SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): January 18, 2001 (January 17,
2001)
Digital Courier Technologies, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-20771 87-0461856
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(State or Other (Commission (IRS Employer
Jurisdiction of Incorporation) File Number) Identification No.)
348 East 6400 South, Salt Lake City, Utah 84107
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (801) 266-5390
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(Former Name or Former Address, if Changed Since Last Report)
Item 9. Regulation FD Disclosure
The Company sent letters substantially in the form attached hereto as
Exhibit A to two broker/dealers in response to a request for information that
these broker/dealers received from NASD Regulation pursuant to their
applications to act as marker makers in the Company's securities.
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: January 18, 2001 By:/s/ Kenneth M. Woolley
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Kenneth M. Woolley
Chairman of the Board
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EXHIBIT A
January 17, 2001
Re: Digital Courier Technologies Inc. Common Stock
Dear ___________:
I am writing to you in response to our recent discussions and your request of
Digital Courier Technologies Inc. (the "Company") for information relating to
recent activities involving the Company. Set forth below is information on the
Company's delisting, some background on the DataBank acquisition, and a
description of the Company's experience with the SEC.
I hope that this information is helpful to you. Please feel free to send this
letter to the NASD, or to use any of the information below in responding to the
NASD.
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1. A description of the issues and circumstances surrounding the
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issuers' de-listing from Nasdaq.
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The Company's 2000 fiscal year ended June 30, 2000, which meant that its annual
report on Form 10-K was due to be filed September 28, 2000. As that date
approached, a number of factors, the most important of which arose out of the
Company's acquisition of DataBank International, Ltd. ("DataBank"), discussed at
length below, made it clear that the Company would not be able to complete the
audit of its financial statements in time to file the report when due. In August
2000, the Company's auditors, ArthurAndersen LLP ("Andersen") indicated that it
might not be able to sign off on its audit in time for the Company to meet its
periodic filing requirements, and that - therefore - the Company might be late
in filing its annual report on Form 10-K. Andersen cited a number of reasons for
the possible delay, including (i) the heightened level of scrutiny Andersen felt
an internal investigation warranted, (ii) the turnover in key personnel, and
(iii) the impact on audit procedures effected by the Company's October 1999
reorientation of its business. The Company filed a report under Rule 12b-25,
providing the Company with an automatic extension of the due date to October 13.
On October 10, 2000, when it became apparent that the Company would not meet the
deferred deadline, I telephoned Nasdaq and informed the Nasdaq staff that the
Company would not be able to meet the October 13 deadline. On October 11, 2000,
Nasdaq suspended all trading in the Company's securities. The "Staff
Determination" from Nasdaq indicated that trading was suspended because of the
failure to timely file the annual report on Form 10-K. Citing the late filing
and "public interest concerns," the Nasdaq staff also instituted a de-listing of
the Company's securities from Nasdaq, which the Company promptly sought to
appeal.
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On November 9, 2000, representatives of the Company appeared before a Nasdaq
Listing Qualifications Panel and argued that a de-listing of the Company's
securities was not warranted on either technical or public interest grounds. On
December 7, 2000, the Company filed its Annual Report on Form 10-K, and by
December 9, 2000 had restored its compliance in full with all SEC filing
requirements.
Nonetheless, on December 15, 2000, the hearing panel issued a decision to the
effect that the Company's Common Stock would be delisted. The Company
believed--and believes--that the hearing panel did not fully understand some of
the relevant issues and, without any supporting evidence, reached conclusions
that are erroneous and are contrary to fact. (These are also discussed below.)
The Company sought, and received, a review by Nasdaq of the decision of the
hearing panel, and that review is pending.
The essential elements of the DataBank transaction and the related investigation
that, in part, gave rise to these issues are discussed below. On March 2, 1999,
the Company entered into a Letter of Intent with DataBank, a St. Christopher and
Nevis company engaged in credit card processing activities (a field in which the
Company was then becoming active), and DataBank's principal stockholders
outlining the terms of an acquisition of Databank by the Company. On August 13,
1999, the companies entered into a definitive agreement whereby the Company
agreed to acquire DataBank in exchange for a total of 29,666,000 shares
(including performance-based incentive shares). On October 5, 1999, the
shareholders of the Company approved the transaction (pursuant to a proxy
statement filed with the U.S. Securities and Exchange Commission (the "SEC"))
and the acquisition (the "DataBank Acquisition") was closed. The total number of
shares ultimately issued in the DataBank Acquisition was 28,027,500 shares of
the Company's common stock.
In mid- to late-2000, the Company learned that certain of the Company's insiders
and related parties may have held undisclosed interests in Databank prior to the
DataBank Acquisition, and that such insiders and related parties may have
purchased their interests in DataBank at a significantly lower price than was
subsequently paid by the Company. A special committee (the "Special Committee")
of the Company's Board of Directors was promptly formed to look into the matter,
and the Special Committee engaged Munger, Tolles & Olson, LLP, of Los Angeles,
and Simon M. Lorne, a partner in that firm and a former General Counsel of the
SEC, as independent legal counsel to assist the Company and the Special
Committee in this matter. Based on the preliminary information the Special
Committee gathered, and in view of potential conflicts as well as other
concerns, Mr. James Egide resigned as Chief Executive Officer of the Company on
July 20, 2000, and ultimately resigned as a director and as Chairman of the
Board.
On August 18, 2000, the Company filed a current report on Form 8-K with the
Securities and Exchange Commission (the "Commission"), including disclosures
that:
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1. on August 15, 2000, the Company accepted the
resignation of Mr. Egide as Chairman of the Board and
Director;
2. the Company had recently discovered the apparent
existence of undisclosed interests held by certain of
the Company's insiders and related parties in
DataBank, and that the undisclosed interests had
apparently been acquired less than one year prior to
the acquisition at price lower than that subsequently
paid by the Company; and
3. the Company had appointed a special committee of
disinterested directors to review the situation and
retained Munger, Tolles & Olson LLP to assist in the
subsequent investigation.
While the Special Committee's internal investigation was ongoing, the Company
was simultaneously preparing for - and undergoing - its annual audit, conducted
by Andersen.
I understand that you have been asked to provide copies of all correspondence
between Nasdaq and the Company regarding the delisting of the Company's
securities. Unfortunately, this correspondence is treated as confidential by
both Nasdaq and by the Company, but we assume that Nasdaq would make their files
available to the NASD. We would also be receptive to a request from the NASD to
provide such information directly to them under a confidentiality agreement.
2. The current status of any and all inquiries and investigations
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being conducted by the SEC.
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The Company has been notified that the SEC has opened an informal inquiry into
the Company and the DataBank Acquisition, and the Company voluntarily agreed to
cooperate with that inquiry. The Company received a request for documents and
other information from the Denver Regional Office of the SEC, and has provided,
and is continuing to provide, documents and information that are responsive to
the SEC's request. It is substantially the same material as was reviewed by the
Special Committee and its counsel in the course of their investigation into the
same questions. The Company has not received any further information regarding
the SEC's inquiry, and cannot determine whether it is proceeding or what issues
are being reviewed.
3. An explanation of the 10-Q statement regarding the
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inconclusive nature of the internal investigation.
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In the course of the internal investigation by the Special Committee (the
"Internal Investigation"), the Special Committee was unable to come to any firm
conclusions as to whether any Company insiders did have undisclosed interests in
DataBank prior to the DataBank Acquisition.
The Special Committee was unable to find conclusive evidence that Mr. Egide
acquired any interest in DataBank prior to the DataBank Acquisition, for a
number of reasons. First, the shares in question were held by four offshore
companies and trusts located in St. Kitts and Nevis. The representatives of such
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companies and trusts who negotiated the acquisition with the Company were not
affiliated with the Company in any way, and they denied that Mr. Egide had any
participation, as did Mr. Egide himself. In the course of the Internal
Investigation, the Special Committee was unable to identify the ultimate
interest holders in such companies and trusts because that information is
protected by the laws of the jurisdictions in which they are organized (and
because the representatives of the offshore companies and trusts were not
willing to provide the Special Committee with such information).
Second, Mr. Egide and Arthur Sharpe, the person who brokered the transaction,
deny that Mr. Egide, or others acting on his behalf, acquired any interest in
DataBank. Rather, they asserted that all of the shares of DataBank acquired by
the various offshore entities prior to the Company's acquisition of Databank
(which shares might appear to have been purchased by or for Mr. Egide) were in
fact held by Arthur Sharpe, not Mr. Egide, and the Special Committee was unable
to locate any physical evidence that would disprove this version.
The investigation did determine that Mr. Egide's family members and
acquaintances had acquired minority interests in DataBank shortly before the
Company acquired DataBank, and the Company's Board of Directors had been aware
of such acquisitions. To determine that there had been wrongdoing depended on
determining that Mr. Egide himself--not his friends and family members--profited
on the transaction. Hard, probative evidence going to that question was not
found. As a result, the investigation was inconclusive in that the Special
Committee could not come to a conclusion, with any degree of confidence, as to
whether Mr. Egide did or did not violate legally enforceable obligations to the
Company. The ambiguities went to both the facts (what really did occur?) and the
law (what are the precise, legally enforceable obligations of a director under
these circumstances?).
Also, when we speak of "subtle differences of interpretation" in the 10-Q, we
are referring to issues such as the difficulty of resolving Mr. Egide's claim
that he did in fact offer the DataBank acquisition to the Company. Certainly, he
made the Company aware of it. But he did so in a way that tended to indicate the
transaction would not be available to the Company, because it was available (at
the time) only as a substantially all cash transaction, and the Company did not
have available cash. The legal questions that arise are: (1) was the transaction
properly offered to the Company? (2) Is the legal doctrine of corporate
opportunity applicable if Mr. Egide's family and friends participated, or only
if he personally participated? and (3) Assuming that the transaction was
available only as a cash transaction, did Mr. Egide have some legal obligation
to try to raise cash for the Company, or was he then free to expropriate the
opportunity? For the most part, these are questions that have not been answered
by the courts in the cases decided to date. The Company (through its Special
Committee), after obtaining the advice of counsel, determined that the most
prudent course was to effect a settlement with the offshore companies and trusts
that returned approximately 8 million shares to the Company. In reaching this
conclusion, the Company weighed the probability of any recovery in a legal
action (given the significant legal uncertainties and factual difficulties of
this matter) against the costs (both in dollar terms and in terms of the drain
on company resources) of pursuing litigation.
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I hope that this information is fully responsive to your question. Please feel
free to contact me if you need additional information. Best regards.
Sincerely,
/s/ Bobbie Downey
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Bobbie Downey
Vice President and General Counsel