UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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) FEBRUARY 13, 2006
DATATRAK INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Charter)
OHIO 000-20699 34-1685364
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
6150 PARKLAND BOULEVARD, MAYFIELD HTS., OHIO 44124
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 440-443-0082
N/A
(Former Name or Former Address, if Changed Since Last Report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
GENERAL
On February 13, 2006, DATATRAK International, Inc. (the "Company"), CF Merger
Sub, Inc. ("CF Merger Sub"), ClickFind, Inc. ("ClickFind"), the shareholders of
ClickFind (collectively, the "Shareholders") and Jim Bob Ward ("Mr. Ward") as
Shareholder Representative, entered into and closed an Agreement and Plan of
Merger ("Merger Agreement") pursuant to which ClickFind merged with and into CF
Merger Sub. Following the merger, CF Merger Sub will continue as a wholly owned
subsidiary of the Company. A copy of the Merger Agreement is attached as Exhibit
10.1 and is incorporated herein by reference, and interested persons are
encouraged to read the Merger Agreement in its entirety. The description of the
Merger Agreement in this Item 1.01 is qualified in its entirety by reference to
the full text of the Merger Agreement. The Merger Agreement contains
representations and warranties that the parties made to and solely for the
benefit of each other. The assertions embodied in the ClickFind representations
and warranties are qualified by information contained in confidential disclosure
schedules provided by ClickFind in connection with signing the Merger Agreement.
Accordingly, investors should not rely on the representations and warranties in
the Agreement as characterizations of the actual state of facts, since they are
modified by the underlying disclosure schedules. Moreover, information
concerning the subject matter of the representations and warranties may have
changed since the date of the Merger Agreement, which subsequent information may
or may not be fully reflected in DATATRAK's public disclosures.
A copy of the press release announcing the execution of the Merger Agreement is
attached as Exhibit 99.1 to this current report and is incorporated herein by
reference.
CONVERSION OF CLICKFIND COMMON STOCK
At the Effective Time (as defined in the Merger Agreement), by virtue of the
merger and without any action on the part of the Company, ClickFind or the
Shareholders, upon the terms and conditions of the Merger Agreement, each share
of ClickFind capital stock issued and outstanding immediately prior to the
Effective Time was cancelled and extinguished and automatically converted into
the right to receive, upon surrender of the certificate representing such shares
of ClickFind capital stock in the manner set forth in the Merger Agreement, a
pro rata portion of the merger proceeds, as described more fully below.
ALLOCATION OF MERGER PROCEEDS
The aggregate value of the consideration paid to ClickFind shareholders in
connection with the merger was $18,000,000, less approximately $328,000 in
certain transaction expenses and certain outstanding indebtedness of ClickFind
(the "Net Merger Consideration"). Of that amount, DATATRAK was to provide (i)
approximately $4,000,000 in cash, (ii) $4,000,000 in promissory notes (the
"Notes"), and (iii) Company common shares having a value of approximately
$10,000,000 (the "Stock Consideration"). Except for fees relating to the audit
of ClickFind, which were to be paid by the Company, all other fees and expenses
of third parties incurred by ClickFind in connection with the merger were paid
by ClickFind by deduction from the merger consideration. Consequently, the cash
and Stock Consideration amounts above were reduced by the approximately $328,000
in transaction expenses and certain outstanding indebtedness of ClickFind.
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The actual number of shares of Company stock issued was determined by dividing
the Stock Consideration by $9.25, the average closing price per share of the
Company's common shares for the thirty (30) trading days ending on and including
the trading day prior to the closing date. Based on this calculation, the
Company issued an aggregate of 1,026,522 common shares pursuant to the Merger
Agreement.
Not all Shareholders received identical forms of consideration for their shares.
Some Shareholders received cash only ("Cash Only Shareholders"), and others
received a combination of cash, Notes and Stock (the "Cash and Securities
Recipients"). To allocate the merger proceeds, ClickFind first calculated the
aggregate amount of merger consideration to be paid for each share by dividing
$18,000,000 by the total number of outstanding shares of ClickFind common stock,
minus such Cash Only Shareholder's pro rata portion of the transaction expenses
and certain outstanding indebtedness of ClickFind. That number was approximately
$2.56 (the "Per Share Consideration"). Cash Only Shareholders received merger
consideration in an amount equal to the number of such shareholder's shares
multiplied by the Per Share Consideration, minus, in the case of certain Cash
Only Shareholders, the principal amount of promissory notes made by such holder
in favor of ClickFind in connection with the exercise of ClickFind stock options
prior to closing. For information on how the amounts of cash, Notes and common
shares provided to Cash and Securities Recipients were calculated, see Section
2.7(b)(ii) of the Merger Agreement.
TREATMENT OF STOCK OPTIONS
Immediately prior to the Effective Time, the vesting of all outstanding options
to purchase ClickFind capital stock was fully accelerated and any options that
were unexercised prior to or at the Effective Time were cancelled and
extinguished.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Merger Agreement contains customary representations, warranties and
covenants made by ClickFind, the Shareholders, the Company and CF Merger Sub.
The parties' representations and warranties are primarily concerned with various
aspects of each party's business, including without limitation its corporate
powers, capital structure, financial condition, legal activity and compliance,
and in the case of ClickFind, its assets, liabilities, properties, taxes, recent
operations, contracts, interested transactions, insurance, employee matters,
director indemnities and certain other matters. The Company's covenants include
maintaining an office in Bryan, Texas for a period of at least three years from
the closing date.
DIRECTOR AND OFFICER INDEMNIFICATION
Pursuant to the terms of the Merger Agreement, the Company agreed that it will,
from and after the date of the merger, indemnify and hold harmless the present
and former officers and directors of ClickFind in respect of their status as an
officer or director or in respect of acts or omissions by them occurring on or
prior to the Effective Time in their capacity as an officer or director of
ClickFind to the extent provided under (i) written agreements between each of
the individuals and ClickFind, and (ii) ClickFind's Articles of Incorporation
and Bylaws. The Merger Agreement limits the ability of such officers and
directors to seek indemnification rights for claims related to the merger and
related transactions.
INDEMNIFICATION OBLIGATIONS OF THE CLICKFIND SHAREHOLDERS
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Pursuant to the terms of the Merger Agreement, each ClickFind shareholder is
obligated to indemnify and hold harmless the Company and CF Merger Sub, and
their shareholders, directors, employees and agents and their respective
affiliates, for any damages they might incur as a result of that individual
Shareholder's breach of their representations and warranties contained in
Section 4 of the Merger Agreement. Each Shareholder's obligation to indemnify in
this instance is limited to the amount of merger consideration that the
Shareholder actually received.
INDEMNIFYING SHAREHOLDERS
Subject to certain limitations (including thresholds and caps), Cash and
Securities Recipients are obligated to indemnify and hold harmless the Company
and CF Merger Sub, and their shareholders, directors, employees and agents and
their respective affiliates against certain damages incurred by them as a result
of:
- any breach of any representation or warranty made by ClickFind in the
Merger Agreement or any other agreement, certificate or document
delivered in connection with the merger agreement;
- any breach by ClickFind of any covenant, obligation or agreement of
ClickFind in the Merger Agreement or any other agreement, certificate
or other document delivered in connection with the merger agreement;
or
- any claim by any current or former ClickFind shareholders relating to
the amount or allocation of the merger consideration or relating to
any issuances, redemptions, repurchases, transfers, exercise,
cancellation or surrender of any ClickFind common stock options or
other equity securities, or acts or omissions by any current or former
ClickFind director and officer in connection with the negotiation,
authorization or approval of the merger agreement or the transactions
contemplated thereunder.
PRIVATE PLACEMENT
The common shares of the Company issued to the Cash and Securities Recipients
pursuant to the Merger Agreement were issued by the Company in a private
placement exempt from registration under the Securities Act of 1933 (the
"Securities Act") by virtue of Section 4(2) of the Securities Act and Regulation
D promulgated thereunder. Cash and Securities Recipients are restricted from
transferring or reselling the securities until such time as such securities are
eligible for resale, subject to the volume and manner of sale limitations, under
Rule 144.
REGISTRATION RIGHTS
The Cash and Securities Recipients entered into a Registration Rights Agreement
with the Company which provides piggyback registration rights, subject to
standard underwriter's reduction or "cutback," for any registered offering of
the Company's common shares (a) occurring after the first anniversary of the
closing of the Merger or (b) occurring within the first year after closing if
common shares held by executive officers of the Company are included in such
offering. The Cash and Securities Recipients will be entitled to participate
pro-rata with any executive officers and other Cash and Securities Recipients
and other shareholders who are entitled to participate in any future
underwritten secondary offerings. The Cash and Securities Recipients will not be
entitled to piggyback registration rights to the extent that they are eligible
to resell their common shares under Rule 144(k). A copy of the Registration
Rights Agreement is attached as
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Exhibit 10.5 and is incorporated herein by reference. The foregoing description
of the Registration Rights Agreement is qualified in its entirety by reference
to the full text of the Registration Rights Agreement.
PROMISSORY NOTES
Pursuant to the Merger Agreement, the Company issued the Notes to Cash and
Securities Recipients. The Notes were issued in the aggregate amount of
$4,000,000 and will become due on February 1, 2009. The principal amount of the
notes will be paid in annual installments of $500,000, $500,000 and $3,000,000
on February 1, 2007, February 1, 2008 and February 1, 2009, respectively. The
Company will pay interest on the notes quarterly, on February 1, May 1, August 1
and November 1 of each year, until the principal amount has been paid in full.
The applicable rate will be at the per annum rate of interest designated by
KeyBank, from time to time, as its base lending rate, plus 1%, or, in the event
of a default, the base lending rate plus 3%. These Notes are subject to a right
of set-off pursuant to which the Company has the right to withhold and setoff
against amounts owing under the Notes, the amount of any claim for
indemnification or payment of damages which the Company has asserted under the
Merger Agreement. The outstanding principal amount, together with accrued and
unpaid interest will become due and payable upon a change of control, as defined
in the Note. The form of Note is attached hereto as Exhibit 10.4.
EMPLOYMENT AGREEMENT
At the closing of the Merger, the Company entered into an Employment Agreement
with Mr. Ward (the "Employment Agreement") to serve as the Vice President of
eClinical Development. The Employment Agreement provides a three-year term of
employment at a minimum base salary of $140,000 per year. During the three-year
term, Mr. Ward remains an at-will employee. The Employment Agreement provides
that Mr. Ward will be eligible to participate in annual bonus awards, if any, as
determined from time to time in the sole discretion of the Board of Directors or
the Board's Compensation Committee. Pursuant to the terms of the Employment
Agreement, Mr. Ward will be entitled to participate in the Company's employee
benefit plans as in effect from time to time on the same basis as similarly
situated employees of the Company. The Employment Agreement further provides for
a severance payment equal to the amount that Mr. Ward would have been paid in
contractual salary from the date of termination through the three year
anniversary of the consummation of the merger, in the event that the Company
terminates Mr. Ward's employment without Cause or Mr. Ward resigns for Good
Reason (each as defined in the Employment Agreement), during the employment
term. Mr. Ward's employment agreement restricts him, during his employment and
for a period of three years following the termination of his employment with the
Company, from: directly or indirectly engaging in the business of a
Competitive Business (as defined in the Employment Agreement); entering the
employ of anyone that engages in a Competitive Business; acquiring a financial
interest in a Competitive Business; interfering with business relationships
between the Company or any of its affiliates and any of their respective
customers, clients, suppliers, partners, members or investors; or soliciting
or hiring employees, customers or consultants of the Company or its affiliates.
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A copy of Mr. Ward's Employment Agreement is attached as Exhibit 10.2 and is
incorporated herein by reference. The foregoing description of the Employment
Agreement is qualified in its entirety by reference to the full text of the
Employment Agreement.
In connection with the Merger, the Company also entered into employment
agreements with other former ClickFind employees. These agreements contain
customary non-competition and non-solicitation provisions.
LICENSE AGREEMENT
In connection with the Merger, the Company entered into a Limited Software
License Agreement with Mr. Ward, granting Mr. Ward a limited, royalty-free,
non-exclusive license to use, make and create modifications of, sublicense and
distribute copies of; and sublicense in executable form only the current version
of the ClickFind software (as it existed at the time of closing) in
non-competitive commercial applications (the "License"). The License prohibits
Mr. Ward from using the software in any manner or enterprise which would be
competitive with the Company's or ClickFind's current business or prior use of
the technology. No transfers or assignments of the license are permitted for a
period of five years after closing without the consent of the Company. After
such time, the Company shall not unreasonably withhold such consent to such an
assignment or transfer; provided further, that the Company shall have a right of
first refusal as to any such proposed assignment. The Company may terminate the
License upon the occurrence of any default by Mr. Ward that involves a
misappropriation or misuse of the software's source code, including any failure
to comply with certain material terms, conditions or covenants of the License or
any adjudicated violation of the non-competition or non-solicitation provisions
contained in Mr. Ward's employment agreement. A copy of the License is attached
as Exhibit 10.3 and is incorporated herein by reference. The foregoing
description of the License is qualified in its entirety by reference
to the full text of the License.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
The information set forth in Item 1.01 of this Current Report on Form 8-K is
incorporated into this Item 2.01 by reference.
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On February 13, 2006, the Company issued a press release relating to the
Company's earnings for the fiscal year ended December 31, 2005. A copy of the
press release is attached to this report as Exhibit 99.2.
In addition, on February 13, 2006, the Company held an earnings conference call
relating to its financial results for the fiscal year ended December 31, 2005.
The full transcript of the call is attached hereto as Exhibit 99.3 to this
report.
The information in this Item 2.02 and Exhibits 99.2 and 99.3 attached hereto
shall not be deemed "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934, nor shall it be deemed incorporated by reference in any
filing under the Securities Act, except as shall be expressly set forth
by specific reference to such filing.
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ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION
The disclosure under Item 1.01 above is incorporated herein by reference with
respect to the issuance of the Notes to the Cash and Securities Recipients
pursuant to the Merger Agreement.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
The disclosure under Item 1.01 above is incorporated herein by reference with
respect to the issuance of common shares of the Company to the Cash and
Securities Recipients pursuant to the Merger Agreement.
ITEM 5.02 APPOINTMENT OF PRINCIPAL OFFICERS.
On February 13, 2006, in connection with the Merger, the Company appointed Mr.
Ward, 45, as Vice President of eClinical Development. The description of the
Employment Agreement under Item 1.01 above is incorporated herein by reference.
From 2000 until his appointment as Vice President of eClinical Development, Mr.
Ward served as the President and CEO of ClickFind, a provider of clinical
research services and technologies to pharmaceutical, biotech, medical device,
contract research and core laboratory companies. Prior to joining ClickFind, Mr.
Ward founded Real Time Internet Services, a developer of internet-based
technologies for the insurance, government and social services markets, and
served as the Assistant Director of Texas A&M University's market research
center conducting consulting, research and technology transfer activities
throughout the United States, Central America, South America and Eastern Europe.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
Financial Information and proforma financial information required by this Item
9.01 have not been included in this initial report but will be filed by May 1,
2006.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Audited Financial Statements for ClickFind for fiscal years ended December
31, 2005 and December 31, 2004 (to be filed by amendment).
(B) PROFORMA FINANCIAL INFORMATION
Proforma Financial Information for acquisition of ClickFind, Inc. (to be
filed by amendment).
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(D) EXHIBITS
10.1 Agreement and Plan of Merger dated as of February 13, 2006 among
DATATRAK International, Inc., CF Merger Sub, Inc., ClickFind, Inc., the
shareholders of ClickFind, Inc. and Jim Bob Ward as Shareholder Representative.
10.2 Employment Agreement dated as of February 13, 2006 between DATATRAK
International, Inc. and Jim Bob Ward.
10.3 Limited Software License Agreement dated as of February 13, 2006
between DATATRAK International, Inc. and Jim Bob Ward.
10.4 Form of Promissory Note
10.5 Registration Rights Agreement dated as of February 13, 2006 among
DATATRAK International, Inc. and the Cash and Securities Recipients.
99.1 Press release dated February 13, 2006 announcing the merger.
99.2 Press release dated February 13, 2006 announcing earnings release.
99.3 Transcript of February 13, 2006 earnings conference call.
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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.
DATATRAK INTERNATIONAL, INC.
Date February 17, 2006 By /s/ Terry C. Black
-------------------------------------
Terry C. Black
Vice President of Finance, Chief
Financial Officer,
Treasurer and Assistant Secretary
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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10.1 Agreement and Plan of Merger dated as of February 13, 2006 among
DATATRAK International, Inc., CF Merger Sub, Inc., ClickFind,
Inc., the shareholders of ClickFind, Inc. and Jim Bob Ward as
Shareholder Representative.
10.2 Employment Agreement dated as of February 13, 2006 between
DATATRAK International, Inc. and Jim Bob Ward.
10.3 Limited Software License Agreement dated as of February 13, 2006
between DATATRAK International, Inc. and Jim Bob Ward.
10.4 Form of Promissory Note
10.5 Registration Rights Agreement dated as of February 13, 2006 among
DATATRAK International, Inc. and the Cash and Securities
Recipients.
99.1 Press release dated February 13, 2006 announcing the merger.
99.2 Press release dated February 13, 2006 announcing earnings release.
99.3 Transcript of February 13, 2006 earnings conference call.