company stock at closing, valued at $88,195,800, plus an additional 13,066,000 shares of common stock upon achievement by DataBank of certain earnings milestones within a two-year period, for a total of 29,666,000 Company shares. Mr. Marshall represented that the first DataBank transaction was negotiated between himself and Messrs. Sharpe and Egide. While the Report indicated that Mr. Marshall believed he was selling the initial 75% interest in DataBank to the Company itself, the Report also disclosed that Mr. Marshall became aware at the time of the closing of the transaction that he was not selling shares to the Company itself, but to individual investors who may have included Mr. Egide. Notwithstanding, the Company failed to identify or disclose the apparent related party interest in the relevant proxy materials for the shareholders' meeting. On October 5, 1999, the Company's shareholders approved the transaction and the acquisition of DataBank was promptly closed. At that same time, the Company reconfigured its Board of Directors. As reconfigured, the Board included Mr. Egide as Chairman and Messrs. Woolley, Hartman, Nagel, Tesmer, Hicks, and Marshall, the President of both DataBank and the Company at that time. Thereafter, on January 13, 2000, the Company's Board determined to accelerate the two-year earnout provision and issued an additional 11,427,500 common shares, valued at $108,561,250 to the selling shareholders of DataBank.9 As such, it appears the number of Company common shares issued to the DataBank selling shareholders was 28,027,500 shares, valued at approximately $196,757,050, versus the approximate $6,200,000 consideration paid by those same shareholders in the initial purchase of the 75% interest in DataBank in January 1999. The Report also disclosed that Laidlaw Global Securities ("Laidlaw") was retained by the Company to render a fairness opinion with respect to the DataBank acquisition. The Company represented that Laidlaw prepared a draft fairness opinion, but did not complete a final version. The Report indicated that, at a June 29, 1999 Board meeting, the Board resolved to pursue the transaction without the fairness opinion due to the fact that it was: "[c]oncerned that the fairness opinion would postpone the closing date of the [DataBank acquisition], and [was] convinced that the opinion was unnecessary in any event, because we know much more about DataBank than we did when we first - -------------------------------------------------------------------------------- 9 The Company represented that the Board determined to accelerate the earnout provision, apparently for accounting and financial purposes, including a reduction in the goodwill effect of the acquisition, in view of the expectation that DataBank would not only meet the profit milestones, but would likely exceed them. See Report, page 36. 10 Nasdaq Marketplace Rule 4350(i)(l)(c) states that a Nasdaq National Market issuer must obtain shareholder approval prior to the issuance of securities "in connection with the acquisition of the stock or assets of another company if: (i) any director, officer or substantial shareholder of the issuer has a 5 percent or greater interest (or such persons collectively have a 10 percent or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of common stock, or 6 signed the letter of intent, and that there was thus less need for a fairness opinion." The Company represented that it was unable to locate a copy of the draft fairness opinion. Public Interest and Shareholder Approval Concerns Based upon the Company's public disclosures regarding the internal investigation, and the bases therefore, as well as the expected impact of that investigation on the Company's financial statements, staff raised public interest concerns which it believed merited the delisting of the Company's securities from The Nasdaq Stock Market. Staff also questioned the validity of the Company's shareholders' approval for the DataBank transaction in October 1999,10 insofar as the relevant proxy statement did not disclose the related party involvement. In response to staff's concerns, the Company noted that, upon hearing allegations of a related party transaction that may have detrimentally affected the Company and its shareholders, it promptly set up a special investigative committee. It also noted that in conjunction with the investigation, the officer in question, Mr. Egide, resigned all positions with the Company.11 The Company asserted that its sensitivity to the integrity of the investigative process was demonstrated in several ways, including the retention of special counsel. It believes the investigation was thorough and complete, involving documentary review, face-to-face interviews, and legal analysis as well as the use of significant resources. The Company further stated that it went to great length to keep the investing public, its independent auditors and Nasdaq informed of the existence and progress of the investigation. The Company also stated that it believed the return of the shares constituted a favorable settlement in light of the significant legal uncertainties and factual difficulties, and in view of the prevailing circumstances.12 To that end, the Company noted that it settled the matter for consideration that it determined to be equal to or better than what would have been awarded if the Company had instituted and pursued a civil action based on a theory of misappropriation of corporate opportunity. Finally, the Company indicated that it has agreed to cooperate with the SEC in any investigation of the Company, Mr. Egide or any of the events surrounding the DataBank acquisition.13 It believes these measures serve to promote Nasdaq's mission to prevent fraudulent and manipulative acts - -------------------------------------------------------------------------------- securities convertible into or exercisable for common stock, could result in an increase in outstanding common shares or voting power of 5 percent or more; or (ii) where, due to the present or potential offering for cash: (a) the common stock has or will upon issuance of stock or securities convertible into or exercisable for common stock, or (b) the number of shares of common stock to be issued is or will be equal to or in excess of 20 percent of the number of shares of common stock outstanding before the issuance of the stock or securities." 11 At the hearing, the Company represented that Mr. Egide currently controls less than 5% of the Company's total shares outstanding. 12 As first disclosed on October 16, 2000, the Company expected to report an adjustment to the purchase price for the acquisition of DataBank as a result of the return of certain shares in August 2000. However, on November 20, 2000, the Company announced that, rather than recording an adjustment to the purchase price, the Company would instead report an approximate $25,000,000 gain on the return of the shares during the quarter ending December 31, 2000. 13 While the Company does not believe the SEC has instituted a formal investigation into the matter, the Company represented that the SEC has made inquiries on an informal basis. 7 and to protect investors and the public interest, as set forth in Nasdaq Marketplace Rules 4300 and 4330(a)(3). With respect to staff's shareholder approval concerns, the Company again asserted that it did not have any knowledge of any related party interests at the time it sought shareholder approval for the DataBank transaction and, as it began to suspect that there was an undisclosed related party interest, it disclosed the new developments as soon as was practicable under the circumstances. It further represented that the Company's Board "remains staunchly in favor of the acquisition, in spite of the related party issue (which has been settled)". The Company maintained that the terms of the acquisition were fair and noted that no shareholder has suggested otherwise. It does not plan to rescind the transaction and does not believe the disclosure in the proxy was deficient in any material respect, or that the shareholder vote on the acquisition was in any way affected. Notwithstanding the foregoing, the Company stated that, going forward, it intends to "vigorously inform its officers and directors of the Company's policies on related-party transactions, and of the obligations regarding related-party transactions imposed by applicable state and federal securities laws."14 Panel Request for Additional Information and Company Response - ------------------------------------------------------------- On December 8, 2000, the Panel requested certain additional information particularly with respect to the identities of the investors in the initial DataBank financing and the "settlement agreements" obtained in connection with the return of certain shares issued by the Company to the selling shareholders of DataBank in the acquisition.15 The Company responded by letter dated December 12, 2000. The Company's submission disclosed that 48 individuals or entities received shares in consideration for their holdings in DataBank in connection with the acquisition and attendant earnout provisions. The selling shareholders included four limited liability companies (apparently based in St. Kitts & Nevis), including Carib Ventures Partners, Ltd., Prospect Creek Ltd., Oxford Partners and Next Generation Ltd. Arthur Sharpe, the individual with whom Mr. Egide apparently negotiated the initial financing transaction with Mr. Marshall, and/or Mr. Sharpe's father, apparently hold interests in those entities. The Company represented that, while it has been unable to confirm the involvement of Mr. Egide in any of those entities, "some persons have expressed suspicions - without being able to provide evidence - that some or all of those entities have an affiliation, which could include ownership, with Mr. James Egide, the former Chairman of the Board of the Company."16 The selling shareholder list also included the names of Mr. Egide's three adult sons and the "Anne Marie Egide Judice Endowment." The Company also disclosed its understanding that Mr. Egide was in communication with the persons or entities that returned shares to the Company during the course of the Special Committee's investigation. - -------------------------------------------------------------------------------- 14 See Company Correspondence to Nasdaq, dated October 28, 2000, page 14. 15 Nasdaq's Correspondence to the Company, dated December 8, 2000, is hereby incorporated by reference. 16 See Company Correspondence to Nasdaq, dated December 13, 2000, page 2. 8 The Company presented a list of certain officers and directors who received shares of Company stock as a result of the DataBank transaction. The list included Mr. Marshall, the founder of DataBank and the Company's President and a director. As noted in the Company's most recent Form 10-K, Mr. Marshall subsequently returned 1,120,000 shares to the Company. The list also included two foreign trusts, CJ Overseas and LH Trust, which where shareholders in the Company prior to the DataBank transaction. The Company indicated that the trusts have a "relationship" with Mr. Glenn Harman, a Company director; however, the Company represented that Mr. Hartman advised it that he does not control and is not a beneficiary of such trusts. As such, he does not believe those entities should be considered affiliates of the Company. CJ Overseas returned 808,750 shares in settlement of any further claims against it. Messrs. Mitchell Edwards and Michael Bard, the Company's former Chief Financial Officer (and control person of Kinea Partners) and former Senior V.P. and Controller (as well a control person of Flag Investments), respectively, also appeared on the list. The Company represented that Kinea Partners received 200,000 shares in the DataBank acquisition "substantial in compensation for [Mr. Edwards] efforts on the Company's behalf with respect to the DataBank and related transactions."17 Flag Investments received 206,250 shares in the DataBank transaction apparently for the same reason. Neither Kinea Partners or Flag Investment returned any shares to the Company. In addition, by the same correspondence dated December 8, 2000, the Panel requested additional information with respect to the apparent related acquisition of SB.com, including a detailed disclosure of SB.com's shareholders prior to the acquisition and a description of the consideration exchanged. The Panel also questioned whether the consummation of the Company's acquisition of SB.com complied with Nasdaq's shareholder approval requirements, as set forth in Nasdaq Marketplace Rule 4350, particularly in light of the fact that the SB.com transaction, and the shares apparently issued in connection thereto, was not specifically cited in the August 1999 proxy materials which sough approval for the DataBank acquisition in October 1999. The Company represented that it negotiated the SB.com acquisition simultaneous with the negotiation of the DataBank acquisition and acquired that entity from the selling shareholders of DataBank on June 4, 1999 for 2,840,000 shares of the Company common stock. It stated that, pursuant to the relevant agreement, "(1) the Company would acquire [SB.com] for shares of stock aggregating less than 20% of the Company's outstanding shares, but (2) additional shares would be issued to those persons if and when issuances were approved by shareholders of the Company in connection with the DataBank acquisition. As a result, an additional 4,260,000 shares were issued to those persons pursuant to shareholder approval."18 As such, the Company does not believe the issuance of shares pursuant to the acquisition of SB.com required shareholder approval under the applicable Nasdaq rules. Supporting documentation evidencing shareholder approval was not provided, nor was it evident in the record before the Panel. - -------------------------------------------------------------------------------- 17 Id, page 4. 18 Id, page 6. Based upon information within the Form 10-Q for the quarter ended March 31, 1999, the Company's shares outstanding at the time of the acquisition totaled 13,989,982 shares. 9 Thereafter, on December 13, 2000, the Company submitted a supplemental statement for the Panel's consideration generally describing the remedial actions taken by the Company to date. Those actions are discussed throughout the body of this decision. The Company also disclosed that the SEC recently initiated an investigation into the matters discussed herein. Filing Delinquencies - -------------------- The Company represented that it failed to timely file the Form 10-K for the fiscal year ended June 30, 2000 and the Form 10-Q for the quarterly period ended September 30, 2000 due to the timing of the internal investigation and the expected impact of the results of the investigation on its financial statements. The Company indicated that, while the internal investigation was ongoing, the Company was simultaneously preparing - and undergoing - its annual audit, as conduced by Arthur Andersen, LLP ("AA"). It noted that, on August 20, 2000, AA informed the audit committee that it had determined that there would likely be a delay in the certification of the Company's year-end financial statements due to the heightened level of scrutiny AA felt the internal investigation warranted, turnover in key personnel, and the impact of the October 1999 reorientation of the Company's business on its audit procedures. The Company represented that, at about the same time, the Company's account manager resigned from AA and the Company's controller retired, which further exacerbated the delay. At the hearing, The Company stated that it expected to file the delinquent Forms 10-K and 10-Q by November 17, 2000; however, in subsequent correspondence, the Company represented that it would make the requisite filings within the week beginning November 27, 2000.19 Thereafter, on December 5, 2000, the Company indicated by telephone that it planned to make the required filings no later than December 8, 2000. The delinquent Forms 10-K and 10-Q were filed on December 7 and 8, 2000, respectively. Going Concern Qualification - --------------------------- The Company received a "going concern" qualification in connection with the financial statements for the fiscal year ended June 30, 1999 due to recurring losses from continued operations, a working capital deficit and the Company's need to secure additional funding. During fiscal 1999, the Company obtained an additional $13,024,000 in equity financing and $2,350,000 in debt funding. The Company had indicated its belief that the acquisition of DataBank, and the resulting increase in cash flow from operations, would lead to the elimination of the going concern qualification due to the Company's recurring losses from operations, negative cash flows from operations, and a working capital deficit. As discussed in Note 1 to the fiscal 2000 financial statements, the Company expects the negative cash flows to decrease significantly due to the growth of its e-payment processing services. It believes there will be sufficient cash flows from continuing operations during the next twelve months to sustain - -------------------------------------------------------------------------------- 19 See Company Correspondence to Nasdaq, dated November 27, 2000. 10 operations; however, it indicated that it must seek additional funding to meet its marketing and expansion initiatives. Panel Decision - -------------- While the Panel acknowledged the Company's current compliance with the filing requirement and all other quantitative criteria for continued listing on the Nasdaq National Market, the Panel was of the opinion that the facts and circumstances surrounding the Databank acquisition and the subsequent investigation raise serious public interest concerns meriting the immediate delisting of the Company's securities from the Nasdaq Stock Market. The Panel noted that the 75% stake in DataBank was acquired by a group of shareholders, for approximately $6,250,000, less than five weeks before the Company entered into a letter of intent to acquire Databank for a purchase price which ultimately exceeded $196,000,000.20 Although the Panel acknowledged the Company's representations that it was unable to prove Mr. Egide's interest in any of the Databank selling shareholders, the Panel was of the opinion that the Company's Board ignored several clear signals that should have prompted it to conduct an investigation into any potential conflicts before consummation of the acquisition. Specifically, the Panel noted that the selling shareholders of DataBank included three of Mr. Egide's adult children, a trust in the name of Mr. Egide's deceased daughter, as well as several offshore trusts, the ownership of which remains unclear. Further, it appears Mr. Marshall, the founder of Databank and the Company's current President, clearly knew, at least to an extent, of Mr. Egide's involvement in the first and second Databank transactions. As the Report indicated, Mr. Marshall became aware at the time of the closing of the initial sale of the 75% interest in Databank that he was not selling shares to the Company itself, but to individual investors who may have included Mr. Egide. Additionally, it appears that upon learning of the allegation that Mr. Egide may have been an interested party in the Databank acquisition, the Company directed its settlement attempts to Mr. Egide as a point person for the Databank selling shareholders and, as a result of those efforts, approximately 8,000,000 shares issued in connection with the acquisition were mysteriously returned to the Company. Mr. Marshall's role was of particular interest to the Panel due to the fact that he became the Company's President in July of 1999, just prior to the August mailing of the proxy statement seeking shareholder approval for the Company's acquisition of Databank. As a result, the Panel was of the opinion that Mr. Marshall knew or should have known that the proxy statement was misleading because it did not disclose the related party elements of the transaction. - -------------------------------------------------------------------------------- 20 The Panel noted that, based upon the initial transaction, the approximate total value of DataBank at that time was $7,500,000. 11 Several other aspects of the transaction also troubled the Panel. Specifically, the Panel noted that the Board determined to proceed with the acquisition, without receipt of a fairness opinion due to its apparent concern "that the fairness opinion would postpone the closing date of the [Databank acquisition]," and given that it was "convinced that the opinion was unnecessary in any event, because we know much more about DataBank than we did when we first signed the letter of intent...." To that end, the Panel determined that, at that time, some members of the Board most certainly were aware that the purchase price for the acquisition could exceed the purchase price paid in the first Databank transaction by more than thirty-fold. Further, the Panel observed that the Board determined to accelerate the earnout provision within approximately three months of the acquisition's completion, thus entitling the Databank selling shareholders to an additional 11,427,500 shares of Company stock, valued at $108,561,250, despite the fact that Databank had not yet achieved the milestones required by the agreement. As a separate matter, the Panel noted that the Company failed to provide evidence that its shareholders specifically approved the acquisition of SB.com. Also, based upon the Company's own representations, the SB.com selling shareholders received in excess of 20% of the Company's pre-issuance total shares outstanding. Accordingly, the Panel determined that the Company violated Nasdaq Marketplace Rule 4350(i)(l)(C) by its failure to obtain shareholder approval for the acquisition of SB.com. The Panel did not render a determination as to whether the Databank acquisition necessarily violated Nasdaq's shareholder approval rules; however, the Panel was of the opinion that the failure to disclose the apparent related party interest in the DataBank transaction certainly raises a question as to the validity of the shareholders' approval and, at the very least, constitutes a basis for public interest concerns. Finally, the Panel was unpersuaded that the Company has resolved all the outstanding issues or that the departure of Mr. Egide should alleviate any concerns going forward. In rejecting this assertion, the Panel noted that Mr. Marshall played a central role in the transactions at issue and that several other individuals that served as officers and/or directors during the period in question remain with the Company. Accordingly, based on the facts and circumstances in the entirety, the Panel determined that, in order to preserve and strengthen the quality of and public confidence in the Nasdaq Stock Market, and in order to protect the integrity of The Nasdaq Stock Market, prospective investors and the public interest, the Company's securities will be delisted from The Nasdaq Stock Market with the open of business Monday, December 18, 2000.21 The Company should be aware that the Nasdaq Listing and Hearing Review Council (the "Listing Council") may, on its own motion, determine to review any Panel decision within 45 calendar days after issuance of the written decision. If the Listing Council determines to review this decision, it may affirm, modify, - -------------------------------------------------------------------------------- 21The Panel's determination is limited to those findings expressly set forth in this decision, which is based solely upon the facts and circumstances of this matter and should not be interpreted as precedent. In addition, each of the above referenced deficiencies and concerns served as a separate basis for the Panel's determination to delist the Company's securities. 12 reverse, dismiss, or remand the decision to a Panel. The Company will be immediately notified in the event the Listing Council determines that this matter will be called for review. The Company may also request that the Listing Council review this decision. The request for review must be made in writing and received within 15 days from the date of this decision. Request for review must be made to: Sara Nelson Bloom, Office of General Counsel, The Nasdaq Stock Market, 1801 K Street, N.W. Washington, DC 20006, (202) 728-8478 and fascimile (202) 728-8321. Pursuant to Nasdaq Marketplace Rule 4840(b), the Company must submit a fee of $1,400.00 to The Nasdaq Stock Market, Inc. to cover the cost of the review. Please be advised that the institution of a review, whether by way of the Company's request or on the initiative of the Listing Council, will not operate as a stay of this decision. Should you have any questions, please do not hesitate to contact me at (301) 978-8077. Sincerely, /s/ Katherine M. Roberson - ------------------------- Katherine M. Roberson Counsel Nasdaq Listing Qualifications Hearing 13 EX-99.2 3 digitalcnasd.txt ADDITIONAL EXHIBITS BEFORE THE NASDAQ LISTING AND HEARING REVIEW COUNCIL THE NASDAQ STOCK MARKET, INC. ---------------------------- In the Matter of Decision Digital Courier Technologies, Inc. c/o Simon M. Lorne, Esq. Docket No. NQ 3461N-00 Munger, Tolles & Olson, LLP 355 South Grand Ave., 35th Floor Los Angeles, CA 90071-1560 Date: April 9, 2001 Concerning the Operations of The Nasdaq Stock Market This matter was appealed by Digital Courier Technologies, Inc. (the "Company"). In a decision dated December 15, 2000, the Nasdaq Listing Qualifications Panel (the "Panel") determined to delist the Company's securities from The Nasdaq National Market for public interest concerns under NASD Rules 4300 and 4300(a)(3) and for failure to comply with the shareholder approval requirement of Rule 4350(i)(1)(C). After considering the written record in this matter, the Nasdaq Listing and Hearing Review Council (the "Listing Council") affirms the decision of the Panel on those grounds. The Company provides advanced e-payment services for businesses, merchants, and financial institutions. Proceedings Below On October 5, 1999, the Company acquired DataBank International Ltd. ("DataBank") in exchange for 16,600,000 shares of its common stock.1 In addition, if DataBank met certain performance criteria, the Company was required to issue 13,066,000 additional shares of its common stock to the selling shareholders of DataBank (the "Earn-out Clause"). The closing price for the Company's stock on October 5, 1999 was $5.9375. Subsequently, in January 2000, the Company issued 11,427,500 shares in satisfaction of the Earn-out Clause, even though the performance criteria had not yet been met. On August 18, 2000, the Company announced that it had accepted the resignation of the Chairman of its board of directors, James Egide. Mr. Egide has also resigned as the Company's Chief Executive Office ("CEO") on July 20, 2000. The Company further indicated that it had "discovered the apparent existence of undisclosed interests held by certain of the Company's insiders and related parties in DataBank." 2 These interests had apparently been acquired - ----------------- 1 This number includes approximately 4.26 million shares issued to the shareholders of SB.com ("SB"), which was acquired by the Company in June 1999. See footnote 5, supra. 1 less that one year prior to the Company's purchase of DataBank at a lower price than that subsequently paid by the Company. The Company announced that it had appointed a Special Committee of disinterested directors to review the situation (the "Investigation"). The Company stated that as a result of the Investigation, which was still ongoing, approximately 8,000,000 shares of the Company's common stock had been returned to the Company by certain of the previous owners of DataBank, and that the Company had received commitments regarding the return of additional shares. On September 29, 2000, the Company announced that due to the ongoing internal investigation, it would require an extension of time to file its Form 10-K for the fiscal year ended June 30, 2000. The Company further indicated that the outcome of the Investigation was likely to impact its financial results for the period following the acquisition. On October 11, 2000, Nasdaq staff requested further information and halted trading in the Company's securities pending receipt of that information.3 On October 16, 2000, the Company announced that it had completed the investigation. As a result of the Investigation, the Company announced that 8,637,622 shares had been returned to the Company. The Company stated that it expected to file its Form 10-K for the year ended June 30, 2000, by mid-November. Also on October 16, 2000, Nasdaq staff informed the Company that its securities would be delisted from the The Nasdaq Stock market on October 25, 2000, because it had not timely filed its form 10-K, as required by NASD Rule 4310(c)(14). Staff also indicated that the facts surrounding the DataBank acquisition raised the public interest concerns pursuant to Rules 4300 and 4330(a)(3). Finally, staff noted that it had concerns regarding the validity of the shareholder approval obtained for the DataBank transaction, given that the underlying proxy statement did not disclose the related party involvement. Accordingly, staff also expressed concern that the Company may have violated Rule 4460(i)(l)(C), which requires shareholder approval of certain acquisitions. Staff requested additional information on these matters. On October 23, 2000, the Company requested a hearing, which staying the delisting. On October 27, 2000, the Company responded to the request for information. As part of that response, the Company submitted the "Summary and Conclusions" section of the Report to the Special Committee of the Board of Directors of the Company (the "Investigative Report"). The Investigative Report explained that on December 18, 1998, "a number of individuals, which may have included Mr. Egide, then the Chairman and Chief Executive Officer of the Company, and/or persons or entities associated with or even representing him, executed an agreement to acquire 75% of the outstanding stock of DataBank ... in exchange for approximately $5.25 million in cash and $1 million in common stock of [the Company] transferred by a [Company] stockholder" (the "Initial Transaction"). Shortly thereafter, the Company and DataBank began discussions - ----------------- 2 As described below, the insiders referenced deny such interests and the Company has not uncovered any physical evidence to support the existence of such interests. 3 This trading halt remained in effect until the Company was delisted by the Panel in its December 18, 2000, decision, discussed below. The Company's last sale prior to the trading halt was at $2.90625. 2 concerning a combination of the companies and, on March 2, 1999, the Company entered into a letter of intent with DataBank and its principal stockholders providing for the acquisition of DataBank (the "DataBank Acquisition"). As described above, the DataBank Acquisition was consummated on October 5, 1999. The Investigative Report indicated that if Mr. Egide had participated in the Initial Transaction, he may have failed in his duty to present the opportunity to the Company and he may have failed to adequately disclose his involvement in the transaction. However, the Investigative Report indicated that it was unclear whether, as a matter of law, Mr. Egide had satisfactorily presented the DataBank opportunity to the Company prior to consummating the Initial Transaction. Furthermore, the Investigative Report also indicated that it was unclear whether Mr. Egide participated in the Initial Transaction and that while there was circumstantial evidence suggesting the likelihood that Mr. Egide did participate, there was no physical evidence that would prove he had participated. The Investigative Report concluded that it was possible that the Company had rights arising out of the possible involvement of Mr. Egide in the Initial Transaction and the subsequent sale of DataBank to the Company, but that establishing those rights would be difficult and the amount of any potential recovery was subject to considerable uncertainty. The Investigative Report also indicated that the settlement was favorable from the perspective of the Company and its stockholders. In addition, in the October 27, 2000, correspondence, the Company indicated that Company policy required the disclosure of any potential conflicts of interest in advance of the transaction and that it would "continue to vigorously enforce policies promoting full and fair disclosure to the Board of any interests in a corporate transaction by its officers and directors..." With respect to the adequacy of the proxy disclosure in connection with obtaining shareholder approval of the DataBank Acquisition, the Company stated that given the facts it discovered, it "would probably have included additional facts in its description of the transaction." However, the Company did not believe that the disclosure in the proxy statement was deficient in any material respect or that the shareholder vote on the acquisition was in any way affected. The Company noted that it believed the only relevant fact that had changed was that the number of shares issued had been reduced as a result of the settlement negotiations. Finally, the Company noted that it had notified the Securities and Exchange Commission of the issues and was voluntarily cooperating in an informal inquiry regarding the matter. On October 28, 2000, the Company provided a written submission to the Panel. The Company explained the background regarding the DataBank Acquisition. The Company also indicated that its Form 10-K was delayed as a result of the Investigation. Specifically, the Company's independent auditor stated that its audit would not be completed by the due date of the filing, in part because of a heightened level of scrutiny warranted by the Investigation and the turnover of key personnel. The Company noted that its audit was well underway, that the Investigation had been completed, and that a settlement had been reached with respect to the DataBank Acquisition. The Company stated that it expected to file the Form 10-K within one week of the hearing and to timely file the Form 10-Q for the period ended September 30, 2000. Accordingly, the Company believed that delisting was not an appropriated remedy for the delinquent filing. The Company also stated that public interest concerns did not exist because it took appropriate actions, including establishing a special committee of the board to investigate any improprieties that occurred in connection with the DataBank 3 Acquisition, obtaining the resignation of Mr. Egide as CEO and a director, and keeping the public and Nasdaq fully informed. The Company further indicated that the restatements that would be contained in its final, audited financial statements would not reflect any material adverse affect on the Company, and would as a result of the settlement, reflect a benefit for the Company's shareholders. Finally, the Company indicated that its board remained "staunchly in favor" of the DataBank Acquisition and did not believe the disclosure in the proxy statement was deficient in any material respect, or that the shareholder vote on the acquisition was in any way affected. On November 9, 2000, the Company appeared before the Panel. The Company reiterated that it expected to file its Form 10-K shortly, following final approval by its auditors. The Company also reviewed the history of the DataBank Acquisition and again indicated that it could not find any factual basis to support its belief that Mr. Egide had participated in the Initial Transaction. The Company explained that it paid shares out under the Earn-out Clause early because it was clear that DataBank would meet the performance criteria (which the Company stated it subsequently did), because it was able to negotiate a discounted payment, and because it believed the early payment would result in a favorable accounting treatment. The Company also explained that it did not obtain a fairness opinion in connection with the DataBank Acquisition because it had obtained audited financial statements from DataBank and did not want to delay the transaction. On November 20, 2000, the Company provided the full Investigative Report to the Panel. On November 27, 2000 the Company informed the Panel that it still intended to file its Form 10-K during that week. Thereafter, on December 1, 2000, the Company informed the Panel that its Form 10-K would be delayed because the auditor's opinion would contain a "going concern" qualification. The Company stated that it had asked the auditor to reconsider its decision to include this qualification. On December 7, 2000, the Company informed the Panel that it had filed its Form 10-K.4 The Company also indicated that it would file the Form 10-Q for the quarter ended September 30, 2000, on the following day, which it did. On December 8, 2000, the Panel requested additional information concerning: (1) the settlement agreement the Company reached in connection with the DataBank Acquisition: and (2) the SB acquisition5, and specifically whether shareholder approval was obtained for that acquisition. The Company replied on December 12, 2000, providing the requested information. In addition, the Company noted that the SB acquisition was specifically structured such that: "(1) the Company would acquire SB for shares of stock aggregating less that 20% of the Company's outstanding shares, but (2) additional shares would be issued to those persons if and when issuances were approved by shareholders in connection with the DataBank Acquisition." In a December 13, 2000, written submission to the Panel, the Company reiterated that it believed it had promptly taken appropriated actions after learning of suspicions relating to the DataBank transaction. - ----------------- 4 The auditor's opinion filed did contain a "going concern" qualification. 5 In June 1999, the Company acquired all of the outstanding stock of SB, a credit card processing company, in exchange for 2,840,000 shares of the Company's common stock. Subsequently, in connection with the issuance of shares in the DataBank Acquisition, the shareholders of SB received an additional 4.26 million shares. According to the investigative Report, these shares were not issued at the time of the SB acquisition because the inclusion of these shares would have exceeded the number of shares permissibly issuable without shareholder approval. Investigative Report at footnote 1 and 45. 4 On December 15, 2000, the Panel issued its decision in this matter. The Panel found as follows: While the Panel acknowledged the Company's current compliance with the filling requirement and all other quantitative criteria for continued listing on the Nasdaq National Market, the Panel was of the opinion that the facts and circumstances surrounding the DataBank acquisition and the subsequent investigation raise serious public interest concerns meriting the immediate delisting the Company's securities from the The Nasdaq Stock Market. The Panel noted that the 75% stake in DataBank was acquired by a group of shareholders, for approximately $6,250,000, less than five weeks before the Company entered into a letter of intent to acquire DataBank for a purchase price which ultimately exceeded $196,000,000.6 Although the Panel acknowledged the Company's representations that it was unable to prove Mr. Egide's interest in any of the DataBank selling shareholders, the Panel was of the opinion that the Company's board ignored several clear signals that should have prompted it to conduct an investigation into any potential conflicts before consummation of the acquisition. Specifically, the Panel noted that the selling shareholders of DataBank included three of Mr. Egide's adult children, a trust in the name of Mr. Egide's deceased daughter, as well as several offshore trusts, the ownership of which remains unclear. Further, it appears Mr. Marshall, the founder of DataBank and the Company's current President, clearly knew, at least to an extent, of Mr. Egide's involvement in the first and second DataBank transactions. As the Report indicated, Mr. Marshall became aware at the time of the closing of the initial sale of the 75% interest in DataBank that he was not selling shares to the Company itself, but to individual investors who may have included Mr. Egide. Additionally, it appears that upon learning of the allegation that Mr. Egide may have been an interested party in the DataBank acquisition, the Company directed its settlement attempts to Mr. Egide as a point person for the DataBank selling shareholders and, as a result of those efforts, approximately 8,000,000 shares issued in connection with the acquisition were mysteriously returned to the Company. Mr. Marshall's role was of particular interest to the Panel due to the fact that he became the Company's President in July of 1999, just prior to the August mailing of the proxy statement seeking shareholder approval for the Company's acquisition of DataBank. As a result, the Panel was of the opinion that Mr. Marshall knew or should have known that the proxy statement was misleading because it did not disclose the related party elements of the transaction. - ----------------- 6 The Panel noted that, based upon the initial transaction, the approximate total value of DataBank at that time was $7,500,000. 5 Several other aspects of the transaction also troubled the Panel. Specifically, the Panel noted that the Board determined to proceed with the acquisition without receipt of a fairness opinion due to its apparent concern "that the fairness opinion would postpone the closing date of the [DataBank Acquisition]," and given that it was "convinced that the opinion was unnecessary in any event, because we know much more about DataBank than we did when we first signed the letter of intent..." To that end, the Panel determined that, at that time, some members of the Board most certainly were aware that the purchase prices for the acquisition could exceed the purchase price paid in the first DataBank transaction by more than thirty-fold. Further, the Panel observed that the Board determined to accelerate the earnout provision within approximately three months of the acquisition's completion, thus entitling the DataBank selling shareholders to an additional 11,427,500 shares of Company stock, valued at $108,561,250, despite the fact that DataBank had not yet achieved the milestones required by the agreement. As a separate matter, the Panel noted that the Company failed to provide evidence that its shareholder specifically approved the acquisition of SB.com. Also, based upon the Company's own representations, the SB.com selling shareholders received in excess of 20% of the Company's pre-issuance total shares outstanding. Accordingly, the Panel determined that the Company violated Nasdaq Marketplace Rule 4350(i)(1)(C) by its failure to obtain shareholder approval for the acquisition of SB.com. The Panel did not render a determination as to whether the DataBank acquisition necessarily violated Nasdaq's shareholder approval rules; however, the Panel was of the opinion that the failure to disclose the apparent related party interest in the DataBank transaction certainly raises a question as to the validity of the shareholders' approval and, at the very least, constitutes a basis for public interest concerns. Finally, the Panel was unpersuaded that the Company has resolved all of the outstanding issues or that the departure of Mr. Egide should alleviate any concerns going forward. In rejecting this assertion, the Panel noted that Mr. Marshall played a central role in the transactions at issue and that several other individuals that served as officers and/or directors during the period in questions remain with the Company. Accordingly, based on the facts and circumstances in the entirety, the Panel determined that, in order to preserve and strengthen the quality of and public confidence in The Nasdaq Stock Market, and in order to protect the integrity of The Nasdaq Stock Market, prospective investors and the public interest, the Company's securities will be delisted from The Nasdaq Stock Market with the open of business Monday, December 18, 2000.7 - ----------------- 7 The Company's securities began trading on the Pink Sheets on December18, 2000, following the Panel's decision. The last sale on the Pink Sheets was at $0.54687 on that day 6 Listing and Hearing Review Council Proceedings On December 26, 2000, the Company requested that the Listing Council review the Panel's decision. The Company was provided an opportunity to supplement the record on review and did so on February 13, 2001. In that submission, the Company noted that subsequent to the Panel hearing, all persons who could have been potentially responsible for any improper action had resigned or been removed from the Company and that "no member of the Company's current board of directors or executive management was a director or executive officer of the Company at the time the DataBank transaction was presented and agreed upon." With respect to the SB acquisition, the Company stated that the additional shares issued to the SB shareholders in the DataBank Acquisition were "not in exchange for [SB], for by that time the Company already owned 100% of [SB]." The Company also stated that there was an agreement to which the Company was not a party where the former shareholders of DataBank agreed that the former shareholders of SB would receive additional shares of the Company, if and when shareholders approved the DataBank Acquisition. With respect to the shareholder approval of the DataBank Acquisition, the Company stated that all relevant information in the proxy was accurate and fully disclosed. Finally, the Company stated that it had adopted a policy that all conflicting interests of any officer or director in any proposed transaction must be fully and fairly disclosed to the board, that such individuals may not negotiate on behalf of the Company with respect to the proposed transaction, and that if the proposed transaction was to proceed, it must be approved by at lease a majority of the disinterested directors. The Company also reiterated that arguments made in earlier submissions as described above.8 Decision After a review of the record in this matter, the Listing Council affirms the decision of the Panel. In making this determination, the Listing Council agrees with the Panel that the SB acquisition required shareholder approval pursuant to Rule 4350(i)(1)(C). The Listing Council notes that Rule 4350(i)(1)(C) requires shareholder approval in connection with the acquisition of the stock or assets of another company if the number of shares of common stock that could potentially be issued will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. The Listing Council finds that in connection with the SB acquisition, the number of shares of common stock to be issued actually exceeded 20% of the number of shares outstanding before the issuance. In making this conclusion, the Listing Council notes that 2,840,000 shares were issued on June 4, 1999, and that the SB shareholders "agreed to defer [the issuance of an additional 4,260,000 shares] which they were entitled until the closing of the" DataBank Acquisition.9 The Listing Council finds that this type of deferral does not alleviate the requirement to seek shareholder approval as required by Rule 4350(i)(1)(C). Further, the Listing Council did not find credible the Company's claims that the 4,260,000 deferred shares were given to the former SB shareholders pursuant to an unwritten agreement between those shareholders and the former shareholders of DataBank and that the Company was not involved in - ------------------- 8 The Company's submission also responded to a concern raised as to the Company's apparent failure to meet the requirements of NASD Rule 4350(e), which requires a minimum of two registered and active market makers. The Company identified two market makers who have filed Forms 211 with the NASD, indicating an intent to make a market in the Company's securities. As such, this was not a ground for the Listing Council's determination. 9 Footnote 7 of the Investigative Report (emphasis added). See also id. At footnote 45. 7 that transaction. In making this assessment, the Listing Council notes that the Company did not provide any explanation as to why the former shareholders of DataBank would agree to transfer shares to the SB shareholders. In any event, given that these shares were merely deferred and that the SB shareholders were entitled to these shares, when issued, as a result of the SB acquisition, the Listing Council find that those shares should count towards the number of shares potentially issuable in the transaction. Therefore, the Listing Council finds that at the time the Company entered into the SB acquisition, the Company could potentially have issued more that 20% of its shares outstanding and that the Panel was therefore correct in finding that the SB acquisition required shareholder approval. The Listing Council also finds that the Company has not provided any evidence that its shareholders approved the acquisition of SB. Furthermore, the Listing Council notes that the Company has not provided an adequate remedy for the failure to obtain shareholder approval for the SB acquisition. Accordingly, the failure to comply with the shareholder approval requirements of Rule 4350(i)(1)(C) serves as a separate basis to affirm the decision of the Panel. Furthermore, the Listing Council was concerned that the Company structured the SB acquisition in this manner with the apparent intent of circumventing Nasdaq's shareholder approval rules. The Listing Council finds that this intentional circumvention of Nasdaq's shareholder approval rules, which are designed to protect shareholders and give shareholders a voice in certain transactions, rises to the level of a public interest concern under NASD Rules 4300 and 4330(a)(3) meriting delisting. The Listing Council therefore affirms the decision of the Panel on that separate basis. As an independent ground for its decision, the Listing Council notes that it was also concerned that the Company knew, at a minimum, of Mr. Egide's roles as a facilitator in the Initial Transaction. In addition, the Company knew of the involvement of family members and acquaintances of Mr. Egide, regardless of whether Mr. Egide himself was involved. Moreover, the Company's President at the time it entered into definitive agreement to acquire DataBank was also a shareholder in and officer of DataBank. The Listing Council notes that there is no evidence in the record that this transaction was reviewed by the Company's audit committee or a comparable body prior to the DataBank Acquisition. In fact, the Listing Council notes that the only evidence in the record of any independent review of the transaction was the initial procurement of a fairness opinion, which was never completed. Accordingly, the Listing Council was concerned that their was no evidence that the Company undertook an independent review of the DataBank Acquisition. The Listing Council finds that the failure to undertake an independent review in light of such potential conflicts of interest would raise public interest concerns under Rule 4300 and 4330(a)(3) meriting delisting.10 In addition, the Listing Council considered the Company's claims that all members of the Company's board of directors and executive management at the time of the DataBank transaction are no longer associated with the Company. Notwithstanding this claim, however, the Listing Council notes that the Company indicated in a February 13, 2000, press release that certain former directors - --------------- 10 While not a basis for its decision, the Listing Council also notes that NASD Rule 4350(h) requires that a company "shall utilize the company's audit committee or a comparable body of the board of directors for the review of potential conflict of interest situations where appropriate." There was no evidence in the record that such a review occurred. 8 and officers, including some involved in the DataBank Acquisition, "will be available as needed, on a consulting basis" to the Company. Based on this statement, the Listing Council was unclear as to what continued involvement these individuals would have with the Company. As described above, the Listing Council has found that while under these individuals leadership, the Company failed to comply with Rules 4350(i), 4300 and 4330(a)(3). Accordingly, the Listing Council is concerned about the potential for continued involvement of these individuals with the Company and finds that these circumstances also rise to the level of a public interest concern under Rules4300 and 4330(a)(3) meriting delisting. Finally, the Listing Council notes that insufficient time has passed to assess whether the remedial measures that the Company represented have been adopted relating to potential conflict situations are adequate to prevent future failures to adhere to Nasdaq rules. In fact, the Company's newly appointed directors have not yet been reviewed and approved by the Company's shareholders. Nor has the Company undergone an annual audit by its independent auditor since changing directors and management and representing that remedial measures have been adopted. Therefore, on these facts, the Listing Council finds that the Company has not adequately established that these failures to comply with Nasdaq's rules could not recur and that no other internal control deficiencies exist and affirms the decision of the Panel on these separate grounds.11 Based on the foregoing, the Listing Council affirms the decision of the Panel to delist the Company from The Nasdaq Stock Market.12 On Behalf of the Nasdaq Listing and Hearing Review Council, By: /s/ Robert E. Aber ---------------------- Robert E. Aber, Senior Vice President, Regulation and Controls - --------------- 11 The Listing Council also notes that the Company does not currently meet the bid price requirement of NASD Rules 4310(c)(4) and 4450(a)(5). In fact, at the time of the Listing Council's consideration of this matter on March 22, 2001, the Company's last sale price was $0.40. Accordingly, while this failure does not serve as a basis for the Listing Council's decision because the Company has not been provided the applicable grace periods to regain compliance, the Listing Council finds that the Company would need to demonstrate the ability to achieve and maintain compliance with this requirement prior to being relisted on the Nasdaq Stock Market. 12 The Listing Council's determinations are limited as expressly set forth in this decision. In addition, this decision is based solely upon the facts and circumstances of this matter and should not be interpreted as precedent. 9 -----END PRIVACY-ENHANCED MESSAGE-----