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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 1-14371
INFORMATION HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1518007
(State of incorporation) (IRS Employer Identification No.)
2777 SUMMER STREET, SUITE 209
STAMFORD, CONNECTICUT 06905
(Address of principal executive offices) (Zip Code)
(203) 961-9106
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 23, 1999 was approximately $84,429,000, based upon
the March 23, 1999 closing sale price of the common stock of $18.25 as reported
by the New York Stock Exchange.
The number of outstanding shares of Common stock, par value $0.01 of
the registrant outstanding as of March 23, 1999 was 16,943,189 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference to
the definitive proxy statement relating to the registrant's Annual Meeting of
Stockholders for fiscal 1998, which definitive proxy statement will be filed
within 120 days of the end of the registrant's fiscal year.
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TABLE OF CONTENTS
PART I
Page
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Item 1 Business...........................................................1
Item 2. Properties.........................................................9
Item 3. Legal Proceedings..................................................9
Item 4. Submission of Matters to a Vote of Security Holders...............10
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters...................................10
Item 6. Selected Financial Data...........................................11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........17
Item 8. Financial Statements and Supplementary Data.......................17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................18
PART III
Item 10. Directors and Executive Officers of the Registrant................19
Item 11. Executive Compensation............................................19
Item 12. Security Ownership of Certain
Beneficial Owners and Management..................................19
Item 13. Certain Relationships and Related Transactions....................19
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K................................20
Important Factors Relating to Forward Looking Statements.....................22
Signatures...................................................................23
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PART I
ITEM 1. BUSINESS
OVERVIEW
Information Holdings Inc. (IHI or the Company) is an information
publishing business focused on providing essential information to professional
and academic end-users in attractive niche markets. The Company was formed to
capitalize on management's experience in acquiring information publishing
businesses and then increasing profitability through a combination of organic
revenue growth and improved operating efficiencies. To date, the Company has
acquired information publishing businesses in the following niche markets:
scientific, technical and medical (STM) and professional through CRC Press LLC
(CRC Press); and intellectual property through MicroPatent LLC (MicroPatent).
For the year ended December 31, 1998, the Company had revenues and net income of
$46.7 million and $4.8 million, or $0.28 per share on a pro-forma basis,
respectively.
CRC Press, acquired in January 1997 from The Times Mirror Company, is a
mid-sized STM and professional publisher with leading positions in several
attractive niche markets. CRC Press, with a 95-year history, has highly regarded
brand names and publishes some of the most recognizable STM titles in their
respective fields, including THE HANDBOOK OF CHEMISTRY AND PHYSICS (currently in
its 79th edition) and STANDARD MATHEMATICAL TABLES AND FORMULAE. In the first
half of 1997, two fold-in acquisitions were completed and combined with CRC
Press: St. Lucie Press, Inc. a publisher of professional titles; and Auerbach
Publications (Auerbach), a provider of technology-oriented print and electronic
subscription-based products, which was acquired from the Thomson Corporation
(Thomson). In August 1998, CRC Press acquired the mathematics/statistics and
chemical product lines of Chapman & Hall from Wolters Kluwer N.V. For the year
ended December 31, 1998, CRC Press contributed approximately 83% of the
Company's revenues.
MicroPatent, acquired in July 1997, is a leading source of intellectual
property information products and services. Its high-quality patent and
trademark databases are used extensively by legal and research professionals and
corporations. The Internet, MicroPatent's fastest-growing distribution channel,
accounted for 39% of its total revenue in fiscal year ended December 31, 1998,
as compared to 18% in the prior year. The Company believes that its profitable
PATENTWEB(TM) service is among the most comprehensive intellectual property
information services on the Internet. In January 1999, MicroPatent acquired
Optipat, Inc., which provides print and Internet-delivered patent information to
the legal and corporate markets. For year ended December 31, 1998, MicroPatent
contributed approximately 17% of the Company's revenues.
GROWTH AND OPERATING STRATEGY
The principal elements of the Company's growth strategy are to (i)
acquire businesses in attractive niche markets, (ii) organically grow revenues
and profit, (iii) improve operating efficiencies and (iv) attract and retain
superior management.
ACQUIRE BUSINESSES IN ATTRACTIVE NICHE MARKETS. The Company actively seeks
to identify and acquire information publishing businesses with attractive
market, product and customer characteristics. The Company targets professional
and academic end-users who have a critical need to keep abreast of current
developments in their particular fields. While the Company continually develops
and introduces new products, the majority of the Company's revenues are
generated from recurring sources, such as subscriptions and backlist sales
(sales of books published in prior years). The Company believes that markets in
which information is critical to success, such as the STM market served by the
Company, have supported consistent price increases over the past decade. The
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Company's products and services are generally not sensitive to pricing pressures
or adverse economic conditions. Examples of additional niche markets that the
Company may target include business information, healthcare information,
regulatory information and technology-related information.
ORGANICALLY GROW REVENUES AND PROFIT. The Company seeks to acquire
information publishing businesses with significant short- and long-term growth
prospects. The Company's strategy is to acquire valuable content and leverage
such content across new distribution platforms and through expansion of product
lines. For example, the Company has launched new electronic versions of
successful print products, increased sales of core products based on new
distribution agreements, began Internet delivery of products and launched new
products targeting segments of its existing customer base.
IMPROVE OPERATING EFFICIENCIES. The Company seeks to improve operating
efficiencies by combining administrative functions, eliminating redundant
facilities, negotiating more favorable contract terms with suppliers,
implementing systems improvements, and upgrading management. In addition, the
Company seeks to leverage its infrastructure by acquiring companies or product
lines that can be supported by its existing operations. To date, CRC Press has
acquired two such companies, St. Lucie Press and Auerbach, as well as the
Chapman & Hall product lines, a line of engineering titles from Krause
Communications, the McGee line of business titles and a line of advanced
mathematics books from Addison Wesley Longman.
ATTRACT AND RETAIN SUPERIOR MANAGEMENT. The Company seeks to employ
professional management with substantial information publishing expertise, both
in entrepreneurial and corporate settings. The Company's philosophy is to
provide operating units with significant decision-making authority, so that key
operating policies are made close to the Company's customers and operations.
This enables the Company to attract superior entrepreneurial talent who can grow
the business by capitalizing on market opportunities.
STRATEGY IMPLEMENTATION
Since the acquisitions of CRC Press and MicroPatent, the Company has
successfully executed its growth and operating strategy and significantly
improved the financial performance of these businesses. In 1996, prior to its
acquisition by the Company, CRC Press had an operating profit margin of
approximately 6%, excluding the impairment and amortization of intangibles. In
1998, CRC Press increased its operating profit margin to approximately 17%,
excluding the amortization of intangibles. Similarly, MicroPatent's operating
profit margin was approximately 2%, excluding the amortization of intangibles,
in the year prior to acquisition. In 1998, operating profit was increased to
33%, excluding the amortization of intangibles.
ORGANIC GROWTH. At CRC Press, the list of new publications or new editions
of prior publications (frontlist) was approximately 280 titles in 1998. The
Company approximates the frontlist for 1999 to be between 350 and 400 titles.
The Company has also taken steps to increase its international sales through a
global distribution agreement (excluding North America, Australia and New
Zealand) with Springer-Verlag GmbH & Co. KG (Springer-Verlag), a significant
Europe-based scientific and technical publisher. In addition, the Company has
leveraged well-established titles such as THE HANDBOOK OF CHEMISTRY AND PHYSICS
and STANDARD MATHEMATICAL TABLES AND FORMULAE by publishing them in electronic
format, which is expected to expand their reach and application. In total, the
Company expects to produce approximately 30 new electronic products in 1999.
MicroPatent's revenue growth has also accelerated significantly since
its acquisition by the Company, with revenues increasing 24% in 1998 over the
comparable prior year period. Such growth has been driven largely by Internet
product offerings. Revenues from Internet-based patent information grew more
than 170% in 1998 compared to 1997. In addition, revenues generated by all
Internet products rose to 39% of MicroPatent's total revenues in 1998, as
compared to 18% in 1997.
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OPERATING IMPROVEMENTS. The overall operating efficiency of CRC Press has
been improved through revisions in operating procedures. For example, plant
costs per page, which include design and other pre-production costs for books
published, decreased by approximately 16% in 1998, following a decrease of
approximately 45% in 1997, the Company's first year of ownership of CRC Press.
The Company has improved other direct costs, resulting in an overall improvement
in gross margins at CRC Press to 74% in 1998 from 65% in 1997.
At MicroPatent, significant investments were made in its website to
expand web-based content and to enhance existing technology. This investment has
led to increased Internet reliability and speed which has helped spur customer
demand. In addition, since the Company acquired MicroPatent, overall cost levels
have decreased. In particular, gross profit margins at MicroPatent improved to
80% in 1998 compared to 69% in 1997.
FOLD-IN ACQUISITIONS. Since the acquisition of CRC Press, the Company has
successfully completed several fold-in acquisitions: St. Lucie Press, a
publisher of professional titles; Auerbach, a provider of technology-oriented
print and electronic subscription-based products; and the mathematics/statistics
and chemical product lines of Chapman & Hall. The Company also acquired a line
of engineering titles from Krause Communications, the McGee line of business
titles and a line of advanced mathematics titles from Addison Wesley Longman.
These acquisitions expanded the Company's product offerings and increased
profitability by leveraging its existing infrastructure.
MANAGEMENT. The Company installed a new senior management team at CRC Press
within three months after its acquisition, which substantially altered the
editorial, production and marketing processes at the Company. These executives
have an average of over 16 years of publishing industry experience.
At MicroPatent, through internal promotion and recruitment, the Company
installed a new CEO, hired management to build a trademark database and hired
senior sales and marketing executives.
STM AND PROFESSIONAL PUBLISHING
MARKET
The Company provides information in selected niches of the broad STM
and professional market. The STM and professional market is global in nature and
has experienced consistently solid growth. Total market revenues exceeded $4
billion in 1997 with per annum growth in excess of 6% over the past decade.
Management believes this market will continue to expand as the need for
information continues to increase based on factors such as: constantly
increasing complexity within STM and professional research; globalization of the
STM and professional market; and technological advances which enable greater
distribution of content.
The Company targets end-users, such as professionals and academics,
with high-end specialized reference information. The Company products are
targeted towards areas with a significant number of end-users including
chemists, engineers, mathematicians, technology practitioners and environmental
scientists. These end-users are generally not price sensitive due to the
critical nature of the content.
PRODUCTS
CRC Press is a medium-sized publisher with strong market positions in
chemistry, mathematics, engineering, food science, environmental sciences and
key areas of technology. CRC Press's products are divided into two broad
categories: book publishing (including electronic versions
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of print book titles); and subscription services. In the fiscal year ended
December 31, 1998, book publishing and subscription services generated 72% and
28%, respectively, of CRC Press's revenues.
BOOK PUBLISHING. CRC Press publishes some of the most recognizable science
titles in their respective fields, including THE HANDBOOK OF CHEMISTRY AND
PHYSICS (currently in its 79th edition) and STANDARD MATHEMATICAL TABLES AND
FORMULAE. CRC Press has an extensive backlist of over 3,500 titles, which
generates substantial recurring demand. In both 1997 and 1998, the backlist
contributed 68% of total book publishing revenues. In addition, CRC Press has a
strong and active frontlist publishing program. In 1998, CRC Press published
approximately 280 frontlist titles. Publishing levels have increased since the
Company acquired CRC Press with 350-400 titles scheduled for publication in
1999. CRC Press's book publishing focuses on the following areas:
LIFE SCIENCES. CRC Press(R) is a well-recognized brand in life sciences
and publishes with a technical focus in areas including neurology,
biology, pathology, ecology, food technology, marine science and
forensics. CRC Press published 88 titles in life sciences in 1998 and
has an active life sciences backlist of over 1500 titles. In 1998,
total life sciences sales represented 35% of Company's book publishing
revenues. Some of CRC Press's leading titles in life sciences include
CRC HANDBOOK OF HUMAN TOXICOLOGY, PRACTICAL HOMICIDE INVESTIGATION and
PAIN MANAGEMENT.
ENGINEERING, MATHEMATICS AND PHYSICAL SCIENCES. CRC Press has a strong
franchise in engineering, mathematics and physical sciences based on
leading titles, strong co-publishing relationships and a practitioner
oriented approach. CRC Press published 109 titles in engineering,
mathematics and physical sciences in 1998 and has a backlist of over
1000 titles. In 1998, total engineering, mathematics and physical
sciences revenues represented 39% of Company's book publishing sales.
CRC Press's strong titles include THE HANDBOOK OF CHEMISTRY AND PHYSICS
(79th edition) and STANDARD MATHEMATICAL TABLES AND FORMULAE. In
addition, the Company has a co-publishing arrangement with the
Institute of Electrical and Electronic Engineers, a leading engineering
society with over 120,000 members. This relationship gives the Company
wide distribution for engineering titles and a competitive advantage in
attracting engineering authors. The Company has recently increased its
presence in mathematics publishing through the acquisitions of the
math/statistics line of Chapman & Hall and the Pittman line of advanced
mathematics titles.
ENVIRONMENTAL SCIENCES. The Company's Lewis Publishers(TM) imprint is
one of the top publishers of environmental science books with titles in
all areas including environmental chemistry, environmental engineering,
wetland development, ecology and remediation. The Company published 52
environmental science titles in 1998 and has a backlist that includes
over 700 titles. In 1998, total environmental science sales represented
20% of the Company's book publishing revenues. Well-known environmental
sciences titles include Manahan's ENVIRONMENTAL CHEMISTRY, REMEDIATION
ENGINEERING: A DESIGN HANDBOOK, ENVIRONMENTAL ENGINEERING HANDBOOK and
the United States Golf Association's (USGA) LANDSCAPE RESTORATION
HANDBOOK (a joint publication among CRC Press, the Audubon Society of
New York State and the USGA).
BUSINESS PUBLICATIONS. The Company's St. Lucie Press(TM) imprint
publishes books focusing on all areas of business, including
management, human resources, manufacturing processes, finance and
investment. St. Lucie Press's publications are targeted at high-level
management, technical and analytic end-users through titles such as
PRINCIPLES OF TOTAL QUALITY and CHIEF EXECUTIVE OFFICER PAY AND
SHAREHOLDER VALUE. Additionally, the Company completed the
complementary acquisition of the McGee line of titles, including
TECHNICAL ANALYSIS OF STOCK TRENDS, which was integrated into CRC
Press. CRC Press published 34 business publications in 1998 and has a
backlist that includes over 100 titles. In 1998, total business
publications sales represented 6% of the Company's book publishing
revenues.
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SUBSCRIPTION PRODUCTS. The Company's subscription products focus on the
following areas:
TECHNOLOGY SERVICES. The Company provides high-level information
systems and information technology management products under its
Auerbach imprint. Auerbach offers journals, newsletters, annual
handbooks and several information management guides available in print
and CD-ROM. Auerbach is a technology publisher with over 20,000 users
of its various products. Significant Auerbach titles include the
JOURNAL OF INFORMATION SYSTEMS MANAGEMENT, EDP AUDIT CONTROLS, BUSINESS
RESUMPTION PLANNING, HANDBOOK OF LOCAL AREA NETWORKS, HANDBOOK OF MIS
MANAGEMENT and the AUERBACH INFORMATION MANAGEMENT SERIES (AIMS).
Auerbach recently launched a successful newsletter, YEAR 2000
PRACTITIONER, and it has several newsletters and handbooks in
development. Auerbach contributed approximately 41% of CRC Press's 1998
subscription revenues.
NEWSLETTERS. The Company's Food Chemical News (FCN) division serves the
food and chemical industries with six newsletters and two comprehensive
food chemical science guides, available in print and CD-ROM. FCN
products command premium pricing and have aggregate renewal rates
approximating 75%. Content is also available in electronic format, and
the Company is actively pursuing site licensing and Internet
opportunities. FCN's flagship product, FOOD CHEMICAL NEWS(R), is a
weekly newsletter tracking food policy and regulatory changes. It has
been a leading source of information to the food industry for over 37
years. Additional products offered by FCN include PESTICIDE AND TOXIC
CHEMICAL NEWS, WORLD FOOD NEWS and FOOD LABELING AND NUTRITION NEWS.
FCN contributed approximately 35% of CRC Press's 1998 subscription
revenues.
JOURNALS. The Company currently publishes 17 subscription-based
journals. Journals include both primary journals, such as the JOURNAL
OF SOIL CONTAMINATION and OZONE SCIENCE AND ENGINEERING, which are
vehicles for the publication of original research; and secondary
journals in the Critical Review series. The journal program is
concentrated in areas where the Company has strong book publishing
programs and provides synergy with respect to marketing and editorial
functions. In CRITICAL REVIEW journals, including titles such as
CRITICAL REVIEWS IN ANALYTICAL CHEMISTRY and CRITICAL REVIEWS IN
TOXICOLOGY, acknowledged experts summarize recent professional
literature in important areas of science and technology. The Company
recently launched a new primary journal, STRATEGIES IN ENVIRONMENTAL
MANAGEMENT, and is actively developing journal content for Internet
delivery. Aggregate renewal rates for the Company's journals
approximated 85%. Journals contributed approximately 21% of CRC Press's
1998 subscription revenues.
ELECTRONIC DATABASES. The Company produces several proprietary chemical
databases under the Chapman & Hall/CRC Press imprint. The primary
products are chemical dictionaries covering areas such as natural
products, organic compounds and inorganic compounds. The Company also
distributes several licensed products and has exclusive rights to the
electronic version of the Merck Index. This product line was acquired
in August 1998 and contributed 3% of CRC Press's 1998 subscription
revenue.
SALES, MARKETING AND DISTRIBUTION
Direct response marketing is the primary method for selling the
Company's products. The Company has an in-house creative services and direct
marketing group which designs, manages, and produces cost-effective direct mail
campaigns and other promotional support programs. The Company utilizes its
extensive in-house lists of book buyers, supplemented by lists from professional
societies and list management companies. In 1998, the Company produced in excess
of 1,000 promotional campaigns and mailed in excess of 1 million direct mail
pieces per month on average. Direct response (including textbook adoptions)
generated 35% of CRC Press's 1998 book revenues and the majority of its
subscription-based revenues, as well as generating sales that are fulfilled
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through bookstores and distributors.
The Company uses a small, well-experienced sales force for professional
book sales to the Company's academic and specialty bookstores, wholesalers,
catalogers and associations, as well as sales of site licenses to corporations
and academic institutions. In the aggregate, these channels provided 47% of the
Company's 1997 book revenues. There is also an outbound telesales group used
primarily for new sales of Auerbach technology products.
The Company uses several well-respected distributors for sales outside
of North America. The primary distributor for books is Springer-Verlag, a
significant Europe-based scientific and technical publisher with extensive
international marketing capabilities. International sales contributed 18% of the
Company's 1998 book revenues. In 1998, sales to Springer-Verlag accounted for
approximately 9% of the Company's consolidated revenues.
OPERATIONS
The Company operates its business in an entrepreneurial manner that
serves to increase employee responsibility and accountability. The Company has
leveraged its long-standing relationships with acknowledged experts in its
existing markets and developed close relationships with acclaimed industry
leaders in new markets. These relationships provide the Company with experienced
authors and editors who are given increased responsibility for product
development and profitability. Currently, CRC Press employs approximately 20
editors who are responsible for proposing new publications, contacting and
signing new authors, managing each publication on a return-on-investment basis,
and managing product line growth and quality enhancement. The compensation of
editors is partially linked to the success of their respective product lines.
Similarly, authors are typically signed to royalty-based contracts that
compensate them based on the revenues of the applicable publications.
The Company's strategy of increasing individual responsibility and
accountability has been applied to the in-house production process, as well.
Currently, CRC Press employs approximately 30 professionals to manage pre-press
production, which includes copy-editing, type-setting, illustration, interior
and cover design, and the preparation of final output for the printer. Driven by
systems upgrades and several incentive-based bonus plans, CRC Press performed
approximately 50% of pre-press production in-house in 1998, with external
production having negotiated rates comparable to its internal rate. In addition,
the production personnel oversee the printing and binding activities performed
by third-party printers. The Company conducts business with several different
printers and is not dependent on the services of any one printer in particular.
INTELLECTUAL PROPERTY INFORMATION SERVICES
MARKETS
The Company is a leading provider of intellectual property information
products and services. The Company estimates that the core components of the
intellectual property information market, patents and trademarks, currently
exceed $500 million on a worldwide basis. These markets continue to grow as
usage of intellectual property information has expanded significantly in the
past decade fueled by factors such as: increased awareness of the value of
intellectual property as a corporate asset; greater enforcement of intellectual
property rights on a worldwide basis; more intellectual property filings, such
as European Community trademarks; and technological advances which enable
greater storage, searching and access to large databases. Management believes
these positive trends will continue.
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PRODUCTS
The Company is a leader in selected niches of intellectual property
markets, specifically in the provision of patent information through the
Internet, corporate intranets and other electronic media, such as CD-ROM. The
Company collects primary source data from the world's major patent and trademark
offices and adds significant value through the development of vast integrated
databases, innovative product delivery and sophisticated software for data
searching and access. In addition, the Company has recently launched its
trademark information business and is currently a growing provider in this
market.
The Internet is an important distribution mechanism for intellectual
property information and is MicroPatent's fastest growing channel. The Company
believes that its profitable PATENTWEB(TM) service is the most comprehensive
commercial intellectual property information service on the Internet. Internet
services range from individual payment for access to a single patent to
unlimited annual use plans for searching and downloading throughout a corporate
customer's site. Revenues from Internet-based patent information grew more than
170% in 1998 compared to the comparable prior year period. In addition, revenues
generated by all Internet products rose to 39% of MicroPatent's total 1998
revenues, compared to 18% in the prior year.
MicroPatent was also among the first providers of patent information on
CD-ROM. It offers both text and image products covering U.S., European and
Japanese information. The Company believes that its PATENTIMAGES(R) products
remain leading CD-ROM products in the North American market. Patent CD-ROM
subscriptions generated 37% of MicroPatent's revenues in 1998. In addition to
subscriptions to databases of worldwide patent information, MicroPatent offers
databases of historical (backfile) and current patent information, in standard
and custom formats, in multiple media. Backfile and custom product sales
generated 24% of MicroPatent's revenues in 1998.
While the Company continues to expand both the content and
functionality of its patent products, it is also expanding into trademark
information. The Company launched a U.S. federal trademark database, MARKSEARCH
PRO(TM), and now has trademark products available in CD-ROM and on the Internet
througH TRADEMARKWEB(TM). Trademark products, which are included above in CD-ROM
subscription and Internet revenues, generated 7% of MicroPatent's 1998 revenues.
The Company continues to develop its content and recently launched its
worldwide patent search service, full text searching capabilities, a special
collection of international patents and MARKSEARCH PRO. The Company is also
expanding into new markets through development of value-added trademark
information products, including a state trademark database, which will be
available on the Internet.
In January 1999 the Company expanded its intellectual product offerings
through the acquisition of Optipat, Inc. which provides print and Internet-based
patent documents in the legal and corporate markets.
SALES, MARKETING AND DISTRIBUTION
The majority of MicroPatent's sales are made through an in-house sales
force with offices in the United States and the United Kingdom. Prospects are
identified through referrals from existing customers, referrals from patent and
trademark offices, leads from trade shows and information requests from sources
such as the Internet. Additional international sales are made through a network
of distributors. Renewals are generally made by mail with telephone follow-up.
OPERATIONS
The Company employs 12 people to produce and fulfill its patent and
trademark CD-ROM and customized information products. Source data is received
weekly from the U.S. Patent and
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Trademark Office and certain foreign patent and trademark offices. The Company
receives the data in various formats and media and, through internal procedures
using both proprietary and third-party software, produces a master CD-ROM for
each subscription product. An outside vendor is used for CD-ROM replication and
shipments to customers.
Source data is continually added to the Company's numerous in-house
databases, which support its Internet-based products and services. A programming
and research and development staff of four maintains these databases, together
with various support systems and product interfaces. These software development
professionals, together with several technical support staff, create and
maintain the Company's various Internet products.
Since its acquisition of MicroPatent, the Company has taken several
initiatives to improve operations. Significant investments made in MicroPatent's
website to expand web-based content and enhance existing technology have led to
increased reliability and speed. In addition, since the Company acquired
MicroPatent, overall cost levels have decreased.
FOREIGN OPERATIONS AND EXPORT SALES
The Company maintains an office in London, England, which includes
sales staff for both CRC Press and MicroPatent and editorial employees
responsible for CRC Press's electronic chemical databases. Export sales, based
on customer location, represented approximately 25% of the Company's
consolidated revenues for the fiscal year ended December 31, 1998, which
includes an estimate of patent information delivered over the Internet to
recipients outside the United States.
COMPETITION
The Company competes with a broad range of companies for the products
and services it offers. Although it provides information in competitive markets
and such competition is unlikely to diminish, the Company believes it can
compete successfully based on its well-established positions in niche markets,
the quality of its products, the breadth and depth of its content, continued
product innovation and efficient operations.
STM information publishing is a large market with numerous competitors.
While there is competition for sales in a given area, products are generally
unique titles sold on an individual basis. The Company must also compete for the
signing of noted authors. The Company's primary STM competitors include John
Wiley, McGraw-Hill and Academic Press, a unit of Harcourt General. These
competitors are larger and have greater financial resources than the Company. In
addition there are numerous small publishers that compete with the Company.
The Company also competes with other sellers of intellectual property
information. Thomson owns Derwent and Thomson & Thomson, large competitors in
patents and trademarks, respectively. In addition to direct sales, these
companies offer content through on-line services such as Dialog, which combines
this information with other business information. Lastly, there are several
low-cost or free intellectual property services offered by large
technology-oriented companies such as IBM, and certain national and
international patent and trademark offices. These services have not had a
significant negative impact on the Company to date, due to the Company's ability
to differentiate itself through adding value by making data easily accessible
and customizing products for specific client needs.
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INTELLECTUAL PROPERTY
The Company regards its trademarks, copyrights, trade secrets and
similar intellectual property as valuable assets and relies upon trademark and
copyright laws, as well as confidentiality agreements with its employees and
others, to protect its rights. The Company pursues the registration of its
material trademarks and copyrights in the United States and, depending upon use,
in certain other countries. The Company believes it owns or licenses all
intellectual property rights necessary to conduct its business. To the best of
the Company's knowledge, there are no threatened or pending legal proceedings or
claims related to the Company's intellectual property that are likely to have,
individually or in the aggregate, a material adverse effect on the Company's
business, financial condition or results of operations.
ENVIRONMENTAL MATTERS
The Company believes that its operations are in compliance with all
applicable foreign, federal, state and local environmental laws, as well as all
laws and regulations relating to worker health and safety.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1998, the Company had approximately 265 employees,
consisting of 251 employees in the United States and 14 employees based in
England. No employees are covered by collective bargaining agreements with labor
unions. The Company believes that relations with its employees are good.
ITEM 2. PROPERTIES
The Company leases office space in East Haven, Connecticut; Washington,
D.C.; Boca Raton, Florida; New York, New York; Stamford, Connecticut and London,
England under leases expiring in 2001; 2002; 2006; 2002; 2003 and 2005,
respectively. The Company contracts with third parties for warehousing and
distribution services including facilities in Lynn, Missouri and Letchworth,
England. The Company does not own any real property. The Company's facilities
and equipment, are in good operating condition, are suitable for their
respective uses and are adequate for the Company's current business operations.
ITEM 3. LEGAL PROCEEDINGS
Mason P. Slaine, the Company's President and Chief Executive Officer,
and Michael E. Danziger, a director of the Company, are shareholders, officers
and directors of Rand Publishing Company Inc. (Rand), a private holding company
that has made investments in the publishing industry. Certain of the other
investors in Rand have alleged that Mr. Slaine breached his fiduciary duty to
them and usurped corporate opportunities available to Rand by investing in the
Company and by participating in the acquisition by the Company of various
businesses. These investors have asserted claims for damages and have requested
that a constructive trust be established for their benefit consisting of Messrs.
Slaine and Danziger's interest in the Company and other relief. Both Mr. Slaine
and Mr. Danziger deny such allegations and have indicated to the Company that
they intend to vigorously defend themselves.
In addition, the Company is involved in litigation that has arisen in
the ordinary course of business. None of these matters, either individually or
in the aggregate, is expected to have a material adverse effect on the Company's
financial condition or results of operations.
-9-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
(NYSE) under the symbol "IHI." The initial public offering price of the
Company's Common Stock was $12.00 per share. As of March 22, 1999, there were
approximately 1,817 holders of the Company's Common Stock comprised of 17
record holders and approximately 1,800 beneficial holders. The following
table reflects the high and low sales prices of the Company's common stock as
reported by the NYSE, for the period indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
August 7- September 30 * 13.375 8.500
Fourth Quarter 16.750 9.375
</TABLE>
* Represents the period from which the Company's Common Stock began trading on
the NYSE after its initial public offering.
DIVIDEND POLICY
The Company has never paid a dividend on its Common Stock and does not
anticipate paying any dividends on its Common stock in the foreseeable future.
The current policy of the Company's Board of Directors is to retain earnings to
finance the operations and expansion of the Company's business.
USE OF PROCEEDS
The following report relates to the Company's initial public offering:
Commission file number of registration statement: 333-56665
Effective Date: August 6, 1998
Expenses incurred through December 31, 1998:
Underwriting discounts $ 3,887,747
Other expenses $ 1,589,413
Total expenses $ 5,477,160
Application of proceeds through December 31, 1998:
Acquisition of product lines $ 3,644,325
Temporary investments (US Treasury Bills) $ 47,546,787
-10-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data of (i) CRC Press, Inc. (the
Predecessor) as of and for the years ended December 31, 1995 and 1996 and (ii)
the Company as of and for the year ended December 31, 1997 and 1998 have been
derived from their respective audited financial statements. The selected
historical financial data of the Predecessor as of and for the year ended
December 31, 1994 is derived from its accounting records and has not been
audited. The acquisition of the Predecessor and all other acquisitions by the
Company were accounted for using the purchase method of accounting. The Company
acquired St. Lucie Press on January 13, 1997, Auerbach on June 5, 1997 and
MicroPatent on July 2, 1997. The results of operations of these businesses are
included in the Company's results from their respective dates of acquisition and
are not included at all in the Predecessor's results. Accordingly, certain of
the historical financial data of the Predecessor are not comparable to those of
the Company. The selected historical financial data should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY(1)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues (2) .......................... $ 32,328 $ 32,054 $ 28,852 $ 34,869 $ 46,651
Cost of sales (3) ..................... 11,591 11,371 9,262 11,492 11,707
Operating expenses (3) ................ 18,289 33,452 29,667 28,040 31,234
Operating income (loss) ............... 2,448 (12,769) (10,077) (4,663) 3,710
Interest (expense) income ............. (1,237) (1,272) (1,036) (130) 1,117
Other (expense) income ................ (95) (95) 47 (115) --
Income (loss) before taxes ............ 1,116 (14,136) (11,066) (4,908) 4,827
Net income (loss) (4) ................. 1,556 (9,234) (11,236) (4,911) 4,785
Pro forma earnings (loss) per share (5) $ (0.29) $ 0.28
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents ............. $ 846 $ 664 $ 1,025 $ 10,280 $ 57,270
Total assets .......................... 49,897 45,753 35,533 50,219 104,791
Total debt ............................ 12,026 13,756 15,705 5,188 2,955
Total equity .......................... 26,251 17,017 5,818 28,556 84,793
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
-11-
<PAGE>
(FOOTNOTES FROM PRECEDING PAGE)
-----------
(1) In conjunction with the acquisition and reorganization of CRC Press and
other businesses and certain compensation issues, the Company recorded
significant adjustments in 1997 and 1998, which are not expected to
continue in the future. These adjustments (the Adjustments) reduced
revenues by $4,017 and increased expenses by $4,013, and therefore
reduced net income by $8,030, for the year ended December 31, 1997. The
Adjustments reduced revenue by $54 and increased pre-tax expenses by
$1,069; resulting in reduced net income of $674 for the year ended
December 31, 1998. The Adjustments affecting revenues were required by
purchase accounting in connection with the acquisitions of CRC Press
and MicroPatent and reflect the revaluation of acquired deferred
subscription revenues based on the cost to fulfill subscriptions. This
revaluation is a non-cash adjustment, which reduces revenues in the
twelve months following acquisition. The Adjustments affecting expenses
relate to: severance and reorganization costs from the consolidation of
certain functions and reductions in workforce; special bonuses granted
to an officer; contingent compensation paid to an officer of a
subsidiary; and certain additional purchase accounting-related
adjustments.
(2) Revenues for the year ended December 31, 1997 includes an initial
stocking order by a new international distributor aggregating $3,307,
which is not expected to continue in the future.
(3) Operating expenses for the year ended December 31, 1995 include $10,727
of restructuring and one-time charges. Operating expenses for the year
ended December 31, 1996 include an impairment in the value of goodwill
and other intangible assets of $10,666. This charge represents the
amount by which the recorded value of the assets exceeded the proceeds
from the sale of the business.
(4) Income taxes of the Company have not been significant to date. Prior to
the Company's initial public offering, the Company was a limited
liability company and, accordingly, was not subject to U.S. federal or
certain state income taxes. Subsequent to the initial public offering
the company incurred a nominal income tax provision due to the full
reversal of deferred tax valuation allowances deemed as no longer
required. Income tax (benefits) expenses of the Predecessor were
($4,902) and $170, respectively, for the years ended December 31, 1995
and 1996.
(5) No historical earnings per share or share data are presented, as the
Company does not consider such historical data meaningful. The pro
forma earnings (loss) per share for the years ended December 31, 1997
and 1998 were computed using 16,943,189 shares outstanding, which
reflects all shares outstanding following the initial public offering,
as if such shares were outstanding since January 1, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION
APPEARING ELSEWHERE IN THIS FORM 10-K. UNLESS OTHERWISE STATED IN THIS FORM 10-K
REFERENCES TO THE FISCAL YEARS 1998, 1997, AND 1996 RELATE TO THE FISCAL YEARS
ENDED DECEMBER 31, 1998, 1997, AND 1996, RESPECTIVELY.
OVERVIEW
The Company is an information publisher that provides print and electronic
information to end-users in the STM and professional markets and electronic
access to intellectual property databases for end-users in the patent and
trademark markets. The Company currently sells over 3,500 individual book titles
and publishes approximately 300 new books each year. The Company also offers
multiple subscription products and services, including journals, newsletters,
annual handbooks and comprehensive information guides that are available in
print and electronic formats. The Company offers its intellectual property
databases on CD-ROM and through the Internet.
-12-
<PAGE>
The Company's principal sources of revenues are book publishing sales,
subscription service sales and sales of patent and trademark information.
Through CRC Press, the Company generates revenues from the sale of books and
subscription products (72% and 28%, respectively, of total CRC Press revenues in
1998). The Company believes that its book and subscription titles generate
significant recurring demand. For example, while the Company published
approximately 280 frontlist titles in 1998, it had a backlist of over 3,500
titles, which accounted for approximately 68% of the Company's total book
publishing revenues in 1998. Through MicroPatent, the Company generates revenues
from Internet-based services, CD-ROM subscriptions and other products including
database sales of historical and customized patent information (39%, 37% and
24%, respectively, of total MicroPatent revenues in 1998). The Company expects
that new publishing media, such as the Internet, will grow in significance in
the future. Of the Company's total revenues of $46.7 million in 1998, 83% and
17% were derived from CRC Press and MicroPatent, respectively.
INITIAL PUBLIC OFFERING
On August 12, 1998, the members of Information Ventures LLC (IV)
contributed all of their direct and indirect equity interests to IHI, then a
newly formed Delaware corporation, in exchange for 12,200,000 shares of IHI,
representing 100% of the initial outstanding equity interests.
Effective August 12, 1998, IHI sold 4,250,000 additional shares of common
stock in an initial public offering at $12.00 per share. Subsequently, the
underwriters exercised an option and purchased an additional 472,356 shares at
$12.00 per share. Total net proceeds, after deducting underwriting discounts and
expenses, approximated $51.2 million. Since the initial public offering the
Company has used approximately $7.5 million for acquisitions of businesses and
product lines. The balance of the proceeds remains available for general
corporate purposes including acquisitions.
IMPACT OF ACQUISITIONS AND OUTLOOK
IV was organized in December 1996 by Mason Slaine and Warburg, Pincus
Ventures, L.P. (the Initial Stockholders) and, since its inception, has grown
principally through acquisitions. As the Company acquires additional companies,
its sales mix, market focus, cost structure and operating leverage may change
significantly. Consequently, the Company's historical and future results of
operations reflect and will reflect the impact of acquisitions, and
period-to-period comparisons may not be meaningful in certain respects.
Historical information for companies subsequent to their acquisition may include
integration and other costs that are not expected to continue in the future.
RESULTS OF OPERATIONS
FISCAL YEAR 1998 VS. 1997
REVENUES. Revenues increased $11.8 million, or 33.8%, to $46.7 million
from $34.9 million. Revenues at Auerbach and MicroPatent, businesses acquired in
June 1997 and July 1997, respectively, increased by $6.5 million. Domestic book
sales increased by $3.4 million, the Adjustments resulted in an increase of $4.0
million and other revenues increased by $1.3 million, including revenues from
product lines acquired in August 1998. These increases were offset by a decrease
in international book sales of $3.4 million, due to a $3.3 million one-time
stocking order received from a new international distributor in early 1997.
-13-
<PAGE>
COST OF SALES. Cost of sales increased $.2 million, or 1.9%, to $11.7
million from $11.5 million. As a percentage of revenues, cost of sales decreased
to 25.1% from 33.0% based on improved gross margins in CRC Press book publishing
operations and higher gross margins of acquired businesses.
OPERATING EXPENSES. Operating expenses increased $3.2 million, or
11.4%, to $31.2 million from $28.0 million. Operating expenses related to
MicroPatent and Auerbach increased $2.2 million, amortization of intangible
assets increased $1.0 million, direct mail marketing costs increased $1.0
million and all other operating expenses increased by $1.5 million. These
increases were partially offset by a reduction in costs of $2.5 million
associated with the Adjustments.
INTEREST (EXPENSE) INCOME. Interest (expense) income increased $1.2
million, to $1.1 million from $(0.1) million, due primarily to interest earned
on the proceeds from the initial public offering.
NET INCOME. Net income increased $9.7 million to $4.8 million, compared
to a loss of $4.9 million. The improvement is due primarily to increased gross
profits of $11.6 million and the increased interest income. These increases were
partly offset by the increased operating expenses. The Company had a nominal
provision for income taxes in 1998 because of the full reversal of deferred tax
valuation allowances.
COMPANY FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO PREDECESSOR FISCAL YEAR
ENDED DECEMBER 31,1996
REVENUES. Revenues increased $6.0 million, or 20.9%, to $34.9 million
from $28.9 million. St. Lucie Press, acquired in January 1997, Auerbach and
MicroPatent (the 1997 Acquisitions) contributed $8.3 million of revenues in
1997. Additionally, international book sales increased by $3.6 million,
primarily due to an initial stocking order received from a new international
distributor. These increases were partially offset by reduced revenues of $4.0
million related to the Adjustments and other decreases of $1.9 million, due
primarily to lower domestic book sales.
COST OF SALES. Cost of sales increased $2.2 million, or 24.1%, to $11.5
million from $9.3 million. The 1997 Acquisitions contributed $2.4 million to
cost of sales in 1997. The Adjustments caused an increase of $0.4 million and,
as a result, increased cost of sales as a percentage of revenues. These
increases were partially offset by reduced costs of $0.6 million, primarily due
to a decrease in book production costs. Excluding the Adjustments, cost of sales
as a percentage of revenues decreased from 32.1% to 28.5% due primarily to lower
amortization of plant costs, as well as reductions in printing and binding costs
as a percentage of revenues.
OPERATING EXPENSES. Operating expenses decreased $1.6 million, or 5.5%,
to $28.0 million from $29.6 million due to an impairment of intangible assets of
$10.7 million recorded in 1996 and a reduction in selling, general and
administrative expenses of $2.1 million, primarily related to lower wages, rent
and fulfillment costs. These decreases were partially offset by expenses of $5.7
million from the 1997 Acquisitions, expenses of $3.6 million related to the
Adjustments and an increase of $1.9 million related to amortization of
intangible assets.
OPERATING INCOME/LOSS. The operating loss decreased $5.4 million or
53.7%, to ($4.7) million from ($10.1) million due to operating income (excluding
the amortization of intangible assets) from the 1997 Acquisitions of $0.6
million, an improvement in operating income of $4.0 million and an increase of
$10.7 million due to the impairment of intangibles recorded in 1996. These
increases were offset in part by an $8.0 million decrease resulting from the
Adjustments and a decrease of $1.9 million from higher amortization of
intangible assets.
-14-
<PAGE>
INTEREST EXPENSE. Interest expense decreased by $0.9 million, or 87.5%,
to $0.1 million from $1.0 million due to reduced long-term obligations of CRC
Press, which had previous borrowings from its parent, The Times Mirror Company.
NET LOSS. The net loss decreased $6.3 million, or 56.3%, to ($4.9)
million from ($11.2) million due to the operating income changes described
above, decreased interest expense and a decrease in income tax expense of $0.2
million.
FINANCIAL CONDITION
Prior to August 1998, the financing requirements of the Company have been
funded through cash generated by operating activities and capital contributions
from the Initial Stockholders. In August 1998, the Company completed an initial
public offering of its common stock to raise funds.
Cash and cash equivalents totaled $57.3 million at December 31, 1998
compared to $10.3 million at December 31, 1997. Excluding cash and cash
equivalents, the Company had working capital of $.2 million at December 31, 1998
compared to a working capital deficit of $(5.8) million at December 31, 1997.
Since the Company receives subscription payments in advance, the Company's
existing operations are expected to maintain very low or negative working
capital balances, excluding cash. Deferred subscription revenues, a non-cash
obligation included in current liabilities, totaled $8.5 million at December 31,
1998.
Cash generated by operating activities was $5.9 million for fiscal year
ended December 31, 1998, derived from net income of $4.8 million plus non-cash
charges of $7.1 million less an increase in operating assets, net of liabilities
of $6.0 million. This increase in operating assets and liabilities includes
payments of $2.4 million associated with the Adjustments.
Cash used by investing activities was $7.9 million for the fiscal year
ended December 31, 1998 due to capital expenditures, including pre-publication
costs of $3.7 million and acquisition costs of $4.2 million. Excluding
acquisitions of businesses and titles, the Company's existing operations are not
capital intensive.
Cash provided by financing activities was $49.0 million for the fiscal year
ended December 31, 1998, including net proceeds from the initial public offering
of $51.2 million and repayments of debt obligations of $2.2 million. The Company
has no debt obligations as of December 31, 1998, other than approximately $3.0
million in capitalized lease obligations. The Company currently does not
maintain a working capital credit facility but believes that, if needed, one
would be available at market rates.
The Company believes that net cash provided by operations, together with
cash on hand and other available sources of funds, will be sufficient to fund
the cash requirements of its existing operations. Excluding acquisition
activity, the Company does not expect to use the proceeds of the initial public
offering to fund operations. The Company currently has no commitments for
material capital expenditures. However, future operating requirements and
capital needs will be subject to economic conditions and other factors, many of
which are beyond the Company's control.
The Company will continue to use the remaining net proceeds from the
initial public offering for general corporate purposes including acquisitions.
Pending such uses, the remaining net proceeds will be invested in short-term,
investment grade securities. The Company does not have any agreements,
arrangements or understandings with respect to any prospective material
acquisitions.
-15-
<PAGE>
SEASONALITY
The Company's business is somewhat seasonal, with revenues typically
reaching slightly higher levels during the third and fourth quarters of each
calendar year, based on historical publication schedules. In 1998, 30% of the
Company's revenues were generated during the fourth quarter with the first,
second and third quarters accounting for 23%, 22% and 25% of revenues,
respectively. Excluding a large one time order received in the first quarter of
1997, pro forma revenues in 1997 for the first through fourth quarters were 22%,
25%, 27% and 26%, respectively. In addition, the Company may experience
fluctuations in revenues from period to period based on the timing of
acquisitions and new product launches.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In February of 1998, the FASB issued SFAS No. 132; "Employer's
Disclosures about Pensions and Other Postretirement Benefits," which requires
additional disclosures relating to a company's pension and postretirement
benefit plans for fiscal years beginning after December 15, 1998. Additionally
in June of 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and for hedging activities was issued for all fiscal
quarters of fiscal years beginning after June 15,1999. In the opinion of the
Company's management, adoption of these new accounting standards will not result
in any change in the Company's disclosure requirements nor will they have any
impact on the Company's consolidated financial position or results of
operations.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer systems that use two digits
rather than four to define the applicable year, which may prevent such systems
from accurately processing dates ending in the year 2000 and after. This could
result in system failures or in miscalculations causing disruption of
operations, including, but not limited to, an inability to process transactions,
to send and receive electronic data, or to engage in routine business activities
and operations.
The Company has completed its assessment of all currently used computer
systems and has begun a plan of action to correct those areas that will be
affected by the Year 2000 issue. As of December 31, 1998, conversion of all
critical data processing systems has been completed. Upon completion, the
Company expects the cost for all upgrades to be between $100,000 and $200,000.
The Company anticipates the conversions of non-critical systems to be completed
by mid-1999. The estimate includes internal costs, but excludes the costs to
upgrade and replace systems in the normal course of business.
In fiscal 1998, the Company began an evaluation of the environmental
equipment, telephones, personal computer hardware and software outside of the
Company's information systems. The Company's goal is to complete any upgrade
requirements by the end of fiscal 1999, but does not expect that the cost for
subsequent upgrades will be material to the Company's consolidated financial
statements.
In addition to reviewing its internal systems, the Company has contacted
its significant vendors to initiate communications concerning Year 2000
compliance. There can be no assurance that the systems of other companies that
interact with the Company will be sufficiently Year 2000 compliant so as to
avoid an adverse impact on the Company's operations, financial condition and
results of operations.
-16-
<PAGE>
The Company presently anticipates that it will complete its Year 2000
remediation by the end of fiscal 1999. However, there can be no assurance that
the Company will be successful in implementing its Year 2000 remediation plan
according to the anticipated schedule. If the Company does not complete
implementation of its remediation plan prior to January 1, 2000, the Company's
operations and financial condition could be negatively impacted, perhaps
significantly, by the failure of its information systems. In addition, the
Company may be adversely affected by the inability of other companies whose
systems interact with the Company to become Year 2000 compliant, including the
potential interruptions of utility, communication or transportation systems as
result of Year 2000 issues.
Although the Company expects its internal systems to be Year 2000
compliant as described above, the Company intends to prepare a contingency plan
that will specify what it plans to do if it or important external companies are
not Year 2000 compliant in a timely manner. The Company expects to prepare its
contingency plan during the first half of fiscal year 1999.
The Year 2000 disclosure set forth above is a "year 2000 statement" as
defined in the Year 2000 Information and Readiness Disclosure Act of 1998 (the
"Year 2000 Act") and, to the extent the disclosure related to year 2000
processing of the Company or to products or services offered by the Company, is
also a "year 2000 readiness disclosure" as defined in the Year 2000 Act.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the report thereon, the
notes thereto, and supplementary data commencing at page F-1 of this Annual
Report on Form 10-K which financial statements, report, notes, and data are
incorporated herein by reference.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1998 and 1997, respectively (in thousands, except per share
data):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
1998 (1) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
<S> <C> <C> <C> <C> <C>
Revenues ................... $10,728 $ 10,345 $ 11,511 $ 14,067 $ 46,651
Gross profit ............... 7,870 7,827 8,759 10,488 34,944
Net income ................. 601 182 824 3,178 4,785
Per common share amounts:
(basic and diluted)
Net income ................. $ -- $ -- $ -- $ 0.19 $ --
Pro-forma income data:
Pro-forma net income ....... 601 182 824 4,785
Pro-forma earnings per share $ 0.04 $ 0.01 $ 0.05 $ 0.28
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
1997 (1) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
<S> <C> <C> <C> <C> <C>
Revenues ................... $ 8,698 $ 7,145 $ 9,623 $ 9,403 $ 34,869
Gross profit ............... 6,030 4,950 6,280 6,117 23,377
Net income ................. 39 (728) (2,324) (1,898) (4,911)
Pro-forma income data:
Pro-forma net income(loss) . 39 (728) (2,324) (1,898) (4,911)
Pro-forma loss per share ... $ -- $ (0.04) $ (0.14) $ (0.11) $ (0.29)
</TABLE>
(1) The Adjustments as described in note (1) Item 6. SELECTED HISTORICAL
FINANCIAL DATA reduced revenues in the quarters ended March 31, 1997 through
March 31, 1998 by $693, $694, $1,315, $1,315 and $54, respectively. The
Adjustments increased expenses in the quarters ended March 31, 1997 through
September 30, 1998 by $1,968, $415, $1,015, $615, $151, $107 and $814,
respectively.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
-18-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the identification, business experience and
directorships of each director and nominee for director of IHI and the
information relating to the identification and business experience of IHI's
executive officers, required by Item 401 of Regulation S-K, will be presented in
the sections entitled "Election of Directors - Nominees for Director" and
"Executive Officers" of IHI's definitive proxy statement for the Annual Meeting
of Stockholders for fiscal 1998, and is hereby incorporated by reference. If the
definitive proxy statement for the 1998 annual meeting is not filed with the
Securities and Exchange Commission within 120 days of the end of IHI's 1998
fiscal year, IHI will amend this Annual Report and include such information in
the amendment.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to the cash compensation of directors and
officers required by Item 402 of Regulation S-K will be presented in the
sections entitled "The Board of Directors and Its Committees-Compensation of
Directors" and "Executive Officers - Compensation" of IHI's definitive proxy
statement for the Annual Meeting of Stockholders for fiscal 1998 and is hereby
incorporated by reference. If the definitive proxy statement for the 1998 annual
meeting is not filed with the Securities and Exchange Commission within 120 days
of the end of IHI's 1998 fiscal year, IHI will amend this Annual Report and
include such information in the amendment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership required by Item 403 of
Regulation S-K will be presented in the section entitled "Security Ownership of
Certain Beneficial Owners and Management" of IHI's definitive proxy statement
for the Annual Meeting of Stockholders for fiscal 1998 and is hereby
incorporated by reference. If the definitive proxy statement for the 1998 annual
meeting is not filed with the Securities and Exchange Commission within 120 days
of the end of IHI's 1998 fiscal year, IHI will amend this Annual Report and
include such information in the amendment.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and transactions
required by Item 404 of Regulation S-K will be presented in the section "Certain
Relationships and Related Transactions" of IHI's definitive proxy statement for
the Annual Meeting of Stockholders for fiscal 1998 and is hereby incorporated by
reference. If the definitive proxy statement for the 1998 annual meeting is not
filed with the Securities and Exchange Commission within 120 days of the end of
IHI's 1998 fiscal year, IHI will amend this Annual Report and include such
information in the amendment.
-19-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
Page
Independent Auditors' Reports F-1
Consolidated Balance Sheets,
December 31, 1998 and 1997 F-3
Consolidated Statements of Operations,
Years Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Stockholders'/Member' Equity,
Years Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows,
Years Ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7 to F-19
All schedules of the Registrant for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or have been
disclosed in the Notes to Consolidated Financial Statements and, therefore, have
been omitted.
(b) Reports on Form 8-K.
NONE.
(c) Exhibits
EXHIBITS
NO. DESCRIPTION
3.1 Certificate of Incorporation*
3.2 Bylaws*
4.1 Specimen Common Stock Certificate*
4.2 Registration Rights Agreement among the Company, Warburg, Pincus
Ventures, L.P., and Mason P. Slaine
10.1 Employment Agreement, dated as of December 31, 1996, between
Information Ventures LLC and Mason P. Slaine*
10.2 Employment Agreement, dated as of January 19, 1998, between
Information Ventures LLC and Vincent A. Chippari*
10.3 Employment Agreement, dated as of June 10, 1998, between CRC
Press LLC and Dennis Buda*
10.4 1998 Stock Option Plan of the Company
10.5 Asset Purchase Agreement, dated as of December 4, 1996, among
The Times Mirror Company, CRC Press, Inc. and Information
Ventures LLC*
-20-
<PAGE>
10.6 Asset Purchase Agreement, dated as of January 8, 1997, among St.
Lucie Press, Inc., St. Lucie Press (U.K.) Ltd. and CRC Press
LLC*
10.7 Asset Purchase Agreement, dated as of June 5, 1997, among
Thomson Information Services Inc., Thomson Licensing Corporation
and CRC Press LLC*
10.8 Asset Purchase Agreement, dated as of July 2, 1997, among
MicroPatent, Opus Publications, Inc., Dorinda Developments,
Inc., Susan Severtson, Robert Aselson and MicroPatent LLC*
10.9 Lease Agreement, dated December 1, 1980, between CRC Press, Inc.
and Starkoff Associates*
10.10 Modification and Extension of Leases, dated January 1, 1994,
between CRC Press, Inc. and Starkoff Associates*
10.11 Lease Agreement, dated March 1, 1998, between R.P. Realty
Company and MicroPatent LLC*
21.1 List of subsidiaries of the Company*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
- ----------
* Incorporated herein by reference to the Company's Registration
Statement on Form S-1, Registration No. 333-56665.
-21-
<PAGE>
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Form 10-K and those that
may be made in the future by or on behalf of the Company, the Company notes that
there are various factors that could cause actual results to differ materially
from those set forth in any such forward-looking statements. The forward-looking
statements contained in this Form 10-K were prepared by management and are
qualified by, and subject to, significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond the control of the
Company. Factors which could cause or contribute to such differences include,
but are not limited to: (1) the ability of the Company to consummate
acquisitions, integrate such acquisitions into existing operations, manage
expansion, achieve operating efficiencies and control costs in its operations;
(2) the Company's success in retaining key employees, including its CEO and CFO
and the senior management teams of its primary operating units; (3) delays in
the use of the remaining proceeds from the Company's initial public offering;
(4) pressures from competitors with greater resources than those of the Company,
as well as competitive pressures arising from changes in technology and customer
requirements; (5) the availability of raw intellectual property information from
alternative sources for little or no cost; (6) disruptions to operations
resulting from year 2000 issues that might originate with third parties and (7)
the concentration of ownership among the Initial Stockholders, who have the
ability to control the Company, including the election of directors and the
direction of the affairs and operations of the business. Accordingly, there can
be no assurance that the forward-looking statements contained in this Form 10-K
will be realized or that actual results will not be significantly higher or
lower. The statements have not been audited by, examined by, compiled by or
subjected to agreed-upon procedures by independent accountants, and no
third-party has independently verified or reviewed such statements. Readers of
this Form 10-K should consider these facts in evaluating the information
contained herein. In addition, the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements contained in this Form 10-K. The inclusion of the
forward-looking statements contained in this Form 10-K should not be regarded as
a representation by the Company or any other person that the forward-looking
statements contained in this Form 10-K will be achieved. In light of the
foregoing, readers of this Form 10-K are cautioned not to place undue reliance
on the forward-looking statements contained herein. These risks and others that
are detailed in this Form 10-K and other documents that the Company files from
time to time with the Securities and Exchange Commission, including quarterly
reports on Form 10-Q and any current reports on Form 8-K must be considered by
any investor or potential investor of the Company.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INFORMATION HOLDINGS INC.
By: /s/ VINCENT A. CHIPPARI
-----------------------------
Vincent A. Chippari, Executive Vice President
and Chief Financial Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ MASON P. SLAINE /s/ VINCENT A. CHIPPARI
--------------------------------- ---------------------------------
Mason P. Slaine Vincent A. Chippari
President, Chief Executive Officer and Executive Vice President and
Director Chief Financial Officer
(Principal Executive Officer) (Principal Financial and
March 29, 1999 Accounting Officer)
March 29, 1999
/s/ MICHAEL E. DANZIGER /s/ DAVID R. HAAS
--------------------------------- ---------------------------------
Michael E. Danziger David R. Haas
Director Director
March 29, 1999 March 29, 1999
/s/ SIDNEY LAPIDUS /s/ DAVID E. LIBOWITZ
--------------------------------- ---------------------------------
Sidney Lapidus David E. Libowitz
Director Director
March 29, 1999 March 29, 1999
-23-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Information Holdings Inc.
We have audited the accompanying consolidated balance sheets of Information
Holdings Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders'/members' equity, and cash
flows for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Information Holdings Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of its operations and its cash flows for each of the
two years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
New York, New York
March 3, 1999 ERNST & YOUNG LLP
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
CRC Press, Inc.
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of CRC Press, Inc. for the year ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
West Palm Beach, Florida
May 29, 1998 ERNST & YOUNG LLP
F-2
<PAGE>
INFORMATION HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 57,270 $ 10,280
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
SALES RETURNS OF $911 AND $803, RESPECTIVELY) 9,286 4,968
Inventories 4,832 3,803
Prepaid expenses and other current assets 1,945 1,466
Deferred income taxes 777 --
--------- --------
Total current assets 74,110 20,517
Property and equipment - net 4,173 4,041
Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $2,350 AND
$2,313, RESPECTIVELY) 3,474 3,289
Publishing rights and other intangible assets, net 21,601 21,519
Other assets 1,369 826
Deferred income taxes 64 27
--------- --------
TOTAL $ 104,791 $ 50,219
========= ========
LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations $ 261 $ 233
Accounts payable 4,074 2,950
Accrued expenses 1,821 3,511
Royalties payable 1,935 1,749
Deferred subscription revenue 8,530 7,582
--------- --------
Total current liabilities 16,621 16,025
Capital leases 2,694 2,955
Long-term debt -- 2,000
Other long-term liabilities 683 683
--------- --------
Total liabilities 19,998 21,663
--------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS'/MEMBERS' EQUITY:
Members' equity $ -- $ 33,467
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,943,189 issued and outstanding 169 --
Additional paid-in capital 84,750 --
Accumulated deficit (126) (4,911)
--------- --------
Total stockholders'/members' equity 84,793 28,556
--------- --------
TOTAL $ 104,791 $ 50,219
========= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
CRC PRESS
PREDECESSOR
COMPANY
<S> <C> <C> <C>
Revenues $ 46,651 $ 34,869 $ 28,852
Cost of sales 11,707 11,492 9,262
------------ ------------ --------
Gross profit 34,944 23,377 19,590
------------ ------------ --------
Operating Expenses:
Selling, general and administrative 24,871 20,918 17,295
Depreciation and amortization 5,313 3,909 1,706
Severance and special bonuses 1,050 3,213 --
Impairment of long-lived assets -- -- 10,666
------------ ------------ --------
Total operating expenses 31,234 28,040 29,667
------------ ------------ --------
Income (loss) from operations 3,710 (4,663) (10,077)
------------ ------------ --------
Other income (expense):
Interest income 1,444 152 --
Interest expense (327) (282) (1,036)
Other income (expense) -- (115) 47
------------ ------------ --------
Income (loss) before income taxes 4,827 (4,908) (11,066)
Provision for income taxes 42 3 170
------------ ------------ --------
Net income (loss) $ 4,785 $ (4,911) $(11,236)
============ ============ ========
Pro forma data (Unaudited):
Income (loss) before income taxes, as reported $ 4,827 $ (4,908)
Pro forma income taxes 42 3
------------ ------------
Pro forma net income (loss) $ 4,785 $ (4,911)
============ ============
Pro forma basic and diluted net income (loss) per share $ 0.28 $ (0.29)
============ ============
Pro forma weighted average common shares outstanding 16,943,189 16,943,189
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY
YEARS ENDED DECEMBER 31
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED MEMBERS'
INFORMATION HOLDINGS INC. SHARES AMOUNT CAPITAL DEFICIT EQUITY TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 - $ - $ - $ - $ - $ -
Capital contributions 33,467 33,467
Net loss (4,911) (4,911)
---------- --------- --------- --------- -------- ----------
Balance at December 31,1997 - - - (4,911) 33,467 28,556
Exchange 12,200,000 122 33,356 (33,478) -
Initial public offering 4,722,356 47 51,144 51,191
Issuance of common stock -
to an employee 20,833 250 250
Capital contribution 11 11
Net income 4,785 4,785
---------- --------- --------- --------- -------- ---------
Balance at December 31,1998 16,943,189 $ 169 $ 84,750 $ (126) $ - $ 84,793
========== ========= ========= ========= ======== =========
</TABLE>
================================================================================
<TABLE>
<CAPTION>
CRC ADDITIONAL
PRESS COMMON PAID-IN ACCUMULATED
PREDECESSOR COMPANY STOCK CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 4 $ 29,069 $ (12,056) $ 17,017
Capital contribution 37 37
Net loss (11,236) (11,236)
------- -------- ---------- ---------
Balance at December 31, 1996 $ 4 $ 29,106 $ (23,292) $ 5,818
======= ======== =========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
CRC PRESS
PREDECESSOR
COMPANY
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,785 $ (4,911) $ (11,236)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment write-down of long-lived assets - - 10,666
Depreciation 1,192 836 541
Amortization of intangibles 4,121 3,073 1,165
Amortization of pre-publication costs 2,413 2,313 3,064
Deferred income taxes (814) (27) 170
Other 250 400 (371)
Changes in operating assets and liabilities:
Accounts receivable - net (4,318) (908) (1,879)
Inventories (1,237) 785 (1,332)
Prepaid expenses and other assets (479) (807) 405
Accounts payable and accrued expenses (566) 2,779 (124)
Royalties payable 186 843 (73)
Deferred revenue 948 3,807 451
Other - net (543) 387 801
----------- ---------- ----------
Net Cash Provided by Operating Activities 5,938 8,570 2,248
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 2 11 -
Pre-publication costs (2,390) (1,654) (3,641)
Acquisitions of business titles (4,202) (30,778) -
Purchases of property and equipment (1,327) (1,163) (387)
----------- ----------- -----------
Net Cash Used in Investing Activities (7,917) (33,584) (4,028)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments)borrowings under revolving credit facility (2,000) 2,000 -
Advances/contributions from Times Mirror - - 2,307
Net repayments under capital leases (233) (173) (166)
Issuance of common stock in public offering 51,191 - -
Capital contributions 11 33,467 -
---------- ---------- ----------
Net Cash Provided by Financing Activities 48,969 35,294 2,141
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 46,990 10,280 361
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,280 - 664
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 57,270 $ 10,280 $ 1,025
========== ========== ==========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ 187 $ 49 $ 974
========== ========== ==========
Interest paid $ 340 $ 244 $ 1,035
========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Information Ventures LLC (IV), a wholly owned subsidiary of Information Holdings
Inc. (IHI), was formed on December 2, 1996 to create and build an information
and publishing business. IV functions as a holding company and, through its
wholly owned subsidiaries - CRC Press LLC and MicroPatent LLC, publishes
information in print and electronic media in the fields of science, technology,
business, environmental science, intellectual property, and certain related
disciplines. Products are distributed on a worldwide basis, and IV has operating
offices in the United States and in Europe. Prior to IV's initial acquisition,
which occurred effective as of January 1, 1997, IV had no operations or assets.
On August 12, 1998, the members of IV contributed all of their direct and
indirect equity interests to IHI, a newly formed Delaware corporation, in
exchange for 12,200,000 shares of common stock of IHI representing 100% of the
initial outstanding equity interests (the Exchange).
Effective August 12, 1998, IHI sold 4,250,000 additional shares of common
stock in an initial public offering at $12.00 per share. Subsequently, the
underwriters exercised an option and purchased an additional 472,356 shares
at $12.00 per share. Net proceeds, after deducting underwriting discounts and
expenses, of approximately $51,200,000 are available for general corporate
purposes, including acquisitions. IHI, together with IV and its subsidiaries
are referred to as (the Company).
The consolidated financial statements presented as of and for the years ended
December 31, 1998 and 1997 include the accounts of IHI and subsidiaries, all of
which are wholly owned. Because IHI had no business operations prior to the
Exchange, the balance sheet and statement of operations for IHI for periods
prior to August 12, 1998 are not included herein. The balance sheet for the year
ended December 31,1997 and statements of operations for the period January 1,
1997 to August 12, 1998 and for the twelve months ended December 31,1997 include
the accounts of IV and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. All acquisitions have
been accounted for using the purchase method of accounting, and operating
results have been included from the respective dates of acquisition.
The financial statements of CRC Press, Inc. are included herein for the
twelve months ended December 31,1996 as the predecessor company (the
Predecessor). CRC Press, Inc. a wholly owned subsidiary of The Times Mirror
Company, was subsequently purchased by IV on January 10, 1997, effectively as
January 1,1997, for cash consideration of $13,000,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS - The Company considers all highly liquid investments with
maturities of three months or less to be cash equivalents. The cost of these
investments is equal to fair market value.
F-7
<PAGE>
ACCOUNTS RECEIVABLE - The changes in the allowance for doubtful accounts
receivable and sales returns consist of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
1998 1997 1996
CRC PRESS
PREDECESSOR
COMPANY
<S> <C> <C> <C>
Allowance, beginning of year $ 803 $ - $ 4,281
Provision for uncollectible accounts 253 1,049 207
and returns
Write-off of uncollectible accounts
and deductions from reserves (145) (246) (1,509)
---------- ---------- -----------
Allowance, end of year $ 911 $ 803 $ 2,979
========== ========== ==========
</TABLE>
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories at December 31, 1998 and 1997 consist solely of
finished goods. The vast majority of inventories are books, which are reviewed
periodically on a title-by-title basis for salability. The cost of inventory
determined to be impaired is charged to income in the period of determination.
DIRECT MAIL COSTS - Direct mail costs are expensed upon mailing. Direct mail
expense was approximately $6,460,000, $6,119,000, and $3,596,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Direct mail related costs
of approximately $529,000 and $418,000 were included in prepaid expenses and
other current assets at December 31, 1998 and 1997, respectively.
PROPERTY AND EQUIPMENT - Depreciation is provided using the straight-line method
over the following estimated useful lives:
Furniture and equipment 5 years
Computer equipment 3 years
Leasehold improvements Shorter of useful life or lease term
Property under capital leases Life of lease
PRE-PUBLICATION COSTS - Certain expenses related to books, primarily comprised
of design and other pre-production costs, are deferred and charged to expense
over the estimated product life. These costs are primarily amortized over a
four-year period following release of the applicable book, using an accelerated
amortization method. During 1998, the Company removed from its Balance Sheet
fully amortized Pre-publication costs with a cost of approximately $2,106,000.
PUBLISHING RIGHTS AND OTHER INTANGIBLES - Publishing rights consist primarily of
publication agreements, subscriber lists, trademarks and related assets and are
amortized using the straight-line method over their estimated useful lives
ranging from 3-20 years. Non-compete agreements arising from acquisitions are
amortized using the straight-line basis over the contractual term, currently 3
years. Goodwill consists of the excess of cost over the value of identifiable
net assets of businesses acquired and is being amortized on a straight-line
basis over their estimated useful lives of 20 years.
F-8
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates the recoverability of
long-lived assets not held for sale by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
them. Based on these evaluations, there were no adjustments to the carrying
value on long-lived assets in fiscal 1998 and 1997. Based on the January 10,
1997 purchase of CRC Press' net assets from Times Mirror, CRC Press determined
that goodwill had been impaired and recorded an impairment charge of
approximately $10,666,000.
REVENUE RECOGNITION - Revenues from books and the related cost of sales are
recognized when the product is shipped to the customer. For products sold with
the right of return, revenue is recognized net of a provision for estimated
returns. Subscription payments received are deferred and recognized as revenue
in the period in which the product is shipped.
DEFERRED REVENUE - In connection with the acquisition of companies, it is the
Company's policy to record deferred revenue at the cost to fulfill rather than
based on the subscription payments received.
INCOME TAXES - As a result of the Exchange discussed in Note 1, the Company
became subject to Federal and state income taxes. Prior to that time the Company
was a limited liability company (LLC) and was treated as a partnership for
Federal and most state income taxes. However, in those periods the Company was
still liable for income taxes in certain states and thus a provision for those
state income taxes was reflected on the statement of operations.
Deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Recognition of deferred tax assets
is limited to amounts considered by management to be more likely than not of
realization in future periods.
STOCK-BASED COMPENSATION - The Company accounts for its stock based compensation
arrangements under the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" and the disclosure-only
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensations." Since stock options will be granted
by the Company with exercise prices at or greater than the fair value of the
shares at the date of grant, no compensation expense will be recognized.
RECLASSIFICATIONS - Certain amounts in the fiscal 1997 financial statements have
been reclassified to conform with the 1998 financial statement presentation.
COMPUTATION OF EARNINGS PER COMMON SHARE - The Company adopted the provisions of
SFAS No. 128, "Earnings Per Share," in the fourth quarter of fiscal 1998. The
new standard requires dual presentation of basic and diluted earnings per share
for all periods for which an income statement is presented. Basic income per
common share is based on the weighted average outstanding common shares during
the respective period. Diluted income per share is based on the weighted average
outstanding common shares and the effect of all dilutive potential common
shares, such as stock options. For fiscal 1998 diluted shares had no impact on
the computation of earnings per common share. No historical earnings per share
data are presented, as the Company does not consider such data meaningful. The
pro forma earnings (loss) per share data presented were computed using
16,943,189 shares outstanding, which reflects all shares outstanding following
the initial public offering, as if such shares were outstanding since January 1,
1997.
F-9
<PAGE>
ADOPTION OF NEW ACCOUNTING STANDARDS - Effective for the Company's fiscal 1998
financial statements, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income," which requires disclosures of
comprehensive income and its components, as defined; and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires certain financial and descriptive information about a company's
reportable operating statements. The Company adopted these statements and
determined that the new standards do not have any impact on the Company's
consolidated financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - In February of 1998, the FASB
issued SFAS No. 132, "Employer's Disclosures about Pensions and Other
Postretirement Benefits," which requires additional disclosures relating to a
company's pension and postretirement benefit plans for fiscal years beginning
after December 15, 1998. Additionally in June of 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and for hedging activities
was issued for all fiscal quarters of fiscal years beginning after June 15,1999.
In the opinion of the Company's management, adoption of these new accounting
standards will not result in any change in the Company's disclosure requirements
nor will they have any impact on the Company's consolidated financial position
or results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS
On August 19, 1998, the Company acquired two product lines for cash
consideration of approximately $3,700,000: the Chapman & Hall list of
mathematics and statistics books and Chapman & Hall's electronic databases and
books in the chemistry field. The purchase price was allocated to net tangible
assets of $200,000 and publishing rights and other intangible assets of
$3,500,000.
On January 10, 1997, effectively as of January 1, 1997, the Company acquired the
net assets of CRC Press for cash consideration of $13,000,000. CRC Press
publishes information in print and electronic media for the global scientific,
professional and technical communities. The purchase price was allocated to net
tangible assets of $5,800,000 and publishing rights and other intangible assets
of $7,200,000.
On January 14, 1997, effectively as of January 1, 1997, the Company acquired the
net assets of St. Lucie Press for cash consideration of $2,600,000. St. Lucie
publishes business related books. The purchase price was allocated to net
tangible assets aggregating $600,000 and publishing rights and other intangibles
of $2,000,000.
On June 5, 1997, the Company acquired the net assets of Auerbach for cash
consideration of $8,000,000. Auerbach publishes information in print and
electronic media for the information technology market. The purchase price was
allocated to net liabilities assumed of $300,000, publishing rights and other
intangibles of $8,100,000, goodwill of $100,000 and noncompete agreements of
$100,000.
On July 2, 1997, effectively as of July 1, 1997, the Company acquired the net
assets of MicroPatent for cash consideration of $7,400,000. MicroPatent provides
information products and services for intellectual property professionals. The
purchase price was allocated to in process research and development costs of
$400,000 which were expensed in 1997, tangible net assets/(liabilities)
aggregating ($100,000) and publishing rights and other intangibles of
$7,100,000.
F-10
<PAGE>
In connection with the purchase of the above mentioned subsidiaries, the Company
has revalued the deferred subscription revenues based on cost to fulfill. As a
result, the deferred subscription revenues were reduced by $4,000,000 in fiscal
1997. Had the Company not made such revaluation, revenues and gross profit for
the year ended December 31, 1997 would have been higher by $4,000,000.
All acquisitions have been accounted for using the purchase method of accounting
and, accordingly, the results of their operations have been included in the
Company's results of operations from their respective dates of acquisition.
The pro-forma unaudited condensed consolidated result of operations for the year
ended December 31, 1997, assuming all the 1997 acquisitions were consummated as
of January 1, 1997, are as follows (in thousands except per share data):
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 39,483
========
Net loss $ (7,872)
========
Loss per share $ (0.46)
========
</TABLE>
The pro-forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
4. PROPERTY AND EQUIPMENT
Property and equipment (at cost) consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
<S> <C> <C>
Buildings $2,344 $2,344
Furniture and equipment 858 467
Computer equipment 2,545 1,756
Leasehold improvements 476 310
------ ------
6,223 4,877
Less accumulated depreciation 2,050 836
------ ------
$4,173 $4,041
====== ======
</TABLE>
5. PUBLISHING RIGHTS AND OTHER INTANGIBLE ASSETS
Publishing rights and other intangible assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
<S> <C> <C>
Publishing rights $25,479 $22,994
Trademarks 2,850 1,350
Goodwill 348 148
Non-compete agreements 117 100
------- -------
28,794 24,592
Less accumulated amortization 7,193 3,073
------- -------
$21,601 $21,519
======= =======
</TABLE>
F-11
<PAGE>
6. SEVERANCE AND SPECIAL BONUSES
In fiscal 1997, the Company recorded a pre-tax charge of approximately
$1,600,000 related primarily to the consolidation of certain functions and
reductions in the workforce. The charge was recorded in the first quarter of the
fiscal year. At December 31,1998 and 1997, accrued expenses included $0 and
$160,000, respectively, of severance costs associated this charge. The majority
of the cash outlays were made in the first half of fiscal 1997,with the balance
made in the first quarter of fiscal 1998.
Additionally in fiscal 1997, a subsidiary entered into an employment agreement
with an officer, which provided for contingent compensation arrangements until
January of 2000 based on the subsidiary's operating performance. The Company
also granted an officer of the Company a special bonus (payable in cash) related
to the formation of the Company and its initial acquisitions. As a result, the
amount recognized by the Company, as compensation expense under the two
arrangements was approximately $1,600,000 for fiscal 1997. Accrued expenses at
December 31,1997 included the full amount of this charge, which was subsequently
paid out in the first quarter of fiscal 1998. In conjunction with the initial
public offering, the employment agreement noted above was amended in August of
1998. The employee was granted $800,000 in cash and $250,000 in stock. The
Company recorded a pre-tax charge of $1,050,000 in the third quarter of 1998
related to this amendment. Accrued expenses at December 31,1998 included
$800,000 of costs related to this amendment, which was subsequently paid out in
January 1999.
7. DEBT
A subsidiary of the Company maintained a revolving line of credit (the Credit
Line) borrowing arrangement of $5,000,000 with State Street Bank, with varying
amounts of available credit expiring beginning in June of 2000. Interest on the
Credit Line was due quarterly in arrears at the London Interbank Offering Rate
(LIBOR) plus applicable margin ranging from 1.5% to 2.5%. In 1998 and 1997,
interest rates under this agreement ranged from 7.22% to 7.38%. At December
31,1997, the principal amount outstanding was $2,000,000 and the unused bank
line of credit amounted to $3,000,000. In April of 1998, all outstanding
balances were repaid in full and the Credit Line was subsequently cancelled by
the Company in July of 1998.
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1998 1997 1996
CRC PRESS
PREDECESSOR
COMPANY
<S> <C> <C> <C>
Current:
Federal $ 663 $ -- $(313)
State 220 30 (33)
Deferred:
Federal (634) -- 468
State (207) (27) 48
----- ----- -----
$ 42 $ 3 $ 170
===== ===== =====
</TABLE>
F-12
<PAGE>
The following represents a reconciliation between the actual income tax
provision and income taxes computed by applying the statutory Federal income tax
rate (35%) to loss before income taxes:
<TABLE>
<CAPTION>
DECEMBER 31
1996
CRC PRESS
PREDECESSOR
COMPANY
<S> <C>
Statutory rate $(3,873)
State and local taxes, net of Federal tax benefits (393)
Goodwill amortization not deductible for tax purposes 4,198
Non-deductible permanent items 26
Other, net 212
-------
$ 170
=======
</TABLE>
9. PRO FORMA INCOME TAXES (UNAUDITED)
As discussed in Note 2, the Company was a LLC and was treated as a partnership
for Federal and most state income taxes. In connection with the offering, the
Company became subject to Federal and additional state income tax. The pro forma
provision for income taxes represents the income tax provisions that would have
been reported had the Company been subject to Federal and additional state
income taxes.
The Pro forma income tax provision consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1998 1997
<S> <C> <C>
Current:
Federal $ 636 $--
State 247 3
Deferred (841) --
----- --
$ 42 $ 3
===== ===
</TABLE>
The following represents a reconciliation between the pro forma income tax
provision and income taxes computed by applying the statutory Federal income tax
rate (35%) to pro forma income (loss) before income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1998 1997
<S> <C> <C>
Statutory rate $ 1,641 $(1,669)
State and local taxes, net of Federal tax benefits 342 (275)
Valuation allowance (1,960) 1,960
Other, net 19 (13)
------- -------
Total $ 42 $ 3
======= =======
</TABLE>
Actual 1998 and pro forma 1997 deferred income taxes result from reporting
income and expenses in different periods for tax and pro forma financial
reporting purposes. Significant components of the Company's deferred tax asset
is as follows (in thousands):
F-13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
<S> <C> <C>
Current deferred income tax assets:
Allowance for accounts receivable $ 326 $ 326
Inventory 451 82
Other, net -- 188
------- -------
Total 777 596
Long-term deferred tax assets:
Property and equipment (622) (763)
Net operating loss carryforwards -- 353
Amortizable assets (481) 516
Non-deductible lease obligation 1,194 1,258
Other (27) 27
------- -------
Total 64 1,391
------- -------
Deferred tax asset valuation allowance -- (1,960)
------- -------
Total deferred tax asset $ 841 $ 27
======= =======
</TABLE>
During 1998, the Company determined that it was more likely than not that the
future tax benefits arising from its deferred tax assets would be realized in
the future due to the Company's continued improvement in earnings and the
probability of future taxable income. As a result, in accordance with SFAS No.
109, the Company recognized an income tax benefit of $1,960,000.
10. MEMBERSHIP INTEREST
Prior to the initial public offering of the Company's common stock completed
in August of 1998, the Company had two classes of voting preferred equity
interests, which shared in profits and losses. The Class A Preferred holder
contributed 95% of total capital, was allocated 95% of profits and losses and
was entitled to elect three directors. The Class B Preferred holder
contributed 5% of total capital, was allocated 5% of profits and losses and
was entitled to elect one director. Voting rights were apportioned between
the classes on a basis equivalent to contributed capital.
Both classes of such preferred equity interests were required to convert to
common equity interests under certain events, including a public offering of the
Company's securities or the sale of the Company. Accordingly, the Class A and
Class B Preferred holders received common equity interests under a
pre-determined formula in connection with the Company's initial public offering.
11. EMPLOYEE BENEFIT PLANS
The Company offers a defined contribution savings plan qualifying under Section
401(k) of the Internal Revenue Code. The plan covers substantially all full time
U.S. employees, requiring one-year of service prior to eligibility (see below).
Participants fully vest in Company contributions after three years with partial
vesting after one year. An employee may contribute up to 25% of his or her
earnings on a pre-tax basis subject to IRS limitations. The Company, via the
subsidiaries, matches 50% of such contributions up to a maximum employee
contribution of 6% of salary. Prior to January 1, 1998, the Company previously
offered two plans, which were merged into a new single plan as noted above. The
new plan covers all employees of a subsidiary of the Company as of December 31,
1997 and new employees with more than one year of service (compared to 90 days
service in the prior plan). Other plan provisions are unchanged from the prior
plans.
The Company's contributions under these plans for each of the three years ended
December 31, 1998, 1997, and 1996 were approximately $198,000, $86,000 and
$119,000, respectively.
F-14
<PAGE>
12. 1998 STOCK OPTION PLAN
The Board of Directors has adopted the Company's 1998 Stock Option Plan (the
Plan) which provides for the granting of options to purchase not more than an
aggregate of 866,866 shares of Common Stock, subject to adjustment as provided
in the Plan. All directors and full-time employees of the Company are eligible
to participate in the Plan. Each option granted pursuant to the Plan must
provide for an exercise price per share that is at least equal to the fair
market value per share of Common Stock on the date of grant. Options granted
under the Plan are exercisable no earlier than one-year and no later than ten
years from the grant date and vest in 25% increments over a four-year period
from the date of grant. The exercise price of each option, the period during
which each option may be exercised and the other terms and conditions of each
option are determined by the Board of Directors. Options that have been granted
to the Company's independent directors and certain executive officers have
accelerated vesting schedules and exercisable lives.
A summary of stock option transactions under the Company's stock option plan
for the five months ended December 31,1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1998 - $ -
----------------------------------
Granted 541,846 12.02
Exercised - -
Canceled or Lapsed (12,513) 12.00
----------------------------------
Outstanding at December 31, 1998 529,333 $ 12.02
- -----------------------------------------------------------------------------
Shares exercisable at December 31, 1998 109,482 $ 12.00
- -----------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31,1998:
<TABLE>
<CAPTION>
Weighted
Range of Avg. Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercisable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.00 521,533 7.3 years $ 12.00 109,482 $ 12.00
$13.13 7,800 10.0 years 13.13 - -
------------------------------------------------------------------------------------
529,333 7.3 Years $ 12.02 109,482 $ 12.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
The Company accounts for its stock-option plan under the provisions of APB
Opinion 25 and related Interpretations, "Accounting for Stock Issued to
Employees," which utilizes the intrinsic value method. No compensation cost has
been recognized related to the Company's stock option plan. Had compensation
cost for the Company's stock option plan been determined based on the fair value
of the options at the dates of grant consistent with the requirements of SFAS
No.123, "Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31
1998
<S> <C>
Net income applicable to common shareholders
As reported $ 4,785
Pro forma 4,691
Net income per basic and diluted common share
As reported $ 0.28
Pro forma $ 0.28
</TABLE>
The fair value of stock options granted in fiscal 1998 was estimated at the
dates of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used:
<TABLE>
<CAPTION>
DECEMBER
1998
<S> <C>
Risk free interest rate 5.5%
Expected life of option grants 5
Expected volatility 25.0%
Expected dividend yield 0
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases office space, office and computer
equipment. The leases generally provide for the lessee to pay taxes,
maintenance, insurance and certain other operating costs of the leased property,
and certain capital leases include escalation clauses.
The future noncancelable minimum lease payments under operating leases and under
capital leases including estimated escalation amounts as of December 31, 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
<S> <C> <C>
Year ending December 31,
1999 $ 639 $ 525
2000 668 516
2001 646 519
2002 512 536
2003 293 553
Thereafter 936 1,517
----------- -----------
Total minimum lease payments $ 3,694 4,166
=========== -----------
Less amount representing unamortized interest 1,211
-----------
Present value of net minimum lease payments 2,955
Less current maturities 261
-----------
Long-term obligation $ 2,694
===========
</TABLE>
F-16
<PAGE>
Assets recorded under capital leases are included in Property and equipment as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1998 1997
<S> <C> <C>
Buildings $2,344 $2,344
Computer equipment 86 86
------ ------
2,430 2,430
Less accumulated depreciation 565 266
------ ------
$1,865 $2,164
====== ======
</TABLE>
Rental expense for operating leases amounted to approximately $1,048,000,
$888,000 and $872,000 for each of the years ended December 31, 1998, 1997 and
1996 respectively.
LEGAL PROCEEDINGS - From time to time, the Company is a party to certain
lawsuits and administrative proceedings that arise in the conduct of its
business (see Item 3). While the outcome of these lawsuits and proceedings
cannot be predicted with certainty, management believes that, if adversely
determined, the lawsuits and proceedings, either singularly or in the aggregate,
would not have a material adverse effect on the financial condition, results of
operations, or net cash flows of the Company.
EMPLOYMENT AGREEMENTS - The Company has employment agreements with certain
officers and management personnel. The terms of these agreements are specific to
each employee.
14. RELATED PARTY TRANSACTIONS
In connection with the acquisition of CRC Press in January 1997, the Initial
Stockholders loaned an aggregate of $2,500,000 to the Company. Such loans were
repaid without interest in April 1997.
The Company transacts business in the amount of approximately $250,000 per year
with a mail house owned by a brother-in-law of Dennis Buda, the President of CRC
Press. The rates charged by such mail house are at or below the rates charged by
other mail houses serving the Company.
In September 1998, a subsidiary of the Company entered into a loan agreement
with an executive officer. Under the terms of the loan agreement, the subsidiary
provided a loan of $550,000 bearing an interest rate of 5.5% per annum, payable
on demand. The loan was repaid in full in January 1999.
Times Mirror International Publishers, Inc. (TMIP), a wholly-owned subsidiary
of Times Mirror, had an arrangement with other subsidiaries of Times Mirror,
including CRC Press in fiscal 1996, to manage all international sales,
including sales of U.S. copyrighted materials, foreign language adaptations
of U.S. copyrighted materials and foreign rights income. In connection with
this arrangement, TMIP marketed, sold and distributed CRC Press' products in
certain international markets. Net sales to TMIP aggregated $3,975,000 in
1996. CRC Press incurred direct costs including paper, printing, binding,
international royalties and incremental plant, editorial and production
associated with foreign language adaptations of $1,837,000 in 1996.
F-17
<PAGE>
15. SEGMENT INFORMATION
The Company operates in one business segment, namely publishing, and publishes
information in print and electronic media in a variety of fields including
science, technology, business and intellectual property. Products are
distributed on a worldwide basis, and the Company has operating offices in the
United States and in Europe. The following table presents revenues (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1998 1997
<S> <C> <C>
United States $ 34,974 $ 24,570
Europe 7,970 9,086
Others 3,707 1,213
----------- -----------
$ 46,651 $ 34,869
=========== ===========
</TABLE>
Revenues from one customer represented approximately 18.7% of the Company's
consolidated revenue in fiscal year 1997. There were no customers who exceeded
10% of total revenues in fiscal 1998 and 1996, respectively.
16. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISK
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to credit risks consists principally of receivables. The Company
believes the concentration of credit risk in its accounts receivables is
substantially mitigated by the Company's ongoing credit evaluation process and
due to the large number of customers comprising the Company's customer base. The
Company does not generally require collateral from customers. A subsidiary of IV
has entered into an exclusive distribution agreement with a third party for sale
of its products in regions outside of North America. Accounts receivable related
to this distribution agreement approximated $2,262,000 at December 31,1998. The
Company evaluates the need for an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information.
The Company invests its excess cash in high quality short-term liquid money
market instruments and government agency bills. The Company has a policy of
making investments only with institutions that have at least an "A" credit
rating from a national rating agency. The investments generally mature within
six months. The Company has not incurred losses related to these investments.
The Company maintains its cash in demand deposit accounts which at times may
exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. As of
December 31,1998, the Company had approximately $490,000 of cash in excess of
FDIC insurance limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash and cash
equivalents, accounts receivable and accounts payable approximates fair value
because of the short-term maturity of these instruments.
The carrying value of the Company's borrowings under its capitalized lease
obligations approximates fair value based on quoted market prices for the same
or similar instruments.
F-18
<PAGE>
17. SUBSEQUENT EVENT
On January 7, 1999, effectively as of January 1, 1999, the Company acquired the
stock of Optipat, Inc. (Optipat), for cash consideration of $3,250,000. Optipat
provides patent information in printed format and over the Internet to the
corporate and legal markets. Also in January 1999, the Company purchased the
environmental book-publishing list of Ann Arbor Press for cash consideration of
approximately $500,000.
F-19
<PAGE>
Exhibit 4.2
INFORMATION HOLDINGS INC.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of August 12, 1998, among the
investors listed on Schedule I hereto (the "Investors") and Information Holdings
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Investors or their affiliates are party to a Registration
Rights Agreement, dated December 2, 1996, with respect to equity interests in
Information Ventures LLC, a Delaware limited liability company ("Interests");
WHEREAS, pursuant to the terms of the Exchange Agreement, dated as June 10,
1998, among the Company and the Investors and other parties named therein (the
"Exchange Agreement"), the Investors agreed to exchange their Interests for
shares of common stock, par value $.01, of the Company ("Common Stock"); and
WHEREAS, pursuant to Section 2.1 of the Exchange Agreement, the Company and
the Investors desire to define the registration rights of the Investors on the
terms and subject to the conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the respective meaning
set forth below:
COMMISSION: shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act;
EXCHANGE ACT: shall mean the Securities Exchange Act of 1934, as amended;
HOLDER: shall mean any holder of Registrable Securities;
INITIATING HOLDER: shall mean any Holder or Holders who in the aggregate
are Holders of more than 50% of the then outstanding Registrable Securities;
PERSON: shall mean an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof;
<PAGE>
REGISTER, REGISTERED and REGISTRATION: shall mean to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
REGISTRABLE SECURITIES: shall mean (A) shares of Common Stock acquired
pursuant to the Exchange Agreement, (B) any additional shares of Common Stock
acquired by the Investors and (C) any capital stock of the Company (or any
successor to the Company) issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, the shares of Common Stock
referred to in clause (A), (B) or (C);
REGISTRATION EXPENSES: shall mean all expenses incurred by the Company in
compliance with Sections 2(a) and (b) hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, fees and expenses of one counsel for all the Holders in
an amount not to exceed $15,000, blue sky fees and expenses and the expense of
any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company);
SECURITY, SECURITIES: shall have the meaning set forth in Section 2(1) of
the Securities Act;
SECURITIES ACT: shall mean the Securities Act of 1933, as amended; and
SELLING EXPENSES: shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for each of the Holders other than fees and expenses of
one counsel for all the Holders in an amount not to exceed $15,000.
2. REGISTRATION RIGHTS
(a) Requested Registration.
(i) REQUEST FOR REGISTRATION. If the Company shall receive from an
Initiating Holder, at any time, a written request that the Company effect
any registration with respect to all or a part of the Registrable
Securities, the Company will:
(A) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(B) as soon as practicable, use its diligent best efforts to
effect such registration (including,
- 2 -
<PAGE>
without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable
blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be
so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of
the Registrable Securities of any Holder or Holders joining in such
request as are specified in a written request received by the Company
within 10 business days after written notice from the Company is given
under Section 2(a)(i)(A) above; PROVIDED that the Company shall not be
obligated to effect, or take any action to effect, any such
registration pursuant to this Section 2(a):
(x) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of
process in effecting such registration, qualification or
compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities
Act or applicable rules or regulations thereunder;
(y) After the Company has effected two (2) such
registrations pursuant to this Section 2(a) and such
registrations have been declared or ordered effective and the
sales of such Registrable Securities shall have closed; or
(z) If the Registrable Securities requested by all Holders
to be registered pursuant to such request do not have an
anticipated aggregate public offering price (before any
underwriting discounts and commissions) of not less than
$15,000,000.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 2(a)(ii) below, include other
securities of the Company which are held by Persons who, by virtue of agreements
with the Company, are entitled to include their securities in any such
registration ("Other Stockholders").
The registration rights set forth in this Section 2 may be assigned, in
whole or in part, to any transferee of Registrable Securities (who shall be
bound by all obligations of this Agreement).
(ii) UNDERWRITING. If the Initiating Holders intend to distribute
the Registrable Securities covered by
- 3 -
<PAGE>
their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to Section 2(a).
If Other Stockholders request such inclusion, the Holders shall offer to
include the securities of such Other Stockholders in the underwriting and may
condition such offer on their acceptance of the further applicable provisions of
this Section 2. The Holders whose shares are to be included in such registration
and the Company shall (together with all Other Stockholders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Initiating
Holders and reasonably acceptable to the Company. Notwithstanding any other
provision of this Section 2(a), if the representative advises the Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the securities of the Company held by Other Stockholders shall
be excluded from such registration to the extent so required by such limitation.
If, after the exclusion of such shares, further reductions are still required,
the number of shares included in the registration by each Holder shall be
reduced on a pro rata basis (based on the number of shares held by such Holder),
by such minimum number of shares as is necessary to comply with such request. No
Registrable Securities or any other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Other Stockholder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. The securities so withdrawn shall
also be withdrawn from registration. If the underwriter has not limited the
number of Registrable Securities or other securities to be underwritten, the
Company and officers and directors of the Company may include its or their
securities for its or their own account in such registration if the
representative so agrees and if the number of Registrable Securities and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
(b) COMPANY REGISTRATION.
(i) If the Company shall determine to register any of its equity
securities either for its own account or for the account of Other
Stockholders, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company
will:
- 4 -
<PAGE>
(A) promptly give to each of the Holders a written notice
thereof (which shall include a list of the jurisdictions in which
the Company intends to attempt to qualify such securities under
the applicable blue sky or other state securities laws); and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made by the Holders
within fifteen (15) days after receipt of the written notice from
the Company described in clause (i) above, except as set forth in
Section 2(b)(ii) below. Such written request may specify all or a
part of the Holders' Registrable Securities.
(ii) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting,
the Company shall so advise each of the Holders as a part of the
written notice given pursuant to Section 2(b)(i)(A). In such event,
the right of each of the Holders to registration pursuant to this
Section 2(b) shall be conditioned upon such Holders' participation in
such underwriting and the inclusion of such Holders' Registrable
Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall
(together with the Company and the Other Stockholders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter
or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 2(b), if the
representative determines that marketing factors require a limitation
on the number of shares to be underwritten, the representative may
(subject to the allocation priority set forth below) limit the number
of Registrable Securities to be included in the registration and
underwriting to not less than twenty five percent (25%) of the shares
included therein (based on the number of shares). The Company shall so
advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following
manner: The securities of the Company held by officers, directors and
Other Stockholders of the Company (other than Registrable Securities
and other than securities held by holders who by contractual right
demanded such registration ("Demanding Holders")) shall be excluded
from such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still
required, the number of shares that may be included in the
registration and underwriting by each of the Holders and Demanding
Holders shall be reduced,
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<PAGE>
on a pro rata basis (based on the number of shares held by such
Holder), by such minimum number of shares as is necessary to comply
with such limitation. If any of the Holders or any officer, director
or Other Stockholder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) FORM S-3. The Company shall use its best efforts to qualify for
registration on Form S-3 for secondary sales. After the Company has
qualified for the use of Form S-3, the Investors shall have the right to
request an unlimited number of registrations on Form S-3 (such requests
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of
shares by such holders), subject only to the following:
(i) The Company shall not be required to effect a registration
pursuant to this Section 2(c) unless the Holder or Holders requesting
registration propose to dispose of shares of Registrable Securities
having an aggregate price to the public (before deduction of
underwriting discounts and expenses of sale) of more than $5,000,000.
(ii) The Company shall not be required to effect a registration
pursuant to this Section 2(c) within 180 days of the effective date of
the most recent registration pursuant to this Section 2 in which
securities held by the requesting Holder could have been included for
sale or distribution.
(iii) The Company shall not be obligated to effect any
registration pursuant to this Section 2(c) in any particular
jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder.
The Company shall give written notice to all Holders of the receipt of a
request for registration pursuant to this Section 2(c) and shall provide a
reasonable opportunity for other Holders to participate in the registration,
provided that if the registration is for an underwritten offering, the terms of
Section 2(a)(ii) shall apply to all participants in such offering. Subject to
the foregoing, the Company will use its best efforts to effect promptly the
registration of all shares of Registrable Securities on Form S-3 to the extent
requested by the Holder or Holders thereof for purposes of disposition.
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<PAGE>
(d) EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
this Section 2 shall be borne by the Company, and all Selling Expenses
shall be borne by the Holders of the securities so registered pro rata on
the basis of the number of their shares so registered.
(e) REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to this Section 2, the Company will keep the
Holders, as applicable, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company
will:
(i) keep such registration effective for a period of one hundred
twenty (120) days or until the Holders, as applicable, have completed
the distribution described in the registration statement relating
thereto, whichever first occurs; provided, however, that (A) such
120-day period shall be extended for a period of time equal to the
period during which the Holders, as applicable, refrain from selling
any securities included in such registration in accordance with
provisions in Section 2(i) hereof; and (B) in the case of any
registration of Registrable Securities on Form S-3 which are intended
to be offered on a continuous or delayed basis, such 120-day period
shall be extended until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities
Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment permit, in
lieu of filing a post-effective amendment which (y) includes any
prospectus required by Section 10(a) of the Securities Act or (z)
reflects facts or events representing a material or fundamental change
in the information set forth in the registration statement, the
incorporation by reference of information required to be included in
(y) and (z) above to be contained in periodic reports filed pursuant
to Section 12 or 15(d) of the Exchange Act in the registration
statement;
(ii) furnish such number of prospectuses and other documents
incident thereto as each of the Holders, as applicable, from time to
time may reasonably request;
(iii) notify each Holder of Registrable Securities covered by
such registration at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
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<PAGE>
statements therein not misleading in the light of the circumstances
then existing; and
(iv) furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being
sold through underwriters or, if such securities are not being sold
through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (1) an opinion, dated as
of such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders participating in
such registration, addressed to the underwriters, if any, and to the
Holders participating in such registration and (2) a letter, dated as
of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the
Holders participating in such registration, addressed to the
underwriters, if any, and if permitted by applicable accounting
standards, to the Holders participating in such registration.
(f) INDEMNIFICATION.
(i) The Company will indemnify each of the Holders, as
applicable, each of its officers, directors and partners, and each
person controlling each of the Holders, with respect to each
registration which has been effected pursuant to this Section 2, and
each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or the Exchange Act or any rule or regulation
thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of
the Holders, each of its officers, directors and partners, and each
person controlling each of the Holders, each such underwriter and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage,
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<PAGE>
liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by
the Holders or underwriter and stated to be specifically for use
therein.
(ii) Each of the Holders will, if Registrable Securities held by
it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company,
each of its directors and officers and each underwriter, if any, of
the Company's securities covered by such a registration statement,
each person who controls the Company or such underwriter, each Other
Stockholder and each of their officers, directors, and partners, and
each person controlling such Other Stockholder against all claims,
losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by
such Holder, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements by such Holder therein not misleading, and will reimburse
the Company and such Other Stockholders, directors, officers,
partners, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder and stated
to be specifically for use therein; provided, however, that the
obligations of each of the Holders hereunder shall be limited to an
amount equal to the net proceeds to such Holder of securities sold as
contemplated herein.
(iii) Each party entitled to indemnification under this Section
2(f) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld) and the Indemnified Party may
participate in such defense at such party's expense (unless the
Indemnified
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<PAGE>
Party shall have reasonably concluded that there may be a conflict of
interest between the Indemnifying Party and the Indemnified Party in
such action, in which case the fees and expenses of counsel shall be
at the expense of the Indemnifying Party), and provided further that
the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Section 2 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified
Party shall furnish such information regarding itself or the claim in
question as an Indemnifying Party may reasonably request in writing
and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(f) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage
or expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on
the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to,
among other things, whether the untrue (or alleged untrue) statement
of a material fact or the omission (or alleged omission) to state a
material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any
underwritten public offering contemplated by this Agreement are in
conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of the Company and Holders
is subject to the condition that,
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<PAGE>
insofar as they relate to any loss, claim, liability or damage made in
a preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration
statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the
"Final Prospectus"), such indemnity or contribution agreement shall
not inure to the benefit of any underwriter or Holder if a copy of the
Final Prospectus was furnished to the underwriter and was not
furnished to the person asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Securities Act.
(g) INFORMATION BY THE HOLDERS. Each of the Holders holding securities
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 2.
(h) RULE 144 REPORTING.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted
securities to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act ("Rule
144"), at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general
public;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(iii) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at
any time from and after ninety (90) days following the effective date
of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the
Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing
itself of any
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<PAGE>
rule or regulation of the Commission allowing the Holder to sell any
such securities without registration.
(i) TERMINATION. The registration rights set forth in this Section 2
shall not be available to any Holder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Holder could
be sold in any 90-day period pursuant to Rule 144 (without giving effect to
the provisions of Rule 144(k)).
3. INTERPRETATION OF THIS AGREEMENT
(a) DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such Person.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
(c) SECTION HEADINGS. The headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
4. MISCELLANEOUS
(a) NOTICES.
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or mailed by overnight courier or by
registered or certified mail, postage prepaid:
(A) if to the Company, to Information Holdings Inc., 250
Dodge Avenue, East Haven, Connecticut 06512, Attention: Mason P.
Slaine, or at such other address as it may have furnished in
writing to the Investors;
(B) if to the Investors, at the address listed on Schedule I
hereto, or at such other address as may have been furnished the
Company in writing.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier,
on the first business day following the date of such mailing; and if
mailed by registered or certified mail, on the third business day
after the date of such mailing.
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<PAGE>
(b) REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, any consents, waivers and
modifications which may hereafter be executed may be reproduced by the
Investor by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and the Investors may destroy any
original document so reproduced. The parties hereto agree and stipulate
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by
the Investors in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties.
(d) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement constitutes
the entire understanding of the parties hereto and supersedes all prior
understanding among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only
with) the written consent of the Company and the Investors holding a
majority of the then outstanding Registrable Securities.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first set forth above.
INFORMATION HOLDINGS INC.
By: /s/ Mason P. Slaine
----------------------------
INVESTORS:
WARBURG, PINCUS VENTURES, L.P.
By Warburg, Pincus & Co.
Its General Partner
By: /s/ David E. Libowitz
----------------------------
David E. Libowitz
General Partner
/s/ Mason P. Slaine
----------------------------
Mason P. Slaine
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<PAGE>
SCHEDULE I
Name and Address
OF INVESTOR
Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attn: David E. Libowitz
Mason P. Slaine
c/o Information Holdings Inc.
280 Dodge Avenue
East Haven, Connecticut 06512
<PAGE>
Exhibit 10.4
INFORMATION HOLDINGS INC.
1998 STOCK OPTION PLAN
* * *
ARTICLE I
PURPOSE
This 1998 Stock Option Plan (the "Plan") is intended to encourage stock
ownership in Information Holdings Inc. (the "Company") by employees and
directors of the Company and its subsidiaries in order to increase their
proprietary interest in the Company's success and to encourage such employees
and directors to remain in the service of the Company and its subsidiaries.
ARTICLE II
CERTAIN DEFINITIONS
"AFFILIATE" of an entity shall mean any person or entity controlling,
controlled by or under common control with, such entity, where "control" means
the power to exercise a controlling influence over the management or policies of
such person or entity.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE OF CONTROL" shall have the meaning set forth in Article XI.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean (i) the Stock Option Committee of the Board which,
if and to the extent practicable, shall be comprised of at least two persons who
qualify as "non-employee directors" under Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
and as "outside directors" under Section 162(m) of the Code or (ii) if a Stock
Option Committee has not been designated by the Board, the Board.
"COMMON STOCK" shall mean the voting common stock of the Company, par value
$0.01 per share.
<PAGE>
"ELIGIBLE EMPLOYEE" shall mean any person employed on a full-time basis by
the Company or any of its subsidiaries, or any director of the Company.
"EXERCISE PRICE" shall have the meaning assigned to such term in Article VI
hereof.
"ISO" shall mean an "incentive stock option" within the meaning of Section
422 of the Code.
"NON-QUALIFIED OPTION" shall mean an Option which is not an ISO.
"OPTION" shall mean any option granted under the Plan.
"OPTIONEE" shall mean any holder of an Option.
"OPTION AGREEMENT" shall mean the agreement between an Optionee and the
Company governing Options granted under the Plan, the forms of which shall be
consistent with the terms of the Plan but need not be identical.
"WP VENTURES" shall mean Warburg, Pincus Ventures, L.P., any Affiliate
thereof, or any successor thereto.
ARTICLE III
STOCK
The stock to be issued upon the exercise of Options shall be shares of
authorized but unissued Common Stock or previously issued shares of Common Stock
reacquired by the Company. The aggregate number of shares of Common Stock as to
which Options may be granted under the Plan at any time shall not exceed
866,886, subject to adjustment from time to time in accordance with the
provisions of Article X hereof.
The number of shares of Common Stock available for grant of Options at any
time under the Plan shall be decreased by the sum of (i) the number of shares
with respect to which Options have been issued and have not lapsed or been
canceled, in each case, prior to such time and (ii) the number of shares issued
prior to such time upon exercise of Options. In the event that any outstanding
Option under the Plan lapses in accordance with Articles VII or VIII hereof,
prior to the end of the period during which Options may be granted, the shares
of Common Stock
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<PAGE>
subject to the unexercised portion of such Option shall again be available for
the granting of Options under the Plan.
ARTICLE IV
PARTICIPATION
Optionees shall be limited to Eligible Employees who have received written
notice of their selection to participate in the Plan and who have entered into
an Option Agreement. Each Option Agreement shall state the total number of
shares of Common Stock which are subject to the Option granted. No Eligible
Employee shall at any time have a right to be selected as a participant.
ARTICLE V
ADMINISTRATION
The Plan shall be administered by the Committee which shall have sole
authority, in its absolute discretion: (a) to select which Eligible Employees
shall be granted Options; (b) to determine the number of Options to be granted
to such Eligible Employees and whether such Options shall be ISOs or
Non-Qualified Options; (c) to prescribe the form or forms of the Option
Agreements under the Plan; (d) to adopt, amend or rescind such rules and
regulations as, in its opinion, may be advisable for the administration of the
Plan; and (e) to construe and interpret the Plan, and all such rules and
regulations, and to make all other determinations deemed necessary or advisable
for the administration of the Plan. All decisions, determinations and
interpretations of the Committee made in good faith shall be final and binding
on all participants. Neither the Committee nor any member of the Committee shall
be liable for any act, omission, interpretation, construction or determination
made in connection with the Plan in good faith, and the members of the Committee
shall be entitled to indemnification and reimbursement by the Company in respect
of any claim, loss, damage or expense (including, without limitation, counsel
fees) arising therefrom to the full extent permitted by Delaware law and under
any directors' and officers' liability insurance coverage which may be in effect
from time to time.
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<PAGE>
ARTICLE VI
EXERCISE PRICE
The Exercise Price per share of Common Stock covered by Options granted
under the Plan shall be established on or prior to the date of grant by the
Committee and shall be set forth in the Optionee's Option Agreement. Payment
shall be made in full upon exercise of the Option by delivering to the Company
at its principal executive offices cash or a certified check, bank draft or
money order payable to the order of the Company in the aggregate amount of the
Exercise Price, or in accordance with any cashless exercise procedures adopted
by the Committee from time to time.
ARTICLE VII
VESTING OF OPTIONS
All Options granted under the Plan shall vest and become exercisable in
accordance with Article XI hereof and vesting schedules established by the
Committee at the time of grant.
ARTICLE VIII
TERMINATION OF EMPLOYMENT
Each Option will have a ten-year term from the date of grant, subject to
earlier termination upon termination of the Optionee's employment, as determined
by the Committee.
ARTICLE IX
TRANSFERABILITY
Options shall not be transferable, except by will or the laws of descent
and distribution. During the lifetime of the Optionee, Options shall be
exercisable only by the Optionee.
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<PAGE>
ARTICLE X
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Common Stock which may be purchased
pursuant to Options granted hereunder, the maximum number of shares of Stock
with respect to which Options may be granted to any single Optionee during any
calendar year, the number of shares of Common Stock covered by each outstanding
Option and the price per share thereof shall be appropriately adjusted for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from a stock split or other subdivision or consolidation of shares of
Common Stock, or for other capital adjustments or payments of stock dividends or
distributions or other increases or decreases in the outstanding shares of
Common Stock effected without receipt of consideration by the Company.
If the Company shall be sold, reorganized, consolidated, or merged with
another corporation, or if all or substantially all of the assets of the Company
shall be sold or exchanged (a "Corporate Event"), (i) each Optionee shall, at
the time of such Corporate Event, be entitled to receive upon the exercise of
his Option the same number and kind of shares of common stock or the same amount
of property, cash or other securities as he would have been entitled to receive
upon the occurrence of such Corporate Event as if he had been, immediately prior
to such event or on the record date relating to such event, the holder of the
number of shares of Common Stock covered by his Option, and (ii) if the Company
is not the surviving corporation in such Corporate Event, the Company shall
require the successor corporation or parent thereof to assume such outstanding
Options; PROVIDED, HOWEVER, that the Committee may, in its discretion and in
lieu of requiring such assumption, provide that all outstanding Options shall
terminate as of the consummation of such Corporate Event and accelerate the
exercisability of all outstanding Options to any date prior to the date of such
Corporate Event.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Option.
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<PAGE>
ARTICLE XI
CHANGE OF CONTROL
In the event of a Change of Control, each outstanding Option under the Plan
shall vest and become immediately exercisable in full as of the date immediately
preceding the date of such Change of Control, or such other date, not later than
the date of such Change of Control, as shall be established by the Committee in
its discretion.
For purposes of the Plan, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
either (i) the then outstanding shares of Common Stock (the "Outstanding Company
Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company, (iv) any
acquisition by WP Ventures, or (v) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i), (ii), and (iii) of subsection
(c) of this ARTICLE XI;
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the effective date of the Plan whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
(c) Consummation of a Corporate Event, unless, following such Corporate
Event, (i) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Stock and
Outstanding Company Voting Securities immediately prior to such Corporate Event
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the corporation resulting from such Corporate Event (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) upon consummation of such Corporate Event in
substantially the same proportions as their ownership, immediately prior to such
Corporate Event, of the Outstanding Company Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person other than (1) WP Ventures, (2)
any corporation resulting from such Corporate Event, or (3) any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Corporate Event, beneficially owns, directly or indirectly, 50% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Corporate Event or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that such
ownership existed prior to the Corporate Event, and (iii) at least a majority of
the members of the board of directors of the corporation resulting from such
Corporate Event were members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board, providing for such
Corporate Event; or
(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
ARTICLE XII
RIGHTS AS A STOCKHOLDER
An Optionee or a transferee of an Option shall have no rights as a
stockholder with respect to any shares covered by his Option until he shall have
become the holder of record of such shares, and he shall not be entitled to any
dividends or distributions or other rights in respect of such shares for which
the record date is prior to the date on which he shall have become the holder of
record thereof.
- 7 -
<PAGE>
ARTICLE XIII
EMPLOYMENT RIGHTS
Nothing in the Plan or in any Option Agreement entered into hereunder shall
confer on any Optionee who is an employee of the Company or any of its
subsidiaries any right to continue in the employ of the Company or any of its
subsidiaries or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the Optionee's employment at any time.
ARTICLE XIV
TRANSFER RESTRICTIONS
Appropriate legends shall be placed on the stock certificates evidencing
shares issued upon exercise of Options to reflect any relevant transfer
restrictions.
ARTICLE XV
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may from time to time, to the extent permitted by applicable law,
amend, suspend, or discontinue the Plan; provided, however, that the Board may
not take any action which would have a material adverse effect on outstanding
Options or any unexercised rights under outstanding Options without the consent
of the Optionee whose options would be adversely affected thereby.
ARTICLE XVI
CANCELLATION OF OPTIONS
The Committee, in its discretion, may, with the express written consent of
the Optionee to be affected, cancel any Option held by such consenting Optionee
hereunder.
- 8 -
<PAGE>
ARTICLE XVII
MISCELLANEOUS
(a) The Company may, in its discretion, require that an Optionee pay to the
Company, at the time of exercise, such amount as the Company deems necessary
under law to satisfy its obligations to withhold Federal, state, or local income
or other taxes incurred by reason of the exercise or the transfer of shares
thereupon.
(b) Anything in the Plan or any Option Agreement entered into pursuant to
the Plan to the contrary notwithstanding, if, at any time specified herein or
therein for the making of any issue of shares of Common Stock, any law,
regulation or requirement of any governmental authority having jurisdiction in
the premises shall require either the Company or the Optionee (or the Optionee's
personal legal representative or transferee) to take any action in connection
with any such shares to be issued, the issue of such shares shall be deferred
until such action shall have been taken, provided, however, that the Company
shall not be required to take such action.
(c) The Plan shall be governed by and construed in accordance with the laws
of the State of Delaware without reference to the principles of conflicts of law
thereof.
(d) No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes.
(e) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan or other amount required to be reported as
income for Federal income tax purposes shall be taken into account in
determining any benefits under any pension, retirement, profit sharing, group
insurance or other benefit plan of the Company.
(f) The expenses of administering the Plan shall be borne by the Company.
The proceeds received by the Company from
- 9 -
<PAGE>
the exercise of any Options pursuant to the Plan will be used for general
corporate purposes.
(g) Masculine pronouns and other words of masculine gender shall refer to
both men and women.
(h) The titles and headings of the sections in the Plan are for convenience
of reference only, and in the event of any conflict, the text of the Plan,
rather than such titles or headings, shall control.
ARTICLE XVIII
SPECIAL PROVISIONS FOR ISOS
(a) ISOs must be granted within ten years from the date the Plan is
adopted, or the date the Plan is approved by the stockholders of the Company,
whichever is earlier.
(b) ISOs may not be exercised after the expiration of ten years from the
date such ISOs are granted.
(c) The Exercise Price of ISOs may not be less than the fair market value
of a share of Common Stock at the time such ISOs are granted, as determined by
the Committee. In such case, fair market value shall be determined in a manner
consistent with the rules and regulations under Section 422 of the Code.
(d) ISOs may not be granted to a person who owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
any "subsidiary corporation" of the Company within the meaning of Section 424(f)
of the Code.
(e) To the extent the aggregate fair market value of the Common Stock with
respect to which ISOs are exercisable for the first time by any Optionee during
a calendar year (under all plans of the Company and all "subsidiary
corporations" of the Company within the meaning of Section 424(f) of the Code)
exceeds $100,000, such ISOs shall be treated as Non-Qualified Options. For
purposes of the preceding sentence, the fair market value of the Common Stock
shall be determined by the Committee at the time the ISO covering such stock is
granted.
(f) No ISOs may be granted under the Plan unless the Plan has been approved
by the stockholders of the Company within
- 10 -
<PAGE>
12 months before or after the date of the Plan's adoption by the Board.
* * * *
- 11 -
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63325) pertaining to the Stock Option Plan of Information
Holdings Inc. of our report dated March 3, 1999 on the consolidated financial
statements of Information Holdings Inc. and subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 1998.
New York, New York ERNST & YOUNG LLP
March 26, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63325) pertaining to the Stock Option Plan of Information
Holdings Inc. of our report dated May 29, 1998 on the consolidated financial
statements of CRC Press, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1998.
West Palm Beach, Florida ERNST & YOUNG LLP
March 26, 1999
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