<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333-2042
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
METROMAIL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7331 13-3015410
(STATE OR OTHER (PRIMARY STANDARD (IRS EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
METROMAIL CORPORATION
360 EAST 22ND STREET
LOMBARD, ILLINOIS 60148
(708) 620-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
SUSAN L. HENRICKS,
PRESIDENT
METROMAIL CORPORATION
360 EAST 22ND STREET
LOMBARD, ILLINOIS 60148
(708) 620-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MONICA M. FOHRMAN DENNIS V. OSIMITZ ROBERT F. WALL
R. R. DONNELLEY & SONS SIDLEY & AUSTIN WINSTON & STRAWN
COMPANY ONE FIRST NATIONAL PLAZA 35 W. WACKER DR.
77 W. WACKER DRIVE CHICAGO, ILLINOIS 60603 CHICAGO, ILLINOIS 60601
CHICAGO, ILLINOIS 60601 (312) 853-7000 (312) 558-5600
(312) 326-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.. 13,800,000 shares $20.50 $282,900,000 $97,552
- -----------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes 1,800,000 shares, and the estimated aggregate proceeds therefrom,
which the U.S. Underwriters have the option to purchase from the Company
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act of 1933.
(3) Of the amount shown, $3,449 was paid at the time of the original filing of
the Registration Statement on March 7, 1996 and the remaining $94,103 was
paid at the time of the filing of Amendment No. 2 thereto on May 16, 1996.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
METROMAIL CORPORATION
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY PART I OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND
CAPTION LOCATION OR HEADING IN PROSPECTUS
------------------------------- ---------------------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus...... Outside Front Cover Page
2.Inside Front and Outside Back Inside Front Cover Page; Available
Cover Pages of Prospectus..... Information
3.Summary Information and Risk Prospectus Summary; The Company; Risk
Factors....................... Factors
4.Use of Proceeds................. Use of Proceeds
5.Determination of Offering Price. Underwriters
6.Dilution........................ Dilution
7.Selling Security Holders........ Not Applicable
8.Plan of Distribution............ Outside Front Cover Page; Underwriters
9.Description of Securities to be Outside Front Cover Page; Dividend Policy;
Registered.................... Description of Capital Stock and Corporate
Charter
10.Interests of Named Experts and
Counsel....................... Legal Matters; Experts
11.Information with Respect to the Prospectus Summary; Risk Factors; The
Registrant.................... Company; Use of Proceeds; Capitalization;
Dividend Policy; Dilution; Selected
Consolidated and Combined Financial and
Other Data; Unaudited Pro Forma Financial
Information; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Ownership of Capital Stock;
Relationship with R.R. Donnelley;
Description of Capital Stock and Corporate
Charter; Shares Eligible for Future Sale;
Financial Statements
12.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................... Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten offering in the United States (the "U.S.
Prospectus") and one to be used in a concurrent underwritten offering outside
the United States (the "International Prospectus"). The U.S. Prospectus and
the International Prospectus are identical except for the front cover page.
The form of U.S. Prospectus is included herein and is followed by the front
cover page to be used in the International Prospectus, which is labeled
"Alternate Page for International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, as amended, ten copies of each of the
Prospectuses in the forms in which they are used will be filed with the
Securities and Exchange Commission.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued June 13, 1996 12,000,000 Shares
[LOGO OF METROMAIL]
COMMON STOCK
-----------
OF THE 12,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY BY METROMAIL
CORPORATION (THE "COMPANY" OR "METROMAIL"), 9,600,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 2,400,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS."
ALL THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, ALL OF THE COMMON STOCK OF THE COMPANY
WAS OWNED BY R. R. DONNELLEY & SONS COMPANY ("R.R. DONNELLEY"). UPON
COMPLETION OF THIS OFFERING, R.R. DONNELLEY WILL OWN APPROXIMATELY
41.7% OF THE OUTSTANDING COMMON STOCK OF THE COMPANY (APPROXIMATELY
38.4% IF THE U.S. UNDERWRITERS EXERCISE THEIR OVER-ALLOTMENT OPTION
IN FULL). THE NET PROCEEDS OF THIS OFFERING WILL BE USED TO REPAY
AMOUNTS OWED TO R.R. DONNELLEY AND ITS SUBSIDIARIES. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $18.50 AND
$20.50 PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC
OFFERING PRICE.
-----------
THE COMMON STOCK HAS BEEN APPROVED
FOR LISTING, SUBJECT TO
OFFICIAL NOTICE OF ISSUANCE,
ON THE NEW YORK STOCK
EXCHANGE, INC. UNDER THE
SYMBOL "ML."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF
THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- ----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
- -----
(1) The Company and R.R. Donnelley have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at
$1,500,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,800,000 additional Shares at the Price to Public less Underwriting
Discounts and Commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Winston & Strawn, counsel for the Underwriters. It is expected that the
delivery of the Shares will be made on or about , 1996 at the offices
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
-----------
MORGAN STANLEY & CO. LEHMAN BROTHERS
Incorporated
, 1996
<PAGE>
[INSIDE COVER PAGE OF PROSPECTUS]
[METROMAIL LOGO]
Flow chart summarizing Metromail's business, as described elsewhere in this
Prospectus. The flow chart illustrates the Company's (1) selected data sources,
(2) database, (3) format for delivering products and services and (4) direct
marketing and reference products and services (and the applications for and
users thereof).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR
SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY OR ANY UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO, THE OFFERING OF THE COMMON STOCK
AND THE DISTRIBUTION OF THIS PROSPECTUS.
----------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the term "United States" or "U.S." means the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 9
The Company......................... 19
Use of Proceeds..................... 19
Capitalization...................... 20
Dividend Policy..................... 21
Dilution............................ 21
Selected Consolidated and Combined
Financial and Other Data........... 22
Unaudited Pro Forma Financial
Information........................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................ 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management.......................... 50
Ownership of Capital Stock.......... 58
Relationship with R.R. Donnelley.... 60
Description of Capital Stock and
Corporate Charter.................. 63
Shares Eligible for Future Sale..... 65
Certain United States Federal Income
Tax Considerations For Non-U.S.
Holders of Common Stock............ 66
Underwriters........................ 69
Legal Matters....................... 71
Experts............................. 72
Additional Information.............. 72
Exchange Rates...................... 72
Index to Financial Statements....... F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
----------------
The following trademarks are mentioned in this Prospectus: BehaviorBank(R),
Cole(R), MetroBase(R), Metromail(R), MetroNet(R), MetroSearch(R) and National
Look Up 900 Service(R), which are registered trademarks of Metromail;
AnalytiX(R), which is a registered trademark of Customer Insight Company; and
Windows(R), which is a registered trademark of Microsoft Corporation.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements
and pro forma information (and the notes related thereto) included elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes no exercise of the U.S. Underwriters' over-allotment option. See
"Underwriters."
THE COMPANY
Metromail Corporation ("Metromail" or the "Company") is a leading provider of
marketing-oriented consumer information and reference services which it
supplies to a wide variety of organizations engaged in direct mail, telephone
and target marketing, as well as to clients who need specific reference and
information services. In providing these information services, Metromail
utilizes its proprietary database, which it believes is one of the most
comprehensive and accurate databases in the United States, containing
geographic, demographic and other marketing information on over 143 million
individuals and over 90% of the households in the United States. The Company
has assembled this database over almost 50 years from a wide variety of
publicly available and proprietary, third-party sources and acquired databases.
The markets in which the Company participates are experiencing increasing
demand for high-quality consumer information. In 1995, Metromail generated net
sales and earnings from operations of $237.2 million and $30.6 million,
respectively.
The Company offers two general categories of products and services: direct
marketing services and reference services. To its direct marketing clients the
Company provides: (i) targeted lists of potential customers; (ii) value-added
enhancements of pre-existing customer lists; (iii) processing and mail
services; and (iv) proprietary marketing database software for personal
computers used to access marketing data from a client's customer database. The
Company's reference services include: (1) a National Directory Assistance
("NDA") database for on-line or operator-assistance providers; (2) an on-line
look-up/skip-locate service for collection agencies, consumer finance companies
and credit card issuers; and (3) the Cole directories, which list households in
sequence, by telephone number or address, in approximately 150 markets in the
United States and Canada, delivered in printed form or on CD-ROM.
Metromail's innovative marketing and distribution programs are important
elements of the Company's success to date. Metromail uses a multi-channel
distribution strategy to target a broad base of potential clients. The Company
has its own sales force, which the Company believes to be the largest direct
sales force in its industry, to call primarily on large national accounts. The
Company also sells its products and services through direct mail, telemarketing
and sales through third-party resellers such as advertising agencies and list
brokers. In addition, the Company has invested in the development of
sophisticated database marketing software applications which enable clients to
create and manage their own databases as well as gain more efficient access to
the data available through Metromail's proprietary database. Metromail is
consolidating all of its existing databases into a single universal file
through an advanced technology initiative. The Company believes that this
consolidation will enable it to reduce the costs and time of updating its
database and accelerate the speed at which information can be retrieved from
the database.
Metromail expects to benefit from continued growth in its markets resulting
from the ongoing shift from "mass" marketing to "information-driven" targeted
marketing, increased access to data and growth in several existing end markets
and industries, as well as the emergence of new end markets. The Company
believes that its competitive strengths will enable it to continue to compete
effectively in its markets. These strengths include the Company's (i)
comprehensive proprietary database and expertise in gathering data; (ii)
ability to leverage its database into a wide range of information products and
services; (iii) large base of established clients and comprehensive, multi-
channel sales network; (iv) advanced technological capabilities in database
management and software development; and (v) experienced management team and
employees.
4
<PAGE>
The Company's principal strategy is to capitalize on its competitive
strengths to provide high value-added information and information services to
an expanding universe of clients. Key elements of the Company's strategy
include:
. Maintaining, integrating and expanding its proprietary database;
. Developing new products and services and targeting new markets;
. Developing technologies to analyze, package and distribute information
more efficiently; and
. Selectively acquiring data, distribution channels and businesses
available as a result of ongoing consolidation in the industry.
R. R. Donnelley & Sons Company ("R.R. Donnelley") is currently the sole
stockholder of the Company and upon completion of the Offering will own
approximately 41.7% of the outstanding Common Stock (approximately 38.4% if the
over-allotment option granted by the Company to the U.S. Underwriters is
exercised in full). While R.R. Donnelley in the future may reduce its ownership
interest in the Company,
R.R. Donnelley has advised the Company that it has no plans to do so. In
connection with the Offering,
R.R. Donnelley has agreed not to offer, pledge, sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security convertible
into or exercisable or exchangeable for Common Stock) for a period of 180 days
after the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated. See "Relationship with R.R. Donnelley" and
"Underwriters."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company:
U.S. Offering.......................... 9,600,000 shares
International Offering................. 2,400,000 shares
Total................................ 12,000,000 shares
Common Stock to be outstanding
immediately after the Offering.......... 20,600,000 shares(1)
Use of Proceeds.......................... The net proceeds to the Company from
the Offering are estimated to be ap-
proximately $219.6 million ($252.8
million if the U.S. Underwriters ex-
ercise their overallotment option in
full) (assuming an initial public of-
fering price of $19.50 per share, af-
ter deducting estimated underwriting
discounts and offering expenses pay-
able by the Company). The net pro-
ceeds from the Offering together
with, to the extent necessary,
borrowings under a bank credit facil-
ity to be entered into by the Company
prior to consummation of the Offering
will be used to repay the debt and
advances owed to R.R. Donnelley and
its subsidiaries, which as of March
31, 1996 totalled approximately
$249.5 million. See "Use of
Proceeds."
NYSE Symbol.............................. ML
</TABLE>
- --------
(1) Excludes 1,600,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan and 1996 Broad-Based Employee Stock
Plan, including 34,000 shares of restricted Common Stock and options to
purchase approximately 1,300,000 shares of Common Stock (at the initial
public offering price set forth on the cover page of this Prospectus) that
the Company expects to grant to employees in connection with the Offering.
See "Management--Stock Plans," "Management--Employment Agreements" and
Notes to Consolidated and Combined Financial Statements of Metromail.
5
<PAGE>
SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
The following table summarizes selected historical consolidated and combined
financial and other data of the Company. Statement of operations data for each
of the three years in the period ended December 31, 1995 have been derived from
the audited consolidated and combined financial statements of the Company
contained herein. Statement of operations data for the three month periods
ended March 31, 1995 and 1996, respectively, and balance sheet data as of March
31, 1996 have been derived from the unaudited consolidated and combined
financial statements of the Company contained herein. Statement of operations
data for each of the two years in the period ended December 31, 1992 and other
data are derived from unaudited information. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Information" and Consolidated and Combined Financial Statements of Metromail
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ----------------
1991 1992 1993 1994(1) 1995(1) 1995 1996
-------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Direct marketing
sales................. $114,871 $120,364 $127,683 $156,806 $189,713 $38,860 $41,894
Reference sales........ 30,394 33,317 36,032 38,665 47,474 10,972 12,475
-------- -------- -------- -------- -------- ------- -------
Total net sales...... 145,265 153,681 163,715 195,471 237,187 49,832 54,369
Database and
production costs...... 88,945 86,184 95,016 108,806 134,361 30,279 33,606
Amortization of
goodwill.............. 6,054 6,054 6,054 6,608 7,446 1,790 1,889
Selling expenses....... 26,211 26,252 29,625 37,107 45,913 10,345 11,821
General and
administrative
expenses.............. 15,919 13,232 12,372 14,408 16,645 3,898 4,909
Provisions for
doubtful accounts..... 1,584 1,798 1,959 1,848 2,180 425 419
-------- -------- -------- -------- -------- ------- -------
Earnings from
operations.......... 6,552 20,161 18,689 26,694 30,642 3,095 1,725
Interest expense--
related party......... 22,898 21,337 22,112 18,999 21,329 4,968 5,345
Interest expense....... -- -- -- -- 80 -- 60
Other expense
(income)--net......... (120) (57) (138) 24 (87) (10) (5)
-------- -------- -------- -------- -------- ------- -------
Earnings (loss)
before income taxes. (16,226) (1,119) (3,285) 7,671 9,320 (1,863) (3,675)
Income taxes........... (4,069) 2,034 1,181 5,684 6,585 (130) (788)
-------- -------- -------- -------- -------- ------- -------
Net income (loss)
from operations
before cumulative
effect of accounting
change.............. (12,157) (3,153) (4,466) 1,987 2,735 (1,733) (2,887)
Cumulative after-tax
effect of change in
accounting for post
retirement benefits
other than pensions... -- -- 4,388 -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income (loss).... $(12,157) $ (3,153) $ (8,854) $ 1,987 $ 2,735 $(1,733) $(2,887)
======== ======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................... $375,678 $375,678
Total debt............................................ 253,290 34,222
Total shareholders' equity............................ 82,603 302,233
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ---------------
1991 1992 1993 1994(1) 1995(1) 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT WHERE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA (FOR OR AT
END OF PERIODS):
Capital expenditures... $ 7,699 $ 3,117 $13,426 $ 9,940 $28,459 $ 6,877 $ 7,860
Depreciation and
amortization.......... 12,780 11,596 13,143 14,781 20,851 4,774 5,437
Computer processing
capacity (in MIPS).... 112 123 185 280 396 280 396
Number of individuals
in database........... 132,839 130,122 138,709 146,276 146,579 143,156 143,770
Number of households in
database.............. 92,268 92,362 92,859 95,130 94,958 95,465 95,770
</TABLE>
- --------
(1) In 1994, the Company purchased Customer Insight Company for approximately
$20.0 million. In 1995, an affiliate of R.R. Donnelley acquired
International Communication & Data Plc for approximately $15.3 million. See
Notes 1 and 14 of Notes to Consolidated and Combined Financial Statements
of Metromail.
(2) Adjusted to give effect to the Offering being consummated and the assumed
net proceeds of the Offering together with, to the extent necessary,
borrowings under a bank credit facility to be entered into by the Company
prior to consummation of the Offering being applied, as of March 31, 1996,
to the repayment of the debt and advances due to R.R. Donnelley and its
subsidiaries. See "Use of Proceeds."
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated and combined statements of operations
for the year ended December 31, 1995 and the three months ended March 31, 1996
set forth below illustrate: (i) the effects of the historical estimated results
of operations (under the Company's accounting policies) of International
Communication & Data Plc ("ICD") for the period from January 1, 1995 to April
30, 1995, the date on which ICD was acquired by an affiliate of the Company;
(ii) the estimated net operating effects resulting from the Company being a
public entity, which include pricing of certain services the Company will
provide to and receive from R.R. Donnelley after the Offering under certain
intercompany agreements, as well as other incremental public company expenses;
and (iii) the Offering being consummated and the assumed net proceeds therefrom
together with, to the extent necessary, borrowings under a bank credit facility
to be entered into by the Company prior to consummation of the Offering being
used to repay the debt and advances owed to R.R. Donnelley and its subsidiaries
at January 1, 1995, resulting in (a) the elimination of interest expense
associated with the debt and advances owed to R.R. Donnelley and its
subsidiaries and (b) additional interest expense related to borrowings under
such bank credit facility described in clause (a) and to finance operating and
investing activities in 1995 and in the first three months of 1996.
The pro forma adjustments are based on available information and upon certain
assumptions the Company believes are reasonable. The pro forma statements of
operations do not purport to represent what the Company's results of operations
would actually have been or to project the Company's results of operations for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------ ----------------
AS AS
ACTUAL ADJUSTED(1) ACTUAL ADJUSTED(1)
-------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Direct marketing sales.............. $189,713 $194,768 $41,894 $41,894
Reference sales..................... 47,474 47,474 12,475 12,475
-------- -------- ------- -------
Total net sales.................... 237,187 242,242 54,369 54,369
Database and production costs (2)... 134,361 135,197 33,606 33,431
Amortization of goodwill............ 7,446 7,571 1,889 1,889
Selling expenses (2)................ 45,913 47,407 11,821 11,946
General and administrative expenses
(2)................................ 16,645 20,183 4,909 5,409
Provisions for doubtful accounts.... 2,180 2,281 419 419
-------- -------- ------- -------
Earnings (loss) from operations.... 30,642 29,603 1,725 1,275
Interest expense--related party..... 21,329 -- 5,345 --
Interest expense.................... 80 814 60 456
Other expense (income)--net......... (87) (87) (5) (5)
-------- -------- ------- -------
Earnings (loss) before income
taxes............................. 9,320 28,876 (3,675) 824
Income taxes........................ 6,585 14,485 (788) 1,030
-------- -------- ------- -------
Net income (loss).................. $ 2,735 $ 14,391 $(2,887) $ (205)
======== ======== ======= =======
Pro forma net income (loss) per
share (3)......................... $ .70 $ (.01)
======== =======
</TABLE>
- --------
(1) For a detailed description of the adjustments to these unaudited pro forma
consolidated and combined statements of operations, see "Unaudited Pro
Forma Financial Information."
(2) The costs for retiree medical benefits for all Company employees have been
reported in the Company's historical results of operations. R.R. Donnelley
has agreed upon consummation of the Offering to assume liability related to
122 retired and 93 current employees of the Company who met the eligibility
requirements (55 years of age and 10 years of service) for those benefits.
Earnings from operations reflect the inclusion of $0.7 million of retiree
medical costs associated with these employees for the year ended December
31, 1995 and $0.175 million of such costs for the three months ended March
31, 1996. The costs paid by R.R. Donnelley will not affect the cash flows
of the Company; however, applicable accounting principles require the
Company to recognize such costs as incurred and apply all R.R. Donnelley
payments in respect of such costs to additional paid-in capital.
(3) Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) for the year ended December 31, 1995 and the three months
ended March 31, 1996 by the pro forma weighted average shares outstanding
during such periods of 20,600,000.
7
<PAGE>
RECENT UNAUDITED RESULTS OF OPERATIONS
The following table sets forth a summary of certain unaudited results of
operations of Metromail for the months ended April 30, 1995 and 1996. The
unaudited results of operations for the month ended April 30, 1996 set forth
below are not necessarily indicative of results that may be expected for the
full year.
<TABLE>
<CAPTION>
MONTH ENDED
APRIL 30,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Total net sales............................................. $16,026 $26,014
Earnings from operations.................................... 1,016 2,412
Net income (loss)........................................... (616) 81
</TABLE>
Total net sales for the month ended April 30, 1996 increased 63.0% to $26.0
million from $16.0 million for the month ended April 30, 1995. This $10.0
million increase reflected growth across all areas and the inclusion of the
operating results of International Communication & Data Plc, which was acquired
by an affiliate of R.R. Donnelley in May 1995. Management expects the Company's
earnings from operations for the three-month period ending June 30, 1996 to be
below earnings from operations for the comparable period in 1995 ($10.5
million), but higher than earnings from operations for the three-month period
ended March 31, 1996 ($1.7 million). The Company's operating earnings for the
second quarter of 1995 benefited, in an amount estimated at $2.0 million, from
the deferral of expenses from the second quarter to the second half of the year
as part of a company-wide expense-reduction initiative during the second
quarter.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby.
REGULATION OF DATA COLLECTION AND THE DIRECT MARKETING INDUSTRY
The Company's business involves the collection of consumer data and the
distribution of information about consumers to direct marketers. Growing
concerns about individual privacy and the collection, distribution and use of
information about individuals have led to self-regulation of such practices by
the direct marketing industry through guidelines suggested by the Direct
Marketing Association, the leading trade association of direct marketers (the
"DMA"), and to increased federal and state regulation. See "Business--
Regulation." To date, the guidelines suggested by the DMA, including
procedures permitting individuals who do not wish to receive direct marketing
mail or telephone calls to "opt out," and the federal and state regulation of
the collection, distribution or use of information about individuals or of the
direct marketers or their activities have not had a material adverse effect on
the Company or, in the Company's opinion, on the direct marketing industry.
Two bills relating to the use of data were introduced in the United States
Congress in May, 1996. One bill, titled the Children's Privacy Protection and
Parental Empowerment Act, if enacted, would, among other things, prohibit list
brokers (including the Company) from knowingly selling or purchasing personal
information (defined to include name, address and telephone number) about a
child (defined to be a person under 16) without the written consent of a
parent of that child or knowingly failing to comply with the request of a
parent to disclose the source of personal information about that parent's
child, to disclose all information that has been sold by that list broker
about that child and to disclose the identity of all persons to whom personal
information about that child has been disclosed. The Company is unable to
estimate with any degree of certainty the impact the bill, if enacted in its
current form, would have on its revenues or earnings, but such bill, if
enacted in its current form, could have a material adverse effect on the
Company's business, operating results or financial condition until the direct
marketing industry adapts its practices as required to place it in compliance
with the new requirements. If the bill passes in its current form, the Company
believes that it would take some period of time for requisite parental
consents to be sought and obtained or, alternatively, for the direct marketing
industry to develop statistical analyses to forecast the presence of children
at a particular address, if that information were not otherwise available.
Until the industry assures itself of the effectiveness of such different
analyses, the Company could experience fewer requests for direct marketing
services from clients targeting households with children, which would result
in a loss of revenue for the Company. A second bill, titled the Database
Investment and Antipiracy Act of 1996, if enacted, would, among other things,
have the effect of reversing a United States Supreme Court decision that the
"white pages" are in the public domain. Because the "white pages" are the
Company's primary source of names, addresses and telephone numbers for use
both in its direct marketing and reference services, such bill, if enacted,
would enable telephone companies either to refuse to make such data available
or to charge for its use, and the Company's data collection costs would likely
increase. The Company is unable to estimate with any degree of certainty the
impact on the Company's revenues of enactment of such bill. The Company
believes that if it were required to pay telephone companies for "white pages"
data, it would be able to pass a significant portion of such increased costs
on to its clients, because its competitors would also likely be incurring
additional data collection costs.
No assurance can be given that the DMA will not adopt additional guidelines
that, although not legally binding, would be adhered to by the direct
marketing industry, or that additional federal or state laws or regulations
(including the two bills introduced in May) will not be enacted, and no
assurance can be given that any such guidelines, laws or regulations
(including further implementation of "opt out" requirements or implementation
of "opt in" requirements where individuals must consent to the receipt of
direct marketing materials) will not have the effect of materially increasing
the cost to the Company of collecting certain kinds of information, preclude
the use by direct marketers of information that the Company could lawfully
collect or otherwise have a material adverse effect on the Company's business,
operating results or financial condition.
9
<PAGE>
Because of the possibility of increased regulation brought on by privacy
concerns, the Company has begun collecting certain data directly from
individuals, who agree that the data supplied by them may be used for direct
marketing and other purposes. See "Business--Metromail's Database." The Company
believes that it is unlikely that future regulations will seek to restrict the
use by direct marketers of self-reported data, although no assurance to that
effect can be given. Although the Company intends to continue to pursue
actively the collection of self-reported data, the percentage of data in the
Company's current database that constitutes self-reported data is relatively
small.
REGULATION OF REFERENCE SERVICES
The Company is not aware of any generally accepted industry guidelines for
the use of information on individuals in connection with the Company's
reference services. The Company has adopted its own privacy principles for its
reference services. See "Business--Metromail's Database."
Certain of the reference services provided by the Company to certain credit
card issuers and their member banks are subject to the Fair Credit Reporting
Act ("FCRA"). Legislation has been introduced in Congress seeking to amend the
FCRA to provide consumers with easier access to their credit reports,
facilitate the correction of errors in reports and address the issue of
"prescreening," a procedure used in some direct marketing programs. The Company
does not believe that enactment of any of these bills, as currently drafted,
would have a material adverse impact on the Company, although it is possible
that some of the Company's clients could be negatively impacted.
No assurance can be given that industry guidelines for the use of information
on individuals in connection with the Company's reference services will not be
adopted or that additional federal or state laws or regulations, or amendments
to the FCRA different than those currently pending, will not be enacted, and no
assurance can be given that any such guidelines, laws or regulations will not
have a material adverse effect on the Company's business, operating results or
financial condition.
ABSENCE OF LONG-TERM CONTRACTS; LACK OF PREDICTABILITY OF SALES; FLUCTUATIONS
IN OPERATING RESULTS
The Company's sales, particularly with respect to its direct marketing
products, are generally not derived from long-term contracts. Therefore, the
Company must continually engage in sales efforts and must be prepared to adjust
its pricing terms to meet competition. Although the Company lacks long-term
contracts, the Company has had a continuing business relationship with each of
its top 25 clients in 1995 for five or more years. Net sales to the top 25
clients accounted for 34.9%, 33.7% and 28.9% of total net sales in 1993, 1994
and 1995, respectively.
The Company's net sales are affected by a number of seasonal characteristics
and other factors. The primary factors affecting the sales of the Company's
direct marketing services are the timing and extent of the direct marketing
activities of the Company's clients. These activities are influenced by general
factors, such as postal rates, paper prices and overall economic conditions,
and by factors specific to a client, such as the client's advertising budget
and choice of advertising media. The Company's net sales can also be affected
by the availability of new or updated data. Thus, if the Company does not
update its database as quickly as do its competitors, the Company's net sales
could be adversely affected.
The potential unpredictability of the Company's net sales can lead to
fluctuations in quarterly and annual operating results, especially because many
expenses are incurred by the Company ratably throughout the year. In addition,
the expenses associated with acquiring data, and the timing of acquisitions and
the costs and expenses associated therewith, might also affect operating
results. The Company's net sales have historically been somewhat seasonal, with
a higher percentage of net sales being achieved in the second half of a given
year. In 1993, 1994 and 1995, total net sales of the Company during the second
half of the year constituted 56.2%, 56.3% and 55.3%, respectively, of total net
sales for the year. The Company's software sales are also seasonal. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
10
<PAGE>
NET LOSSES IN 1991, 1992 AND 1993 AND IN CERTAIN QUARTERS
The Company experienced net losses for the years ended December 31, 1991,
1992 and 1993 and for certain quarters in the past three years, including the
quarter ended March 31, 1996. See "Selected Consolidated and Combined Financial
and Other Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results." In each such period,
however, the Company had earnings from operations, and the net losses resulted
primarily from interest expense incurred by the Company with respect to debt
and advances owed to R.R. Donnelley or a subsidiary of R.R. Donnelley. The
Company expects interest expense to be substantially decreased upon
consummation of the Offering and the application of the net proceeds therefrom
together with, to the extent necessary, borrowings under a bank credit facility
to be entered into by the Company upon consummation of the Offering to the
repayment of the debt and advances owed to R.R. Donnelley and its subsidiaries.
See "Use of Proceeds" and Note 11 of Notes to Consolidated and Combined
Financial Statements of Metromail.
COMPETITION
The markets in which the Company competes are highly competitive and
fragmented. The Company's direct marketing services compete with several large
national companies that offer many of the same services as the Company. These
competitors include Acxiom Corporation; Database America Information Services,
Inc.; Direct Marketing Technology Inc.; Donnelley Marketing, Inc. (a privately
held company that is unaffiliated with R.R. Donnelley); Harte-Hanks
Communications, Inc.; May & Speh, Inc.; Neodata, Inc.; R.L. Polk and Company;
and TRW Information Systems and Services. The Company also competes with
numerous smaller companies, many of which provide only some of the direct
marketing services provided by the Company or focus on providing information
with respect to a particular industry or with respect to consumers in a
particular geographic region. Although the Company believes that its
competitive strengths enable it to compete effectively with its current
competitors, there can be no assurance that other companies, some of which may
have greater resources or better sources of data than the Company, will not
begin competing with respect to one or more of the direct marketing services
provided by the Company.
The Company's reference services also face intense competition. The Company's
National Directory Assistance service competes with Acxiom Corporation and with
local telephone companies in the regions where such companies provide local
telephone service. The Company's MetroNet service competes with CDB Infotek
Inc., Computer Graphics and First Data Corporation. The Company's Cole
directories publishing service competes with R.L. Polk and Company in many of
the geographic areas for which the Company publishes directories. In addition,
certain of the information the Company currently offers in connection with its
reference services is increasingly available to computer users, at little or no
cost, over public on-line sources. Although the Company believes that the
quality and scope of its reference services enable it to compete effectively
with its current competitors, there can be no assurance that other companies
having greater resources than the Company, such as major telecommunication
companies, will not begin competing with the reference services offered by the
Company. There can be no assurance that a significant increase in the
availability of certain of the information contained in the Company's reference
services over public on-line sources will not have a material adverse effect on
the Company's business, operating results or financial condition. See
"Business--Competition."
TECHNOLOGICAL CHANGES
The Company's ability to compete successfully is dependent in part on the
time it takes for the Company to input collected information into its database
and produce the information desired by its clients and the costs of doing so.
The Company believes that its data input procedures and computer resources, as
well as the redesign of the file structure of its database that is nearing
completion and implementation, will allow the Company to continue to compete
effectively in this area. See "Business--Technology." The Company's future
success is dependent on its ability to keep pace with technological
improvements in this area. If the Company is unable to do so, the Company's
business, operating results or financial condition could be materially
adversely affected.
11
<PAGE>
The market for the marketing database software that the Company licenses to
third parties is characterized by rapid technological change. The introduction
by competitors of products embodying new technologies could render the
Company's existing products obsolete and unmarketable. The Company's future
success will depend upon its ability to enhance its current products and to
develop and introduce new products and services on a timely basis that keep
pace with technological developments and address the increasingly
sophisticated needs of its clients. There can be no assurance that the Company
will be successful in developing and marketing product enhancements or new
products that respond to technological change, that the Company will not
experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products or that the
Company's new products and enhancements will adequately meet the requirements
of the marketplace and achieve market acceptance. If the Company is unable,
for technological or other reasons, to develop and introduce new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, operating
results or financial condition could be materially adversely affected.
LITIGATION AND GOVERNMENT INQUIRIES WITH RESPECT TO USE OF DATA
In 1993, the Company purchased the assets of Computerized Marketing
Technologies, Inc. and affiliated companies ("CMT") relating to a database
created through the use of questionnaires distributed to consumers. Following
this purchase, the Company continued CMT's practice of contracting with
Computerized Image & Data Systems, Inc. ("CIDS") for CIDS to provide data
input services with respect to completed surveys. CIDS had been subcontracting
a portion of these services to a correctional facility maintained by the State
of Texas. This facility was a major supplier of data input services to the
State of Texas, including services with respect to voter registration and
drivers' license records, and according to CIDS, was selected as a
subcontractor, in part, because of the procedures followed by the facility to
safeguard the information made available to the prisoners. In June 1994, the
Company became aware of a report that a woman in Ohio, who apparently had
completed a Company survey, had received a letter purporting to contain
sexually explicit language from a convicted rapist held in the facility that
provided data input services. Immediately after becoming aware of this report,
the Company requested the third party to terminate its subcontract with the
facility. On April 18, 1996, a complaint was filed in the District Court of
Travis County, Texas against the Company, R.R. Donnelley, CIDS, the Texas
Department of Criminal Justice, the executive director of the Texas Department
of Criminal Justice and the chairman of the Texas Board of Criminal Justice by
the woman who allegedly had received the letter. The complaint alleges the
following causes of action against the Company and R.R. Donnelley and certain
of the other defendants: (1) defendants' conduct represented an intentional or
reckless disregard of plaintiffs' safety; (2) the conduct of the Company, R.R.
Donnelley and CIDS in inducing plaintiffs to provide information without
disclosing to plaintiffs that such information would be provided to convicted
felons constituted fraud; (3) defendants have been unjustly enriched by their
actions; (4) defendants' conduct resulted in the invasion of plaintiffs'
privacy; (5) defendants' conduct resulted in the infliction of severe
emotional distress upon plaintiffs; and (6) defendants were grossly negligent
in entrusting plaintiffs' information to convicted felons. In addition, the
complaint alleged two causes of action solely against the Texas Department of
Criminal Justice and the two state officials. The complaint seeks restitution,
actual and exemplary damages in an unspecified amount and injunctive relief on
behalf of the named plaintiff and a purported class consisting of all persons
who completed Company surveys and whose completed surveys were processed by
inmates in the Texas prison system from January 1, 1993 to the present time.
The Company is not yet able to determine the number of persons comprising the
purported class but believes the number of persons who completed surveys in
this period and whose surveys were processed by such inmates could exceed 1.3
million. The Company intends to defend vigorously this suit. The Company has
removed the case to the United States District Court for the Western District
of Texas and has filed a motion to dismiss all counts against it. If the
motion is not granted, the Company intends to challenge certification of the
class, and the Company believes that if such challenge is successful, this
litigation would not have a material adverse effect on the Company. However,
because this litigation is in its early stages, it is not possible to make a
meaningful determination of the ultimate outcome or to make an estimate of the
loss, if any, should the outcome be unfavorable. The Company has made a
preliminary estimate that its costs of litigating the case will be $1.5
million. R.R. Donnelley has agreed to pay the legal fees and expenses incurred
by the Company
12
<PAGE>
in defending this case, but the Company would be responsible for any other
amounts payable by it as a result of this case. Because of R.R. Donnelley's
agreement to pay such fees and expenses, such legal fees and expenses will not
affect the Company's cash flows; however, applicable accounting principles
require the Company to recognize such fees and expenses as incurred and apply
all payments by R.R. Donnelley in respect of such fees and expenses to
additional paid-in capital. No assurances can be given that the costs of
litigating this case will not exceed $1.5 million or that this litigation will
not result in a material adverse effect on the Company's business, operating
results or financial condition.
In 1995, the Company settled two lawsuits filed against it which involved
allegations that it had improperly used certain voter registration information.
One lawsuit involved a complaint filed against the Company in 1992 by Aristotle
Industries, Inc., a company that publishes and sells political and election-
related information products. The other lawsuit involved a purported class
action. In addition, during the last two years, the Company has held
discussions with several federal and state government agencies concerning its
alleged misuse of voter registration data and its use of telephone surveys to
confirm certain information derived from such voter registration data. No
action has been taken against the Company by any government agency with respect
to such matters, and the Company currently has no reason to believe that any
such action will be taken against it. See "Business--Litigation; Government
Inquiries." No assurance can be given, however, that actions will not be taken
against the Company by one or more government agencies or that further actions
will not be filed against the Company with respect to its use of voter
registration data.
In 1995, following a demand on the Board of Directors of R.R. Donnelley,
currently the sole stockholder of the Company, from John Aristotle Phillips,
founder and president of Aristotle Industries, Inc. and a stockholder of R.R.
Donnelley, a special committee of independent directors of R.R. Donnelley,
assisted by independent counsel, conducted a review of certain allegations made
by Mr. Phillips. In particular, the committee investigated, among other things,
allegations that (i) the Company had illegally used data derived from certain
state voter files to augment its commercial database; (ii) the Company may have
made improper use of driver's license, credit or U.S. Postal Service data;
(iii) the Company had improperly used misleading consumer surveys; (iv) the
Company had inadequate internal controls to ensure compliance with laws and
regulations applicable to its business; and (v) the Company engaged in a cover-
up of illegal conduct. The committee reported its findings and recommendations
to the full Board of Directors of R.R. Donnelley in July, 1995. The committee
concluded that, while application of the relevant state statutes and
regulations to the Company's past conduct is far from clear, the Company did
not intentionally violate any of those states' laws governing the use of voter
or driver data. Nor did the committee find any evidence that the Company was
violating any laws relating to credit or postal data. The committee also
concluded that the Company had not engaged in a cover-up of any illegal conduct
with respect to such data. The committee did conclude that the Company lacked
effective management procedures and adequate controls on the acquisition and
use of data and that it had used inappropriate consumer survey techniques to
verify the validity of data acquired from third party sources.
During the course of the review and in response to the recommendations of the
committee, the Company has taken a number of steps designed to reduce the
likelihood of future claims and to improve the Company's data collection
procedures. Among these steps were the following: (i) the Company removed from
its commercial databases all data identified as having been derived, directly
or indirectly, from voter registration records, whether or not the state in
question restricts the use of such data, and took steps to provide database
updates to ensure that clients were not using Company-supplied lists generated
from or including voter data (the Company has subsequently included in its
database certain data derived from voter registration information purchased by
it from Aristotle Industries, Inc.); (ii) the Company conducted a thorough
review of its use of data derived from state driver's license and real estate
files and following such review removed certain data from its database to
ensure that all such use is in compliance with applicable state and federal
laws; and (iii) the Company suspended use of telephone surveys to verify the
accuracy of age or other data. For a discussion of state and federal laws
applicable to the collection, use and transfer of information about
individuals, see "Business--Regulation." The Company has also taken a number of
steps to better ensure that its future acquisition and use of data complies
with applicable laws, regulations and fair information practices. These include
the following: (1) the Company established a new Fair Information Practices
Group responsible for monitoring the acquisition, handling and use
13
<PAGE>
of data; (2) the Company established a procedure for pre-acquisition legal
review of all new data; (3) the Company instituted procedures for periodic
review of existing data to ensure that use of such data continues to comply
with new or changed laws and regulations; and (4) the Company's Fair
Information Practices Group was directed to develop improved procedures for
data validation and the secure storage of information, establish improved
testing procedures to ensure the validity of data from new and existing
sources, develop training programs for Company employees to ensure that they
are fully versed in data security and ethical business practices and institute
procedures to audit its clients' use of the Company's data. Since the
institution of these procedures, the Company is aware of one instance in which
Company employees fulfilling a telephone order failed to adhere to its
procedures. In that instance, a Los Angeles television reporter placed a
telephone order for a list of households with children. The request was made on
behalf of a fictitious business for delivery of the list C.O.D. to an address
in the Los Angeles area. The order was filled by the Company without verifying
the identity of the person or entity making the request or confirming the
marketing purpose for which the list was being ordered, and the list furnished
included exact ages and gender of children in the households. The Company's
policies require evidence of marketing use for lists furnished and prohibit the
furnishing of exact ages of children, and a DMA guideline indicates that list
compilers should make every effort to establish the exact nature of the list's
intended use prior to each sale of the list. The DMA has informed the Company
that it believes the Company's action in this instance did not conform with
such guideline. As a result of this instance, which has received media
attention, additional employee training on the Company's policies is being
undertaken. Further procedures also have been adopted to prevent a
reoccurrence, including: requiring telephone sales representatives to verify
the name, address and phone number of a caller against the Company's database;
prohibiting the acceptance of C.O.D. orders; and requiring execution by all
customers of standard terms and conditions relating to use of lists. The
Company has discussed these further procedures with the DMA and the Company
believes that the DMA is satisfied with them and will take no further action
against it with regard to this instance.
The Company believes that it has lawfully acquired the data contained in its
database and is using it in a lawful manner. No assurances can be given that
claims will not be brought against it with respect to data which has been or is
now included in its database or that such claims would not result in a material
adverse effect on the Company's business, operating results or financial
condition.
The Company is aware that Mr. Phillips has contacted a number of legislators
and government agencies with the intent of instigating government
investigations into the data collection and use practices of the Company. The
Company has had discussions with a number of governmental agencies concerning
these contacts. Based on these discussions, the Company does not believe that
it is currently the subject of any investigation. Mr. Phillips has also given
numerous interviews with the press and issued a number of press releases about
the Company which the Company believes were designed to generate adverse
publicity about the Company. Mr. Phillips has also filed a complaint with the
DMA's Committee on Ethical Practice in which he alleges that certain of the
Company's reference products and services violate the DMA Guidelines for
Ethical Business Practices. The Company, which received a copy of the complaint
in late March 1996, has responded to the complaint and has been informed by the
DMA that it has "closed the case." Mr. Phillips has also been involved with
others in a campaign which is seeking legislation or regulations to ban the
commercial sale of personal information regarding minors and urging individuals
to call the Company to have information on their families removed from the
Company's database and has also raised the possibility that the campaign could
include a boycott against the clients or suppliers of the Company. No assurance
can be given that Mr. Phillips or others will cease these efforts or that
governmental investigations or regulation or adverse publicity or other actions
that adversely affect the Company's business, operating results or financial
condition will not result from these efforts.
The Company is aware of law suits brought by individuals against others in
which such individuals, relying on state statutes, common law or constitutional
privacy doctrines, have asserted ownership of personal identifying information,
such as their names, and requested compensation for inclusion of their names in
solicitation lists. The Company is not aware of any such suits that have been
successful. The Company is unable to predict, however, what future success
plaintiffs in such suits will have and whether such suits will impact the
Company's business.
14
<PAGE>
DEPENDENCE ON PROPRIETARY INFORMATION
The Company's success is in large part dependent upon its proprietary
information and technology. The Company relies on a combination of copyright,
trade secret and contract protection to establish and protect its proprietary
rights in its products and technology. The Company generally enters into
confidentiality agreements with its management and technical staff and limits
access to and distribution of its proprietary information. The Company also has
implemented a number of procedures and controls designed to prohibit
unauthorized access to the Company's computerized database. There can be no
assurance that the steps taken by the Company in this regard will be adequate
to deter misappropriation of its proprietary rights or information or
independent third party development of substantially similar products and
technology. Although the Company believes that its products and technology do
not infringe any proprietary rights of others, the growing use of copyrights
and patents to protect proprietary rights has increased the risk that third
parties will increasingly assert claims of infringement in the future. See
"Business--Proprietary Information."
RISK OF LOSS OF DATA CENTERS OR INTERRUPTION OF TELECOMMUNICATIONS SERVICES
The Company's operations are dependent on its ability to protect its data
centers in Lombard, Illinois and Lincoln, Nebraska against damage from fire,
power loss, telecommunications failure or similar event. The Company has taken
precautions to protect itself from events that could interrupt its operations,
including off-site storage of back-up data, contractual arrangements for back-
up facilities with a leading disaster recovery services company, Halon fire
compression systems in the data centers (which are designed to extinguish a
fire without damaging computer equipment) and, in the case of the Lombard data
center, access to two separate electrical power grids. No assurance can be
given that such precautions will be adequate, and operations may still be
interrupted, even for extended periods. In addition, the on-line services
provided by the Company are dependent on telecommunications links to the
regional Bell operating companies for which the Company currently has no back-
up, although the Company is currently evaluating various back-up options. Any
damage to either data center or any failure of the Company's telecommunication
links that causes interruptions in the Company's operations could have a
material adverse effect on the Company's business, operating results or
financial condition. The Company's property and business interruption insurance
may not be adequate to compensate the Company for all losses that may occur.
See "Business--Technology."
POSTAL RATES AND PAPER PRICES
The direct marketing activity of the Company's clients can be affected by
postal rate changes, especially postal rate increases that are imposed without
sufficient notice to allow clients to adjust their marketing budgets. Increases
in postal rates may lead to fewer mailings of direct marketing materials or to
mailings to fewer addresses or to mailings by a client only to its previous
customers and not to a list of prospects, with a corresponding decline in the
need for certain of the direct marketing services of the type provided by the
Company. Increased rates can also lead to pressure on the Company to reduce
prices for its products and services to offset the postal rate increase.
However, increased mailing costs can cause direct marketers to desire to target
their mailings more carefully, which can result in increased demand for list
development and list enhancement services of the type provided by the Company.
Known or anticipated future postal rate increases may also affect direct
marketing activity by causing direct marketers to accelerate mailings of direct
marketing materials to a time before the increase becomes effective.
The price of paper can also impact the direct marketing activity of certain
of the Company's clients, especially catalogers. In a period of rising paper
prices, catalogers may mail fewer catalogs or may mail to fewer addresses, with
a corresponding decline in the need for list enhancement and lettershop
services of the type provided by the Company. In addition, clients may
aggressively seek price reductions for the services offered by the Company to
offset increased material costs. Although the price of paper can also impact
the profitability of the Company's printed Cole directories, as the Company
might not be able to pass on the full amount of increased costs of producing
the directories to its clients, the Company does not expect that any such
impact would have a material adverse effect on the Company's business,
operating results or financial condition.
15
<PAGE>
GROWTH THROUGH ACQUISITIONS AND NEW PRODUCTS
The Company's business strategy includes growth through acquisitions of
proprietary information and of distribution channels and businesses
complementary to the Company's business. The Company has made a number of
acquisitions in the past and believes that it has been successful in
integrating the acquired assets and businesses into the Company's operations.
There can be no assurance, however, that future acquisitions will be
consummated on acceptable terms or that any acquired assets or business will be
successfully integrated into the Company's operations. The Company may use
Common Stock or Preferred Stock (which could result in dilution to the
purchasers of Common Stock in the Offering) or may incur indebtedness or use a
combination of stock and indebtedness for all or a portion of the consideration
to be paid in future acquisitions. While the Company continuously evaluates
acquisition opportunities, it has no current commitments or agreements with
respect to any material acquisitions.
The Company's business strategy also includes growth through the introduction
of new products or services that leverage the information contained in the
Company's database. There can be no assurance that new products or services
introduced by the Company will achieve acceptance.
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends in large part on the continued service of
its key technical, sales and management personnel and on its ability to
continue to attract, retain and motivate highly qualified personnel, especially
its management and highly skilled software personnel. Competition for such
personnel is intense, and the process of locating key personnel with the
combination of skills and attributes required to execute the Company's strategy
is often lengthy. There can be no assurance that the Company will be able to
attract or retain such personnel in the future, and the inability to do so
could have a material adverse effect upon the Company's business, operating
results or financial condition. See "Business--Employees" and "Management."
ABSENCE OF PRIOR PUBLIC TRADING MARKET; DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the NYSE, subject to
official notice of issuance, there can be no assurance that an active public
market will develop for the Common Stock or that, if such a market develops,
the market price will equal or exceed the initial public offering price set
forth on the cover page of this Prospectus. For a discussion of the factors
that were considered in determining the initial public offering price, see
"Underwriters." The prices at which the Common Stock trades after the Offering
will be determined by the marketplace and may be influenced by many factors,
including, among others, the Company's operating and financial performance, the
depth and liquidity of the market for the Common Stock, future sales of Common
Stock (or the perception thereof), investor perception of the Company and its
prospects, developments in the regulation of the direct marketing industry, the
Company's dividend policy and general economic and market conditions. See
"Shares Eligible for Future Sale."
ANTITAKEOVER MATTERS
The Company's Restated Certificate of Incorporation and By-laws contain
certain provisions that may delay, defer or prevent a takeover of the Company.
The Company's Board of Directors has the authority to issue up to 20,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"),
and to determine the price, rights, preferences and restrictions, including
voting rights, of these shares, without any further vote or action by the
stockholders. The rights of holders of Common Stock will be subject to, and may
be adversely affected by, the rights of holders of any Preferred Stock that may
be issued in the future. The Restated Certificate of Incorporation also
provides for a classified board of directors, with three classes of directors,
each class being elected for three-year, staggered terms, prohibits the removal
of directors except for "cause" and prohibits stockholder action by written
consent. In addition, the Company's By-laws include provisions establishing
advance notice procedures with respect to stockholder proposals and director
nominations and permits the calling of special stockholder meetings only by the
Board of Directors, the Chairman or the President. The Company has elected
(effective March 5, 1997) not to be governed by Section 203 of the General
Corporation Law of the State of Delaware, which, if applicable, would impose a
three-year moratorium on certain business combinations between the Company and
an "interested stockholder" (in general, a stockholder owning 15% or more of
the Company's outstanding voting stock). See "Description of Capital Stock and
Corporate Charter."
16
<PAGE>
PRINCIPAL STOCKHOLDER; POTENTIAL CONFLICTS OF INTEREST; POSSIBLE FUTURE SALES
OF COMMON STOCK BY R.R. DONNELLEY
The net proceeds of the Offering (estimated to be $219.6 million, assuming an
initial public offering price of $19.50 per share and after deducting the
estimated underwriting discount and offering expenses payable by the Company)
will be used to repay a portion of the amounts owed to R.R. Donnelley and its
subsidiaries, which as of March 31, 1996 totalled approximately $249.5 million.
The Company anticipates repaying the remaining balance of the amounts owed to
R.R. Donnelley and its subsidiaries upon closing of the Offering through
borrowings under a $45 million bank credit facility the Company expects to
enter into prior to such closing. See "Use of Proceeds." Upon completion of the
Offering, R.R. Donnelley will hold approximately 41.7% of the outstanding
Common Stock (approximately 38.4% if the U.S. Underwriters exercise their
overallotment option in full). Consequently, R.R. Donnelley will be able to
significantly influence such actions as the election of directors of the
Company, the approval of matters submitted for stockholder approval or
preventing a potential takeover (even if advantageous to the other
stockholders). However, R.R. Donnelley will not have any rights or preferences
as compared to any other stockholder of the Company, other than those it may
have by reason of the number of shares of Common Stock it owns.
Currently, three of the four members of the Board of Directors of the Company
are officers of R.R. Donnelley, one of whom will cease being an officer of R.R.
Donnelley upon completion of the Offering. The Company anticipates that,
following the Offering, the Board of Directors will be increased to six members
and two additional directors who are not affiliated with R.R. Donnelley or the
Company will be elected by the Board of Directors to fill the vacancies.
Prior to the Offering, the Company obtained certain services from, and
provided certain services to, R.R. Donnelley, participated in a number of
employee benefit plans maintained by R.R. Donnelley and was included as part of
R.R. Donnelley's federal income and certain other tax returns. Prior to the
completion of the Offering, the Company will enter into certain agreements with
R.R. Donnelley relating to these matters. None of the agreements to be entered
into by the Company with R.R. Donnelley resulted from "arm's length"
negotiations. In addition, the Company did not retain separate counsel from
that retained by R.R. Donnelley in negotiating such agreements. The Company
believes, however, that the terms of such agreements are at least as favorable
to it as could be obtained from unaffiliated parties for comparable services or
arrangements. These agreements may be modified in the future and additional
arrangements or transactions may be entered into between R.R. Donnelley and the
Company. Any material modifications and any additional agreements or
transactions will be subject to review and approval by the Board of Directors
of the Company, acting pursuant to a special committee comprised of directors
not otherwise affiliated with the Company or R.R. Donnelley. The Company
intends that, insofar as a determination can objectively be made, each future
agreement or transaction between R.R. Donnelley and the Company will be on
terms at least as favorable to the Company as could be obtained from
unaffiliated parties for comparable services or arrangements. Although the
Company and R.R. Donnelley do not currently compete directly with one another
in any material respect, there can be no assurance that they will not do so in
the future. Any officer of R.R. Donnelley who serves as a director of the
Company may have conflicts of interest in addressing business opportunities and
strategies with respect to which the Company's and R.R. Donnelley's interests
differ. Except with respect to agreements and transactions between the Company
and R.R. Donnelley, the Company and R.R. Donnelley have not adopted any formal
procedures designed to assure that conflicts of interest will not occur or to
resolve any such conflicts that do occur. See "Relationship with R.R.
Donnelley."
Subject to the restrictions described below and to applicable law, after
completion of the Offering, R.R. Donnelley may sell any and all of the shares
of Common Stock then owned by it. No prediction can be made as to the effect,
if any, that future sales of Common Stock, or the availability of Common Stock
for future sale, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and the ability of the Company to raise
capital by issuing its equity securities.
17
<PAGE>
R.R. Donnelley has agreed with the Underwriters, subject to certain
exceptions, not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or enter into
any swap or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock, for a period of 180
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. Although R.R. Donnelley in the future may
effect sales of Common Stock that would reduce its ownership interest in the
Company, R.R. Donnelley has advised the Company it has no plans to do so. See
"Relationship with R.R. Donnelley," "Shares Eligible for Future Sale" and
"Underwriters."
DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
an estimated immediate dilution of $17.20 per share. The per share purchase
price of the Common Stock offered hereby will exceed the net tangible book
value per share of the Common Stock immediately following the Offering. See
"Dilution." The net tangible assets of the Company as of March 31, 1996
represent approximately 32.2% of the Company's total assets, which include a
significant amount of goodwill and other intangible assets. See Note 6 of Notes
to Consolidated and Combined Financial Statements of Metromail.
18
<PAGE>
THE COMPANY
Metromail Corporation, a Delaware corporation ("Metromail" or the
"Company"), was incorporated in 1979. It is a successor to several predecessor
businesses, including a list development business that was started in 1946.
The Company became a public company in 1984 and remained so until mid-1987
when it was acquired by R.R. Donnelley. Since R.R. Donnelley's acquisition of
the Company, the Company has made several acquisitions, including the
acquisition in 1994 of the assets of Customer Insight Company, a company that
developed PC-based marketing oriented database solutions. Data by Design, a
database marketing consulting service in the United Kingdom, and International
Communication & Data Plc, a compiler of lists in the United Kingdom primarily
through the use of surveys, were acquired by R.R. Donnelley in 1994 and 1995,
respectively. The Company has managed these United Kingdom operations since
their acquisition by R.R. Donnelley, with ownership being transferred to the
Company in early 1996.
The Company's executive offices are located at 360 East 22nd Street,
Lombard, Illinois 60148 and its telephone number is (708) 620-3300. Its
Internet address is http://www.cyberdirect.com/metromail.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 12,000,000 shares of
Common Stock offered hereby are estimated to be approximately $219.6 million,
assuming an initial public offering price of $19.50 per share and after
deducting the estimated underwriting discount and offering expenses payable by
the Company. The net proceeds will be used to repay a portion of the amounts
owed by the Company to R.R. Donnelley or a subsidiary of R.R. Donnelley. As of
March 31, 1996, the amounts owed to R.R. Donnelley and its subsidiary totalled
approximately $249.5 million, comprised as follows: (i) approximately $160.0
million principal amount of and accrued interest on a promissory note due 1997
issued in 1987 to a subsidiary of R.R. Donnelley that bears interest at the
rate of 9.75% per annum and becomes immediately due and payable upon the
completion of the Offering; (ii) approximately $54.5 million principal amount
of and accrued interest on a promissory note payable on demand to such
subsidiary that bears interest at the prime rate per annum (8.5% as of March
31, 1996); and (iii) certain other intercompany obligations to R.R. Donnelley,
which as of March 31, 1996 totalled approximately $35.0 million. The Company
anticipates repaying the remaining balance of the amounts owed to R.R.
Donnelley and its subsidiary through borrowings under a $45 million bank
credit facility described below which it expects to enter into prior to
consummation of the Offering. If, however, the net proceeds of the Offering
are sufficient to pay all debt and advances owed to R.R. Donnelley and its
subsidiary, any remaining net proceeds will be used, first, to repay debt owed
by ICD under a revolving credit agreement that bears interest per annum at
LIBOR plus 1/4% (6.35% as of March 31, 1996), which totalled approximately
$3.8 million as of March 31, 1996, and, second, for general corporate
purposes, including working capital. Pending such uses, the net proceeds of
the Offering may be invested in short-term interest-bearing securities. See
Notes 11 and 12 of Notes to Consolidated and Combined Financial Statements of
Metromail.
The Company expects to enter into a credit agreement with a syndicate of
banks (the "Credit Agreement") under which it will be entitled to borrow up to
$45 million on a revolving credit basis after certain conditions precedent are
satisfied, including without limitation the consummation of the Offering.
Borrowings under the Credit Agreement will mature in five years and will bear
interest (i) at the prime rate announced by the bank acting as agent for the
syndicate, (ii) at the applicable LIBOR rate plus, depending on the Company's
leverage ratio and fixed charge coverage ratio, up to 42.5 basis points per
annum, or (iii) at a rate determined by competitive bidding. In addition, the
Company will pay a facility fee of 10 to 15 basis points per annum, depending
on the foregoing financial ratios. The Credit Agreement will contain certain
covenants, including, among other things, requirements to maintain a minimum
net worth, a leverage ratio and a fixed charge ratio and restrictions on
liens, investments, sales of assets and transactions with affiliates.
19
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and advances and total
capitalization of the Company (i) as of March 31, 1996 and (ii) pro forma as
adjusted to give effect to the issuance and sale of 12,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $19.50 per
share and the application of the estimated net proceeds therefrom together
with, to the extent necessary, borrowings under a bank credit facility to be
entered into by the Company upon consummation of the Offering to the repayment
of the debt and advances owed to R.R. Donnelley and its subsidiaries. See "Use
of Proceeds." This table should be read in conjunction with the Consolidated
and Combined Financial Statements of Metromail and the Unaudited Pro Forma
Financial Information and the related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------
PRO FORMA
AS
ACTUAL ADJUSTED
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and advances, primarily due to related
party..................................................... $253,290 $ --
======== ========
Long-term debt(1).......................................... $ -- $ 34,222
Shareholders' equity:
Common Stock--Metromail, $.01 par value, 75,000,000
shares authorized; 8,600,000 issued and
outstanding and 20,600,000 shares issued
and outstanding, as adjusted(2)......................... 86 206
Additional paid-in capital............................... 111,779 331,289
Retained deficit......................................... (29,262) (29,262)
-------- --------
Total shareholders' equity............................. 82,603 302,233
-------- --------
Total capitalization................................... $ 82,603 $336,455
======== ========
</TABLE>
- --------
(1) The Company expects to establish a $45 million bank credit facility at the
time of the closing of the Offering, which will be used to repay any
remaining balance of debt and advances owed to R.R. Donnelley and its
subsidiaries after application of the assumed net proceeds of the Offering.
See "Use of Proceeds."
(2) Excludes 1,600,000 shares of Common Stock reserved for issuance under the
Company's 1996 Stock Incentive Plan and 1996 Broad-Based Employee Stock
Plan, including 34,000 shares of restricted Common Stock and options to
purchase an aggregate of approximately 1,300,000 shares of Common Stock (at
the initial public offering price set forth on the cover page of this
Prospectus) that the Company expects to grant to employees in connection
with the Offering. See "Management--Stock Plans," "Management--Employment
Agreements" and Notes to Consolidated and Combined Financial Statements of
Metromail.
20
<PAGE>
DIVIDEND POLICY
The Company currently intends to retain earnings to finance the growth of its
business and therefore does not intend to pay any cash dividends for the
foreseeable future. Payment of any cash dividends in the future will depend on
the Company's results of operations, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors of the Company. Any
credit facility entered into by the Company may contain restrictions on the
Company's payment of cash dividends. The Company has not paid any cash
dividends in the last two fiscal years.
DILUTION
The net tangible book value of the Company as of March 31, 1996 was $(172.2)
million, or $(20.02) per share of Common Stock. See "Capitalization." Net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale of the 12,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $19.50 per share (less the estimated underwriting discount and offering
expenses payable by the Company) and the application of the estimated net
proceeds therefrom as if such sale and application occurred on March 31, 1996,
the pro forma as adjusted net tangible book value of the Company at such date
would have been approximately $47.5 million or $2.30 per share. This represents
an immediate increase in net tangible book value of $22.32 per share to R.R.
Donnelley and an immediate dilution of $17.20 per share to the purchasers of
shares of Common Stock in the Offering. "Dilution" per share is determined by
subtracting pro forma net tangible book value per share from the amount paid
for a share of Common Stock in the Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $19.50
Net tangible book value per share before the Offering.. $(20.02)
Increase in net tangible book value per share
attributable to the Offering.......................... 22.32
-------
Pro forma net tangible book value per share after giving
effect to the Offering.................................. 2.30
------
Dilution per share to purchasers of Common Stock in the
Offering................................................ $17.20
======
</TABLE>
21
<PAGE>
SELECTED CONSOLIDATED AND COMBINED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and pro forma consolidated
and combined financial and other data of the Company. Statement of operations
data for each of the three years in the period ended December 31, 1995 and
balance sheet data as of December 31, 1994 and 1995 have been derived from the
audited consolidated and combined financial statements of the Company contained
herein. Statement of operations data for the three month periods ended March
31, 1995 and 1996, respectively, and balance sheet data as of March 31, 1996
have been derived from the unaudited consolidated and combined financial
statements of the Company contained herein. Statement of operations data for
each of the two years in the period ended December 31, 1992, balance sheet data
as of December 31, 1991, 1992 and 1993 and other data are derived from
unaudited information. The unaudited financial data includes all adjustments
that the Company considers necessary for a fair presentation of the
consolidated and combined financial position and consolidated and combined
results of operations for the periods reflected therein. The pro forma
financial information set forth below includes adjustments based on available
information and upon certain assumptions the Company believes are reasonable.
The pro forma financial information set forth below does not purport to
represent what the Company's results of operations or financial position would
actually have been or to project the Company's results of operations or
financial position for any future period.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Financial Information" and Consolidated and
Combined Financial Statements of Metromail and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------- --------------------------------------
AS AS
ACTUAL ADJUSTED ACTUAL ADJUSTED
----------------------------------------------- -------- ---------------------- ------------
1991 1992 1993 1994(1) 1995(1) 1995(2) 1995 1996 1996(2)
-------- -------- -------- -------- -------- -------- --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND WHERE NOTED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Direct marketing
sales................. $114,871 $120,364 $127,683 $156,806 $189,713 $194,768 $ 38,860 $ 41,894 $ 41,894
Reference sales........ 30,394 33,317 36,032 38,665 47,474 47,474 10,972 12,475 12,475
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Total net sales...... 145,265 153,681 163,715 195,471 237,187 242,242 49,832 54,369 54,369
Database and
production costs...... 88,945 86,184 95,016 108,806 134,361 135,197(3) 30,279(3) 33,606(3) 33,431 (3)
Amortization of
goodwill.............. 6,054 6,054 6,054 6,608 7,446 7,571 1,790 1,889 1,889
Selling expenses....... 26,211 26,252 29,625 37,107 45,913 47,407(3) 10,345(3) 11,821(3) 11,946 (3)
General and
administrative
expenses.............. 15,919 13,232 12,372 14,408 16,645 20,183(3) 3,898(3) 4,909(3) 5,409 (3)
Provisions for
doubtful accounts..... 1,584 1,798 1,959 1,848 2,180 2,281 425 419 419
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Earnings (loss) from
operations.......... 6,552 20,161 18,689 26,694 30,642 29,603 3,095 1,725 1,275
Interest expense--
related party......... 22,898 21,337 22,112 18,999 21,329 -- 4,968 5,345 --
Interest expense....... -- -- -- -- 80 814 -- 60 456
Other expense
(income)--net......... (120) (57) (138) 24 (87) (87) (10) (5) (5)
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Earnings (loss)
before income taxes. (16,226) (1,119) (3,285) 7,671 9,320 28,876 (1,863) (3,675) 824
Income taxes........... (4,069) 2,034 1,181 5,684 6,585 14,485 (130) (788) 1,030
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Net income (loss)
from operations
before cumulative
effect of accounting
change.............. (12,157) (3,153) (4,466) 1,987 2,735 14,391 (1,733) (2,887) (205)
Cumulative after-tax
effect of change in
accounting for post
retirement benefits
other than pensions... -- -- 4,388 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------- --------- ---------
Net income (loss).... $(12,157) $ (3,153) $ (8,854) $ 1,987 $ 2,735 $ 14,391 $ (1,733) $ (2,887) $ (205)
======== ======== ======== ======== ======== ======== ========= ========= =========
Pro forma net income $ .70(4) $ (.01)(4)
(loss) per share.... ======== =========
BALANCE SHEET DATA (AT
END OF PERIODS):
Total assets........... $291,707 $289,353 $293,691 $328,768 $378,721 $ 320,348 $ 375,678 $ 375,678
Total debt............. 186,396 187,863 202,503 219,737 250,376 215,730 253,290 34,222
Total shareholders'
equity................ 88,424 84,739 75,872 78,959 85,392 77,226 82,603 302,233
OTHER DATA (FOR OR AT
END OF PERIODS):
Capital expenditures... $ 7,699 $ 3,117 $ 13,426 $ 9,940 $ 28,459 $ 6,877 $ 7,860
Depreciation and
amortization.......... 12,780 11,596 13,143 14,781 20,851 4,774 5,437
Computer processing
capacity (in MIPS).... 112 123 185 280 396 280 396
Number of individuals
in database........... 132,839 130,122 138,709 146,276 146,579 143,156 143,770
Number of households
in database........... 92,268 92,362 92,859 95,130 94,958 95,465 95,770
</TABLE>
- -------
(1) In 1994, the Company purchased Customer Insight Company for approximately
$20.0 million. In 1995, an affiliate of R.R. Donnelley acquired
International Communication & Data Plc for approximately $15.3 million. See
Notes 1 and 14 of Notes to Consolidated and Combined Financial Statements
of Metromail.
(2) For a detailed description of the adjustments to these unaudited pro forma
consolidated and combined statements of operations and balance sheet, see
"Unaudited Pro Forma Financial Information."
(3) The costs for retiree medical benefits for all Company employees have been
reported in the Company's historical results of operations. R.R. Donnelley
has agreed upon consummation of the Offering to assume liability related to
122 retired and 93 current employees of the Company who met the eligibility
requirements (55 years of age and 10 years of service) for those benefits.
Earnings from operations reflect the inclusion of $0.7 million of retiree
medical costs associated with these employees for the year ended December
31, 1995 and $0.175 million for the three months ended March 31, 1996. The
retiree medical costs paid by R.R. Donnelley will not affect the cash flows
of the Company.
(4) Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) for the year ended December 31, 1995 and the three months
ended March 31, 1996 by the pro forma weighted average shares outstanding
during such periods of 20,600,000.
22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated and combined statements of operations
for the year ended December 31, 1995 and the three months ended March 31, 1996
set forth below illustrate: (i) the effects of the historical estimated results
of operations (under the Company's accounting policies) of International
Communication & Data Plc ("ICD") for the period from January 1, 1995 to April
30, 1995, the date on which ICD was acquired by an affiliate of the Company;
(ii) the estimated net operating effects resulting from the Company being a
public entity, which include pricing of certain services the Company will
provide to and receive from R.R. Donnelley after the Offering under certain
intercompany agreements, as well as other incremental public company expenses;
and (iii) the Offering being consummated and the assumed net proceeds therefrom
together with, to the extent necessary, borrowings under a bank credit facility
to be entered into by the Company prior to consummation of the Offering being
used to repay the debt and advances owed to R.R. Donnelley and its subsidiaries
at January 1, 1995, resulting in (a) the elimination of interest expense
associated with the debt and advances owed to R.R. Donnelley and its
subsidiaries and (b) additional interest expense related to borrowings under
the facility described in clause (iii) and to finance operating and investing
activities in 1995 and in the three months ended March 31, 1996. The pro forma
adjustments are based on available information and upon certain assumptions the
Company believes are reasonable. The pro forma consolidated and combined
statements of operations do not purport to represent what the Company's results
of operations would actually have been or to project the Company's results of
operations for any future period.
The unaudited pro forma consolidated and combined balance sheet as of March
31, 1996 set forth below illustrates the assumed net proceeds of the Offering
and borrowings under the bank credit facility described above being used to
repay the debt and advances due to R.R. Donnelley and its subsidiaries at March
31, 1996. The pro forma consolidated and combined balance sheet does not
purport to represent what the Company's financial position would actually have
been or to project the Company's financial position for any future date.
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------
ICD OPERATING CAPITAL
OPERATING STRUCTURE STRUCTURE AS
ACTUAL ADJUSTMENTS(1) ADJUSTMENTS ADJUSTMENTS ADJUSTED
-------- -------------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Direct marketing sales.. $189,713 $5,055 $ -- $ -- $194,768
Reference sales......... 47,474 -- -- -- 47,474
-------- ------ ------- ------- --------
Total net sales....... 237,187 5,055 -- -- 242,242
Database and production
costs.................. 134,361(2) 1,536 (700)(3) -- 135,197
Amortization of
goodwill............... 7,446 125 -- -- 7,571
Selling expenses........ 45,913(2) 994 500 (4) -- 47,407
General and
administrative
expenses............... 16,645(2) 1,738 1,800 (5) -- 20,183
Provisions for doubtful
accounts............... 2,180 101 -- -- 2,281
-------- ------ ------- ------- --------
Earnings from
operations........... 30,642 561 (1,600) -- 29,603
Interest expense--
related party.......... 21,329 -- -- (21,329)(6) --
Interest expense........ 80 -- -- 734 (6) 814
Other expense (income)--
net.................... (87) -- -- -- (87)
-------- ------ ------- ------- --------
Earnings before income
taxes................ 9,320 561 (1,600) 20,595 28,876
Income taxes............ 6,585 226(7) (646)(7) 8,320 (7) 14,485
-------- ------ ------- ------- --------
Net income ........... $ 2,735 $ 335 $ (954) $12,275 $ 14,391
======== ====== ======= ======= ========
Pro forma net income
per share ........... $ .70 (8)
========
</TABLE>
- --------
(1) Represents the estimated results of operations of ICD from January 1, 1995
through April 30, 1995 under the Company's accounting policies, which
provide for amortization of certain database assets over a shorter period
than provided for by ICD prior to its acquisition by R.R. Donnelley. The
amounts set forth for such results of operations were translated from
British pounds into United States dollars using an average exchange rate
of 1 to 1.56.
(2) The costs for retiree medical benefits for all Company employees have been
reported in the Company's historical results of operations. R.R. Donnelley
has agreed upon consummation of the Offering to assume liability related
to 122 retired and 93 current employees of the Company who met the
eligibility requirements (55 years of age and 10 years of service) for
those benefits. Earnings from operations reflect the inclusion of $0.7
million of retiree medical costs associated with these employees for the
year ended December 31, 1995.
(3) Represents the estimated amount of decreased database and production costs
of $0.7 million resulting from the increased charges for computer services
to be provided by Metromail to R.R. Donnelley after the Offering pursuant
to a certain intercompany agreement.
(4) Represents the estimated amount of additional sales commissions of $0.5
million payable by the Company to R.R. Donnelley pursuant to a certain
intercompany agreement relating to sales to clients of the Company that
are also clients of R.R. Donnelley.
(5) Represents the estimated amount of $1.8 million for senior management,
which includes amounts payable under employment agreements with new and
existing senior management, and for administrative support functions
associated with the Company being a public entity after the Offering. See
"Management--Employment Agreements."
(6) Represents (i) the elimination of related-party interest expense as a
result of the application of the assumed net proceeds of the Offering
together with, to the extent necessary, borrowings under a bank credit
facility to repay the debt and advances owed to R.R. Donnelley and its
subsidiaries at January 1, 1995 and (ii) additional interest expense of
$0.7 million related to borrowings under such facility described in clause
(i) and to finance 1995 operating and investing activities. Interest
expenses of $0.8 million reflects an interest rate of 6.12% on estimated
weighted average borrowings of $13 million, primarily due to the
acquisition of ICD in May 1995. Such interest rate was calculated in
accordance with the terms of the bank credit facility the Company expects
to enter into prior to the consummation of the Offering based on three-
month LIBOR at June 4, 1996 of 5.54%, plus 25 basis points (which is the
applicable spread under such facility based upon the level of borrowing)
and the effective rate of the facility fee (determined using the interest
method of amortization). A change in the interest rate of 0.125% per annum
would result in a change of $0.016 million in interest expenses. Weighted
average borrowings are determined by adding (i) the assumed net proceeds
from the Offering less short-term debt and short-term debt and advances--
due to related parties as of the beginning of the period and (ii) the
estimated average amount required to fund the excess of net cash needed
for investing activities over pro forma net cash provided by operating
activities. Pro forma net cash provided by operating activities is
determined by adding net income from the capital structure adjustments
column to operating cash flow. See "Use of Proceeds."
(7) Taxes are provided on income at the appropriate statutory rates as
follows: (i) 33.0% (the U.K. statutory rate) on the sum of the following
ICD operating adjustments: (a) pretax income and (b) goodwill amortization
expense of approximately $0.13 million, which is non-deductible for tax
purposes; and (ii) 40.4%, the combined statutory federal and state rate on
operating and capital structure adjustments.
(8) Pro forma net income per share is computed by dividing pro forma net
income by the pro forma weighted average shares outstanding during 1995 of
20,600,000.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------
OPERATING CAPITAL
STRUCTURE STRUCTURE AS
ACTUAL ADJUSTMENTS ADJUSTMENTS ADJUSTED
------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Direct marketing sales... $41,894 $ -- $ -- $41,894
Reference sales.......... 12,475 -- -- 12,475
------- ----- ------ -------
Total net sales........ 54,369 -- -- 54,369
Database and production
costs................... 33,606 (1) (175)(2) -- 33,431 (1)
Amortization of goodwill. 1,889 -- -- 1,889
Selling expenses......... 11,821 (1) 125 (3) -- 11,946 (1)
General and
administrative expenses. 4,909 (1) 500 (4) -- 5,409 (1)
Provisions for doubtful
accounts................ 419 -- -- 419
------- ----- ------ -------
Earnings (loss) from
operations............ 1,725 (450) -- 1,275
Interest expense--related
party................... 5,345 -- (5,345)(5) --
Interest expense......... 60 -- 396 (5) 456
Other expense (income)--
net..................... (5) -- -- (5)
------- ----- ------ -------
Loss before income
taxes................. (3,675) (450) 4,949 824
Income taxes............. (788) (182)(6) 2,000 (6) 1,030
------- ----- ------ -------
Net loss .............. $(2,887) $(268) $2,950 $ (205)
======= ===== ====== =======
Pro forma net loss per
share ................ $ (.01)(7)
=======
</TABLE>
- --------
(1) The costs for retiree medical benefits for all Company employees have been
reported in the Company's historical results of operations. R.R. Donnelley
has agreed upon consummation of the Offering to assume liability related
to 122 retired and 93 current employees of the Company who met the
eligibility requirements (55 years of age and 10 years of service) for
those benefits. Earnings from operations reflect the inclusion of $0.175
million of retiree medical costs associated with these employees for the
three months ended March 31, 1996. The costs paid by R.R. Donnelley will
not affect the cash flows of the Company; however, applicable accounting
principles require the Company to recognize such costs as incurred and
apply all R.R. Donnelley payments in respect of such costs to additional
paid-in capital.
(2) Represents the estimated amount of decreased database and production costs
of $0.175 million resulting from the increased charges for computer
services to be provided by Metromail to R.R. Donnelley after the Offering
pursuant to a certain intercompany agreement.
(3) Represents the estimated amount of additional sales commissions of $0.125
million payable by the Company to R.R. Donnelley pursuant to a certain
intercompany agreement relating to sales to clients of the Company that
are also clients of R.R. Donnelley.
(4) Represents (i) the estimated amount of $0.450 million for senior
management, which includes amounts payable under employment agreements
with new and existing senior management, and for administrative support
functions associated with the Company being a public entity after the
Offering; and (ii) increased amortization expense of $0.05 million due to
the acceleration of a non-compete agreement with a retired executive
concurrent with the closing of the Offering. See "Management--Employment
Agreements" and "--Agreement with Retired Executive."
(5) Represents (i) the elimination of related-party interest expense as a
result of the application of the assumed net proceeds of the Offering
together with, to the extent necessary, borrowings under a bank credit
facility to repay the debt and advances owed to R.R. Donnelley and its
subsidiaries at January 1, 1996 and (ii) additional interest expense of
$0.396 million related to borrowings under such facility described in
clause (c) and to finance operating and investing activities for the three
months ended March 31, 1996. Interest expense of $0.456 million reflects
an interest rate of 5.98% on estimated weighted average borrowings of
$30.5 million. Such interest rate was calculated in accordance with the
terms of the bank credit facility the Company expects to enter into prior
to the consummation of the Offering based on three-month LIBOR at June 4,
1996 of 5.54%, plus 30 basis points (which is the applicable spread under
such facility based upon the level of borrowing) and the effective rate of
the facility fee (determined using the interest method of amortization). A
change in the interest rate of 0.125% per annum would result in a change
of $0.009 million in interest expenses. Weighted average borrowings are
determined by adding (i) the assumed net proceeds from the Offering less
short-term debt and short-term debt and advances--due to related parties
as of the beginning of the period and (ii) the estimated average amount
required to fund the excess of net cash used for investing activities over
pro forma net cash provided by operating activities. Pro forma net cash
provided by operating activities is determined by adding net income from
the capital structure adjustments column to operating cash flow. See "Use
of Proceeds."
(6) Taxes are provided on income at the appropriate statutory rate of 40.4%,
the combined statutory federal and state rate on operating and capital
structure adjustments.
(7) Pro forma net loss per share is computed by dividing pro forma net income
by the pro forma weighted average shares outstanding during the three
months ended March 31, 1996 of 20,600,000.
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------------------------
DEBT AS
ACTUAL OFFERING(1) REPAYMENT(2) OTHER(3) ADJUSTED
-------- -------- --------- ----- --------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and equivalents.... $ -- $219,630 $(219,630) $ -- $ --
Receivables, less sales
allowances and
allowances for doubtful
accounts of $3,984..... 59,398 -- -- -- 59,398
Inventories............. 7,067 -- -- -- 7,067
Prepaid expenses........ 8,538 -- -- -- 8,538
Current deferred income
taxes.................. 625 -- -- -- 625
-------- -------- --------- ----- --------
Total current
assets............. 75,628 219,630 (219,630) -- 75,628
Net property, plant and
equipment, at cost,
less accumulated
depreciation of
$45,133................ 37,712 -- -- -- 37,712
Goodwill and other
intangibles, net of
accumulated
amortization of
$69,472................ 254,782 -- -- -- 254,782
Deferred income taxes... 149 -- -- -- 149
Other assets............ 7,407 -- -- -- 7,407
-------- -------- --------- ----- --------
Total assets........ $375,678 $219,630 $(219,630) $ -- $375,678
======== ======== ========= ===== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Accounts payable........ $ 4,882 $ -- $ -- $ -- $ 4,882
Accrued compensation.... 4,801 -- -- (100) 4,701
Short-term debt......... 3,840 -- (3,840) -- --
Short-term debt and
advances--due to
related parties........ 249,450 -- (249,450) -- --
Deferred revenue........ 5,436 -- -- -- 5,436
Other accrued
liabilities............ 18,806 -- -- -- 18,806
-------- -------- --------- ----- --------
Total current
liabilities........ 287,215 -- (253,290) (100) 33,825
Long-term debt.......... -- -- 33,660 562 34,222
Other noncurrent
liabilities............ 5,860 -- -- (462) 5,398
Shareholders' equity
Common stock--
Metromail............ 86 120 -- -- 206
Additional paid-in
capital.............. 111,779 219,510 -- -- 331,289
Retained deficit
(includes cumulative
adjustment for
currency translation
of $(139))........... (29,262) -- -- -- (29,262)
-------- -------- --------- ----- --------
Total shareholders'
equity............. 82,603 219,630 -- -- 302,233
-------- -------- --------- ----- --------
Total liabilities
and shareholders'
equity............. $375,678 $219,630 $(219,630) $ -- $375,678
======== ======== ========= ===== ========
</TABLE>
- --------
(1) Represents the assumed net proceeds of the Offering. See "Use of Proceeds."
(2) Represents payment of the debt and advances owed to R.R. Donnelley and its
subsidiaries on March 31, 1996. The Company expects to establish a $45
million bank credit facility prior to the consummation of the Offering,
which the Company expects to use to pay the debt and advances due to R.R.
Donnelley and its subsidiaries and any other short-term debt remaining
after the application of the assumed net proceeds of the Offering. See "Use
of Proceeds."
(3) Represents the payment of a non-compete agreement with a retired executive
accelerated as a result of the change in control concurrent with the
closing of the Offering. See "Management--Agreement with Retired
Executive."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Overview
Metromail is a leading provider of services to organizations engaged in
direct mail, telephone and target marketing and also provides reference and
information services. The Company was acquired by R.R. Donnelley in 1987 and is
wholly owned by R.R. Donnelley.
The Company provides direct marketing services to clients that include
consumer goods manufacturers, credit card companies, financial institutions,
insurance companies, magazine and book publishers, mail order houses and
catalogers, pharmaceutical companies and retailers. Direct marketing services
accounted for 78.0%, 80.2% and 80.0% of the Company's total net sales in the
years ended December 31, 1993, 1994 and 1995, respectively. The direct
marketing services provided by the Company include list development, list
enhancement, marketing database and personalization printing and lettershop
services. See "Business."
The Company's reference services comprised 22.0%, 19.8% and 20.0% of total
net sales in 1993, 1994 and 1995, respectively. The reference services provided
by the Company include a National Directory Assistance ("NDA") database for on-
line or operator-assistance providers; an on-line look-up/skip-locate service
for collection agencies, consumer finance companies and credit card issuers;
and the Cole directories, which list households in sequence, by telephone
number or address, in approximately 150 markets in the United States and
Canada, delivered in printed form or on CD-ROM. See "Business."
The Company's business is based on long-standing client relationships.
Although sales are not guaranteed under long-term contracts, a substantial
portion of the Company's net sales is derived from clients that the Company has
served for many years. The Company has had a continuing business relationship
with each of its top 25 clients in 1995 for five or more years. Net sales to
the top 25 clients amounted to $57.2 million in 1993, $65.9 million in 1994 and
$68.6 million in 1995. Net sales to the top 25 clients accounted for 34.9%,
33.7% and 28.9% of total net sales in 1993, 1994 and 1995, respectively, as the
Company expanded into new products and services across all operations. No
single client accounted for more than 10% of total net sales in any of these
years. The Company's business is somewhat seasonal. See "--Quarterly Results"
and "Risk Factors--Absence of Long-Term Contracts; Lack of Predictability of
Sales; Fluctuations in Operating Results."
The Company's operating results are affected by certain trends and
occurrences in the economy and its industry environment. Economic cycles which
affect consumer demand are generally reflected in the Company's sales as direct
marketing clients reduce the extent of their activities. The effect of economic
cycles on the Company's profits may be pronounced because a significant portion
of the Company's expenses is fixed. The direct marketing activity of the
Company's clients can be affected by postal rate changes, especially postal
rate increases that are imposed without sufficient notice to allow clients to
adjust their marketing budgets. Increases in postal rates may lead to fewer
mailings of direct marketing materials or to mailings to fewer addresses or to
mailings by a client only to its previous customers and not to a list of
prospects, with a corresponding decline in the need for certain of the direct
marketing services of the type provided by the Company. Increased rates can
also lead to pressure on the Company to reduce prices for its products and
services to offset the postal rate increase. However, increased mailing costs
can cause direct marketers to desire to target their mailings more carefully,
which can result in increased demand for list development and list enhancement
services of the type provided by the Company.
Relationship with R.R. Donnelley
In 1987, R.R. Donnelley acquired the Company in a business combination
accounted for using the purchase method, resulting in the restatement of
Metromail's assets and liabilities to their estimated fair values at the date
of acquisition. The excess of the purchase price over the fair value of the net
assets of the Company was recorded
27
<PAGE>
as goodwill of $242.2 million and is being amortized on a straight-line basis
over its estimated useful life of 40 years.
As of March 31, 1996, the Company had debt and advances payable to R.R.
Donnelley and its subsidiaries totalling approximately $249.5 million, of
which approximately $180.0 million was incurred in connection with R.R.
Donnelley's acquisition of the Company. The debt payable to R.R. Donnelley as
of March 31, 1996 consisted of a Grid Note in the principal amount, together
with accrued interest, of approximately $54.5 million and a Fixed Note in the
principal amount of $160.0 million. The advances payable to R.R. Donnelley and
its subsidiaries, which were approximately $35.0 million as of March 31, 1996,
represent advances from R.R. Donnelley and its subsidiaries to fund operating
and investing activities, net of cash advanced to R.R. Donnelley from
operating cash flows generated by the Company and receivables resulting from
certain sales through R.R. Donnelley. Such advances are periodically
transferred by R.R. Donnelley into the Grid Note. See Note 11 of Notes to
Consolidated and Combined Financial Statements of Metromail.
Since the acquisition, the Company has operated as a separate business
within R.R. Donnelley. The Company has relied on R.R. Donnelley for its
financing needs (see further discussion under "Liquidity and Capital
Resources"), preparation of income tax returns, administration of employee
welfare benefit plans and certain legal and administrative support services.
The Company has maintained its own operating support functions, including
strategic management, accounting, payroll and incentive compensation
functions.
The consolidated and combined financial statements discussed below reflect
the results of operations, financial position and cash flows of the Company
and its subsidiaries on a carve-out basis; that is, the financial statements
have been adjusted to reflect certain expenses and liabilities incurred by
R.R. Donnelley on behalf of the Company. The Company believes that the
assumptions underlying all such adjustments are reasonable; however, the
consolidated and combined financial statements do not necessarily reflect the
results of operations, financial position and cash flows of the Company and
its subsidiaries had the Company operated as a separate entity during the
periods presented.
The Company has obtained a substantial portion of its working capital and
financing needs through amounts borrowed from a subsidiary of R.R. Donnelley.
All of the net proceeds of the Offering, together with, to the extent
necessary, borrowings under a bank credit facility to be entered into by the
Company prior to consummation of the Offering, will be used to repay these
amounts. Interest expense recorded in the consolidated and combined financial
statements primarily reflects interest incurred on borrowings from a
subsidiary of R.R. Donnelley. Income taxes reflected in the consolidated and
combined financial statements were determined as if the Company had filed a
separate return.
Acquisitions
In June 1994, the Company acquired CIC, a company that developed PC-based
marketing oriented database solutions, for approximately $20.0 million. As of
May 1995, the common stock of ICD, a compiler of lists in the United Kingdom
primarily through the use of surveys, was purchased for approximately $15.3
million to expand database coverage to include the United Kingdom. The
acquisitions of CIC and ICD were each accounted for as a purchase with the
results of operations included in the Company's consolidated and combined
financial statements from the acquisition date. Goodwill resulting from the
CIC and ICD acquisitions was $16.8 million and $14.7 million, respectively,
and is being amortized over their estimated useful life of 15 and 40 years,
respectively.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
and combined statements of operations as a percentage of total net sales for
the periods indicated.
28
<PAGE>
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- -------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Direct marketing sales............ 78.0% 80.2% 80.0% 78.0% 77.1%
Reference sales................... 22.0 19.8 20.0 22.0 22.9
----- ----- ----- ----- -----
Total net sales................. 100.0 100.0 100.0 100.0 100.0
Database and production costs..... 58.0 55.7 56.7 60.8 61.8
Amortization of goodwill.......... 3.7 3.4 3.1 3.6 3.5
Selling expenses.................. 18.1 19.0 19.4 20.8 21.7
General and administrative
expenses......................... 7.6 7.4 7.0 7.8 9.0
Provisions for doubtful accounts.. 1.2 0.9 0.9 0.9 0.8
----- ----- ----- ----- -----
Total operating expenses........ 88.6 86.4 87.1 93.8 96.8
----- ----- ----- ----- -----
Earnings from operations...... 11.4 13.6 12.9 6.2 3.2
----- ----- ----- ----- -----
Interest and other expense, net... 13.4 9.7 9.0 9.9 9.9
----- ----- ----- ----- -----
Earnings (loss) before income
taxes........................ (2.0) 3.9 3.9 (3.7) (6.7)
Income taxes...................... 0.7 2.9 2.7 (0.2) (1.4)
----- ----- ----- ----- -----
Net income (loss) from
operations before cumulative
effect of accounting change.. (2.7)% 1.0% 1.2% (3.5)% (5.3)%
===== ===== ===== ===== =====
</TABLE>
Three months ended March 31, 1996 compared to three months ended March 31,
1995
Total net sales increased 9.2% to $54.4 million for the first three months of
1996 from $49.8 million for the first three months of 1995. This $4.6 million
increase was comprised of a $3.0 million, or 7.7%, increase in direct marketing
sales and a $1.6 million, or 14.5%, increase in reference sales. Direct
marketing sales growth resulted primarily from increased sales of marketing
database software and the BehaviorBank list product and the inclusion in 1996
of the net sales of ICD, which was acquired in May 1995. Marketing database
software sales grew $0.9 million, or 33.7%, over the first quarter of 1995 due
to growing demand for the AnalytiX product. The inclusion of ICD added net
sales of $1.4 million. BehaviorBank list product sales grew $0.7 million, or
70.1%, reflecting growth in the size of the database and strong demand. List
development sales were flat reflecting a 12% increase in small business sales
offset by a decrease in list sales to national accounts due primarily to
clients shifting their work to later in the year. The growth in reference sales
was principally due to growth of 34.7% in the Company's MetroNet and NDA on-
line services, while directory publishing services grew 3.8% from increased
sales of CD-ROM products.
Database and production costs primarily represent expenses incurred to
maintain the Company's database and customize data for client use, including
salaries and wages, amortization of capitalized data costs, facility costs and
depreciation of equipment. Database and production costs increased for the
first three months of 1996 to $33.6 million, or 61.8% as a percentage of total
net sales, from $30.3 million for the first three months of 1995, or 60.8% as a
percentage of total net sales, primarily due to increased expenses related to
an upgrade of computer capacity and growth in the NDA service, addition of ICD
expenses and increased survey data amortization expense.
Amortization of goodwill increased 5.5% to $1.9 million for the first three
months of 1996. This increase reflected the increased goodwill related to the
acquisition of ICD.
Selling expenses increased $1.5 million, or 14.6%, from the first three
months of 1995 and as a percentage of total net sales to 21.7% for the first
three months of 1996 from 20.8% for the first three months of 1995. The
increase in selling expenses as a percentage of total net sales resulted
primarily from the acquisition of ICD and
29
<PAGE>
increased costs due to sales increases in the marketing database software,
survey and small business operations where selling expenses as a percentage of
net sales is higher than for the Company's other operations.
General and administrative expenses grew $1.0 million, or 25.6%, from the
first three months of 1995, an increase as a percentage of total net sales from
7.8% to 9.0% for the first three months of 1996. The increase in these expenses
resulted from the acquisition of ICD and increased staff costs and outside
services.
Provisions for doubtful accounts were substantially unchanged from the first
three months of 1995, but decreased to 0.8% as a percentage of total net sales
for the first three months of 1996.
On April 18, 1996, a lawsuit was filed against the Company and others. See
"Risk Factors--Litigation and Government Inquiries with Respect to Use of
Data." Because this lawsuit is in its early stages, it is not possible for the
Company to make a meaningful determination of the ultimate outcome or to make
an estimate of the loss, if any, should the outcome be unfavorable. The Company
estimates that its cost of litigating the case will be $1.5 million. R.R.
Donnelley has agreed to pay the legal fees and expenses incurred by the Company
in defending this case. The costs for retiree medical benefits for all Company
employees have been reported in the Company's historical results of operations.
R.R. Donnelley has agreed upon consummation of the Offering to assume liability
related to 122 retired and 93 current employees of the Company who met the
eligibility requirements (55 years of age and 10 years of service) for those
benefits. Earnings from operations reflect the inclusion of $0.7 million of
retiree medical costs associated with these employees for the year ended
December 31, 1995 and $0.175 million of such costs for the three months ended
March 31, 1996. Because of the agreement of R.R. Donnelley to pay such legal
fees and expenses and such retiree medical costs, such legal fees and expenses
and retiree medical costs will not affect the cash flows of the Company;
however, applicable accounting principles require the Company to recognize such
expenses as incurred and apply all R.R. Donnelley payments in respect of such
expenses to additional paid-in capital.
Interest expense, primarily paid to a subsidiary of R.R. Donnelley, increased
by $0.4 million because the Company had higher average outstanding debt levels
for the first three months of 1996. The higher debt levels were required to
acquire ICD and provide additional short-term working capital funding.
The Company's tax benefit increased to $0.8 million for the first three
months of 1996 from $0.1 million for the first three months of 1995. The
increase in the benefit for the first three months of 1996 reflects the
increased loss before income taxes.
Net income decreased $1.2 million to a loss of $2.9 million for the first
three months of 1996 as a result of the foregoing factors.
1995 compared to 1994
Total net sales increased 21.3% to $237.2 million in 1995 from $195.5 million
in 1994. This $41.7 million increase was comprised of a $32.9 million, or
21.0%, increase in direct marketing sales and a $8.8 million, or 22.8%,
increase in reference sales. Direct marketing sales growth resulted primarily
from strong demand for list development and lettershop services and marketing
database software. List development sales increased $10.2 million, which was
due to growth of 8.1% in sales to national list accounts, growth of 12.7% in
sales to small business accounts and growth of 51.9% in sales of the
BehaviorBank list product. Marketing database software sales grew $9.5 million
reflecting a full year's sales after the June 1994 acquisition of CIC along
with volume growth of 35.8% over comparable full year 1994 sales. Lettershop
sales increased $4.2 million due to increased sales efforts to utilize
available capacity. Direct marketing sales were also increased by $7.1 million
due to the inclusion of ICD's sales following the acquisition of ICD in May
1995. The increase in reference sales reflects in large part the strong growth
in on-line services, including the NDA and MetroNet services.
30
<PAGE>
Database and production costs increased in 1995 to $134.4 million, or 56.7%
as a percentage of total net sales, from $108.8 million in 1994, or 55.7% as a
percentage of total net sales, primarily due to the start-up of the NDA
service, along with increased expenses to upgrade computers resulting in
increased capacity.
Amortization of goodwill increased 12.7% to $7.4 million in 1995. This
increase reflected the inclusion of a full year of amortization of goodwill
resulting from the CIC acquisition and additional goodwill resulting from the
ICD acquisition.
Selling expenses increased $8.8 million, or 23.7%, from 1994 and as a
percentage of total net sales to 19.4% in 1995 from 19.0% in 1994. The increase
in selling expenses was due to the inclusion of CIC for a full year ($3.1
million), the acquisition of ICD ($1.5 million) and growth in the on-line
services sales staff ($0.7 million), as well as increased commissions and
support costs across all businesses due to increased sales. The increase in
selling expenses as a percentage of total net sales resulted primarily from the
fact that selling expenses of CIC and ICD as a percentage of their total net
sales was higher than for the Company's other operations.
General and administrative expenses grew $2.2 million, or 15.5%, from 1994,
but decreased as a percentage of total net sales from 7.4% to 7.0% in 1995. The
increase in these expenses resulted from the acquisition of ICD ($1.4 million),
the settlement agreement with Aristotle Industries, Inc. described under
"Business--Litigation; Government Inquiries" ($0.7 million) and the inclusion
of CIC for a full year ($0.6 million), as well as increased expenses across the
Company's other operations.
Provisions for doubtful accounts increased $0.3 million, or 18.0%, from 1994,
but remained the same as a percentage of total net sales at 0.9%.
Interest expense, primarily paid to a subsidiary of R.R. Donnelley, increased
by $2.3 million because the Company had higher average outstanding debt levels
in 1995. The higher debt levels were required to fund capital expenditures, the
ICD acquisition and increased working capital requirements to support sales
increases.
The Company's effective income tax rate decreased to 70.7% in 1995 from 74.1%
in 1994. The effective tax rate exceeds the U.S. federal statutory rate due to
the effect of nondeductible goodwill amortization and of state and foreign
taxes. The decrease in the effective tax rate in 1995 reflects the increase in
pretax income, which reduces the relative effect of the nondeductible items.
Net income increased $0.7 million, or 37.6%, to $2.7 million in 1995 as a
result of the foregoing factors.
1994 compared to 1993
Total net sales increased 19.4% to $195.5 million in 1994 from $163.7 million
in 1993. This $31.8 million increase was comprised of a $29.1 million, or
22.8%, increase in direct marketing sales and a $2.6 million, or 7.3%, increase
in reference sales. Direct marketing sales growth resulted primarily from the
June 1994 acquisition of CIC ($8.5 million) and higher sales for lettershop
services ($5.5 million), list development services ($10.0 million, due to
growth of 13.3% in small business sales, growth of 26.2% in national list
accounts and growth of 77.2% in sales of the BehaviorBank list product) and
list enhancement services ($5.2 million). The increase in reference sales
reflected increased demand for the Company's on-line services, primarily
represented by the MetroNet service.
Database and production costs increased in 1994 to $108.8 million, but
decreased as a percentage of total net sales to 55.7%, from $95.0 million in
1993, or 58.0% as a percentage of total net sales, primarily due to total net
sales increasing at a greater rate than production costs, as well as the
inclusion in 1994 of CIC's higher-margin business.
Amortization of goodwill increased 9.2% to $6.6 million due to the
acquisition of CIC in June 1994.
31
<PAGE>
Selling expenses increased $7.5 million, or 25.3%, from 1993 and grew as a
percentage of total net sales from 18.1% to 19.0% in 1994. The increase largely
resulted from the addition of selling expenses associated with CIC ($2.6
million), increased selling staff and support for on-line services ($1.8
million) and increased sales force and marketing support relating to the
Company's small business list development clients ($1.3 million). The increase
in selling expenses as a percentage of total net sales over 1993 was primarily
due to the increase in the on-line sales force.
General and administrative expenses increased $2.0 million, or 16.5%, from
1993 and increased as a percentage of total net sales to 7.4% compared to 7.6%
in 1993. The increase resulted from $0.9 million of administrative expenses
added with the acquisition of CIC and general cost increases across the balance
of the Company's operations.
Provisions for doubtful accounts decreased $0.1 million, or 5.7%, from 1994
and decreased as a percentage of total net sales to 0.9% from 1.2% in 1993. The
expense decreased as the amount of write-offs of accounts decreased from 1993
levels.
Interest expense, primarily paid to a subsidiary of R.R. Donnelley, decreased
by $3.1 million due to lower debt levels in 1994, resulting from positive
operating cash flows.
The Company's effective income tax rate was 74.1% in 1994. The effective tax
rate exceeds the U.S. federal statutory rate due to the effect of nondeductible
goodwill amortization and of state taxes. In 1993, the Company recorded income
tax expense due to these items despite its consolidated pretax loss.
Net income from operations before cumulative effect of accounting change
increased $6.5 million from a loss of $4.5 million to a profit of $2.0 million
in 1994 as a result of the foregoing factors.
Quarterly operating results
The following table sets forth selected unaudited consolidated and combined
statement of operations information for the Company on a quarterly basis for
the years ended December 31, 1993, 1994 and 1995 and for the three months ended
March 31, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
1993 1994 1995 1996
------------------------------- ------------------------------- ------------------------------- -------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Direct marketing
sales........... $26.9 $27.3 $37.3 $36.2 $31.8 $34.5 $42.0 $48.5 $38.9 $44.8 $48.0 $58.0 $41.9
Reference sales.. 8.7 8.8 8.8 9.7 9.6 9.5 9.6 10.0 10.9 11.5 13.1 12.0 12.5
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total net sales. 35.6 36.1 46.1 45.9 41.4 44.0 51.6 58.5 49.8 56.3 61.1 70.0 54.4
Operating
expenses........ 33.3 34.8 39.9 37.0 38.5 39.0 42.9 48.4 46.7 45.8 53.7 60.4 52.7
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Earnings from
operations..... 2.3 1.3 6.2 8.9 2.9 5.0 8.7 10.1 3.1 10.5 7.4 9.6 1.7
Interest and
other expense... 5.5 5.5 5.5 5.5 4.6 4.6 4.9 4.9 5.0 5.1 5.6 5.6 5.4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Earnings (loss)
before income
taxes.......... (3.2) (4.2) 0.7 3.4 (1.7) 0.4 3.8 5.2 (1.9) 5.4 1.8 4.0 (3.7)
Income taxes..... (0.7) (1.2) 1.0 2.1 (0.1) 0.8 2.2 2.8 (0.1) 3.0 1.4 2.3 (0.8)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income
(loss) from
operations
before
cumulative
effect of
accounting
change......... $(2.5) $(3.0) $(0.3) $ 1.3 $(1.6) $(0.4) $ 1.6 $ 2.4 $(1.8) $ 2.4 $ 0.4 $ 1.7 $(2.9)
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's business is somewhat seasonal, particularly in the direct
marketing business. Direct marketing volume is driven in large part by consumer
demand, with direct marketers increasing their marketing efforts just ahead of
and during the traditional holiday buying season. Sales of direct marketing
products by the Company, therefore, are generally stronger in the second half
of each fiscal year. The timing of acquisitions and the recognition of expenses
have affected quarterly operating results. Software sales by CIC are also
seasonal. In 1995, approximately 40.6% of CIC's annual total net sales occurred
in the fourth quarter.
32
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its acquisition by R.R. Donnelley in 1987, the Company has funded its
operations, capital expenditures and acquisitions through cash flows from
operations and amounts borrowed from a subsidiary of R.R. Donnelley. Cash flows
from operations increased 18.3% in 1995 to $9.7 million compared to $8.2
million in 1994 and $7.6 million in 1993. Capital expenditures increased $18.6
million to $28.5 million in 1995 from $9.9 million in 1994 due to the Company's
new and ongoing investment initiatives. In 1995, the Company had high levels of
spending associated with data acquisition (primarily for survey data), the
implementation of the NDA service, the redesign of the Company's database file
structure and upgrades to its AnalytiX software product, as well as
expenditures for efficiency improvements. For a further discussion of
accounting policies with respect to database development costs, see Note 2 of
Notes to Consolidated and Combined Financial Statements of Metromail.
In 1995, the Company paid $2.7 million to settle a dispute regarding voter
data supplied by Aristotle Industries, Inc., of which $0.7 million was recorded
as a settlement expense and $2.0 million, which was paid in consideration for
the acquisition of voter data, was recorded as an intangible asset to be
amortized over three years. The $2.0 million was reflected in the Consolidated
and Combined Statements of Cash Flows for 1995 as a capital expenditure. See
"Business--Litigation; Government Inquiries."
For the three months ended March 31, 1996, $7.9 million of capital
expenditures were funded by $5.0 million of operating cash flow and $2.9
million of cash provided by financing activities. The Company's capital
expenditures primarily consisted of spending to acquire survey data and other
data acquisition costs. For the remainder of 1996, the Company anticipates
spending approximately $21.0 million to improve the processing efficiency of
its list enhancement services, continue investments to expand its proprietary
database and complete the database redesign, pay for the computer installed in
the Lombard facility in 1995, and continue to invest in the NDA and AnalytiX
products.
Debt owed to a subsidiary of R.R. Donnelley at March 31, 1996 is payable on
demand or becomes due and payable immediately upon completion of the Offering.
The net proceeds of the Offering together with, to the extent necessary,
borrowings under a $45 million bank credit facility to be entered into by the
Company prior to consummation of the Offering will be used to repay such debt
and advances from a subsidiary of R.R. Donnelley. See "Use of Proceeds." If,
however, the net proceeds of the Offering are sufficient to pay such debt and
advances, any remaining net proceeds will be used to repay debt owed by ICD
under a revolving credit agreement and, to the extent that debt is
extinguished, for general corporate purposes, including working capital.
The Company believes that, subsequent to the Offering, cash flows from
operations will be sufficient to fund its ongoing operations on a long-term
basis and continued growth and investment. The Company expects the bank credit
facility described above to be available for seasonal cash needs and
acquisitions to the extent not used to refund indebtedness.
33
<PAGE>
BUSINESS
Metromail is a leading provider of marketing-oriented consumer information
and reference services which it supplies primarily by accessing its proprietary
database. The Company maintains and continually updates a large proprietary
database, which contains geographic, demographic, individual and other
marketing information on over 143 million individuals and over 90% of the
households in the United States. The Company provides its information and
information services to a wide variety of organizations engaged in direct mail,
telephone and target marketing, as well as to clients who desire specific
reference and information services. The Company's clients include large Fortune
500 companies, as well as numerous small businesses.
Metromail provides direct marketing services to clients that include consumer
goods manufacturers, credit card companies, financial institutions, insurance
companies, magazine and book publishers, mail order houses and catalogers,
pharmaceutical companies and retailers. The direct marketing services provided
by Metromail include:
List Development--The Company assists clients in implementing cost-
effective direct marketing strategies by creating for its clients lists of
those individuals and households in the client's trade area having the
characteristics that fit the marketing strategy and are most likely to
respond favorably to the client's marketing efforts.
List Enhancement--The Company improves the quality of lists or databases
provided by its clients by eliminating duplicate names, correcting
addresses and zip codes and appending additional information, such as
telephone numbers or other marketing-related characteristics, to the lists
or databases.
Marketing Database--The Company uses its proprietary software to assist
its clients in creating a database from information that the client
possesses and licenses software to clients that permits its clients to
manage and analyze that database.
Personalization Printing and Lettershop--The Company provides processing
and mailing services to direct mail clients, most of which are clients that
purchase list development or enhancement services from the Company.
Metromail provides reference services to a broad base of clients. The
reference services provided by the Company include:
On-Line--The Company offers National Directory Assistance to telephone
companies and other operator service providers and other organizations with
high-volume directory assistance needs. This service provides operators
employed by subscribers to the service with on-line access to a database
consisting of more than 108 million residential, business and government
listings, as well as on-line access to electronic directory assistance
databases maintained by the regional Bell operating companies. The Company
also provides users of its MetroNet service with on-line or electronic
access to the Company's MetroNet Master file (a subset of the Company's
database), proprietary change of address files, American Business
Information business listings and regional Bell operating companies'
electronic directory assistance databases. This service is marketed
primarily to consumer finance companies and credit card issuers.
Directory Publishing--The Company publishes the Cole directories, which
list households and businesses arranged in street address and telephone
number sequence in approximately 150 markets in the United States and
Canada, delivered in printed form or on CD-ROM. The Company also provides
National Look-Up Subscriber and 900 Service, an operator-based, directory
assistance service that provides users with name, address, telephone and
neighbor information.
MARKET OVERVIEW
Direct Marketing Industry
Direct marketing is used by both large and small companies to promote and
sell a wide variety of goods and services by direct mail, telephone or personal
contact, bypassing traditional marketing avenues such as retail outlets. In
contrast to most mass media, direct marketing is used by commercial and other
organizations to sell
34
<PAGE>
products directly to consumers identified by name, address and probable
purchase behavior in their homes or places of business, and to motivate an
immediate consumer response.
Direct mail and telephone marketing provides a convenient and cost-effective
means of allowing organizations to market directly to selected segments of the
population. A direct mail promotion can range from small mailings of less than
100 pieces to a mass mailing of millions of pieces. These mailings usually take
the form of letters, promotional brochures, catalogs, samples or coupons.
Careful screening of the mailing list to eliminate duplicate names, correct
incorrect addresses or avoid mailing to persons unlikely to respond favorably
to the mailing can significantly reduce the total costs of mailing and increase
the rate of response to the mailing.
Direct marketing has continued to grow in virtually every category of goods
and services, including consumer goods and services, business-to-business
marketing, fund raising and direct marketing by government agencies. According
to a 1995 study by the WEFA Group commissioned by the DMA, total direct
marketing advertising expenditures in the United States in 1995 were estimated
to be $134 billion, up from $101 billion in 1990. Of the total for 1995, direct
mail expenditures were estimated to be approximately $31 billion, up from $23
billion in 1990, and telephone marketing expenditures were estimated to be
approximately $54 billion, up from $40 billion in 1990. In addition,
expenditures in the United States in 1995 for list, list processing and mailing
services were estimated by the WEFA Group and Marketing Logistics to be
approximately $6.2 billion.
The Company believes the growth in the use of direct marketing and in the
value of merchandise sold in this manner is generally attributable to social
and economic changes and to the increased acceptance and cost-effectiveness of
direct marketing techniques. Growth in the number of people in the most active
segments of the purchasing population, increasing numbers of two-career
families that have more disposable income and less time to shop in stores and
increasing availability and use of credit cards have all helped to enhance the
consumer's responsiveness to this purchasing medium. Rising costs of
establishing and maintaining traditional retail distribution channels have also
contributed to the increased use of direct marketing.
Metromail believes that the growth in the use of direct marketing will
continue because of:
. the ongoing shift from "mass" marketing to "information-driven" target
marketing;
. increased access to data; and
. growth in several existing end markets and industries, as well as the
emergence of new end markets.
Marketers that traditionally relied on mass marketing techniques, such as
mass media advertising and newspaper coupons, to deliver their marketing
communications continue to shift to "information-driven" target marketing,
where marketers maintain a database on individual customers and measure actual
response to each direct marketing message. Information-driven marketing allows
organizations to improve the efficiency of their marketing activities by
leveraging information about their best customers to create and deliver highly
targeted marketing messages.
Increased use of information-driven marketing is made possible because of the
increased amount of data generated as a by-product of transactions and because
of dramatic improvements in information processing technology, coupled with
decreased costs of such technology. Sophisticated computer technology now
allows the storage and analysis of very large quantities of data on individual
customers, enhancing the effectiveness of direct marketing techniques. In
addition, the Company believes that technological advances in the printing
industry, which permit economical customization of publications and direct mail
to individual consumers, will enable marketers to leverage investments in
marketing databases by communicating to customers and prospects individually.
The Company also believes that recent growth of direct marketing has been,
and future growth will be, driven by increased use of direct marketing in
certain end markets and industries. Pharmaceutical companies have become major
users of direct marketing in the last several years. While in the past most
marketing dollars were spent on direct sales efforts toward physicians, drug
companies are now making significant investments in
35
<PAGE>
direct-to-consumer campaigns. The Company believes the increasing changes in
drug classifications from prescription-only to over-the-counter are likely to
increase the use of direct marketing. The Company believes that the growth in
new consumer technology products and services, including computers, wireless
communications and on-line services, will lead to increased new product
launches and a need to market these products. The entertainment industry has
also increased its overall marketing expenditures, driven by factors including
new revenue distribution channels. While motion picture studios once relied
primarily on theater distribution, they now have opportunities to market direct
to consumers through video sales, video rental and merchandise. The Company
also believes that small businesses have become and will continue to be more
frequent users of direct marketing, as less-expensive PC-based marketing
database technology becomes available and the costs of non-targeted mass media
advertising increases.
Although direct marketing activity can be adversely affected by general
economic factors, such as postal rate changes and the price of paper, the
Company believes that direct marketing can be an especially cost-effective
means of introducing new products, determining and testing promising new
markets or expanding current markets.
Reference Services
The market for reference services is driven by the need for, and the
availability of, information as to a specific individual or business. The
reference services market is undergoing a transformation accompanied by
significant growth. This transformation is caused, in part, by changing
technology, which enables easier and less expensive information distribution,
and legislation, which enables a wider range of participants to offer more and
varied types of data and services. An important product attribute in this
market is the medium on which the data resides, starting with paper products,
progressing through floppy disks and CD-ROM and ending with real time on-line
access to databases that are updated daily.
Two identified markets for on-line reference services offered by the Company
are: skip-tracing and verification of credit applications. The skip tracing
market developed because of the need to locate individuals or businesses that
are difficult to find. Users of this service include collection agencies,
credit grantors and law enforcement agencies. The on-line services offered by
the Company in the credit application area have developed as credit grantors
have sought a low-cost alternative to obtaining a complete credit history of an
applicant for credit. Where the amount of credit being approved is relatively
small, credit grantors may not require a complete credit history but might
still want to verify certain basic demographic information, such as name,
address and telephone number, primarily as a means of reducing fraud.
Competition in this area comes largely from credit bureaus and credit grantors
who manage their own in-house credit application screening programs.
Changes in the telecommunications industry have created a new market for
directory assistance reference services, such as the Company's National
Directory Assistance service. These changes include the recent enactment of the
federal Telecommunications Act of 1996, the shift from phone-based services to
computer-based services and the regional Bell operating companies' ability to
offer long distance services. The Company believes that increased competition
in the telecommunications industry will add to the demand for national
directory assistance services. The market size for national directory
assistance services is relative to the number of directory assistance calls
placed in the United States each year, which according to Simba Information
Inc. was approximately 7 billion calls for "white pages" directory assistance
in 1995, of which the Company estimates approximately 1.4 billion calls were
for long distance directory assistance.
Directories such as the Company's Cole directories, in printed and CD-ROM
form, are used by businesses to market products or services to prospects or to
identify individuals at specific addresses or telephone numbers within a
specific geographic area by using the "reverse" nature of the directories,
which contain listings arranged by telephone number and street address. The
primary users of these products are insurance companies, real estate agents,
financial institutions and service industries such as lawn care and home repair
companies. These printed directories are generally leased by users on an annual
subscription basis for prices ranging from less than $100 to several hundred
dollars, depending on the size of the area covered by the directory.
36
<PAGE>
COMPETITIVE STRENGTHS
Metromail expects to benefit from continued growth in its markets resulting
from the ongoing shift from "mass" marketing to "information-driven" targeted
marketing, increased access to data and growth in several existing end markets
and industries, as well as the emergence of new end markets. The Company
believes that its competitive strengths will enable it to continue to compete
effectively in its markets. These strengths include:
Metromail's comprehensive proprietary database and expertise in gathering data
The Company maintains and continually updates a large proprietary database
which contains geographic, demographic, individual and other marketing
information on over 143 million individuals and over 90% of the households in
the United States. In addition to name, address and telephone number, this
database contains numerous characteristics relating to the individuals and
households reflected in the database, such as age, length of residence at a
particular address, dwelling unit type, gender of the head of household,
families with children, estimated household income and home ownership.
Management believes that its processes of gathering data from numerous sources
and modifying and updating its database represent significant competitive
advantages for the Company. The Company derives the data included in its
database from a wide variety of publicly available and proprietary, third-party
sources. The Company also collects data directly from consumers in response to
surveys, which solicit information from the recipients such as standard
demographic information, product preference, purchasing habits, activities,
hobbies and interest, brand awareness and medical ailments. See "Business--
Metromail's Database."
Metromail's ability to leverage its database into a wide range of information
products and services
Metromail has successfully leveraged its database to create new information
products and services, which it has marketed to existing clients and used to
attract new clients. The Company has packaged the information in its database
in new ways to meet the changing demands of its clients. For example, the
Company has responded to the continuing trend from "mass" marketing to
"information-driven" targeted marketing by creating the BehaviorBank direct
marketing product, which enhances a client's ability to target its marketing
efforts based on consumers' historical purchases and lifestyle profiles. In
response to changes which the Company had anticipated in the telecommunications
industry, it has created the National Directory Assistance service, which is
used by on-line and directory assistance providers as an alternative to
creating their own in-house national database directories. Also, the Company
believes its ability to leverage its database into new products and services
will increase upon completion of the process of integrating its database into a
single file on an open architectural systems platform. See "Business--Products
and Services" and "Business--Technology."
Metromail's large base of established clients and comprehensive network of
sales channels
The Company's business benefits from long-standing relationships with many of
its clients. The Company has had a continuing business relationship with each
of its top 25 clients for five or more years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company markets its products and services through a combination of
channels, including a sales force that the Company believes to be the largest
direct sales force in its industry, telemarketing, direct mail, third-party
brokers and referrals from R.R. Donnelley sales representatives. This network
of sales channels and the Company's practice of assigning its sales personnel
to target specific industries allow the Company to service its existing client
base with representatives knowledgeable of both the client's industry and
direct marketing needs and to expand its marketing efforts into new markets.
See "Business--Sales and Marketing."
Metromail's advanced technological capabilities in database management and
software development
Metromail has invested in data centers and proprietary database management
software that provide advanced processing capabilities and flexibility to meet
the Company's and its clients' changing needs while containing costs. In 1994,
the Company commenced an advanced technology initiative to consolidate all of
its
37
<PAGE>
existing databases into a single file that is intended to reduce the costs and
time of adding newly acquired data to the database, permit concurrent
processing of a numbers of separate jobs and reduce processing times. This
redesign is in the test phase and is expected to be completed in the second
quarter of 1996. See "Business--Technology."
Metromail offers expertise in PC-based database marketing products and
services. These products and services give clients that possess a large amount
of internal and external data a tool to assemble and analyze that data from
many different perspectives to determine their appropriate marketing
initiatives. The Company's products and services allow its clients the
flexibility of using DOS-based or Windows-based software applications and
housing their data in-house or on the Company's mainframe computer. See
"Business--Products and Services."
Metromail's experienced management team and employees
The Company has been successful in attracting and retaining highly qualified
personnel, especially its management, sales and software and technical
personnel. The Company's senior operating management has extensive experience
in the direct marketing industry. The Company's sales force maintains long-
standing relationships with the Company's national clients and brings to those
clients knowledge of the relevant industry and of the Company's products and
services. The Company's group of over 200 technical employees (programmers,
system engineers and system analysts) has enabled it to develop proprietary
database management software for internal use, as well as software applications
for sale to clients for their own marketing database analysis. The ability to
develop new and enhanced existing software applications has enabled the Company
to differentiate itself from its competitors in terms of the service the
Company offers to its clients and its efficiency in fulfilling client orders.
See "Management" and "Business--Sales and Marketing."
STRATEGY
Metromail's principal strategy is to capitalize on its competitive strengths
to provide high value-added information and information services to an
expanding universe of clients. The Company believes that it provides value to
its clients by converting raw data into information which is more useful to its
clients. Key elements of the Company's strategy include:
Maintaining, integrating and expanding Metromail's proprietary database
Metromail believes that its database is the key strategic asset of the
Company that distinguishes it from its competition. The Company believes that
its consumer-oriented database is one of the most complete and up-to-date
direct marketing databases in the United States. The Company has been
accumulating data for almost 50 years through a wide variety of publicly
available and proprietary sources and acquired databases. The Company accesses
over a thousand sources to both expand and update its database.
The Company is currently in the process of integrating all of its databases
into a single file on an open architectural systems platform. This integration
will enhance the Company's ability to maintain and update efficiently the
Company's database as well as better apply this integrated data in providing
information products to its clients. Quality of information continues to be a
key determinant of the Company's ability to compete in the marketplace and
service its clients effectively. To maintain the quality and currency of its
database, the Company continually updates and verifies its data using a variety
of frequently reported public sources, self-reported data and proprietary
sources.
The Company also seeks to find new and more efficient sources of data to
expand its database. The Company intends to expand its efforts to collect data
directly from consumers in response to surveys, which, to date, the Company has
used to create the BehaviorBank product for its direct marketing clients. In
addition, the Company expects that it will benefit from the increased
automation of transactions and the related digitization of the information
created thereby, which will lower its cost of obtaining, and create new sources
of, such data.
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Developing new products and services and targeting new markets
Metromail plans to continue to develop new products and services from its
database and market such products and services to its existing and new clients.
The Company expects that its ability to create new products and services will
increase as its database grows through new sources of data and the Company's
ability to customize that data increases as a result of the integration of its
database into a single file. The Company has been successful in effecting this
strategy in the past by creating new products for its existing clients, such as
BehaviorBank, which enhances a client's ability to target its marketing efforts
based on consumers' historical purchases and lifestyle profiles; accessing new
clients for its existing products, such as the CD-ROM version of its Cole
directories; and developing new products and services for new markets, such as
its National Directory Assistance service that is utilized by
telecommunications providers.
The Company intends to expand its base of clients to new, non-traditional
direct marketers as the availability of consumer information increases and the
effectiveness and acceptance of direct marketing improves. The Company has
successfully introduced its products and services to retailers, who
increasingly use direct mail campaigns to offer highly targeted promotions to
individual customers based on historical purchase patterns. The Company intends
to target the sale of its products and services to other new direct marketers,
such as pharmaceutical companies, consumer technology companies and small
businesses.
Developing technologies to analyze, package and distribute information more
efficiently
Metromail intends to use its technological expertise to create new products
and services and distribute these and its current product offerings to its
clients more efficiently. The Company seeks to develop new software
applications, in addition to its AnalytiX software products, that will allow
clients to access and analyze data from their desktops. Such software
applications are intended to give clients added flexibility in using their own
customer data and data provided by the Company. The Company plans to expand its
on-line reference service business to enable clients to access information in
the Company's database more rapidly.
The Company intends to explore new methods to distribute its information
products and services. The Company believes that the increased digitization of
data and the growth in computer networks such as the Internet will create new,
more efficient channels for the access and distribution of its products and
services. The Company believes exploiting these new distribution channels will
lower its distribution costs.
Selectively acquiring data, distribution channels and businesses available as
a result of ongoing consolidation in the industry
Metromail plans to take advantage of the highly fragmented nature of its
industry by continuing to explore selective acquisitions that provide
additional scale, customer relationships or new products or services. The
Company has made several recent acquisitions, including the acquisition in 1994
of CIC and the acquisition in 1995 of ICD. The Company believes that its
industry is consolidating and that this trend will continue primarily because
scale is a significant competitive factor.
METROMAIL'S DATABASE
Metromail maintains and continually updates a large proprietary database
which contains geographic, demographic, individual and other marketing
information on over 143 million individuals and over 90% of the households in
the United States. The Company believes that its database is one of the most
complete and up-to-date direct marketing databases in the United States and is
a principal reason that clients use the Company's list development and
enhancement services. This database contains numerous characteristics relating
to the individuals and households reflected in the database in addition to
name, address and telephone number. Examples of these characteristics include
age, length of residence at a particular address, dwelling unit type, gender of
the head of household, families with children, estimated household income and
home ownership.
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The Company has been accumulating data for almost 50 years, and management
believes that its processes of gathering data from numerous sources and
modifying and updating its database represent a significant competitive
advantage for the Company. Management believes that it would be difficult and
costly for a new entrant to replicate the database maintained by the Company.
Metromail derives the data included in its database from a wide variety of
publicly available sources and proprietary, third-party providers. With the
exception of self-reported data which the Company obtains primarily through the
use of consumer surveys, the Company does not collect data directly from
consumers. Among the publicly available sources used by the Company are the
"white pages" (the Company's primary source of names, addresses and telephone
numbers), public records of driver's license registrations, real estate
transactions and U.S. census data. The Database Investment and Antipiracy Act
of 1996 was introduced in the United States Congress in May, 1996, which, if
enacted, would, among other things, have the effect of reversing a United
States Supreme Court decision that the "white pages" are in the public domain,
thereby likely increasing the costs to the Company of data collection. See
"Risk Factors--Regulation of Data Collection and the Direct Marketing
Industry." The Company has arrangements with numerous third parties that
provide proprietary data to the Company. These providers include certain of the
Company's clients that provide the Company with data relating to their recent
direct marketing experiences.
In 1993, the Company began collecting data directly from consumers in
response to surveys. The Company distributes to consumers, primarily through
co-op mailings, package inserts and magazine inserts, questionnaires in various
forms. These questionnaires solicit information from the recipients such as
standard demographic information, product preferences, purchasing habits,
activities, hobbies and interests, brand awareness and medical ailments.
Questionnaires can be tailored to address specific marketing concerns of the
Company's clients by developing specific survey questions which seek the
desired information. To induce recipients to complete and return questionnaires
the Company states that upon doing so respondents become eligible to receive
offers of coupons, samples and information from manufacturers, pharmaceutical
companies, financial institutions and other service providers. In addition to
allowing a degree of flexibility not feasible in the Company's traditional data
gathering methods, the survey method of obtaining data mitigates any privacy
concerns, because consumers who return completed questionnaires voluntarily do
so and grant permission to the Company to use the data included in the
questionnaires for direct marketing and other purposes. The Company does not
use the information that it collects through surveys for its reference services
and has indicated to the DMA that it would not do so unless the consent
contained in the survey were changed to authorize expressly use for reference
services. The Company expects to continue to expand its use of surveys as a
data collection method. As indicated below under "International Operations,"
the Company is using the survey method as a means to develop its database in
the United Kingdom.
The Company is dedicated to being a leader in ethical management of consumer
data. It has developed fair information practices, consistent with the DMA's
guidelines for direct marketers, applicable to its direct marketing services
and its reference services. The Company believes that responsible data
management includes collecting, using and disseminating information by fair,
ethical and lawful means and respecting the requests of individuals for
information the Company possesses about them and any requests that their names
be removed from the Company's database.
PRODUCTS AND SERVICES
Metromail provides two general categories of products and services to its
clients: direct marketing services (including list development, list
enhancement, marketing database and personalization printing and lettershop)
and reference services (including on-line services, such as National Directory
Assistance, and directory publishing). In 1995, direct marketing services
produced $189.7 million in net sales and reference services produced $47.5
million in net sales.
Direct Marketing Services
List Development Services. Metromail provides customized list development
services to two primary groups of clients: sales promotion and mail order
organizations. Sales promotion clients generally have determined the
characteristics of their target customers and provide the Company with a trade
area definition and a customer
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profile. The Company then uses its computer software and database to identify
the individuals and households in the customer's trade area who have the
characteristics that the client has specified and compiles a list of those
individuals and households.
Mail order clients use the Company's marketing services and statistical
software to identify the geographic, demographic and other marketing
characteristics in the Company's database that singly and in combination
describe the best prospects for the client's direct marketing campaign. The
Company reviews the client's customer files and direct marketing experience, as
well as syndicated research, publicly available marketing data, and relevant
historical information and marketing research in the Company's database. In
addition, the Company may design, conduct and analyze market surveys or test
mailings. From this research and testing the Company defines relevant market
segments and their respective sizes and ranks these segments according to their
relative potential value to the client.
The Company also provides clients with a number of standard products derived
from its database which contain lists of individuals and households that have
commonly requested characteristics. Among these list products are its
BehaviorBank list, which contains lifestyle, product consumption and
psychographic and demographic information on more than 26 million households in
the United States obtained from voluntarily completed consumer surveys; its
Families with Children list, which contains information on more than 17 million
families with 26 million children; and various databases with information
concerning homeowners, such as the Realty list, which contains more than 28
million homeowners, and the New Homeowners list, which contains information on
more than two million new owners of homes.
The Company provides lists to approximately 15,000 clients annually. The
Company generates most of its list sales from sales to consumer goods
manufacturers, financial institutions, magazine publishers, mail order houses
and not-for-profit organizations. These lists are used primarily for mass
mailings, telephone marketing campaigns and statistical samplings. Except for
test mailings, these list orders range in size from 500 to 20 million
households and prices generally range from $7 to $250 per thousand names,
although certain information can be priced as high as $1,000 per thousand
names. Lists are generally delivered in the form of computer tape or mailing
labels. See "--Personalization Printing and Lettershop Services."
The Company provides its list development services from its facilities in
Lincoln, Nebraska.
List Enhancement Services. Metromail's list enhancement services enable a
client to process information utilized in direct mail campaigns. These
processes help the Company's clients to identify persons on lists supplied by
the client who are likely to respond favorably to the client's mailing, improve
deliverability of the items mailed and reduce the postage costs of a direct
mail campaign. Typically, a client sends to the Company hundreds of lists,
aggregating millions of names, which have been rented from list brokers or
other sources, and the client's current customers list. Using its computer
resources and proprietary software, the Company consolidates these lists,
corrects addresses and zip codes and eliminates duplicate names (the
merge/purge process) and the client's current customers. A client usually
further enhances this consolidated list by incorporating certain of the
characteristics contained in the Company's database.
The Company's database is then used to identify names on the consolidated
list who are less likely to respond favorably to the client's mailing. For
example, individual information regarding dwelling unit size will be used to
assure that a producer of garden products does not mail to an apartment house.
Elimination of less-responsive names results in substantial cost savings to the
client without significantly compromising the productivity of the mailing.
The Company also uses its database to enhance a client's proprietary customer
list and to make that list more deliverable. The Company has non-exclusive
licenses from the United States Postal Service for certain services, such as
National Change of Address, Delivery Sequence File and Locatable Address
Conversion System, to facilitate these processes. These enhancements usually
include adding information from the Company's database, eliminating
undeliverable addresses and verifying households at a particular address. Zip
codes and addresses on a proprietary list can be corrected and telephone
numbers can be added. In addition, the Company saves its clients money on the
mailing of these enhanced lists by carrier route coding, zip code presorting
and overlaying 9-digit zip codes.
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The Company provides list enhancement services to approximately 400 clients
annually, most of whom are involved in continuity marketing, financial
services, insurance, magazine and book publishing, mail order and catalog
merchandising, or retail.
The Company provides these services primarily from its facilities in Lombard,
Illinois.
Marketing Database. Metromail, through its CIC subsidiary, provides PC-based
database marketing products and services to clients that possess a large amount
of internal and external data and need a way to assemble and analyze the data
from many different perspectives to determine their appropriate marketing
initiatives. The Company provides the client the option of creating a database
at the client site or CIC's data center, utilizing the Company's proprietary
ONDESK or Import database creation software. Once the database is created the
customer then uses one of the Company's proprietary access software products,
either Customer Insight System or AnalytiX, to access, analyze, manipulate,
track, report and control the database information. Customer Insight and ONDESK
systems are DOS-based and AnalytiX and Import are the Company's newer products,
which are Windows-based systems. The Company's software products are designed
to enable its client to maintain its database on its own personal computer for
quick desktop access to information. Alternatively, the client can choose to
have the Company house the client's database on the mainframe computer in the
Company's Lombard data center and, with the use of the Company's proprietary
MetroBase software loaded on the client's personal computers, analyze the files
contained in the client's database and generate desired reports through on-line
access.
The Company targets a variety of industries for these software products,
focusing on the financial services, telecommunications, catalog, publishing,
cable television, transportation, entertainment and travel-related services
industries. The Company currently supports over 1,400 installations of these
products at over 300 client sites. Approximately 37% of the installations are
AnalytiX/Import and 63% are Customer Insight/ONDESK systems.
The Company's software products are licensed to clients, generally for a
three-year period. A substantial portion of the license fee is paid at the time
the license agreement is entered into with the balance due upon completion of
installation. In addition, the Company collects an annual license and
maintenance fee that is approximately 20% of the initial license fee. In
connection with some installations, the Company, as a service, purchases and
re-sells to the client certain computer equipment such as storage devices and
other peripherals.
The Company's experience with respect to renewal of licenses of its DOS-based
products has been excellent. In 1995, approximately 90% of the licenses of the
DOS-based products that expired were renewed. The Company's Windows-based
products were introduced in March 1994 and, because most of the licenses have
three-year terms, the Company has had very little experience with renewals of
expired licenses.
The Company provides these services primarily from its facilities in the
Denver, Colorado area.
Personalization Printing and Lettershop Services. Metromail's personalization
printing and lettershop services frequently are used in conjunction with list
development and enhancement services provided by the Company. In 1995, 19 of
the Company's top 25 list development and enhancement clients used these
services in addition to its list services. The Company provides processing and
mailing services to direct mail advertisers from facilities located in Mt.
Pleasant, Iowa; Rutland, Vermont; and Seward, Nebraska.
Personalization printing involves applying addresses and variable text to
direct mail pieces. Lettershop services consist of forms trimming, folding,
affixing special items (such as coins, medallion or cards), inserting materials
into envelopes, polywrapping, applying address labels and mailing. In
connection with these services, the Company uses both addresses generated from
its own database and addresses provided by its customers. Lettershop services
are typically contracted for on an individual mailing basis. Contracts range in
size from relatively small test mailings and statistical samplings to major
promotions of up to 25 million pieces.
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The Company is one of the largest providers of lettershop services in the
United States. At its three lettershop facilities, the Company has the
capacity to insert material in more than 6.5 million envelopes per day,
package 10 million product samples per month and polywrap 26 million packages
per month. The Company has installed and improved special equipment in its
production facilities which permits production of a high volume of polywrapped
advertising materials. The Company has also established an integrated
computerized system of scheduling, production and inventory control.
The Company's lettershop services processed over 1.1 billion pieces of mail
in 1995. To expedite mailing of materials, United States Postal Service
personnel have been permanently assigned to each of the lettershop facilities.
Reference Services
On-Line Services. Metromail offers a number of services that involve the
need for immediate electronic access to information contained in the Company's
database. The most important of these services are the Company's National
Directory Assistance service and its MetroNet service.
The Company's National Directory Assistance service provides operators
employed by subscribers to the service with on-line access to a database
consisting of more than 108 million residential, business and government
listings, as well as on-line access to the electronic directory assistance
databases maintained by the regional Bell operating companies. The Company,
which commenced this service in 1995, markets this service to telephone
companies and other operator service providers and other organizations with
high-volume directory assistance needs. To date the Company has entered into
contracts for this service with approximately 15 clients. The Company is in
various stages of testing with most of these clients and is currently
invoicing approximately nine clients for services being provided by the
Company. The Company believes that the market for national directory
assistance will grow significantly because of the recently enacted
telecommunications bill, which permits local telephone companies to provide
long-distance service and long-distance carriers to provide local telephone
service, and that the various telephone companies will choose to outsource
directory assistance to companies such as the Company that are not competitors
in the telephone business.
The Company's MetroNet service provides users with on-line or electronic
access to the Company's MetroNet Master file (a subset of the Company's
database), change of address files, American Business Information business
listings and regional Bell operating companies' electronic directory
assistance databases. These services are marketed primarily to collection
agencies, consumer finance companies and credit card issuers. This service is
used by many of the Company's clients to confirm certain information that is
contained on credit applications submitted to them (such as name and address,
but not credit history).
The Company has recently entered into a contractual arrangement with FOUR11
Corporation ("FOUR11"), whereby FOUR11 will establish a web site and offer
Internet users free, but limited, access to the Company's basic "white pages"
data (names, addresses and telephone numbers). FOUR11 and the Company will
share the revenues that FOUR11 will receive from advertisers on the web site.
The Company entered into this arrangement to familiarize Internet users with
its services and test out the Internet as an alternate distribution channel.
The Company does not believe that this arrangement will affect in any material
respect its other services for the following reasons. First, this free access
will not be suitable for commercial applications due to the limited number of
telephone records a user will be permitted to access and download and the
length of time it will take to perform these functions. Second, the Company
will update these "white pages" on a quarterly basis. Thus, this information
will not be as current as the information provided through its other on-line
reference services. Finally, the service will not provide other important
demographic information, which is available to commercial users of the
Company's other marketing-oriented on-line reference services.
Directory Publishing Services. Metromail publishes the Cole directories,
local "reverse" directories covering 150 urban and suburban areas in the
United States and Canada, including New York, Boston, Philadelphia, Dallas and
Houston. These directories, which contain approximately 32 million residential
and business listings, are available either in printed form or on CD-ROM. The
directories are derived from the
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Company's database and contain listings arranged by street address and
telephone number. Many of the directories also include census demographic data
on a neighborhood basis and historical data, such as duration of residence.
The Company has approximately 48,000 clients annually for the printed Cole
directories and approximately 3,000 clients for its Cole and MetroSearch CD-ROM
products. The clients for these products are principally collection agencies,
financial institutions, government agencies, insurance brokers and agents,
local merchants such as home improvement businesses, and real estate brokers.
The Cole directories are primarily used by clients to market products or
services to prospects or to identify individuals at specific addresses or
telephone numbers within a specific geographic area. The Cole directories are
leased on an annual subscription basis for prices ranging from $75 to over
$600, depending on the size of the market. In 1995, approximately 77% of leases
for Cole directories were renewed.
The Company publishes, prints and binds the Cole directories at its Lincoln,
Nebraska facility. In addition, the Company provides certain printing and
binding services for other publishers of short-run directories.
The Company also provides the National Look-Up Subscriber and 900 Service, an
operator-based, directory assistance service that provides users with name,
address, telephone number and neighbor information. The Company's operators
provide this service through on-line access to the MetroNet Data Base.
Information may be requested in a number of ways, including "street address
look-up" (furnishing a street address and obtaining the occupant's name,
telephone number, length of residence, dwelling type and similar information
concerning three of the closest neighbors); "telephone number look-up"
(furnishing a telephone number and obtaining the name and address of the
occupant); and "national name look-up" (furnishing a full name and geographic
area and obtaining the address, telephone number, length of residence and
dwelling type for all possible matches).
INTERNATIONAL OPERATIONS
Metromail's international operations currently consist primarily of its
operations in the United Kingdom of ICD, a compiler of lists primarily through
the use of surveys, and Data by Design, a provider of database marketing
consulting services. ICD has been distributing consumer lifestyle surveys in
the United Kingdom since 1988 and is the largest distributor of mailed consumer
lifestyle surveys in the United Kingdom. The proprietary database compiled by
ICD through these surveys consists of approximately five million names, one
million of which have been added in the past year. ICD sells information
derived from this database to over 700 clients, primarily clients involved in
fast-moving consumer goods, mail order and financial services. It also
generates sales by including in its surveys specific questions of interest to a
particular client.
The Company is exploring opportunities to develop consumer lifestyle
databases in Europe. Any expansion outside the United Kingdom would likely be
done, if at all, in a joint venture with a strategic partner that has
credibility and resources in the particular market and would likely involve
development of databases through use of surveys. Any such joint venture could
involve a contribution of the Company's U.K. operations to the joint venture.
COMPETITION
The markets in which Metromail competes are highly competitive and
fragmented. While a number of large companies and many smaller competitors
provide certain of the direct marketing and reference services provided by the
Company, the Company believes that it provides the broadest range of these
types of services of any company in the direct marketing and reference service
industries. Nevertheless, some competitors have, and potential competitors may
have, materially greater financial, technical and marketing resources than the
Company that would allow them to compete effectively with the Company in
respect of some or all of its direct marketing and reference services.
Direct Marketing Services
List Development Services. Metromail's list development services compete with
several large national companies, smaller regional providers and other forms of
media. The Company's national competitors include
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Acxiom Corporation ("Acxiom"), Database America Information Services Inc.,
Donnelley Marketing, Inc., a privately held company that is unaffiliated with
R.R. Donnelley ("Donnelley Marketing"), R.L. Polk and Company ("Polk") and TRW
Information Systems and Services. Many of the Company's national competitors
specialize in the development of national lists focused on a particular type of
information, such as automobile or real estate purchasers. The Company's
regional competitors specialize in the development of lists that focus
primarily on a particular type of information targeted to a defined region of
the United States. In addition, the Company's list development services may
experience competition from other forms of media during periods when its
clients' marketing budgets are reduced. This competition may come in the form
of broadcast and print media, which may be used by larger, national clients, or
in the form of less sophisticated direct marketing, such as coupons and mailbox
inserts used by smaller regional clients.
List Enhancement Services. The Company's list enhancement services compete
with some of the national competitors described above, such as Acxiom and
Donnelley Marketing, and with Advo, Inc., Direct Marketing Technology Inc.,
Harte-Hanks Communications, Inc. ("Harte-Hanks"), May & Speh, Inc. and Neodata,
Inc., in respect of targeted groups of clients. The Company believes, however,
that it provides list enhancement services to a broader range of clients than
do such competitors.
Marketing Database Services. The Company's marketing database services
compete with some of the national competitors described above, such as Acxiom
and Harte-Hanks, who also have the ability to provide other direct marketing
services to their clients, and with smaller software and computer service
bureau companies, such as Okra Marketing Corporation and Red Brick Systems,
Inc., which do not offer other direct marketing services to their clients.
Lettershop Services. The Company's lettershop services compete with the
internal capabilities of its clients, and with Donnelley Marketing, Jetson
Mailers, Inc., Mailman, Inc. and United Mailing Services, as well as numerous
smaller companies. The Company believes that its lettershop services are
important competitive adjuncts to its other direct marketing services.
Competitive Factors. In its list development and list enhancement services,
Metromail competes on the basis of the quality, accuracy and completeness of
its database, its market analysis and segmentation capabilities and the other
list enhancement services it offers. The Company competes in its marketing
database services on the basis of the quality of its software products. The
Company competes in lettershop services on the basis of the capabilities and
efficiencies of its equipment and employees, which enable it to handle large
and complicated orders in a timely manner. Price is also a competitive factor
for all the direct marketing services the Company provides. Although the
Company believes that its competitive strengths enable it to compete
effectively with its current competitors in the direct marketing services
industry, there can be no assurance that other companies, some of which may
have greater resources or better sources of data than the Company, will not
begin competing with respect to one or more of the direct marketing services
provided by the Company.
Reference Services
On-line Services. The Company's National Directory Assistance service
competes with Acxiom and Pro-CD, Inc. and local telephone companies in the
regions where such companies provide local telephone service. The Company's
MetroNet service competes with CDB Infotek Inc., Computer Graphics and First
Data Corporation.
Directory Publishing Services. The Company's Cole directories publishing
service competes with Polk in many of the geographic areas for which the
Company publishes directories and with other smaller, regional publishers in
certain geographic areas. Metromail also competes with several smaller
companies, such as Acxiom, in respect of the Company's national consumer white
pages directories offered in CD-ROM form.
Competitive Factors. In its reference services, Metromail competes on the
basis of the quality, accuracy and scope of the information contained in its
database, the quality of its customer service and price. With respect to its
on-line services, two critical competitive factors are the ability to be
contacted by the user and the response time. Although the Company believes that
it is well positioned to compete on these bases, there can be no
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assurance that other companies, some of which may offer reference services
superior to, or cheaper than, those provided by the Company will not begin
competing with the reference services offered by the Company.
SALES AND MARKETING
Metromail markets its products through a combination of sales channels, which
include national account sales representatives, regional sales representatives,
telemarketing, direct mail, third-party brokers and resellers and referrals
through sales representatives of R.R. Donnelley. The Company believes its sales
and marketing efforts have been successful, in part, because of its ability to
use the appropriate sales channel to reach a prospective group of clients.
Direct Marketing Services
The Company has marketed its direct marketing services through its national
account sales representatives, telemarketing, direct mail, third-party brokers
and resellers and referrals through sales representatives of R.R. Donnelley.
The Company has over 60 national account sales representatives, located
primarily in New York and Chicago, who service the Company's largest direct
marketing clients. The Company's national account sales representatives, each
of whom has particular knowledge of his or her clients' industries, offer to
these larger direct marketing clients a high level of customer service and
overall knowledge of the Company's products. Historically, the Company has
targeted the sales of its direct marketing services to small and mid-size
businesses through telemarketing and direct mailings. The Company has expanded
these marketing efforts by using the regional sales representatives that
currently market the Company's directory publishing services.
Reference Services
The Company has a seven person sales force that markets the Company's on-line
reference services to potential clients. Sales representatives in the Company's
regional sales offices market the Company's directory publishing services, and
the Company also uses telemarketing to expand its market for these services.
The Company has successfully used its regional sales force to market new
products to its directory publishing service clients, such as the use of CD-ROM
versions of the Cole directories, and uses that sales force to market list
products and services of the Company to small and mid-size businesses.
REGULATION
Although the manner in which Metromail collects, uses and transfers certain
types of data is regulated in certain respects at the federal level and by
certain states, as described below, Metromail's business is not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally, including regulations concerning the
environment.
In response to growing concerns about individual privacy and the collection,
distribution and use of information about individuals, the Direct Marketing
Association, which is the leading trade association of direct marketers (the
"DMA"), has established certain guidelines for fair information practices which
it recommends be followed by participants in the direct marketing industry. The
Company was actively involved in the formulation of the DMA's guidelines, and
many of the Company's significant direct marketing clients have adopted and
implemented such guidelines. In addition, the Company has adopted and is
implementing fair information practices, principles and procedures which
supplement those of the DMA. See "Business--Metromail's Database." One of the
guidelines suggested by the DMA is that direct marketers refrain from
soliciting by mail or telephone those individuals who have contacted the DMA
and have asked that they not be the subject of unrequested solicitations. To
make compliance with this guideline possible, the DMA maintains the Mail
Preference Service and the Telephone Preference Service, consisting of lists of
those individuals who have notified the DMA that they wish to "opt out" of
receiving mail or telephone solicitations. The DMA makes these lists available
to participants in the direct marketing industry who subscribe to these
services. The Company is a subscriber and receives updated lists from the DMA
monthly and promptly removes from its database all information concerning the
individuals who appear on the DMA lists.
Growing privacy concerns have also led to increased federal and state
regulation of the collection, use and transfer of information about individuals
and of direct marketers and their activities. Examples of laws regulating
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the use of information include laws adopted by a number of states precluding
the use of information derived from voter registration records, real estate
files and driver's licenses and the federal Driver's Privacy Protection Act of
1994, which becomes effective in 1997. Under this act, each state will be
prohibited from disclosing personal information contained in motor vehicle
department records for bulk use in surveys, marketing or solicitations, unless
the state has implemented a procedure whereby each driver has the opportunity
to prohibit such use of information about such driver. Examples of laws
regulating direct marketers and their activities include: state laws requiring
telemarketers to be bonded or registered; a Federal Trade Commission
regulation prohibiting telemarketers from making a call to a person who
previously has stated that he or she does not wish to receive a call made by
or on behalf of the seller whose goods or services are being offered; and
federal and state restrictions on the use by telemarketers of automatic
dialing and artificial voices or prerecorded messages. For a discussion of two
bills pending before Congress, see "Risk Factors--Regulation of Data
Collection and the Direct Marketing Industry."
PROPRIETARY INFORMATION
Metromail's success is in large part dependent upon its proprietary
information and technology. The Company relies on a combination of copyright,
trade secret and contract protection to establish and protect its proprietary
rights in its products and technology. The Company generally enters into
confidentiality agreements with its management and programming staff and
limits access to and distribution of its proprietary information. The Company
also has implemented a number of procedures and controls designed to prohibit
unauthorized access to the Company's computerized databases. There can be no
assurance that the steps taken by the Company in this regard will be adequate
to deter misappropriation of its proprietary rights or information or
independent third party development of substantially similar products and
technology. Although the Company believes that its products and technology do
not infringe any proprietary rights of others, the growing use of copyrights
and patents to protect proprietary rights has increased the risk that third
parties will increasingly assert claims of infringement in the future.
LITIGATION; GOVERNMENT INQUIRIES
The Company is subject to various claims and legal actions which arise in
the ordinary course of business. The Company believes such claims and legal
actions, individually and in the aggregate, will not have a material adverse
effect on the business or financial condition of the Company.
On April 18, 1996, a purported class action seeking restitution, actual and
exemplary damages in an unspecified amount and injunctive relief was filed in
Texas state court against the Company, R.R. Donnelley, CIDS, the Texas
Department of Criminal Justice, the executive director of the Texas Department
of Criminal Justice and the chairman of the Texas Board of Criminal Justice
alleging, among other things, that the collection by the Company of certain
consumer survey information was fraudulently undertaken and that the
processing of surveys by Texas prisoners on behalf of the Company was
negligent and in violation of privacy rights. The Company intends to defend
vigorously this suit. The Company has removed the case to the United States
District Court for the Western District of Texas and has filed a motion to
dismiss all counts against it. If the motion is not granted, the Company
intends to challenge certification of the class, and the Company believes that
if such challenge is successful, this litigation would not have a material
adverse effect on the Company. However, because this litigation is in its
early stages, it is not possible to make a meaningful determination of the
ultimate outcome or to make an estimate of the loss, if any, should the
outcome be unfavorable. The Company has made a preliminary estimate that its
costs of litigating the case will be $1.5 million. R.R. Donnelley has agreed
to pay the legal fees and expenses incurred by the Company in defending the
case. No assurances can be given that the costs of litigating this case will
not exceed $1.5 million or that this litigation will not result in a material
adverse effect on the Company's business, operating results or financial
condition. See "Risk Factors--Litigation and Government Inquiries with Respect
to Use of Data" and Note 15 of Notes to Consolidated and Combined Financial
Statements of Metromail.
In 1995, the Company settled two lawsuits filed against it which involved
allegations that it had used certain voter registration information in
violation of laws. One lawsuit involved a complaint filed against the Company
47
<PAGE>
in 1992 by Aristotle Industries, Inc., a company that publishes and sells
political and election-related information products ("Aristotle"). This
complaint arose from a contract entered into by the Company and Aristotle in
1990 pursuant to which the Company agreed to perform certain list enhancement
services for Aristotle in connection with lists of registered voters in certain
jurisdictions to be supplied by Aristotle. In its complaint, Aristotle alleged
that the Company had failed to perform the enhancement services properly,
prematurely terminated the contract and used certain of the voter data supplied
by Aristotle in violation of the contract and of law. The Company denied these
allegations and counter-claimed for amounts owed by Aristotle to the Company.
The parties entered into a settlement agreement in February, 1995, pursuant to
which the Company paid an aggregate of $2.7 million ($2.0 million of which was
in consideration for the acquisition of voter data from 16 states) to
Aristotle, John Aristotle Phillips, the founder and President of Aristotle
("Phillips"), and Dean Aristotle Phillips and released all claims against them;
Aristotle delivered to the Company a database containing voter records from
certain jurisdictions; and Aristotle and the two individuals released all
claims against the Company, except Phillips did not release the Company or its
affiliates from any claim he may have to enforce any rights of R.R. Donnelley
solely in his capacity as a shareholder of R.R. Donnelley.
The second lawsuit was a purported class action seeking compensatory and
punitive damages filed against the Company in California state court in
December, 1994 alleging, among other things, that inclusion of California voter
registration data in the Company's databases resulted in invasions of privacy
in violation of laws. Following removal of the case from state court to federal
court, in March, 1995, the court dismissed the lawsuit on the joint motion of
the parties. The court found, among other things, that the action was not
legally maintainable as a class action. Under the terms of the settlement
agreement pursuant to which the joint motion was brought, the Company paid the
plaintiffs $40,000, representing attorneys' fees and costs incurred by them in
the action, and agreed (without admitting that it had engaged in any illegal or
wrongful activity) that it will not obtain or utilize California voter
registration records for any unlawful purpose and to delete from its database
age information, if any, obtained improperly from California voter registration
data.
During the last two years, the Company has held discussions with several
federal and state government agencies concerning its alleged misuse of voter
registration data and its use of telephone surveys to confirm certain
information derived from such voter registration data. With respect to the
telephone surveys, the Company discussed with the Federal Trade Commission a
1971 Consent Order entered into against Metromedia, Inc., a prior owner of
certain of the Company's assets. The Company informed the FTC of its belief
that the Company was not an entity that was subject to the Consent Order and
that, even if it were, the telephone surveys in question did not come within
the scope of the Consent Order. In July 1995, the FTC advised R.R. Donnelley
that it had closed its investigation into this matter and would not be taking
any action against the Company. No action has been taken against the Company by
any government agency with respect to alleged misuse of voter registration data
or telephone surveys, and the Company currently has no reason to believe that
any such actions will be taken against it.
TECHNOLOGY
Computer Operations
The Company's data centers run on computer systems designed to provide
advanced processing capabilities, provide flexibility to meet the Company's and
its clients' changing needs and contain costs. The Company's mainframe computer
system consists of two IBM ES9000 computers, one located at the Lombard data
center and one located at the Lincoln data center. The IBM ES9000 computer
located at the Lincoln data center has 173 MIPS (millions of instructions per
second) of processing power and the IBM ES9000 located at the Lombard data
center has 223 MIPS of processing power. The ES9000 platform allows for
expansion of processing capacity to approximately 3,000 MIPS, without
significant infrastructure changes. Other data center components include
robotic tape subsystems, DASD and high-speed laser, LED and compact printers.
The Company also supports alternate platforms from IBM, Hewlett Packard and
Sequent, which have approximately a terabyte of DASD attached to them.
48
<PAGE>
The Company expects to complete in the second quarter of 1996 a major
redesign of the file structure of its database. This redesign, which commenced
in 1994 and is currently in a test phase, takes advantage of new relational
software and parallel processing hardware technology. The new database
structure is expected to reduce the costs and time of adding newly acquired
data to the database, permit concurrent processing of a number of separate jobs
and reduce processing times.
Disaster Recovery
The Company has in place extensive plans in the event either of its data
centers is damaged by fire, power loss, telecommunications failure or similar
event. The Company has an agreement with Comdisco Disaster Recovery Services,
Inc. ("CDRS"), pursuant to which CDRS will provide both immediate mainframe
computer support at a CDRS "hot site" to run one of the Company's data centers
if it is temporarily unavailable (less than six weeks) and long-term facilities
sufficient to house computer equipment at a CDRS "cold site" in the event the
Lombard data center is unavailable for an extended period of time (from six
weeks to one year). The Company believes it would be able to have operations
from an affected data center moved to a CDRS "hot site" and operational within
24 hours. In addition, the Company has an agreement with Comdisco, Inc., CDRS's
parent, a leading provider of leased high technology equipment, pursuant to
which the Company may access inventory and services of Comdisco, Inc., to
minimize the recovery time for the Lombard data center while its operations are
being processed through one of the CDRS "hot sites."
The Company has taken other measures to protect its computer equipment,
stored information and its operating capabilities, which include off-site
storage of back-up data at three separate locations, the use of redundant power
supplies at each of its data centers and a Halon fire suppression system which
is designed to extinguish a fire without damaging computer equipment. The
Company conducts recovery exercises several times per year and encourages its
clients to join in this process.
FACILITIES
The Company's principal executive offices and one of the Company's data
centers are located in Lombard, Illinois, where the Company leases a 115,000
square foot facility pursuant to a lease expiring in 2001 and a 19,000 square
foot facility pursuant to a lease expiring in 2000. The Company also owns a
233,000 square foot facility in Lincoln, Nebraska, which includes the Company's
second data center, and lettershop facilities in Mt.
Pleasant, Iowa (211,000 square feet); Seward, Nebraska (161,000 square feet);
and Rutland, Vermont (113,000 square feet). The Company leases its 31 regional
sales offices, pursuant to leases that in general have three-year terms. The
Company's marketing database services operate from offices in the Denver,
Colorado area, where the Company is moving into a 54,000 square foot leased
facility in May.
EMPLOYEES
As of March 31, 1996, the Company had approximately 3,155 employees, of whom
approximately 3,065 were located in the United States and 90 were located in
the United Kingdom. The domestic employees included approximately 270 officers
and managerial employees, 275 employees engaged in sales or sales support and
210 programmers, system engineers and systems analysts. The domestic employees
also include approximately 1,500 hourly employees, most of whom are engaged in
providing lettershop services. The Company employs part-time workers as needed,
primarily in lettershop services.
None of the Company's employees is covered by a collective bargaining
agreement. The Company believes that its relations with its employees are good.
49
<PAGE>
MANAGEMENT
DIRECTORS
The Board of Directors currently consists of four members elected by R.R.
Donnelley. The Board of Directors is divided into three classes serving
staggered terms as follows: Class I, comprised of one person and serving for a
term expiring at the 1997 Annual Meeting of Stockholders; Class II, comprised
of one person and serving for a term expiring at the 1998 Annual Meeting of
Stockholders; and Class III, comprised of two persons and serving for a term
expiring at the 1999 Annual Meeting of Stockholders. Following the expiration
of the initial term, directors will serve for three year terms. The Company
expects that two independent directors will be added to the Board following
the consummation of the Offering, and that such directors will serve on the
Audit Committee and the Compensation Committee of the Board of Directors. No
individuals have currently been identified to serve as such independent
directors. Information with respect to those individuals who currently serve
as directors of the Company is set forth below.
<TABLE>
<CAPTION>
INITIAL
TERM
NAME AGE EXPIRES POSITION
---- --- ------- --------
<S> <C> <C> <C>
Barton L. Faber 49 1999 Chairman and Director
Susan L. Henricks 45 1998 President and Chief Executive
Officer and Director
Peter F. Murphy 40 1999 Director
Jonathan P. Ward 42 1997 Director
</TABLE>
Barton L. Faber has been Chairman of the Company since January 1996. He has
served as President, Information Resources of R.R. Donnelley from January 1995
to the present, with the senior management of the Company reporting to him. He
will resign from that position with R.R. Donnelley upon completion of the
Offering. From September 1989 until January 1995, he was President,
Information Services of R.R. Donnelley. Prior to that time, he was Vice
President and Director, Information Services of R.R. Donnelley in 1989, Vice
President, Corporate Development of R.R. Donnelley from April 1985 until 1989,
and Group Manager, Business Development and Analysis of R.R. Donnelley from
the time he joined R.R. Donnelley in January 1985 until April 1985. Prior to
joining R.R. Donnelley, he held various positions with Mobil Oil Corporation
and Ramada Europe. Mr. Faber has been a director of the Company since July
1995. He is also a member of the board of directors of Alphagraphics, Inc.,
Dataware Technologies, Inc., GeoSystems Global Corporation and Xeikon N.V.
Susan L. Henricks has been President and Chief Executive Officer of the
Company since July 1995. She was President of the Company from May 1995 until
July 1995. Ms. Henricks joined the Company in 1986 and served as Reference and
Information Services Division President from 1990 to May, 1995, Senior Vice
President, Information Services in 1989, Vice President, Data Processing in
1988 and Vice President of Production from 1986 to 1988. Prior to joining the
Company, she held various positions with CNA Insurance Company, Centerre Bank,
N.A. and The Signature Group. Ms. Henricks has been a director of the Company
since January 1996.
Peter F. Murphy has been Vice President and Corporate Controller of R.R.
Donnelley since April 1995. From 1994 until April 1995 Mr. Murphy was
Director, Financial Reporting of R.R. Donnelley. Prior to joining R.R.
Donnelley, he was with Kraft General Foods, Inc. where he served as Assistant
Controller--International from May 1992 until May 1994 and Assistant Corporate
Controller from 1989 until 1992, and was general practice manager with Coopers
& Lybrand from 1983 until 1989. Mr. Murphy has been director of the Company
since February 1996. He is also a member of the board of directors of Test
Drive Corporation.
Jonathan P. Ward has been Executive Vice President and Sector President,
Commercial Print Sector of R.R. Donnelley since January 1995. Mr. Ward joined
R.R. Donnelley in 1977 and has held a number of positions, including Sector
President, Commercial Print Sector of R.R. Donnelley in 1994, President,
Merchandise Media of R.R. Donnelley from 1992 to 1994 and President, Financial
Services of R.R. Donnelley in 1991. Mr. Ward has been a director of the
Company since February 1996. He is also a member of the board of directors of
Siegwerk, Inc.
50
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee will be responsible for reviewing with management the
financial controls, accounting and audit and reporting activities of the
Company. The Committee will review the qualifications of the Company's
independent auditors, make recommendations to the Board of Directors as to the
selection of independent auditors, review the scope, fees and results of any
audit and review non-audit services and related fees provided by the
independent auditors. The members of the Audit Committee have not yet been
appointed. The Company intends to appoint the two independent directors to
this committee.
The Compensation Committee will be responsible for the administration of all
salary and incentive compensation plans for the officers and key employees of
the Company, including bonuses. The Committee will also administer the
Company's 1996 Stock Incentive Plan. The members of the Compensation Committee
have not yet been appointed. The Company intends to appoint the two
independent directors to this committee.
The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors will be made by the entire Board of
Directors.
EXECUTIVE OFFICERS
Information with respect to those individuals who currently serve as
executive officers of the Company is set forth below, except that information
with respect to Mr. Faber and Ms. Henricks is set forth above under
"Management--Directors." Executive officers of the Company are appointed
annually by the Board of Directors and serve until their successors have been
duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Barton L. Faber 49 Chairman and Director
Susan L. Henricks 45 President and Chief Executive Officer and Director
Philip H. Bonello 44 Senior Vice President and General Manager, On-Line Services
Ronald G. Eidell 52 Senior Vice President and Chief Financial Officer
Tery R. Larrew 42 President, Customer Insight Company
Thomas J. Quarles 46 Senior Vice President, General Counsel and Chief Administrative Officer
and Secretary
Michael T. Reynolds 46 Senior Vice President and General Manager, Enhancement Services
Mac E. Rodgers 37 Senior Vice President and General Manager, List and Cole Services
</TABLE>
Philip H. Bonello has served as Senior Vice President and General Manager,
On-Line Services of the Company since July 1995. Since joining the Company in
1986, he was Vice President, Electronic Services and Vice President, Marketing
Research from 1993 to 1995, Director of Marketing from 1992 to 1993 and
Director of Corporate Planning from 1986 to 1992. Prior to joining the
Company, he held various positions with Coopers & Lybrand from 1984 to 1986
and DePaul University from 1980 to 1994.
Ronald G. Eidell has been Senior Vice President and Chief Financial Officer
of the Company since February 1996. He has served as Senior Vice President,
Finance of R.R. Donnelley from January 1996 to the present. He will resign
from that position upon completion of the Offering. From 1991 until January
1996, he was Senior Vice President and Treasurer of R.R. Donnelley. Prior to
that time, he was Vice President and Treasurer of R.R. Donnelley from 1988 to
1991, Treasurer of R.R. Donnelley in 1988 and Controller of R.R. Donnelley
from 1982 to 1986. From February 1987 until rejoining R.R. Donnelley in 1988,
he was Vice President--Chief Financial Officer and Treasurer of Advanced
Systems, Inc.
Tery R. Larrew has served as President, Customer Insight Company since 1989.
Prior to that time, he was a Principal at Pinnacle Management Corporation and
held various positions at First Financial Management Corporation.
51
<PAGE>
Thomas J. Quarles has been Senior Vice President, General Counsel and Chief
Administrative Officer of the Company since February 1996 and Secretary of the
Company since April 1996. He has served as Senior Vice President and General
Counsel of R.R. Donnelley from February 1996 to the present. He will resign
from that position upon completion of the Offering. From February 1995 to
February 1996, he was Senior Vice President and General Counsel, Law,
Environmental and Government Affairs of R.R. Donnelley. From January 1991
until February 1995, he was Vice President and Associate General Counsel of
Ameritech Corporation. From April 1985 until December 1990 he was Vice
President and General Counsel of Ameritech Publishing, Inc. and from 1979
until March 1985, he was general attorney for Michigan Bell Telephone Company.
Michael T. Reynolds has served as Senior Vice President and General Manager,
Enhancement Services of the Company since July 1995. From 1992 to 1995, he was
Vice President, Small Business/Alternate Channels of the Company and from 1990
to 1992 he was Vice President, Sales of the Company. Prior to joining the
Company, he was Director of Sales and Marketing at Acxiom Corporation from
1986 to 1990 and held various positions with Systematics from 1984 to 1986 and
IBM from 1976 to 1983.
Mac E. Rodgers has served as Senior Vice President and General Manager, List
and Cole Services of the Company since July 1995. Mr. Rodgers joined the
Company in 1984 and served as Vice President, Sales from 1993 to July 1995 and
Vice President and Plant Manager from 1990 to 1993, along with various
production and managerial assignments.
COMPENSATION OF DIRECTORS
Directors do not currently receive an annual retainer or other compensation
for serving as directors. It is anticipated that, following completion of the
Offering, directors who do not receive compensation as officers or employees
of the Company will be compensated for serving as directors, including an
annual retainer fee and a fee for each meeting of the Board of Directors that
they attend.
52
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the Company's
Chairman, the other four most highly compensated executive officers of the
Company serving as such on December 31, 1995, the Company's former Chairman,
and one former executive officer who would have been among the four most
highly compensated executive officers on December 31, 1995 had she not ceased
employment prior to such date. The compensation of Mr. Faber reflected in the
table was paid by R.R. Donnelley. The restricted stock and stock options
reflected in the table represent shares of restricted common stock, par value
$1.25 per share, of R.R. Donnelley ("R.R. Donnelley Common Stock") and options
to purchase shares of R.R. Donnelley Common Stock, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- --------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($) ($) ($)(1) ($)(2) SARS (#) ($)(3) SATION ($)
- ------------------ ---- ------- ------- ------------ ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barton L. Faber......... 1995 275,000 100,047 10,016 286,875 13,500 220,559 4,665(4)
Chairman
Susan L. Henricks....... 1995 216,233 70,420 6,716 286,875 12,000 -- --
President and Chief
Executive Officer
Tery R. Larrew.......... 1995 147,710 109,008 2,583 -- 6,000 -- --
President, Customer
Insight Company
Michael T. Reynolds..... 1995 169,400 40,168 700 -- 7,500 -- --
Senior Vice President
and General
Manager, Enhancement
Services
Mac E. Rodgers.......... 1995 175,550 53,653 6,010 -- 7,500 -- --
Senior Vice President
and General
Manager, List and Cole
Services
James D. McQuaid........ 1995 280,008 114,233 9,320 -- -- 244,028 1,176,187(5)
Former Chairman and
Chief Executive Officer
Marjorie L. Schaffner... 1995 207,200 36,115 -- -- -- -- --
Former Division
President,
List Enhancement
Division
</TABLE>
- --------
(1) Included in this column is the amount of the 50% employer matched
contribution under the R.R. Donnelley Stock Purchase Plan. Under this
Plan, officers, selected managers and key staff employees are permitted to
contribute up to 5% of their gross annual salary and bonus from the prior
year toward the purchase during the first quarter of the next year of R.R.
Donnelley Common Stock. An additional 50% of the amount contributed by the
employee is contributed toward the purchase of R.R. Donnelley Common Stock
for the employee's account, and another 20% of the amount the employee
contributes is paid in cash to the employee to assist in the payment of
taxes owed by the employee as a result of the matched contribution. This
20% cash payment is also included in this column.
(2) Values of Restricted Stock Awards shown in the Summary Compensation Table
are based on the closing price of R.R. Donnelley Common Stock on the date
of grant. As of December 31, 1995, B.L. Faber held 17,100 shares of
restricted R.R. Donnelley Common Stock, valued at $673,313 in the
aggregate; S. L. Henricks held 7,500 shares of restricted R.R. Donnelley
Common Stock, valued at $295,313 in the aggregate; and none of the other
individuals named above held any shares of restricted R.R. Donnelley
Common Stock. Values as of December 31, 1995 of restricted R.R. Donnelley
Common Stock are based on the closing price of R.R. Donnelley Common Stock
on December 29, 1995. Dividends are paid on restricted R.R. Donnelley
Common Stock at the same rate and at the same time as on the R.R.
Donnelley Common Stock. All restricted R.R. Donnelley Common Stock vests
on the fifth anniversary of the date of grant.
(3) Dollar value of payouts on long-term performance awards granted in 1993.
(4) Premiums paid by R.R. Donnelley in connection with whole life insurance
policies which are owned by Mr. Faber.
(5) Consists of $9,187 in premiums paid by the Company in connection with
whole life insurance policies which are owned by Mr. McQuaid, $567,000 to
be paid by R.R. Donnelley in annual installments beginning on January 1,
2000 and $150,000 payable annually by R.R. Donnelley for each of the years
1996 through 1999. For more information concerning Mr. McQuaid's
retirement agreement, see "--Agreement with Retired Executive."
53
<PAGE>
OPTION/SAR GRANTS IN 1995
The following table sets forth information for the individuals named in the
Summary Compensation Table regarding grants in 1995 of options to purchase
R.R. Donnelley Common Stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS/SARS GRANTED OR BASE GRANT DATE
GRANTED TO EMPLOYEES PRICE EXPIRATION PRESENT VALUE
NAME (#)(1) IN 1995(2) ($/SH) DATE ($)(3)
- ---- ------------ ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Barton L. Faber......... 13,500 0.27 38.0625 12/14/2005 175,365
Susan L. Henricks....... 12,000 0.24 38.0625 12/14/2005 155,880
Tery R. Larrew.......... 6,000 0.12 38.0625 12/14/2005 77,940
Michael T. Reynolds..... 7,500 0.15 38.0625 12/14/2005 97,425
Mac E. Rodgers.......... 7,500 0.15 38.0625 12/14/2005 97,425
James D. McQuaid........ -- -- -- -- --
Marjorie L. Schaffner... -- -- -- -- --
</TABLE>
- --------
(1) Options become exercisable (at fair market value on the date of grant)
over a four year period, with 20% of the shares becoming exercisable at
the beginning of each of the second, third and fourth years following the
date of grant and with the remaining portion of the option becoming
exercisable at the end of the fourth year, unless the vesting schedule is
accelerated to become fully exercisable upon death, retirement, disability
or a change in control as defined in R.R. Donnelley's 1995 Stock Incentive
Plan.
(2) Represents the percent of total options to purchase R.R. Donnelley Common
Stock granted in 1995 to employees of R.R. Donnelley and its subsidiaries.
(3) The Black-Scholes option pricing method has been used to calculate present
value as of date of grant, December 15, 1995. The present value as of the
date of grant, calculated using the Black-Scholes method, is based on
assumptions about future interest rates, stock price volatility and
dividend yield. The Black-Scholes model is a complicated mathematical
formula widely used to value exchange traded options. However, stock
options granted by R.R. Donnelley to its officers and those of its
subsidiaries differ from exchange traded options in three key respects:
options granted by R.R. Donnelley to its officers and those of its
subsidiaries are long-term, non-transferable and subject to vesting
restrictions while exchange traded options are short-term and can be
exercised or sold immediately in a liquid market. The Black-Scholes model
relies on several key assumptions to estimate the present value of
options, including the volatility of and dividend yield on the security
underlying the option, the risk-free rate of return on the date of grant
and the term of the option. In calculating the grant date present values
set forth in the table, a factor of 21.177% has been assigned to the
volatility of the Common Stock; based on daily stock market quotations for
the twelve months preceding the date of grant, the yield on the R.R.
Donnelley Common Stock has been set at 1.89%; and based upon its annual
dividend rate of $.72 per share at the date of grant, the risk-free rate
of return has been fixed at 5.71%, the rate for a ten year U.S. Treasury
Note on the date of grant as reported in the Federal Reserve Statistical
Release, and the exercise of the options has been assumed to occur at the
end of the actual option term of ten years. There is no assurance that
these assumptions will prove to be true in the future. Consequently, the
grant date present values set forth in the table are only theoretical
values and may not accurately determine present value. The actual value,
if any, that may be realized by each individual will depend on the market
price of R.R. Donnelley Common Stock on the date of exercise.
AGGREGATED OPTION/SAR EXERCISES IN 1995 AND YEAR-END OPTION/SAR VALUES
The following table sets forth certain information for the individuals named
in the Summary Compensation Table regarding the exercise in 1995 of options to
purchase R.R. Donnelley Common Stock and their holdings of unexercised options
to purchase R.R. Donnelley Common Stock as of December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT 12/31/95 (#) AT 12/31/95 ($)(2)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Barton L. Faber......... 4,000 78,938 87,400/49,100 1,440,559/364,175
Susan L. Henricks....... -- -- 29,900/27,100 446,019/159,138
Tery R. Larrew.......... -- -- 2,000/14,000 20,700/89,550
Michael T. Reynolds..... -- -- 9,800/14,700 130,563/76,938
Mac E. Rodgers.......... -- -- 7,200/14,700 84,200/76,938
James D. McQuaid........ -- -- 56,100/24,900 851,625/235,875
Marjorie L. Schaffner... 19,000 404,375 53,400/15,100 923,394/145,638
</TABLE>
- --------
(1) The value realized equals the aggregate amount of the excess of the fair
market value on the date of exercise (the average of the high and low
prices of R.R. Donnelley Common Stock as reported in the New York Stock
Exchange Composite Transactions report for the exercise date) over the
relevant exercise price(s).
(2) The value is calculated based on the aggregate amount of the excess of the
average of the high and low prices of R.R. Donnelley Common Stock as
reported in the New York Stock Exchange Composite Transactions Report for
December 29, 1995 over the relevant exercise price(s).
54
<PAGE>
LONG-TERM INCENTIVE PLANS--AWARDS IN 1995
The following table describes the Long-Term Performance Awards granted under
the R.R. Donnelley 1995 Stock Incentive Plan in 1995 to the individuals named
in the Summary Compensation Table. Each of the awards will vest at the end of
the performance period which extends from January 1, 1995 to December 31,
1997. Payout with respect to the award to Mr. Faber is based on (i) R.R.
Donnelley performance during this period, measured by the return on average
stockholders' equity, with the potential for increased payout if net asset
growth is also achieved, (ii) the performance of the information services
sector of the business of R.R. Donnelley, measured by revenue and earnings,
and (iii) business development. Payout with respect to the awards to Ms.
Henricks and Mr. McQuaid is based on R.R. Donnelley performance during the
period January 1, 1995 to December 31, 1997, measured by the return on average
stockholders' equity, with the potential for increased payout if net asset
growth is also achieved, and the performance of the information services
sector of the business of R.R. Donnelley, measured by cumulative earnings and
return on net assets. The R.R. Donnelley performance factor is weighted 50% in
the total calculation for each award and the information services sector
performance factors are weighted 50% in the aggregate in the total calculation
for each award. The awards are to be paid in cash or R.R. Donnelley Common
Stock or a combination of both, in the discretion of the Human Resources
Committee of the Board of Directors of R.R. Donnelley. The Human Resources
Committee has the discretion to adjust the aggregate amount payable under any
award to reflect special circumstances. The dollar amounts listed in the table
below assume payment is made entirely in cash. Maximum net asset growth has
been assumed in the calculation of the estimated future payouts at the target
and maximum levels and no net asset growth has been assumed in the calculation
of the estimated future payouts at the threshold level.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE UNDER NON-STOCK
NUMBER OF OR OTHER PRICE-BASED PLANS
SHARES, UNITS PERIOD UNIT ---------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ---- ------------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Barton L.
Faber........ -- 1995-1997 $96,250(1) $256,667(1) $ 385,000(1)
Susan L.
Henricks..... -- 1995-1997 $98,438(1) $262,500(1) $ 393,750(1)
Tery R.
Larrew....... -- -- -- -- --
Michael T.
Reynolds..... -- -- -- -- --
Mac E.
Rodgers...... -- -- -- -- --
James D.
McQuaid...... -- 1995-1997 $98,000(2) $261,333(2) $ 392,000(2)
Marjorie L.
Schaffner.... -- -- -- -- --
</TABLE>
- --------
(1) Payout, if any, will be made by R.R. Donnelley and will be pro rated from
January 31, 1995 through the date of the completion of the Offering.
(2) In January, 1998, Mr. McQuaid will be paid by R.R. Donnelley one-third of
the payment, if any, that would have been paid to him. See "--Agreement
with Retired Executive."
RETIREMENT BENEFIT PLAN
Under the Company's Retirement Benefit Plan, employees who met the
eligibility requirements accrued in 1995 an annual retirement benefit computed
at the rate of 1.5% on compensation up to "covered compensation," and 2% on
compensation in excess of "covered compensation" but not in excess of $150,000
(the maximum amount of compensation for 1995 on which benefits can accrue
under current law). The compensation covered by the Plan includes wages and
salaries, supplementary compensation and commissions. An employee's "covered
compensation" for a year is the average of the Social Security wage bases for
the 35-year period ending with such year. Benefits are paid monthly after
retirement for the life of the participant (straight life annuity amount) or,
if the participant is married or has elected an optional benefit form, in an
actuarially reduced amount for the life of the participant and the
participant's surviving spouse or other surviving person named as a contingent
member. Benefits under the Retirement Benefit Plan are limited to the extent
required by provisions of the Internal Revenue Code and the Employee
Retirement Income Security Act of 1974. If payment of actual retirement
benefits is limited by such provisions, an amount equal to any reduction in
retirement benefits will be paid as a supplemental benefit under the Unfunded
Supplemental Benefit Plan adopted by the Board of Directors in 1995.
55
<PAGE>
The following table contains information concerning annual benefits payable
pursuant to the Retirement Benefit Plan on a straight life annuity basis upon
retirement at age 65 for the individuals named in the Summary Compensation
Table. These benefits include the annual benefits to be paid at age 65
computed on service through December 31, 1995, estimated additional annual
benefits which may be earned in the future, assuming the individuals, other
than Mr. McQuaid and Ms. Schaffner, continue in the Company's employ to age 65
and current compensation levels remain unchanged, and total estimated annual
benefits on retirement at age 65.
<TABLE>
<CAPTION>
ESTIMATED ADDITIONAL ANNUAL TOTAL ESTIMATED ANNUAL
ANNUAL BENEFITS BENEFITS ON RETIREMENT BENEFITS COMPUTED
TO BE PAID AT AGE 65 AT AGE 65 ON SERVICE THROUGH
ON THE BASIS OF FOR SERVICE AFTER 1995 DECEMBER 31, 1995
SERVICE THROUGH ASSUMING CONTINUATION OF PLUS BENEFITS WHICH MAY
INDIVIDUAL DECEMBER 31, 1995 ($) EMPLOYMENT UNTIL AGE 65 ($) BE EARNED IN FUTURE ($)
- ---------- --------------------- --------------------------- -----------------------
<S> <C> <C> <C>
Barton L. Faber......... 49,993 119,345 169,338
Susan L. Henricks....... 26,685 96,970 123,655
Tery R. Larrew.......... -- (1) -- (1) -- (1)
Michael T. Reynolds..... 17,347 77,633 94,980
Mac E. Rodgers.......... 16,521 125,967 142,488
James D. McQuaid........ -- (2) -- (2) -- (2)
Marjorie L. Schaffner... 57,068 77,593 134,661
</TABLE>
- --------
(1) Not covered by the Company's Retirement Benefit Plan.
(2) Mr. McQuaid retired as Chairman and Chief Executive Officer as of December
31, 1995. Commencing 1996, Mr. McQuaid will receive an annual benefit of
$45,387 to be paid until the later of his or his spouse's death.
EMPLOYMENT AGREEMENTS
Mr. Faber has entered into a four-year employment agreement with the Company
commencing on the closing of the Offering. The agreement provides for an
annual base salary of $310,000 with a pro-rated bonus opportunity for 1996 to
earn up to 100% of base salary if certain pre-established net income criteria
are met by the Company. Bonus opportunities for 1997 and later years will be
determined by the Board of Directors of the Company or a committee of the
Board. Mr. Faber will be granted, subject to the closing of the Offering, ten-
year options to purchase 170,000 shares of Common Stock at a purchase price
equal to the initial public offering price and 17,000 shares of Common Stock
in the form of restricted stock. See "--Stock Plans."
Ms. Henricks has also entered into a four-year employment agreement with the
Company commencing on the closing of the Offering. The agreement provides for
an annual base salary of $255,000 with a pro-rated bonus opportunity for 1996
to earn up to 90% of base salary if certain pre-established net income
criteria are met by the Company. Bonus opportunities for 1997 and later years
will be determined by the Board of Directors of the Company or a committee of
the Board. Ms. Henricks will be granted, subject to the closing of the
Offering, ten-year options to purchase 170,000 shares of Common Stock at a
purchase price equal to the initial public offering price and 17,000 shares of
Common Stock in the form of restricted stock. See "--Stock Plans."
Each of Mr. Faber's and Ms. Henricks' employment agreement provides for a
severance payment equal to (i) one and one-half times base salary minus the
amount of any disability benefits where termination is by reason of disability
or (ii) one and one-half times base salary where termination is by the Company
for any reason other than for cause or by the executive upon breach by the
Company of the agreement or for good reason. A severance payment will not be
payable where termination is by the Company for cause, by the executive for
any reason other than upon breach by the Company of the agreement or for good
reason, or by reason of the executive's retirement or death. Each agreement
also contains customary provisions providing for the non-disclosure of
confidential information and an agreement not to compete with the Company for
a period of 18 months after the termination of the agreement.
56
<PAGE>
Mr. Larrew entered into an employment agreement with CIC in connection with
the Company's acquisition of CIC in 1994. The agreement provides for Mr.
Larrew's employment by CIC as its President and a director through December
31, 1997. The agreement provides Mr. Larrew with a minimum annual salary of
$136,260 and the opportunity to earn a pro-rated bonus up to 100% of his
annual salary upon satisfaction of certain revenue, profit, customer
satisfaction and pre-determined operations objectives relative to CIC. In
addition, the agreement requires CIC to pay Mr. Larrew a retention bonus equal
to $300,000 if Mr. Larrew is employed by CIC on the third anniversary of CIC's
acquisition by the Company. Pursuant to the agreement, R.R. Donnelley granted
Mr. Larrew stock options for 8,000 shares of R.R. Donnelley Common Stock.
Pursuant to the agreement, Mr. Larrew agreed not to compete with CIC or any
affiliate of CIC within North America and Europe during the term of the
agreement and, upon the prior written notice from CIC and the payment of
$100,000 in four quarterly installments, for one year after the termination of
the agreement.
AGREEMENT WITH RETIRED EXECUTIVE
James D. McQuaid retired as Chairman and Chief Executive Officer of the
Company effective December 31, 1995. Pursuant to an agreement dated July 26,
1995 between Mr. McQuaid and R.R. Donnelley and its affiliates, the aggregate
principal amount of $567,000 was credited on December 31, 1995 to a
hypothetical account (the "Account") maintained for Mr. McQuaid by R.R.
Donnelley. Interest is credited to the outstanding principal amount,
commencing January 1, 1996 at a rate equal to Moody's Aaa corporate bond rate.
The sum of $150,000 is to be paid out and charged to such account on January
1, 2000 and on each January 1 thereafter (or in the case of the last such
installment, such lesser amount as shall remain in the Account) until the
first to occur of the death of Mr. McQuaid or depletion of the Account by
reason of the charges to the Account for such distributions. Any amount
remaining in the Account at the time of Mr. McQuaid's death will be paid to a
beneficiary designated by Mr. McQuaid or, if such designation has not been
made, to his estate. Mr. McQuaid has agreed not to engage in activities that
compete with the business of the Company for a period ending on the earlier of
(i) December 31, 2001 or (ii) two years following a "change of control" of the
Company, which will occur upon the consummation of the Offering. In
consideration for such agreement, the Company has agreed to pay Mr. McQuaid
$12,500 per month commencing January, 1996 and ending December, 1999; provided
that, prior to the occurrence of a change of control, the Company may extend
such noncompetition period upon payment of $125,000 per year and provided that
the Company has agreed to pay Mr. McQuaid on the effective date of a change of
control all amounts that would otherwise be due to Mr. McQuaid under the
agreement for the balance of the term of the agreement had the change of
control not occurred. In consideration of Mr. McQuaid's agreement to make
himself available for up to 200 days per year for consulting services during
the period commencing January 1, 1996 and ending December 31, 1997, the
Company has agreed to pay Mr. McQuaid $8,333 per month. For the period January
1, 1998 through December 31, 1999, Mr. McQuaid will be paid $2,000 for each
day during which his consulting services are requested by the Company and made
available by Mr. McQuaid. These amounts are payable in addition to such
amounts as Mr. McQuaid is entitled to receive under R.R. Donnelley's plans for
retired employees and pursuant to stock awards and short- and long-term
incentive awards previously granted to Mr. McQuaid.
STOCK PLANS
In connection with the Offering, the Board of Directors of the Company has
adopted, and R.R. Donnelley as the Company's sole stockholder has approved,
the Company's 1996 Stock Incentive Plan and the Company's 1996 Broad-Based
Employee Stock Plan. The Company has reserved for issuance under the 1996
Stock Incentive Plan and the 1996 Broad-Based Employee Stock Plan an aggregate
of 1,600,000 shares of Common Stock. Options to purchase Common Stock have
been granted under the 1996 Stock Incentive Plan, subject to closing of the
Offering, as follows: 170,000 options to Barton L. Faber; 170,000 options to
Susan L. Henricks; 50,000 options to Tery R. Larrew; 50,000 options to Michael
T. Reynolds; 50,000 options to Mac E. Rodgers; and 623,000 options to other
employees of the Company; and shares of restricted Common Stock have been
granted under the 1996 Stock Incentive Plan, subject to the closing of the
Offering, as follows: 17,000 shares to Barton
57
<PAGE>
L. Faber and 17,000 shares to Susan L. Henricks. Each such option will have an
exercise price equal to the initial public offering price, will have a 10-year
term and will become exercisable with respect to one-quarter of the shares of
Common Stock subject to the option on each of the first four anniversaries of
the closing of the Offering. The shares of restricted Common Stock will vest
with respect to one-quarter of the shares on each of the first four
anniversaries of the closing of the Offering. The Company expects to grant an
aggregate of approximately 155,000 shares of Common Stock under the 1996
Broad-Based Employee Stock Plan upon closing of the Offering through the grant
of options to purchase 50 shares of Common Stock to each employee of the
Company (other than officers and certain U.K. employees) as of the date of
closing. Each such option will have an exercise price equal to the initial
public offering price, will have a 10-year term and will become exercisable on
the third anniversary of the closing of the Offering.
OWNERSHIP OF CAPITAL STOCK
SECURITY OWNERSHIP OF COMPANY BY MANAGEMENT
Prior to the completion of the Offering, no director or executive officer of
the Company beneficially owns any equity securities of the Company. The
Company has granted, subject to the completion of the Offering, to certain
executive officers and other key employees of the Company, restricted shares
of Common Stock and options to purchase Common Stock under the 1996 Stock
Incentive Plan. See "Management--Employment Agreements" and "--Stock Plans."
SOLE STOCKHOLDER OF THE COMPANY
The following table sets forth certain information regarding the beneficial
ownership by R.R. Donnelley of the Common Stock (i) immediately prior to the
Offering and (ii) as adjusted to reflect the sale of the shares of Common
Stock offered hereby (assuming the U.S. Underwriters' over-allotment option is
not exercised). R.R. Donnelley has or will have sole voting and investment
power with respect to all shares indicated as beneficially owned by R.R.
Donnelley.
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
-------------------- --------------------
PERCENT OF PERCENT OF
NAME AND ADDRESS NUMBER CLASS NUMBER CLASS
---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
R. R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, Illinois 60601........ 8,600,000 100% 8,600,000 41.7%
</TABLE>
PRINCIPAL STOCKHOLDERS OF R.R. DONNELLEY
The following table lists the beneficial ownership of R.R. Donnelley Common
Stock with respect to all persons known to the Company to be the beneficial
owner of more than 5% of R.R. Donnelley Common Stock. The information shown
was furnished by Northern Trust Corporation. The percentage of outstanding
R.R. Donnelley Common Stock owned by Northern Trust Corporation is based on
outstanding shares of R.R. Donnelley Common Stock as of December 31, 1995.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------- ---------- -------
<S> <C> <C>
Northern Trust Corporation
50 South LaSalle Street
Chicago, Illinois 60675............................ 16,454,020(1) 10.69%
</TABLE>
- --------
(1) Northern Trust Corporation is the parent holding company for The Northern
Trust Company and other affiliates and files one Schedule 13G to report
beneficial ownership by all such entities of R.R. Donnelley Common Stock.
Includes shares as to which Northern Trust Corporation has or shares
investment and voting power as follows: sole investment power, 5,143,910
shares (3.34%); shared investment power, 9,735,909 shares (6.32%); sole
voting power, 10,100,383 shares (6.56%); shared voting power, 2,576,123
shares (1.67%).
58
<PAGE>
BENEFICIAL OWNERSHIP OF R.R. DONNELLEY COMMON STOCK BY DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY
The following table sets forth, as of December 31, 1995, the number of
shares of R.R. Donnelley Common Stock beneficially owned by each director of
the Company, each of the individuals named in the Summary Compensation Table
and all directors and executive officers of the Company as a group. Unless
otherwise indicated, the beneficial owner has sole voting and investment power
with respect to the indicated shares. The aggregate amount of all R.R.
Donnelley Common Stock beneficially owned by such directors and executive
officers represents less than one percent of the outstanding R.R. Donnelley
Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1)
------------------------ ----------
<S> <C>
Barton L. Faber.............................................. 113,065
Susan L. Henricks............................................ 39,253(2)
Tery R. Larrew............................................... 2,159
Peter F. Murphy.............................................. 3,840
Michael T. Reynolds.......................................... 10,214
Mac E. Rodgers............................................... 8,363
Jonathan P. Ward............................................. 136,197
James D. McQuaid............................................. 16,878
Marjorie L. Schaffner........................................ --
Directors and seven executive officers as a group............ 380,148
</TABLE>
- --------
(1) Includes shares which could be acquired by exercise of stock options as
follows: Mr. Faber, 87,400 shares; Ms. Henricks, 29,900 shares; Mr.
Larrew, 2,000 shares; Mr. Murphy, 1,000 shares; Mr. Reynolds, 9,800
shares; Mr. Rodgers, 7,200 shares; Mr. Ward, 94,700 shares; and all
directors and seven executive officers as a group, 276,870 shares.
(2) Includes 291 shares owned by spouse and 120 shares which could be acquired
by exercise of stock options held by spouse.
59
<PAGE>
RELATIONSHIP WITH R.R. DONNELLEY
GENERAL
Prior to the Offering, the Company was a wholly owned subsidiary of R.R.
Donnelley. R.R. Donnelley is a world leader in managing, reproducing and
distributing print and digital information for the publishing, retailing,
merchandising and information-technology markets and specializes in the
production of catalogs, inserts, magazines, book, directories, and financial
and computer documentation.
Upon completion of the Offering, R.R. Donnelley will own 8,600,000 shares of
Common Stock, representing approximately 41.7% of the outstanding shares of
Common Stock (approximately 38.4%, if the U.S. Underwriters exercise their
over-allotment option in full), and will be the Company's largest stockholder.
Consequently, R.R. Donnelley will be able to significantly influence such
actions as the election of directors of the Company, the approval of matters
submitted for stockholder approval or preventing a potential takeover.
Currently, three of the four members of the Board of Directors of the Company
are officers of R.R. Donnelley, one of whom will cease being an officer of
R.R. Donnelley upon completion of the Offering. The Company anticipates that,
following the Offering, the Board of Directors will be increased to six
members and two additional directors who are not affiliated with R.R.
Donnelley or the Company will be elected by the Board of Directors to fill the
vacancies.
Since its acquisition by R.R. Donnelley, the Company funded its operations,
capital expenditures and acquisitions in part through borrowings from a
subsidiary of R.R. Donnelley. The net proceeds of the Offering will be used to
repay amounts owed to R.R. Donnelley and its subsidiaries. See "Use of
Proceeds" and Notes to Consolidated and Combined Financial Statements of
Metromail.
Prior to the Offering, the Company obtained certain services from, and
provided certain services to, R.R. Donnelley, participated in a number of
employee benefit plans maintained by R.R. Donnelley and was included as part
of R.R. Donnelley's federal income tax and certain other tax returns. Prior to
the completion of the Offering, the Company will enter into certain agreements
with R.R. Donnelley relating to these matters. None of these agreements
resulted from "arm's length" negotiations. For additional information
concerning the relationship of the Company and R.R. Donnelley see "Risk
Factors--Principal Stockholder; Potential Conflicts of Interest; Possible
Future Sales of Common Stock by R.R. Donnelley."
The following summary description of the agreements to be entered into
between its Company and R.R. Donnelley does not purport to be complete and is
qualified in its entirety by reference to the agreements, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
TRANSITION SERVICES AGREEMENT
R.R. Donnelley currently provides certain administrative services to the
Company. Charges for these services have been allocated by R.R. Donnelley to
the Company based on various formulas which reasonably approximate the actual
costs incurred. The expenses recorded by the Company for these allocations
were approximately $1.1 million, $1.4 million, $1.8 million and $0.4 million
for the years ended December 31, 1993, 1994 and 1995 and the three months
ended March 31, 1996, respectively. See Note 3 of Notes to Consolidated and
Combined Financial Statements of Metromail.
Prior to completion of the Offering, the Company and R.R. Donnelley will
enter into the Transition Services Agreement, pursuant to which R.R. Donnelley
or its affiliates will agree to perform certain legal, environmental, real
estate, risk management and tax services for the Company, and the Company will
agree to furnish R.R. Donnelley certain financial information. The Company
will be charged fees and expenses for such services that the Company believes
are at least as favorable to it as could be obtained from unaffiliated parties
for comparable services or arrangements. No assurances can be made, however,
that the Company could not obtain such services at lower prices from a third
party. The Transition Services Agreement will be in effect for the period
commencing upon closing of the Offering and ending on December 31, 1996,
except with respect to tax services, the provision of which will end on
January 31, 1997. In addition, the Company may request an extension of the
term of the Agreement as it relates to tax services for a period of twelve
months by giving written notice to R.R. Donnelley by November 1, 1996,
although R.R. Donnelley is not required to agree to such request.
60
<PAGE>
SALES AGREEMENT
The Company sells products and services to clients who are also customers of
R.R. Donnelley. For certain of these sales, primarily involving sales to
catalogers and retailers, the Company's clients are billed by R.R. Donnelley,
with R.R. Donnelley then allocating to the Company the portion of the net
sales attributable to the services performed by the Company, as agreed by the
Company and its client. The net sales of the Company billed in this manner
totalled approximately $22.8 million, $20.9 million, $22.7 million and $5.3
million for the years ended December 31, 1993, 1994 and 1995 and the three
months ended March 31, 1996, respectively.
Prior to completion of the Offering, the Company and R.R. Donnelley will
enter into the Sales Agreement, pursuant to which R.R. Donnelley will agree
that if it identifies certain opportunities for sales of services of the type
that the Company provides from among R.R. Donnelley's current and prospective
customers, it will obtain detailed requirements regarding the sales
opportunity and, prior to soliciting any competitor of the Company to provide
the services, request a quotation from the Company for the Company's terms of
providing the services. If the Company furnishes a quotation and if R.R.
Donnelley successfully sells the services of the Company to the customer, R.R.
Donnelley will, following performance of the services, invoice and seek to
collect the amounts owed from the customer for the services provided by the
Company. Upon collection of such amounts from the customer, R.R. Donnelley
will pay over the collected amount less two percent. The initial term of the
Sales Agreement will end on December 31, 1998.
BENEFIT ADMINISTRATION SERVICES AGREEMENT
The Company currently participates in various employee benefit plans which
are sponsored by R.R. Donnelley. These programs include medical, dental and
life insurance and workers compensation. The Company has reimbursed R.R.
Donnelley for its proportionate cost of these programs based on historical
experience and relative headcount. The Company recorded expense related to the
reimbursement of these costs of approximately $6.2 million, $7.3 million, $8.8
million and $3.1 million in the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1996, respectively. See Note 3 of Notes
to Consolidated and Combined Financial Statements of Metromail.
The Company also participates in a post retirement benefit program sponsored
by R.R. Donnelley which provides certain post retirement medical and life
insurance benefits. The Company has reimbursed R.R. Donnelley for its
proportionate cost of these programs based on an actuarial estimation of the
proportionate costs attributable to all of the Company's employees. The
Company recorded expense related for the reimbursement of these costs of
approximately $1.9 million, $2.1 million, $1.8 million and $0.5 million in the
years ended December 31, 1993, 1994 and 1995 and the three months ended March
31, 1996, respectively. See Note 3 of Notes to Consolidated and Combined
Financial Statements of Metromail.
The Company also participates in a stock purchase plan for selected managers
and key employees sponsored by R.R. Donnelley. Under the plan, the Company is
required to contribute an amount equal to 70% of participants' contributions
(which are limited to 5% of compensation considered for plan purposes), of
which 50% is applied to the purchase of R.R. Donnelley Common Stock and 20% is
paid in cash. Amounts charged to expense by the Company for this plan were
$0.4 million, $0.6 million, $0.3 million and $0.1 million for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996,
respectively. See Note 3 of Notes to Consolidated and Combined Financial
Statements of Metromail
Prior to completion of the Offering, the Company and R.R. Donnelley will
enter into the Benefit Administration Services Agreement. Under this
agreement, (i) R.R. Donnelley will permit the Company to continue to
participate in the welfare plans of R.R. Donnelley until the Company has
established its own welfare plans, which it will do as soon as practicable
after the completion of the Offering; (ii) the Company will assume the
liability to provide retiree medical and life insurance benefits with respect
to active employees who have not yet satisfied the age and service eligibility
requirements to receive such benefits, with R.R. Donnelley retaining the
liability to provide retiree benefits to all active and terminated employees
who have met the age and service requirements for eligibility as of the
completion of the Offering; and (iii) the Company will cease being a
participant in the R.R. Donnelley stock purchase plan.
61
<PAGE>
The Benefit Administration Services Agreement will also provide that the
Company will reimburse R.R. Donnelley for (1) the actual cost of benefits
provided under R.R. Donnelley's employee benefit plans for Company employees
during the period in which the Company continues to participate in such plans
following the Offering and (2) the Company's pro rata share of administration
and plan asset management expenses incurred in the operation of these plans
during such period.
DATA CENTER SERVICES AGREEMENT
The Company is currently providing computer processing services for R.R.
Donnelley and its subsidiaries. The costs reimbursed by R.R. Donnelley for
these services (reflected as a reduction in costs of sales) totalled
approximately $2.8 million, $3.1 million, $3.5 million and $0.9 million for
the years ended December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1996, respectively. See Note 3 of Notes to Consolidated and Combined
Financial Statements of Metromail. Prior to the completion of the Offering,
the Company will enter into a Data Center Services Agreement with R.R.
Donnelley. Under the Data Center Services Agreement, the Company will provide
to R.R. Donnelley general computer and data processing services, including
mainframe processing and technical software systems support and data
processing for R.R. Donnelley's internal business purposes. The Data Center
Services Agreement will be in effect for the period commencing on the closing
of the Offering and ending on December 31, 1998. After December 31, 1998, the
Data Center Services Agreement will automatically renew unless terminated by
either party upon six months' notice. R.R. Donnelley will pay the Company an
annualized fee of $4.3 million for the Company's services under the agreement
during the period ending on December 31, 1996 and, thereafter, the yearly fee
will be adjusted according to changes in R.R. Donnelley's service needs and
increased by an amount equal to the average published consumer price index
increase for the preceding 12 months, measured at September 30 of each year,
provided that such increases shall not exceed six percent per year.
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
The Company is currently included in the consolidated federal income tax
return of R.R. Donnelley and files on a combined basis with R.R. Donnelley in
certain states. Thus, rather than paying income taxes directly in these
jurisdictions, the Company currently makes tax sharing payments to R.R.
Donnelley pursuant to R.R. Donnelley's tax allocation policy. In general, R.R.
Donnelley's tax allocation policy provides that the consolidated or combined
tax liability is allocated among the entities in the consolidated or combined
group based principally upon taxable income, credits, preferences and other
amounts directly related to each entity. Upon completion of the Offering, the
Company will no longer be permitted to be included in such consolidated and
combined tax returns. Instead, it will file its own federal, state and local
income tax returns and pay its own taxes on a separate company basis. Pursuant
to a Tax Allocation and Indemnification Agreement to be entered into by the
Company and R.R. Donnelley prior to completion of the Offering, however, the
Company will remain obligated to pay to R.R. Donnelley any income taxes shown
on such consolidated and combined tax returns, generally to the extent
attributable to the Company, for calendar year 1995 and for the tax period
(the "Interim Period") beginning on January 1, 1996 and ending on the date of
the consummation of the Offering (to the extent that it has not previously
paid such amounts to R.R. Donnelley). In addition, if the income tax liability
shown on any such consolidated or combined tax return for the Interim Period
and attributable to the Company is adjusted as a result of an action of a
taxing authority or a court, then the Company will pay to R.R. Donnelley the
full amount of any increase in such tax liability (together with any
applicable interest and penalties). Under federal regulations, the Company
will be subject to several liability for the consolidated federal income taxes
for any tax year (including the Interim Period) in which it was a member of
the R.R. Donnelley federal consolidated group (whether or not such taxes are
attributable to the Company). R.R. Donnelley has agreed to indemnify the
Company against such liability and any similar liability under state and local
law. R.R. Donnelley has also agreed to indemnify the Company against any
increase in the Company's income taxes (whether or not related to taxes paid
on a consolidated or combined basis) for periods prior to January 1, 1996 that
results from an action of a taxing authority or a court (except to the extent
such increase provides tax benefits to the Company for periods beginning on or
after January 1, 1996, in which case the sum of such tax benefits will be
retained by R.R. Donnelley or paid by the Company to R.R. Donnelley).
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DESCRIPTION OF CAPITAL STOCK AND CORPORATE CHARTER
The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, par value $.01 per share, and 20,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). The following summary
description of the capital stock, Restated Certificate of Incorporation and
By-laws of the Company does not purport to be complete and is qualified in its
entirety by reference to the Company's Restated Certificate of Incorporation
and By-laws, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part (see "Available Information"),
and to the Delaware General Corporation Law ("DGCL").
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. See "Dividend Policy." Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
holders of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.
PREFERRED STOCK
The Board of Directors has the authority, subject to certain limitations
prescribed by law, without further vote or action by the stockholders, to
issue from time to time the Preferred Stock in one or more classes or series
and to fix or alter the designations, powers, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such class
or series thereof, including the dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), liquidation
preferences and the number of shares constituting each such class or series.
The issuance of Preferred Stock, while providing flexibility in connection
with possible acquisitions or other corporate purposes, may have the effect of
delaying, deferring or preventing a change of control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws, summarized in the following paragraphs, may be considered to have
an anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
Classified Board of Directors
The Company's Restated Certificate of Incorporation provides for the Board
of Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. Classification of the Board of Directors
expands the time required to change the composition of a majority of directors
and may tend to discourage a proxy contest or other takeover bid for the
Company. Moreover, under the DGCL, in the case of a corporation having a
classified board of
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directors, the stockholders may remove a director only for cause. These
provisions, when coupled with provisions of the Company's Restated Certificate
of Incorporation authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders of the Company from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies with their own nominees.
Special Meetings of Stockholders
The Company's By-laws provide that special meetings of stockholders may be
called by the Chairman of the Board or the President and shall be called by
the President or the Secretary at the request in writing of a majority of the
Board of Directors of the Company.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations
The Company's By-laws provide that stockholders seeking to bring business
before a meeting of stockholders, or to nominate candidates for election as
directors at a meeting of stockholders, must provide timely notice thereof in
writing. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive office of the Company, not less than
60 days nor more than 90 days prior to the scheduled meeting (or, if a special
meeting, not later than the close of business on the tenth day following the
earlier of (i) the day on which such notice of the date of the meeting was
mailed, or (ii) the day on which public disclosure of the date of the special
meeting was made). The By-laws also specify certain requirements pertaining to
the form and substance of a stockholder's notice. These provisions may
preclude some stockholders from making nominations for directors at an annual
or special meeting or from bringing other matters before the stockholders at a
meeting.
No Action by Written Consent of the Stockholders
The Company's Restated Certificate of Incorporation does not allow the
stockholders of the Company to take action by written consent.
Delaware Takeover Statute
Section 203 of the DGCL ("Section 203") prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (i) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (ii) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203; or
(iii) subsequent to such date, the business combination is approved by both
the Board of Directors and by holders of at least 66 2/3% of the corporation's
outstanding voting stock, excluding shares owned by the interested
stockholder. For these purposes, the term "business combination" includes
mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own)
15% or more of the corporation's voting stock. Pursuant to the Restated
Certificate of Incorporation, the Company has expressly elected not to be
governed by Section 203; provided that this election does not become effective
until March 5, 1997 and will not apply to a business combination with R.R.
Donnelley.
Limitations of Liability
The Company's Restated Certificate of Incorporation contains a provision
that is designed to limit the directors' liability to the extent permitted by
the DGCL and any amendments thereto. Specifically, directors will not be held
liable to the Company or its stockholders for an act or omission in such
capacity as a director, except for liability as a result of: (i) a breach of
the duty of loyalty to the Company or its stockholders, (ii) actions or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) payment
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of an improper dividend or improper repurchase of the Company's stock under
Section 174 of the DGCL, or (iv) actions or omissions pursuant to which the
director will receive an improper personal benefit. The principal effect of
the limitation of liability provision is that a stockholder is unable to
prosecute an action for monetary damages against a director of the Company
unless the stockholder can demonstrate one of the specified bases for
liability. This provision, however, does not eliminate or limit director
liability arising in connection with causes of action brought under the
federal securities laws. The Company's Restated Certificate of Incorporation
does not eliminate its directors' duty of care. The inclusion of this
provision in the Company's Restated Certificate of Incorporation may, however,
discourage or deter stockholders or management from bringing a lawsuit against
directors for a breach of their fiduciary duties, even though such an action,
if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of
the duty of care.
Indemnification
The Company's By-laws also provide that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
Company is generally required to indemnify its directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them
to defend against such proceedings. To receive indemnification, the director
or officer must have been successful in the legal proceedings or acted in good
faith and in what was reasonably believed to be a lawful manner in the
Company's best interest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
20,600,000 shares of Common Stock (22,400,000 shares if the over-allotment
option granted to the U.S. Underwriters is exercised in full). Of these
shares, the 12,000,000 shares to be sold in the Offering (13,800,000 shares if
such over-allotment option is exercised in full) will be freely tradeable
without restrictions or further registration under the Securities Act of 1933,
as amended (the "Securities Act"), except for any shares purchased by an
"affiliate" of the Company which will be subject to the resale limitations of
Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 8,600,000 outstanding shares of Common Stock,
which were acquired for purposes of Rule 144 by R.R. Donnelley in 1987, are
deemed "restricted securities" within the meaning of Rule 144. These
"restricted securities" may not be sold in the absence of registration under
the Securities Act other than in accordance with Rule 144 or another exemption
from registration.
In general, under Rule 144 as currently in effect, a person (including an
"affiliate" (as that term is defined under the Securities Act)) who
beneficially owns shares that are "restricted securities" as to which at least
two years have elapsed since the later of the date of acquisition of such
securities from the issuer or from an affiliate of the issuer, and any
affiliate who owns shares that are not "restricted securities," is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of one percent of the then outstanding shares of Common Stock
(206,000 shares following completion of the Offering assuming the over-
allotment option granted to the U.S. Underwriters is not exercised) or the
average weekly trading volume in the Common Stock in composite trading on all
exchanges during the four calendar weeks preceding such sale. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company and who has beneficially owned restricted securities as to which at
least three years have elapsed since the later of the date of the acquisition
of such securities from the issuer or from an affiliate of the issuer is
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. The foregoing summary of Rule 144 is not intended
to be a complete description thereof.
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Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
share of Common Stock, or the availability of such shares for sale, will have
on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. Although R.R. Donnelley in the
future may effect sales or other dispositions of Common Stock that would
reduce its ownership interest in the Company, R.R. Donnelley has advised the
Company it has no plans to do so. See "Relationship with R.R. Donnelley." In
connection with the Offering, subject to certain exceptions, the Company and
R.R. Donnelley have agreed not to offer, pledge, sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security
convertible into or exercisable or exchangeable for Common Stock) for a period
of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated. See "Underwriters."
STOCK OPTIONS AND RESTRICTED STOCK
In connection with the Offering, the Company expects to grant certain
employees 34,000 shares of restricted Common Stock and options to acquire up
to an aggregate 1,300,000 shares of Common Stock at the initial public
offering price set forth on the cover page of this Prospectus. An additional
266,000 shares of Common Stock would be available for future grants under the
Company's 1996 Stock Incentive Plan and 1996 Broad-Based Employee Stock Plan.
See "Management--Stock Plans."
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock issuable under
the Company's 1996 Stock Incentive Plan and 1996 Broad-Based Employee Stock
Plan, and such registration statements are expected to become effective upon
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock applicable to "Non-United States Holders." A "Non-United States Holder"
is any beneficial owner of Common Stock that, for United States federal income
or estate tax purposes, as the case may be, is a non-resident alien
individual, a foreign corporation, a foreign partnership or a foreign estate
or trust as such terms are defined in the Internal Revenue Code of 1986, as
amended (the "Code"). This discussion is based on the Code and administrative
and judicial interpretations as of the date hereof, all of which are subject
to change either retroactively or prospectively. This discussion does not
address all aspects of United States federal income and estate taxation that
may be relevant to Non-United States Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign taxing jurisdiction or the application of a
particular tax treaty. Prospective investors are urged to
consult their tax advisors regarding the United States federal, state and
local income and other tax consequences, and the non-United States tax
consequences, of owning and disposing of Common Stock.
Proposed United States Treasury Regulations were issued on April 15, 1996
(the "Proposed Regulations") which, if adopted, could affect the United States
taxation of dividends on Common Stock paid to a Non-United States Holder. The
Proposed Regulations are generally proposed to be effective with respect to
dividends paid after December 31, 1997, subject to certain transition rules.
It cannot be predicted at this time whether the Proposed Regulations will be
adopted as proposed or what modifications, if any, may be made to them. The
discussion below is not intended to include a complete discussion of the
provisions of the Proposed Regulations, and prospective investors are urged to
consult their tax advisors with respect to the effect the Proposed Regulations
may have if adopted.
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DIVIDENDS
Subject to the discussion below, any dividend paid to a Non-United States
Holder generally will be subject to United States withholding tax either at a
rate of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. For purposes of determining whether tax
is to be withheld at a 30% rate or at a reduced rate as specified by an
applicable tax treaty, under current United States Treasury Regulations the
Company ordinarily will presume that dividends paid to a holder with an
address in a foreign country are paid to a resident of such country absent
knowledge that such presumption is not warranted. Under such Regulations,
dividends paid to a holder with an address within the United States generally
will be presumed to be paid to a holder who is not a Non-United States Holder
and will not be subject to the 30% withholding tax, unless the Company has
actual knowledge that the holder is a Non-United States Holder.
The Proposed Regulations would provide for certain presumptions (which
differ from those described above) upon which the Company may generally rely
to determine whether, in the absence of certain documentation, a holder should
be treated as a Non-United States Holder for purposes of the 30% withholding
tax described above. The presumptions would not apply for purposes of granting
a reduced rate of withholding under a treaty. Under the Proposed Regulations,
to obtain a reduced rate of withholding under a treaty a Non-United States
Holder would generally be required to provide an Internal Revenue Service Form
W-8 certifying such Non-United States Holder's entitlement to benefits under a
treaty together with, in certain circumstances, additional information. The
Proposed Regulations also would provide special rules to determine whether,
for purposes of determining the applicability of a tax treaty and for purposes
of the 30% withholding tax described above, dividends paid to a Non-United
States Holder that is an entity should be treated as paid to the entity or
those holding an interest in that entity.
Dividends received by a Non-United States Holder that are effectively
connected with a United States trade or business conducted by such Non-United
States Holder are exempt from withholding tax. However, such effectively
connected dividends are subject to regular United States income tax in the
same manner as if the Non-United States Holder were a United States person for
federal income tax purposes. A Non-United States Holder may claim exemption
from withholding under the effectively connected income exception by filing
Internal Revenue Service Form 4224 (Statement Claiming Exemption from
Withholding of Tax on Income Effectively Connected With the Conduct of
Business in the United States) each year with the Company or its paying agent
prior to the payment of the dividends for such year. The Proposed Regulations
would replace Form 4224 with Form W-8 and certain additional information.
Effectively connected dividends received by a corporate Non-United States
Holder may be subject to an additional "branch profits tax" at a rate of 30%
(or such lower rate as may be specified by an applicable tax treaty) of such
corporate Non-United States Holder's effectively connected earnings and
profits, subject to certain adjustments.
A Non-United States Holder eligible for a reduced rate of United States
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
United States Internal Revenue Service ("IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax with respect to gain realized upon the sale or other
disposition of Common Stock unless (i) such gain is effectively connected with
a United States trade or business of the Non-United States Holder; (ii) the
Non-United States Holder is a non-resident alien individual who holds the
Common Stock as a capital asset, is present in the United States for a period
or periods aggregating 183 days or more during the calendar year in which such
sale or disposition occurs, and either the non-resident alien individual has a
"tax home" in the United States or the sale is attributable to an office or
other fixed place of business maintained by the non-resident alien individual
in the United States; or (iii) the Company is or has been a "United States
real property holding corporation" for federal income tax purposes at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period and certain other conditions are met. The Company has
determined that it is not and has
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never been, and the Company does not believe that it will become, a "United
States real property holding corporation" for federal income tax purposes.
Non-United States Holders should consult applicable tax treaties, which might
result in United States federal income tax treatment on the sale or other
disposition of Common Stock different than as described above.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, the Company must report to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to tax treaties or
other agreements, the IRS may make its reports available to tax authorities in
the recipient's country of residence.
Unless the Company has actual knowledge that a holder is a Non-United States
Holder, dividends paid to a holder at an address within the United States may
be subject to backup withholding at a rate of 31% if the holder is not an
"exempt recipient" as defined in Treasury Regulations (which includes
corporations) and fails to provide a correct taxpayer identification number
and other information to the Company. Backup withholding will generally not
apply to dividends paid to holders at an address outside the United States
(unless the Company has knowledge that the holder is a United States person).
Proceeds from the disposition of Common Stock by a Non-United States Holder
effected by or through a United States office of a broker will be subject to
information reporting and to backup withholding at a rate of 31% of the gross
proceeds unless such Non-United States Holder certifies under penalties of
perjury as to its name, address and status as a Non-United States Holder or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the transaction is effected outside the United States by or
through a non-United States office of a broker. However, United States
information reporting requirements (but not backup withholding) will apply to
a payment of disposition proceeds where the transaction is effected outside
the United States if (a) the disposition is made through an office outside the
United States of a broker that is either (i) a United States person for United
States federal income tax purposes, (ii) a "controlled foreign corporation"
for United States federal income tax purposes or (iii) a foreign person which
derives 50% or more of its gross income for certain periods from the conduct
of a United States trade or business and (b) the broker fails to maintain
documentary evidence in its files that the holder is a Non-United States
Holder and that certain conditions are met or that the holder otherwise is
entitled to an exemption.
The Proposed Regulations would, if adopted, alter the foregoing rules in
certain respects. Among other things, the Proposed Regulations would provide
certain presumptions and other rules under which Non-United States Holders may
be subject to backup withholding in the absence of required certifications and
would modify the definition of an "exempt recipient" in the case of a
corporation.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If backup withholding results in an overpayment of United States
income taxes, a refund may be obtained, provided that the required documents
are filed with the IRS.
ESTATE TAX
An individual Non-United States Holder who is treated as the owner of Common
Stock at the time of such individual's death or has made certain lifetime
transfers of an interest in Common Stock will be required to include the value
of such Common Stock in such individual's gross estate for United States
federal estate tax purposes and may be subject to United States federal estate
tax, unless an applicable tax treaty provides otherwise.
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UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated and Lehman Brothers Inc. are serving as U.S.
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, and the International Underwriters named below, for whom
Morgan Stanley & Co. International Limited, Lehman Brothers International
(Europe) and Cazenove & Co. are serving as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite the name of
such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated............................
Lehman Brothers Inc..........................................
----------
Subtotal................................................... 9,600,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited...................
Lehman Brothers International (Europe).......................
Cazenove & Co................................................
----------
Subtotal................................................... 2,400,000
----------
Total...................................................... 12,000,000
==========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters" and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of
Common Stock offered hereby are subject to the approval of certain legal
matters by counsel and to certain other conditions, including the conditions
that no stop order suspending the effectiveness of the Registration Statement
of which this Prospectus is a part is in effect and no proceedings for such
purpose are pending before or threatened by the Securities and Exchange
Commission and that there has been no material adverse change or any
development involving a prospective material adverse change in the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, from that set forth in such Registration
Statement. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the over-
allotment option described below) if any are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any U.S. Shares or distribute any prospectus relating to the U.S.
Shares outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Agreement Between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions: (i) it is not purchasing any
International Shares (as defined below) for the account of any United States
or Canadian Person and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any International Shares or distribute any
prospectus relating
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to the International Shares within the United States or Canada or to any
United States or Canadian Person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters are referred to herein as
the "U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer or sale of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer or sale is made. Each U.S. Underwriter has further agreed to
send to any dealer who purchases from it any shares of Common Stock a notice
stating in substance, by purchasing such Common Stock, such dealer represents
and agrees that it has not offered or sold, and will not offer or sell,
directly or indirectly, any of such Common Stock in any province or territory
of Canada or to, or for the benefit of, any resident of any province or
territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made, and that such dealer
will deliver to any other dealer to whom it sells any of such Common Stock a
notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and
the Regulations with respect to anything done by it in relation to the shares
of Common Stock offered hereby in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in
connection with the issue of the shares of Common Stock if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document
may otherwise lawfully be issued or passed on.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. Any
Underwriter may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 1,800,000 shares of Common Stock
at the public offering price set forth on the cover page hereof, less
underwriting discounts and
70
<PAGE>
commissions. The U.S. Underwriters may exercise such option to purchase solely
for the purpose of covering over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered by
the U.S. Underwriters hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
The Company and R.R. Donnelley, on the one hand, and the Underwriters, on
the other hand, have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act. The Underwriters
have agreed to reimburse the Company and R.R. Donnelley for certain expenses
incurred in connection with the Offering.
The Company and R.R. Donnelley each has agreed in the Underwriting Agreement
that it will not, without the prior written consent of Morgan Stanley & Co.
Incorporated, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or enter into
any swap or other arrangement that transfers to another, in whole on in part,
any of the economic consequences of ownership of the Common Stock, for a
period of 180 days after the date of this Prospectus, except under certain
circumstances.
At the request of the Company, the Underwriters have reserved up to 250,000
shares of the shares of Common Stock offered hereby for sale at the public
offering price to certain directors, officers and employees of the Company.
The number of shares of Common Stock available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby. All
purchasers of the shares of Common Stock reserved pursuant to this paragraph
who are also directors or senior officers of either the Company or R.R.
Donnelley will be required to enter into agreements identical to those
described in the immediately preceding paragraph restricting the
transferability of such shares for a period of 180 days after the date of this
Prospectus.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Company's
Common Stock. The initial public offering price was determined by negotiation
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the future prospects of the
Company and its industry in general, sales, earnings and certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this preliminary Prospectus is subject to
change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Sidley & Austin, Chicago, Illinois. H. Blair White,
Counsel to Sidley & Austin, is a director of R.R. Donnelley, currently the
sole stockholder of the Company. Mr. White beneficially owns 31,600 shares of
R.R. Donnelley Common Stock. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Winston & Strawn,
Chicago, Illinois.
71
<PAGE>
EXPERTS
The consolidated and combined financial statements and financial statement
schedule of the Company as of December 31, 1994 and 1995 and for each of the
three years in the period ended December 31, 1995, appearing in this
Prospectus and in the Registration Statement mentioned below have been audited
by Arthur Andersen LLP, independent public accountants, as set forth in their
reports thereon appearing elsewhere in this Prospectus and in the Registration
Statement, and are included in reliance upon such reports given upon the
authority of such firm as experts in auditing and accounting.
The financial statements of International Communication & Data Plc for the
year ended May 31, 1994 have been included herein in reliance upon the report
of BDO Stoy Hayward, independent auditors, appearing elsewhere herein, and
upon authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits and schedules
thereto), pursuant to the Securities Act and the rules and regulations
promulgated thereunder, with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted from the Prospectus in accordance with the rules
and regulations of the Commission, and to which reference is hereby made.
After consummation of the Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be
required to file proxy statements, reports and other information with the
Commission. The Registration Statement, as well as any such report, proxy
statement and other information filed by the Company with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Upon listing of the Common Stock
on the New York Stock Exchange, Inc. (the "NYSE"), reports, proxy statements
and other information concerning the Company may be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
Statements made in this Prospectus concerning the provisions of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such statement concerning a contract, agreement
or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, reference is made to such exhibit or
other filing for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
EXCHANGE RATES
The following table sets forth, as of the relevant dates within the
Consolidated Financial Statements of ICD contained elsewhere in this
Prospectus (or the last business date prior thereto), the exchange rate for
the translation of one British pound (GBP) into United States dollars ($)
based on the noon buying rate for cable transfers in British pounds as
reported by the Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
$/GBP
------
<S> <C>
June 1, 1993....................................................... 1.5510
April 29, 1994..................................................... 1.5118
May 31, 1994....................................................... 1.5120
April 28, 1995..................................................... 1.6091
</TABLE>
72
<PAGE>
METROMAIL CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated and Combined Financial Statements of Metromail Corporation:
Report of Independent Public Accountants................................. F-2
Consolidated and Combined Balance Sheets as of December 31, 1994 and 1995
and unaudited as of March 31, 1996...................................... F-3
Consolidated and Combined Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995 and unaudited for the Three Months
Ended March 31, 1995 and 1996........................................... F-4
Consolidated and Combined Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1993, 1994 and 1995 and unaudited for
the Three Months Ended March 31, 1996................................... F-5
Consolidated and Combined Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995 and unaudited for the Three Months
Ended March 31, 1995 and 1996........................................... F-6
Notes to Consolidated and Combined Financial Statements.................. F-7
Financial Statements of Completed Acquisition:
International Communication & Data Plc:
Report of the Auditors.................................................. F-20
Consolidated Balance Sheet as of 31 May 1994 and 30 April 1995.......... F-21
Consolidated Statements of Income for the Year Ended 31 May 1994, the
Eleven Months Ended
30 April 1994 and the Eleven Months Ended 30 April 1995................ F-22
Consolidated Statements of Shareholders' Equity for the Year Ended 31
May 1994 and the Eleven Months Ended 30 April 1995..................... F-23
Statements of Consolidated Cash Flows for the Year Ended 31 May 1994,
the Eleven Months Ended 30 April 1994 and the Eleven Months Ended 30
April 1995............................................................. F-24
Notes to Consolidated Financial Statements.............................. F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholder of Metromail
Corporation and Affiliates:
We have audited the accompanying consolidated and combined balance sheets of
Metromail Corporation and Affiliates as of December 31, 1995 and 1994, and the
related consolidated and combined statements of operations, changes in
shareholder's equity and cash flows for each of the three years ended December
31, 1995. 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 audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of Metromail Corporation and
Affiliates as of December 31, 1995 and 1994 and the results of its operations
and cash flows for each of the three years ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed more thoroughly in Note 8 to the financial statements,
effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 106--Employer's Accounting for Post-Retirement
Benefits Other than Pensions.
Arthur Andersen LLP
Chicago, Illinois
January 19, 1996
(except for the matters
discussed in Note 15 as
to which the date is
May 9, 1996)
F-2
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------ -----------
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash and equivalents........................... $ -- $ -- $ --
Receivables, less sales allowances and
allowances for doubtful accounts of $3,586 in
1994, $3,965 in 1995 and $3,984 in 1996....... 56,340 68,438 59,398
Inventories.................................... 4,414 5,658 7,067
Prepaid expenses............................... 2,904 7,449 8,538
Current deferred income taxes.................. 1,185 625 625
-------- -------- --------
Total current assets....................... 64,843 82,170 75,628
Net property, plant and equipment, at cost,
less accumulated depreciation of $39,565 in
1994, $43,392 in 1995 and $45,133 in 1996..... 32,594 37,545 37,712
Goodwill and other intangibles, net of
accumulated amortization of $52,263 in 1994,
$66,614 in 1995 and $69,472 in 1996........... 228,106 252,526 254,782
Deferred income taxes.......................... -- 149 149
Other assets................................... 3,225 6,331 7,407
-------- -------- --------
Total assets............................... $328,768 $378,721 $375,678
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C> <C>
Accounts payable............................... $ 3,323 $ 5,742 $ 4,882
Accrued compensation........................... 5,922 6,073 4,801
Short-term debt................................ 100 1,884 3,840
Short-term debt and advances--due to related
party......................................... 59,637 248,492 249,450
Deferred revenue............................... 5,564 6,721 5,436
Other accrued liabilities...................... 7,420 19,206 18,806
-------- -------- --------
Total current liabilities.................. 81,966 288,118 287,215
Long-term debt--due to related party........... 160,000 -- --
Deferred income taxes.......................... 2,829 -- --
Other noncurrent liabilities................... 5,014 5,211 5,860
-------- -------- --------
Total noncurrent liabilities............... 167,843 5,211 5,860
Shareholder's equity:
Common stock--Metromail, $.01 par value,
75,000,000 authorized shares; 8,600,000
issued and outstanding at December 31, 1994
and 1995 and at March 31, 1996.............. 86 86 86
Additional paid-in capital................... 107,844 111,779 111,779
Retained deficit (includes cumulative
adjustment for currency translation of $0 in
1994, $(237) in 1995 and $(139) in 1996).... (28,971) (26,473) (29,262)
-------- -------- --------
Total shareholder's equity................. 78,959 85,392 82,603
-------- -------- --------
Total liabilities and shareholder's equity. $328,768 $378,721 $375,678
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated and Combined Financial Statements.
F-3
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Direct marketing sales.......... $127,683 $156,806 $189,713 $38,860 $41,894
Reference sales................. 36,032 38,665 47,474 10,972 12,475
-------- -------- -------- ------- -------
Total net sales............... 163,715 195,471 237,187 49,832 54,369
Database and production costs... 95,016 108,806 134,361 30,279 33,606
Amortization of goodwill........ 6,054 6,608 7,446 1,790 1,889
Selling expenses................ 29,625 37,107 45,913 10,345 11,821
General and administrative
expenses....................... 12,372 14,408 16,645 3,898 4,909
Provisions for doubtful
accounts....................... 1,959 1,848 2,180 425 419
-------- -------- -------- ------- -------
Earnings from operations...... 18,689 26,694 30,642 3,095 1,725
Interest expense--related party. 22,112 18,999 21,329 4,968 5,345
Interest expense................ -- -- 80 -- 60
Other expense (income)--net..... (138) 24 (87) (10) (5)
-------- -------- -------- ------- -------
Earnings (loss) before income
taxes........................ (3,285) 7,671 9,320 (1,863) (3,675)
Income taxes.................... 1,181 5,684 6,585 (130) (788)
-------- -------- -------- ------- -------
Net income (loss) from
operations before cumulative
effect of accounting change.. (4,466) 1,987 2,735 (1,733) (2,887)
Cumulative after-tax effect of
change in accounting for post
retirement benefits other than
pensions....................... 4,388 -- -- -- --
-------- -------- -------- ------- -------
Net income (loss)........... $ (8,854) $ 1,987 $ 2,735 $(1,733) $(2,887)
======== ======== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated and Combined Financial Statements.
F-4
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992......... $86 $107,844 $(22,104) $85,826
Current year loss.................. -- -- (8,854) (8,854)
--- -------- -------- -------
Balance at December 31, 1993......... 86 107,844 (30,958) 76,972
Current year earnings.............. -- -- 1,987 1,987
--- -------- -------- -------
Balance at December 31, 1994......... 86 107,844 (28,971) 78,959
Current year earnings.............. -- -- 2,735 2,735
Currency translation............... -- -- (237) (237)
ICD stock acquired................. -- 3,935 -- 3,935
--- -------- -------- -------
Balance at December 31, 1995......... 86 111,779 (26,473) 85,392
Current year loss (unaudited)...... -- -- (2,887) (2,887)
Currency translation (unaudited)... -- -- 98 98
Balance at March 31, 1996
(unaudited)......................... $86 $111,779 $(29,262) $82,603
=== ======== ======== =======
</TABLE>
See accompanying Notes to Consolidated and Combined Financial Statements.
F-5
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED
IN) OPERATING ACTIVITIES:
Net income (loss) from
operations.................. $ (8,854) $ 1,987 $ 2,735 $(1,733) $(2,887)
Cumulative effect of change
in accounting for post
retirement benefits other
than pensions............... 4,388 -- -- -- --
Depreciation and amortization
of intangibles.............. 7,089 8,174 13,405 3,008 3,548
Amortization of goodwill..... 6,054 6,607 7,446 1,766 1,889
Other--net................... 4 121 (236) -- 98
Net change in assets and
liabilities................. (1,095) (8,685) (13,651) 7,843 2,298
-------- -------- -------- ------- -------
Net cash provided by
operating activities...... 7,586 8,204 9,699 10,884 4,946
CASH FLOWS USED FOR INVESTING
ACTIVITIES:
Capital expenditures......... (13,426) (9,940) (28,459) (6,877) (7,860)
Other investments including
acquisitions, net of cash... -- (19,987) (15,330) -- --
-------- -------- -------- ------- -------
Net cash used for investing
activities................ (13,426) (29,927) (43,789) (6,877) (7,860)
CASH FLOWS PROVIDED BY (USED
FOR) FINANCING ACTIVITIES:
Borrowings and advances from
related parties............. 193,756 253,396 325,381 72,196 75,389
Repayments of borrowings and
advances from related
parties..................... (187,916) (231,673) (296,526) (76,203) (74,431)
Increase in short-term
borrowings.................. -- -- 1,300 -- 1,956
Capital contribution from
R.R. Donnelley.............. -- -- 3,935 -- --
-------- -------- -------- ------- -------
Net cash provided by (used
for) financing activities. 5,840 21,723 34,090 (4,007) 2,914
Net increase in cash and
equivalents................... -- -- -- -- --
Cash and equivalents at
beginning of year........... -- -- -- -- --
-------- -------- -------- ------- -------
Cash and equivalents at end
of year..................... $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======= =======
The changes in assets and
liabilities, net of balances
assumed through acquisitions,
were as follows:
DECREASE (INCREASE) IN
ASSETS:
Receivables--net........... $ (2,250) $(12,418) $ (8,470) $ 8,096 $ 9,040
Inventories--net........... 47 (829) (1,244) 1,139 (1,409)
Prepaid expenses........... (1) 432 (4,545) 1,288 (1,089)
Current deferred income
taxes..................... (908) (486) 560 -- --
Deferred income taxes...... -- -- (149) -- --
Other assets............... (1,000) (1,602) (3,106) -- (1,076)
INCREASE (DECREASE) IN
LIABILITIES:
Accounts payable........... 1,000 246 (1,954) (1,775) (860)
Accrued compensation....... (1,096) 2,299 151 (2,063) (1,272)
Deferred revenue........... -- 2,924 1,157 (564) (1,285)
Other accrued liabilities.. 12 (2,034) 4,873 1,722 (400)
Deferred income taxes...... 842 28 (1,121) -- --
Other noncurrent
liabilities............... 2,259 2,755 197 -- 649
-------- -------- -------- ------- -------
Net change in assets and
liabilities............. $ (1,095) $ (8,685) $(13,651) $ 7,843 $ 2,298
======== ======== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated and Combined Financial Statements.
F-6
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Metromail Corporation ("Metromail") is a wholly owned subsidiary of R. R.
Donnelley & Sons Company ("R.R. Donnelley"). Metromail was acquired by R.R.
Donnelley in 1987 in a business combination accounted for as a purchase. On
the date of acquisition, the financial position of Metromail was adjusted to
the fair value of the assets acquired and liabilities assumed by R.R.
Donnelley. All adjustments to Metromail's financial position by R.R. Donnelley
at the date of acquisition have been pushed down to Metromail's financial
statements. The accompanying consolidated and combined financial statements
include the accounts of Metromail and subsidiaries, International
Communication & Data Plc ("ICD") and Data by Design ("DBD"). ICD is an
affiliate of Metromail and an indirect wholly owned subsidiary of R.R.
Donnelley located in the United Kingdom. DBD is a division of a wholly owned
subsidiary of R.R. Donnelley located in the United Kingdom, which was acquired
by R.R. Donnelley in August 1994. The accompanying financial statements have
been restated to reflect the combination of entities under common control by
R.R. Donnelley at December 31, 1995. ICD and DBD are included in the results
of operations of the accompanying consolidated and combined financial
statements from the date of original acquisition by R.R. Donnelley in May 1995
and August 1994, respectively. As discussed in Note 15, ICD was contributed to
Metromail by R.R. Donnelley in February 1996. Subsequent to this contribution,
ICD purchased all of the assets of DBD. Metromail, its wholly owned
subsidiaries, ICD and DBD are collectively referred to hereinafter as the
"Company".
The Company is a leading provider of marketing-oriented consumer information
and reference services which it supplies to a wide variety of organizations
engaged in direct mail, telephone and target marketing, as well as to clients
who need specific reference and information services. In providing these
information services the Company utilizes its proprietary database, which it
believes is one of the most comprehensive and accurate databases in the United
States, containing geographic, demographic, individual and other marketing
information on over 143 million individuals and over 90% of the households in
the United States. The Company has assembled this database over almost 50
years from a wide variety of publicly available and proprietary sources.
The Company operates entirely within the information services industry
segment. Within this segment, the Company offers two general categories of
products and services: direct marketing services and reference services. The
Company provides direct marketing services to clients that include consumer
goods manufacturers, credit card companies, financial institutions, insurance
companies, magazine and book publishers, mail order houses and catalogers,
pharmaceutical companies and retailers. To its direct marketing clients the
Company provides: (i) targeted lists of potential customers; (ii) value-added
enhancements of pre-existing customer lists; (iii) processing and mail
services; and (iv) proprietary marketing database software for personal
computers used to access marketing data from a client's customer database. The
Company's reference services include: (i) a National Directory Assistance
("NDA") database for on-line or operator-assistance providers; (ii) a look-
up/skip-locate service for collection agencies, consumer finance companies and
credit card issuers; and (iii) the Cole directories, in printed form and CD-
ROM, which list households in sequence, by telephone number or address, in
approximately 150 markets in the United States and Canada.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Combination
The consolidated and combined financial statements include all accounts of
the Company. All material intercompany balances and transactions are
eliminated in consolidation and combination.
Unaudited Financial Statements
The unaudited consolidated and combined statements of operations and cash
flows for the three months ended March 31, 1995 and 1996, the unaudited
consolidated and combined balance sheet as of March 31, 1996
F-7
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
and the unaudited consolidated and combined statements of changes in
shareholder's equity for the three months ended March 31, 1996, include, in
the opinion of management, all adjustments necessary to present fairly the
Company's consolidated and combined financial position, results of operations
and cash flows. In the opinion of management, all these adjustments are of a
normal and recurring nature. Operating results for the three months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1996.
Revenue Recognition and Deferred Revenues
The Company recognizes revenues for direct marketing services at the time
the services are provided. Revenues for reference services are recognized at
the time the service is provided or the product is delivered. The Company's
proprietary database software is generally licensed for three years, and
results in an initial license fee, subsequent annual license and maintenance
fees and customer support service fees. Revenues are recognized when delivery
of the software has occurred, collectibility is probable and the Company
retains no significant obligations under the licensing agreements. Revenues
from customer support services are recognized in the period in which the
support services are performed by the Company.
The Company provides sales allowances for sales credits issued to clients in
the normal course of business. The allowances are recorded as reductions of
sales and are included in net sales in the accompanying statement of
operations. The reductions included in net sales were $4.1 million, $3.6
million and $5.1 million for the years ended 1993, 1994 and 1995,
respectively.
Inventories
Inventories include materials, labor and production overhead and are carried
at weighted average cost.
Foreign Currency Translation
The financial statements of ICD are translated into U.S. dollars using
exchange rates in effect at the end of the period for assets and liabilities
and average exchange rates for results of operations during the period of
inclusion in the Company's Financial Statements. Gains and losses arising from
translation are reflected as a separate component of Retained Deficit and are
not included in results of operations.
Property, Plant and Equipment--Capitalization and Depreciation
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method based on useful lives of up to 30 years for
buildings and three to 10 years for machinery, equipment and computer
hardware. Maintenance and repair costs are charged to expense as incurred.
When properties are retired or disposed, the costs and related depreciation
reserves are eliminated and the resulting profit or loss is recognized in
income.
Intangible Assets--Capitalization and Amortization
Intangible assets primarily consist of databases and data, internal software
costs, software development costs and goodwill.
Goodwill primarily consists of the excess of purchase price over the fair
market value of net assets acquired by R.R. Donnelley as a result of its
acquisition of Metromail in 1987. Goodwill also includes the excess of
purchase price over the fair market value of net assets for businesses the
Company has acquired and accounted for as a purchase. These costs are
amortized over their estimated useful lives of primarily 40 years.
F-8
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Databases and data are stated at cost and are amortized over their estimated
useful life of three years. These assets represent costs incurred to acquire
databases, significantly enhance existing databases, acquire lists and acquire
data through Company-generated surveys. Costs incurred for routine maintenance
and updating of databases are expensed as incurred.
Internal software represents costs incurred to purchase externally developed
software, external consulting costs and direct internal costs incurred in the
development of various production and administrative applications. Intangible
assets as of December 31, 1995 included $5.4 million related to a major
redesign of the file structure of the Company's database. This new database
structure will support the delivery of the Company's information service
offerings. The costs related to this redesign will be amortized, commencing
when the file structure becomes operational, over its expected period of
benefit of five years. All other internal software is amortized over three
years.
Software development costs represent costs incurred to develop database
software which is licensed to clients. The Company capitalizes software
development costs when the technological feasibility of the product has been
assured, through the time at which the product is available for licensing to
its clients, in accordance with Statement of Financial Accounting Standards
No. 86. These costs are amortized over their estimated useful life of three
years. All development costs incurred prior to achieving technological
feasibility are expensed as incurred.
Impairment of Long-lived Assets
The Company periodically assesses whether events or circumstances have
occurred that may indicate the carrying value of its long-lived assets may not
be recoverable. When such events or circumstances indicate the carrying value
of an asset may be impaired, the Company uses an estimate of the future
undiscounted cash flows to be derived from the asset over the remaining useful
life of the asset to assess whether or not the asset is recoverable. If the
future undiscounted cash flows to be derived over the life of the asset do not
exceed the asset's net book value, the Company recognizes an impairment loss
for the amount by which the net book value of the asset exceeds its estimated
fair market value. The Company has not recognized any material impairment
losses for the years ended December 31, 1993, 1994 and 1995. Management does
not believe any material impairment of long-lived assets exists as of December
31, 1995.
Income Taxes
Metromail and its wholly owned subsidiaries are included in the consolidated
federal income tax return of R.R. Donnelley. DBD and ICD have historically
been included in the consolidated tax return of R.R. Donnelley's wholly owned
United Kingdom subsidiaries. The consolidated and combined tax provision is
presented as if the Company filed separate tax returns. Deferred taxes are
provided when tax laws and financial accounting standards differ with respect
to the amount of income calculated in a given year and the bases of assets and
liabilities, in accordance with Statement of Financial Accounting Standards
No. 109. Income taxes are paid by R.R. Donnelley on behalf of Metromail.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109--Accounting for Income Taxes. The impact of the
adoption was not material to the Company's financial position or results of
operations.
Use of Estimates and Assumptions
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, liabilities, the
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.
F-9
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. TRANSACTIONS WITH R. R. DONNELLEY & SONS COMPANY
Related party transactions with R.R. Donnelley not disclosed elsewhere in
the financial statements are as follows:
Employee Benefit Programs
The Company participates in various employee benefit programs which are
sponsored by R.R. Donnelley. These programs include medical, dental and life
insurance and workers compensation. The Company reimburses R.R. Donnelley for
its proportionate cost of these programs based on historical experience and
relative headcount. The costs reimbursed to R.R. Donnelley include costs for
reported claims as well as incurred but not reported claims. The Company
recorded expense related to the reimbursement of these costs of approximately
$6.2 million, $7.3 million and $8.8 million in the years ended December 31,
1993, 1994 and 1995, respectively. The costs are charged to database and
production costs, selling expense and general and administrative expense based
on the number of employees in each of these categories. The Company believes
its allocation of the proportionate cost is reasonable and, in all material
respects, approximates what would have been incurred had the Company operated
on a stand-alone basis. R.R. Donnelley is liable for all payments under these
programs and, thus, no liability for these benefits has been reflected on the
accompanying balance sheet.
Post-Retirement Medical and Life Insurance Benefits
The Company also participates in a post-retirement benefit program sponsored
by R.R. Donnelley which provides certain post-retirement medical and life
insurance benefits. The Company reimburses R.R. Donnelley for its
proportionate cost of these programs based on an actuarial estimation of the
proportionate costs attributable to all of the Company's employees. The
Company recorded expense related to the reimbursement of these costs of
approximately $1.9 million, $2.1 million and $1.8 million in the years ended
December 31, 1993, 1994 and 1995, respectively. The Company is liable for
payments for post-retirement benefits for certain groups of employees. R.R.
Donnelley is liable for payments of post-retirement benefits for all other
employees of the Company not specifically included in the groups for which the
Company retains liability. The liability related to the portion of post-
retirement benefits which will be paid by the Company has been reflected in
other noncurrent liabilities in the accompanying financial statements in the
amounts of $3.6 million and $4.8 million as of December 31, 1994 and 1995,
respectively. The liability related to the portion of post-retirement
liability retained by R.R. Donnelley, net of associated deferred taxes
receivable from R.R. Donnelley, has been reflected in short-term debt and
advances due to related parties in the accompanying financial statements.
Corporate Services
R.R. Donnelley provides certain support services to the Company including
legal, tax, treasury, benefits administration, real estate, audit and
corporate development services. These charges are allocated by R.R. Donnelley
to the Company based on various formulas which reasonably approximate the
actual costs incurred. The expenses recorded by the Company for these
allocations were approximately $1.1 million, $1.4 million and $1.8 million for
the years ended December 31, 1993, 1994 and 1995, respectively, and are
included in general and administrative expenses in the accompanying income
statement. The amounts allocated by R.R. Donnelley are not necessarily
indicative of the actual costs which may have been incurred had the Company
operated as an entity unaffiliated with R.R. Donnelley. However, the Company
believes that the allocation is reasonable and in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 55.
F-10
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Metromail Computer Processing Services
The Company provides computer processing services to R.R. Donnelley for most
of the corporate software applications used by R.R. Donnelley. The Company
charges R.R. Donnelley the estimated cost of providing these services. These
costs include hardware, software and labor costs associated with running the
various application programs used by R.R. Donnelley. The costs reimbursed by
R.R. Donnelley were approximately $2.8 million, $3.1 million and $3.5 million
for the years ended December 31, 1993, 1994 and 1995, respectively. These
amounts have been recorded as reductions of database and production costs in
the accompanying income statement. The Company believes the reimbursed costs
reasonably approximate the actual costs incurred by the Company.
Sales through R.R. Donnelley
The Company sells products and services to clients who are also clients of
R.R. Donnelley. For some of these sales, the Company's clients are billed by
R.R. Donnelley. R.R. Donnelley then allocates to the Company that portion of
the revenue attributable to the Company's performed services, as agreed upon
by the Company and its client. These sales approximated $22.8 million, $20.9
million and $22.7 million for the years ended December 31, 1993, 1994 and
1995, respectively. The receivables from the Company's clients related to
these sales are excluded from the Company's balance sheet as R.R. Donnelley
retains risk of loss with respect to collection. The receivables from R.R.
Donnelley related to these sales are included in short-term debt and advances
due to related party discussed in Note 11.
Stock Purchase Plan
The Company participates in a stock purchase plan for selected managers and
key staff employees which is sponsored by R.R. Donnelley. Under the plan, the
Company is required to contribute an amount equal to 70% of participants'
contributions, of which 50% is applied to the purchase of R.R. Donnelley
Common Stock and 20% is paid in cash. The number of shares required for the
plan for the year ended December 31, 1995 will depend upon the extent to which
eligible participants subscribe during the subscription period in the first
quarter of 1996 and the price of R.R. Donnelley's Common Stock on March 16,
1996. Amounts charged to expense by the Company for this plan were $0.4
million, $0.6 million and $0.3 million for the years ended December 31, 1993,
1994 and 1995, respectively.
Impact of Operating as a Stand Alone Entity
The accompanying financial statements reflect all of the Company's costs of
doing business, including all expenses incurred by R.R. Donnelley on the
Company's behalf in accordance with SEC Staff Accounting Bulletin No. 55.
However, the Company estimates it would have incurred increased expenses for
additional senior management and administrative support functions associated
with being a stand alone public entity. In addition, the Company estimates
that it would have incurred additional sales commission expense of
approximately $0.5 million for the year ended December 31, 1995 payable to
R.R. Donnelley related to sales to clients of the Company who are also clients
of R.R. Donnelley. These expenses would have been offset partially by reduced
database and production costs as a result of increased charges for computer
services to be provided by the Company to R.R. Donnelley. The estimated pro
forma impact of all of the above adjustments would have reduced pretax income
by approximately $1.6 million for the year ended December 31, 1995.
F-11
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIES:
The components of the Company's inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------- 1996
1994 1995 (UNAUDITED)
------ ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials................................... $ 802 $2,119 $2,768
Work in process................................. 3,612 3,539 4,299
------ ------ ------
Total....................................... $4,414 $5,658 $7,067
====== ====== ======
</TABLE>
Raw material inventories consist mainly of paper and other materials used in
the manufacturing of directories. Work in process inventories consist of costs
associated with jobs not completed for list, list enhancement, lettershop and
directories in process.
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- 1996
1994 1995 (UNAUDITED)
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land...................... $ 1,439 $ 1,439 $ 1,439
Buildings and
improvements............. 26,237 27,208 27,208
Machinery, equipment and
computer hardware........ 44,483 52,290 54,198
------- ------- -------
Total property and
equipment.............. 72,159 80,937 82,845
Accumulated depreciation.. (39,565) (43,392) (45,133)
------- ------- -------
Net property and
equipment.............. $32,594 $37,545 $37,712
======= ======= =======
</TABLE>
Depreciation expense included in the Consolidated and Combined Statements of
Operations was $4.9 million, $5.2 million and $6.5 million for the years ended
December 31, 1993, 1994 and 1995, respectively.
6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------ 1996
1994 1995 (UNAUDITED)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Databases and software development
costs.................................. $ 21,574 $ 44,811 $ 49,925
Goodwill................................ 258,795 274,329 274,329
-------- -------- --------
Total intangibles................... 280,369 319,140 324,254
Accumulated amortization................ (52,263) (66,614) (69,472)
-------- -------- --------
Total intangibles, net.............. $228,106 $252,526 $254,782
======== ======== ========
</TABLE>
Amortization expense included in the Consolidated and Combined Statements of
Operations was $8.2 million, $9.6 million and $14.4 million for the years
ended December 31, 1993, 1994 and 1995, respectively.
F-12
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. OTHER ASSETS
Other assets include investment tax credits recorded in connection with an
investment and employment agreement between the Company and the state of
Nebraska. The credits recorded in other assets are approximately $3.2 million
and $4.0 million as of December 31, 1994 and 1995, respectively. Under the
terms of the agreement, the Company must maintain certain investments in plant
and equipment and the number of personnel in the state over a defined period
of time. The Company records the income derived from this agreement in the
period in which the required wage and capital expenditures are made. The
investment credits will be realized through reductions of sales, use and other
state taxes in future periods. Approximately $3.1 million of these tax credits
expire in the year 2003 and $0.9 million expire in the year 2010. The benefits
associated with these credits are recorded in earnings from operations in the
amount of $0.9 million, $1.0 million and $0.9, for the years ended December
31, 1993, 1994 and 1995, respectively. The credits are classified in database
and production costs, selling expense and general and administrative expense
based on a proration of the amount of wage and capital expenditures applicable
to each of the respective areas.
8. PENSION PLAN AND POST-RETIREMENT BENEFITS
The Company's pension plan (the "Plan") is a defined benefit pension plan
sponsored by the Company for its employees. All contributions to the Plan are
made by the Company. Employees are considered eligible when they reach 21
years of age. The Plan provides a normal retirement benefit equal to the sum
of the following:
. The benefit accrued as of December 31, 1990;
. 1.5% of covered earnings for each year of benefit services earned after
December 31, 1990, up to a maximum of 38 total years of benefit service
(including years of benefit service earned prior to 1991);
. 0.5% of covered earnings in excess of covered compensation for each year
of benefit services earned after December 31, 1990, up to a maximum of 38
total years of benefit service (including years of benefit service earned
prior to 1991); and
. 2.0% of covered earnings for each year of benefit service in excess of 38
years.
Participants are 100 percent vested upon the completion of five years of
vesting service; provided, however, that a participant who was employed by the
Company prior to 1995 will be vested upon attainment of age 55 regardless of
such participant's years of service. Plan participants are eligible for normal
benefits at age 65 but may elect early retirement after age 55. The
participants may also elect to continue working beyond age 65 and defer
retirement.
Net pension expenses (credits) included in operating results for the Plan
for the years ended December 31 were:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................. $ 1,273 $1,602 $ 1,386
Interest cost on the projected benefit
obligation................................... 1,657 1,893 2,027
Actual (return) loss on plan assets........... (1,723) 625 (6,506)
Amortization of unrecognized prior service
costs and of net obligation at adoption of
SFAS No. 87 and deferrals.................... 242 (2,443) 4,542
------- ------ -------
Total expense............................. $ 1,449 $1,677 $ 1,449
======= ====== =======
</TABLE>
The actuarial computations that derived the above amounts assumed a discount
rate on the projected benefit obligations of 7.25% at December 31, 1995, 8.5%
at December 31, 1994 and 7.5% at December 31, 1993, an expected long-term rate
of return on Plan assets of 9.5% and annual salary increases of 4.0%.
F-13
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Plan's assets include assets contributed by R.R. Donnelley for another
benefit plan of a wholly owned subsidiary of R.R. Donnelley not included in
these financial statements. Had these assets been excluded from plan assets,
pension expense would not have been materially impacted for the years ended
December 31, 1993, 1994 and 1995, respectively.
Plan assets are mainly invested in marketable securities valued at the last
quoted market price during the fiscal year. The funded status and prepaid
pension cost as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of Plan assets.............................. $21,706 $33,095
------- -------
Actuarial present value of benefit obligations:
Vested............................................... 15,624 22,756
Non-vested........................................... 1,175 1,709
------- -------
Total accumulated benefit obligations.................. 16,799 24,465
Additional amounts related to projected wage increases. 6,810 9,264
------- -------
Projected benefit obligations for services rendered to
date.................................................. 23,609 33,729
------- -------
Plan assets under projected benefit obligations........ (1,903) (634)
Unrecognized prior service cost........................ 690 867
Unrecognized net (gain) loss from experience........... (1,327) 1,157
Unrecognized portion of net transition obligation...... 1,090 920
------- -------
Prepaid (accrued) pension costs.................... $(1,450) $ 2,310
======= =======
</TABLE>
In the event of Plan termination, the Plan provides that no funds can revert
to the Company and any excess assets over Plan liabilities must be used to
fund retirement benefits.
The Company also provides certain health care and life insurance benefits
for retired employees as part of a post-retirement benefit program sponsored
by R.R. Donnelley. Substantially all of the Company's domestic full- time
employees become eligible for those benefits upon reaching age 55 while
working for the Company and having 10 years of continuous service with the
Company or R.R. Donnelley at retirement. The Company does not fund the
liability and thus no plan assets have been considered in the determination of
post-retirement benefit expense below.
Effective January 1, 1993, R.R. Donnelley adopted Statement of Financial
Accounting Standard No. 106--Employers' Accounting for Post-Retirement
Benefits Other than Pensions. SFAS 106 requires companies to charge to expense
the expected cost of post-retirement benefits during the years that employees
render the service. R.R. Donnelley elected to recognize immediately the
transition obligation for future benefits to be paid related to past employee
services. The Company recorded expense of $7.3 million before income tax
benefits of $2.9 million ($4.4 million after tax) for their estimated
proportionate share of the cumulative effect of the adoption of this
accounting principle in 1993.
The accrual basis expense for all employees of the Company recorded in the
accompanying statements of operations for post-retirement benefit programs
sponsored by R.R. Donnelley during 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................ $1,327 1,353 $1,088
Interest cost....................................... 583 707 742
Amortization of prior service cost.................. -- -- --
Amortization of net (gain)/loss..................... -- -- --
------ ------ ------
Total expense................................... $1,910 $2,060 $1,830
====== ====== ======
</TABLE>
F-14
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company is liable for post-retirement medical and life insurance
benefits for active employees under 55 years of age who are not yet eligible
to receive benefits. This liability is as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated post-retirement benefit obligation for active
plan participants not yet fully eligible to retire and
receive benefits........................................ $ 2,890 $ 4,647
Unrecognized net gain.................................... 736 185
------- -------
Net post-retirement liability............................ $ 3,626 $ 4,832
======= =======
</TABLE>
R.R. Donnelley is liable for payments of post-retirement medical and life
insurance benefits for all other employees of the Company. This liability, net
of associated deferred taxes receivable from R.R. Donnelley, has been
reflected in short-term debt and advances due to related parties.
The actuarial computations assume a discount rate of 7.25% (8.5% at December
31, 1994) and a health care cost trend rate of 8.0%, declining gradually to
5.5% in the year 2023 and thereafter to determine the accumulated post-
retirement benefit obligation. A one percentage point increase in the health
care cost trend rate would increase the 1995 post-retirement benefit expense
by $0.2 million and the accumulated post-retirement benefit obligation as of
December 31, 1995 by $0.4 million.
9. LEASE OBLIGATIONS:
The Company leases office space and various office equipment. The leases are
mainly accounted for as operating leases. Rental costs under the operating
lease agreements approximated $8.0 million, $8.7 million and $9.4 million for
the years ended December 31, 1993, 1994 and 1995, respectively.
Minimum future lease obligations in effect at December 31, 1995 are:
<TABLE>
<CAPTION>
OBLIGATION
--------------
(IN THOUSANDS)
<S> <C>
Period ending December 31,
1996..................................................... $ 8,750
1997..................................................... 8,221
1998..................................................... 6,449
1999..................................................... 5,159
2000 and thereafter...................................... 4,196
-------
Total.................................................. $32,775
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to certain litigation arising in the ordinary course
of business which, in the opinion of the Company, will not have a material
adverse effect on the operations or financial position of the Company. See
note 15 for a discussion of certain litigation against the Company, R.R.
Donnelley and other non-affiliated persons and entities.
F-15
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. DEBT AND ADVANCES DUE TO A RELATED PARTY:
The Company's debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1996
1994 1995 (UNAUDITED)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and accrued interest
payable to Caslon Incorporated:
Grid Note, dated October 12, 1987...... $ 53,082 $ 57,934 $ 54,482
Fixed Note, 9.75%, dated August 13,
1987.................................. 160,000 160,000 160,000
Advance due R.R. Donnelley............... 6,555 30,558 34,968
-------- -------- --------
Total debt and accrued interest...... $219,637 $248,492 $249,450
======== ======== ========
</TABLE>
Caslon Incorporated ("Caslon") is a wholly owned subsidiary of R.R.
Donnelley. The Grid Note is payable on demand as determined by an officer or
other authorized agent of Caslon. The Grid Note funds operating and investing
activities of the Company's domestic operations. Interest on the Grid Note is
payable on the first day of each calendar quarter based on an interest rate
equal to the prime rate in the preceding calendar quarter as published in The
Wall Street Journal. As of December 31, 1994 and 1995 and March 31, 1996, the
interest rate on the Grid Note was 7.75%, 8.75% and 8.5%, respectively. The
Fixed Note is payable the earlier of September 1, 1997 or the date at which
the Company is no longer a wholly owned subsidiary of R.R. Donnelley. Interest
on the Fixed Note is payable on the first day of each calendar quarter based
on an interest rate equal to 9.75% per annum.
Total accrued interest payable included in the above amounts is $5.0
million, $5.2 million and $5.1 million as of December 31, 1994 and 1995 and
March 31, 1996, respectively.
The debt is classified on the accompanying balance sheet in accordance with
the above stated terms. The Grid Note is classified as short term at December
31, 1994 and 1995 and March 31, 1996. The Fixed Note is classified as long
term at December 31, 1994 and as short term at December 31, 1995 and March 31,
1996.
Advances due to related party represents advances from R.R. Donnelley to
fund operating and investing activities, net of cash advanced to R.R.
Donnelley from operating cash flows generated by the Company and receivables
resulting from sales through R.R. Donnelley discussed in Note 3. This payable
is periodically transferred by R.R. Donnelley into the Grid Note borrowings
discussed above.
12. DEBT
ICD has a $4.6 million revolving credit agreement. The amount outstanding
under this facility was $1.9 million and $3.8 million at December 31, 1995 and
March 31, 1996, respectively. The total amounts outstanding under the facility
are guaranteed by R.R. Donnelley.
13. INCOME TAXES:
The components of the provision for taxes for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal.............................................. $1,024 $4,929 $5,435
State................................................ 157 755 832
Foreign.............................................. -- -- 318
------ ------ ------
Total tax provision.............................. $1,181 $5,684 $6,585
====== ====== ======
</TABLE>
F-16
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The current and deferred portions of the income tax provision are as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current........................................... $1,247 $6,142 $7,295
Deferred.......................................... (66) (458) (710)
------ ------ ------
Total provision............................... $1,181 $5,684 $6,585
====== ====== ======
</TABLE>
A reconciliation of the effective tax rate from statutory U.S. federal
income tax rate of 35% for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ---- ----
<S> <C> <C> <C>
Federal rate.......................................... 35.0 % 35.0% 35.0%
State taxes........................................... (4.8) 9.8 8.9
Foreign taxes......................................... -- -- 2.4
Goodwill amortization................................. (64.5) 27.7 23.0
Other................................................. (1.7) 1.6 1.4
----- ---- ----
Effective tax rate................................ (36.0)% 74.1% 70.7%
===== ==== ====
</TABLE>
As of December 31, 1994 and 1995, total current deferred tax assets and
total noncurrent deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts........................ $ 661 $ 594
Inventory.............................................. (1,257) (1,200)
Vacation liability..................................... 605 678
Payroll and related liabilities........................ 953 153
Miscellaneous, other................................... 223 400
------- -------
Total net current deferred tax asset............... 1,185 625
------- -------
Accumulated depreciation............................... (4,132) (3,006)
Goodwill and intangibles............................... 750 974
Other intangibles...................................... (933) 1,146
Pension accrual........................................ (26) (898)
Post retirement liabilities............................ 1,450 1,933
Miscellaneous, other................................... 62 --
------- -------
Total net noncurrent deferred tax (liability)
asset............................................. (2,829) 149
------- -------
Total.............................................. $(1,644) $ 774
======= =======
</TABLE>
The Company has not provided a valuation allowance for deferred tax assets
because, although realization is not assured, the Company believes it is more
likely than not that such tax assets will be recognized through reversals of
taxable timing differences and taxable income in future periods.
DBD recorded pretax losses during 1995 of $0.5 million. No tax benefit or
asset has been recorded for these losses because such losses reduce taxable
income of R.R. Donnelley's wholly owned United Kingdom subsidiary.
Taxes payable are included in debt and advances due to R.R. Donnelley and
its subsidiaries.
F-17
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. ACQUISITIONS
The Company acquired Customer Insight Company, Inc. ("CIC") in June 1994 and
a wholly owned subsidiary of R.R. Donnelley acquired ICD in May 1995. Both
acquisitions were accounted for as purchases. These companies are wholly owned
subsidiaries of Metromail or R.R. Donnelley as of December 31, 1995.
CIC was purchased for approximately $20.0 million. The excess of the
purchase price over the fair market value of net assets acquired, including
identifiable intangible assets, has been allocated to goodwill in the amount
of approximately $16.8 million. The goodwill is being amortized over its
estimated useful life of 15 years.
ICD was purchased for approximately $15.3 million. The excess of the
purchase price over the fair market value of net assets acquired, including
identifiable intangible assets, has been allocated to goodwill in the amount
of $14.7 million. The goodwill is being amortized over its estimated useful
life of 40 years.
The following unaudited pro forma statements of operations were prepared to
illustrate the estimated effects of the acquisition of ICD as if it had
occurred on January 1, 1994.
The pro forma adjustments are based on the available information and upon
certain assumptions the Company believes are reasonable. The pro forma results
of operations do not purport to represent what the Company's results of
operations would actually have been if such transaction in fact had occurred
on January 1, 1994 or to project the Company's results of operations for any
future period.
The pro forma income statements presented below include adjustments to
reflect increased interest expense, amortization expense for goodwill and
other intangibles, as well as adjustments to the income tax provision to
reflect the tax effect of the aforementioned adjustments at the applicable
statutory rates. Adjustments related to interest expense are due to increased
pro forma related party debt to finance the acquisitions. Adjustments to
goodwill reflect the increased pro forma goodwill resulting from the
acquisition. Adjustments to other intangible amortization reflect the pro
forma change in capitalization and amortization policy in order to be
consistent with the accounting policies of the Company.
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct marketing sales................................. $168,948 $194,768
Reference sales........................................ 38,665 47,474
-------- --------
Total net sales...................................... 207,613 242,242
Database and production costs.......................... 112,972 135,897
Amortization of goodwill............................... 6,996 7,571
Selling expenses....................................... 39,619 46,907
General and administrative expenses.................... 19,452 20,664
-------- --------
Earnings from operations........................... 28,574 31,203
Interest expense--related party........................ 20,786 21,766
Other expense (income)--net............................ 24 (7)
-------- --------
Earnings before income taxes....................... 7,764 9,444
Income taxes........................................... 5,842 6,667
-------- --------
Net income......................................... $ 1,922 $ 2,777
======== ========
</TABLE>
The acquisition of DBD in 1994 discussed in Note 1 above was not material to
the Company's financial statements.
F-18
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
15. SUBSEQUENT EVENTS
In February 1996, a wholly owned subsidiary of R.R. Donnelley contributed
ICD to Metromail. Subsequent to the contribution, ICD purchased all of the net
assets of DBD. This contribution and purchase between entities under R.R.
Donnelley's common control resulted in the historical costs bases of ICD and
DBD (prior to their contribution and purchase) being carried over to Metromail
with no gain or loss recognized as a result of these transactions.
In March 1996, each outstanding share of Common Stock, par value $.40 per
share, was reclassified into 8,600 shares of Common Stock, par value $.01 per
share, the authorized number of shares of Common Stock was increased from
1,000 to 75,000,000 and 20,000,000 shares of Preferred Stock were authorized.
The reclassification of the Company's Common Stock has been retroactively
reflected in the accompanying financial statements.
In March 1996, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of the
Company's Common Stock.
The Company approved the issuance of 34,000 shares of restricted stock to
certain persons who are or will be employed by the Company upon the closing of
the Offering. The shares vest over a four-year period during which time the
restrictions will be removed and the stock delivered to the employees for no
additional consideration. The Company will record the fair value of the
restricted stock based upon the initial public offering price as compensation
expense over the period in which the restricted stock vest.
On April 18, 1996, a purported class action seeking restitution, actual and
exemplary damages in an unspecified amount and injunctive relief was filed in
Texas state court against the Company, R.R. Donnelley and other non-affiliated
persons and entities alleging, among other things, that the collection by the
Company of consumer survey information was fraudulently undertaken and that
the processing of surveys by Texas state prisoners on behalf of the Company
was negligent and in violation of privacy rights. Because the case is in its
early stages, it is not possible to make a meaningful determination of the
ultimate outcome or to make an estimate of the loss, if any, should the
outcome be unfavorable. The Company intends to defend vigorously this suit.
The Company has made a preliminary estimate that its costs of litigating the
case will be $1.5 million. The Company will expense such costs as they are
incurred in periods subsequent to March 31, 1996. R.R. Donnelley has agreed to
pay the legal fees and expenses incurred by the Company in defending this
case. The Company will account for the payment of such fees and expenses by
R.R. Donnelley as a contribution to capital. The Company would be responsible
for any other amounts payable by it as a result of this case.
F-19
<PAGE>
REPORT OF THE AUDITORS
To the Members of International Communication & Data PLC:
We audited the United Kingdom consolidated financial statements for the year
ended May 31 1994 and reported on those financial statements on October 31
1994.
We have now been engaged to report to you on the accompanying consolidated
balance sheet of International Communication & Data PLC as of May 31 1994 and
the consolidated statement of income, changes in shareholders' equity and cash
flows for the year ended May 31 1994, all expressed in pounds sterling, which
have been reformatted from UK to US format.
As described in the notes to the Consolidated Financial Statements, the
company's Directors are responsible for the preparation of the financial
statements. It is our responsibility to form an opinion, based on our audit,
on those statements and to report our opinion to you.
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes an examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the Directors in the preparation of the financial
statements, and of whether the accounting policies are appropriate to the
Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or errors. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of International
Communication & Data PLC as of May 31 1994 and the consolidated results of
operations and cash flow for the year ended May 31 1994 in conformity with
generally accepted accounting principles in the United Kingdom (which differ
in certain respects from generally accepted accounting principles in the
United States).
BDO Stoy Hayward
Chartered Accountants and Registered
Auditors
London
June 6, 1996
F-20
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN BRITISH POUNDS)
<TABLE>
<CAPTION>
30 APRIL 1995
31 MAY 1994 (UNAUDITED)
----------------- -----------------
<S> <C> <C>
ASSETS:
Current assets
Cash................................... (Pounds) 265,943 (Pounds) 96,506
Accounts receivable, net of allowance
for doubtful accounts of
((Pounds)262,400 at 31 May 1994 and
268,346 at 30 April 1995)............. 2,023,937 1,336,633
Prepaid expenses....................... 92,114 993,317
----------------- -----------------
Total current assets................. 2,381,994 2,426,456
Property, plant and equipment (net)...... 5,073,385 5,081,520
Investments.............................. 150,001 150,001
----------------- -----------------
Total assets......................... 7,605,380 7,657,977
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Bank overdraft......................... 101 508,309
Accounts payable....................... 3,560,665 3,287,573
Accrued liabilities.................... 501,880 765,358
----------------- -----------------
Total current liabilities............ 4,062,646 4,561,240
Long-term debt........................... 268,352 291,419
----------------- -----------------
Total liabilities.................... 4,330,998 4,852,659
----------------- -----------------
Shareholders' equity:
Share capital.......................... 6,005,391 3,229,068
Accumulated deficit.................... (2,731,009) (423,750)
----------------- -----------------
Total shareholders' equity............. 3,274,382 2,805,318
----------------- -----------------
Total liabilities and shareholders'
equity.............................. (Pounds)7,605,380 (Pounds)7,657,977
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-21
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN BRITISH POUNDS)
<TABLE>
<CAPTION>
YEAR 11 MONTHS ENDED 11 MONTHS ENDED
ENDED 30 APRIL 1994 30 APRIL 1995
31 MAY 1994 (UNAUDITED) (UNAUDITED)
------------------ ----------------- -----------------
<S> <C> <C> <C>
Revenue................. (Pounds) 7,504,234 (Pounds)6,015,950 (Pounds)5,307,800
Data and production
costs.................. (2,311,446) (2,303,070) (1,292,204)
Selling, general and
administration
expenses............... (1,937,306) (1,925,900) (2,897,760)
Depreciation and
amortisation credit
(expense).............. (1,881,324) (1,610,792) (1,502,806)
------------------ ----------------- -----------------
Operating (loss) income. 1,374,158 176,188 (384,970)
Fixed asset write-down
net of profit on
disposal of
discontinued
operations............. (169,300) 48,200 --
------------------ ----------------- -----------------
Loss (income) from
operations............. 1,204,858 224,388 (384,970)
Interest expense........ (115,558) (115,750) (84,094)
------------------ ----------------- -----------------
1,089,300 108,638 (469,064)
Income taxes............ (64,000) -- --
------------------ ----------------- -----------------
Net (loss) income... (Pounds) 1,025,300 (Pounds) 108,638 (Pounds) (469,064)
================== ================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
income.
F-22
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN BRITISH POUNDS)
<TABLE>
<CAPTION>
TOTAL
CONSOLIDATED
ACCUMULATED SHAREHOLDERS'
ORDINARY SHARES SHARE PREMIUM GOODWILL RESERVE DEFICIT EQUITY
----------------- ----------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance 1 June 1993..... (Pounds)2,848,890 (Pounds)2,615,676 (Pounds)(216,490) (Pounds)(3,756,309) (Pounds)1,491,767
Share issue........... 380,178 160,647 -- -- 540,825
Current year earnings. -- -- -- 1,025,300 1,025,300
Transfer to P&L....... -- -- 216,490 -- 216,490
----------------- ----------------- ---------------- ------------------ -----------------
Balance 31 May 1994..... 3,229,068 2,776,323 -- (2,731,009) 3,274,382
Cancellation of share
premium (unaudited).. -- (2,776,323) -- 2,776,323 --
11 months earnings
(unaudited).......... -- -- -- (469,064) (469,064)
----------------- ----------------- ---------------- ------------------ -----------------
Balance 30 April 1995
(unaudited)............ (Pounds)3,229,068 (Pounds) -- (Pounds) -- (Pounds) (423,750) (Pounds)2,805,318
================= ================= ================ ================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated statements of
shareholders' equity.
F-23
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
STATEMENTS OF CONSOLIDATED CASH FLOWS
(AMOUNTS IN BRITISH POUNDS)
<TABLE>
<CAPTION>
11 MONTHS ENDED 11 MONTHS ENDED
YEAR ENDED 30 APRIL 1994 30 APRIL 1995
31 MAY 1994 (UNAUDITED) (UNAUDITED)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from
operating activities
Operating (loss)
income............... (Pounds)1,374,158 (Pounds) 176,188 (Pounds)(384,970)
Adjustments to
reconcile operating
(loss) income to cash
flows on operating
activities
--depreciation and
amortisation......... 1,881,324 1,610,792 1,502,806
--elimination of net
book value of fixed
assets in respect of
subsidiary sold...... 172,990 172,990 --
Changes in assets and
liabilities
--decrease in
inventories.......... 13,901 13,901 --
--(increase) decrease
in accounts
receivable........... (343,876) 3,598 (213,899)
--increase (decrease)
in accounts payable
and other
liabilities.......... (667,976) (1,024,857) 136,003
----------------- ---------------- ----------------
Net cash (outflow)
inflow from operating
activities............. 2,430,521 952,612 1,039,940
Return on investment and
servicing of finance
Interest received..... 7,619 6,984 1,741
Interest paid......... (48,906) (44,831) (85,910)
----------------- ---------------- ----------------
Net cash flow from
return on investment
and servicing of
finance................ (41,287) (37,846) (84,169)
----------------- ---------------- ----------------
Cash flows from
investing activities
Purchase of property,
plant and equipment
and intangible fixed
assets............... (2,665,766) (1,858,820) (1,510,866)
Proceeds from sale of
subsidiary
undertaking.......... 264,690 264,690 --
----------------- ---------------- ----------------
Net cash used in
investing activities... (2,401,076) (1,594,130) (1,510,866)
----------------- ---------------- ----------------
Cash flows from
financing activities
Repayment of bank
loans................ (171,034) (168,946) (140,159)
Repayment of capital
element of finance
leases............... (35,491) (34,869) (5,458)
Issue of ordinary
share capital........ 540,825 540,825 --
New long term loans... -- -- 23,067
----------------- ---------------- ----------------
Net cash provided by
financing activities... 334,300 337,010 (122,550)
----------------- ---------------- ----------------
Net (decrease) increase
in cash and cash
equivalents............ 322,458 (342,354) (677,645)
Cash and cash
equivalents and bank
overdrafts at beginning
of year................ (56,616) (56,616) 265,842
----------------- ---------------- ----------------
Cash and cash
equivalents and bank
overdrafts at end of
year................... (Pounds) 265,842 (Pounds)(398,970) (Pounds)(411,803)
================= ================ ================
</TABLE>
The accompanying notes are an integral part of these statements of consolidated
cash flows.
F-24
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN BRITISH POUNDS)
1 ACCOUNTING POLICIES
A summary of the principal group accounting policies is set out below, all
of which have been applied consistently throughout the year.
The financial statements are prepared under the historical cost convention
as modified by the revaluation of freehold land and buildings, in accordance
with applicable accounting standards and on the going concern basis.
a) Basis of consolidation
The consolidated profit and loss account and balance sheet comprises the
financial statements of International Communication & Data Plc ("ICD") and its
subsidiary undertakings, ICD Marketing Services Limited and ICD Limited ("the
Group") made up to 31 May 1994. The Group uses the purchase method of
accounting to consolidate the results of subsidiary undertakings.
The Group disposed of 75.1% of its interest in The Database Group Limited on
18 June 1993. Trading of this former subsidiary has not been incorporated
within the current accounting period as the Directors consider that the
results during the 18 days of ownership would not be material.
b) Interim financial information
The unaudited consolidated statements of income and cash flows for the
eleven months ended 30 April 1995 and 30 April 1994, the unaudited
consolidated balance sheet of 30 April 1995, and the unaudited statement of
changes in shareholders' equity for the eleven months ended 30 April 1995 have
been prepared consistently with the accounting policies set out in this note 1
and include, in the opinion of management, all adjustments necessary to
present fairly the Group's financial position, results of operations and cash
flows. In the opinion of management, all these adjustments are of a normal
recurring nature.
c) Goodwill
Goodwill arising on consolidation as a result of the acquisition of
subsidiaries and goodwill arising on the purchase of businesses are taken
direct to reserves in the year in which they occur. On disposal of a business,
the goodwill previously taken to reserves is charged to the profit and loss
account. Where the directors believe that the purchased goodwill has suffered
a permanent diminution in value, a similar charge to the profit and loss
account is made.
d) Tangible fixed assets
Tangible fixed assets are stated at cost or valuation less accumulated
depreciation. Depreciation is calculated as follows:
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
<S> <C>
Freehold buildings........................... 2% on cost or valuation
Leasehold premises........................... over the period of the lease
Furniture and equipment...................... 20% on cost
Databases.................................... 25% on net book value
</TABLE>
The cost of databases includes expenditure incurred in the collection of
additional data. Where income is received in the course of the collection of
such additional data, this income is credited to the profit and loss account.
Prior to 1 June 1993 and during the period when The Database Group was a
subsidiary of the company, its direct costs in the collection of additional
data were capitalised.
F-25
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e) Deferred tax
Provision is made for timing differences between the treatment of certain
items for taxation and accounting purposes to the extent that it is possible
that a liability or asset will crystallise.
f) Pension costs
Contributions to defined contribution pension schemes are charged to the
profit and loss account in the year in which they become payable.
g) Leases
Rentals paid under operating leases are charged to the profit and loss
account on a straight line basis over the lease terms.
Assets acquired under finance leases are capitalised as fixed assets at the
equivalent purchase price. Depreciation is provided over the shorter of the
useful life of the asset or the term of the lease. The interest element of the
lease charges is apportioned over the period of the lease on the basis of the
interest rate implicit in the lease.
h) Turnover
Turnover is stated net of value added tax and comprises the value of goods
sold and services provided. Income relating to the grant of licences for
access to the databases is recognised in full when invoiced except in the case
where licences are for a period in excess of 12 months when only 12 months'
licence fee is recognised.
2 SEGMENT INFORMATION
The Group operates principally within the United Kingdom. Turnover outside
the UK was not material. In 1994, all turnover and operating profit arose from
the Group's sole class of business of database services.
3 PROPERTY, PLANT AND EQUIPMENT (NET)
<TABLE>
<CAPTION>
1994
-----------------
<S> <C>
Cost
Freehold land and buildings........................... (Pounds) --
Leasehold improvements................................ 42,236
Office furniture, motor vehicles and computer
equipment............................................ 1,341,484
Databases............................................. 12,122,931
-----------------
13,506,651
Less: accumulated amortisation........................ (8,433,266)
-----------------
Property, plant and equipment (net)................... (Pounds)5,073,385
=================
</TABLE>
Freehold land and buildings were written-down at 31 May 1994 to an open
market value of (Pounds)150,000 by the directors. This property was formerly
the Group head office. It is no longer occupied by the Group and has been
reclassified as an investment property in accordance with Statement of
Standard Accounting Practice No. 19.
4 INVESTMENTS
<TABLE>
<CAPTION>
1994
---------------
<S> <C>
Investment property (refer to note 3)..................... (Pounds)150,000
The Database Group Limited................................ 1
---------------
(Pounds)150,001
===============
</TABLE>
F-26
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5 INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED
31 MAY 1994
--------------
<S> <C>
Corporation tax charge at 33%.............................. (Pounds)64,000
--------------
</TABLE>
Under UK GAAP, no provision is made for potential deferred tax liabilities
which are not expected to crystallise in the foreseeable future. Deferred tax
assets in respect of operating losses are generally not recognised unless
realisation is assured beyond reasonable doubt. The Group has no liability to
deferred tax.
Under US GAAP, in accordance with SFAS 109 "Accounting for Income Taxes",
full provision is made for all deferred tax liabilities. Deferred tax assets
are recognised for deductible temporary differences, reduced by a valuation
allowance, to the extent that it is more likely than not that the benefit will
not be realised. The group would recognise no deferred tax balances under US
GAAP.
At 31 May 1994, the amount of unclaimed capital allowances on fixed assets
exceeded the accounts written down value of these assets by approximately
(Pounds)2 million which at 33% could potentially reduce the tax charge on
profits earned in future periods by approximately (Pounds)660,000.
The tax effects of temporary differences and carry forwards that give rise
to a deferred tax asset comprise the following:
<TABLE>
<CAPTION>
1994
---------------
<S> <C>
Deferred tax asset
Unclaimed capital allowances............................. (Pounds)660,000
Less: valuation allowances............................... (660,000)
---------------
Net deferred tax asset................................... (Pounds) --
===============
</TABLE>
Valuation allowances have been established for uncertainties in offsetting
the unclaimed capital allowances against profits earned in future periods.
6 COMMITMENTS AND CONTINGENCIES
At 31 May 1994, the Group had no contracted capital commitments.
7 SHARE CAPITAL
The share capital of ICD is described below.
<TABLE>
<CAPTION>
1994
-----------------
<S> <C>
Authorised
74,000,000 ordinary shares of 5p each................. (Pounds)3,700,000
Allotted, called up and fully paid
64,581,353 ordinary shares of 5p each................. (Pounds)3,229,068
=================
</TABLE>
On 30 November 1993, 653,900 ordinary shares of 5p each were issued
following the exercise of share options by Mr. G.N.D. Thain at subscription
prices between 8.07p and 10.5p each.
On 7 December 1993, 6,949,651 ordinary shares of 5p each were issued
following the exercise of share options by Continental Foods plc (formerly IMC
Industries plc) at a subscription price of 7p each.
F-27
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On 25 April 1994, the Company granted options in respect of 549,251 ordinary
shares of 5p each (of which 322,907 were granted to L. Thain) under The Share
Option Executive Scheme, at a subscription price of 12p per share.
On 31 May 1994, there were a total of 1,923,098 ordinary shares of the
Company subject to options granted to employees and Directors (D. Baker
90,610; L. Thain 627,199; D. Unger 55,364) pursuant to the terms of the
Executive and Incentive share option schemes. These options are exercisable at
prices between 8p and 54.27p per ordinary share between 20 February 1996 and
14 April 2003. In addition at 31 May 1994 subscription warrants had been
issued and were still outstanding in respect of a total of 2,628,765 ordinary
shares of 5p each to Directors and shareholders at prices between 6p and
10.35p. Subscription warrants for 2,307,110 shares were originally issued to
G. Thain who subsequently sold them to other shareholders during the year.
8 RELATED PARTIES
Included within administrative expenses are accountancy fees of
(Pounds)15,032 paid to Elman & Leigh in which R. Elman is an equity partner.
Dawnay Day & Co., Limited, of which D.E. Cicurel is a non-executive director,
received advisory fees of (Pounds)49,274 in the year.
9 DIFFERENCE BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom (UK GAAP),
which differ in certain significant respects from those generally accepted in
the United States (US GAAP). Differences relevant to the ICD Group are not
material to these consolidated financial statements.
The Statement of Consolidated Cash Flows has been prepared in accordance
with United Kingdom Financial Reporting Standard 1, "Cash Flow Statements"
("FRS 1"). The only differences between FRS 1 and SFAS 95, "Statement of Cash
Flows," relevant to the group are presentational matters. FRS 1 requires a
reconciliation between operating result and operating cash flows and an
analysis of interest and taxation payments and receipts, separately within the
statement; whereas SFAS 95 requires a reconciliation between net result and
operating cash flows with supplemental disclosures of interest and taxation
payments and receipts. The differences in the Group's cash flows resulting
from these presentational matters are not material. FRS 1 requires cash and
cash equivalents to be presented net of overdrafts; whereas SFAS 95 does not
allow such a presentation.
10 STATEMENT OF DIRECTORS' RESPONSIBILITIES
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
F-28
<PAGE>
INTERNATIONAL COMMUNICATION & DATA PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets
of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
F-29
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued June 13, 1996 12,000,000 Shares
[LOGO OF METROMAIL]
COMMON STOCK
----------
OF THE 12,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY BY METROMAIL
CORPORATION (THE "COMPANY" OR "METROMAIL"), 2,400,000 SHARES ARE BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY INTERNATIONAL UNDERWRITERS
AND 9,600,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND
CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL THE SHARES OF
COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO THIS
OFFERING, ALL OF THE COMMON STOCK OF THE COMPANY WAS OWNED BY R. R.
DONNELLEY & SONS COMPANY ("R.R. DONNELLEY"). UPON COMPLETION OF THIS
OFFERING, R.R. DONNELLEY WILL OWN APPROXIMATELY 41.7% OF THE OUTSTANDING
COMMON STOCK OF THE COMPANY (APPROXIMATELY 38.4% IF THE U.S.
UNDERWRITERS EXERCISE THEIR OVER-ALLOTMENT OPTION IN FULL).
SUBSTANTIALLY ALL THE NET PROCEEDS OF THIS OFFERING WILL BE USED TO
REPAY AMOUNTS OWED TO R.R. DONNELLEY AND ITS SUBSIDIARIES. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE WILL BE BETWEEN $18.50 AND $20.50 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
----------
THE COMMON STOCK HAS BEEN
APPROVED FOR LISTING,
SUBJECT TO OFFICIAL NOTICE
OF ISSUANCE, ON THE NEW
YORK STOCK EXCHANGE, INC.
UNDER THE SYMBOL "ML."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR
A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- ----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
- -----
(1) The Company and R.R. Donnelley have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
(2) Before deducting expenses payable by the Company estimated at
$1,500,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,800,000 additional Shares at the Price to Public less Underwriting
Discounts and Commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriters."
----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Winston & Strawn, counsel for the Underwriters. It is expected that the
delivery of the Shares will be made on or about , 1996 at the offices
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
----------
MORGAN STANLEY & CO.
International
LEHMAN BROTHERS
CAZENOVE & CO.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions) payable in
connection with the sale of the Common Stock offered hereby (including the
Common Stock which may be issued pursuant to an over-allotment option) are as
follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee......................................... $ 97,552
NASD filing fee.............................................. 28,790
NYSE fee..................................................... 123,100
Printing and engraving expenses.............................. 250,000*
Legal fees and expenses...................................... 400,000*
Accounting fees and expenses................................. 450,000*
Blue Sky fees and expenses (including legal fees and
expenses)................................................... 25,000*
Transfer agent and registrar fees and expenses............... 25,000*
Miscellaneous................................................ 100,558*
----------
Total.................................................... $1,500,000*
==========
</TABLE>
- --------
*Estimated.
The Registrant will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 145 ("Section 145") of General Corporation Law
of the State of Delaware (the "Delaware GCL") which provides for
indemnification of directors and officers in certain circumstances.
In accordance with Section 102(b)(7) of the Delaware GCL, the Registrant's
Restated Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages for breaches of their fiduciary duty as
directors except for (i) breaches of their duty of loyalty to the Registrant
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) certain
transactions under Section 174 of the Delaware GCL (unlawful payment of
dividends) or (iv) transactions from which a director derives an improper
personal benefit.
The Restated Certificate of Incorporation of the Registrant provides for
indemnification of directors and officers to the full extent provided by the
Delaware GCL, as amended from time to time. It states that the indemnification
provided therein shall not be deemed exclusive. The Registrant may maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Registrant, or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Registrant would have the power to indemnify such person
against such expense, liability or loss, under the provisions of the Delaware
GCL.
The underwriting agreement provides for indemnification of directors and
officers of the Registrant by the Underwriters against certain liabilities.
Pursuant to Section 145 and the Restated Certificate of Incorporation, the
Registrant maintains directors' and officers' liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Registrant has not issued any securities that were not registered under the
Securities Act of 1933, as amended. Upon the filing on March 4,
II-1
<PAGE>
1996 of the Third Restated Certificate of Incorporation of the Registrant with
the Delaware Secretary of State, each of the issued and outstanding shares of
Common Stock, par value $.40 per share, of the Registrant was reclassified
into 8,600 shares of Common Stock, par value $.01 per share, of the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
3.1* Third Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant.
5.1 Opinion of Sidley & Austin.
10.1 Form of Transition Services Agreement between the Registrant
and R.R. Donnelley.
10.2 Form of Sales Agreement between the Registrant and
R.R. Donnelley.
10.3 Form of Benefit Administration Services Agreement between the
Registrant and R.R. Donnelley.
10.4 Form of Data Center Services Agreement between the Registrant
and R.R. Donnelley.
10.5 Form of Tax Allocation and Indemnification Agreement between
the Registrant and R.R. Donnelley.
10.6* Employment Agreement between the Registrant and Barton L.
Faber.
10.7* Employment Agreement between the Registrant and Susan L.
Henricks.
10.8* Retirement, Consulting and Release Agreement dated as of July
26, 1995 among R.R. Donnelley, the Registrant and James D.
McQuaid.
10.9* Employment Agreement dated June 16, 1994 between Customer
Insight Corporation and Tery R. Larrew.
10.10 1996 Stock Incentive Plan.
10.11 1996 Broad-Based Employee Stock Plan.
10.12 Form of Credit Agreement among the Registrant and certain
Subsidiaries, as Borrower, the Banks named therein and The
First National Bank of Chicago, as Administrative Agent.
21.1* Subsidiaries.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of BDO Stoy Hayward.
23.3 Consent of Sidley & Austin (included in Exhibit 5.1).
24.1* Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed
(b) FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedule is included as part of this
Registration Statement immediately following the signature page:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1993, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to provisions described in Item
14 above, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT AMENDMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN CHICAGO, ILLINOIS ON
JUNE 12, 1996.
Metromail Corporation
/s/ Barton L. Faber
By: _________________________________
Name: Barton L. Faber
Title: Chairman
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Barton L. Faber Chairman and Director June 12, 1996
____________________________________ (principal executive
Barton L. Faber officer)
* President and Chief June 12, 1996
____________________________________ Executive Officer and
Susan L. Henricks Director
* Senior Vice President and June 12, 1996
____________________________________ Chief Financial Officer
Ronald G. Eidell (principal financial
officer)
* Vice President, Finance June 12, 1996
____________________________________ (chief accounting officer)
Kenneth A. Glowacki
* Director June 12, 1996
____________________________________
Peter F. Murphy
* Director June 12, 1996
____________________________________
Jonathan P. Ward
</TABLE>
/s/ Barton L. Faber
*By ___________________________
Barton L. Faber
Attorney-in-Fact
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated and combined financial statements of Metromail Corporation
and Affiliates included in this registration statement and have issued our
report thereon dated January 19, 1996 (except for the matters discussed in
Note 15 as to which the date is May 9, 1996). Our audit was made for the
purpose of forming an opinion on the basic financial statements as a whole.
The schedules listed in the accompanying index above are presented for
purposes of complying with the Securities and Exchange Commissions rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
May 9, 1996
II-5
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEDUCTIONS--
ADDITIONS WRITE-OFFS
BALANCE -------------------------------- OF TRADE
SALES ALLOWANCES AND AT THE CHARGES CHARGES CHARGES TO RECEIVABLES, BALANCE AT
ALLOWANCES FOR DOUBTFUL BEGINNING TO TO OTHER NET OF END OF
ACCOUNTS OF PERIOD SALES(1) EXPENSES(2) ACCOUNTS(3) RECOVERIES PERIOD
----------------------- --------- -------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1993...... 2,969 4,137 1,959 -- (5,574) 3,491
For the Year Ended
December 31, 1994...... 3,491 3,571 1,848 158 (5,482) 3,586
For the Year Ended
December 31, 1995...... 3,586 5,067 2,180 465 (7,333) 3,965
</TABLE>
- --------
(1) These amounts represent provisions for sales allowances that are included
in net sales.
(2) These amounts represent provisions for doubtful accounts that are included
in general and administrative expenses.
(3) These amounts represent additions to the reserve resulting from the
purchase of ICD in 1995 and of CIC in 1994.
S-1
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
3.1* Third Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant.
5.1 Opinion of Sidley & Austin.
10.1 Form of Transition Services Agreement between the Registrant and
R.R. Donnelley.
10.2 Form of Sales Agreement between the Registrant and R.R. Donnelley.
10.3 Form of Benefit Administration Services Agreement between the
Registrant and R.R. Donnelley.
10.4 Form of Data Center Services Agreement between the Registrant and
R.R. Donnelley.
10.5 Form of Tax Allocation and Indemnification Agreement between the
Registrant and R.R. Donnelley.
10.6* Employment Agreement between the Registrant and Barton L. Faber.
10.7* Employment Agreement between the Registrant and Susan L. Henricks.
10.8* Retirement, Consulting and Release Agreement dated as of July 26,
1995 among R.R. Donnelley, the Registrant and James D. McQuaid.
10.9* Employment Agreement dated June 16, 1994 between Customer Insight
Company and Tery R. Larrew.
10.10 1996 Stock Incentive Plan.
10.11 1996 Broad-Based Employee Stock Plan.
10.12 Form of Credit Agreement among the Registrant and certain
Subsidiaries, as Borrower, the Banks named therein and the First
National Bank of Chicago, as Administrative Agent.
21.1* Subsidiaries.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of BDO Stoy Hayward.
23.3 Consent of Sidley & Austin (included in Exhibit 5.1).
24.1* Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
<PAGE>
WINSTON & STRAWN DRAFT
6/11/96
12,000,000 Shares
METROMAIL CORPORATION
COMMON STOCK, $.01 PAR VALUE
UNDERWRITING AGREEMENT
JUNE __, 1996
<PAGE>
JUNE __, 1996
Morgan Stanley & Co.
Incorporated
Lehman Brothers Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
Cazenove & Co.
c/o Morgan Stanley & Co.
International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Metromail Corporation, a Delaware corporation (the "Company") and wholly-
owned subsidiary of R. R. Donnelley & Sons Company, a Delaware corporation (the
"Parent Corporation"), proposes to issue and sell to the several Underwriters
(as defined below) 12,000,000 shares (the "Firm Shares") of Common Stock, $.01
par value per share (the "Common Stock") of the Company.
It is understood that, subject to the conditions hereinafter stated,
9,600,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 2,400,000 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated and
Lehman Brothers Inc. shall act as representatives (the "U.S. Representatives")
of the several U.S. Underwriters, and Morgan Stanley & Co. International
Limited, Lehman Brothers International (Europe) and Cazenove & Co. shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
<PAGE>
Underwriters are hereinafter collectively referred to as the "Underwriters."
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 1,800,000 shares of Common Stock (the
"Additional Shares") if and to the extent that the U.S. Representatives shall
have determined to exercise, on behalf of the U.S. Underwriters, the right to
purchase such shares of Common Stock granted to the U.S. Underwriters in Article
II hereof. The Firm Shares and the Additional Shares are hereinafter
collectively referred to as the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement contains two prospectuses to be used in
connection with the offering and sale of the Shares: the U.S. prospectus, to be
used in connection with the offering and sale of Shares in the United States and
Canada to United States and Canadian Persons, and the international prospectus,
to be used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front cover page. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PARENT
CORPORATION. The Company and the Parent Corporation, jointly and severally,
represent and warrant to and agree with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to
2
<PAGE>
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and (iii) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph 1(b) do not
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to
the Company or the Parent Corporation in writing by any U.S.
Representative, International Representative or Underwriter.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
(f) The authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained
in the Prospectus under the caption "Description of Capital Stock and
Corporate Charter."
3
<PAGE>
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and are validly issued,
fully paid and non-assessable, and are owned by the Company, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of
any nature.
(i) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(l) There are no legal or governmental proceedings pending or, to the
knowledge of the Company or the Parent Corporation, threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus
and are not so described or any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
4
<PAGE>
(m) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(n) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(o) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the net proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(p) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(q) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(r) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good
5
<PAGE>
and marketable title to all personal property owned by them that is
material to the business of the Company and its subsidiaries, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value
of such property and do not interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in or contemplated by the
Prospectus.
(s) Neither the Company nor any subsidiary is in violation of its
certificate or articles of incorporation or by-laws, or in violation of any
applicable statute, judgment, decree, order, rule or regulation, which,
singly or in the aggregate, would result in a material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole. No
default exists, and no event has occurred which, with notice or lapse of
time or both, would constitute a default, in the due performance and
observance of any term, covenant or condition of any material indenture,
mortgage, deed of trust, lease or other material agreement or instrument to
which the Company or any subsidiary is a party or by which the Company, any
of its subsidiaries or any of their properties is bound or may be affected
in any respect which would result in a materially adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(t) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
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(u) Arthur Andersen LLP and BDO Stoy Hayward are independent public
accountants with respect to the Company and its subsidiaries as required by
the Securities Act.
(v) The financial statements, together with the related schedules and
notes thereto, included or incorporated in the Registration Statement and
the Prospectus (and any amendment or supplement thereto), present fairly in
all material respects the consolidated financial position, results of
operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and the schedules and related notes thereto have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved except as otherwise stated therein;
and the other financial and statistical information and data set forth in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto) is, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books
and records of the Company. The pro forma statement of operations and
balance sheet data set forth in the Prospectus under the caption "Unaudited
Pro Forma Financial Information" presents fairly in all material respects
the information shown therein, has been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma information,
has been properly compiled on the pro forma basis described therein, and,
in the opinion of the Company, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
under the circumstances.
(w) No material labor dispute with the employees of the Company or any
of its subsidiaries exists, except as described in or contemplated by the
Prospectus, or, to the knowledge of the Company, is imminent.
(x) The Common Stock of the Company has been accepted for listing on
the New York Stock Exchange, subject to notice of issuance of sale.
(y) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(z) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented an/or unpatentable proprietary or confidential information,
systems or
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procedures), trademarks, service marks and trade names currently employed
by them in connection with the business now operated by them, and neither
the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
any unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
2. REPRESENTATIONS AND WARRANTIES OF THE PARENT CORPORATION. The Parent
Corporation represents and warrants to and agrees with each of the Underwriters
that:
(a) The Parent Corporation has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation.
(b) This Agreement has been duly authorized, executed and delivered by
the Parent Corporation.
(c) The execution and delivery by the Parent Corporation of, and the
performance by the Parent Corporation of its obligations under, this
Agreement will not contravene any provision of applicable law, or the
certificate of incorporation or by-laws of the Parent Corporation or any
agreement or other instrument binding upon the Parent Corporation that is
material to the Parent Corporation or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Parent
Corporation, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Parent Corporation of its obligations under this
Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.
3. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at U.S. $______ a share (the "Purchase Price") the respective numbers of
Firm Shares set forth in Schedules I and II hereto opposite the name of such
Underwriter.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time
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right to purchase, severally and not jointly, up to 1,800,000 Additional Shares
at the Purchase Price. If the U.S. Representatives, on behalf of the U.S.
Underwriters, elect to exercise such option, the U.S. Representatives shall so
notify the Company in writing not later than 30 days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the U.S. Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Shares may be purchased as provided in Section
5 hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as the U.S. Representatives may determine) that bears the same
proportion to the total number of Additional Shares to be purchased as the
number of U.S. Firm Shares set forth in Schedule I hereto opposite the name of
such U.S. Underwriter bears to the total number of U.S. Firm Shares. The
Additional Shares to be purchased by the U.S. Underwriters hereunder and the
U.S. Firm Shares are hereinafter collectively referred to as the U.S. Shares.
Each of the Company and the Parent Corporation hereby agrees that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending 180 days after the date of
the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are now owned by the Company or the Parent Corporation or are
hereafter acquired), or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder or (B) the issuance by the Company of shares of
Common Stock upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof of which the Underwriters have been
advised in writing.
4. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
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U.S.$_________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$________ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$__________ a share, to any Underwriter or to certain other dealers.
Each U.S. Underwriter hereby makes to and with the Company and the Parent
Corporation the representations and agreements of such U.S. Underwriter
contained in the fifth and sixth paragraphs of Article III of the Agreement
Between U.S. and International Underwriters of even date herewith. Each
International Underwriter hereby makes to and with the Company and the Parent
Corporation the representations and agreements of such International Underwriter
contained in the seventh, eighth, ninth and tenth paragraphs of Article III of
such agreement.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made to the
Company in Federal or other funds immediately available in New York City against
delivery of the Firm Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on June __, 1996, or at such
other time on the same or such other date, not later than June __, 1996, as
shall be agreed to by the Company, the Parent Corporation and you. The time and
date of each such payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the Several Underwriters at
10:00 A.M., New York City time, on the date specified in the notice described in
Section 3 or on such other date as shall be designated in writing by you (which
date may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than the second business day after the giving of
such notice or later than ______________, 1996). The time and date of such
payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
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6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_____________] (New York time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed on behalf of the Company by
the Chairman of the Board or the President and Chief Executive Officer and
the Chief Financial Officer of the Company, to the effect that the
representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied hereunder on or before the Closing
Date.
The officers signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed on behalf of the Parent
Corporation by an executive officer of the Parent Corporation, to the
effect that the representations and warranties of the Parent Corporation
contained in this Agreement are true and correct as of the Closing Date and
that the Parent Corporation has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
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(d) The Underwriters shall have received on the Closing Date an
opinion of Sidley & Austin, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus;
(ii) the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof
contained in the Prospectus under the caption "Description of Capital
Stock and Corporate Charter;"
(iii) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(iv) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company; and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by
the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares by the U.S. Underwriters;
(vii) the statements (A) in the Prospectus under the captions
"Risk Factors -Antitakeover Matters," "Management - Employment
Agreements, - Agreement with Retired Executive and - Stock Plans,"
"Relationship with R.R. Donnelley," "Shares Eligible for Future Sale,"
"Certain United States Federal Income Tax Considerations for Non-U.S.
Holders of Common Stock," "Description of Capital Stock and Corporate
Charter" and "Underwriters" and (B) in the Registration Statement in
Item 14, in each case insofar as such statements constitute summaries
of
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the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(viii) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the net
proceeds thereof as described in the Prospectus, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(ix) the Registration Statement and Prospectus (except for
financial statements and schedules and other financial and statistical
data included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder.
In addition, such counsel shall state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has considered
the information set forth therein in light of the matters required to be set
forth therein and that such counsel has participated in conferences with
officers and representatives of the Parent Corporation and the Company,
including the Company's independent public accountants, and representatives of
and counsel for the Underwriters, during the course of which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel shall not have independently checked the accuracy or
completeness of, or otherwise verified, and accordingly are not passing upon,
and shall not assume responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement and the Prospectus
except as set forth in subparagraph (vii) above, as a result of such
consideration and participation, nothing has come to the attention of such
counsel which causes such counsel to believe that the Registration statement, as
of the time the Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, as of its date or the date of such opinion contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (except in each
case such counsel need express no comment with respect to the financial
statements and related schedules and other financial and statistical data
included in the Registration Statement or the Prospectus or statements made in
the exhibits to the Registration Statement).
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In rendering such opinion, such counsel may (i) state that their opinion is
limited to the Federal laws of the United States of America, the laws of the
States of Illinois and New York and the General Corporation Law of the State of
Delaware, and (ii) rely as to matters of fact upon the representations contained
in this Agreement and certificates of officers of the Company and of public
officials.
(e) The Underwriters shall have received on the Closing Date an
opinion of Thomas J. Quarles, Senior Vice President and General Counsel of
the Parent Corporation, and Senior Vice President, General Counsel, Chief
Administrative Officer and Secretary of the Company, dated the Closing
Date, to the effect that:
(i) The Parent Corporation has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation.
(ii) this Agreement has been duly authorized, executed and
delivered by or on behalf of the Parent Corporation;
(iii) the execution and delivery by the Parent Corporation of,
and the performance by the Parent Corporation of its obligations
under, this Agreement will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of the Parent
Corporation, or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Parent Corporation or,
to the best of such counsel's knowledge, any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the
Parent Corporation, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by the Parent Corporation of its obligations under
this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with offer and sale
of the Shares by the U.S. Underwriters;
(iv) the Company is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(v) each subsidiary of the Company that is listed on Exhibit 21.1
to the Registration Statement (each a
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"Material Subsidiary") has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(vi) all of the outstanding shares of capital stock of each
Material Subsidiary have been duly authorized and are validly issued,
fully paid and non-assessable;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares by the U.S. Underwriters;
(viii) after due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
In addition, such counsel shall state that in the course of the preparation
of the Registration Statement and the Prospectus, such counsel has considered
the information set forth
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therein in light of the matters required to be set forth therein and that such
counsel has participated in conferences with officers and representatives of the
Parent Corporation and the Company, including the Company's independent public
accountants, and representatives of and counsel for the Underwriters, during the
course of which the contents of the Registration Statement and the Prospectus
and related matters were discussed and, although such counsel shall not have
independently checked the accuracy or completeness of, or otherwise verified,
and accordingly are not passing upon, and shall not assume responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus, except as specified, as a result of
such consideration and participation, nothing has come to the attention of such
counsel which causes such counsel to believe that the Registration statement, as
of the time the Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, as of its date or the date of such opinion contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (except in each
case such counsel need express no comment with respect to the financial
statements and related schedules and other financial and statistical data
included in the Registration Statement or the Prospectus or statements made in
the exhibits to the Registration Statement).
In rendering such opinion, such counsel may (i) state that his opinion is
limited to the Federal laws of the United States of America, the laws of the
State of Illinois and the General Corporation Law of the State of Delaware, (ii)
rely as to matters of fact upon the representations contained in this Agreement
and certificates of the Company, the Parent Corporation and of public officials,
and (iii) as to matters of law outside the United States of America, rely upon
or furnish an opinion of foreign counsel reasonably acceptable to the U.S.
Representatives.
(f) The Underwriters shall have received on the Closing Date a letter
of Winston & Strawn, special counsel for the Underwriters, dated the
Closing Date, covering such opinions and beliefs referred to in
subparagraphs (iv), (v), (vii) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters"),
(viii), (ix) and the penultimate paragraph of paragraph (d) above.
The opinions of Sidley & Austin and Thomas J. Quarles described in
paragraphs (d) and (e) above shall be rendered to the Underwriters at the
request of the Company or the Parent Corporation, as the case may be, and shall
so state therein.
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(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, letters dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the Underwriters,
from Arthur Andersen LLP and BDO Stoy Hayward, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a cut-off date, not earlier than
the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain officers and directors of the
Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the U.S. Underwriters to purchase Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on the
Option Closing Date of such documents as they may reasonably request with
respect to the good standing of the Company, the due authorization and issuance
of the Additional Shares and other matters related to the issuance of the
Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 3:00 P.M. local time on the business day following the
date of this Agreement and during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
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(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent
to service of process in any jurisdiction or to subject itself to taxation
in respect of doing business in any jurisdiction in which it is not
otherwise so subject.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending September 30, 1997 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's and its subsidiaries' accountants in
connection with the registration and delivery of the Shares under the
Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers,
in the quantities hereinabove
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specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 7(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating
to the Common Stock and all costs and expenses incident to listing the
Shares on the NYSE, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation,
expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any
such consultants, and the cost of any aircraft chartered in connection with
the road show, and (ix) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that
except as provided in this Section, Section 8 entitled "Indemnity and
Contribution', and the last paragraph of Section 10 below, the Underwriters
will pay all of their costs and expenses, including fees and disbursements
of their counsel, stock transfer taxes payable on resale of any of the
Shares by them and any advertising expenses connected with any offers they
may make.
19
<PAGE>
8. INDEMNITY AND CONTRIBUTION.
(a) The Company and the Parent Corporation, jointly and severally, agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by 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,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company or the
Parent Corporation in writing by any U.S. Representative, International
Representative or Underwriter expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto, but without exhibits) was not sent, mailed or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such losses, claims, damages or liabilities.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the directors of the Company, the officers of the
Company who sign the Registration Statement, the Parent Corporation, and each
person, if any, who controls the Company or the Parent Corporation within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact
20
<PAGE>
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by 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,
but only with reference to information relating to such Underwriter furnished to
the Company or the Parent Corporation in writing by any U.S. Representative,
International Representative or Underwriter expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus, or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to paragraph (a) or (b) of this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for (i) all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and (ii) the Company, its
directors, its officers who sign the Registration Statement, the Parent
Corporation, and each person, if any, who controls the Company or the Parent
Corporation within the meaning of either such Section, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of the Underwriters,
such firm shall be designated in writing by Morgan Stanley & Co. Incorporated.
In the case of any such
21
<PAGE>
separate firm for the Company, its directors, such officers, the Parent
Corporation, and control persons of the Company or the Parent Corporation, such
firm shall be jointly designated in writing by the Company and the Parent
Corporation. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or (b)
of this Section 8 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Parent Corporation on the one hand and the Underwriters on the other
hand in connection with the offering of the Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company and the Parent
Corporation on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
22
<PAGE>
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Parent Corporation or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 8 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(e) The Company and the Parent Corporation and the Underwriters agree that
it would not be just or equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) of
this Section 8. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 8
and the representations, warranties and other statements of the Company and the
Parent Corporation contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, or the Company, its officers or directors, or the
Parent Corporation or any person controlling the Company or the Parent
Corporation and (iii) acceptance of and payment for any of the Shares.
23
<PAGE>
9. TERMINATION. This Agreement shall be subject to termination by notice
given by you to the Company and the Parent Corporation, if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the National Association of Securities Dealers, Inc., the Chicago
Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board
of Trade, (ii) trading of any securities of the Company or the Parent
Corporation shall have been suspended on any exchange or in any over-the-counter
market, (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities, or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses (a)(i) through (iv), such event, singly or together with any other such
event, makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I or Schedule II bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 10 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you, the Company and the Parent Corporation for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Parent Corporation.
24
<PAGE>
In any such case either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company or the Parent
Corporation to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason either the Company or the Parent Corporation
shall be unable to perform its respective obligations under this Agreement, the
Company or the Parent Corporation, jointly and severally, will reimburse the
Underwriters or such Underwriters as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
25
<PAGE>
13. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
METROMAIL CORPORATION
By____________________________
R.R. DONNELLEY & SONS
COMPANY
By____________________________
Accepted as of the date hereof
MORGAN STANLEY & CO.
INCORPORATED
LEHMAN BROTHERS INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By____________________________
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
CAZENOVE & CO.
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By____________________________
26
<PAGE>
Schedule I
U.S. Underwriters
-----------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
______________
Total U.S. Firm Shares ..............
9,600,000
==============
<PAGE>
Schedule II
International Underwriters
--------------------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. International Limited
Lehman Brothers International (Europe)
Cazenove & Co.
________________
Total International Firm Shares .......
2,400,000
================
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN]
EXHIBIT 5.1
-----------
June 13, 1996
Metromail Corporation
360 East 22nd Street
Lombard, Illinois 60148
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 (File No. 333-2042)
(the "Registration Statement") filed by Metromail Corporation, a Delaware
corporation (the "Company"), with the Securities and Exchange Commission
("Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), on March 7, 1996, as amended by Amendment No. 1 filed with the Commission
on April 17, 1996, Amendment No. 2 filed with the Commission on May 16, 1996,
Amendment No. 3 filed with the Commission on June 6, 1996 and Amendment No. 4
filed with the Commission on the date hereof (collectively, and as the same may
be further amended, the "Registration Statement"), relating to the registration
of 13,800,000 shares of Common Stock, $.01 par value (the "Shares"), of the
Company with a proposed maximum aggregate offering price of $20.50 per share.
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Shares and have examined such records,
documents and questions of law, and satisfied ourselves as to such matters of
fact, as we have considered relevant and necessary as a basis for this opinion.
<PAGE>
Metromail Corporation
June 13, 1996
Page 2
Based on the foregoing, we are of the opinion that the Shares will be
legally issued, fully paid and non-assessable when (i) the Registration
Statement, as finally amended, shall have become effective under the Securities
Act; (ii) the Company's Board of Directors or a duly authorized committee
thereof shall have duly adopted final resolutions authorizing the issuance and
sale of the Shares as contemplated by the Registration Statement; and (iii)
certificates representing the Shares shall have been duly executed,
countersigned and registered and duly delivered to the purchasers thereof
against payment of the agreed consideration therefor.
We do not find it necessary for the purposes of this opinion to cover,
and accordingly we express no opinion as to, the application of the securities
or blue sky laws of the various states or the District of Columbia to the sale
of the Shares.
This opinion is limited to the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our Firm included in or made a
part of the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
DRAFT: JUNE 10, 1996
---------------------
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT dated as of _________, 1996 (this
"Agreement") by and between R. R. Donnelley & Sons Company, a Delaware
corporation ("R.R. Donnelley"), and Metromail Corporation, a Delaware
corporation (the "Company").
W I T N E S S E T H
WHEREAS, R.R. Donnelley is currently the owner of all outstanding
shares of common stock of the Company;
WHEREAS, the Company intends to make a public offering (the
"Offering") of shares of its common stock in a transaction that, upon closing of
the Offering (the "Closing Date"), will result in R.R. Donnelley owning less
than a majority of the outstanding shares of common stock of the Company;
WHEREAS, R.R. Donnelley has heretofore provided certain services to
the Company, and the Company desires that R.R. Donnelley continue to provide
certain services to the Company for a period of time following the Closing Date;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. The following terms have the meanings
specified or referred to in this Section 1 and shall be equally applicable to
the singular and plural forms.
"AFFILIATE" means, with respect to either the Company or R.R.
Donnelley, any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust or unincorporated
organization which directly or indirectly controls, is controlled by or is under
common control with the Company or R.R. Donnelley, respectively.
"BUSINESS" means the business of the Company and its subsidiaries as
conducted immediately prior to the Closing Date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPENSES" has the meaning set forth in Section 12(a).
"LOSSES" has the meaning set forth in Section 12(a).
<PAGE>
"OTHER AGREEMENTS" means the Tax Allocation and Indemnification
Agreement dated the date hereof between R.R. Donnelley and the Company, the
Sales Agreement dated the date hereof between R.R. Donnelley and the Company,
the Benefit Administration Services Agreement dated the date hereof between R.R.
Donnelley and the Company and the Data Center Services Agreement dated the date
hereof between R.R. Donnelley and the Company.
"OTHER INDEMNIFIED PARTIES" shall mean and include (i) R.R.
Donnelley's Affiliates, (ii) the respective directors, officers, agent and
employees of and counsel to R.R. Donnelley and its Affiliates, (iii) each other
person, if any, controlling R.R. Donnelley or any of its Affiliates and (iv) the
successors, assigns, heirs and personal representatives of any of the foregoing.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TAX SERVICES" means those Services set forth under the heading
"Taxes" in Exhibit 1 hereto.
"TRANSITION PERIOD" means for all Services other than Tax Services the
period commencing on the Closing Date and ending on December 31, 1996, and for
Tax Services the period commencing on the Closing Date and ending on January 31,
1997 unless the Transition Period is extended as provided in Section 13(a).
SECTION 2. PERFORMANCE OF SERVICES BY R.R. DONNELLEY. (a) Subject to
the terms and conditions set forth herein, from the Closing Date hereof until
the end of the Transition Period, R.R. Donnelley shall provide and cause to be
provided to the Company and its subsidiaries, with respect to the Business, the
services described in Exhibit 1 hereto (the "Services") Notwithstanding the
foregoing, at any time after the Closing Date, the Company may terminate from
time to time any category or categories of Services listed in Exhibit 1 by
identifying which category or categories of Services it elects to terminate by
written notice to R.R. Donnelley received by R.R. Donnelley at least 30 days
prior to the effective date of any such termination.
(b) Unless otherwise expressly agreed to in writing by the parties
hereto, the Services will be provided to the Company at a level and in a manner
consistent with the level at which such Services are currently provided by R.R.
Donnelley and its subsidiaries in connection with the operation of the Business.
Notwithstanding the foregoing, R.R. Donnelley shall have no obligation to
provide or cause to be provided any particular
-2-
<PAGE>
Service if R.R. Donnelley reasonably determines that (i) due to any change in
circumstances or new developments affecting the Business after the date hereof,
the provision of all or any portion of such Service would unreasonably interfere
with the conduct of R.R. Donnelley's or any of its Affiliates' business
activities or (ii) the provision of the Services would cause R.R. Donnelley or
any of its Affiliates to be in violation of any software license or other
similar agreement under which R.R. Donnelley or any of its Affiliates is a party
or otherwise bound. R.R. Donnelley and the Company shall cooperate in planning
the scope and timing of the Services provided by R.R. Donnelley under this
Agreement so as to lessen or eliminate any such interference, and R.R. Donnelley
shall notify the Company of any determination that it has made pursuant to the
preceding sentence and cooperate with the Company, to lessen disruption that
might occur to the Company by reason of R.R. Donnelley's not providing a
particular Service following such determination. Neither R.R. Donnelley nor any
of its Affiliates will be obligated to provide any services to the Company and
its subsidiaries (including, without limitation, the providing of any financing
or credit facility or the making of any guaranties), except to the extent
described in this Section 2 or as provided in the Other Agreements.
(c) The Services shall be provided hereunder on an as needed basis in
a manner consistent with past practice; provided, that with respect to Services
not performed in the daily operations of the Business in the ordinary course
consistent with past practice, the Company shall specifically request such
services in writing. The Services shall be provided hereunder in a time frame
consistent with R.R. Donnelley's past practice and such that the Services
respond to new developments in a timely manner, consistent with R.R. Donnelley's
past practice. R.R. Donnelley and its Affiliates may reasonably supplement,
modify, substitute or otherwise alter the Services from time to time in a manner
consistent with supplements, modifications, substitutions or alterations made
with respect to similar services provided or otherwise made available by R.R.
Donnelley to its operating divisions or subsidiaries, so long as R.R. Donnelley
provides the Company with reasonable advance notice of such modifications,
substitutions or alterations, to enable the Company to obtain replacement
services therefor.
(d) The Company and R.R. Donnelley acknowledge and agree that the
scope and duration of the Services may vary throughout the term of this
Agreement, provided, that the level at which any Services are provided hereunder
shall not increase materially except in accordance with Section 3(c). At any
time, and from time to time, during the term of this Agreement, the Company may,
by providing written notice to R.R. Donnelley, elect to reduce the scope and
duration of the any of the Services; provided, that except upon termination as
provided in the last
-3-
<PAGE>
sentence of Section 2(a), the fees referenced in Section 3(a) will not be
adjusted as the result of such a reduction to Services.
SECTION 3. PAYMENT FOR SERVICES. (a) The fee to be paid by the
Company to R.R. Donnelley for each of the Services provided hereunder shall be
the amount listed in Exhibit 1 for each category; provided, that in the event
the Company terminates any group of Services listed in Exhibit 1, the fee for
such Services shall no longer be payable following the effective date of such
termination. The Company shall also pay to R.R. Donnelley any and all out-of-
pocket costs and expenses of R.R. Donnelley incurred for the services of outside
advisers and consultants provided in connection with the Services provided
hereunder consistent with past practice, provided that, except as contemplated
in Exhibit 1, R.R. Donnelley will not engage any such advisor or consultant
without prior notification to the Company.
(b) R.R. Donnelley shall on a monthly basis submit to the Company for
payment its billing invoice setting forth the amount of fees for Services
rendered as described in subsection (a) above not theretofore paid by the
Company. Payment by the Company to R.R. Donnelley in respect of any such
invoice shall be made within 15 days after the date of receipt of such invoice.
(c) The Company acknowledges that time is of the essence with respect
to all payments under this Section and agrees to pay interest on the balance of
any amount payable hereunder unpaid when due at an annual rate of 15% from the
date an invoice with respect to which such payment obligation related was
received by the Company until the date of payment.
(d) In the event that the Company and its subsidiaries so expand
their operations during the Transition Period through the acquisition of new
businesses or companies, or growth in the Company's business materially
exceeding budgeted growth, that the services required by the Company and its
subsidiaries with respect to the Business exceed the scope or extent of the
Services provided hereunder, then R.R. Donnelley shall consider providing such
extra services, and to the extent R.R. Donnelley agrees to provide such
services, R.R. Donnelley and the Company shall negotiate in good faith an
adjustment to the fees payable pursuant to Section 3(a) which is proportionate
to the increase in the scope and extent of Services provided hereunder.
SECTION 4. STAFFING PLANS. Neither the Company nor any of its
Affiliates shall be precluded from obtaining any of the Services from providers
other than R.R. Donnelley; provided that the Company has given R.R. Donnelley
not less than 30 days prior written notice of the discontinuance of such
Services; and provided that, except upon termination as set forth in the last
-4-
<PAGE>
sentence of Section 2(a), the fees referenced in Section 3(a) will not be
adjusted as the result of Services being provided by third party providers. The
Company shall keep R.R. Donnelley generally informed of its plans in this regard
in order for R.R. Donnelley to make any appropriate adjustments in R.R.
Donnelley's staffing and hiring plans.
SECTION 5. DISCLAIMER. Neither R.R. Donnelley nor any of its
Affiliates makes any representation or warranty, express or implied, as to
whether the Services to be provided hereunder are sufficient for the operation
of the Business on or after the Closing Date, and neither R.R. Donnelley nor any
of its Affiliates nor any employees of R. R. Donnelley or any of its Affiliates
shall have any liability to the Company or its Affiliates for the Services
provided hereunder except to the extent caused by the gross negligence or
willful misconduct of R.R. Donnelley or its Affiliates.
SECTION 6. CONFIDENTIALITY. R.R. Donnelley agrees to hold, and to
use reasonable efforts to cause its employees and representatives to hold, in
strict confidence all information concerning the Company and its Affiliates
furnished to or obtained by R.R. Donnelley in the course of providing the
Services contemplated hereby to the Company and its Affiliates which is marked
"Confidential" (except to the extent that such information has been (A) in the
public domain through no fault of R.R. Donnelley or (B) lawfully acquired by
R.R. Donnelley from sources other than the Company and its Affiliates), and R.R.
Donnelley shall not disclose or release any such confidential information to any
person, except its employees, representatives and agents who have a need to know
such information in connection with R.R. Donnelley's performance hereunder,
unless (i) such disclosure or release is compelled by the judicial or
administrative process, (ii) in the opinion of counsel to R.R. Donnelley, such
disclosure or release is necessary or desirable in light of other requirements
of law or the requirements of any governmental entity including, without
limitation, disclosure requirements under the Securities Act of 1934, as
amended, or (iii) in the opinion of R.R. Donnelley, such disclosure and release
is appropriate and customary for the proper administration of R.R. Donnelley's
and its Affiliates' responsibilities and duties in respect of matters of
foreign, federal, state or local taxation.
SECTION 7. GUARANTIES. The Company acknowledges that R.R. Donnelley
has heretofore delivered, and may prior to the Closing Date deliver, guaranties
of payment or performance of certain obligations of the Company or one of its
Affiliates (the "Guaranteed Obligations"). R.R. Donnelley agrees to maintain
all of the guaranties that it delivered with respect to the Guaranteed
Obligations prior to the Closing Date but only to the extent provided in the
guaranties of the Guaranteed Obligations
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delivered prior to the Closing Date. The Company agrees not to amend or modify
the terms of any agreement or instrument that evidences a Guaranteed Obligation
in such a manner that increases the potential liability of R.R. Donnelley
without the written consent of R.R. Donnelley, which consent may be withheld in
the sole discretion of R.R. Donnelley.
SECTION 8. NON-SOLICITATION OF EMPLOYEES. (a) For a period of one
year following the Closing Date, neither R.R. Donnelley nor any of its
Affiliates will, without the prior written approval of the Company, directly or
indirectly solicit, induce or attempt to persuade any person who is an employee
of the Company or any of its subsidiaries on the date hereof or at any time
hereafter to terminate his or her employment with the Company or such subsidiary
of the Company, except R.R. Donnelley or any of its Affiliates may hire
employees who respond to general advertisements or who otherwise make initial
contact with them.
(b) For a period of one year following the Closing Date, neither the
Company nor any of its Affiliates will, without the prior written approval of
R.R. Donnelley, directly or indirectly solicit, induce or attempt to persuade
any person who is an employee of R.R. Donnelley or any of its subsidiaries on
the date hereof or at any time hereafter to terminate his or her employment with
R.R. Donnelley or such subsidiary of R.R. Donnelley, except the Company or any
of its Affiliates may hire employees who respond to general advertisements or
who otherwise make initial contact with them.
SECTION 9. USE OF REAL ESTATE. (a) As of the date hereof, the
Company is using office space in the facilities leased by R.R. Donnelley that
are listed in Exhibit 2 hereto (the "Shared Facilities"). R.R. Donnelley agrees
to permit the Company to continue to use the portion of each Shared Facility
used by the Company as of the date hereof (including common areas) as long as
R.R. Donnelley is entitled to the use of such Shared Facility but in no event
for a period ending after the expiration of the term of the lease relating to
such Shared Facility (without giving effect to any extensions of such lease). In
consideration for such agreement, the Company agrees to pay to R.R. Donnelley
(i) for each month that the Company is entitled to use such portion of a Shared
Facility an amount in respect of such Shared Facility equal to the product of
(a) the amount payable by R.R. Donnelley as monthly rent (the "Base Rent") for
such Shared Facility (including taxes, utilities and other additional rent
required under the particular lease), as adjusted from time to time, times (b) a
fraction, the numerator of which is the number set forth in Exhibit 2 hereto
opposite the name of such Shared Facility and the denominator of which is the
total square footage of such Shared Facility and (ii) for each three-month
period that the Company is entitled to use such portion of
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a Shared Facility, an amount in respect of the cost of operating such Shared
Facility, including, but not limited to, telephone, reception, utility and
catering services (the "Services Amount"), equal to the product of (a) the total
amount payable by R.R. Donnelley for those services used by the Company at a
Shared Facility, times (b) a fraction, the numerator of which is the average
number of employees of the Company using space at such Shared Facility during
such three-month period and the denominator of which is the average total number
of persons using space at such Shared Facility during such three-month period.
Exhibit 2 sets forth the Base Rent payable by the Company with respect to each
Shared Facility as of the date hereof.
(b) R.R. Donnelley shall (i) on a monthly basis submit to the Company
for payment its billing invoice setting forth the Base Rent not theretofore paid
by the Company and (ii) on a quarterly basis submit to the Company for payment
its billing invoice setting forth the Services Amount not theretofore paid by
the Company. Payment by the Company to R.R. Donnelley in respect of any such
invoice shall be made within 15 days after the date of such invoice.
(c) The Company may from time to time request the use of one or more
of the skyboxes located at various sporting venues and leased by R.R. Donnelley
(the "Skyboxes"). If R.R. Donnelley agrees to permit the Company to use any of
the Skyboxes upon such request, the Company agrees to pay for each such use (i)
an amount in respect of any such Skybox equal to the product of (a) the amount
payable by R.R. Donnelley for the annual lease of any such Skybox, times (b) a
fraction, the numerator of which is one and the denominator of which is the
total number of events for which R.R. Donnelley is entitled to use any such
Skybox during such annual period and (ii) any and all out-of-pocket costs and
expenses, including, but not limited to, the cost of food and beverages served,
incurred by the Company during the use of any such Skybox.
(d) R.R. Donnelley shall on a per use basis submit to the Company for
payment its billing invoice setting forth the amounts due under subsection (c)
above not theretofore paid by the Company. Payment by the Company to R.R.
Donnelley in respect of any such invoice shall be made within 15 days after the
date of receipt of such invoice.
(e) The Company acknowledges that time is of the essence with respect
to all payments under this Section and agrees to pay interest on the balance of
any amount payable hereunder unpaid when due at an annual rate of 15% from the
date an invoice with respect to which such payment obligation related was
received by the Company until the date of payment.
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SECTION 10. FINANCIAL AND OTHER INFORMATION. (a) Equity Accounting
Period. The Company agrees that, during any period in which R.R. Donnelley owns
at least 20% of the voting power of the capital stock of the Company then
outstanding or 20% of the capital stock of the Company then outstanding, or in
which R.R. Donnelley is required to account for its investment in the Company
under the equity method of accounting (determined in accordance with generally
accepted accounting principles consistently applied):
(i) Maintenance of Books and Records. The Company shall, and shall
cause each of its consolidated subsidiaries to, maintain a system of internal
accounting controls that shall provide reasonable assurance that: (1) the
Company's and such subsidiaries' books, records and accounts fairly reflect
transactions and dispositions of assets, and (2) the specific objectives of
accounting control are achieved.
(ii) Monthly Financial Information. As soon as practicable, but in
any event within five business days after the end of each month in each fiscal
year of the Company, the Company shall deliver to R.R. Donnelley its pre- and
after-tax net income for the month and the year to date period for the Company
and its subsidiaries.
(iii) Unaudited Quarterly Financial Statements. As soon as
practicable, but in any event within 35 days after the end of each of the first
three fiscal quarters in each fiscal year of the Company, the Company shall
deliver to R.R. Donnelley drafts of (1) the consolidated financial statements of
the Company and its subsidiaries (and notes thereto) for such periods and for
the period from the beginning of the current fiscal year to the end of such
quarter, setting forth in each case in comparative form for each such fiscal
quarter of the Company the consolidated figures (and notes thereto) for the
corresponding quarter and periods of the previous fiscal year and all in
reasonable detail and prepared in accordance with Article 10 of Regulation S-X
of the General Rules and Regulations under the Securities Act ("Regulation S-
X"), and (2) a discussion and analysis by management of the Company's and it
subsidiaries' financial condition and results of operations for such fiscal
period, including, without limitation, an explanation of any material adverse
change, all in reasonable detail and prepared in accordance with Item 303(b) of
Regulation S-K of the General Rules and Regulations under the Securities Act
("Regulation S-K"). The foregoing requirement may be satisfied by the delivery
of a draft Quarterly Report on Form 10-Q. The information set forth in (1) and
(2) above is herein referred to as the "Quarterly Financial Statements." The
Company shall deliver to R.R. Donnelley all revisions to such drafts as soon as
any such revisions are prepared or made. No later than two business days prior
to the date the Company publicly files the Quarterly
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Financial Statements with the SEC or otherwise, the Company shall deliver to
R.R. Donnelley the final form of the Quarterly Financial Statements to be filed
with the SEC.
(iv) Audited Annual Financial Information. As soon as is practicable,
but in any event within 60 days after the end of each fiscal year of the
Company, the Company shall deliver to R.R. Donnelley drafts of (1) the
consolidated financial statements of the Company (and notes thereto) for such
year, setting forth in comparative form the consolidated figures (and notes
thereto) for the previous fiscal year and all in reasonable detail and prepared
in accordance with Regulation S-X and (2) a discussion and analysis by
management of the Company's and its subsidiaries' financial condition and
results of operations for such year, including, without limitation, an
explanation of any material adverse change, all in reasonable detail and
prepared in accordance with item 303(a) of Regulation S-K. The foregoing
requirement may be satisfied by the delivery of a draft Annual Report on Form
10-K. The information set forth in (1) and (2) above is herein referred to as
the "Annual Financial Statement." The Company shall deliver to R.R. Donnelley
all revisions to such drafts as soon as any such revisions are prepared or made.
The Company shall deliver to R.R. Donnelley, within 90 days after the end of
each fiscal year of the Company, the final form of the Annual Financial
Statements accompanied by a report thereon by the Company's independent
certified public accountants.
(v) Public Information and SEC Reports. Except as more particularly
described in paragraphs (iii) and (iv) above, the Company and each of its
subsidiaries that files information with the SEC shall deliver to R.R. Donnelley
(to the attention of its Corporate Secretary) as soon as substantially final
drafts are prepared all reports, notices and proxy and information statements to
be sent or made available by the Company or any of its subsidiaries to their
securityholders and all regular, periodic and other reports filed under Section
13, 14 and 15 of the Exchange Act (including Reports on Forms 10-K, 10-Q and 8-K
and Annual Reports to Shareholders), and all registration statements and
prospectuses to be filed by the Company or any of its subsidiaries with the SEC
or any securities exchange pursuant to the listed company manual (or similar
requirements) of such exchange (collectively, the "Company Public Documents"),
and, as soon as practicable, but in no event later than one business day prior
to the date the same are printed, sent or filed, whichever is earliest, final
copies of all Company Public Documents.
No later than immediately prior to issuance, the Company shall deliver
to R.R. Donnelley copies of all press releases and other statements to be made
available by the Company or any of its subsidiaries to the public relating to
information concerning material developments in the business, properties,
results of operations, financial condition or prospects of the
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Company or any of its subsidiaries. No report, registration, information or
proxy statement, prospectus or other document that refers, or contains
information with respect, to R.R. Donnelley shall be filed with the SEC or
otherwise made public by the Company or any of its subsidiaries without notice
to and the consent (written or oral) of R.R. Donnelley with respect to those
portions of such document that contain information with respect to R.R.
Donnelley, which consent will not be unreasonably withheld, delayed or
conditioned, provided, however, that the Company need not obtain the consent of
R.R. Donnelley for descriptions of intercompany agreements between itself and
R.R. Donnelley to the extent that such descriptions are substantially identical
to the descriptions contained in the registration statement relating to the
Offering.
(vi) Earnings Releases. R.R. Donnelley agrees that, unless required
by law, rule or regulation or unless the Company shall have consented thereto,
R.R. Donnelley shall not release any monthly financial information of the
Company or any of its subsidiaries under any circumstances and R.R. Donnelley
shall not release to the general public any quarterly or annual financial
information of the Company or any of its subsidiaries (the "Company
Information") delivered to R.R. Donnelley pursuant to this Section 10 prior to
the time that the Company publicly releases financial information of the Company
for the relevant period. The Company and R.R. Donnelley shall consult on the
timing of their annual and quarterly earnings releases and shall give each other
an opportunity to review the information therein relating to the Company and its
subsidiaries and to comment thereon. In the event that R.R. Donnelley is
required by law to publicly release such Company Information prior to the public
release of R.R. Donnelley's financial information, R.R. Donnelley shall give the
Company notice of such release of Company Information as soon as practicable but
in no event later than immediately prior to such release of Company Information.
(vii) R.R. Donnelley Public Filings. The Company shall cooperate
fully with R.R. Donnelley to the extent reasonably requested by R.R. Donnelley
in the preparation of R.R. Donnelley's public earnings releases, quarterly
reports on Form 10-Q, Annual Reports to Shareholders, Annual Reports on Form 10-
K, any Current Reports on Form 8-K and any other proxy, information and
registration statements, reports, notices, prospectuses and any other filings
made by R.R. Donnelley with the SEC, any national securities exchange or
otherwise made publicly available (collectively, "R.R. Donnelley Public
Filings"). The Company agrees to provide to R.R. Donnelley such information
concerning the Company as R.R. Donnelley reasonably requests in writing in
connection with any such R.R. Donnelley Public Filings. Following request by
R.R. Donnelley, such information concerning the Company shall be provided by the
Company in a timely manner to enable R.R. Donnelley to prepare,
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print and release such R.R. Donnelley Public Filings on such date as R.R.
Donnelley shall have determined and notified the Company thereof. If and to the
extent reasonably requested in advance by R.R. Donnelley, the Company shall
review all drafts of such R.R. Donnelley Public Filings prior to any printing or
public release thereof, and certify (through an appropriate executive officer)
that the information relating to the Company in such R.R. Donnelley Public
Filing is accurate. R.R. Donnelley shall reimburse the Company for any and all
out-of-pocket costs and expenses of outside advisors incurred by the Company in
connection with providing such certificate.
(viii) Coordination of Auditors' Opinions. For so long as each party
hereto maintains its fiscal year end as it exists on the date hereof, the
Company shall use its reasonable efforts to enable its independent certified
public accountants (the "Company's Auditors") to complete their audit such that
they will date their opinion on the Company's audited annual financial
statements (the "Company Annual Financial Statements") (1) within 31 days of the
end of the Company's fiscal year or (2) within five business days of the date
that R.R. Donnelley's independent certified public accountants ("R.R.
Donnelley's Auditors") date their opinion on R.R. Donnelley's audited annual
financial statements (together with R.R. Donnelley's Annual Report to
Shareholders, the "R.R. Donnelley Annual Statements"), whichever is earlier, and
to enable R.R. Donnelley to meet its timetable for the printing, filing and
public dissemination of the R.R. Donnelley Statements.
(ix) Cooperation in Preparation of R.R. Donnelley Annual Statements.
The Company shall provide to R.R. Donnelley on a timely basis all information
that R.R. Donnelley reasonably needs to meet its schedule for the preparation,
printing, filing and public dissemination of the R.R. Donnelley Annual
Statements. In this respect, the Company shall provide all required financial
information with respect to the Company and its consolidated subsidiaries to the
Company's Auditors in a sufficient and reasonable time and in reasonably
sufficient detail to permit the Company's Auditors to take all steps and perform
all review necessary to provide sufficient assistance to R.R. Donnelley's
Auditors with respect to information to be included or contained in the R.R.
Donnelley Annual Statements, such assistance to R.R. Donnelley's Auditors to be
in conformity with current and past practices.
(x) Access to Personnel and Working Papers. The Company shall
authorize the Company's Auditors to make available to R.R. Donnelley's Auditors,
at R.R. Donnelley's expense, both the personnel who performed or are performing
the annual audit of the Company and work papers related to the annual audit of
the Company, in all cases within a reasonable time after the Company's Auditors'
opinion date, so that R.R. Donnelley's
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Auditors are able to perform the procedures they consider reasonably necessary
to take responsibility for the work of the Company's Auditors as it relates to
R.R. Donnelley's Auditors' report on R.R. Donnelley's statements, all within
sufficient time to enable R.R. Donnelley to meet its timetable for the printing,
filing and public dissemination of the R.R. Donnelley Annual Statements.
(b) Ten Percent Period. The Company agrees that, during any period in
which R.R. Donnelley holds at least 10% but less than 20% of the voting power of
the capital stock of the Company then outstanding, the Company shall furnish to
R.R. Donnelley as soon as publicly available, copies of all financial
statements, reports, notices and proxy statements sent by the Company in a
general mailing to all its shareholders, of all reports on Forms 10-K, 10-Q and
8-K and of all final prospectuses filed pursuant to Rule 424 under the
Securities Act.
SECTION 11. CHANGE OF NAME. The Company covenants to cause the name
of R. R. Donnelley Marketing Services Group Limited, one of its subsidiaries, to
be changed to a name which does not include "R. R. Donnelley" as soon as
practicable after the date hereof.
SECTION 12. INDEMNIFICATION. (a) The Company hereby agrees to
indemnify and hold harmless R.R. Donnelley and each of the Other Indemnified
Parties, to the fullest extent lawful, from and against any and all losses,
claims, damages or liabilities (collectively, "Losses") and expenses (including
all fees and expenses of R.R. Donnelley's and each of the Other Indemnified
Parties' counsel, investigators, expert witnesses, accountants and other
professionals, reasonable travel and other out-of-pocket expenses) incurred at
the Company's request or otherwise incurred in connection with the investigation
of any pending or threatened claims or preparation for any pending or threatened
litigation or other proceedings (collectively, "Expenses") arising out of or
relating to (i) the provision of the Services hereunder by R.R. Donnelley or any
of the Other Indemnified Parties; (ii) any Guaranteed Obligation or (iii) the
use by the Company of the Shared Facilities; provided, however, that the Company
shall have no obligation to indemnify and hold harmless R.R. Donnelley or any of
the Other Indemnified Parties under clause (i) above in respect of Losses or
Expenses which are finally judicially determined to have resulted solely from
the gross negligence or willful misconduct of R.R. Donnelley in providing any
Services hereunder. To the extent not prohibited by considerations of conflicts
of interest, R.R. Donnelley and the Other Indemnified Parties shall use such
legal counsel as shall be selected by R.R. Donnelley. Expenses shall be
reimbursed or advanced when and as incurred promptly upon submission by R.R.
Donnelley of statements to the Company.
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(b) If for any reason (other than those set forth in the proviso
appearing in the preceding subsection (a)) the foregoing indemnification is
unavailable to R.R. Donnelley or any of the Other Indemnified Parties or is
insufficient to hold it or them harmless, then the Company shall contribute to
the amount paid or payable by R.R. Donnelley or any of the Other Indemnified
Parties as a result of such Loss and Expense in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
on the one hand, but also the relative fault of the Company and R.R. Donnelley
or the Other Indemnified Parties, as well as any relevant equitable
considerations.
(c) The reimbursement, indemnity and contribution obligations of the
Company hereunder shall be in addition to any liability which the Company may
otherwise have.
(d) The Company shall provide to R.R. Donnelley a Certificate of
Insurance evidencing coverage for comprehensive general liability, including
contractual liability, in an amount of at least $2 million per occurrence for
bodily injury and property damage naming R.R. Donnelley as an additional
insured. The Company agrees to keep such insurance in full force and effect for
as long as the Company is using any Shared Facility.
SECTION 13. SET-OFF. Notwithstanding anything herein to the
contrary, including, without limitation, any indemnification provided for under
Section 12 hereof, R.R. Donnelley shall have the right to set-off, at any time
and from time to time, against any amount owing by the Company to R.R. Donnelley
in connection with any cause, matter or thing arising under or in connection
with (i) any provision of this Agreement or (ii) any provision of any of the
Other Agreements, any amount from time to time owing by R.R. Donnelley to the
Company in connection with any cause, matter or thing arising under or in
connection with (y) any provision of this Agreement or (z) any provision of any
Other Agreement.
SECTION 14. EXTENSION OF TRANSITION PERIOD; TERMINATION. (a) In the
event that the Company desires to negotiate with R.R. Donnelley for the
continuance of any Services beyond the end of the Transition Period, the Company
shall notify R.R. Donnelley of such desire not later than 60 days prior to the
termination of such Service. Neither R.R. Donnelley nor any of its Affiliates
shall be obligated to provide Services on behalf of the Company following the
expiration of this Agreement except to the extent the Company and R.R. Donnelley
have executed and delivered an extension of this Agreement or a separate
agreement which provides the terms and conditions of the performance of such
Services. Notwithstanding the foregoing, the Company may extend the Transition
Period as it relates to Tax Services for one year, provided that the Company
requests such renewal in writing not later than November 1, 1996 and R.R.
Donnelley does
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not reject such request within 15 days of receipt thereof. In the event that
the Company extends the Transition Period as it relates to Tax Services as
provided in the preceding sentence, the fee to be paid by the Company to R.R.
Donnelley for such Tax Services shall be that set forth for the "Renewal Period"
in Exhibit 1.
(b) This Agreement shall terminate with respect to the Services upon
the expiration of the Transition Period, unless earlier terminated pursuant to
this Section. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated at any time:
(i) by the mutual consent of the Company and R.R. Donnelley;
(ii) by the Company in the event of any material breach or
default by R.R. Donnelley of any R.R. Donnelley's agreements,
representations, or warranties contained herein and the failure of R.R.
Donnelley to cure such breach or default within ten (10) days after receipt
of written notice from the Company requesting such breach or default to be
cured; or
(iii) by R.R. Donnelley in the event of any material breach or
default by the Company of any of the Company's agreements, representations,
or warranties contained herein and the failure of the Company to cure such
breach or default within ten (10) days after receipt of notice from R.R.
Donnelley requesting such breach or default to be cured.
SECTION 15. CERTAIN AGREEMENTS AND INDEMNITIES TO SURVIVE TERMINATION
OF AGREEMENT. The provisions of Sections 5, 6, 10 and 12 hereof shall survive
any termination of this Agreement.
SECTION 16. ASSIGNMENT; RIGHT OF R.R. DONNELLEY TO ASSIGN TO
SUBSIDIARIES. This Agreement and all the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assignable or transferable
by either party (except by operation of law in connection with a merger
involving, or sale of substantially all of the assets of, such party) without
the prior written consent of the other party hereto; provided, however, that
R.R. Donnelley, at all times, without regard to the foregoing requirement to
obtain the prior written consent of the Company, may assign any or all of its
rights, duties, responsibilities and obligation hereunder to one or more of its
Affiliates.
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SECTION 17. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the
Exhibit attached hereto shall constitute the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter (it being understood, however, that the Other Agreements set forth
certain additional understandings between R.R. Donnelley and the Company
regarding their relationship after the Closing Date).
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without regard
to the principles of conflicts of laws thereof.
SECTION 19. NOTICES. All notices and other communi-cations required
or permitted hereunder shall be in writing and shall be deemed given or
delivered when delivered when delivered personally or when sent by registered or
certified mail or by private courier addressed as follows:
to R.R. Donnelley:
R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Attention: General Counsel
to the Company:
Metromail Corporation
360 East 22nd Street
Lombard, IL 60148
Attention: General Counsel
SECTION 20. AMENDMENTS. This Agreement may not be modified or
amended except by an agreement in writing signed by the parties.
SECTION 21. WAIVERS. The failure of any party hereto at any time to
require strict performance by the other party hereto of any provision hereof
shall not waive or diminish such party's right to demand strict performance
thereafter of that or any other provision hereof.
SECTION 22. NO THIRD PARTY BENEFICIARIES. Except for the provisions
of Sections 5 and 12 hereof, this Agreement is solely for the benefit of the
parties not confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
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SECTION 23. TITLES AND HEADINGS. Titles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
SECTION 24. PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
SECTION 25. FORCE MAJEURE. R.R. Donnelley shall be excused from
performance hereunder for any period and to the extent that it is prevented from
performing any services pursuant hereto, in whole or in part, as a result of
delays caused by the other party or an act of God, war, civil disturbance, court
order, labor dispute or other cause beyond its reasonable control and such
nonperformance shall not be a default hereunder or a ground for termination
hereof. In the event that R.R. Donnelley is excused from performance hereunder
pursuant to this Section, then R.R. Donnelley shall take all reasonable actions
to resume performance of its obligations hereunder as soon as feasible;
provided, however, that nothing in this Section will be construed to require the
settlement of any strike, walkout or other labor dispute on terms which, in the
reasonable judgement of R.R. Donnelley, are contrary to its interest. It is
understood that the settlement of a strike, walkout or other labor dispute will
be entirely within the discretion of R.R. Donnelley.
SECTION 26. RELATIONSHIP OF PARTIES; R.R. DONNELLEY EMPLOYEES. (a)
Nothing herein contained shall be deemed or construed by the Company or R.R.
Donnelley or for any other party as creating the relationship of principal and
agent or of a partnership or joint venture among the parties hereto.
(b) All employees and representatives of R.R. Donnelley providing
Services hereunder to the Company and its subsidiaries during the term of this
Agreement shall be deemed for purposes of all compensation and employee benefits
to be employees or representatives solely of R.R. Donnelley or its Affiliates
and not to be employees or representatives of the Company or any of its
Affiliates or to be independent contractors thereof. In performing their
respective duties hereunder, all such employees and representatives of R.R.
Donnelley or its Affiliates shall be under the direction, control and
supervision of R.R. Donnelley (and not of the Company or its Affiliates) and
R.R. Donnelley shall have the sole right to exercise all
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authority with respect to the employment (including termination of employment),
assignment and compensation of such employees and representatives.
SECTION 27. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall be considered an
original instrument, but all of which shall be considered one and the same
agreement, and shall become binding when one or more counterparts have been
signed by the each of the parties hereto and delivered to each of R.R. Donnelley
and the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
R.R. DONNELLEY & SONS COMPANY
By: ______________________________
Name:
Title:
METROMAIL CORPORATION
By: ______________________________
Name:
Title:
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Exhibit 1
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SERVICES
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LEGAL Fee: $185 per hour
Legal services for defending employee charges and lawsuits, advising on employee
hirings, separations and employment policies, advising on employee benefit
plans, negotiating customer and supplier contracts and patent and trademark
matters. All fees charged by outside counsel will be charged directly to the
Company.
TAXES Fee: $20,000 per month for
Routine Work
$180 per hour for Non-
Routine work
Renewal
Period Fee: $30,000 per month for
Routine work
$180 per hour for Non-
Routine work
ROUTINE WORK: Filing and related tax payments for 1995 federal and state
income tax returns due in 1996, including necessary depreciation, amortization
and apportionment details supporting such returns, filing and related tax
payments for 1996 estimated income tax payments, consolidation tax accounting
support for 1996 earnings and federal and state income tax audit work that
routinely and reasonably falls within the particular reporting period. All tax
liability, interest and penalty payments remain a responsibility of the Company.
NON-ROUTINE WORK: All work not specifically included as Routine Work.
Out of Pocket cost and expenses for travel and outside advisors will be billed
to the Company in addition to the above fee. Work requested beyond the scope of
that provided in the past will be considered based on resources available to
R.R. Donnelley.
<PAGE>
ENVIRONMENTAL AFFAIRS Fee: $850 per month to be pro-
rated for any partial
months
Direct Services related to assisting Company facilities with air pollution
issues, solid and hazardous waste management, reporting requirements for
chemical use and releases and underground storage tank management. Also, on an
as needed basis, assistance with issues such as sewage discharge currently
managed at the Company's plants. In addition to the direct services, any
general environmental guidance regarding new regulations and environmental
practices. Actual costs of permits are an expense of the Company.
REAL ESTATE
R.R. Donnelley will provide services with respect to three on-going projects as
follows:
1. With respect to the move of Customer Insight Company to new
facilities upon lease expiration, R.R. Donnelley will assist in the selection,
contracting and management of construction teams comprised of designers,
architects, engineers and contractors ("Construction Services"). The fee
payable to the Company for the period commencing on the Closing Date and ending
on June 30, 1996 (the expected completion date) shall be $1,000, payable on June
30, 1996.
2. With respect to the New York relocation or renewal/remodeling upon
lease expiration, R.R. Donnelley will provide Construction Services as well as
site review, and selection, lease documentation review and negotiation. The fee
payable for the period commencing on the Closing Date and ending on December 1,
1996 (the expected completion date) shall be $15,360, with $2,560 payable on the
first day of each month until the completion date.
Any services provided with respect to one of the foregoing projects after the
expected completion date will be billed at $85 per hour plus travel expenses.
Any other real estate services
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<PAGE>
provided by R.R. Donnelley will be billed to $85 per hour plus travel expenses.
RISK MANAGEMENT SERVICES Fee: $5,420 per month to be
pro-rated for any partial
months
Risk management services for employees and facilities of the Business similar to
that currently provided by R.R. Donnelley to the Company on a contract basis.
Such services will consist of, among other things, (i) identification and
quantification of loss exposures, (ii) implementation of a comprehensive
insurance program, including negotiation of insurance coverage oversight and
monitoring of insurance claims as appropriate for worker's compensation and
other claims, (iii) maintenance of insurance related data, (iv) filing of
appropriate insurance and regulatory reports, (v) arranging for, monitoring and
controlling payments for insurance related services, (vi) developing safety
programs and assisting with their implementation, (vii) engaging for the
Company, at the Company's expense, a third party to perform annual mock OSHA
inspections and (viii) advising on risk management, health and safety issues.
Additions to the program or changes which involve R.R. Donnelley assistance will
be negotiated separately. Any insurance coverage cost shall be paid by the
Company. The Company shall be responsible for its on site, day-to-day safety
program and for providing R.R. Donnelley with required underwriting, exposure,
loss and other data necessary for R.R. Donnelley to operate and manage the
Company's risk management and safety program.
-3-
<PAGE>
Exhibit "2"
-----------
<TABLE>
<CAPTION>
Locations Shared w/RRD
- ---------------------- Annualized
Lease ID Address City & State Expiration RSF Annualized RSF (Company) (Company) Prop. Share
- -------- ------- ------------ ---------- ------ ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
n/a* 1100 Johnson Ferry Road Atlanta GA 12/31/96 10,531 173,293 9,073 149,293 86.15%
R1680 1175 Peachtree Street, NE Atlanta GA 6/16/97 1,303 22,780 434 7,593 33.33%
R0200 109 Westpark Drive Brentwood TN 11/30/96 4,112 61,918 439 6,607 10.67%
R1040 13355 Noel Road Dallas TX 3/31/98 1,584 29,684 396 7,421 25.00%
R0100 1050 Seventeenth Street Denver CO 5/31/99 9,405 119,613 303 3,852 3.22%
R0420 2000 Powell Street Emeryville CA 12/31/96 7,911 185,770 317 7,440 4.00%
R0130 1722 Two Tandy Center Tower Fort Worth TX 5/31/98 9,286 144,684 1,161 18,085 12.50%
R1740 2010 Main Street Irvine CA 4/11/98 229 3,188 9 130 4.09%
R1360 2030 Main Street Irvine CA 4/11/98 9,606 256,581 393 10,494 4.09%
R2470 99 Park Avenue New York NY 12/31/09 72,000 2,014,502 2,138 59,831 2.97%
R0210 2122 York Road Oak Brook IL 7/31/01 41,866 843,663 17,245 347,505 41.19%
R0320 15260 Ventura Blvd. Sherman Oaks CA 1/30/00 6,349 112,329 1,060 22,264 19.82%
R0330 Three Landmark Square Stamford CT 2/28/00 15,359 417,123 1,304 35,414 8.49%
R2490 9950 Princess Palm Avenue Tampa FL 9/30/99 1,053 15,700 265 3,960 25.16%
------- --------- ------ -------
Sub-Total 189,594 4,400,828 34,536 679,879
Locations Not Shared w/RRD
- -------------------------- Annualized
Lease ID Address City & State Expiration RSF Annualized RSF (Sandbox) (Sandbox) Prop. Share
- -------- ------- ------------ ---------- --- ---------- ------------- ---------- -----------
R0840* 360 East 22nd Street Lombard IL 3/31/01 110,882 1,109,908 110,882 1,109,908 100.00%
R2640* One East 22nd Street Lombard IL 6/30/00 17,085 332,132 17,085 332,132 100.00%
n/a* 1807 Park 270 Drive St. Louis MO 1/31/98 13,065 173,111 13,065 173,111 100.00%
n/a* 5670 Greenwood Plaza Blvd. Englewood CO 4/30/02 61,829 930,344 61,829 930,344 100.00%
------- --------- ------- ---------
Sub-Total 202,861 2,545,495 202,861 2,545,495
Total 392,455 6,946,323 237,394 3,225,374
Sublease of non-shared location
- -------------------------------
R0910S* 1807 Park 270 Drive St. Louis MO 1/31/98 13,065 (160,046) 13,065 (160,046) 100.00%
</TABLE>
Notes
- -----
* Indicates leases/subleases to be assigned to the Company
All shared locations require sublease documents naming the Company as sublessee
except Atlanta (Johnson Ferry Rd) where RRD shall be named as sublessee
<PAGE>
SALES AGREEMENT
This Agreement, entered into this ___ day of June, 1996, by and between R. R.
Donnelley & Sons Company, with its headquarters at 77 W. Wacker Drive, Chicago,
Illinois 60601 ("RRD") and Metromail Corporation with its headquarters at 360 E.
22nd Street, Lombard, Illinois 60148 ("MM").
WITNESSETH:
WHEREAS, RRD currently owns 100% of the outstanding common stock of MM, and
utilizes its sales force to sell services for MM; and
WHEREAS, it is currently anticipated that MM will undertake an initial public
offering of its common stock (the date upon which such offering is closed herein
referred to as the "Effective Date");
WHEREAS, RRD and MM believe that after the Effective Date, through a sales and
production subcontracting arrangement, RRD can continue to offer MM services to
its customers and MM can provide such services, for the benefit of both parties;
NOW, THEREFORE, RRD and MM, in consideration of the mutual agreements contained
herein, agree as follows:
1. RRD sales people may from time to time identify sales opportunities for MM's
capabilities from among their current and prospective customers. For
purposes hereof, such capabilities shall include, but are not limited to,
one or more of the following: list enhancement services, such as data
overlay, National Change of Address processing, merge/purge operations, and
bindery sortation; compiled list rental; management of clients' list
databases; lettershop services; and imaging and personalization printing
services not otherwise offered by RRD (together or singly, the "Services").
RRD sales people locating a possible opportunity for which they are asked
and agree to furnish a quotation shall obtain detailed requirements from
such customers and prospects, and transmit such requirements to MM for
quotation, including in such transmission the identity of the customer,
prior to soliciting any MM competitor to provide such Services. MM shall
thereafter furnish RRD with price and schedule information for such
Services. The receipt by RRD of a quotation from MM shall constitute the
agreement by MM to provide the requested Services to RRD on the basis of the
quotation should RRD be successful in selling such Services to its ultimate
customer.
2. The failure of MM to provide RRD with a quotation for the proposed Services
within two (2) weeks of receiving detailed requirements shall constitute
MM's agreement that RRD may seek to have the proposed Services provided
elsewhere.
Page 1
<PAGE>
3. Provided that MM is capable of providing the requested Services on a
schedule acceptable to the ultimate customer and has provided a quotation to
RRD in accordance with paragraph 2, RRD shall provide its customer or
prospect the MM quotation for said Services.
4. (a) Should RRD successfully sell the Services of MM to its ultimate
customer, RRD shall be responsible for providing to that customer all
necessary specifications, deadlines or other requirements for the work,
provided that RRD's responsibility shall be dependent on MM's communicating
all its requirements to RRD. Customer service and sales support staff from
MM may be assigned in connection with the provision of the Services, and
such staff will be given direct access to the customer as necessary to
provide the services.
(b) RRD shall pay to MM for Services which are sold by RRD to its ultimate
customers under contracts between the ultimate customers and RRD the prices
quoted by MM to RRD for the Services less a sales commission of two-percent
(2%) of the value-added revenue portion of such Services, provided that RRD
shall not be obligated to pay for Services, or portions of Services, which
are (i) not substantially completed to specification, (ii) not delivered
within a time acceptable to the ultimate customer for such Services, or
(iii) not commercially acceptable, and for which Services RRD is not paid by
a customer. RRD shall be solely responsible for invoicing and collecting all
payments from customers under contracts with RRD, and for establishing all
other terms and conditions for the sale of Services to its customers (but in
no case shall such terms and conditions affect RRD's obligations to MM
hereunder). RRD will act in good faith to collect all such receivables, and
in the event of a dispute with any customer relating to payment for the
Services, will consult with authorized representatives of MM in an attempt
to maximize total receivables to MM and RRD prior to proposing or accepting
any settlement. All invoices from MM to RRD shall be due five (5) days
following receipt of payment by RRD from its customer. Should the payment
terms provide for multiple payments over time, then provided that (x) the
payments do not specifically relate to an RRD portion of the total work
invoiced (such as early billing of paper), and (y) there are no outstanding
quality or delivery issues related to the total work invoiced, then RRD
shall remit to MM a proportion of any such payment it receives equal to the
portion of the total work invoiced represented by the MM Services provided.
(c) MM shall pay to RRD for Services which are sold by RRD under contracts
between the ultimate customers and MM a sales commission of two-percent (2%)
of the value-added revenue portion of such Services, provided that payment
of any amounts to RRD shall be subject to receipt of payment for the
Services from the ultimate customer. In the case of partial payments by the
ultimate customer, MM shall pay to RRD a portion of the commission due
representing the portion of the total invoice paid by such customer. MM
shall be solely responsible for invoicing and collecting all payments from
customers under contracts with MM. MM will
Page 2
<PAGE>
act in good faith to collect all such receivables, and in the event of a
dispute with any customer relating to payment for the Services, will consult
and coordinate with the RRD sales people involved in selling the Services in
an attempt to maximize total receivables to MM and RRD prior to proposing or
accepting any settlement. All payments from MM to RRD hereunder shall be due
five (5) days following receipt of payments by MM from the ultimate
customer. Should the payment terms provide for multiple payments over time,
then provided there are no outstanding quality or delivery issues related to
the work involved, MM shall remit to RRD the commission due on any such
payment it receives.
5. MM understands that RRD's ultimate customers may wish to tour or otherwise
visit MM's facilities in connection with the purchase of, or production of,
Services. MM agrees to allow RRD and its customers and prospects to enter
its facilities at mutually agreed upon times as necessary to accommodate
said customers and/or prospects.
6. Each party will agree to keep confidential and not disclose to it own
employees or third parties except as necessary to the performance of the
obligations herein, any and all of the business information of the other
learned through the subcontracting arrangement described. Furthermore, (i)
RRD agrees that it shall not interfere with sales relationships of MM for
Services of which it learns through the requests for quotations, provision
of quotations or Services for customers or otherwise, and (ii) MM agrees
that it shall not interfere with sales relationships of RRD for print and
other related opportunities (other than Services) of which it learns through
the relationship established by this Agreement, for a period ending one year
after the term of this Agreement; provided, however, that nothing herein
shall prevent either party from responding to and performing work on any
matter which a customer of the other party requests directly, and further
provided, that nothing herein shall prevent MM from selling its capabilities
to customers of which it learns through the relationship established by this
Agreement when those capabilities are unrelated to print, mail and
distribution, imaging, list database, list rental and list and database
enhancement services typically utilized by RRD customers.
7. The initial term of this Agreement between RRD and MM shall be from the
Effective Date through December 31, 1998, and shall continue from year to
year thereafter only upon mutual agreement of both parties. Notwithstanding
the foregoing, either party may terminate this Agreement for cause at any
time, provided that the other party has been notified of its default, given
a reasonable time and opportunity (taking into account the circumstances of
the default involved) to cure such default, and such time has passed without
a cure being affected.
8. Any notice hereunder shall be in writing, and may be delivered by hand, by
facsimile, by nationally recognized private courier or by United States
mail.
Page 3
<PAGE>
Notices delivered by mail shall be deemed given two (2) business days after
being deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested. Notices delivered by hand, by
facsimile or by private carrier shall be deemed given on the first business
day following receipt. All notices shall be addressed as follows:
If to RRD:
R. R. Donnelley & Sons Company
77 W. Wacker Drive
Chicago, Illinois 60601
Attn: Corporate Secretary
If to MM:
Metromail Corporation
360 E. 22nd Street
Lombard, Illinois 60148
Attn: General Counsel
9. This Agreement shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the State
of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
METROMAIL CORPORATION R. R. DONNELLEY & SONS COMPANY
By:___________________________ By:___________________________________
Title: Chairman Title: Sector President
Page 4
<PAGE>
DRAFT JUNE 10, 1996
===============================================================================
BENEFIT ADMINISTRATION SERVICES AGREEMENT
DATED AS OF __________________
BETWEEN
R. R. DONNELLEY & SONS COMPANY
AND
METROMAIL CORPORATION
===============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - DEFINITIONS..................................... 2
ARTICLE 2 - EMPLOYEE BENEFITS............................... 6
Section 2.1. Provision of Employee Benefits........... 6
Section 2.2. Corporate Action......................... 7
Section 2.3. Legal Requirements....................... 7
Section 2.4. Donnelley's Right to Amend Plans......... 8
Section 2.5. Participation By Metromail Subsidiaries.. 8
ARTICLE 3 - SAVINGS PLAN.................................... 9
Section 3.1. Participation in Donnelley Savings Plan.. 9
Section 3.2. Transfer of Account Balances from
Donnelley Savings Plan to Metromail
Savings Plan........................... 9
ARTICLE 4 - PENSION PLANS................................... 10
Section 4.1. Termination of Employment for Plan
Purposes............................... 10
Section 4.2. Transfer of Accrued Pension Benefits and
Related Assets From Metromail Pension
Plan to Norwest Pension Plan........... 10
ARTICLE 5 - WELFARE BENEFITS................................ 12
Section 5.1. Welfare Benefits Provided Under Donnelley
Plans.................................. 12
Section 5.2. Welfare Benefits Provided Under
Metromail Plans........................ 13
Section 5.3. Metromail's Participation in Donnelley
Cafeteria Plans........................ 15
Section 5.4. Payment of Welfare Plan Costs............ 15
ARTICLE 6 - MISCELLANEOUS PLANS AND AGREEMENTS.............. 17
Section 6.1. Stock Purchase Plan...................... 17
Section 6.2. Donnelley Shares Plan.................... 17
Section 6.3. Workers' Compensation.................... 18
Section 6.4. Monthly Investment Plan.................. 19
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 6.5. Tax Credit Stock Ownership Plan. . . . . . . . . . . 19
Section 6.6. Vacation Pay Policy. . . . . . . . . . . . . . . . . 20
Section 6.7. SERP . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.8. Marjorie Schaffner Benefits. . . . . . . . . . . . . 20
Section 6.9. Metromail's Use of Certain Systems and
Vendors. . . . . . . . . . . . . . . . . . . . . . 21
Section 6.10. Savings and Loan . . . . . . . . . . . . . . . . . . 21
ARTICLE 7 - ADMINISTRATION OF PLANS . . . . . . . . . . . . . . . . . . 22
Section 7.1. Plan Administration. . . . . . . . . . . . . . . . . 22
Section 7.2. Information to Be Provided to Donnelley. . . . . . . 22
Section 7.3. Expenses . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.4. Indemnification. . . . . . . . . . . . . . . . . . . 24
Section 7.5. Consulting Advice by Donnelley . . . . . . . . . . . 27
Section 7.6. Timely Payment. . . . . . . . . . . . . . . . . . . . 27
Section 7.7. Dispute Resolution Procedures . . . . . . . . . . . . 27
ARTICLE 8 - TERMINATION OF METROMAIL'S PARTICIPATION IN
DONNELLEY PLANS . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 9 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.1. No Rights . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.2. Corporate Action; Delegation of Authority . . . . . . 31
Section 9.3. Notices . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.4. Survival of Agreement . . . . . . . . . . . . . . . . 33
Section 9.5. Binding Effect. . . . . . . . . . . . . . . . . . . . 33
Section 9.6. Governing Law . . . . . . . . . . . . . . . . . . . . 34
Section 9.7. Waivers; Amendment. . . . . . . . . . . . . . . . . . 34
Section 9.8. Severability. . . . . . . . . . . . . . . . . . . . . 34
Section 9.9. Counterparts. . . . . . . . . . . . . . . . . . . . . 34
Section 9.10. Termination . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
<PAGE>
BENEFIT ADMINISTRATION SERVICES AGREEMENT
THIS BENEFIT ADMINISTRATION SERVICES AGREEMENT (this "Agreement") is dated
as of June 10, 1996, by and between R. R. Donnelley & Sons Company
("Donnelley"), a Delaware corporation, and Metromail Corporation ("Metromail"),
a Delaware corporation (collectively the "Parties").
RECITALS
WHEREAS, Donnelley is currently the owner of all outstanding shares of
common stock of Metromail; and
WHEREAS, Metromail intends to make a public offering of shares of its
common stock in a transaction that, upon closing of such offering, will result
in Donnelley owning less than a majority of the outstanding shares of common
stock of Metromail; and
WHEREAS, the Parties intend that certain employee benefits be provided to
certain employees of Metromail under certain Donnelley employee benefit plans or
programs following
<PAGE>
the date on which Metromail is no longer a member of the Donnelley Group (as
hereinafter defined); and
WHEREAS, following the date on which Metromail ceases to be a member of the
Donnelley Group, Donnelley and Metromail intend to cause certain of their
respective plans to transfer accrued liabilities and assets relating to such
liabilities between such plans; and
WHEREAS, Donnelley and Metromail wish to enter into this Agreement in order
to effect such intentions.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other valuable consideration, the sufficiency of which is acknowledged, the
Parties agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement the following terms shall have the following
meanings (all terms defined in this
-2-
<PAGE>
Article I or in other provisions of this Agreement in the singular to have the
same meanings when used in the plural and vice versa):
"Affected Metromail Employee" means any person whose relationship with
Metromail or any subsidiary of Metromail is, as of the IPO Date, under common
law that of an employee, other than a nonresident alien who receives no
earned income from Metromail, or a subsidiary thereof, constituting income
from sources within the United States.
"Agreement" means this Agreement.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, and any applicable state law requiring continuation
coverage under a medical plan.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Dispute" means any dispute, controversy or claim between the Parties
relating to the implementation and administration of this Agreement or any
obligations or related services to be provided hereunder.
"Donnelley" means R. R. Donnelley & Sons Company, a Delaware
corporation, and any corporation which shall succeed to substantially all of
the business of such corporation.
"Donnelley Cafeteria Plans" means the Donnelley Health Care Flexible
Spending Arrangement and the Donnelley Dependent Care Assistance Plan.
"Donnelley Group" means Donnelley and (a) any corporation which is a
member of the same controlled group of corporations (within the meaning of
section 414(b) of the Code) as Donnelley, (b) a trade or business (whether or
not incorporated) under common control (within the meaning of
-3-
<PAGE>
section 414(c) of the Code) with Donnelley, (c) any organization (whether or
not incorporated) which is a member of an affiliated service group (within
the meaning of section 414(m) of the Code) which includes Donnelley, a
corporation described in clause (a) of this definition or a trade or business
described in clause (b) of this definition, or (d) any other entity which is
required to be aggregated with Donnelley pursuant to regulations promulgated
under section 414(o) of the Code.
"Donnelley Indemnified Parties" means any Donnelley Group member, its
officers, directors and employees, each Donnelley Plan and any contract
administrator or service provider for any Donnelley Plan (and the agents and
employees of such administrators and providers).
"Donnelley Pension Plan" means the Retirement Benefit Plan of R. R.
Donnelley & Sons Company.
"Donnelley Pension Trust" means the Retirement Benefit Trust of R. R.
Donnelley & Sons Company.
"Donnelley Plan" means any employee benefit plan or program maintained
by Donnelley.
"Donnelley Retiree Welfare Plan" means the post-retirement medical
portion of the R. R. Donnelley & Sons Company Comprehensive Medical Plan and
the post-retirement life insurance portion of the Donnelley Basic Survivor
Optional Life AD&D and Dependent Life Plan.
"Donnelley Savings Plan" means the Donnelley Deferred Compensation and
Voluntary Savings Plan.
"Donnelley Stock" means common stock of Donnelley.
"Donnelley Welfare Plans" means the R. R. Donnelley & Sons Company
Comprehensive Medical Plan (excluding the portion which provides post-
retirement medical benefits), Donnelley Dental Benefit Plan, Donnelley Basic
Survivor Optional Life AD&D and Dependent Life Plan (excluding the portion
which provides post-retirement life insurance benefits), Donnelley Travel
Accident Insurance Plan, and
-4-
<PAGE>
Long Term Disability Income Plan of R. R. Donnelley & Sons Company.
"Effective Date" means the date as of which this Agreement is dated.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.
"IPO Date" means the date on which Metromail ceases to be a member of
the Donnelley Group.
"Losses" means all losses, claims, damages, liabilities, costs and
expenses (including reasonable legal fees and reasonable costs and expenses
incurred to defend against any claim, suit or action).
"Metromail" means Metromail Corporation, a Delaware corporation, and any
corporation which shall succeed to substantially all of the business of such
corporation.
"Metromail Group" means Metromail and (a) any corporation which is a
member of the same controlled group of corporations (within the meaning of
section 414(b) of the Code) as Metromail, (b) a trade or business (whether or
not incorporated) under common control (within the meaning of section 414(c)
of the Code) with Metromail, (c) any organization (whether or not
incorporated) which is a member of an affiliated service group (within the
meaning of section 414(m) of the Code) which includes Metromail, a
corporation described in clause (a) of this definition or a trade or business
described in clause (b) of this definition, or (d) any other entity which is
required to be aggregated with Metromail pursuant to regulations promulgated
under section 414(o) of the Code.
"Metromail Indemnified Parties" shall mean any Metromail Group member,
its officers, directors and employees, each of Metromail's employee benefit
plans and any contract administrator or service provider for any Metromail
plan (and the agents and employees of such administrators and providers).
-5-
<PAGE>
"Metromail Pension Plan" means the Donnelley Metromail Corporation
Pension Plan.
"Metromail Pension Trust" means the Metromail Corporation Pension Trust
to be established after the date hereof.
"Metromail Savings Plan" means the Metromail Corporation and
Subsidiaries Savings Plan.
"Metromail Welfare Plans" means the welfare benefit plans established by
Metromail following the IPO Date which provide benefits which correspond to
benefits provided under the Donnelley Welfare Plans.
"Norwest Pension Plan" means the RR Donnelley Norwest, Inc. Retirement
Plan.
"OPI Participant" means any person who had an accrued benefit under the
Oregon Printing Industry Pension Plan which was transferred to the Metromail
Pension Plan as of June 30, 1992.
"Party" means Donnelley or Metromail.
ARTICLE 2
EMPLOYEE BENEFITS
SECTION 2.1. PROVISION OF EMPLOYEE BENEFITS. The employee benefits
described in Articles 4, 5 and 6 of this Agreement shall be provided by
Donnelley for the time periods provided in such articles to any person who on or
after the IPO Date is or becomes an employee of Metromail subject to such
employee's satisfaction of each Donnelley Plan's eligibility
-6-
<PAGE>
requirements, the terms and conditions of each such plan and the terms and
conditions of such articles.
SECTION 2.2. CORPORATE ACTION. Donnelley and Metromail shall each take
all action necessary, pursuant to the terms of the Donnelley Plans or otherwise,
to cause Metromail to continue as a participating employer in the Donnelley
Plans, and permit the participation by employees of Metromail in such plans, to
the extent described in this Agreement.
SECTION 2.3. LEGAL REQUIREMENTS. Notwithstanding any other provision of
this Agreement to the contrary, Donnelley may restrict any employee of Metromail
from participating in or may limit such employee's benefits under any Donnelley
Plan if Donnelley determines in good faith that such restriction or limitation
is reasonably necessary in the opinion of outside counsel to preserve the tax-
favored status of such plan or to maintain such plan's compliance with ERISA or
any other applicable legal requirement (including any non-discrimination
requirement). Donnelley shall promptly notify Metromail if Donnelley is
considering any such action.
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SECTION 2.4. DONNELLEY'S RIGHT TO AMEND PLANS. Except to the extent
limited by law, nothing contained in this Agreement shall preclude Donnelley
from amending any Donnelley Plans. Donnelley shall provide notice to Metromail
within a reasonable period of time prior to the date on which Donnelley adopts
any material amendment to any Donnelley Plan during the period in which
Metromail is a participating employer in such plan and where such amendment
applies to employees of Metromail.
SECTION 2.5. PARTICIPATION BY METROMAIL SUBSIDIARIES. Any entity which is
a wholly-owned subsidiary of Metromail and which is a participating employer in
a Donnelley Plan as of the IPO Date shall continue to participate in such
Donnelley Plan to the extent Metromail has the right to continue as a
participating employer in such plan under the terms of this Agreement. Any such
Metromail subsidiary shall take action necessary, pursuant to the terms of the
Donnelley Plans or otherwise, to cause such subsidiary to continue as a
participating employer in such Donnelley Plans, and permit the participation by
employees of such subsidiary in such plans, to the extent described in this
Agreement. As of the effective date on which Metromail is required to withdraw
as a participating employer in any Donnelley
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Plan, each Metromail subsidiary shall also be required to withdraw from such
plan participation. Donnelley may require any such participating Metromail
subsidiary to take action which Metromail is required to take pursuant to the
terms of this Agreement and the terms of any Donnelley Plan.
ARTICLE 3
SAVINGS PLAN
SECTION 3.1. METROMAIL SAVINGS PLAN. Metromail shall take action
necessary to obtain a favorable determination letter from the Internal Revenue
Service with respect to the Metromail Savings Plan as soon as administratively
practicable. Metromail shall take action necessary to effectuate its
withdrawal as a participating employer under the terms of the Donnelley Savings
Plan.
SECTION 3.2. TRANSFER OF ACCOUNT BALANCES FROM DONNELLEY SAVINGS PLAN TO
METROMAIL SAVINGS PLAN. Subject to applicable law and the provisions of the
Donnelley Savings Plan, the account balances (including outstanding loans) of
Ronald G. Eidell, Barton L. Faber, Daniel Hamburger, Thomas J. Quarles and
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Beverly Romanini, if the employment of such persons is transferred to Metromail
on or after the IPO Date, shall be spun off from the Donnelley Savings Plan and
merged into the Metromail Savings Plan.
ARTICLE 4
PENSION PLANS
SECTION 4.1. TERMINATION OF EMPLOYMENT FOR PLAN PURPOSES. Each Affected
Metromail Employee shall be treated as having terminated employment with an
"Employer" as defined in the Donnelley Pension Plan as soon as practicable
following the later of (1) the IPO Date and (2) the date on which an amendment
to the Donnelley Pension Plan providing for such treatment is adopted.
SECTION 4.2. TRANSFER OF ACCRUED PENSION BENEFITS AND RELATED ASSETS
FROM METROMAIL PENSION PLAN TO NORWEST PENSION PLAN. (a) As soon as
administratively practicable following June 30, 1996, Metromail shall cause the
Metromail Pension Plan to transfer in cash from the trust holding the assets of
the Metromail Pension Plan as of such date to the trust for the Norwest Pension
Plan an amount equal to the assets transferred to
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the Metromail Pension Plan from the Oregon Printing Industry Pension Plan as of
June 30, 1992 plus earnings on such assets minus amounts paid out, all as more
fully set forth on Exhibit A hereto.
(b) Notwithstanding anything herein to the contrary, should the Pension
Benefit Guaranty Corporation determine that adjustments to the amounts
transferred are necessary in order to comply with section 414(l) of the Code,
the adjustments to the amounts transferred determined to be necessary by the
Pension Benefit Guaranty Corporation shall be paid by Metromail, and any costs
associated with such adjustments shall be shared by the Parties. Metromail
shall pay Donnelley an amount equal to such required adjustments on the next to
occur of January 15, April 15, July 15 or October 15 following the date on which
the Pension Benefit Guaranty Corporation requires that such adjustments must be
made.
(c) As of the date on which the transfer described in paragraph (a) above
takes place, the Norwest Pension Plan shall assume all liabilities and
obligations with respect to the payment of all accrued benefits under the
Metromail Pension Plan
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for the OPI Participants which were transferred to the Metromail Pension Plan as
of June 30, 1992, and the Metromail Pension Plan shall be relieved of all
liabilities for such benefits and payments relating thereto pursuant to the
amendments to the Norwest Pension Plan and the Metromail Pension Plan adopted to
effectuate the transfers of such liabilities and obligations.
ARTICLE 5
WELFARE BENEFITS
SECTION 5.1. WELFARE BENEFITS PROVIDED UNDER DONNELLEY PLANS. During the
period beginning on the IPO Date and ending on the date on which Metromail
completes establishment of all Metromail Welfare Plans, Metromail shall continue
to be a participating employer in the Donnelley Welfare Plans. Metromail shall
take action necessary to establish the Metromail Welfare Plans and the employee
assistance plan for Metromail employees whose principal place of work is
Lombard, Illinois as soon as administratively practicable following the IPO
Date. Metromail shall terminate its participation in all of the Donnelley
Welfare Plans as of the same date.
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Each Metromail employee who continues to participate in the Donnelley
Welfare Plans after the IPO Date shall, for the period beginning on the IPO Date
and ending on the date on which such person becomes eligible for coverage under
the Metromail Welfare Plans, continue to be credited with (1) deductibles and
co-payments paid by such employee, and (2) periods of service with Donnelley and
Metromail for all purposes under the Donnelley Welfare Plans. Any Metromail
employee who is covered under the R. R. Donnelley & Sons Company Comprehensive
Medical Plan and/or the Donnelley Dental Benefit Plan immediately prior to the
date on which Metromail ceases to be a participating employer in such plans and
establishes its own medical and/or dental plans (the "Metromail Medical Plans")
shall not be excluded from coverage under the Metromail Medical Plans due to a
preexisting condition limitation under such plans to the extent such limitation
would entitle such employee to elect COBRA coverage under the R. R. Donnelley &
Sons Company Comprehensive Medical Plan and/or the Donnelley Dental Benefit
Plan.
SECTION 5.2. WELFARE BENEFITS PROVIDED UNDER METROMAIL PLANS.
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(a) Effective on the IPO Date, Metromail shall cease to be a participating
employer in the Donnelley sick benefit plan, employee assistance plan,
separation pay plan and educational assistance plan; provided, however, that any
person who on such date is an employee of Metromail whose principal place of
work is Lombard, Illinois shall be eligible to continue to participate in the
Donnelley employee assistance program for the period beginning on the IPO Date
and ending on the date on which Metromail establishes an employee assistance
plan which covers Metromail employees whose principal place of work is Lombard,
Illinois.
(b) Effective on the date on which Metromail establishes the Metromail
Welfare Plans, Metromail shall cease to be a participating employer in the
Donnelley Welfare Plans and shall take action necessary to effectuate its
withdrawal as a participating employer under the terms of such plans. Each
Metromail employee who is eligible to participate in the Metromail Welfare Plans
shall be credited with (1) deductibles and co-payments paid by such employee
during 1996 under the R. R. Donnelley & Sons Company Comprehensive Medical Plan
and the Donnelley Dental Benefit Plan, and (2) periods of service with
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any Donnelley Group member for all purposes under the Metromail Welfare Plans.
SECTION 5.3. METROMAIL'S PARTICIPATION IN DONNELLEY CAFETERIA PLANS.
Metromail shall continue to be a participating employer in the Donnelley
Cafeteria Plans during the period beginning on the IPO Date and ending on
December 31, 1996. Metromail shall take action necessary to withdraw as a
participating employer in the Donnelley Cafeteria Plans effective December 31,
1996 and to establish for the benefit of its employees cafeteria plans effective
January 1, 1997. Donnelley shall have the right to receive all amounts deducted
from Metromail participants' paychecks in order to process claims under the
cafeteria plans.
SECTION 5.4. PAYMENT OF WELFARE PLAN COSTS. (a) With respect to each
Metromail employee who participates in the Donnelley Welfare Plans and the
Donnelley Cafeteria Plans, Metromail shall pay Donnelley the costs described in
Section 7.3. Metromail shall pay all costs associated with the provision of
long-term disability benefits to any Metromail employee who (1) is eligible to
receive sick benefits on the date on which
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Metromail establishes the Metromail Welfare Plans and (2) who after such date
becomes entitled to receive long-term disability benefits. Metromail shall not
pay Donnelley any amount with respect to the provision of benefits under its or
Donnelley's sick benefit plan, employee assistance plan, separation pay plan or
educational assistance plan, but instead shall pay directly the cost to provide
such benefits (other than with respect to the provision of an employee
assistance plan to employees whose principal place of work is Lombard, Illinois
as described in Section 5.2).
(b) Notwithstanding the foregoing:
(1) Donnelley shall pay all claims under the R. R. Donnelley & Sons Company
Comprehensive Medical Plan and the Donnelley Dental Benefit Plan which
as of the IPO Date have been incurred but not reported relating to
Metromail employees, but only if claims for such costs are submitted in
written form to Donnelley during the six-month period beginning on the
date on which Metromail establishes its own medical and dental plans.
(2) Donnelley shall pay all costs associated with the provision of benefits
under the terms of the Donnelley Retiree Welfare Plan for all persons
who as of the IPO Date have satisfied the age and service eligibility
requirements for receiving benefits under such plan. Metromail shall
assume and pay all costs associated with the provision of retiree
welfare benefits for all Metromail
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employees who after the IPO Date satisfy the age and service
eligibility requirements under the corresponding Metromail plan, if
any, for receiving such benefits.
(c) Metromail shall not have the right to receive any assets held, received
by or in any other way attributable (either before, on or after the IPO
Date) to the R. R. Donnelley & Sons Company Welfare Benefit Trust or
the R. R. Donnelley & Sons Company Post-Retirement Medical Benefit
Trust.
ARTICLE 6
MISCELLANEOUS PLANS AND AGREEMENTS
SECTION 6.1. STOCK PURCHASE PLAN. On the IPO Date, Metromail shall cease
being a participating employer in the R. R. Donnelley & Sons Company Stock
Purchase Plan, and after such date, Metromail employees shall no longer be
eligible to purchase Donnelley Stock under the terms of such plan.
SECTION 6.2. DONNELLEYSHARES PLAN. Each Affected Metromail Employee who
has been granted under the DonnelleyShares Stock Option Plan options to acquire
Donnelley Stock, which options vest after the IPO Date shall receive within a
reasonable period of time after the IPO Date a cash payment equal to the
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excess, if any, of the Fair Market Value (as hereinafter defined) of the shares
subject to such options over the exercise price of such shares. For purposes of
the preceding sentence, Fair Market Value shall be the greater of (1) the
average of the high and low transaction prices (as reported in the New York
Stock Exchange-Composite Transactions) in trading of Donnelley Stock on the IPO
Date, and (2) the average of the closing prices (as reported in the New York
Stock Exchange-Composite Transactions) in trading of Donnelley Stock during the
30 calendar day period ending on the IPO Date. The cost of this cash payment
shall be borne by Donnelley.
SECTION 6.3. WORKERS' COMPENSATION. (a) Donnelley shall retain the
responsibility for all claims relating to Metromail employees and former
Metromail employees relating to incidents occurring up to but not including the
IPO Date (including, but not limited to, claims which are filed after the IPO
Date but which relate to incidents occurring prior to the IPO Date). Any amount
by which actual claims expenses vary from the reserve established by Donnelley
for such expenses for periods prior to the IPO Date shall be retained by
Donnelley.
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(b) Metromail shall assume responsibility for all claims relating to
Metromail employees and former employees relating to periods beginning on the
IPO Date. Metromail shall take action necessary to effect timely return to work
for all Metromail employees and former Metromail employees who are on a leave of
absence from employment during which they were entitled to receive workers'
compensation (including, but not limited to, persons with respect to whom
Donnelley has the liability to pay workers' compensation claims).
SECTION 6.4. MONTHLY INVESTMENT PLAN. As of the first payroll occurring
after the IPO Date, Metromail shall cease deducting amounts from compensation on
behalf of its employees for the purchase of Donnelley Stock under the Donnelley
Monthly Investment Plan.
SECTION 6.5. TAX CREDIT STOCK OWNERSHIP PLAN. Each Affected Metromail
Employee shall be treated as having terminated employment with an "Employer" as
defined in the Donnelley Tax Credit Stock Ownership Plan as soon as practicable
following the later of (1) the IPO Date and (2) the date on which an amendment
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to the Donnelley Tax Credit Stock Ownership Plan providing for such treatment is
adopted.
SECTION 6.6. VACATION PAY POLICY. After the IPO Date, it is expected
that Metromail shall maintain for its employees a vacation pay policy.
Metromail shall be responsible for costs incurred to provide vacation pay to
Metromail employees whether incurred before, on or after the IPO Date.
SECTION 6.7. SERP. No amounts shall be transferred between the Parties
(or between any plans maintained by either Party) with respect to any amounts
accrued by any person under the Parties' respective supplemental employee
retirement programs.
SECTION 6.8. MARJORIE SCHAFFNER BENEFITS. Notwithstanding anything herein
to the contrary, as of the IPO Date Donnelley shall have the sole obligation
with respect to that certain employment agreement dated May 23, 1995 with
Marjorie Schaffner to pay specified compensation and to provide coverage under
the Donnelley Savings and Pension Plans under the terms and conditions specified
therein for the applicable period
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of such agreement. Metromail shall reimburse Donnelley for all payments made to
Ms. Schaffner or otherwise in connection with such agreement and otherwise pay
Donnelley for all Losses incurred by Donnelley in connection with the provision
of such compensation and benefits to Ms. Schaffner.
SECTION 6.9. METROMAIL'S USE OF CERTAIN SYSTEMS AND VENDORS. For the
period beginning on the IPO Date and ending on December 31, 1996, Metromail
shall continue to use PeopleSoft, the HR and Benefits Administration System, the
Donnelley Payroll System and CobraServ (a division of Applied Benefits Research,
Inc.).
SECTION 6.10. SAVINGS AND LOAN. Metromail shall continue to deduct
amounts from compensation on behalf of its employees and shall forward such
amounts on a semi-monthly basis to the Lakeside Press Savings and Loan
Association for the repayment of loans while such loans remain outstanding.
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ARTICLE 7
ADMINISTRATION OF PLANS
SECTION 7.1. PLAN ADMINISTRATION. Metromail shall provide whatever
assistance is appropriate for an employer participating in the Donnelley Plans.
Nothing in this Agreement shall obligate Donnelley to undertake any additional
administrative responsibilities with respect to the provision of benefits to
Metromail employees other than the administrative responsibilities which it
routinely performs for its subsidiaries which have adopted its benefit plans or
which it provided prior to the IPO Date with respect to the Metromail employees.
SECTION 7.2. INFORMATION TO BE PROVIDED TO DONNELLEY. Metromail shall
provide any information which Donnelley may reasonably request, including but
not limited to information relating to dates of termination of employment, in
order to provide benefits to any eligible Metromail employee under the terms and
conditions described herein and under the applicable Donnelley Plans. Any
information relating to an employee's
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termination of employment shall be provided by Metromail to Donnelley as soon as
available to Metromail.
SECTION 7.3. EXPENSES. Metromail shall pay the amounts set forth on
Exhibit B to cover (1) all ordinary claims costs that Donnelley incurs in
providing benefits after the IPO Date under any Donnelley Plan for the employees
of Metromail, and (2) Metromail's pro rata share of ordinary administration and
plan asset management expenses incurred in the operation of all employee
benefits plans with respect to the period after the IPO Date in which Metromail
is a participating employer in such plans. On January 1, 1997 (or as soon
thereafter as is practicable), Donnelley shall calculate its actual claims costs
of providing benefits (including the claims costs for claims incurred before the
date on which Metromail ceases to participate in the R. R. Donnelley & Sons
Company Comprehensive Medical Plan but reported after such date) under the R. R.
Donnelley & Sons Company Comprehensive Medical Plan (including HMOs) and shall
submit to Metromail a request for payment or shall make a reimbursement, as
appropriate, for the true-up amounts. In addition to paying the amounts set
forth in Exhibit B and any amount required to be paid by Metromail under the
second sentence
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of this section, Metromail shall pay any extra-ordinary costs, expenses or
liabilities reasonably incurred by Donnelley in connection with Donnelley's
administration of the Donnelley Plans on behalf of Metromail, including, but not
limited to, costs of amending plans to reflect coverage of the employees of
Metromail, any conversion of any Donnelley Plan to multiple employer plan
status, costs of preparing any extra-ordinary communications to Metromail
employees concerning their employee benefits, and costs of determining
Metromail's share of plan contributions. Donnelley shall consult with Metromail
prior to charging Metromail for any such extra-ordinary costs, expenses or
liabilities. If the Parties are unable to agree on whether such expenses should
be incurred, the Parties shall use the dispute resolution procedures contained
in Section 7.7.
SECTION 7.4. INDEMNIFICATION. (a) Metromail shall indemnify and hold
harmless the Donnelley Indemnified Parties for all Losses sustained in
connection with the benefits provided or the actions taken or omitted to be
taken in connection with this Agreement, or otherwise relating to the provision
of employee benefits to employees or former employees of Metromail, their
beneficiaries, alternate payees or any other person claiming
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benefits through them (except to the extent such Losses are specifically
allocated to Donnelley pursuant to Section 7.4(b) or (c)), including without
limitation Losses arising in connection with (1) Metromail's reduction,
elimination or failure to provide any benefit previously provided to its
employees or employees of any of its subsidiaries, (2) subject to Section
7.4(b)(2), the provision of benefits to Metromail employees under the R. R.
Donnelley & Sons Company Comprehensive Medical Plan where such Losses arise
after June 30, 1996, (3) any act or omission by Metromail in connection with the
transfer of assets and liabilities from the Metromail Pension Plan to the
Norwest Pension Plan (or the holding of such assets in the Metromail Plan), and
(4) the transfer of account balances from the Donnelley Savings Plan to the
Metromail Savings Plan where such Losses are incurred as a result of (1) any act
or omission by Metromail (or Metromail's representative) or (2) a determination
by the Internal Revenue Service that the Metromail Savings Plan is not a tax-
qualified plan.
(b) Donnelley shall indemnify and hold harmless the Metromail Indemnified
Parties for all Losses sustained in connection with (1) Donnelley's reduction,
elimination or failure
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to provide any benefit previously provided to its employees (or employees of its
subsidiaries), (2) the provision of benefits to Metromail employees under the
R. R. Donnelley & Sons Company Comprehensive Medical Plan where such Losses
arise prior to July 1, 1996 or in connection with claims incurred prior to July
1, 1996 and reported prior to January 1, 1997; provided, however, that Metromail
shall continue to be responsible for the payment of all actual claims expenses
incurred to provide benefits under such plan to employees of Metromail (and its
subsidiaries), and (3) any act or omission by Donnelley in connection with the
transfer of assets and liabilities from the Oregon Printing Industry Pension
Plan to the Metromail Pension Plan (or the holding of such assets in the Oregon
Printing Industry Pension Plan).
(c) Subject to Section 7.7, in the event that any Party retains the
services of an attorney to enforce any term of this Agreement, or to obtain a
remedy for a breach of this Agreement, the prevailing Party shall be entitled to
recover its reasonable costs and attorney fees, including the costs and attorney
fees on appeal, if any.
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SECTION 7.5. CONSULTING ADVICE BY DONNELLEY. In the event that Donnelley
provides advice as a consultant to Metromail regarding the establishment or
administration of Metromail's benefit plans, Metromail shall pay Donnelley a
reasonable fee for such consulting advice and shall reimburse Donnelley for all
actual expenses incurred by Donnelley in providing such advice. Prior to the
provision by Donnelley of such consulting advice, the Parties shall agree, on a
case-by-case basis, on the fees which Metromail shall pay to Donnelley for such
advice.
SECTION 7.6. TIMELY PAYMENT. Each Party shall be required to pay any
amount due to the other Party pursuant to this Agreement in a timely manner on
the date on which such payment is due, and if no due date is specified, within
30 days after the date on which the Party to whom payment is owed makes written
demand for such payment from the other Party.
SECTION 7.7. DISPUTE RESOLUTION PROCEDURES. Senior management of the
Parties shall confer to resolve any Dispute. If such attempt to resolve the
Dispute fails, any Dispute shall be resolved in accordance with the procedures
as set forth below:
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(a) The Parties shall submit the Dispute to mediation in accordance with
the Commercial Mediation Rules of the American Arbitration Association and shall
bear equally the costs of the mediation. The Parties shall jointly appoint a
mutually acceptable mediator, seeking assistance in such regard from the
American Arbitration Association if they have been unable to agree upon such
appointment within twenty (20) days. The Parties agree to participate in good
faith in the mediation and negotiations related thereto for a period of thirty
(30) business days commencing with the selection of a mediator and any extension
of such period as mutually agreed to by the Parties.
(b) If resolution of the Dispute cannot be achieved within thirty (30)
business days after the beginning of mediation or during such other period as
agreed to by the Parties, the Dispute shall be settled by binding arbitration
conducted in Chicago, Illinois in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association ("AAA") as modified by
the following provisions:
(1) If the amount in dispute exceeds $1,000,000, three neutral
arbitrators, one of whom shall be an attorney having five or more years
experience in the primary area of law to which the dispute relates, shall be
selected in accordance with the appointment rules of the AAA. One of the
three arbitrators shall be designated the lead arbitrator by the AAA. If the
amount in dispute is less than $1,000,000, one neutral arbitrator, who shall
be an attorney having five or more years experience in the primary area of
law to which the dispute relates, shall be selected by the Parties from the
AAA panel list in accordance with the appointment rules of the AAA.
(2) The arbitration process shall be conducted in Chicago, Illinois
unless otherwise agreed by the Parties. The arbitration shall be scheduled
so that an award is issued no later than 270 days after the demand for
arbitration is filed with the AAA. All hearings, unless otherwise agreed to
by the Parties, shall be held in Chicago, Illinois.
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(3) The sole arbitrator or the lead arbitrator may in his or her
discretion order a pre-hearing exchange of information including production
of documents, exchange of summaries of testimony or exchange of statements
of position or depositions.
(4) The arbitration proceedings and all testimony, filings, documents
and information relating to or presented during the arbitration proceedings
shall be disclosed exclusively for the purpose of facilitating the
arbitration process and for no other purpose and shall be deemed to be
confidential information.
(5) The award of the arbitrator(s) shall be made in a written opinion
containing a concise analysis of the law and evidence upon which the award
was made.
(6) A judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
(7) The arbitrator(s) shall allocate the cost of any arbitration
(including the administrative fee, the compensation of the arbitrator(s) and
the expenses of any neutral witnesses, the cost of any analysis conducted by
such neutral or expert witness or proof produced at the direct request of
the arbitrator(s), which analysis and/or proof shall be made available to
both Parties)) based on the arbitrator's perception of relative fault
between the parties.
(8) The Parties shall each bear all their own legal costs and
expenses, including the fees and expenses of legal counsel and expert
witnesses (except as provided in subparagraph (7)).
(9) Notwithstanding the agreement to arbitrate contained in this
Section 7.7, any Party may apply to any court having jurisdiction to (i)
enforce this agreement to arbitrate; (ii) seek provisional injunctive relief
so as to maintain the status quo until the arbitration award is rendered or
the controversy is otherwise resolved or (iii) challenge or
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vacate any final judgment, award or decision of the arbitrator(s) that does
not comport with the express provisions of subparagraphs (10) and (11) below
or any other grounds allowed by the Federal Arbitration Act.
(10) The arbitrator(s) are only authorized to, and only have the
consent of the Parties to, interpret and apply the terms and conditions of
this Agreement in accordance with the governing law with respect to this
Agreement and to order any remedy allowed by this Agreement or by such
governing law. The arbitrator(s) are not authorized to and shall not order
any remedy not permitted by this Agreement or by such governing law and
shall not change any term or condition of this Agreement or deprive any
Party of any remedy expressly provided hereunder.
(11) The arbitrator(s) shall have the power to determine whether or not
a Dispute is subject to arbitration pursuant to this Section 7.7.
(c) Nothing in Section 7.7(a) shall be construed to prevent any Party from
seeking from a court a temporary restraining order or other temporary or
preliminary relief pending final resolution of a Dispute pursuant to Section
7.7.
ARTICLE 8
TERMINATION OF METROMAIL'S PARTICIPATION IN
DONNELLEY PLANS
Notwithstanding anything herein to the contrary, Donnelley (1) may
terminate any Donnelley Plan, or (2) may terminate the participation of
Metromail, and any or all of Metromail's employees in any Donnelley Plan, to the
extent
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necessary to comply with any applicable law. Donnelley shall make reasonable
efforts to inform Metromail of such termination as soon as practicable.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. NO RIGHTS. This Agreement shall not give any employee or
any person any right to continued employment or to any employee benefits. This
Agreement shall not give any person other than a Party any rights, including in
particular any third-party beneficiary or other right to enforce any provision
of this Agreement or to receive damages for a breach of any such provision.
Nothing in this Agreement shall obligate Donnelley, Metromail or any of their
respective direct or indirect subsidiaries to assist any Metromail employee to
enforce any rights such employee may have with respect to any of the employee
benefits described in this Agreement.
SECTION 9.2. CORPORATE ACTION; DELEGATION OF AUTHORITY. Any action taken
by an officer at the level of Vice-President or above shall be considered to be
action taken by
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either Donnelley or Metromail for purposes of this Agreement. Without limiting
the foregoing, the Chief Executive Officer of Donnelley or Metromail may
delegate in writing to any other person the authority to act on behalf of
Donnelley or Metromail, respectively, with respect to actions required under the
terms of this Agreement.
SECTION 9.3. NOTICES. Any written notice or communication to any Party
required or permitted under this Agreement shall be deemed to have been duly
given and received (1) on the date of service, if served personally or sent by
telex or telecopier transmission to the Party to whom notice is to be given with
oral confirmation of receipt, (2) on the fourth day after mailing, if mailed by
first class registered or certified mail, postage prepaid and return receipt
requested, and addressed to the Party to whom notice is to be given at the
address stated opposite its name below or at the most recent address specified
by written notice given to the other Parties, or (3) on the next day if sent by
a nationally recognized courier for next day service and so addressed and if
there is evidence of acceptance by receipt. Such notices or other
communications shall be sent to the following addresses:
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Party Address
----- -------
Donnelley R. R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Attention: Assistant General
Counsel
Metromail Metromail Corporation
360 East 22nd Street
Lombard, IL 60148
Attention: General Counsel
SECTION 9.4. SURVIVAL OF AGREEMENT. All provisions of this Agreement
shall be considered to have been relied upon by the Parties and shall survive
and remain in full force and effect, notwithstanding the initial public offering
of common stock of Metromail. All provisions of this Agreement which by their
nature should survive termination of this Agreement shall so survive.
SECTION 9.5 BINDING EFFECT. This Agreement shall become effective when
it shall have been executed by each Party, and thereafter shall be binding upon
and inure to the benefit of such persons and their respective successors,
permitted assigns and legal representatives.
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SECTION 9.6. GOVERNING LAW. The Parties hereby agree that, to the extent
not preempted by ERISA, this Agreement shall be construed in accordance with and
governed by the internal laws of the State of Illinois.
SECTION 9.7. WAIVERS; AMENDMENT. Neither this Agreement nor any
provision hereof may be waived, amended or modified except pursuant to an
agreement or agreements in writing executed by both Parties.
SECTION 9.8. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
SECTION 9.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute but one contract.
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<PAGE>
SECTION 9.10. TERMINATION. If the IPO Date does not occur before June 30,
1996, the Agreement shall have no force and effect.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by their respective authorized officers as of the date first set forth
above.
R. R. DONNELLEY & SONS COMPANY
By___________________________
METROMAIL CORPORATION
By___________________________
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<PAGE>
BENEFIT ADMINISTRATION SERVICE AGREEMENT
between
R.R. DONNELLEY & SONS COMPANY AND METROMAIL CORPORATION
EXHIBIT A
Transfer of Accrued Pension Benefits and Related Assets From Metromail Pension
Plan to Norwest Pension Plan
Transfer of Accrued Pension Benefit Liabilities
Effective July 1, 1996, the Norwest Pension Plan shall assume all liabilities
and obligations with respect to the payment of all accrued benefits under the
Metromail Pension Plan for the former OPI Participants, and the Metromail
Pension Plan shall be relieved of all liabilities for such benefits and payments
relating thereto pursuant to the amendments to the Norwest Pension Plan and the
Metromail Pension Plan adopted to effectuate the transfer of such liabilities
and obligations.
The attached Appendix A-1 provides a listing of all former OPI Participants,
including accrued benefits, for whom the Norwest Pension Plan shall assume
liability.
Transfer of Assets
The Metromail Pension Plan trustees shall direct the trust holding the assets of
the Metromail Pension Plan to make the following transfers of assets to the
Norwest Pension Plan trust:
. On June 30, 1996 OPI Assets (as defined below) in the amount of
$1,732,696 shall be transferred;
. On August 1, 1996, an amount equal to the OPI Adjustment shall be
transferred.
Notwithstanding anything herein to the contrary, should the Pension Benefit
Guaranty Corporation determine that adjustments are necessary in order to comply
with Section 414(1) of the Internal Revenue Code, the amounts transferred
pursuant to the above will be adjusted accordingly.
Definitions
OPI Assets are equal to the assets transferred to the Metromail Pension Plan on
July 1, 1992 of $1,095,211 and the subsequent transfer of assets in December of
1992 equal to $144,083 plus earnings on such assets less amounts paid out (to
the former OPI Plan Participants) through December 31, 1995. Exhibit B-2 details
the specific calculation, as of December 31, 1995, of the OPI Asset value of
$1,732,696.
OPI Adjustment payable August 1, 1996 is equal to earnings, from January 1, 1996
through June 30, 1996 on the OPI Assets (of $1,732,696 - See Appendix A-2 for
development), determined as a pro-rata share of the actual earnings in the
Metromail Pension Trust from January 1, 1996 through June 30, 1996, less amounts
paid out to the former OPI Participants, from January 1, 1996 through June 30,
1996 plus amounts to be paid out July 1, 1996 (the annuity payments due July 1,
1996 which should be payable from the Norwest Plan trust will be paid from the
Metromail Pension Plan Trust and thus the Metromail Pension trust will be
reimbursed for these amounts). This net amount will be increased an additional
8%, per annum, for interest from July 1, 1996 through July 31, 1996.
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<PAGE>
EXHIBIT B
WELFARE BENEFITS - The following are estimated amounts for claims that shall be
charged to Metromail for the following employee benefits provided under
Donnelley Plans until Metromail establishes its own plans. Metromail shall pay
the following amounts to Donnelley in cash on a monthly basis:
. Survivor/Group Life $ 39,833
. Opt; Ee. AD&D; Dep. Life & AD&D 21,333
. Travel & Workplace Accident 2,250
. Medical 304,917
. HMO 320,000
. Employee Assistance Plan (EAP) 500
. Long Term Disability 34,250
. Dental 54,000
--------
Total $777,083
SERVICE - Donnelley shall provide the following routine Benefits Administration
Services through 12/31/96 to Metromail. The listed monthly rates are estimates:
. Communications $10,000
. Summary Plan Descriptions 208
. Systems Support 10,833
. Legal Fees 742
. HMO Administration 267
. Plan Audits 1,250
. Filing Fees 1,250
. Vendor Management 917
. Data Processing 750
. Plan Design 1,300
. Benefit Administration Support 317
. Clinical Services 583
. COBRA; FSA; DCP processing 417
-------
Total $28,834
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<PAGE>
1996 FEE - The total monthly charge for the above benefits and services shall be
$805,917 (determined before any employee deductions), pro-rated for portions of
any month, and payable as of the beginning of the month for which services are
performed and benefits provided. In addition, a one time set-up fee of $2,500
will be charged to create separate monthly vendor tapes for Metromail when
Metromail establishes its own plans.
Any payments not received within 15 days after the date on which due
shall be charged interest at a rate of 15% per annum. After consultation with
Metromail, Donnelley may adjust the amounts set forth in this Exhibit B to the
extent that the actual cost to provide benefits and services varies from the
amounts specified in this schedule.
In addition to the amounts set forth above, Metromail shall pay the
true-up amounts, if any, determined under the R. R. Donnelley & Sons Company
Comprehensive Medical Plan (including HMOs) as determined by Donnelley on
January 1, 1997 (or as soon thereafter as is practicable).
LENGTH OF AGREEMENT - This schedule shall be effective beginning on the IPO Date
and ending on December 31, 1996. With the exception of legal fees, plan audits
and filing fees, all other services listed above may be cancelled at any time
during the period of this Agreement with 15 days written notice if Metromail has
already established the Metromail Welfare Plans.
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<PAGE>
DRAFT: JUNE 10, 1996
DATA CENTER SERVICES AGREEMENT
by and between
METROMAIL CORPORATION
and
R. R. DONNELLEY & SONS COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION
- -------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Definitions......................................... 1
2. Services............................................ 2
3. Service Levels...................................... 2
4. Management and Control.............................. 3
5. Term................................................ 7
6. Audit Rights........................................ 8
7. Disaster Recovery................................... 9
8. RRD Responsibilities................................ 9
9. Charges............................................. 9
10. Safeguarding of Data................................11
11. Confidentiality.....................................12
12. Intellectual Property...............................13
13. Representations and Warranties......................15
14. Insurance and Risk of Loss..........................16
15. Indemnities.........................................17
16. Limitation of Liability.............................20
17. Termination.........................................20
18. Consequences of Termination.........................21
19. General.............................................21
</TABLE>
(i)
<PAGE>
DRAFT: MAY 10, 1996
DATA CENTER SERVICES AGREEMENT
------------------------------
This Data Center Services Agreement ("Agreement") is entered into as
of the Effective Date between METROMAIL CORPORATION, a Delaware corporation
("MM"), and R.R. DONNELLEY & SONS COMPANY, a Delaware corporation ("RRD").
WHEREAS, prior to the Effective Date MM was a wholly-owned subsidiary
of RRD, and provided to RRD data center and related data processing services;
and
WHEREAS, on the Effective Date, MM has ceased being a wholly-owned
subsidiary or RRD; and
WHEREAS, RRD desires that MM continue to provide to RRD and its
affiliates data center and related data processing services, during a period of
time following the Effective Date, pursuant to the terms hereof;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:
1. Definitions. As used in this Agreement:
1.1 "Affiliate" shall mean, with respect to a specified entity, any
other entity Controlling, Controlled by, or under common Control with such
entity.
1.2 "Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers, U.S. City Average, for All Items, as published by the
Bureau of Labor Statistics of the Department of Labor.
1.3 "Control" and its derivatives shall mean, with respect to a
specified entity, the legal, beneficial, or equitable ownership, directly or
indirectly, of fifty percent or more of such entity's capital stock (or other
ownership interest, if not a corporation) ordinarily having voting rights.
1.4 "Effective Date" shall mean the date on which the initial public
offering of MM's common stock is completed.
1.5 "Losses" shall mean all losses, liabilities, damages and claims
(including taxes), and all related costs and expenses (including reasonable
legal fees and disbursements and costs of
-1-
<PAGE>
internal counsel, investigation, litigation, settlement, judgment, interest and
penalties).
1.6 "Periodic Reports" shall mean the reports described on Schedule A
and customarily provided by MM to RRD prior to the Effective Date.
2. Services.
2.1 Scope of Services. MM shall provide to RRD the services set forth on
Schedule A, together with any other services, facilities, personnel or resources
described in this Agreement and its Schedules, as they may be supplemented,
enhanced, modified or replaced during the Term (collectively, the "Services").
If any services, facilities, personnel or resources not specifically described
in this Agreement and its Schedules are required for the proper delivery of the
Services, they shall be deemed to be implied by and included within the scope of
the Services to the same extent and in the same manner as if specifically
described in this Agreement.
2.2 Entities Receiving Services. As of the Effective Date, MM shall
provide Services to RRD and to those Affiliates of RRD and other entities in
which RRD has an ownership interest and to which MM was providing services
similar to the Services prior to the Effective Date. During the Term, MM shall
provide the Services to such additional Affiliates and other related entities as
may be designated by RRD during the Term. The charges for the Services provided
to such additional entities shall be negotiated by the parties in good faith
through the Steering Committee.
3. Service Levels.
3.1 General. MM shall provide the Services at no less than the same
level and same degree of accuracy, quality, completeness and responsiveness as
was provided by MM prior to the Effective Date. Service Levels and Critical
Service Levels for certain of the Services are set forth in Schedule B. At all
times MM's level of performance shall comply, at a minimum, with industry
standards and the Service Levels and Critical Service Levels identified in this
Agreement.
3.2 Failure to Perform.
3.2.1 If MM fails to meet any Service Level or Critical Service Level
set forth in Schedule B, MM shall (i) promptly investigate and identify the
causes of the problem; (ii) use all commercially reasonable efforts to correct
the problem
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<PAGE>
and begin meeting the Service Level or Critical Service Level as soon as
practicable; and (iii) advise RRD, as and to the extent requested by RRD, of the
status of remedial efforts being undertaken to resolve and to avoid the
recurrence of such problems.
3.2.2 MM acknowledges that its failure to meet any of the Critical
Service Levels set forth in Schedule B will have an adverse impact on the
business and operations of RRD and that the damages caused by such failure are
not susceptible of precise determination. Accordingly, if MM fails to meet any
Critical Service Level for any reason other than RRD's wrongful actions or other
circumstances that constitute an excuse or a Force Majeure Event hereunder,
then, in addition to any nonmonetary remedies available to RRD under this
Agreement, at law, or in equity, RRD may elect, in lieu of pursuing other
monetary remedies, to recover the liquidated damages specified in Schedule B as
RRD's sole and exclusive monetary remedy for failure to meet any such Critical
Service Level.
3.3 Periodic Reviews. Within four months after the Effective Date
and at least annually thereafter, RRD and MM shall, through the Steering
Committee, review the Service Levels and Critical Service Levels and shall make
adjustments as appropriate to reflect any improved performance capabilities
associated with any advances in the technology and methods used to perform the
Services. The parties expect and understand that the Service Levels shall be
improved over time. As part of this review process, the parties shall jointly
determine and agree on new or modified Service Levels, Critical Service Levels
and, if applicable, liquidated damages. Schedule B shall be modified to reflect
any changes or additions to the Service Levels, Critical Service Levels or
liquidated damages.
3.4 Measurement and Monitoring Tools. MM shall utilize necessary
measurement and monitoring tools and procedures required to measure and report
MM's provision of Services and to compare such performance against the
applicable Service Levels and Critical Service Levels. The parties agree that
the Periodic Reports, together with the remote access to MM's System provided to
RRD prior to the Effective Date, are sufficient measurement and monitoring
tools.
4. Management and Control.
4.1 Steering Committee. The parties shall form a "Steering
Committee" consisting of two RRD designees, two MM designees, the RRD Program
Manager, and the MM Program Manager. The Steering Committee shall meet at least
once each calendar year during the
-3-
<PAGE>
Term. The Steering Committee shall review the delivery of Services hereunder,
the deployment of new or different technologies, applicable suppliers for such
technology, any appropriate revisions to the Service Levels or Critical Service
Levels, and other matters relevant to the parties' performance under this
Agreement.
4.2 Personnel.
4.2.1 MM Program Manager. MM shall designate one individual to be
primarily responsible for coordinating MM's relationship with RRD under this
Agreement (the "MM Program Manager"). The MM Program Manager shall have overall
managerial responsibility for MM's performance under this Agreement, and shall
serve as the primary liaison with the RRD Program Manager. Before assigning an
individual to the position of MM Program Manager, whether as an initial
assignment or a subsequent assignment, MM shall notify RRD of the proposed
assignment, shall introduce the individual to appropriate RRD representatives,
and shall provide RRD with a resume and any other information about the
individual reasonably requested by RRD. If RRD in good faith objects to the
proposed assignment within fifteen working days after being notified, then MM
agrees to discuss such objections with RRD and attempt to resolve RRD's concerns
on a mutually agreeable basis. If the parties have not been able to resolve
RRD's concerns within five working days following RRD's notice, then MM shall
not assign the individual to the position of MM Program Manager, and shall
propose another individual of suitable ability and qualifications.
4.2.2 RRD Program Manager. RRD shall designate one individual to be
primarily responsible for coordinating RRD's relationship with MM under this
Agreement (the "RRD Program Manager"). The RRD Program Manager shall have
overall managerial responsibility for RRD's performance under this Agreement,
and shall serve as the primary liaison with the MM Program Manager. Before
assigning an individual to the position of RRD Program Manager, whether as an
initial assignment or a subsequent assignment, RRD shall notify MM of the
proposed assignment. If MM in good faith objects to the proposed assignment
within fifteen working days after being notified, then RRD agrees to discuss
such objections with MM and attempt to resolve MM's concerns on a mutually
agreeable basis.
4.3 MM Personnel.
4.3.1 The personnel MM assigns to provide the Services shall have
sufficient education, training, experience and qualifications for the tasks they
are assigned to perform.
-4-
<PAGE>
4.3.2 If RRD determines in good faith that the continued assignment
of particular MM personnel to RRD's account is not in the best interests of RRD,
then RRD shall give MM written notice to that effect requesting that such
personnel be replaced. Promptly after its receipt of such a request by RRD, MM
shall investigate the matters stated in the request and discuss its findings
with RRD. If RRD still in good faith requests replacement of any such
individual, MM shall replace that individual with a person of suitable ability
and qualifications.
4.4 Operations Plan. The operations plan set forth in Schedule C
("Operations Plan") describes the activities to be undertaken by MM in order to
provide the Services, including without limitation the monitoring, staffing,
reporting, planning and oversight activities of MM. MM shall periodically
update the Operations Plan to reflect changes in the operations or procedures
described therein. All updates to the Operations Plan shall be provided to RRD
for review, comment, and approval. MM shall provide all Services in accordance
with the Operations Plan.
4.5 Changes. Without first obtaining RRD's approval through the
Steering Committee, MM shall make no change which: (i) adversely affects or
substantially changes the function or performance of any hardware, software or
other facilities, or affects to any significant degree the delivery of the
Services hereunder; (ii) increases RRD's costs; or (iii) requires changes in the
manner in which RRD conducts its operations. In an emergency situation, MM may
make temporary changes to the Services at any time and without prior approval
from RRD, provided MM has made reasonable efforts to contact an appropriate
manager from RRD. At the conclusion of the emergency, MM shall provide to RRD
prompt notification of all changes made for emergency purposes, and shall
document and report such changes pursuant to the routine change control process.
4.6 Use of Subcontractors.
4.6.1 MM shall not delegate or subcontract any of its obligations
under this Agreement without the approval of RRD. If MM wishes to enter into any
subcontract, MM shall clearly specify in writing the Services that MM proposes
to subcontract, as well as the background, qualifications and experience of the
proposed subcontractor. RRD shall have the right in its sole discretion to
approve or disapprove the use of such subcontractors. RRD also shall have the
right to revoke its prior approval of a subcontractor and direct MM to replace
such subcontractor if: (i) the subcontractor's performance is materially
deficient; (ii) RRD has good faith doubts with respect
-5-
<PAGE>
to the subcontractor's ability to perform based on changes in the
subcontractor's ownership, control, management, financial condition or
otherwise; or (iii) there has been any material misrepresentation made by or
concerning the subcontractor.
4.6.2 MM's use in the ordinary course of business of third party
services or products that: (i) are not dedicated to MM's performance hereunder;
(ii) are not material to any particular function constituting a part of the
Services; and (iii) do not result in a material change in the manner in which MM
conducts its business shall not constitute a delegation or subcontracting of
MM's responsibilities hereunder.
4.6.3 MM shall remain responsible for all obligations to be performed
by subcontractors to the same extent as if such obligations were performed by
MM. The use of any subcontractors by MM shall not increase the scope of any of
RRD's obligations under this Agreement or increase the level of effort necessary
on the part of RRD to administer and monitor the performance of this Agreement.
MM shall oversee the performance of its subcontractors herewith.
4.7 COOPERATION. If RRD retains any third party to provide any services
related to the Services, MM shall cooperate with RRD and any such third parties,
including but not limited to: (i) providing access to those facilities or
equipment reasonably necessary for the third party or RRD to perform such work
(provided that, if such access materially increases MM's costs with respect
thereto, RRD shall reimburse MM for such increased costs); and (ii) providing
such information regarding the operating environment, system constraints and
other operating parameters as are reasonably necessary for the work and work
product of RRD or such third parties to be compatible with Services being
provided by MM. MM's obligations hereunder shall be subject to each third party
complying with MM's reasonable security requirements, including executing
confidentiality agreements in a form reasonably acceptable to MM.
4.8 REPORTS AND MEETINGS.
4.8.1 REPORTS. MM shall issue to RRD, at no additional charge to
RRD, the Periodic Reports at the frequencies referred to in Schedule A, as well
as any other reports, documentation, or other information ("Additional Reports")
requested by RRD. If the preparation of any Additional Report requires more than
sixteen man-hours to prepare, then such Additional Report shall be deemed an
Additional Service and the parties shall negotiate the fee for its preparation
pursuant to Section 9. MM shall also provide RRD with electronic access to the
MM databases relevant to the Services.
-6-
<PAGE>
4.8.2 MEETINGS. Within 30 days after the Effective Date, the parties
shall establish a schedule for periodic meetings to be held between
representatives of RRD and MM. MM shall prepare and circulate an agenda
sufficiently in advance of each meeting to allow the participants a reasonable
opportunity to prepare for the meeting. Such agenda shall include all items
requested by either party. MM shall prepare minutes of all such meetings and
shall circulate the minutes promptly after each meeting. At a minimum, the
schedule shall include a monthly management meeting between MM and RRD
representatives to discuss planned or anticipated activities and changes that
might affect performance and such other matters as appropriate. In addition, MM
personnel shall meet with RRD representatives as often as is reasonably
requested by either party to review issues arising under this Agreement.
4.9 APPROVAL PROCEDURE. Unless specifically provided to the contrary
elsewhere in this Agreement, all reports, plans, manuals and other such
documentation in relation to the Services shall be submitted to RRD for approval
and shall be governed by the following schedule. Within ten working days of
receipt of such documentation, RRD shall provide MM with comments on the
documentation, specifying any respects in which the documentation does not
adequately or correctly satisfy the requirements of RRD. MM and RRD shall
endeavor to agree on the changes to be made to the documentation during the
following five working days, and MM shall produce revised versions of the
documentation ten working days thereafter. The revised documentation shall be
subject to approval in accordance with the procedure set forth in this Section.
4.10 MINIMIZATION OF SERVICE DISRUPTIONS. The parties shall mutually
agree on the scope, timing, frequency and duration of any planned interruptions
or delays in Service and with the objective of minimizing their impact on RRD's
business operations.
5. TERM.
----
The term of this Agreement shall commence on the Effective Date and
shall expire on December 31, 1998, unless terminated or extended in accordance
with this Agreement (the "Term"). After December 31, 1998, The Term shall be
automatically renewed for successive one-year periods unless terminated by
either party upon at least six months' notice prior to the end of the then
current Term.
-7-
<PAGE>
6. AUDIT RIGHTS.
------------
6.1 AUDIT ACCESS.
6.1.1 MM shall provide to RRD, its auditors (including internal audit
staff), inspectors, regulators and such other representatives as RRD may from
time to time designate to MM in writing, with reasonable access to any facility
at which MM is providing the Services, to MM personnel providing the Services,
and to data and records relating to the Services for the purpose of performing
audits and inspections of RRD and its business, to verify the integrity of data
owned by RRD, to examine the systems that support and transmit that data, and to
examine MM's delivery of the Services hereunder, including, audits of: (i)
practices and procedures; (ii) systems; (iii) general controls and security
practices and procedures; (iv) disaster recovery and back-up procedures; and (v)
anything necessary to enable RRD to meet applicable regulatory requirements.
6.1.2 MM shall provide to such auditors, inspectors, regulators and
representatives such assistance as they may reasonably require, including
installing and operating audit software. MM shall cooperate fully with RRD or
their designees in connection with audit functions and with regard to
examinations by regulatory authorities. RRD's auditors and other representatives
shall comply with MM's reasonable security requirements.
6.2 AUDIT FOLLOW-UP.
6.2.1 As part of an audit or examination, RRD shall conduct (in the
case of an internal audit), or request its external auditors or examiners to
conduct, an exit conference with MM to obtain factual concurrence with issues
identified in the review.
6.2.2 If requested by either party, MM and RRD shall meet to review
each audit report promptly after the issuance thereof and to mutually agree upon
the appropriate manner, if any, in which to respond to the changes suggested by
the audit report. RRD and MM agree to develop mutually acceptable operating
procedures for the sharing of audit and regulatory findings and reports related
to MM's operating practices and procedures produced by auditors or regulators of
either party.
6.2.3 MM shall promptly make available to RRD the results of any
review or audit conducted by MM, its parent, Affiliates, or subsidiaries, or
their contractors, agents or
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<PAGE>
representatives (including internal and outside auditors), relating to MM's
operating practices and procedures to the extent relevant to the Services or
RRD.
7. DISASTER RECOVERY.
-----------------
MM shall continue to maintain and implement the disaster recovery program
for all facilities, hardware and software used in delivery of Services hereunder
that was in effect on the Effective Date. MM shall not modify the disaster
recovery program without the prior written approval of RRD.
8. RRD RESPONSIBILITIES.
--------------------
8.1 COOPERATION. RRD shall cooperate with MM by, among other things,
delivering or otherwise making available, as reasonably requested by MM, all
information reasonably necessary for MM to perform its obligations hereunder.
8.2 SAVINGS CLAUSE. RRD's failure to perform any of the responsibilities
set forth in this Agreement (other than RRD's payment obligations under Section
9) shall not constitute a material breach of the Agreement or be deemed to be
grounds for termination by MM. MM's nonperformance of its obligations under this
Agreement shall be excused if and to the extent such failure is caused by RRD's
failure to perform its responsibilities, and MM provides RRD with reasonable
notice of such nonperformance and uses commercially reasonable efforts to
perform notwithstanding RRD's failure to perform (with RRD reimbursing MM for
any additional out-of-pocket expenses MM incurs in performing such efforts to
the extent they are in addition to the level of effort MM would otherwise have
had to expend).
9. CHARGES.
-------
9.1 GENERAL. RRD shall pay MM in monthly installments the Annual Fee set
forth below. Except as otherwise provided in this Section 9, the Annual Fee
shall constitute full payment and compensation for all the Services provided or
to be provided by MM under this Agreement.
9.2 ANNUAL FEE. From the beginning of the Term until December 31, 1996,
the Annual Fee shall be $4,300,000 ($358,333 per month, prorated for any portion
of a month). For each subsequent year of the Term, the Annual Fee shall be
adjusted according to the terms set forth in Schedule D.
-9-
<PAGE>
9.3 INVOICES. MM shall, on a monthly basis, send RRD an itemized invoice
for one month's prorated portion of the Annual Fee and any other monthly charges
owed by RRD to MM, such as fees for additional services. Payment by RRD of such
invoices shall be made within thirty days of the date of the invoice. Any
payments not received within 15 days after the date on which due shall be
charged interest at a rate of 15% per annum.
9.4 ADDITIONAL SERVICES. The parties anticipate that the Services shall
be modified, supplemented and enhanced over time to keep pace with advancements
and improvements in data processing technology, and the parties acknowledge that
such changes shall not be deemed to be materially different from or in addition
to the Services. If RRD requires additional services that are materially
different from the Services, MM shall quote RRD a charge for such additional
services. Any labor charges to be incurred in connection with such services
shall not exceed $75 per hour. RRD may then elect to have MM provide the
additional services, and the charges under this Agreement shall be adjusted, if
appropriate, to reflect such additions. Such additional services shall then be
deemed "Services" and shall be subject to the provisions of this Agreement. RRD
may elect to solicit and receive proposals from third parties to provide
additional services.
9.5 TAXES.
9.5.1 Each party shall be responsible for: (i) any personal property
taxes on property it owns or leases; (ii) franchise and privilege taxes on their
respective businesses; and (iii) taxes based on their respective net income or
gross receipts.
9.5.2 MM shall be responsible for any sales, use, excise, value-
added, services, consumption and other taxes or duties payable by MM on any
goods or services used or consumed by MM in providing the Services where the tax
is imposed on MM's acquisition or use of such goods or services and the amount
of tax is measured by MM's costs in acquiring such goods or services.
9.5.3 RRD shall be responsible for any sales, use, excise, value-
added, services, consumption or other tax that is assessed on the provision of
the Services as a whole, or on any particular Service received by RRD from MM.
9.5.4 The parties agree to cooperate with each other to enable each
to more accurately determine its own tax liability and minimize such liability
to the extent legally permissible. Each party shall provide and make available
to the
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<PAGE>
other any resale certificates, information regarding out-of-state or out-of-
country sales or use of equipment, materials or services, and other exemption
certificates or information reasonably requested by the other party in this
regard.
9.5.5 If a sales, use, excise, value added, services, consumption or
other tax is assessed on the provision of any of the Services, the parties shall
cooperate to segregate all payments under this Agreement into three payment
streams as follows: (i) those for taxable data processing and other Services;
(ii) those for nontaxable data processing and other Services; and (iii) those in
which MM functions merely as a payment agent for RRD in receiving goods,
supplies or services (including leasing and licensing arrangements) that
otherwise are nontaxable or have previously been subject to tax.
9.5.6 MM shall promptly notify RRD of, and coordinate with RRD the
response to and settlement of, any claim for taxes asserted by applicable taxing
authorities for which RRD is responsible hereunder, it being understood that,
with respect to any claim arising out of a form or return signed by a party,
such party shall have the right to elect to control the response to and
settlement of the claim, but the other party shall have such rights to
participate (at its sole expense) in the responses and settlements as are
appropriate to its potential responsibilities or liabilities. If RRD requests
MM to challenge the imposition of any tax, RRD shall reimburse MM for the
reasonable legal fees and expenses it incurs in doing so, including internal
legal resources. RRD shall be entitled to any tax refunds or rebates granted in
respect of taxes paid by RRD.
10. Safeguarding of Data.
10.1 RRD Data. All rights in data of RRD shall remain the sole and
exclusive property of RRD. Upon RRD's request, or upon the termination for any
reason of this Agreement, MM shall promptly return or destroy (at RRD's
election) all or any portion of the RRD data. RRD data shall not be utilized by
MM for any purpose other than to provide the Services under this Agreement, nor
shall RRD data or any part thereof be sold, assigned, leased, disclosed or
otherwise disseminated to any third party or commercially exploited by or on
behalf of MM, its employees or agents. MM shall not hold or assert any lien or
other right against or to any RRD data.
10.2 Safeguarding RRD Data. At all times during the Term, MM shall
establish and maintain reasonable safeguards against the destruction, loss,
alteration, unauthorized access, disclosure, dissemination or duplication of RRD
data. Such safeguards shall
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be no less rigorous, for information of a similar nature, than the greater of:
(i) the safeguards maintained by RRD to the extent described in writing and
delivered to MM; (ii) the safeguards maintained by MM on the Effective Date;
(iii) then current applicable regulatory requirements, if any; or (iv)
reasonable safeguards for information of a similar nature. RRD may make backup
files for RRD data and maintain those files in its possession, provided any
exercise of this right shall not relieve MM of its obligations with respect to
the data.
11. Confidentiality.
11.1 Confidential Information. MM and RRD each acknowledge that the
other possesses and shall continue to possess information that has been
developed or received by it, has commercial value in its business or that of its
customers, and is not in the public domain. Except as otherwise specifically
agreed in writing by the parties, "Confidential Information" shall mean all
trade secrets, proprietary data, information or compilations thereof of either
party which have been disclosed to the other party in documents or other
tangible materials clearly marked confidential, restricted, proprietary or with
a similar designation.
11.2 Standard of Care. RRD and MM shall each use at least the same
degree of care to prevent disclosing to third parties the Confidential
Information of the other as it employs to avoid unauthorized disclosure,
publication or dissemination of its own information of a similar nature, but in
no event less than a reasonable standard of care.
11.3 Disclosure to Third Parties. The parties may disclose such
information to third parties providing services hereunder where: (i) use of such
third party is authorized under this Agreement (including such third party being
bound by a written nondisclosure obligation regarding such information); (ii)
such disclosure is reasonably necessary for the third party to provide its
services; (iii) the disclosure is in accordance with the terms and conditions of
this Agreement; and (iv) the disclosing party assumes full responsibility for
the acts or omissions of such third party.
11.4 Other Obligations. Neither MM nor RRD shall: (i) use or make
any copies of the Confidential Information of the other except as contemplated
by this Agreement; (ii) acquire any right in or assert any lien against the
Confidential Information of the other; (iii) transmit, directly or indirectly,
any Confidential Information received from the other party to any country
outside the United States and Canada; (iv) knowingly transmit, directly
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or indirectly, any Confidential Information received from the other to any
country or person in violation of the Export Administration Regulations issued
by the United States Department of Commerce; or (v) refuse for any reason
(including a default or material breach of this Agreement by the other party) to
promptly return the other party's Confidential Information (including all copies
thereof) when requested to do so. Upon the termination for any reason of this
Agreement and the fulfillment of a party's obligations under this Agreement,
each party shall return or destroy, as the owner may direct, all documentation
in any medium that contains, refers to, or relates to the other party's
Confidential Information, and retain no copies. In addition, the parties shall
take reasonable steps to ensure that their employees comply with these
confidentiality provisions.
11.5 Exceptions. This Section 11 shall not apply to any particular
information which MM or RRD can demonstrate: (i) was, at the time of disclosure
to it, in the public domain; (ii) after disclosure to it, is published or
otherwise becomes part of the public domain through no breach of this Agreement
by the receiving party; (iii) was received after disclosure to it from a third
party who had a lawful right to disclose such information to it; or (iv) was
independently developed by the receiving party without reference to Confidential
Information of the furnishing party. In addition, a party shall not be
considered to have breached its obligations under this Section 11 for disclosing
Confidential Information of the other party as required to satisfy any legal
requirement of a government, judicial, or administrative body provided that,
immediately upon receiving any such request and to the extent that it may
legally do so, such party advises the other party promptly, and prior to making
such disclosure, of the request so that the other party may take appropriate
actions in response to the request.
11.6 Notice. If any disclosure or loss of, or inability to account
for, any Confidential Information of the furnishing party, the receiving party
shall notify the furnishing party immediately upon the occurrence of any such
event.
11.7 No Obligation to Disclose. Nothing contained in this Section 11
shall be construed as obligating a party to disclose its Confidential
Information to the other party, or as granting to or conferring on a party,
expressly or impliedly, any rights or license to the Confidential Information of
the other party.
12. Intellectual Property.
12.1 Ownership. All information and materials (including
specifications, designs, plans, drawings, software, data
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prototypes, development tools, methodologies, processes or other technical or
business information or materials, including modifications or enhancements
thereto) delivered by one party to the other party pursuant to this Agreement,
and the rights to any underlying United States or foreign patents, copyrights,
maskwork protection rights and other intellectual property rights, shall be
designated "Intellectual Property" and shall be treated as follows:
12.1.1 RRD's Intellectual Property. RRD shall own all right, title
and interest in (i) all Intellectual Property owned by RRD, (ii) all
Intellectual Property developed by RRD after the Effective Date, and (iii) all
information developed by MM, its agents, subcontractors or Affiliates under or
pursuant to this Agreement, which is attributable to development efforts funded
by RRD. RRD hereby grants to MM a nonexclusive license during the Term to use,
execute, reproduce, display, perform, distribute copies of, and prepare
derivative works based upon such Intellectual Property, for the sole purpose of
providing the Services pursuant to this Agreement; provided that this license
does not give MM the right, and MM is not authorized, to sublicense any rights
in such Intellectual Property. MM shall not use such Intellectual Property for
the benefit of any entity other than RRD without the prior written consent of
RRD, which may be withheld at RRD's sole discretion. Except as otherwise
requested or approved in writing by RRD, MM shall cease all use of such
Intellectual Property upon termination of this Agreement.
12.1.2 MM's Intellectual Property. MM shall own all right, title and
interest in all Intellectual Property owned by MM which is used in connection
with the delivery of the Services. For the sole purpose of enabling MM to
provide the Services hereunder, MM hereby grants to RRD and its agents and
designees, a nonexclusive, royalty free license during the Term to use, execute,
reproduce, display, perform, distribute copies of, and prepare derivative works
based upon such Intellectual Property. RRD shall not use such Intellectual
Property for the benefit of any third party without the prior written consent of
MM, which may be withheld at MM's sole discretion. Except as otherwise
requested or approved in writing by MM, RRD shall cease all use of such
Intellectual Property upon termination of this Agreement.
12.1.3 Exclusions. Except as expressly set forth in this Agreement,
no license is granted by either party to the other with respect to any technical
or business information, know-how or trade secrets, or with respect to rights in
any patents, trademarks, copyrights, mask work, or other intellectual property
rights.
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12.2 Export. Neither party shall export or re-export any software or
technical data, or any direct product thereof, or undertake any transaction in
violation of United States export control laws or regulations.
13. Representations and Warranties.
13.1 Work Standards. MM represents and warrants that the Services
shall be rendered with promptness and diligence and shall be executed in
accordance with the Service Levels and Critical Service Levels and otherwise in
a workmanlike manner in accordance with the practices and high professional
standards used in well-managed operations providing services similar to the
Services. MM represents and warrants that it shall use adequate numbers of
qualified individuals with suitable training, education, experience and skill to
perform the Services.
13.2 Maintenance. MM represents and warrants that it shall maintain
the equipment and software in good operating condition, subject to normal wear
and tear, and shall undertake all repairs and preventive maintenance in
accordance with the applicable equipment manufacturer's recommendations or the
applicable Software specifications.
13.3 Noninfringement. MM represents and warrants that it shall
perform its responsibilities under this Agreement in a manner that does not
infringe, or constitute an infringement or misappropriation of, any patent,
copyright, trademark, trade secret or other proprietary rights of any third
party. MM represents and warrants that it has secured all necessary licenses to
use third party software for the provision of the Services hereunder.
13.4 Compliance with Laws and Regulations. MM represents and
warrants that it shall perform its obligations under this Agreement in a manner
that complies with all applicable laws, regulations, ordinances and codes,
including without limitation identifying and procuring required permits,
certificates, approvals and inspections. If a charge of non-compliance by MM
with any such laws, regulations, ordinances or codes occurs, MM shall promptly
notify RRD of such charges in writing.
13.5 Right to Contract. Each party represents and warrants to the
other that its execution, delivery and performance of this Agreement shall not
constitute: (i) a violation of any judgment, order or decree; (ii) a material
default under any material contract by which it or any of its material assets
are bound; or (iii) an event that would, with notice or lapse of time, or both,
constitute such a default.
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13.6 Authorization. Each party represents and warrants to the other
that: (i) it has all requisite corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated by this Agreement; and
(ii) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all requisite corporate action on the part of such party.
13.7 Viruses. MM represents and warrants that it shall use its best
efforts to ensure that no viruses or similar errant foreign code (collectively,
"Viruses") are introduced into the systems used to provide the Services. If a
Virus is found to have been introduced into such systems, MM shall use its
commercially reasonable efforts at no additional charge to assist RRD in
reducing the effects of the Virus, and, if the Virus causes loss of operational
efficiency or loss of data, to cooperate to the same extent to mitigate and
restore such losses. RRD represents and warrants that it shall use commercially
reasonable efforts to ensure that no Viruses are introduced into MM's systems
through interfaces with RRD's systems. If a Virus is found to have been
introduced into MM's systems through an interface with RRD's systems, RRD shall
use its reasonably commercial efforts, at no charge to MM, to assist MM in
reducing the effects of the Virus, and, if the Virus causes loss of operational
efficiency or loss of data, to cooperate to the same extent to mitigate and
restore such losses.
13.8 Disabling Code. MM represents and warrants that, without the
prior written consent of RRD, MM (including its subcontractors) shall not insert
into any system used to provide Services hereunder any code which would have the
effect of disabling or otherwise shutting down all or any portion of the system
or otherwise interfere with the delivery of Services. MM further represents and
warrants that, with respect to any disabling code that may be part of any system
software, MM shall not invoke such disabling code at any time, including upon
termination of this Agreement for any reason.
14. Insurance and Risk of Loss.
14.1 Coverage. During the Term, MM shall have and maintain in force the
following insurance coverages:
14.1.1 Worker's Compensation Insurance, including occupational
illness or disease coverage, or other similar social insurance in accordance
with applicable laws and with statutory limits, and an Employer's Liability
Insurance with a minimum limit of $500,000 per occurrence.
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14.1.2 Comprehensive General Liability Insurance, including
Contractual Liability and Broad Form Property Damage Liability coverage for
damages to any property with a minimum combined single limit of $2,000,000 per
occurrence. The policy shall be endorsed to name RRD as additional insured.
14.1.3 Employee Dishonesty and Computer Fraud coverage for loss
arising out of or in connection with any fraudulent or dishonest acts committed
by the employees of MM, acting alone or in collusion with others, in a minimum
amount of $1,000,000.
14.1.4 Errors and Omissions Liability Insurance covering the
liability for financial loss due to error, omission, negligence of employees and
machine malfunction in an amount of at least $5,000,000.
14.2 Conditions. The foregoing insurance coverages shall be primary
and non-contributing with respect to any other insurance or self insurance which
may be maintained by RRD. MM shall cause its insurers to issue certificates of
insurance evidencing that the coverages and policy endorsements required under
this Agreement are maintained in force and that not less than thirty days
written notice shall be given to RRD prior to any modification, cancellation or
non-renewal of the policies. MM shall assure that its subcontractors, if any,
maintain insurance coverages as specified in this Section 14 or are endorsed as
additional insureds on all required MM coverages.
14.3 Risk of Loss. Each party shall be responsible for risk of loss
of, and damage to, any equipment, software or other materials in its possession
or control.
15. Indemnities.
15.1 Indemnity by MM. MM agrees to indemnify, defend and hold
harmless RRD and its Affiliates and their respective officers, directors,
employees, agents, successors and assigns, in accordance with the procedures
described in Section 15.4, from any and all Losses or threatened Losses
resulting from any of the following: (i) claims relating to or arising out of
MM's failure to observe or perform any duties or obligations to be observed or
performed on or after the Effective Date by MM under any of the licenses, leases
or other contracts for which MM has assumed financial, administrative or
operational responsibility; (ii) claims arising out of or related to occurrences
MM is required to insure against pursuant to Section 14; (iii) claims of
infringement of any patent, invention, trade secret, copyright, trademark or
other proprietary rights alleged to have occurred
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because of systems, software or other resources provided to RRD by MM (including
its subcontractors) or based upon use thereof in the performance of the Services
by MM (including its subcontractors); and (iv) any claim or action by, on behalf
of, or related to, any MM employees including, but not limited to, claims
arising under the occupational health and safety or other applicable federal,
state or local laws or regulations.
15.2 Indemnity by RRD. RRD agrees to indemnify, defend and hold
harmless MM and its Affiliates and their respective officers, directors,
employees, agents, successors and assigns, in accordance with the procedures
described in Section 15.4, from any Losses or threatened Losses resulting from
or in connection with any of the following: (i) claims relating to or arising
out of RRD's failure to observe or perform any duties or obligations to be
observed or performed prior to the Effective Date by RRD under any of the
licenses, leases or other contracts for which MM has assumed financial,
administrative or operational responsibility; and (ii) claims of infringement or
misappropriation of any patent, invention, trade secret, copyright, trademark or
other proprietary rights alleged to have occurred because of systems, software
or other resources or elements provided to MM by RRD, provided that RRD has no
liability for any claim, suit or action pursuant to this Section based upon or
arising out of MM's combination, operation, or use of such systems, resources,
or elements with systems, resources or elements not provided by RRD.
15.3 Additional Indemnities. MM and RRD each agree to indemnify,
defend and hold harmless the other, including their respective Affiliates,
officers, directors, employees, agents, successors and assigns, in accordance
with the procedures described in Section 15.4, from any and all Losses and
threatened Losses arising from or in connection with any of the following: (i)
the death or bodily injury of any agent, employee, subcontractor, customer,
business invitee, business visitor or other person caused by the tortious
conduct of the indemnitor, its agent, subcontractor or employee; (ii) the
damage, loss or destruction of any real or tangible personal property caused by
the tortious conduct of the indemnitor, its agent, subcontractor or employee;
(iii) the violation of any federal, state or local law by the indemnitor or its
Affiliates, agents, subcontractors or employees; and (iv) any claim, demand,
charge, action, cause of action, or other proceeding asserted against the
indemnitee but resulting from an act or omission of the indemnitor, its agent,
or subcontractor in its capacity as an employer of a person.
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15.4 Indemnification.
15.4.1 Procedures. A party seeking indemnification under this
Agreement (an "Indemnified party") for a claim by a third party shall promptly
notify the other party (the "Indemnifying party") in writing of the
commencement, or threatened commencement, of any civil, criminal, administrative
or investigative action or proceeding involving a claim for indemnification
under this Agreement. The Indemnifying party shall have sole control over the
defense and settlement of such claim, provided that, within 15 days after
receipt of the above-described notice, the Indemnifying party notifies the
Indemnified party of its election to so assume full control. The foregoing
notwithstanding, the Indemnified party shall be entitled to participate in the
defense of such claim and to employ counsel at its own expense to assist in the
handling of such claim. The Indemnifying party shall obtain the prior written
approval of the Indemnified party before entering into settlement of any such
claim or ceasing to defend against such claim if such settlement or cessation
would cause injunctive or other equitable relief to be imposed against the
Indemnified party. A condition to any settlement by the Indemnifying party of
a claim shall be that the Indemnified party is fully released from any liability
related to the claim. After notice by the Indemnifying party to the Indemnified
party of its election to assume full control of the defense of any such action,
the Indemnifying party shall not be liable to the Indemnified party for any
legal expenses incurred by the Indemnified party in connection with the defense
of that claim. If the Indemnifying party does not assume full control over the
defense of such claim, the Indemnifying party may participate in such defense
and the Indemnified party shall have the right to defend the claim in such
manner as it may deem appropriate, at the cost and expense of the Indemnifying
party. An Indemnifying party shall not be required to indemnify an Indemnified
party for any amount paid or payable by such Indemnified party in the settlement
of any such claim which was agreed to without the written consent of the
Indemnifying party.
15.4.2 Defense of Claims. The Indemnifying party may, at its sole
cost, expense and ultimate liability regardless of the outcome, and through
counsel of its choice, litigate, defend, settle or otherwise attempt to resolve
such claim, except that the Indemnified party may elect, at any time and at its
sole cost, expense and ultimate liability, regardless of the outcome, and
through counsel of its choice, to so resolve such claim, thereby waiving any
right to indemnification under this Agreement. In any event, each party shall
fully cooperate with the other and their respective counsel in connection with
any such resolution, and notwithstanding which party is defending any
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such third party claim, the other party shall have the right to select co-
counsel at its sole cost and expense and to consult with counsel for the
Indemnifying party.
16. Limitation of Liability.
It is the intent of the parties that each party shall be responsible
for its own acts, errors and omissions and that each party shall be liable to
the other party for any damages incurred by the non-breaching party as a result
of the breaching party's failure to perform its obligations in the manner
required by this Agreement. NOTWITHSTANDING THE FOREGOING, EXCEPT AS EXPRESSLY
PROVIDED IN SECTIONS 3.2.2 AND SCHEDULE B, MM'S LIABILITY HEREUNDER SHALL NOT
EXCEED THE AMOUNT OF FEES PAID BY RRD TO MM FOR THE SERVICES HEREUNDER. EXCEPT
AS EXPRESSLY PROVIDED IN SECTIONS 3.2.2 AND SCHEDULE B, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR ANY INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT
DAMAGES, HOWEVER CAUSED OR UNDER ANY THEORY OF LIABILITY, EVEN IF SUCH PARTY IS
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, UNLESS SUCH DAMAGES ARE THE RESULT
OF FRAUD OR WILLFUL MISCONDUCT.
17. Termination.
17.1 Termination for Cause.
17.1.1 By RRD. RRD may terminate this Agreement for cause if MM: (i)
materially breaches any of its curable duties or obligations under the Agreement
(other than Critical Service Levels), which breach is not cured within thirty
days notice of the breach from RRD to MM; (ii) materially breaches any other
duty under this Agreement which is not capable of being cured within thirty
days; or (iii) fails to meet any of the Critical Service Levels, and such
failure is not cured within ten days after MM becomes aware of such failure. Any
such termination shall be effective as of a date specified in the notice of
termination. RRD may terminate this Agreement in its entirety, or with respect
to specific Affiliates or Services set forth in the notice. If RRD chooses to
partially terminate this Agreement, the charges payable hereunder shall be
equitably adjusted to reflect those Services that are terminated.
17.1.2 By MM. MM may terminate this Agreement for cause if RRD
materially breaches any of its duties or obligations under the Agreement, which
breach is not cured within thirty days following notice of the breach from MM to
RRD. Any such termination shall be effective as of a date specified in the
notice of termination.
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17.2 Termination for Insolvency. If either party (i) files for
bankruptcy; (ii) becomes or is declared insolvent, or is the subject of any
proceedings related to its liquidation, insolvency or the appointment of a
receiver or similar officer for it; (iii) makes an assignment for the benefit of
all or substantially all of its creditors; or (iv) enters into an agreement for
the composition, extension or readjustment of substantially all of its
obligations, then the other party may, by giving written notice of termination,
terminate this Agreement as of a date specified in such notice of termination.
18. Consequences of Termination.
18.1 Assistance. Commencing upon any notice of termination
(including, without limitation, notice based upon breach or default by RRD), and
continuing, if applicable, through the effective date of termination of this
Agreement, MM shall provide to RRD, or at RRD's request to RRD's designee, any
and all reasonable termination assistance requested by RRD to allow the Services
to continue without interruption or adverse effect and to facilitate the orderly
transfer of the various function included within the Services to RRD or its
designee.
18.2 Equipment. MM shall make available to RRD or its designee,
pursuant to reasonable terms and conditions, any equipment owned or leased by MM
that is substantially dedicated to the delivery of the Services. RRD or its
designee may purchase such equipment owned by MM, or leased by MM from any MM
affiliated entity, at the lesser of fair market value or MM's then current net
book value, and may assume, and MM shall assign to RRD, MM's rights and
obligations with respect to any such equipment leased by MM from an unaffiliated
entity.
18.3 Services. MM shall make available to RRD and any designee,
pursuant to reasonable terms and conditions, any third party services then being
utilized by MM in the performance of the Services, and shall assign third party
service contracts to RRD and any designee upon request of RRD. MM shall be
entitled to retain the right to utilize any such third party services in
connection with the performance of services for itself or a third party.
19. General.
19.1 Binding Nature and Assignment. This Agreement shall be binding
on each of the parties and its respective successors and permitted assigns.
Neither party may assign this Agreement in whole or in part to any third party
without the prior written
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consent of the other and any attempt to do so shall be void, except that RRD may
assign its rights and obligations under this Agreement (or any portion thereof
with respect to an Affiliate or business unit of RRD) without the approval of MM
to: (i) a third party that acquires all or substantially all of the assets of
RRD, any business unit of RRD or any Affiliate; (ii) any subsidiary or Affiliate
of RRD; or (iii) a successor in a merger or acquisition of RRD or an Affiliate;
provided, however, that in no event shall such assignment relieve RRD of any of
its obligations under this Agreement. For the purposes of this Section 19.1,
any assignment by operation of law, under an order of any court or pursuant to
any plan of merger, consolidation or liquidation shall be deemed an assignment
for which prior consent is required, and any assignment made without such
consent shall be void and of no effect as between the parties.
19.2 Entire Agreement; Amendment. This Agreement, including all of
its Schedules and Exhibits (each of which is incorporated into this Agreement by
reference), constitutes the entire agreement between the parties, and supersedes
all other prior or contemporaneous communications between the parties (whether
written or oral), with respect to the subject matter contained in this
Agreement. No modification or amendment of this Agreement shall be effective
unless made in a writing executed by both parties.
19.3 Notices. Whenever one party is required or permitted to give
notice to the other, such notice shall be in writing and deemed given: (i) when
delivered by hand; (ii) one day after being given to an express courier with a
reliable system for tracking delivery; (iii) when telecopied and receipt
confirmed; or (iv) three days after the day of mailing, when mailed through
United States mail, registered or certified mail, return receipt requested,
postage prepaid, and addressed as follows:
In the case of MM:
Metromail Corporation
360 East 22nd Street
Lombard, Illinois 60148
Attn: General Counsel
In the case of RRD:
R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, Illinois 60601
Attn: General Counsel
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Either party may from time to time change its address for notification purposes
by giving the other thirty days' prior written notice of the new address and the
date upon which it shall become effective.
19.4 Force Majeure. If the performance of any part of this Agreement
by a party is prevented, hindered, delayed or otherwise made impractical by
reason of flood, earthquake, riot, fire, explosion, war or any other cause,
whether similar or dissimilar to those listed, beyond the reasonable control of
that party ("Force Majeure Event"), that party shall be excused from such
performance to the extent that it is prevented, hindered, or delayed. If any
Force Majeure Event occurs, the nonperforming party shall make reasonable
efforts to notify the other party of the nature of such Force Majeure Event and
the extent of the delay and shall make reasonable, good faith efforts to resume
performance as soon as possible. The foregoing notwithstanding, RRD's
obligation to make payments under this Agreement shall be excused for the period
that any performance by MM is excused pursuant to the terms of this Section.
19.5 Counterparts. This Agreement may be executed in duplicate
counterparts. Each such counterpart shall be an original and both together
shall constitute one and the same document.
19.6 Headings. The section headings and table of contents contained
in this Agreement are for reference and convenience only and shall not enter
into the interpretation of this Agreement.
19.7 Relationship of Parties. MM is acting as an independent
contractor and, except as provided otherwise in this Agreement, has the sole
right and obligation to supervise, manage, contract, direct, procure, perform or
cause to be performed, all work to be performed by MM under this Agreement. MM
is not an agent of RRD and has no authority to represent RRD as to any matter or
to bind RRD to any third parties, except as expressly authorized in this
Agreement.
19.8 Severability. If any provision of this Agreement should be
held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and such provision shall be deemed restated to reflect the
original intention of the parties as nearly as possible in accordance with
applicable law.
19.9 Governing Law. This Agreement shall be governed by and
construed in all respects in accordance with the laws of the State of Illinois
without regard to its conflicts of law rules.
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19.10 Consents and Approval. Except as otherwise expressly provided
in this Agreement, neither party shall unreasonably withhold or delay any
agreement, approval, acceptance, consent or similar action required under this
Agreement. An approval or consent given by a party under this Agreement shall
not relieve the other party from responsibility for complying with the
requirements of this Agreement, nor shall it be construed as a waiver of any
rights under this Agreement, except as and to the extent otherwise expressly
provided in such approval or consent.
19.11 Waiver of Default. A delay or omission by either party to
exercise any right or power under this Agreement shall not be construed to be a
waiver thereof. A waiver by either party under this Agreement shall not be
effective unless it is in writing and signed by the party granting the waiver.
A waiver by a party of a right, provision, breach or term of this Agreement
shall not be construed to operate as a waiver of any other or successive right,
provision, breach or term of this Agreement.
19.12 Cumulative Remedies. Except as otherwise expressly provided in
this Agreement, all remedies provided for in this Agreement shall be cumulative
and in addition to and not in lieu of any other remedies available to either
party at law, in equity or otherwise.
19.13 Survival. Any provision of this Agreement which contemplates
performance or observance by either or both parties subsequent to any
termination of this Agreement shall survive any termination of this Agreement
and continue in full force and effect.
19.14 Third Party Beneficiaries. This Agreement is entered into
solely between, and may be enforced only by, RRD and MM. Except as provided in
Section 15, this Agreement shall not be deemed to create any rights in any third
parties, including without limitation, any suppliers and customers of a party,
or to create any obligations of a party to any third parties.
19.15 Covenant Against Pledging. MM agrees that, without the prior
written consent of RRD, it shall not assign, transfer, pledge, hypothecate or
otherwise encumber its rights to receive payments from RRD under this Agreement
for any reason whatsoever.
19.16 Order of Precedence. In the event of any inconsistency
between or among the main body of this Agreement, the Schedules to this
Agreement, or the attachments to the Schedules to this Agreement, the following
order of precedence shall govern: (i) the main body of this Agreement; (ii) the
Schedules to this Agreement; and (iii) the attachments to the Schedules to this
Agreement.
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RRD and MM each represent that the individual signing this Agreement on its
behalf has the power and authority to enter into this Agreement and that this
Agreement constitutes its valid and binding obligation.
R.R. DONNELLEY & SONS COMPANY METROMAIL CORPORATION
By: By:
-------------------- ---------------------
Title: Title:
----------------- ------------------
Date: Date:
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SCHEDULE A
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SERVICES; SCOPE OF SERVICES; PERIODIC REPORTS
SERVICES AND SCOPE OF SERVICES:
The Services shall be the services provided to RRD by MM immediately
prior to the Effective Date. For purposes of clarification, this Schedule A and
its attachments describe the Services and their scope in greater detail.
Maintenance and Operation of RRD Hardware: MM shall maintain and operate the
hardware set forth in Attachment A1.
Software Support: MM shall provide support for the software as set forth in
Attachment A1.
Data Processing: MM shall perform for RRD the data processing functions as set
forth in Attachment A2.
Disaster Recovery: The disaster recovery plan currently maintained by MM is
described in Attachment A3.
PERIODIC REPORTS:
Attachment A2 contains a list of the Periodic Reports and the frequency
with which they shall be provided.
A-1
<PAGE>
SCHEDULE B
----------
SERVICE LEVELS; CRITICAL SERVICE LEVELS; LIQUIDATED DAMAGES
SERVICE LEVELS:
The Service Level for any Service performed by MM for RRD shall be the
level at which such Service was provided by MM immediately prior to the
Effective Date. For purposes of clarification, this Schedule B and the Service
Level Memo attached hereto as Attachment B1 describe the Service Levels in
greater detail for certain aspects of the Services.
Software Support: The Service Levels for the software support described in
Schedule A shall be the same as that provided by the manufacturer, whether or
not the software is the most current available release.
Hardware Usage Levels: MM shall provide RRD with the hardware and hardware
usage levels set forth below. MM may substitute for any specific equipment
other equipment that provides equivalent or superior functionality.
. 1255/CUU's/month of mainframe processing
. 235 gigabytes of DASD
. 2 A22 3480's Cartridge contracts
. 2 B22 3480's Cartridge drives
. 1 3745 210
. 1 3827 IBM printer
. 1 6262 IBM Impact printer
. current model pool
. 6410 Leemah Remote Communications
Changes in usage of CUU's or DASD that vary from these levels by 10% or less
shall be considered to be within the Service Levels for hardware usage. For a
given month, changes in usage of CUU's or DASD that vary from these levels by
10% or more shall be considered to be outside the Service Levels, and the
parties shall adjust RRD's prorated portion of the Annual Fee for that month by
adjusting the Annual Fee according to the cost component for usage of CUU's or
DASD according to the formula set forth in Schedule D.
CRITICAL SERVICE LEVELS AND LIQUIDATED DAMAGES:
MM shall be liable to RRD for the damages and liquidated damages set
forth below if MM fails to meet the Critical Service Levels set forth below for
the following critical systems. The parties agree that MM shall not be liable
B-1
<PAGE>
to RRD for liquidated damages except as expressly provided for herein.
Sales Tax Processing: For each month, MM shall complete the sales tax
processing and deliver the applicable data at least five business days prior to
the fifteenth of the next month. If MM fails to meet this Critical Service
Level, RRD shall use reasonable commercial efforts to avoid incurring any tax
penalties, including making estimated tax payments. If MM's failure to meet
this Critical Service Level results in the assessment of a tax penalty against
RRD, MM shall reimburse RRD for the cost of such tax penalty, including
interest, if applicable. If MM fails to meet this Critical Service Level twice
in any twelve month period, MM shall pay RRD liquidated damages equal to one
twelfth of the then-current Annual Fee, regardless of whether MM's failure to
meet the Critical Service Level results in the assessment of any tax penalty.
Payroll Processing: MM shall complete the payroll processing for each business
day and provide the applicable data and materials to RRD by 8:00 a.m. on the due
date for such data and materials [VERIFY AGAINST ATTACHMENT A2]. If MM's
failure to meet the Critical Service Level for payroll processing results in the
imposition of a penalty on RRD pursuant to any collective bargaining agreement,
MM shall reimburse RRD for such penalty, including interest, if applicable. If
MM fails to meet the Critical Service Level for payroll processing twice in any
six month period, MM shall pay RRD liquidated damages equal to one twelfth of
the then-current Annual Fee, regardless of whether MM's failure to meet the
Critical Service Level results in the assessment of any penalty against RRD.
Payroll Tax Processing: MM shall complete the payroll tax processing for each
business day and provide the applicable data to RRD by 8 a.m. on the due date
for such data [VERIFY AGAINST ATTACHMENT A2]. If MM fails to meet this Critical
Service Level, RRD shall use reasonable commercial efforts to avoid incurring
any tax penalties, including making estimated tax payments. If MM's failure to
meet the Critical Service Level for payroll tax processing results in the
assessment of a tax penalty against RRD, MM shall reimburse RRD for the cost of
such tax penalty, including interest, if applicable. If MM fails to meet the
Critical Service Level for payroll tax processing twice in any six month period,
MM shall pay RRD liquidated damages equal to one twelfth of the then-current
Annual Fee, regardless of whether MM's failure to meet the Critical Service
Level results in the assessment of any tax penalty against RRD.
Processing of Purchase Orders/Accounts Payable: For each business day, MM shall
complete the processing for purchase
B-2
<PAGE>
orders and accounts payable by six a.m. the next business day [VERIFY AGAINST
ATTACHMENT A2]. If MM's failure to meet the Critical Service Level for
processing of purchase orders/accounts payable results in the payment of
interest or other late payment penalty by RRD to any its creditors, MM shall
reimburse RRD for the payment of such penalty. If MM fails to meet the Critical
Service Level for processing of purchase orders/accounts payable four times in
any six month period, MM shall pay RRD liquidated damages equal to one twelfth
of the then-current Annual Fee, regardless of whether MM's failure to meet the
Critical Service Level results in the assessment of any penalty against RRD.
Accounting/General Ledger: The Critical Service Level for accounting/general
ledger process is as follows: (a) for month-end processing, MM shall complete
the accounting/general ledger processing and provide to RRD the applicable data
by the fifth working day of the next month; and (b) for year-end processing, MM
shall complete the accounting/general ledger processing and provide to RRD the
applicable data by the last business day of the third week of December. If MM
fails to meet the Critical Service Level for ledger processing twice in any
twelve month period, MM shall pay RRD liquidated damages equal to one twelfth of
the then-current Annual Fee.
B-3
<PAGE>
SCHEDULE C
----------
OPERATIONS PLAN
MM shall employ the same organizational structure and operational plan
to provide the Services that was in effect immediately prior to the Effective
Date. A list of personnel who will provide the Services as of the Effective
Date is attached as Attachment C1.
C-1
<PAGE>
SCHEDULE D
----------
ADJUSTMENTS TO ANNUAL FEE
Each year during the Term, the Steering Committee shall meet to
determine adjustments to the Annual Fee in accordance with the terms of this
Schedule D and Attachment D1. Attachment D1 contains a list of certain of the
Services (the "Listed Services") and the cost components of the Annual Fee for
each of the Listed Services.
(1) Adjustments in Price Components. For each subsequent year, RRD
shall notify MM of any changes in its requirements for any of the Listed
Services. For each such change, the parties shall adjust on a pro rata basis
the cost on Attachment D1 for the applicable Listed Service based on the then-
current cost to MM to provide the applicable Listed Service. MM will use
commercially reasonable efforts to obtain the best commercial price for any
materials required to provide the Listed Services. Increases in MM's costs which
are due to capital improvements (e.g., the purchase of successor CPUs,
platforms, software, or other basic systems) which are not directly required in
order to provide the Services to RRD shall not be considered in determining MM's
"then-current cost" hereunder.
(2) Adjustment. The parties shall total the cost components on the
amended Attachment D1 and increase the result by 20 percent.
(3) Cost of Living Increase. The parties shall take the adjusted
total from step (2) above and increase it by the lower of (i) the published
increase in the Consumer Price Index during the prior 12 months measured at
September 30 of the current year; or (ii) 6 percent.
(4) Additional Services. If RRD requests any Additional Services for
any subsequent year, the parties shall negotiate in good faith through the
Steering Committee the price that MM shall charge RRD for such Additional
Services. Upon agreement of such price, the parties shall add the price to the
adjusted total from step (3) above. The resulting figure shall be the Annual
Fee for the subsequent year.
D-1
<PAGE>
DRAFT OF 6/10/96
----------------
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
--------------------------------------------
TAX ALLOCATION AND INDEMNIFICATION AGREEMENT dated as of June __, 1996
(this "Agreement") between R.R. Donnelley & Sons Company, a Delaware corporation
("RRD"), and Metromail Corporation, a Delaware corporation (the "Company").
W I T N E S E T H:
- - - - - - - - -
WHEREAS, RRD is the owner of all of the issued and outstanding capital
stock of the Company;
WHEREAS, RRD and the Company are members of an "affiliated group" (as
defined in Section 1504(a) of the Code) of which RRD is the common parent;
WHEREAS, as a result of the initial public offering of the Common Stock of
the Company pursuant to the Underwriting Agreement among the Company, Morgan
Stanley & Co. Incorporated and Lehman Brothers Inc. (the "Underwriting
Agreement"), it is expected that RRD and the Company will no longer be members
of an affiliated group; and
WHEREAS, RRD and the Company desire to set forth their rights and
obligations with respect to certain tax liabilities;
NOW, THEREFORE, in consideration of the agreements and mutual covenants
contained herein, the parties hereto agree as follows:
Section 1. Definitions. As used in this Agreement, the following terms
shall have the following meaning:
"Affiliate" shall mean, with respect to any entity, any other
individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust or unincorporated
organization which directly or indirectly controls, is controlled by or is
under common control with such entity.
"Balance Sheet" shall mean the audited balance sheet of the Company
and the Subsidiaries as of December 31, 1995, included in Amendment No. 4
to the Registration
<PAGE>
Statement on Form S-1 filed by the Company with the Securities and Exchange
Commission.
"Balance Sheet Date" shall mean December 31, 1995.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Combined Group" shall mean the "affiliated group" (as defined in
Section 1504(a) of the Code) of which RRD is the common parent and any
other group of corporations that, at any time on or before the Closing
Date, files or has filed Tax Returns on a combined, consolidated or unitary
basis with the Company or the Subsidiaries (other than such a group which
includes the Company and/or one or more of the Subsidiaries, but no other
corporation).
"Company Group Member" shall mean the Company and the Subsidiaries
(and, after the Closing Date, any Affiliate thereof) and their respective
successors and assigns.
"Closing Date" shall mean the date of the closing of the initial
public offering of the Common Stock of the Company pursuant to the
Underwriting Agreement.
"Domestic Income Tax" shall mean any United States federal, state or
local income or alternative or add-on minimum tax, together with any
interest or penalty related to such tax.
"Interim Period" shall mean any taxable period beginning the calendar
day after the Balance Sheet Date and ending on the Closing Date.
"RRD Group Member" shall mean RRD and any Affiliates of RRD (other
than the Company and the Subsidiaries) and their respective successors and
assigns.
"Subsidiaries" shall mean Customer Insight Company, Inc.,
International Communication & Data, Plc, R.R. Donnelley Marketing Services
Group Limited, ICD Marketing Services Limited, Lombard Information
Resources Incorporated and Mailing List Research of Canada, Ltd.
2
<PAGE>
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall
mean any federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, value added, transfer or excise
tax, or any other tax, custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority.
"Tax Package" has the meaning set forth in Section 3(c).
"Tax Return" shall mean any return, report or similar statement
required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
Section 2. Liability for Taxes. (a) RRD shall be liable for, and indemnify
each Company Group Member against, all (i) Taxes imposed on the Company or any
Subsidiary pursuant to Treas. Reg. (S) 1.1502-6 or similar provisions of state
and local law and (ii) Domestic Income Taxes imposed on the Company or any
Subsidiary, or for which the Company or any Subsidiary may otherwise be liable,
for any taxable year or period that ends on or before the Balance Sheet Date;
provided, however, that RRD shall not be liable for, and shall not indemnify any
Company Group Member against any Taxes shown as a liability or reserve on the
Balance Sheet. RRD shall be entitled to any refund of (or credit for) Domestic
Income Taxes attributable to RRD or any of its Affiliates (including the Company
and each of the Subsidiaries) allocable to any taxable year or period that ends
on or before the Balance Sheet Date (including, without limitation, the credit
under Section 41 of the Code for increasing research activities), and the
Company agrees to remit any such refund paid to it to RRD.
(b) The Company shall be liable for, and indemnify each RRD Group Member
against, all Taxes imposed on the Company or any Subsidiary, or for which the
Company or any Subsidiary may otherwise be liable (including, without
limitation, and Taxes shown as a liability or reserve on the Balance Sheet, all
foreign
3
<PAGE>
Taxes, Domestic Income Taxes and Taxes that are not income or alternative or
add-on minimum Taxes); provided, however, that the Company shall not be liable
for, and shall not indemnify any RRD Group Member against, any Taxes for which
RRD is expressly liable pursuant to Section 2(a) of this Agreement. Except as
provided in Section 2(a) or 2(d) of this Agreement, the Company shall be
entitled to any refund of (or credit for) Taxes attributable to the Company or
any Subsidiary for any taxable year or period.
(c) For purposes of Sections 2(a) and 2(b) of this Agreement, the
allocation of Domestic Income Taxes of a Combined Group to the Company and the
Subsidiaries for the taxable year or period ending on the Balance Sheet Date and
for the Interim Period shall be determined consistent with RRD's current tax
sharing arrangement.
(d) Notwithstanding Section 2(a) of this Agreement, if, as a result of any
action, suit, investigation, audit, claim, assessment or amended Tax Return,
there is any change after the Balance Sheet Date in an item of income, gain,
loss, deduction, credit or amount of Tax that results in an increase in a Tax
liability for which RRD would otherwise be liable pursuant to Section 2(a), and
such change results in a potential decrease (the "Decrease Amount") in the Tax
liability of the Company, any Subsidiary or any Affiliate thereof for any
taxable year or period beginning after the Balance Sheet Date, then RRD shall be
entitled to the full amount of such Decrease Amount (whether through (i) a
retention by RRD of any Tax refund, reduction in Taxes, Tax credit, or other
benefit equal to such Decrease Amount; (ii) a payment by the Company of an
amount equal to the Decrease Amount; (iii) an offset by RRD of amounts otherwise
payable by RRD to the Company; (iv) a combination of the foregoing; or (v) other
means). The Decrease Amount shall be determined by assuming that (i) the
Company, any Subsidiary or any Affiliate thereof is subject to Tax at the
highest marginal rate in effect for all affected taxing jurisdictions at the
time the Decrease Amount is determined, and (ii) the potential decrease in Tax
liability will be recognized by the Company, any Subsidiary or any Affiliate
thereof immediately.
(e) The Company shall pay, and shall indemnify RRD against, any real
property transfer or gains Tax, sales Tax, use
4
<PAGE>
Tax, stamp Tax, stock transfer Tax, or other similar Tax imposed on the
transactions contemplated by this Agreement.
Section 3. Tax Returns. (a) RRD shall file or cause to be filed when due
all Tax Returns of any Combined Group for taxable years or periods ending on or
before the Closing Date and shall remit or cause to be remitted any Taxes due in
respect of such Tax Returns. The Company shall file or cause to be filed when
due all Tax Returns that are required to be filed after the Closing Date by or
with respect to the Company and each Subsidiary (other than the Tax Returns of
any Combined Group) and shall remit or cause to be remitted any Taxes due in
respect of such Tax Returns (it being understood that the Company may cause such
Tax Returns to be filed and such Taxes to be remitted through RRD pursuant to
the Transition Services Agreement dated as of June __, 1996). RRD or the
Company shall pay the other party for the Taxes for which RRD or the Company,
respectively, is liable pursuant to Sections 2(a), 2(b), or 2(e) of this
Agreement but which are payable with any Tax Return to be filed by the other
party pursuant to this Section 3(a) upon the written request of the party
entitled to payment, setting forth in detail the computation of the amount owed
by RRD or the Company, as the case may be, but in no event earlier than 10 days
prior to the due date for the filing of such Tax Return. All Tax Returns which
the Company is required to file or cause to be filed in accordance with this
Section 3(a) shall be prepared and filed in a manner consistent with past
practice and, on such Tax Returns, no position shall be taken, elections made or
method adopted that is inconsistent with positions taken, elections made or
methods used in preparing and filing similar Tax Returns in prior periods.
(b) Neither the Company, any Subsidiary or, after the Closing Date, any
Affiliate thereof shall (or shall cause or permit the Company or any Subsidiary
to) amend, refile or otherwise modify any Domestic Income Tax Return relating in
whole or in part to the Company or any Subsidiary with respect to any taxable
year or period ending on or before the Balance Sheet Date without the prior
written consent of RRD, which consent may be withheld in the sole discretion of
RRD.
(c) The Company shall promptly cause the Company and each Subsidiary to
prepare and provide to RRD a package of Tax
5
<PAGE>
information materials, including, without limitation, schedules and work papers
(the "Tax Package") required by RRD to enable RRD to prepare and file all Tax
Returns required to be prepared and filed by it pursuant to Section 3(a). The
Tax Package shall be completed in accordance with past practice, including past
practice as to providing such information and as to the method of computation of
separate taxable income or other relevant measure of income of the Company. The
Company shall cause the Tax Package to be delivered to RRD within 60 days after
requested by RRD.
Section 4. Contest Provisions. RRD shall have the sole right to represent
the Company's and each Subsidiary's interests in any Domestic Income Tax audit
or administrative or court proceeding relating to taxable periods ending on or
before or including the Closing Date, and to employ counsel of its choice at its
expense. None of the Company or any of its Affiliates may settle any Tax claim
for any taxable year or period ending on or before the Balance Sheet Date which
may be the subject of indemnification by RRD under Section 2(a) of this
Agreement without the prior written consent of RRD, which consent may be
withheld in the sole discretion of RRD.
Section 5. Assistance and Cooperation. After the Closing Date, each of
RRD and the Company shall (and cause their respective Affiliates to):
(a) assist the other party in preparing any Tax Returns which such
other party is responsible for preparing and filing in accordance with
Section 3(a) of this Agreement;
(b) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of the Company and each
Subsidiary;
(c) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to
Taxes of the Company and each Subsidiary;
(d) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the
6
<PAGE>
Company and each Subsidiary for taxable periods for which the other may
have a liability under this Agreement;
(e) furnish the other with copies of all correspondence received from
any taxing authority in connection with any Tax audit or information
request with respect to any such taxable period; and
(f) timely sign and deliver such certificates or forms as may be
necessary or appropriate to establish an exemption from (or otherwise
reduce), or file Tax Returns or other reports with respect to, Taxes
described in Section 2(e) of this Agreement (relating to sales, transfer
and similar Taxes).
Section 6. General Provisions.
(a) Effectiveness. This Agreement will be effective from and after the
Closing Date.
(b) Entire Agreement; Binding Effect. This Agreement (i) constitutes the
entire agreement and supersedes all other agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by either party (by operation of law or
otherwise) without the prior written consent of the other party.
(c) Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable, the enforceability
of the remaining provisions hereof will not in any way be affected or impaired
thereby.
(d) Applicable Law. This Agreement shall be governed by and be construed
in accordance with the laws of the State of Illinois, without giving effect to
the principles thereof relating to conflicts of laws.
(e) Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, if
telecopied (only if confirmed), if sent by FedEx or other overnight courier or
delivery service or if mailed by registered or certified mail (postage prepaid,
7
<PAGE>
return receipt requested) to the parties at the following addresses or facsimile
numbers:
(a) If to RRD:
R.R. Donnelley & Sons Company
77 West Wacker Drive
Chicago, IL 60601
Facsimile No.: (312) 326-8708
Attention: Paul F. Grossman, Director
Federal & International Taxes
(b) If to the Company:
Metromail Corporation
360 E. 22nd Street
Lombard, IL 60614
Facsimile No.: (708) 889-5020
Attention: Ron Eidell, Chief Financial Officer
The address or facsimile number of a party, for the purposes of this Section
6(e), may be changed by giving written notice to the other party of such change
in the manner provided herein for giving notice. Unless and until such written
notice is received, the addresses and facsimile numbers provided herein shall be
deemed to continue in effect for all purposes hereunder.
(f) Amendment and Waiver. No amendment of any provision of this Agreement
shall in any event be effective, unless the same shall be in writing and signed
by the parties hereto. Any failure of any party to comply with any obligation,
agreement or condition hereunder may only be waived in writing by the other
party, but such waiver shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No failure by any party to take any
action against any breach of this Agreement or default by the other party shall
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action.
(g) Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and, subject to the Section 6(b)
hereof, their respective successors and assigns, and nothing in this Agreement,
express or
8
<PAGE>
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(i) Headings; Pronouns and Conjunctions. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Unless otherwise
indicated herein or the context otherwise requires, the singular shall include
the plural and the plural shall include the singular. The word "or" shall not be
deemed inclusive.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
R.R. DONNELLEY & SONS COMPANY
By:___________________________
Name:
Title:
METROMAIL CORPORATION
By:___________________________
Name:
Title:
9
<PAGE>
AMENDED AND RESTATED
METROMAIL CORPORATION
1996 STOCK INCENTIVE PLAN
APRIL 23, 1996
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon the
ownership or performance of the common stock of Metromail Corporation (the
"Company"), the Committee hereinafter designated, may grant cash or bonus
awards, stock options, or combi nations thereof, to eligible persons, on the
terms and subject to the conditions stated in the Plan. For purposes of the
Plan, references to employment by the Company also mean em ployment by a
majority-owned subsidiary of the Company and employment by any other en tity
designated by the Board or the Committee in which the Company has a direct or
indirect equity interest.
2. Eligibility. Officers and other key management employees of, agents of,
consultants to and advisors to, the Company, its subsidiaries, and any other
entity designated by the Board or the Committee in which the Company has a
direct or indirect equity interest, shall be eli gible, upon selection by the
Committee, to receive cash or bonus awards or stock options, either singly or in
combination, as the Committee, in its discretion, shall determine.
3. Limitation on Shares to be Issued. Subject to adjustment as provided in
Section 5 of this Article I, 1,600,000 million shares of common stock ("common
stock") shall be available under the Plan, reduced by (i) the aggregate number
of shares of common stock which become subject to outstanding stock options
under the terms of the Metromail Corporation 1996 Broad-Based Employee Stock
Plan, and (ii) the aggregate number of shares of common stock which become
subject to outstanding bonus awards and stock options under this Plan. Shares
subject to a grant or award under either the Metromail Corporation 1996 Broad-
Based Employee Stock Plan or this Plan which for any reason are not issued or
delivered, including by reason of the expiration, termination, cancellation or
forfeiture of all or a portion of the grant or award or by reason of the
delivery or withholding of shares to pay all or a portion of the exercise price
or to satisfy tax withholding obligations, shall again be available for future
grants and awards hereunder. For the purpose of complying with Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, the maximum number of shares of common stock with
respect to which options may be granted during any three-year period to any
person shall be 250,000, subject to adjustment as provided in Section 5 of this
Article I. The maximum number of shares of common stock with respect to which
fixed awards in the form of restricted stock may be granted hereunder is 200,000
in the aggregate, subject to adjustment as provided in Section 5 of this Article
I.
Shares of common stock to be issued may be authorized and unissued shares
of common stock, treasury stock or a combination thereof.
Page 1
<PAGE>
4. Administration of the Plan. The Plan shall be administered by a Committee
designated by the Board of Directors (the "Committee"). Each member of the
Committee shall be (i) an "outside director" within the meaning of Section
162(m) of the Code and (ii) if applicable, a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee shall, subject to the terms of the Plan, select
eligible persons for participation; determine the form of each grant and award,
either as cash, a bonus award or stock options or a combination thereof; and
determine the number of shares or units subject to the grant or award, the fair
market value of the common stock or units when necessary, the time and
conditions of vesting, exercise or settlement, and all other terms and
conditions of each grant and award, including, without limitation, the form of
instrument evidencing the grant or award. The Committee may establish rules and
regulations for the administration of the Plan, interpret the Plan, and impose,
incidental to a grant or award, conditions with respect to competitive
employment or other activities not inconsistent with the Plan. All such rules,
regulations, interpretations and conditions shall be conclusive and binding on
all parties. Each grant and award shall be evidenced by a written instrument
and no grant or award shall be valid until an agreement is executed by the
Company and the recipient thereof and, upon execution by each party and delivery
of the agreement to the Company, such grant or award shall be effective as of
the effective date set forth in the agreement.
The Committee may delegate some or all of its power and authority hereunder
to the Chairman or other executive officer of the Company as the Committee deems
appropriate; provided, however, that the Committee may not delegate its power
and authority with regard to (i) the selection for participation in the Plan of
(A) an employee who is a "covered employee" within the meaning of Section 162(m)
of the Code or who, in the Committee's judgment, is likely to be a covered
employee at any time during the period a grant or award hereunder to such
employee would be outstanding or (B) an officer or other person subject to
Section 16 of the Exchange Act or (ii) decisions concerning the timing, pricing
or amount of a grant or award to such an employee, officer or other person.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (ii) acts approved in
writing by a majority of the members of the Committee without a meeting.
5. Adjustments. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of common stock other than a regular cash
dividend, the number and class of securities available under the Plan, the
number and class of securities subject to each outstanding bonus award, the
number and class of securities subject to each outstanding stock option and the
purchase price per security shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding stock options without a
change in the aggregate purchase price. If any such adjustment would result in
a fractional security being (i) available under the Plan, such fractional
security shall be disregarded, or (ii) subject to an outstanding grant or award
Page 2
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under the Plan, the Company shall pay the holder thereof, in connection with the
first vesting, exercise or settlement of such grant or award in whole or in part
occurring after such adjustment, an amount in cash determined by multiplying (i)
the fraction of such security (rounded to the nearest hundredth) by (ii) the
excess, if any, of (A) the fair market value on the date of such vesting,
exercise or settlement over (B) the exercise price, if any, of such grant or
award.
6. Effective Date and Term of Plan. The Plan shall be submitted to the sole
stockholder of the Company for approval and, if approved, shall become effective
as of the closing date of the Company's initial public offering of common stock.
The Plan shall terminate when shares of common stock are no longer available
under the Plan unless terminated prior thereto by action of the Board. No
further grants or awards shall be made under the Plan after termination, but
termination shall not affect the rights of any participant under any grants or
awards made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect except that no amendment may be made without stockholder approval if
stockholder approval is required by applicable law, rule or regulation,
including Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, or
such amendment would increase (subject to Section 5 of this Article I) the
maximum number of shares available under the Plan. No amendment may impair the
rights of a holder of an outstanding grant or award without the consent of such
holder.
II. BONUS AWARDS
1. Form of Award. Bonus awards, whether performance awards or fixed awards,
may be made to eligible persons in the form of (i) cash, whether in an absolute
amount or as a percentage of compensation, (ii) stock units, each of which is
substantially the equivalent of a share of common stock but for the power to
vote and, subject to the Committee's discretion, the entitlement to an amount
equal to dividends or other distributions otherwise payable on a like number of
shares of common stock, (iii) shares of common stock issued to the eligible
person but forfeitable and with restrictions on transfer in any form as
hereinafter provided or (iv) any combination of the foregoing.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum dollar amount, percentage of compensation or number of units or shares,
with the actual such amount, percentage or number to be determined by reference
to the level of achievement of corporate, sector, business unit, division,
individual or other specific objectives over a performance period of not less
than one nor more than ten years, as determined by the Committee. No rights or
interests of any kind shall be vested in an individual receiving a performance
award until the conclusion of the performance period and the determination of
the level of achievement specified in the award, and the time of vesting, if
any, thereafter shall be as specified in the award.
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3. Fixed Awards. Awards may be made which are not contingent on the
achievement of specific objectives, but are contingent on the participant's
continuing in the Company's employ for a period specified in the award.
4. Rights with Respect to Restricted Shares. If shares of restricted common
stock are subject to an award, the participant shall have the right, unless and
until such award is forfeited or unless otherwise determined by the Committee at
the time of grant, to vote the shares and to receive dividends thereon from the
date of grant and the right to participate in any capital adjustment applicable
to all holders of common stock; provided, however, that a distribution with
respect to shares of common stock, other than a regular quarterly cash dividend,
shall be deposited with the Company and shall be subject to the same
restrictions as the shares of common stock with respect to which such
distribution was made.
During the restriction period, a certificate or certificates representing
restricted shares shall be registered in the holder's name and may bear a
legend, in addition to any legend which may be required under applicable laws,
rules or regulations, indicating that the ownership of the shares of common
stock represented by such certificate is subject to the restrictions, terms and
conditions of the Plan and the agreement relating to the restricted shares. All
such certificates shall be deposited with the Company, together with stock
powers or other instruments of assignment (including a power of attorney), each
endorsed in blank with a guarantee of signature if deemed necessary or
appropriate, which would permit transfer to the Company of all or a portion of
the shares of common stock subject to the award in the event such award is
forfeited in whole or in part. Upon termination of any applicable restriction
period, including, if applicable, the satisfaction or achievement of applicable
objectives, and subject to the Company's right to require payment of any taxes,
a certificate or certificates evidencing ownership of the requisite number of
shares of common stock shall be delivered to the holder of such award.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, then, subject to the Committee's discretion,
amounts equal to dividends and other distributions otherwise payable on a like
number of shares of common stock after the crediting of the units (unless the
record date for such dividends or other distributions precedes the date of grant
of such award) shall be credited to an account for the participant and held
until the award is forfeited or paid out. Interest shall be credited on the
account annually at a rate equal to the return on five year U.S. Treasury
obligations.
6. Vesting and Resultant Events. The Committee may, in its discretion, provide
for early vesting of an award in the event of the participant's death, permanent
and total disability or retirement. At the time of vesting, (i) the award, if
in units, shall be paid to the participant either in shares of common stock
equal to the number of units, in cash equal to the fair market value of such
shares, or in such combination thereof as the Committee shall determine, and the
participant's account to which dividend equivalents, other distributions and
interest have been credited shall be paid in cash, (ii) the award, if a cash
bonus award, shall be paid to the participant either in cash, or in shares of
common stock with a then fair market value equal to the amount of such award, or
in such combination thereof as the
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Committee shall determine and (iii) shares of restricted common stock issued
pursuant to an award shall be released from the restrictions.
III. STOCK OPTIONS
1. Grants of Options. Options to purchase shares of common stock may be
granted to such eligible persons as may be selected by the Committee. These
options may, but need not, constitute "incentive stock options" under Section
422 of the Code or any other form of option under the Code. To the extent that
the aggregate fair market value (determined as of the date of grant) of shares
of common stock with respect to which options designated as incentive stock
options are exercisable for the first time by a participant during any calendar
year (under the Plan or any other plan of the Company, or any parent or
subsidiary) exceeds the amount (currently $100,000) established by the Code,
such options shall not constitute incentive stock options.
2. Number of Shares and Purchase Price. The number of shares of common stock
subject to an option and the purchase price per share of common stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of common stock shall not
be less than 100% of the fair market value of a share of common stock on the
date of grant of the option; provided further, that if an incentive stock option
shall be granted to any person who, on the date of grant of such option, owns
capital stock possessing more than ten percent of the total combined voting
power of all classes of capital stock of the Company (or of any parent or
subsidiary) (a "Ten Percent Holder"), the purchase price per share of common
stock shall be the price (currently 110% of fair market value) required by the
Code in order to constitute an incentive stock option.
3. Exercise of Options. The period during which options granted hereunder may
be exercised shall be determined by the Committee; provided, however, that no
incentive stock option shall be exercised later than ten years after its date of
grant; provided further, that if an incentive stock option shall be granted to a
Ten Percent Holder, such option shall not be exercisable more than five years
after its date of grant. The Committee may, in its discretion, establish
performance measures which shall be satisfied or met as a condition to the grant
of an option or to the exercisability of all or a portion of an option. The
Committee shall determine whether an option shall become exercisable in
cumulative or non-cumulative installments and in part or in full at any time.
An exercisable option, or portion thereof, may be exercised only with respect to
whole shares of common stock.
An option may be exercised (i) by giving written notice to the Company
specifying the number of whole shares of common stock to be purchased and
accompanied by payment therefor in full (or arrangement made for such payment to
the Company's satisfaction) either (A) in cash, (B) in previously owned whole
shares of common stock (which the optionee has held for at least six months
prior to delivery of such shares or which the optionee purchased on the open
market and for which the optionee has good title free and clear of all liens and
encumbrances) having a fair market value, determined as of the date of exercise,
equal to the aggregate purchase price payable by reason of such exercise, (C) in
cash by a broker-dealer
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acceptable to the Company to whom the optionee has submitted an irrevocable
notice of exercise or (D) a combination of (A) and (B) and (ii) by executing
such documents as the Company may reasonably request. The Committee shall have
sole discretion to disapprove of an election pursuant to any of clauses (B)-(D)
and, in the case of an optionee who is subject to Section 16 of the Exchange
Act, the Company may require that the method of making such payment be in
compliance with Section 16 and the rules and regulations thereunder. Any
fraction of a share of common stock which would be required to pay such purchase
price shall be disregarded and the remaining amount due shall be paid in cash by
the optionee. No certificate representing common stock shall be delivered until
the full purchase price therefor has been paid.
4. Termination of Employment or Service. An option may be exercised during the
optionee's continued employment with the Company or during the optionee's
continued provision of services to the Company, and, unless otherwise determined
by the Committee as set forth in the agreement relating to the option, for a
period not in excess of ninety days following termination of employment or the
provision of services, as the case may be, and only within the original term of
the option; provided, however, that if employment of the optionee by the Company
or the provision of services by the optionee to the Company shall have
terminated by reason of retirement or total and permanent disability, then the
option may be exercised to the extent set forth in the agreement relating to the
option for a period not in excess of five years following termination of
employment or the provision of services, but not after the expiration of the
term of the option. In the event of the death of an optionee (i) during
employment or the term in which services are being provided, (ii) within a
period not in excess of five years after termination of employment or the term
in which services are being provided by reason of retirement or total and
permanent disability or (iii) within ninety days after termination of employment
or the term in which services are being provided for any other reason,
outstanding options held by such optionee at the time of death may be exercised
to the extent set forth in the agreement relating to the option by the executor,
administrator, personal representative, beneficiary or similar persons of such
deceased optionee within ninety days of the date of death.
IV. OTHER
1. Non-Transferability of Options. No option shall be transferable other than
(i) by will, the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company or (ii) as otherwise permitted
under Rule 16b-3 under the Exchange Act as determined by the Committee and set
forth in the agreement relating to such option. Each option may be exercised
during the participant's lifetime only by the participant or the participant's
guardian, legal representative or similar person. Except as permitted by the
second preceding sentence, no option may be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by operation
of law or otherwise) or be subject to execution, attachment or similar process.
Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of any option, such award and all rights thereunder shall
immediately become null and void.
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2. Tax Withholding. The Company shall have the right to require, prior to the
issuance or delivery of any shares of common stock or the payment of any cash
pursuant to a grant or award hereunder, payment by the holder thereof of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection therewith. An agreement may provide that (i) the Company
shall withhold whole shares of common stock which would otherwise be delivered
to a holder, having an aggregate fair market value determined as of the date the
obligation to withhold or pay taxes arises in connection therewith (the "Tax
Date"), or withhold an amount of cash which would otherwise be payable to a
holder, in the amount necessary to satisfy any such obligation or (ii) the
holder may satisfy any such obligation by any of the following means: (A) a
cash payment to the Company, (B) delivery to the Company of previously owned
whole shares of common stock (which the holder has held for at least six months
prior to the delivery of such shares or which the holder purchased on the open
market and for which the holder has good title, free and clear of all liens and
encumbrances) having an aggregate fair market value determined as of the Tax
Date, (C) authorizing the Company to withhold whole shares of common stock which
would otherwise be delivered having an aggregate fair market value determined as
of the Tax Date or withhold an amount of cash which would otherwise be payable
to a holder, (D) in the case of the exercise of an option, a cash payment by a
broker-dealer acceptable to the Company to whom the optionee has submitted an
irrevocable notice of exercise or (E) any combination of (A), (B) and (C);
provided, however, that the Committee shall have sole discretion to disapprove
of an election pursuant to any of clauses (B)-(E) and that in the case of a
holder who is subject to Section 16 of the Exchange Act, the Company may require
that the method of satisfying such an obligation be in compliance with Section
16 and the rules and regulations thereunder. An agreement relating to a grant
or award hereunder may provide for shares of common stock to be delivered or
withheld having an aggregate fair market value in excess of the minimum amount
required to be withheld, but not in excess of the amount determined by applying
the holder's maximum marginal tax rates. Any fraction of a share of common
stock which would be required to satisfy such an obligation shall be disregarded
and the remaining amount due shall be paid in cash by the holder.
3. Acceleration Upon Change in Control. If while any performance award or
fixed award granted under Article II or any stock option granted under Article
III is outstanding --
(a) any "person," as such term is defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but
not including (i) the Company or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company) (hereinafter a "Person") is or becomes the beneficial
owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates, excluding an acquisition resulting from the
exercise of a conversion or exchange privilege in respect of outstanding
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convertible or exchangeable securities) representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(b) during any period of twenty-four (24) consecutive months (not
including any period prior to the effective date of the Plan), individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered into
any agreement with the Company to effect a transaction described in Clause
(a), (c) or (d) of this Section) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no Person acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets,
(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), (i) with respect to such performance awards, the highest
level of achievement specified in the award shall be deemed met and the award
shall be immediately and fully vested, (ii) with respect to such fixed awards,
the period of continued employment or provision of services, as the case may be,
specified in the award upon which the award is contingent shall be deemed
completed and the award shall be immediately and fully vested and (iii) with
respect to such options, all such options, whether or not then exercisable in
whole or in part, shall be fully and immediately exercisable.
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4. Restrictions on Shares. Each grant and award made hereunder shall be
subject to the requirement that if at any time the Company determines that the
listing, registration or qualification of the shares of common stock subject
thereto upon any securities exchange or under any law, or the consent or
approval of any governmental body, or the taking of any other action is
necessary or desirable as a condition of, or in connection with, the delivery of
shares thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of common stock
delivered pursuant to any grant or award made hereunder bear a legend indicating
that the sale, transfer or other disposition thereof by the holder is prohibited
except in compliance with the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
5. No Right of Participation or Employment. No person shall have any right to
participate in the Plan. Neither the Plan nor any grant or award made hereunder
shall confer upon any person any right to continued employment or engagement for
services by the Company, any subsidiary or any affiliate of the Company or
affect in any manner the right of the Company, any subsidiary or any affiliate
of the Company to terminate the employment or engagement for services of any
person at any time without liability hereunder.
6. Rights as Stockholder. No person shall have any right as a stockholder of
the Company with respect to any shares of common stock or other equity security
of the Company which is subject to a grant or award hereunder unless and until
such person becomes a stockholder of record with respect to such shares of
common stock or equity security.
7. Governing Law. The Plan, each grant and award hereunder and the related
agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of Delaware and construed in
accordance therewith without giving effect to principles of conflicts of laws.
8. Approval of Plan. The Plan and all grants and awards made hereunder shall
be null and void if the adoption of the Plan is not approved by the sole
stockholder of the Company.
9. Foreign Eligible Persons. Without amending this Plan, the Committee may
grant options to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of
this Plan and, in furtherance of such purposes the Committee may make such
modifications, amendments, procedures, subplans and the like as may be necessary
or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its subsidiaries operates or has
employees, agents, consultants or advisors.
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RULES OF UK SUB-PLAN OF METROMAIL CORPORATION
---------------------------------------------
1996 STOCK INCENTIVE PLAN
-------------------------
1. Adoption of the UK Sub-Plan
---------------------------
Metromail Corporation ("the Company") has established this UK Sub-Plan ("the UK
Sub-Plan") of the Amended and Restated Metromail Corporation 1996 Stock
Incentive Plan for the purpose of granting rights to acquire shares of common
stock of the Company ("Options") to employees of it and its subsidiaries in the
United Kingdom. The UK Sub-Plan is intended to qualify as an approved share
option plan under Schedule 9 to the Income and Corporation Taxes Act 1988. The
UK Sub-Plan shall not permit the grant of cash or bonus awards or combinations
of Options and cash or bonus awards.
2. The US Plan
-----------
The US Plan attached as an Appendix to these Rules shall apply to the UK Sub-
Plan subject to the additional restrictions and amendments specified below.
References to Schedule 9 are to Schedule 9 to the Income and Corporation Taxes
Act 1988.
3. Shares
------
The shares of common stock of Metromail Corporation ("the Company") in respect
of which Options may be granted under the UK Sub-Plan must satisfy the
conditions specified in paragraphs 10 to 14 inclusive of Schedule 9 both at the
time of grant and at the time of exercise.
4. Market Value
------------
For all purposes of the UK Sub-Plan, the Market Value of shares of common stock
of the Company shall be on any day the market value of a share determined in
accordance with the provisions of Part VIII of the Taxation of Charitable Gains
Act 1992 and agreed for purposes of the UK Sub-Plan with the Inland Revenue
Shares Valuation Division on or before that day.
5. Eligibility
-----------
5.1. The description of eligible persons in Section 2 of Article I of the US
Plan shall not include agents, consultants or advisors for purposes of the
UK Sub-Plan; nor shall it include any person who is precluded by paragraph
8 of Schedule 9
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from participating in a UK Revenue approved share scheme. In addition an
eligible person who is a director must be required to devote to his duties
at least 25 hours per week excluding meal breaks.
5.2. The subsidiaries of the Company and other entities referred to in Section
2 of Article I of the US Plan shall include, for purposes of the UK Sub-
Plan, only those companies of which the Company has control within the
meaning of Section 840 of the Income and Corporation Taxes Act 1988 and
which are affiliates controlled by the Company directly or indirectly
through one or more intermediaries for the purposes of Rule 12b-2 of the
US Exchange Act.
5.3. The grant of Options under the UK Sub-Plan shall be subject to the
restriction that no Option shall be granted to an individual under the UK
Sub-Plan or any other UK Revenue approved share option plan operated by
the Company (not being a UK Revenue approved savings related share option
plan) if immediately following such grant the individual would hold
Options with an aggregate Market Value in excess of (Pounds)30,000,
determined on the basis of the Market Value of shares of common stock of
the Company at the date(s) of grant of the relevant Options.
6. Conditions
----------
No conditions may be imposed by the Committee pursuant to the third sentence in
Section 4 of Article I of the US Plan to the extent that they affect the UK Sub-
Plan without the prior approval of the Board of Inland Revenue. If such
conditions involve the satisfaction of performance criteria, those criteria must
be of an objective nature.
7. Adjustments Upon Changes in Capitalisation
------------------------------------------
7.1. The provisions of Section 5 of Article I of the US Plan concerning the
adjustment of Options shall be subject to the requirement that all such
adjustments must be certified in writing by the Company's auditors for the
time being as being fair and reasonable and that no adjustment in respect
of subsisting Options or of Options to be granted in future under the UK
Sub-Plan shall take effect without the prior approval of the Board of
Inland Revenue.
7.2. No adjustment may be made under the UK Sub-Plan pursuant to Section 5 of
Article I of the US Plan in relation to a spin-off, stock dividend,
merger, combination, exchange of shares, liquidation or other similar
changes in capitalisation and class of securities.
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7.3. The provision in part (ii) of the last sentence of Section 5 of Article I
of the US Plan for the Company to make cash payments to Option holders in
respect of fractional securities shall not apply under the UK Sub-Plan.
8. Exclusion
---------
Article II of the US Plan relating to Bonus Awards shall not apply to the UK
Sub-Plan.
9. Grant of Options
----------------
For purposes of Section 2 of Article III of the US Plan the purchase price per
share upon exercise of an Option shall not be less than the Market Value (as
defined in Rule 4 above) of a share on the date of grant.
10. Exercise of Options
-------------------
10.1. The provisions of Sections 3 and 4 of Article III of the US Plan relating
to the exercise of Options shall be subject to the additional restriction
that no Option may be exercised by an Option holder at any time when he
is precluded by paragraph 8 of Schedule 9 from participating in the UK
Sub-Plan.
10.2. The provisions in parts (B), (C) and (D) of Section 3 of Article III of
the US Plan for an Option holder to pay the option price in previously
owned whole shares of common stock or by selling shares of common stock
through a broker dealer or in a combination of cash and previously owned
whole shares of common stock will not apply for purposes of the UK Sub-
Plan.
10.3. No cash payments may be made to Option holders in respect of fractions of
shares (or otherwise) pursuant to the second last sentence of Section 3
of Article III of the US Plan.
10.4. Shares must be allotted within 30 days after the date of exercise.
10.5. Shares acquired on the exercise of Options shall, except for any rights
determined by reference to a date preceding the date of allotment, rank
pari passu with other shares of the same class in issue at the date of
allotment.
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<PAGE>
11. Non-Transferability of Options
------------------------------
The provisions in Section 1 of Article IV of the US Plan for Options to be
transferable as otherwise permitted under Rule 16b-3 of the Exchange Act and for
options to be exercised during an Option holder's lifetime by the Option
holder's guardian, legal representative or similar person shall not apply to
Options granted under the UK Sub-Plan.
12. Amendment of the Plan
---------------------
Any amendment of the US Plan or the UK Sub-Plan which is made under the
provisions of Section 7 of Article I or Section 9 of Article IV of the US Plan
and which affects the UK Sub-Plan shall only take effect in respect of the UK
Sub-Plan with the prior approval of the Board of Inland Revenue.
13. Release of Options on Change of Control
---------------------------------------
13.1. In the event of any company ("the Acquiring Company") obtaining control
of the Company as a result of making a general offer to acquire the whole
of the issued ordinary share capital of the Company which is made on a
condition such that if it is satisfied the person making the offer will
have control of the Company, or to acquire all the shares in the Company
which are of the same class as the shares subject to a subsisting Option
granted under the UK Sub-Plan ("the Old Option"), the Option holder (or
the Company on behalf of the Option holder) may seek the agreement of the
Acquiring Company and, if such agreement is obtained, the Option holder
may release the Old Option in consideration of the grant of a new option
("the New Option") which satisfies the following conditions:
13.1.1. it is over shares in the Acquiring Company or in a company which has
control of the Acquiring Company which satisfy the conditions specified
in paragraph 10 to 14 inclusive of Schedule 9 to the Income and
Corporation Taxes Act 1988;
13.1.2. is a right to acquire such number of such shares as has on acquisition
of the New Option an aggregate Market Value equal to the aggregate
Market Value of the shares subject to the Old Option on its disposal;
13.1.3. has an option price per share such that the aggregate price payable on
complete exercise equals the aggregate price which would have been
payable on complete exercise of the Old Option; and
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13.1.4. is otherwise identical in terms to the Old Option.
13.2. The New Option shall, for all other purposes of the UK Sub-Plan, be
treated as having been acquired at the same time as the Old Option which
is released in consideration for the grant of the New Option.
13.3. Where any New Option is granted pursuant to this Rule 13, the provisions
of the UK Sub-Plan shall, in relation to the New Option, be construed as
if references to the Company and the shares were references to the
Acquiring Company or, as the case may be, to the other company whose
shares the New Option relates and to the shares in that other company.
13.4. The release of the Old Option and the grant of a New Option under this
Rule 13 will take place within the period of six months beginning with
the time when the person making the offer has obtained control of the
Company and any conditions subject to which the offer is made are
satisfied.
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METROMAIL CORPORATION
1996 BROAD-BASED EMPLOYEE STOCK PLAN
(as adopted June 7, 1996)
1. Plan. The purpose of this Metromail Corporation 1996 Broad-Based Employee
Stock Plan (the "Plan") is to provide incentives to employees through rewards
based upon the ownership and performance of the common stock of Metromail
Corporation (the "Company"). The Committee hereinafter designated shall grant
options to purchase shares of common stock, par value $.01 per share, of the
Company (the "Common Stock") to eligible employees on the terms and subject to
the conditions stated in the Plan.
2. Eligibility. All employees of the Company and all of its direct or indirect
wholly-owned subsidiaries (the "Employers") shall be granted options under the
Plan in accordance with Section 8; provided, however, officers of United States
Employers and managing directors of United Kingdom Employers shall not be
eligible to be granted options under the Plan; provided, further, that an
otherwise eligible employee whose terms and conditions of employment are covered
by a collective bargaining agreement shall be eligible to receive options under
the Plan only if expressly provided for in a collective bargaining agreement or
supplemental letter of understanding signed by such employee's Employer and the
recognized representative of the collective bargaining unit in which the
employee is a member; provided further, that the preceding proviso shall not
apply to employees who are not subject to the United States labor laws. An
employee granted an option pursuant to the Plan shall be referred to herein from
time to time as an "Optionee".
3. Limitation on Shares Available. Subject to adjustment as provided in Section
5, the maximum number of shares of Common Stock available for all grants made
under the Plan shall be the number determined by multiplying fifty (50) times
the number of employees who are granted options pursuant to Section 8. Shares
of Common Stock subject to an option granted hereunder which for any reason are
not issued or delivered, including by reason of the expiration, termination,
cancellation or forfeiture of all or a portion such option, shall be available
for future grants or awards under the Amended and Restated Metromail Corporation
1996 Stock Incentive Plan as provided therein..
Shares of Common Stock to be delivered may be authorized and unissued
shares of Common Stock, treasury stock or a combination thereof. The Company
reserves the right to purchase shares of Common Stock for the Plan in the open
market.
4. Administration of the Plan. The Plan shall be administered by a committee
(the "Committee") designated by the Board of Directors of the Company (the
"Board"). The Committee may establish rules and regulations for the
administration of the Plan and shall interpret the Plan. All such rules,
regulations and interpretations shall be conclusive and binding on all parties.
The Committee may delegate its authority to interpret all or part of the Plan to
designated officers of the Company.
<PAGE>
5. Adjustments. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of common stock other than a regular cash
dividend, the number and class of securities available under the Plan, the
number and class of securities subject to each outstanding stock option and the
purchase price per security shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding stock options without a
change in the aggregate purchase price. If any such adjustment would result in
a fractional security being (i) available under the Plan, such fractional
security shall be disregarded, or (ii) subject to an outstanding stock option
under the Plan, the Company shall pay the holder thereof, in connection with the
exercise of such stock option, an amount in cash determined by multiplying (i)
the fraction of such security (rounded to the nearest hundredth) by (ii) the
excess, if any, of (A) the fair market value on the date of such exercise over
(B) the exercise price, if any, of such stock option.
6. Effective Date and Term of Plan. The Plan shall be submitted to the sole
stockholder of the Company for approval and, if approved, shall become effective
as of the closing date of the Company's initial public offering of Common Stock
(the "Closing Date"). The Plan shall terminate on the first day after the
Closing Date on which no stock options granted under the Plan are outstanding.
7. Amendments. The Plan may be amended or terminated by the Board in any
respect and at any time, provided that such action shall not adversely affect
any rights or obligations with respect to any outstanding grants under the Plan.
8. Grants. (a) Options to purchase 50 shares of Common Stock shall be granted
on the Closing Date to eligible employees employed on such date; provided,
however, that employees who, as of the Closing Date, are members of a collective
bargaining unit shall be deemed eligible employees for purposes of this
paragraph 8(a) only if a collective bargaining agreement or supplemental letter
of understanding providing for the receipt of such options by such employees was
fully executed by such employee's Employer and the recognized representative of
the collective bargaining unit prior to May 1, 1996.
(b) The option price per share of Common Stock purchasable upon the
exercise of any option granted pursuant to the Plan shall equal the initial
public offering price per share of Common Stock.
(d) All options granted hereunder shall be evidenced by a certificate
substantially in the form of Exhibit A hereto. Each certificate shall be dated
and signed, including by facsimile signature, by an officer of the Company as of
the date of the grant.
9. Terms of Options. (a) All options granted under the Plan shall become
exercisable in full on the date of the third anniversary of the Closing Date.
Each option shall expire on the date of the
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<PAGE>
tenth anniversary of the Closing Date. No option shall be exercisable after the
date of the tenth anniversary of the Closing Date. Notwithstanding the
foregoing, if an Optionee is no longer employed by at least one Employer for any
reason (including due to death or long-term disability but excluding due to
termination of employment upon retirement at normal retirement age or early
retirement at or after age 55 with the consent of the Company), any option held
by such Optionee which is not exercisable on the date of termination of
employment shall terminate automatically on such date. After an option held by
an Optionee has become exercisable, if such Optionee is no longer employed by at
least one Employer for any reason (including due to death or long-term
disability but excluding due to termination of employment upon retirement at
normal retirement age or early retirement at or after age 55 with the consent of
the Company or for any of the reasons specified in Section 9(c)), then such
Optionee (or in the case of death, such Optionee's executor, administrator,
personal representative, beneficiary or similar person) may exercise such option
until the ninetieth (90th) day after the date of such termination of employment
and/or the date of death, as the case may be, but not after the expiration of
the term of the option. Any option held by an Optionee who retires at normal
retirement age or who takes early retirement at or after age 55 with the consent
of the Company, regardless of whether such option is exercisable on the date of
retirement, shall not terminate as a result of such retirement but shall
continue to remain outstanding and subject to the terms and conditions of the
Plan, including Section 9(b); provided, however, that in the event that such
Optionee dies, any option held by such Optionee which is not exercisable on the
date of death of such Optionee shall terminate automatically upon the death of
such Optionee.
(b) No option hereunder shall be transferable other than by will, the laws
of descent and distribution or pursuant to the beneficiary designation
procedures approved by the Committee. Each option shall be exercisable during
the Optionee's lifetime only by the Optionee or the Optionee's guardian, legal
representative or similar person, provided that evidence of such person's
identity and rights with respect to such exercise are acceptable to the
Committee. Except as permitted by the first sentence of this Section 9(b), no
option hereunder shall be sold, transferred, assigned, pledged, hypothecated,
encumbered or otherwise disposed of (whether by operation of law or otherwise)
or be subject to execution, attachment or similar process. Any such attempt to
so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of
any option hereunder shall be null and void and no person shall be entitled to
any rights hereunder by virtue of any attempted execution, attachment or similar
process.
In the event of the death of an Optionee, any unexercised portion of an
option that, but for the death of the Optionee, would have been exercisable on
the date of such Optionee's death by such Optionee may be exercised by the
executor, administrator, personal representative, beneficiary or similar person
of such deceased Optionee until the ninetieth (90th) day after the date of
death, but not after the expiration of the term of the option, provided that
evidence of such person's identity and rights with respect to such exercise are
acceptable to the Committee.
(c) Notwithstanding anything contained herein to the contrary, in the event
the Committee shall determine that an Optionee's employment with an Employer was
terminated by
-3-
<PAGE>
reason of (i) an unauthorized disclosure of confidential information or trade
secrets of any Employer, (ii) unlawful trading in the securities of the Company
or any customers of any Employer, or (iii) fraud, theft or embezzlement with
respect to any Employer or any breach of the Optionee's duties to the Optionee's
Employer or any other Employer, then such Optionee shall forfeit all rights to
any option held by the Optionee under the Plan, and any such option shall
automatically terminate.
(d) Options must be exercised in full. No partial exercise is permitted.
No shares of Common Stock may be purchased under any option granted under the
Plan unless prior to or simultaneously with the purchase, the Optionee shall
have delivered by such means as have been identified by the Committee notice to
the Company, accompanied by payment therefor in full of the option price, any
brokerage fees associated with the exercise of the options (the "Brokerage
Fees"), and any local, state, federal or other taxes required to be withheld and
paid over to governmental taxing authorities by the Company due to such exercise
("Taxes") (or arrangement made for such payment to the satisfaction of the
Company). Upon exercise, the option price, the Brokerage Fees and the Taxes may
be paid according to procedures established by the Committee as follows: (i) in
cash or (ii) by electing to sell, through an agent or broker designated by the
Company, whole shares of Common Stock issuable upon exercise of the option
having a fair market value determined on the date of exercise as close as is
practicable to the sum of (A) the option price for shares of Common Stock
subject to such exercise, (B) the Brokerage Fees associated with such exercise
and (C) the Taxes associated with such exercise, provided that the number of
whole shares sold shall be sufficient to pay in full the option price, the
Brokerage Fees and the Taxes. No option may be exercised by an Optionee through
any agent or broker other than an agent or broker designated by the Company.
Notwithstanding the foregoing, in the event that an Optionee has notified the
Company through a Company-maintained electronic system that such Optionee is
exercising an option and is paying cash for the option price and the Taxes and
such cash is not received within 30 calendar days following such notice, then
the Company may automatically order the sale, through the designated agent or
broker, of whole shares of Common Stock to pay in full the option price, the
Brokerage Fees and the Taxes and deliver any whole shares of Common Stock not so
applied to the Optionee, plus any cash owed in lieu of fractional shares. The
Committee shall have sole discretion to disapprove of an election pursuant to
clause (ii). No shares of Common Stock shall be delivered to the Optionee until
the full option price, the Brokerage Fees and the Taxes have been paid.
Optionees shall be required to receive all shares acquired under an option in
the form of stock certificates; cash shall not be paid to an Optionee in lieu of
the delivery of stock certificates upon the exercise of any option, except to
the extent necessary to compensate for fractional shares.
(e) Optionees shall be entitled to the privilege of ownership with respect
to shares of Common Stock subject to options granted hereunder only as to shares
of Common Stock purchased and delivered to an Optionee upon exercise of an
option.
-4-
<PAGE>
10. Miscellaneous.
(a) Effect of Leaves of Absence. Leaves of absence for periods and
purposes conforming to the personnel policies of the Company and approved by the
Employer shall not be deemed terminations of employment or interruptions of
continuous service.
(b) Restrictions on Shares. Notwithstanding any provision of the Plan to
the contrary, unless a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), is in effect as to the shares purchasable
under any option granted under the Plan, no shares of Common Stock may be
purchased under such option. In addition, notwithstanding any provision of this
Plan to the contrary, any option granted under the Plan is subject to the
condition that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
option upon any securities exchange or under any law, the consent or approval of
any regulatory body, or the taking of any other action is necessary or desirable
as a condition of, or in connection with, the delivery of the shares thereunder,
such shares shall not be delivered unless such listing, registration,
qualification, consent, approval or other action shall have been effected or
obtained, free of any conditions not acceptable to the Company.
(c) No Right to Employment. Neither the Plan nor the grant of options
hereunder shall be construed as giving any employee any right to be retained in
the employ of any Employer.
(d) Governing Law. The Plan shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
(e) Nature of Option. The options granted under the Plan shall not be
treated as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
11. Acceleration of Options Upon a Change in Control. If while any option
remains unexercised and outstanding under the Plan:
(a) any "person," as such term is defined in Section 3(a)(9) of the
Exchange Act, as modified and used in Section 13(d) and 14(d) thereof (but
not including (i) the Company or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company) (hereinafter a "Person") is or becomes the beneficial
owner, as defined in Rule 13d-3 of the Exchange Act, directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from the
Company or its affiliates, excluding an acquisition resulting from the
exercise of a conversion or exchange privilege in respect of outstanding
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<PAGE>
convertible or exchangeable securities) representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(b) during any period of twenty-four (24) consecutive months (not
including any period prior to the effective date of the Plan), individuals
who at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has entered into
any agreement with the Company to effect a transaction described in Clause
(a), (c) or (d) of this Section) whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(c) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, at least 50% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no Person acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets,
(any of such events being hereinafter referred to as a "Change in Control"),
then from and after the date on which public announcement of the acquisition of
such percentage shall have been made, or the date on which the change in the
composition of the Board set forth above shall have occurred, or the date of any
such stockholder approval of a merger, consolidation, plan of complete
liquidation or an agreement for the sale of the Company's assets as described
above occurs (the applicable date being hereinafter referred to as the
"Acceleration Date"), all such outstanding and unexercised options, whether or
not then exercisable, shall be fully and immediately exercisable.
12. Foreign Employees. Without amending this Plan, the Committee may grant
options to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of this Plan and, in furtherance of such purposes the
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<PAGE>
Committee may make such modifications, amendments, procedures, subplans and the
like as may be necessary or advisable to comply with provisions of laws in other
countries or jurisdictions in which the Company or its Subsidiaries operates or
has employees.
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<PAGE>
Exhibit A
Metromail Corporation
1996 Broad-Based Employee Stock Plan
This is to certify that
(OPTIONEE NAME)
was granted on (CLOSING DATE OF IPO), an option to purchase
Fifty (50)
SHARES
of Metromail Corporation common stock at a fixed
option price of (IPO PRICE) per share. This option is subject to the
terms and conditions of the Metromail Corporation 1996 Broad-Based
Stock Plan.
This certificate has been
[logo] Metromail Corporation executed as of (DATE),
& Sons Company on behalf of Metromail
Corporation by
(FACSIMILE SIGNATURE)
Barton L. Faber
Chairman
<PAGE>
RULES OF UK SUB-PLAN OF METROMAIL CORPORATION
---------------------------------------------
1996 BROAD BASED EMPLOYEE STOCK PLAN
------------------------------------
1. Adoption of the UK Sub-Plan
---------------------------
Metromail Corporation ("the Company") has established this UK Sub-Plan ("the UK
Sub-Plan") of the Metromail Corporation Broad-Based Employee Stock Plan ("the US
Plan") for the purpose of granting rights to acquire shares of common stock of
the Company ("Options") to employees of it and its subsidiaries in the United
Kingdom. The UK Sub-Plan is intended to qualify as an approved share option plan
under Schedule 9 to the Income and Corporation Taxes Act 1988.
2. The US Plan
-----------
The US Plan attached as an Appendix to these Rules shall apply to the UK Sub-
Plan subject to the additional restrictions and amendments specified below.
References to Schedule 9 are to Schedule 9 to the Income and Corporation Taxes
Act 1988.
3. Shares
------
The shares of common stock of Metromail Corporation ("the Company") in respect
of which Options may be granted under the UK Sub-Plan must satisfy the
conditions specified in paragraphs 10 to 14 inclusive of Schedule 9 both at the
time of grant and at the time of exercise.
4. Market Value
------------
For all purposes of the UK Sub-Plan, the Market Value of shares of common stock
of the Company shall be on any day the market value of a share determined in
accordance with the provisions of Part VIII of the Taxation of Charitable Gains
Act 1992 and agreed for purposes of the UK Sub-Plan with the Inland Revenue
Shares Valuation Division on or before that day.
5. Eligibility
-----------
5.1. The description of eligible persons in Section 2 of the US Plan shall not
include, for purposes of the UK Sub-Plan, any person who is precluded by
paragraph 8 of Schedule 9 from participating in a UK Revenue approved
share scheme. In addition an eligible person who is a director must be
required to devote to his duties at least 25 hours per week excluding meal
breaks.
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<PAGE>
5.2. The subsidiaries of the Company referred to in Section 2 of the US Plan
shall include, for purposes of the UK Sub-Plan, only those companies of
which the Company has control within the meaning of Section 840 of the
Income and Corporation Taxes Act 1988 and which are affiliates controlled
by the Company directly or indirectly through one or more intermediaries
for the purposes of Rule 12b-2 of the US Exchange Act.
5.3. The grant of Options under the UK Sub-Plan shall be subject to the
restriction that no Option shall be granted to an individual under the UK
Sub-Plan or any other UK Revenue approved share option plan operated by
the Company (not being a UK Revenue approved savings related share option
plan) if immediately following such grant the individual would hold
Options with an aggregate Market Value in excess of (Pounds)30,000,
determined on the basis of the Market Value of shares of common stock of
the Company at the date(s) of grant of the relevant Options.
6. Adjustments Upon Changes in Capitalisation
------------------------------------------
6.1. The provisions of Section 5 of the US Plan concerning the adjustment of
Options shall be subject to the requirement that all such adjustments must
be certified in writing by the Company's auditors for the time being as
being fair and reasonable and that no adjustment in respect of subsisting
Options or of Options to be granted in future under the UK Sub-Plan shall
take effect without the prior approval of the Board of Inland Revenue.
6.2. No adjustment may be made under the UK Sub-Plan pursuant to Section 5 of
the US Plan in relation to a spin-off, stock dividend, merger,
combination, exchange of shares, liquidation or other similar changes in
capitalisation and class of securities.
6.3. The provision in part (ii) of the last sentence of Section 5 of the US
Plan for the Company to make cash payments to Option holders in respect of
fractional securities shall not apply under the UK Sub-Plan.
7. Grant of Options
----------------
7.1. Options shall be granted under the UK Sub-Plan only on the day before the
closing date of the Company's initial public offering of common stock
instead of on the closing date as stated in Section 8(a) of the US Plan.
Options may not be granted under the UK Sub-Plan on any other date.
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<PAGE>
7.2. For purposes of Section 8(b) of the US Plan, the option price per share
shall not be less than the Market Value (as defined in Rule 4 above) at
the date of grant of a share.
8. Exercise of Options
-------------------
8.1. The provisions of Section 9(a) and (b) of the US Plan relating to the
exercise of Options shall be subject to the additional restriction that no
Option may be exercised by an Option holder at any time when he is
precluded by paragraph 8 of Schedule 9 from participating in the UK Sub-
Plan.
8.2. An option granted under the UK Sub-Plan may not be exercised during the
Option holder's lifetime by the Option holder's guardian, legal
representative or similar person as stated in the second sentence of
Section 9(b) of the US Plan.
8.3. The provisions in Section 9(d) of the US Plan for an Option holder to pay
the option price by selling shares of common stock through an agent or
broker will not apply for purposes of the UK Sub-Plan; nor will any other
references in Section 9(a) of the US Plan to the exercise of Options or
the sale of shares through a broker or agent apply for purposes of the UK
Sub-Plan.
8.4. No cash payments may be made to Option holders in respect of fractions of
shares (or otherwise) pursuant to the last sentence of Section 9(d) of the
US Plan.
8.5. Shares must be allotted within 30 days after the date of exercise.
8.6. Shares acquired on the exercise of Options shall, except for any rights
determined by reference to a date preceding the date of allotment, rank
pari passu with other shares of the same class in issue at the date of
allotment.
9. Amendment of the Plan
---------------------
Any amendment of the US Plan or the UK Sub-Plan which is made under the
provisions of Section 7 or Section 12 of the US Plan and which affects the UK
Sub-Plan shall only take effect in respect of the UK Sub-Plan with the prior
approval of the Board of Inland Revenue.
Page 3
<PAGE>
10. Release of Options on Change of Control
---------------------------------------
10.1. In the event of any company ("the Acquiring Company") obtaining control
of the Company as a result of making a general offer to acquire the whole
of the issued ordinary share capital of the Company which is made on a
condition such that if it is satisfied the person making the offer will
have control of the Company, or to acquire all the shares in the Company
which are of the same class as the shares subject to a subsisting Option
granted under the UK Sub-Plan ("the Old Option"), the Option holder (or
the Company on behalf of the Option holder) may seek the agreement of the
Acquiring Company and, if such agreement is obtained, the Option holder
may release the Old Option in consideration of the grant of a new option
("the New Option") which satisfies the following conditions:
10.1.1. it is over shares in the Acquiring Company or in a company which has
control of the Acquiring Company which satisfy the conditions specified
in paragraphs 10 to 14 inclusive of Schedule 9 to the Income and
Corporation Taxes Act 1988;
10.1.2. is a right to acquire such number of such shares as has on acquisition
of the New Option an aggregate Market Value equal to the aggregate
Market Value of the shares subject to the Old Option on its disposal;
10.1.3. has an option price per share such that the aggregate price payable on
complete exercise equals the aggregate price which would have been
payable on complete exercise of the Old Option; and
10.1.4. is otherwise identical in terms to the Old Option.
10.2. The New Option shall, for all other purposes of the UK Sub-Plan, be
treated as having been acquired at the same time as the Old Option which
is released in consideration for the grant of the New Option.
10.3. Where any New Option is granted pursuant to this Rule 10, the provisions
of the UK Sub-Plan shall, in relation to the New Option, be construed as
if references to the Company and the shares were references to the
Acquiring Company or, as the case may be, to the other company to whose
shares the New Option relates and to the shares in that other company.
Page 4
<PAGE>
10.4. The release of the Old Option and the grant of a New Option under this
Rule 10 will take place within the period of six months beginning with
the time when the person making the offer has obtained control of the
Company and any conditions subject to which the offer is made are
satisfied.
Page 5
<PAGE>
Exhibit 10.12
D R A F T
---------
CREDIT AGREEMENT
Dated as of June __, 1996
Among
METROMAIL CORPORATION AND CERTAIN SUBSIDIARIES
as Borrower,
-- --------
THE BANKS NAMED HEREIN
as Banks
-- -----
and
THE FIRST NATIONAL BANK OF CHICAGO
as Administrative Agent
-----------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................. 1
SECTION 1.01. Certain Defined Terms.................................... 1
SECTION 1.02. Computation of Time Periods.............................. 14
SECTION 1.03. Accounting Terms......................................... 14
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES................................ 15
SECTION 2.01. The Committed Advances................................... 15
SECTION 2.02. Making the Committed Advances............................ 15
SECTION 2.03. The Uncommitted Advances................................. 19
SECTION 2.04. Facility Fee............................................. 23
SECTION 2.05. Reduction and Termination of the
Commitments; Right to Replace Banks.................... 24
SECTION 2.06. Payment; Conversion and Continuation..................... 24
SECTION 2.07. Interest on Committed Advances........................... 25
SECTION 2.08. Additional Interest on Eurocurrency
Rate Advances.......................................... 25
SECTION 2.09. Interest Rate Determination.............................. 26
SECTION 2.10. Prepayments.............................................. 26
SECTION 2.11. Funding Indemnification.................................. 27
SECTION 2.12. Increased Costs and Reduced Return....................... 27
SECTION 2.13. Illegality............................................... 28
SECTION 2.14. Payments and Computations................................ 28
SECTION 2.15. Sharing of Payments, Etc................................. 30
SECTION 2.16. Currency Equivalents..................................... 30
SECTION 2.17. Borrowing Subsidiaries................................... 31
SECTION 2.18. Reserved................................................. 31
SECTION 2.19. Taxes.................................................... 31
SECTION 2.20. Defaulting Banks......................................... 33
SECTION 2.21. Mitigation............................................... 35
ARTICLE III CONDITIONS PRECEDENT............................................ 35
SECTION 3.01. Conditions Precedent to Effectiveness of
Sections 2.01 and 2.03................................... 35
SECTION 3.02. Conditions Precedent to Initial Advance to Each
Borrowing Subsidiary..................................... 38
SECTION 3.03. Conditions Precedent to Each Committed Borrowing......... 38
SECTION 3.04. Conditions Precedent to Each Uncommitted Borrowing....... 39
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................... 39
SECTION 4.01. Representations and Warranties of the Company............ 39
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V COVENANTS OF THE COMPANY.......................................... 42
SECTION 5.01. Compliance with Laws, Etc................................ 43
SECTION 5.02. Reporting Requirements................................... 43
SECTION 5.03. Use of Proceeds.......................................... 44
SECTION 5.04. Limitation on Liens, Etc................................. 44
SECTION 5.05. Merger; Sale of Assets................................... 45
SECTION 5.06. Books and Records; Inspection............................ 46
SECTION 5.07. Corporate Existence; Maintenance of Rights and Permits... 46
SECTION 5.08. Conduct of Business...................................... 46
SECTION 5.09. Payment of Taxes......................................... 47
SECTION 5.10. Consolidated Debt to Capitalization Ratio................ 47
SECTION 5.11. Net Worth................................................ 47
SECTION 5.12. Fixed Charge Coverage.................................... 47
SECTION 5.13. Indebtedness of Subsidiaries............................. 47
SECTION 5.14. Maintenance of Properties................................ 48
SECTION 5.15. Insurance................................................ 48
SECTION 5.16. Transactions with Affiliates............................. 48
SECTION 5.17. Certain Agreements....................................... 48
SECTION 5.18. Investments.............................................. 48
ARTICLE VI EVENTS OF DEFAULT................................................ 49
SECTION 6.01. Events of Default........................................ 49
ARTICLE VII GUARANTEE....................................................... 51
SECTION 7.01. Unconditional Guarantee.................................. 51
SECTION 7.02. Validity................................................. 52
SECTION 7.03. Waivers.................................................. 52
SECTION 7.04. Subrogation.............................................. 52
SECTION 7.05. Acceleration............................................. 52
SECTION 7.06. Reinstatement............................................ 52
SECTION 7.07. Continuing Guaranty; Assignments......................... 53
SECTION 7.08. Contribution............................................. 53
ARTICLE VIII THE ADMINISTRATIVE AGENT....................................... 53
SECTION 8.01. Appointment; Nature of Relationship...................... 53
SECTION 8.02. Actions by the Administrative Agent...................... 54
SECTION 8.03. Administrative Agent's Reliance, Etc..................... 54
SECTION 8.04. The Administrative Agent and Affiliates.................. 55
SECTION 8.05. Bank Credit Decision..................................... 55
SECTION 8.06. Indemnification.......................................... 55
SECTION 8.07. Successor Administrative Agent........................... 56
ARTICLE IX MISCELLANEOUS.................................................... 56
SECTION 9.01. Amendments, Etc.......................................... 56
</TABLE>
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<TABLE>
<S> <C>
SECTION 9.02. Notices, Etc............................................. 57
SECTION 9.03. No Waiver; Remedies...................................... 58
SECTION 9.04. Costs and Expenses....................................... 58
SECTION 9.05. Right of Set-off......................................... 58
SECTION 9.06. Binding Effect........................................... 59
SECTION 9.07. Assignments and Participations........................... 59
SECTION 9.08. Governing Law............................................ 62
SECTION 9.09. Execution in Counterparts................................ 62
SECTION 9.10. Confidentiality.......................................... 63
SECTION 9.11. Non-Reliance by the Banks................................ 63
SECTION 9.12. No Indirect Security..................................... 63
SECTION 9.13. Indemnification.......................................... 63
SECTION 9.14. Partial Invalidity....................................... 64
SECTION 9.15. WAIVER OF JURY TRIAL..................................... 64
SECTION 9.16. Jurisdiction, Etc........................................ 64
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
EXHIBIT A - Form of Assignment and Acceptance
EXHIBIT B - Form of Assumption Letter
EXHIBIT C-1 - Form of Committed Note
EXHIBIT C-2 - Form of Uncommitted Note
EXHIBIT D-1 - Form of Notice of Committed Borrowing
EXHIBIT D-2 - Form of Notice of Uncommitted Borrowing
EXHIBIT E - Form of Notice of Continuation/Conversion
EXHIBIT F-1 - Form of Sidley & Austin Opinion
EXHIBIT F-2 - Form of General Counsel Opinion
EXHIBIT G - Form of Opinion of Counsel to Borrowing Subsidiary
EXHIBIT H - Pro Forma Financial Statements
SCHEDULES
SCHEDULE 2.01 - Banks; Commitments; Lending Offices
SCHEDULE 4.01(f) - Litigation
SCHEDULE 4.01(n) - ERISA
SCHEDULE 5.13 - Capitalized Leases
SCHEDULE 5.18 - Investments
</TABLE>
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<PAGE>
CREDIT AGREEMENT
Dated as of June __, 1996
METROMAIL CORPORATION, a Delaware corporation (the "Company"), certain
Subsidiaries of the Company which have executed an Assumption Letter, the banks
listed on the signature pages hereof, and THE FIRST NATIONAL BANK OF CHICAGO, as
Administrative Agent (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Acceptance Deadline" has the meaning specified in Section
2.03(a)(iii).
"Administrative Agent" means First Chicago, in its capacity as the
contractual representative for all of the Banks for purposes of this
Agreement, as designated and appointed in accordance with Article VIII, and
any successor thereto as provided herein.
"Advance" means a Committed Advance or an Uncommitted Advance.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct
or cause the direction of the management or policies of the controlled
Person, whether through ownership of stock, by contract or otherwise.
"Agreement" means this Credit Agreement, as the same may be amended,
modified, supplemented or restated from time to time.
"Allocable Guaranty Amount" has the meaning specified in Section
7.08(b).
"Alternative Currency" means Sterling, German Marks, Canadian Dollars
and any other currency (other than Dollars) which is generally available to
the Banks and which is freely transferable and convertible into Dollars in
the London interbank market as agreed to from time to time by the Banks.
"Applicable Lending Office" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of a Base Rate Advance, and such
Bank's
<PAGE>
Eurocurrency Lending Office in the case of a Eurocurrency Rate Advance and,
in the case of an Uncommitted Advance, the office of such Bank notified by
such Bank to the Administrative Agent as its Applicable Lending Office with
respect to such Uncommitted Advance.
"Applicable Margin" means on any day:
(a) 0.25% if Level I Status exists on such day,
(b) 0.325% if Level II Status exists on such day, and
(c) 0.425% if Level III Status exists on such day.
The Level Status applicable to the period from the Effective Date until the
end of the first fiscal quarter for which the Fixed Charge Coverage Ratio
and Leverage Ratio are calculated shall be determined by the Administrative
Agent on the Effective Date based on the pro forma Leverage Ratio on such
date. For any date thereafter, Level Status shall be adjusted effective on
the tenth (10th) Business Day after the delivery of the Company's quarterly
or annual financial statements pursuant to Section 5.02; provided, that if
timely delivery of such financial statements is not made, Level III Status
shall be deemed to exist until such delivery is made.
Notwithstanding the foregoing, if for any fiscal quarter the principal
amount of the daily average Borrowings exceed 50% of the aggregate
Commitments, the Applicable Margin will be increased by .05% for that
fiscal quarter, adjusted retroactively.
"Assignment and Acceptance" means an Assignment and Acceptance
executed by a Bank and an Eligible Assignee and accepted by the
Administrative Agent and the Company, substantially in the form of Exhibit
A hereto.
"Assumption Letter" means a letter of a Subsidiary of the Company
addressed to the Banks in substantially the form of Exhibit B hereto
pursuant to which such Subsidiary agrees to become a "Borrowing Subsidiary"
and agrees to be bound by the terms and conditions hereof.
"Available Commitment" has the meaning specified in Section 2.01.
"Banks" means the banks listed on Schedule 2.01 hereto and each Person
that becomes a party hereto pursuant to Section 9.07(a), (b) or (c).
"Base Rate" means, for any day, a rate of interest per annum equal to
the higher of (a) the Corporate Base Rate for such day and (b) the sum of
Federal Funds Effective Rate for such day plus 1/2% per annum.
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<PAGE>
"Base Rate Advance" means a Committed Advance which bears interest at
a rate based upon the Base Rate, as provided in Section 2.07(a).
"Borrower" means the Company or any Borrowing Subsidiary.
"Borrowing" means a Committed Borrowing or an Uncommitted Borrowing.
"Borrowing Subsidiary" means ICD and any Subsidiary of the Company
duly designated by the Company pursuant to Section 2.17 hereof to make
Borrowings hereunder, which Subsidiary shall have delivered to the
Administrative Agent an Assumption Letter in accordance with Section 2.17.
"Business Day" means a day of the year on which banks are not required
or authorized by law to close in Chicago, Illinois and New York, New York
and, if the applicable Business Day relates to any Eurocurrency Rate
Advances, on which dealings in the applicable currency are carried on in
the international interbank market.
"Canadian Dollars" means the lawful currency of Canada.
"Capitalization" means, as of any date, the sum of (a) the (i) par or
stated value of the outstanding shares of all classes of capital stock of
the Company and its Consolidated Subsidiaries, (ii) paid-in capital and
capital surplus of the Company and its Consolidated Subsidiaries and (iii)
retained earnings of the Company and its Consolidated Subsidiaries, each as
would appear on a consolidated balance sheet of the Company and its
Consolidated Subsidiaries prepared as of the last day of the most recently
completed fiscal quarter in accordance with GAAP, and (b) Consolidated Debt
as of such date.
"Capitalized Lease" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with GAAP.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as
a liability on a balance sheet of such Person prepared in accordance with
GAAP.
"Commission" means the Securities and Exchange Commission or any
federal body succeeding to its functions.
"Commitment" has the meaning specified in Section 2.01.
"Committed Advance" means an advance by a Bank to a Borrower as part
of a Committed Borrowing and refers to a Base Rate Advance or a
Eurocurrency Rate Advance, each of which shall be a "Type" of Committed
Advance.
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<PAGE>
"Committed Borrowing" means a borrowing consisting of simultaneous
Committed Advances of the same Type made by each of the Banks to a Borrower
pursuant to Section 2.01.
"Committed Note" means a promissory note, in substantially the form of
Exhibit C-1 hereto, duly executed by a Borrower and payable to the order of
a Bank in the amount of its Commitment, including any amendment,
modification, renewal or replacement of such promissory note.
"Consolidated Debt" means as of any date the consolidated Debt of the
Company and its Consolidated Subsidiaries as of such date, without regard
to whether such Debt would be characterized as being short-term or long-
term.
"Consolidated EBIT" means, for any period, on a consolidated basis for
the Company and its Consolidated Subsidiaries, the sum of the amounts for
such period of (a) Consolidated Net Income (before non-recurring or
extraordinary gains, losses, expenses and charges; provided, that they are
identified as such on the Company's financial statements; except, that,
solely for purposes of determining the Fixed Charge Coverage Ratio,
Consolidated Net Income for such period shall include cash charges and
payments during such period related to current or prior year extraordinary
or non-recurring gains, losses, charges and expenses), plus (b) charges
against income for foreign, federal, state and local taxes, plus (c)
Consolidated Interest Expense.
"Consolidated Interest Expense" means, for any period, the sum of
total interest expense of the Company and its Consolidated Subsidiaries,
whether paid or accrued (including the interest component of Capitalized
Leases), as determined in accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary the
accounts of which would be consolidated with those of the Company in its
consolidated financial statements at such date in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
earnings (or loss) after taxes of the Company and its Consolidated
Subsidiaries for such period, determined in accordance with GAAP.
"Consolidated Net Worth" means, as of any date, an amount equal to the
sum of (a) the par or stated value of the outstanding shares of all classes
of capital stock of the Company, (b) paid-in capital and capital surplus of
the Company and (c) retained earnings of the Company, as each of which
would appear on a consolidated balance sheet of the Company and its
Consolidated Subsidiaries prepared as of the last day of the most recently
completed fiscal quarter in accordance with GAAP.
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<PAGE>
"Corporate Base Rate" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time,
changing when and as said corporate base rate changes.
"Debt" means (without duplication of any item) (a) indebtedness for
borrowed money, (b) obligations evidenced by bonds, debentures, notes or
other similar instruments, (c) obligations as lessee under leases which
shall have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases, (d) obligations
representing the deferred purchase price of property or services (other
than accounts payable and accrued expenses arising in the ordinary course
of such person's business payable on customary business terms), (e)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by
such Person, (f) obligations which are evidenced by notes, acceptances or
other instruments, (g) obligations in respect of letters of credit, (h) net
mark to market exposure of rate hedging agreements and (i) obligations
under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise
assure a creditor against loss in respect of, indebtedness or obligations
of others of the kinds referred to in clause (a), (b) or (c) above.
"Defaulted Advance" means, with respect to any Bank at any time, the
amount of any Advance required to be made by such Bank to a Borrower
pursuant to Section 2.01 or Section 2.03(a) at or prior to such time that
has not been so made as of such time; provided, however, that any Advance
made by the Administrative Agent for the account of such Bank pursuant to
Section 2.02(e) shall not be considered a Defaulted Advance even if, at
such time, such Bank shall not have reimbursed the Administrative Agent
therefor as provided in Section 2.02(e). If part of a Defaulted Advance
shall be deemed made pursuant to Section 2.20(a), the remaining part of
such Defaulted Advance shall be considered a Defaulted Advance originally
required to be made pursuant to Section 2.01 or Section 2.03(a) on the same
date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Bank at any time, any
amount required to be paid by such Bank to the Administrative Agent or any
other Bank hereunder at or prior to such time that has not been so paid as
of such time, including, without limitation, any amount required to be paid
by such Bank to (a) the Administrative Agent pursuant to Section 2.02(e) to
reimburse the Administrative Agent for the amount of any Advance made by
the Administrative Agent for the account of such Bank, (b) any other Bank
pursuant to Section 2.15 to purchase any participation in Advances owing to
such other Bank and (c) the Administrative Agent pursuant to Section 8.06
to reimburse the Administrative Agent for such Bank's ratable share of any
amount required to be paid by the Banks to the Administrative Agent as
provided therein. If part of a Defaulted Amount shall be deemed paid
pursuant to Section 2.20(b), the remaining part of such Defaulted Amount
shall be considered a Defaulted Amount originally required to be made
hereunder on the same date as the Defaulted Amount so deemed paid in part.
-5-
<PAGE>
"Defaulting Bank" means, at any time, any Bank that, at such time, (a)
owes a Defaulted Advance or a Defaulted Amount or (b) shall take or be the
subject of any action or proceeding of a type described in Section 6.01(f).
"Dollars" and the sign "$" each means the lawful currency of the
United States.
"Domestic Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Domestic Lending Office" opposite its name
on Schedule 2.01 hereto or in the Assignment and Acceptance pursuant to
which it became a Bank, as the case may be, or such other office of such
Bank as such Bank may from time to time specify to the Company and the
Administrative Agent.
"Donnelley" means R.R. Donnelley & Sons Company, a Delaware
corporation.
"Donnelley Agreements" has the meaning specified in Section 5.16.
"Effective Date" has the meaning specified in Section 3.02.
"Eligible Assignee" means (a) a Bank; (b) an Affiliate of a Bank; (c)
a commercial bank organized under the laws of the United States or any
State thereof, and having a combined capital and surplus of at least
$500,000,000; (d) a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development, has a combined capital and surplus of at least $500,000,000
and is acting through a branch or agency located in the United States, and
(e) any other Person approved by the Company and the Administrative Agent,
such approvals not to be unreasonably withheld or delayed (it being
understood that the Company may reasonably withhold its approval of any
such other Person if at the time it would become a Bank hereunder payments
to it would not be exempt from United States withholding tax).
"Environmental Action" means any administrative, regulatory or
judicial action, suit, demand, demand letter, claim, notice of
noncompliance or violation, notice of liability or potential liability,
investigation, proceeding, consent order or consent agreement relating in
any way to any Environmental Law, Environmental Permit or Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any governmental
or regulatory authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial interpretation relating to the environment, health, safety or
Hazardous Materials.
-6-
<PAGE>
"Environmental Permit" means any permit, approval, indemnification
number, license or other authorization required under any Environmental
Law.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the Company's controlled group, or under common
control with the Company, as determined under Section 414 of the Internal
Revenue Code.
"ERISA Event" means (a) the occurrence of a reportable event, within
the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the application for a minimum funding waiver with respect to a
Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA); (d) the cessation of operations at a facility of
the Company or any of its ERISA Affiliates in the circumstances described
in Section 4062(e) of ERISA; (e) the withdrawal by the Company or any of
its ERISA Affiliates from a Multiple Employer Plan during a plan year for
which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (f) the failure by the Company or any of its ERISA Affiliates to
make a payment to a Plan if the conditions for the imposition of a lien
under Section 302(f)(1) of ERISA are satisfied; (g) the adoption of an
amendment to a Plan requiring the provision of security to such Plan,
pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of
proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that could constitute grounds for the termination of, or the appointment of
trustee to administer, a Plan.
"Eurocurrency Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Eurocurrency Lending Office" opposite
its name on Schedule 2.01 hereto or in the Assignment and Acceptance
pursuant to which it became a Bank (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Bank as such Bank
may from time to time specify to the Company and the Administrative Agent.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurocurrency Rate" means, for any Interest Period for all
Eurocurrency Rate Advances comprising part of the same Committed Borrowing
or for the term of any Uncommitted Advance with respect to which interest
is calculated by reference to the Eurocurrency Rate, (a) the per annum rate
for deposits in Dollars or the relevant
-7-
<PAGE>
Alternative Currency, as applicable, for a period corresponding to the
duration of such Interest Period or term, which appears on Telerate Page
3750 at approximately 11:00 a.m. (London time) two Business Days before the
first day of such Interest Period or term and (b) if such rate does not
appear on Telerate Page 3750 on such day, the per annum rate at which
deposits in Dollars or the relevant Alternative Currency, as applicable,
are offered by First Chicago to first-class banks in the London interbank
market at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period or term, in the approximate amount of
First Chicago's relevant Eurocurrency Rate Advance or such Uncommitted
Advance, as applicable, and having a maturity approximately equal to such
Interest Period or term. The references to Telerate Page 3750 in this
definition shall be construed to be a reference to the relevant page or any
other page that may replace such page on the Telerate service or any other
service that may be designated by the British Bankers' Association as the
information vendor for the purpose of displaying British Bankers'
Association Interest Settlement Rates for the relevant currency.
"Eurocurrency Rate Advance" means a Committed Advance which bears
interest at a rate based upon the Eurocurrency Rate, as provided in Section
2.07(c).
"Eurocurrency Rate Reserve Percentage" of any Bank for any Interest
Period for a Eurocurrency Rate Advance means the reserve percentage
applicable two Business Days before the first day of such Interest Period
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for such Bank with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Eurocurrency
Rate Advances of such currency is determined) having a term equal to such
Interest Period.
"Eurocurrency Rate Uncommitted Borrowing" means an Uncommitted
Borrowing comprised of Uncommitted Advances bearing interest based upon the
Eurocurrency Rate.
"Events of Default" has the meaning specified in Section 6.01.
"Exchange Rates" has the meaning specified in Section 2.16(b).
"Facility Fee" has the meaning specified in Section 2.04.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business
Day, the
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<PAGE>
average of the quotations at approximately 10:00 a.m. (Chicago time) for
such day for such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it.
"First Chicago" means The First National Bank of Chicago, a national
banking association, in its individual capacity, and its successors.
"Fixed Charge Coverage Ratio" means the ratio, determined on a
consolidated basis for the Company and its Consolidated Subsidiaries in
accordance with GAAP as of the end of any fiscal quarter, of Consolidated
EBIT plus Rent Expense to Consolidated Interest Expense plus rent expense,
in each case determined as of the last day of such fiscal quarter for the
four-quarter period then ended, except that the Fixed Charge Coverage Ratio
for each fiscal quarter ending before the first anniversary of the
Effective Date shall be determined for the period from the Initial
Borrowing Date to the end of such fiscal quarter.
"Fixed Rate Uncommitted Borrowing" means an Uncommitted Borrowing
consisting of Uncommitted Advances bearing interest at a fixed percentage
rate per annum (expressed in the form of a decimal to no more than four
decimal places) specified by the respective Banks making such Uncommitted
Advances pursuant to the procedure described in Section 2.03.
"GAAP" has the meaning specified in Section 1.03.
"German Marks" means the lawful currency of Germany.
"Guaranty Payment" has the meaning specified in Section 7.08.
"Hazardous Materials" means petroleum and petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-
containing materials, radon gas and any other chemicals, materials or
substances designated, classified or regulated as being "hazardous" or
"toxic", or words of similar import, under any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, judgment,
decree or judicial interpretation.
"ICD" has the meaning specified in Section 3.02(g).
"Indemnified Parties" has the meaning specified in Section 9.13.
"Initial Borrowing Date" means the date on which the initial Borrowing
occurs.
"Interest Period" means, for each Eurocurrency Rate Advance comprising
part of the same Committed Borrowing, the period commencing on the date of
such Eurocurrency Rate Advance or the date of any conversion or
continuation thereof, and ending on the last day of the period selected by
a Borrower pursuant to the provisions
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<PAGE>
below. The duration of each such Interest Period shall be one, two, three
or six months, or if available to each Bank, nine or twelve months, in each
case as a Borrower may select, upon notice received by the Administrative
Agent pursuant to Section 2.02 or 2.06; provided, however, that
(a) Interest Periods commencing on the same date for Eurocurrency
Rate Advances comprising part of the same Committed Borrowing shall be
of the same duration;
(b) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day; provided, that if such extension would cause the last
day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next
preceding Business Day;
(c) whenever the first day of any Interest Period occurs on a day
in an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month; and
(d) no Interest Period may terminate later than the Termination
Date.
"Initial Public Offering" means the initial public offering of the
Company's stock pursuant to the Registration Statement.
"Investment" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in
the ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in
the trade) or contribution of capital by such Person; stocks, bonds, mutual
funds, partnership interests, notes, debentures or other securities owned
by such Person; any deposit accounts and certificate of deposit owned by
such Person; and structured notes, derivative financial instruments and
other similar instruments or contracts owned by such Person.
"Level Status" means Level I Status, Level II Status or Level III
Status, as appropriate.
"Level I Status" exists at any date if at such date:
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<PAGE>
(a) the Fixed Charge Coverage Ratio is greater than or equal to
5 to 1; and
(b) the Leverage Ratio is less than or equal to 0.1 to 1.
"Level II Status" exists at any date if at such date Level I Status
does not exist AND
(a) the Fixed Charge Coverage Ratio is greater than or equal to
4 to 1; or
(b) the Leverage Ratio is less than or equal to 0.2 to 1.
"Level III Status" exists at any date if at such date neither Level I
Status nor Level II Status exists.
"Leverage Ratio" means, as of any date of determination, the ratio of
Consolidated Debt to Capitalization, in each case determined as of such
date.
"Lien" means, with respect to any asset, any security interest,
mortgage, pledge, lien, claim, charge or encumbrance of any kind in respect
of such asset.
"Majority Banks" means at any time Banks holding more than 50% of the
Commitments or, if the Commitments have been terminated, Banks holding more
than 50% of the then aggregate unpaid principal amount of the Committed
Advances held by the Banks.
"Margin Stock" has the meaning specified in Regulation U issued by the
Board of Governors of the Federal Reserve System.
"Material Adverse Effect" means a material adverse effect on (a) the
business, financial condition, operations, properties or performance of the
Company and its Subsidiaries, taken as a whole, (b) the legality, validity
or enforceability of this Agreement or the Notes or (c) the ability of the
Company to perform its obligations under this Agreement and the Notes.
"Material Subsidiary" means a Subsidiary of the Company which, at the
time of determination, (a) shall own assets comprising in excess of 10% of
all of the assets of the Company and its consolidated Subsidiaries on a
consolidated basis, or (b) has revenues for the four fiscal quarters most
recently ended in excess of 10% of the revenues of the Company and its
consolidated Subsidiaries on a consolidated basis.
"Moody's" means Moody's Investors Services, Inc.
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"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Company or any of its ERISA Affiliates is
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any of its ERISA Affiliates and at least one Person other than
the Company and its ERISA Affiliates or (b) was so maintained and in
respect of which the Company or any of its ERISA Affiliates could have
liability under Section 4064 or 4069 of ERISA in the event such plan has
been or were to be terminated.
"Note" means a Committed Note or an Uncommitted Note.
"Notice of Committed Borrowing" has the meaning specified in Section
2.02(a).
"Notice of Conversion or Continuation" has the meaning specified in
Section 2.06(b).
"Notice of Uncommitted Borrowing" has the meaning specified in Section
2.03(a).
"Other Taxes" has the meaning specified in Section 2.19(b).
"PBGC" means the Pension Benefit Guaranty Corporation and its
successors and assigns.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a government or any political subdivision
or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pro Rata Share" means, at any time with respect to any Bank, the
percentage amount that such Bank's Commitment bears to the aggregate
Commitments of all Banks at such time.
"Quote Deadline" has the meaning specified in Section 2.03(a)(ii).
"Register" has the meaning specified in Section 9.07(g).
"Registration Statement" means the Registration Statement of the
Company on Form S-1 originally filed with the Securities and Exchange
Commission (the "SEC") on March 7, 1996, as amended by Amendment No. 1
thereto filed with the SEC on April
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17, 1996, Amendment No. 2 thereto filed with the SEC on May 16, 1996, and
Amendment No. 3 thereto filed with the SEC on June 6, 1996, as amended.
"Rent Expense" means, for any period, rental expense under operating
lease agreements, determined for the Company and its Consolidated
Subsidiaries in accordance with GAAP.
"Request Deadline" has the meaning specified in Section 2.03(a)(i).
"Responsible Officer" means the chief financial officer or any other
officer of the Company or any other Borrower responsible for overseeing or
reviewing compliance with this Agreement or any Note.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Company or any of its ERISA Affiliates and no Person other than the Company
and its ERISA Affiliates or (b) was so maintained and in respect of which
the Company or any of its ERISA Affiliates could have liability under
Section 4069 of ERISA in the event such plan has been or were to be
terminated.
"Standard & Poor's" means Standard & Poor's Rating Group.
"Sterling" means the lawful currency of the United Kingdom.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business
entity of which securities or other ownership interests having (a) ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions or (b) having the ability to direct the
management of such corporation, partnership, limited liability company,
association or other business entity, are at the time directly or
indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Tax Allocation Agreement" means that certain Tax Allocation Agreement
dated __________, 1996, between Donnelley and the Company, as in effect on
the date hereof or as otherwise amended or modified with the consent of the
Majority Banks.
"Taxes" has the meaning specified in Section 2.19.
"Termination Date" means the earlier of (a) June __, 2001 or (b) the
date the Commitments are terminated in whole pursuant to Section 2.05 or
6.01.
"Transition Services Agreement" means that certain Transition Services
Agreement, dated __________, 1996, between Donnelley and the Company, as in
effect
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on the date hereof or as otherwise amended or modified with the consent of
the Majority Banks.
"UFCA" has the meaning specified in Section 7.01.
"UFTA" has the meaning specified in Section 7.01.
"Uncommitted Advance" means an advance by a Bank to a Borrower as part
of an Uncommitted Borrowing resulting from the auction bidding procedure
described in Section 2.03.
"Uncommitted Borrowing" means a borrowing consisting of simultaneous
Uncommitted Advances from each of the Banks whose offer to make one or more
Uncommitted Advances as part of such borrowing has been accepted by a
Borrower under the auction bidding procedure described in Section 2.03.
"Uncommitted Borrowing Margin" means, with respect to any Eurocurrency
Rate specified by a Borrower in a Notice of Uncommitted Borrowing and any
offer made by a Bank in response to such Notice of Uncommitted Borrowing,
the margin (expressed as a percentage rate per annum) to be added to or
subtracted from such Eurocurrency Rate in order to determine the interest
rate per annum at which such Bank is willing to, and offers to, make an
Uncommitted Advance to such Borrower as part of a Eurocurrency Rate
Uncommitted Borrowing.
"Uncommitted Note" means a promissory note, in substantially the form
of Exhibit D-2 hereto, duly executed by a Borrower and evidencing an
Uncommitted Advance made by such Bank, including any amendment,
modification, renewal or replacement of such promissory note.
"Wholly-Owned Subsidiary" means, with respect to any Person, any
Subsidiary all or substantially all of the outstanding voting securities of
which shall at the time be owned or controlled, directly or indirectly, by
such Person or one or more Wholly-Owned Subsidiaries of such Person, or by
such Person and one or more Wholly-Owned Subsidiaries of such Person.
"Withdrawal Liability" has the meaning specified in Part 1 of Subtitle
E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements then most recently delivered by the Company to the
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Banks in accordance with Section 5.02 ("GAAP"); provided, however, that if any
change in GAAP would affect (or would result in a material change in the method
of calculating) any of the covenants set forth in Sections 5.10, 5.11 or 5.12
hereof, then the Company, the Administrative Agent and the Banks will negotiate
in good faith to amend in accordance with Section 9.01 hereof all such covenants
and definitions as would be affected by such changes in GAAP to the extent
necessary to maintain the economic terms of such covenants as in effect
hereunder immediately before giving effect to such changes in GAAP; provided,
further, however, that until the amendment of such covenants and definitions
shall have been agreed upon by the Company and the Majority Banks, the covenants
and definitions in effect immediately before such amendment shall remain in
effect and any determination of compliance with any covenant set forth in
Section 5.10, 5.11 or 5.12 shall be construed in accordance with GAAP as in
effect immediately before such amendment and consistently applied.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
---------------------------------
SECTION 2.01. The Committed Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make Committed Advances to
the Borrowers from time to time on any Business Day during the period from the
Effective Date until the Termination Date in an aggregate amount with respect to
all Borrowers not to exceed at any time outstanding an amount (such Bank's
"Available Commitment") equal to (a) the amount set forth opposite such Bank's
name on Schedule 2.01 hereto or, if such Bank has entered into any Assignment
and Acceptance, set forth for such Bank in the Register, as such amount may be
reduced pursuant to Section 2.05 (such Bank's "Commitment") minus (b) such
Bank's Pro Rata Share of the aggregate amount of the Uncommitted Advances then
outstanding. Each Committed Borrowing shall be in an aggregate amount of not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof or,
if the requested currency for such Committed Advance is not Dollars, an
equivalent amount (determined in accordance with Section 2.16) and multiple in
the requested Alternative Currency, and, subject to Section 2.02, shall consist
of Committed Advances of the same Type made on the same day to the same Borrower
by the Banks ratably according to their respective Commitments in the currency
so requested. Within the limits of each Bank's Available Commitment, a Borrower
may borrow under this Section 2.01, prepay pursuant to Section 2.10, and
reborrow under this Section 2.01.
SECTION 2.02. Making the Committed Advances. (a) Each Committed
Borrowing shall be made on notice by the Company (or, if such Borrower is a
Borrowing Subsidiary, by the Company on behalf of such Borrowing Subsidiary) to
the Administrative Agent (which shall give each Bank prompt notice thereof by
telecopy, telex or cable), given not later than 10:00 a.m. (Chicago time) on (i)
the date of a proposed Committed Borrowing comprised of Base Rate Advances, (ii)
the third Business Day prior to the date of a proposed Committed Borrowing
comprised of Eurocurrency Rate Advances to be denominated in Dollars, and (iii)
the fourth Business Day prior to the date of a proposed Committed Borrowing
comprised of Eurocurrency Rate Advances to be denominated in an Alternative
Currency. Each such notice of a Committed Borrowing (a "Notice of Committed
Borrowing") shall be by telecopy, telex or cable, confirmed immediately in
writing, in substantially the form of Exhibit D-1 hereto, specifying therein (A)
the date of such Committed Borrowing, (B) the Type of Committed
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Advances comprising such Committed Borrowing, which, in the case of a Committed
Borrowing denominated in an Alternative Currency, shall be Eurocurrency Rate
Advances, (C) the currency for such Committed Borrowing, which shall be in
Dollars or an Alternative Currency, (D) the aggregate amount of such Committed
Borrowing, (E) in the case of a Committed Borrowing consisting of Eurocurrency
Advances, the initial Interest Period for each Committed Advance comprising such
Committed Borrowing, and (F) whether such Committed Borrowing is to be made by
the Company or by a specified Borrowing Subsidiary. The Administrative Agent
shall, promptly after such time as the Company or such Borrower may no longer
revoke the Notice of Committed Borrowing without any liability to the Banks,
notify each Bank and the Company or such Borrower of the applicable interest
rate under Section 2.07(a) or (b). Each Bank shall, before 12:00 p.m. (Chicago
time) on the date of such Committed Borrowing, make available for the account of
its Applicable Lending Office to the Administrative Agent at the Domestic
Lending Office of the Bank then acting as Administrative Agent, in federal or
otherwise immediately available funds, such Bank's Pro Rata Share of such
Committed Borrowing. After the Administrative Agent receives such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the applicable Borrower
at the Administrative Agent's aforesaid address.
(b) Anything in subsection (a) above to the contrary notwithstanding:
(i) If with respect to a request for a Committed Borrowing of an
Alternative Currency other than Sterling, German Marks or Canadian Dollars,
any Bank shall, prior to 10:00 a.m. (Chicago time) on the third Business
Day before the requested date of such Committed Borrowing, notify the
Administrative Agent that the requested Alternative Currency is not
practically available to such Bank in the amount required to make its
Committed Advance in connection therewith; or
(ii) If any Bank shall, prior to the making of any requested
Committed Borrowing consisting of Eurocurrency Rate Advances in an
Alternative Currency, notify the Administrative Agent that the introduction
of or any change in or in the interpretation of any law or regulation makes
it unlawful, or that any central bank or other governmental authority
asserts that it is unlawful, for such Bank or its Eurocurrency Lending
Office or any other Applicable Lending Office to perform its obligations
hereunder to make Eurocurrency Rate Advances in such currency or to fund or
maintain Eurocurrency Rate Advances in such currency hereunder;
then, upon receipt of such notice, the Administrative Agent shall so notify the
Company and the applicable Borrower (if other than the Company) and the Company
or such Borrower may, without incurring an obligation to indemnify for losses,
costs or expenses under Section 2.02(d), by notice to the Administrative Agent
(which shall promptly notify each Bank), either
(x) withdraw the applicable Notice of Committed Borrowing, in which
case the Committed Borrowing shall not occur;
(y) request that such Committed Borrowing be made by the Banks in
Dollars as a Committed Borrowing comprised of either Eurocurrency Rate
Advances or Base Rate
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Advances, in which case the original Notice of Committed Borrowing shall be
deemed to be a Notice of Committed Borrowing which requests a Committed
Borrowing in an aggregate principal amount in Dollars equivalent, on the
date the Company or such Borrower so notifies the Administrative Agent, to
the amount of the originally requested currency for such Type of Committed
Advances (determined in accordance with Section 2.16); provided, that such
request may not be made by the Company or such Borrower if the requested
Type of Committed Advances is Eurocurrency Rate Advances and the request by
the Company or such Borrower is not given to the Administrative Agent prior
to 2:00 p.m. (London time) on the second Business Day before the requested
date of such Committed Borrowing; or
(z) only in the case of a Bank giving a notice described in Section
2.02(b)(ii) above, request that such Committed Borrowing be made by the
Banks (other than the notifying Bank), within the limits of each Bank's
respective Available Commitment, and that no Committed Advance be made by
the notifying Bank in connection with such Committed Borrowing.
In the case of any notice given under clause (y) above, the Company or such
Borrower shall specify in such notice the amount and type of Committed Advance
to be made by each Bank in connection therewith. Any notice under this
subsection (b) shall be given no later than 2:00 p.m. (London time) two Business
Days before the date of the requested Committed Borrowing, may be given by
telephone and, if by telephone, shall be confirmed promptly in writing. If
neither the Company nor the applicable Borrower shall provide a timely notice as
contemplated in clause (x), (y) or (z) above in response to a notice by any Bank
under clause (i) or (ii) above, the applicable Notice of Committed Borrowing
shall be deemed withdrawn.
(c) Anything in subsection (a) above to the contrary notwithstanding,
if:
(i) the Eurocurrency Rate can not be determined, in accordance with
the definition of such term, for the Dollars or the Alternative Currency
requested for a Committed Borrowing, or a continuation or conversion
thereof; or
(ii) The Majority Banks shall, no later than 5:00 p.m. (Chicago time)
three Business Days before the date of any requested Committed Borrowing,
continuation or conversion consisting of Eurocurrency Rate Advances, or any
continuation thereof or conversion thereto, notify the Administrative Agent
that the Eurocurrency Rate for any Interest Period for such Eurocurrency
Rate Advances, plus additional interest, if any, payable under Section
2.08, will not adequately reflect the cost to such Majority Banks of
making, funding, converting to or continuing their respective Eurocurrency
Rate Advances for such Committed Borrowing for such Interest Period;
then, the Administrative Agent shall promptly notify the Company, the applicable
Borrower (if other than the Company) and the Banks of such circumstances and
upon receipt of such notice, the Company or such Borrower may, without incurring
an obligation to indemnify for losses, costs or expenses under Section 2.02(d),
by notice to the Administrative Agent (which shall promptly notify each Bank),
either:
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(x) withdraw the applicable Notice of Committed Borrowing, in which
case the Committed Borrowing shall not occur;
(y) withdraw the applicable Notice of Conversion or Continuation, in
which case the conversion or continuation of such Committed Borrowing shall
not occur; or
(z) request that such Committed Borrowing, continuation or conversion
be made by the Banks in Dollars as a Committed Borrowing, continuation or
conversion, in which case the original Notice of Committed Borrowing, or
Notice of Conversion or Continuation shall be deemed to be a Notice of
Committed Borrowing, or Notice of Conversion or Continuation which requests
a Committed Borrowing, continuation or conversion in an aggregate principal
amount in Dollars equivalent, on the date the Company or such Borrower so
notifies the Administrative Agent, to the amount of the originally-
requested currency for such Committed Advances; provided, that such request
may not be made by the Company or such Borrower if the request by the
Company or such Borrower is not given to the Administrative Agent prior to
2:00 p.m. (London time) on the second Business Day before the requested
date of such Committed Borrowing, continuation or conversion.
In the case of any notice given under clause (z) above, the Company or such
Borrower shall specify in such notice the amount and Type of Committed Advances
to be made, continued or converted by the Banks in connection therewith. Any
notice under this subsection (c) shall be given no later than 2:00 p.m. (London
time) two Business Days before the date of the requested Committed Borrowing,
may be given by telephone, and, if by telephone, shall be confirmed promptly in
writing. From and after the date the Administrative Agent receives the notice
described in Section 2.02(c)(ii), the Banks' obligation to make Eurocurrency
Advances for any affected Interest Period shall be suspended until the Majority
Banks notify the Administrative Agent that the circumstances giving rise to such
notice no longer exist. If neither the Company nor the applicable Borrower
shall provide a timely notice as contemplated in clauses (x), (y) or (z) above
with respect to a Notice of Committed Borrowing, the applicable Notice of
Committed Borrowing shall be deemed withdrawn. If neither the Company nor the
applicable Borrower shall provide timely a notice as contemplated in clauses
(x), (y) or (z) above with respect to a Notice of Continuation or Conversion,
the Company or such applicable Borrower shall be deemed to have made the request
described in clause (z).
(d) Each Notice of Committed Borrowing and Notice of Conversion or
Continuation may be revoked by the Company or, if other than the Company, the
applicable Borrower, by notice to the Administrative Agent without any liability
on the part of the Company or such Borrower at any time prior to (i) 10:00 a.m.
(Chicago time) on the date of a proposed Committed Borrowing, continuation or
conversion comprised of Base Rate Advances, (ii) 11:00 a.m. (London time) on the
second Business Day prior to the date of a proposed Committed Borrowing,
continuation or conversion comprised of Eurocurrency Rate Advances to be
denominated in Dollars, and (iii) 11:00 a.m. (London time) on the third Business
Day prior to the date of a proposed Committed Borrowing, continuation or
conversion comprised of Eurocurrency Rate Advances to be denominated in an
Alternative Currency. In the case of any Committed Borrowing, continuation or
conversion which the related Notice of Committed Borrowing, or Notice of
Conversion or Continuation, specifies is to be comprised of Eurocurrency Rate
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Advances, unless the Company or the applicable Borrower revokes such Notice of
Committed Borrowing, or Notice of Conversion or Continuation in accordance with
the preceding sentence and except as otherwise provided in Sections 2.02(b) and
(c), the Company or such Borrower shall indemnify each Bank against any loss,
cost or expense reasonably incurred by such Bank as a result of any failure to
fulfill on or before the date specified in such Notice of Borrowing or Notice of
Conversion or Continuation for such Committed Borrowing, conversion or
continuation, the applicable conditions set forth in Article III, including,
without limitation, any loss (excluding loss of anticipated profits), cost or
expense reasonably incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund the Committed Advance to
be made by such Bank as part of such Committed Borrowing, conversion or
continuation, when such Committed Advance, as a result of such failure, is not
made, continued or converted on such date.
(e) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Committed Borrowing that such Bank will not make
available to the Administrative Agent such Bank's Pro Rata Share of such
Committed Borrowing, the Administrative Agent may assume that such Bank has made
such Pro Rata Share available to the Administrative Agent on the date of such
Committed Borrowing in accordance with subsection (a) of this Section 2.02 and
the Administrative Agent may, in reliance upon such assumption, make a
corresponding amount available to the applicable Borrower on such date. If and
to the extent that such Bank shall not have so made such Pro Rata Share
available to the Administrative Agent, such Bank and such Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to such Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of such Borrower, the
interest rate applicable at the time to Committed Advances comprising such
Committed Borrowing and (ii) in the case of such Bank, the Federal Funds
Effective Rate. If such Bank shall repay such corresponding amount to the
Administrative Agent, such amount so repaid shall constitute such Bank's
Committed Advance as part of such Committed Borrowing for purposes of this
Agreement.
(f) A Bank's failure to make the Committed Advance to be made by it
as part of any Committed Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its Committed Advance on the date of such
Committed Borrowing. No Bank shall be responsible for the failure of any other
Bank to make the Committed Advance to be made by such other Bank on the date of
any Committed Borrowing.
SECTION 2.03. The Uncommitted Advances. (a) Each Bank severally
agrees that any Borrower may make Uncommitted Borrowings in Dollars or any
Alternative Currency from time to time on any Business Day during the period
from the date hereof until 30 days before the Termination Date in the manner set
forth below; provided, that, following the making of each Uncommitted Borrowing,
the aggregate amount with respect to all Borrowers of the Advances then
outstanding shall not exceed the aggregate amount of the Commitments of the
Banks.
(i) A Borrower may request, and the Company may request for the
benefit of any Borrowing Subsidiary, an Uncommitted Borrowing to be made by
such Borrower under this Section 2.03 by delivering to the Administrative
Agent, by telecopier, telex or cable, not later than the applicable Request
Deadline a notice of an Uncommitted
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Borrowing (a "Notice of Uncommitted Borrowing"), in substantially the form
of Exhibit D-2 hereto, specifying therein (A) the requested date of the
proposed Uncommitted Borrowing, (B) the aggregate amount and currency of
the proposed Uncommitted Borrowing, (C) that each Bank submitting an offer
shall quote an Uncommitted Borrowing Margin, or that each Bank submitting
an offer shall quote a fixed interest rate per annum without reference to
the Eurocurrency Rate, (D) maturity date for repayment of each Uncommitted
Advance to be made as part of such Uncommitted Borrowing (which maturity
date may not be earlier than thirty (30) days after the date of the
proposed Uncommitted Borrowing or later than the Termination Date) and
whether such Uncommitted Advance may be prepaid, and if so, whether with or
without penalty, (E) the interest payment date or dates relating thereto,
(F) the Borrower and (G) other material terms to be applicable to such
Uncommitted Borrowing. The Administrative Agent shall promptly notify each
Bank of its receipt of each such Notice of Uncommitted Borrowing by sending
each Bank a copy thereof. "Request Deadline" means (x) in the case of an
Uncommitted Borrowing to be a Fixed Rate Uncommitted Borrowing, 5:00 p.m.
(Chicago time) on the Business Day prior to the date of such proposed
Uncommitted Borrowing, (y) in the case of a Eurocurrency Rate Uncommitted
Borrowing to be denominated in Dollars, 5:00 p.m. (Chicago time) four (4)
Business Days prior to the date of such proposed Uncommitted Borrowing, and
(z) in the case of a Eurocurrency Rate Uncommitted Borrowing to be
denominated in an Alternative Currency, 5:00 p.m. (Chicago time) five (5)
Business Days prior to the date of such proposed Uncommitted Borrowing.
(ii) Each Bank shall, if, in its sole discretion, it elects to do so,
irrevocably offer to make one or more Uncommitted Advances to such Borrower
as part of such proposed Uncommitted Borrowing at a rate or rates of
interest specified by such Bank, in its sole discretion, by notifying the
Administrative Agent not later than the applicable Quote Deadline of the
minimum amount (if any) and maximum amount of each Uncommitted Advance
which such Bank would be willing to make as part of such proposed
Uncommitted Borrowing (which amounts may, subject to the proviso to the
first sentence of this Section 2.03(a), exceed such Bank's Commitment, if
any), the Uncommitted Borrowing Margin or Margins to be applied in the
determination of the rate or rates of interest therefor (or, if the Notice
of Uncommitted Borrowing shall have requested that fixed rates per annum be
quoted, the fixed rate or rates per annum therefor) and such Bank's
Applicable Lending Office with respect to such Uncommitted Advance. If any
Bank shall elect not to make such an offer, such Bank shall so notify the
Administrative Agent before the applicable Quote Deadline, and such Bank
shall not be obligated to, and shall not, make any Uncommitted Advance as
part of such Uncommitted Borrowing; provided, that the failure by any Bank
to give such notice shall not cause such Bank to be obligated to make any
Uncommitted Advance as part of such proposed Uncommitted Borrowing. The
Administrative Agent shall promptly notify the Company and, if applicable,
the applicable Borrowing Subsidiary of each Bank's response pursuant to
this paragraph (ii); provided, that if First Chicago shall elect to make an
offer under this paragraph (ii), such offer shall be delivered to the
Company and, if applicable, the Borrowing Subsidiary not later than one-
half hour prior to the applicable Quote Deadline.
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Each Borrower shall be entitled to assume that each quote of an Uncommitted
Borrowing Margin or a fixed rate per annum by a Bank includes, and such
Bank shall not be entitled to claim as additional interest or costs under
Section 2.08 or otherwise, any costs to such Bank in the nature of a
reserve requirement, assessment or other charge in connection with the
Uncommitted Advance to which such quote relates, except that such Bank
shall be entitled to claim increased costs and additional compensation
under Section 2.12(a) and (b) and Section 2.19, but solely with respect to
the changes described in such provisions that occur after the date such
Uncommitted Advance is made. "Quote Deadline" means, (x) in the case of a
Fixed Rate Uncommitted Borrowing, 9:00 a.m. (Chicago time) on the date of
such proposed Uncommitted Borrowing, (y) in the case of a Eurocurrency Rate
Uncommitted Borrowing denominated in Dollars, 9:00 a.m. (Chicago time)
three (3) Business Days prior to the date of such proposed Uncommitted
Borrowing, and (z) in the case of a Eurocurrency Rate Uncommitted Borrowing
denominated in an Alternative Currency, 9:00 a.m. (Chicago time) four (4)
Business Days prior to the date of such proposed Uncommitted Borrowing.
(iii) Such Borrower, or the Company on behalf of such Borrower,
shall, in turn, before the applicable Acceptance Deadline, either
(A) cancel, without incurring an obligation on the part of such
Borrower or the Company to indemnify for losses, costs or expenses
under Section 2.02(d), such Uncommitted Borrowing by giving the
Administrative Agent notice to that effect, in which case such
Uncommitted Borrowing shall not be made, or
(B) accept one or more of the offers made by any Bank or Banks
pursuant to paragraph (ii) above, in its sole discretion but in any
event in ascending order of the fixed rates of interest or Uncommitted
Borrowing Margins (as applicable) offered by all of the Banks
responding to such Notice of Uncommitted Borrowing, by giving notice
to the Administrative Agent of the relevant Banks and the respective
amounts of each Uncommitted Advance (each of which amounts shall be
equal to or greater than the minimum amount, and equal to or less than
the maximum amount, offered to be made by the respective Bank for such
Uncommitted Advance pursuant to Section 2.02(a)(ii) above) and reject
any remaining offers made by Banks pursuant to such Section by giving
the Administrative Agent notice to that effect. No Borrower may
accept offers which, in the aggregate, exceed the requested
Uncommitted Borrowing specified in the applicable Notice of
Uncommitted Borrowing. If two or more Banks bid at the same
Uncommitted Borrowing Margin or fixed rate of interest, as the case
may be, and the amount of accepted offers is less than the aggregate
amount of such offers, the amount to be borrowed from such Banks as
part of such Uncommitted Borrowing shall be allocated pro rata on the
basis of the maximum amount offered by
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each such Bank at such fixed rates or Uncommitted Borrowing Margins in
connection with such Uncommitted Borrowing.
The Administrative Agent shall promptly notify the Banks of each notice it
receives pursuant to this paragraph (iii). "Acceptance Deadline" means,
(x) in the case of a Fixed Rate Uncommitted Borrowing, 10:00 a.m. (Chicago
time) on the date of such proposed Uncommitted Borrowing, (y) in the case
of a Eurocurrency Rate Uncommitted Borrowing to be denominated in Dollars,
5:00 p.m. (Chicago time) three (3) Business Days prior to the date of such
proposed Uncommitted Borrowing, and (z) in the case of a Eurocurrency Rate
Uncommitted Borrowing to be denominated in an Alternative Currency, 5:00
p.m. (Chicago time) four (4) Business Days prior to the date of such
proposed Uncommitted Borrowing.
(iv) If such Borrower accepts, or the Company accepts on such
Borrower's behalf, one or more of the offers made by any Bank or Banks
pursuant to Section 2.03(a)(iii)(B) above, the Administrative Agent shall
in turn promptly notify (A) each Bank that has made an offer pursuant to
Section 2.03(a)(ii) of the date and aggregate amount of such Uncommitted
Borrowing and whether or not any offer or offers so made by such Bank have
been accepted by such Borrower, (B) each Bank that is to make an
Uncommitted Advance as a part of such Uncommitted Borrowing, of the amount
of each Uncommitted Advance to be made by such Bank as part of such
Uncommitted Borrowing, and (C) each Bank that is to make an Uncommitted
Advance as part of such Uncommitted Borrowing, upon receipt, that the
Administrative Agent has received forms of documents appearing to fulfill
the applicable conditions set forth in Article III. Each Bank that is to
make an Uncommitted Advance as part of such Uncommitted Borrowing shall,
before 1:00 p.m. (Chicago time) on the date of such Uncommitted Borrowing
specified in the notice received from the Administrative Agent pursuant to
clause (A) of the preceding sentence or any later time when such Bank shall
have received notice from the Administrative Agent pursuant to subclause
(C) of the preceding sentence, make available to the Administrative Agent
at the Administrative Agent's Domestic Lending Office, in federal or
otherwise immediately available funds, such Bank's portion of such
Uncommitted Borrowing. After the Administrative Agent receives such funds
and when the applicable conditions set forth in Article III have been
fulfilled, the Administrative Agent will make such funds available to the
applicable Borrower at the Administrative Agent's aforesaid address.
Promptly after (x) each Uncommitted Borrowing, the Administrative Agent
will notify each Bank of the amount and date of the Uncommitted Borrowing
and the maturity date thereof and the Available Commitment of each Bank
after giving effect to such Uncommitted Borrowing and (y) the prepayment of
any Uncommitted Borrowing by or on behalf of such Borrower, the
Administrative Agent will notify each Bank of the amount and date of each
such prepayment and the Available Commitment of each Bank after giving
effect thereto.
(b) Each Uncommitted Borrowing shall be in an aggregate amount of not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, or
if the requested currency for such
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Advance is not Dollars, the equivalent of such amount (determined in accordance
with Section 2.16) or multiple in the requested Alternative Currency.
(c) Within the limits and on the conditions set forth in this Section
2.03, each Borrower may from time to time borrow under this Section 2.03, repay
pursuant to subsection (d) below, and reborrow under this Section 2.03;
provided, that an Uncommitted Borrowing shall not be made within three Business
Days of any other Uncommitted Borrowing.
(d) Each Borrower shall repay to the Administrative Agent, for the
account of each Bank which has made an Uncommitted Advance to such Borrower, on
the maturity date of each such Uncommitted Advance (such maturity date being
that specified for repayment of such Uncommitted Advance in the related Notice
of Uncommitted Borrowing delivered pursuant to Section 2.03(a)(i) above) the
then unpaid principal amount of such Uncommitted Advance. A Borrower shall not
have the right to prepay any principal amount of any Uncommitted Advance without
the consent of the Bank making such Advance.
(e) Each Borrower shall pay interest on the unpaid principal amount
of each Uncommitted Advance made to it, from the date of such Uncommitted
Advance to the date the principal amount of such Uncommitted Advance is repaid
in full, at the rate of interest for such Uncommitted Advance specified by the
Bank making such Uncommitted Advance in its notice with respect thereto
delivered pursuant to Section 2.03(a)(ii) above, payable on the interest payment
date or dates specified for such Uncommitted Advance in the related Notice of
Uncommitted Borrowing delivered pursuant to Section 2.03(a)(i) above.
(f) The Borrower of any Uncommitted Advance shall, promptly upon
request by the Bank making such Uncommitted Advance (either in the quote
delivered by such Bank pursuant to Section 2.03(a)(ii) or by notice to the
Administrative Agent), execute and deliver to the Administrative Agent an
Uncommitted Note payable to the order of such Bank in a principal amount equal
to the principal amount of such Uncommitted Advance and otherwise on such terms
as were agreed to for such Uncommitted Advance in accordance with Section 2.03.
SECTION 2.04. Facility Fee. (a) The Borrowers jointly and severally
agree to pay to the Administrative Agent, for the account of each Bank, a
facility fee (the "Facility Fee") on such Bank's Commitment in effect at any
time from the date hereof until the Termination Date, payable in arrears on the
first day of each January, April, July and October during the term of such
Bank's Commitment, commencing on the Effective Date, and on the Termination
Date, at a rate per annum equal to the following percentage in effect from time
to time:
(i) 0.10% for each day Level I Status exists,
(ii) 0.125% for each day Level II Status exists, and
(iii) 0.15% for each day Level III Status exists.
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For purposes of determining the Facility Fee, the Level I Status applicable to
the period from the Effective Date to the end of the first fiscal quarter for
which the Fixed Charge Coverage Ratio and Leverage Ratio are calculated shall be
determined by the Administrative Agent on the Effective Date based on the pro
forma Leverage Ratio on such date. For any date thereafter, Level Status shall
be adjusted effective on the tenth (10th) Business Day after the delivery of the
Company's quarterly or annual financial statements pursuant to Section 5.02;
provided, that if timely delivery of such financial statements is not made,
Level III Status shall be deemed to exist until such delivery is made.
(b) Notwithstanding the foregoing, (i) any Facility Fee accrued with
respect to any Commitment of a Defaulting Bank during the period prior to the
time such Bank became a Defaulting Bank and unpaid at such time shall not be
payable by the Borrowers so long as such Bank shall be a Defaulting Bank, except
to the extent such Facility Fee was due and payable prior to such time, and (ii)
no Facility Fee shall accrue on the Commitment of a Defaulting Bank so long as
such Bank is a Defaulting Bank.
SECTION 2.05. Reduction and Termination of the Commitments; Right to
Replace Banks. (a) The Company shall have the right, upon at least five (5)
days' notice to the Administrative Agent to terminate in whole or reduce ratably
in part the unused portions of the respective Commitments of the Banks;
provided, that the aggregate amount of the Commitments of the Banks shall not be
reduced to an amount which is less than the aggregate principal amount of the
Uncommitted Advances then outstanding and provided, further, that each partial
reduction shall be in an aggregate amount of $5,000,000 or any integral multiple
of $1,000,000 in excess thereof.
(b) Provided that no Event of Default shall have occurred and be
continuing, the Company may replace any Bank, in whole but not in part, that
fails to make an Advance that it is required to make hereunder or that gives
notice of any additional amounts payable by the Borrower to such Bank pursuant
to Sections 2.12, 2.13 or 2.19(a) by (i) giving such Bank and the Administrative
Agent not less than ten (10) Business Days' prior notice thereof, which notice
shall be irrevocable and effective only when received by such Bank and the
Administrative Agent and shall specify the effective date of such replacement,
and (ii) effecting an assignment of all of the Bank's Commitment and Advances in
accordance with Section 9.07.
SECTION 2.06. Payment; Conversion and Continuation. (a) On the
Termination Date, the Borrowers shall repay, to the Administrative Agent for the
ratable account of the Banks, the entire unpaid principal amount of the Advances
made by each Bank.
(b) Any Borrower may elect (x) to convert Base Rate Advances or any
portion thereof to Eurocurrency Rate Advances denominated in Dollars, (y) to
convert Eurocurrency Rate Advances denominated in Dollars or any portion thereof
into Base Rate Advances, or (z) to continue any Eurocurrency Rate Advance or any
portion thereof for an additional Interest Period; provided, however, that the
aggregate amount of Base Rate Advances being converted into Eurocurrency Rate
Advances or of Eurocurrency Rate Advances being continued shall, in the
aggregate, equal $5,000,000 or an integral multiple of $1,000,000 in excess
thereof. The applicable Interest Period for the continuation of any
Eurocurrency Rate Advance shall commence on the day on which the immediately-
preceding Interest Period expires. Each conversion or continuation shall be
allocated among the Committed Advances of
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each Bank in accordance with its Pro Rata Share of the amount so converted or
continued. Each such election shall be in substantially the form of Exhibit E
(a "Notice of Conversion or Continuation") and shall be made by giving the
Administrative Agent notice by 10:00 a.m. (Chicago time) on the date of such
conversion or continuation, in the case of a conversion to a Base Rate Advance,
giving the Administrative Agent at least three Business Days' prior written
notice thereof in the event of a conversion to or continuation of a Eurocurrency
Advance specifying, in each case (i) whether a conversion or continuation is to
take place, (ii) what Advances are to be converted or continued, and if
converted, the Type of Advance to which it is to be converted, (iii) the amount
of the conversion or continuation, (iv) the Interest Period therefor and (v) in
the case of a conversion, the date of conversion (which date shall be a Business
Day). The Administrative Agent shall promptly notify each Bank of its receipt
of a Notice of Conversion or Continuation by sending such Bank a copy thereof.
If, within the time period required under the terms of this Section 2.06(b), the
Administrative Agent does not receive a Notice of Conversion or Continuation
from the applicable Borrower containing an election to continue or convert any
Advances for an additional Interest Period, then, upon the expiration of the
Interest Period therefor, such Advances, if denominated in Dollars, will be
automatically converted to Base Rate Advances, and if denominated in an
Alternative Currency, will be automatically continued for an Interest Period of
one month.
SECTION 2.07. Interest on Committed Advances. Each Borrower shall
pay interest on the unpaid principal amount of each Committed Advance made by
each Bank to it from the date of such Committed Advance until such principal
amount shall be paid in full, at the following rates per annum:
(a) Base Rate Advances. During such period as such Committed Advance
is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in
effect from time to time, payable quarterly in arrears on the first day of each
January, April, July and October, commencing July 1, 1996. The Administrative
Agent shall give notice to the Company and the applicable Borrower (if other
than the Company) and each Bank of any change in the Base Rate promptly after
such change occurs, but the Administrative Agent's failure to give such notice
shall not affect the obligation of the Company or such Borrower to pay interest
at such rate when it becomes due and payable.
(b) Eurocurrency Rate Advances. During such period as such Committed
Advance is a Eurocurrency Rate Advance, a rate per annum equal at all times
during each Interest Period for such Committed Advance to the sum of the
Eurocurrency Rate for such Interest Period plus the Applicable Margin, payable
on the last day of such Interest Period and, if such Interest Period has a
duration of more than three months, on each day which occurs during such
Interest Period every three months from the first day of such Interest Period
and on the date such Eurocurrency Rate Advance shall be converted or paid in
full.
(c) Default Interest. Notwithstanding the foregoing provisions of
this Section 2.07, any amount of principal and fees and, to the extent permitted
by law, interest, that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which such
amount is due until such amount is paid in full, payable in arrears on the date
such amount shall be paid in full and on demand, at a rate per annum equal at
all times to 1% per annum above (i) in the case of principal, the rate of
interest otherwise applicable thereto from time to time in accordance with the
terms hereof, and (ii) in the case of interest and fees, the Base Rate in effect
from time to time.
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SECTION 2.08. Additional Interest on Eurocurrency Rate Advances.
Each Borrower shall pay to each Bank, so long as and to the extent such Bank
shall be required under regulations of the Board of Governors of the Federal
Reserve System (or any similar authority outside the United States, in the case
of Committed Advances in Alternative Currencies) to maintain reserves with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or any other category of liabilities that includes deposits by
reference to which the interest rate on Eurocurrency Rate Advances in the
applicable Alternative Currency is determined) and such Bank's performance under
this Agreement (and other like agreements) shall have given rise to additional
reserve requirements for such Bank thereunder, additional interest on the unpaid
principal amount of each Committed Advance constituting a Eurocurrency Rate
Advance of such Bank made to such Borrower, from the date of such Committed
Advance until such principal amount is paid in full, at an interest rate per
annum equal at all times to the remainder obtained by subtracting (a) the
Eurocurrency Rate for the applicable Interest Period for such Committed Advance
from (b) the rate obtained by dividing such Eurocurrency Rate by a percentage
equal to 100% minus the Eurocurrency Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
Committed Advance. Such Bank shall, not later than the last day of the
applicable Interest Period, provide notice to the Administrative Agent, the
Company and, if other than the Company, the applicable Borrower of any such
additional interest arising in connection with such Committed Advance. Such
additional interest so notified on a timely basis by any Bank shall be payable
to the Administrative Agent for the account of such Bank on the dates specified
for payment of interest for such Committed Advance in Section 2.07.
SECTION 2.09. Interest Rate Determination. (a) The Administrative
Agent shall give prompt notice to the Company and the applicable Borrower (if
other than the Company) and each of the Banks of the applicable interest rate
determined by the Administrative Agent for purposes of Section 2.07(a) or (b).
(b) On the date on which the aggregate unpaid principal amount of
Eurocurrency Rate Advances comprising any Committed Borrowing shall be reduced,
by payment, prepayment or otherwise, to less than $5,000,000, such Advances
shall automatically convert into Base Rate Advances and such conversion shall be
subject to Section 2.11.
SECTION 2.10. Prepayments. A Borrower may prepay, on notice given no
later than 11:00 a.m. (Chicago time) on the date of prepayment (in the case of
Base Rate Advances) and on three Business Days' prior notice (in the case of
Eurocurrency Rate Advances) to the Administrative Agent, each Committed
Borrowing made to such Borrower, in whole or in part. Such notice shall include
the proposed date and aggregate principal amount of such prepayment, and if such
notice is given, such Borrower shall prepay such principal amount, together with
accrued interest to the date of such prepayment on the principal amount prepaid,
and any amounts payable, if any, pursuant to Section 2.11 hereof in connection
therewith shall be paid on the date of such prepayment; provided, however, that
each partial prepayment shall be in an aggregate principal amount of not less
than $5,000,000 or an integral multiple of $1,000,000 in excess thereof.
Subject to Sections 2.12 and 2.13, each prepayment of a Committed Borrowing
shall be made to each Bank in accordance with such Bank's Pro Rata Share
thereof. The Company shall, on the first Business Day of each January, April,
July and October, if the aggregate outstanding principal amount of all Advances,
calculated in accordance with Section 2.16 by the Administrative Agent on the
seventh Business Day prior to such payment date and reported to the
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Company by the fifth Business Day prior to such payment date, exceeds (as the
result of fluctuations in applicable foreign exchange rates or otherwise) 105%
of the then aggregate amount of the Banks' Commitments (calculated as
aforesaid), prepay a Committed Borrowing or Borrowings (in whole or in part, and
in any case as selected by the Company) in an aggregate amount (calculated as
aforesaid, and rounded upward, if necessary, to the nearest $1,000,000) equal to
the excess of:
(a) the aggregate principal amount (calculated as aforesaid) of
Advances outstanding, over
(b) the then aggregate amount of the Banks' Commitments
(calculated as aforesaid).
Each prepayment of any Committed Borrowing (in whole or in part) made pursuant
to this Section 2.10 shall be without premium or penalty, but shall be subject
to the provisions of Section 2.11. Any mandatory prepayment of a Committed
Borrowing shall be made to the Administrative Agent for the account of each Bank
based on such Bank's Pro Rata Share of such Committed Borrowing and shall
include accrued and unpaid interest on the principal amount prepaid and all
amounts owing under Section 2.11.
SECTION 2.11. Funding Indemnification. If any payment of principal
of any Advance (other than a Base Rate Advance) is made other than on the last
day of an Interest Period for such Advance, as a result of acceleration of the
maturity of the Advances pursuant to Section 6.01 or for any other reason, or if
any Eurocurrency Rate Advance is converted to a Base Rate Advance pursuant to
Section 2.13(b) on any day other than the last day of an Interest Period for
such Eurocurrency Rate Advance, the applicable Borrower shall, upon demand by
any Bank (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Bank any amounts required to
compensate such Bank for any additional losses, costs or expenses which it may
reasonably incur as a result of such payment or conversion, including without
limitation any loss (excluding loss of anticipated profits), cost or expense
reasonably incurred as a result of the liquidation or re-employment of deposits
or other funds acquired by such Bank to fund or maintain such Advance.
SECTION 2.12. Increased Costs and Reduced Return. (a) Subject to
the limitation in Section 2.03(a)(ii), if, due to either (i) the introduction of
or any change (other than any change by way of imposition or increase of reserve
requirements, in the case of Eurocurrency Rate Advances, included in the
Eurocurrency Rate Reserve Percentage), after the date hereof, in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) issued after the date hereof, there
shall be any increase in the cost to any Bank of agreeing to make, making,
funding or maintaining Eurocurrency Rate Advances, by an amount reasonably
deemed by such Bank to be material, then from time to time, within ten days
after demand by such Bank (with a copy of such demand to the Administrative
Agent), such Borrower shall pay to the Administrative Agent for the account of
such Bank additional amounts sufficient to compensate such Bank for such
increased cost; provided, that no Borrower shall be obligated to pay any such
amount to the extent such amount results from a change, guideline or request
which took effect more than 90 days prior to the date of such demand.
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(b) Subject to the limitation in Section 2.03(a)(ii), if any Bank
shall have determined that the adoption, after the date hereof, of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive issued after the date
hereof regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital as a consequence of
its obligations hereunder to a level below that which such Bank could have
achieved but for such adoption, change or compliance by an amount reasonably
deemed by such Bank to be material, then from time to time, within ten days
after demand by such Bank (with a copy of such demand to the Administrative
Agent), the Company shall pay to the Administrative Agent for the account of
such Bank such additional amount or amounts as will compensate such Bank, in
light of such circumstances, to the extent such Bank reasonably determines such
reduction to be allocable to the existence of such Bank's Commitment; provided,
that no Borrower shall be obligated to pay any such amount to the extent such
amount results from an adoption, change, request or directive which took effect
or was issued more than 90 days prior to the date of such demand.
(c) Each Bank will promptly notify the Administrative Agent and the
Company of any event of which it has knowledge, occurring after the date hereof,
which would entitle such Bank to compensation pursuant to this Section 2.12. A
certificate of any Bank claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall create a
rebuttable presumption as to the correctness of such additional amount or
amounts. Each Bank agrees not to request any payment under this Section 2.12
unless similar requests are then generally being made by such Bank of other
borrowers similarly situated, and to use a reasonable basis for calculating
amounts allocable to its Commitment hereunder.
SECTION 2.13. Illegality. (a) If any Bank shall determine (which
determination shall be rebuttably presumed correct as to all parties) at any
time that the making or continuance of its Eurocurrency Rate Advances has become
unlawful because of the introduction of or any change in or in the
interpretation of any law or regulation or because of the assertion of
unlawfulness by any central bank or other governmental authority, then, in any
such event, such Bank shall give prompt notice (by telephone confirmed in
writing) to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each Borrower and the other
Banks).
(b) Upon the giving of the notice to the Company referred to in
subsection (a) above, if the affected Advances are then outstanding, each
Borrower shall, upon at least one Business Day's written notice to the
Administrative Agent and the affected Bank, or if permitted by applicable law no
later than the date permitted thereby, in such Borrower's sole discretion,
either (i) prepay the principal amount of all outstanding Advances of such Bank
to which such notice relates, together with accrued interest thereon to the date
of payment, or (ii) convert each such Advance into a Base Rate Advance
denominated in Dollars and, in each case, be obligated to reimburse the Banks in
respect thereof pursuant to Section 2.11 hereof. If more than one Bank gives
notice pursuant to Section 2.13(a) at any time, then all outstanding Advances of
the affected Type or currency of such Banks must be treated in the same manner
by the Borrowers pursuant to this subsection 2.13(b) and the Banks' obligations
to make, convert
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or continue Eurocurrency Rate Advances shall be suspended until the
Administrative Agent notifies the Borrowers that the circumstances causing such
suspension no longer exist.
SECTION 2.14. Payments and Computations. (a) Each Borrower shall
make each payment hereunder and under the Notes by causing a wire transfer of
immediately-available funds to be initiated to the Administrative Agent in an
amount equal to such payment not later than 12:00 noon (Chicago time) on the day
when due from such Borrower. The Administrative Agent will promptly thereafter
cause to be distributed like funds relating to the payment of principal or
interest or fees ratably (other than amounts payable pursuant to Sections 2.03,
2.05(b), 2.08, 2.11, 2.12, 2.13(b), 2.15, 2.19 or 2.20) to the Banks for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Bank to such Bank for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. All such payments shall be made in
Dollars, except that payments of principal of and interest on Borrowings in an
Alternative Currency shall be made in such Alternative Currency; provided that
if the applicable Borrower fails to make any payment of principal or interest
with respect to any Borrowing in an Alternative Currency on the due date thereof
because such Alternative Currency has ceased to be freely transferable and
convertible into Dollars in the London interbank market, such failure shall not
constitute an Event of Default or an event which would constitute an Event of
Default but for the requirement that notice be given or time elapse or both, if
such Borrower pays the equivalent in Dollars of such payment on the due date
thereof. In addition to any such Dollar payment, such Borrower agrees to pay to
each affected Bank an indemnity payment within five Business Days after such
Borrower shall have received a certificate from such Bank setting forth in
reasonable detail the amount of any loss, cost, damage or expense suffered by
such Bank as a consequence of such inability to make any such payment in such
Alternative Currency on the due date thereof. Each Bank agrees to use
reasonable efforts to avoid or minimize all such loss, cost, damage or expense.
(b) All computations of interest based on the Base Rate shall be made
by the Administrative Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Eurocurrency Rate or
the Federal Funds Effective Rate, all computations of interest pursuant to
Section 2.08 and all computations of the Facility Fee shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Administrative Agent (or, in the case of Section 2.08, by a
Bank) of an interest rate or fee owing hereunder shall create a rebuttable
presumption as to the correctness of such determination.
(c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
provided, however, if such extension would cause payment of interest on or
principal of Eurocurrency Rate Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(d) Unless the Administrative Agent shall have received notice from
the applicable Borrower prior to the date on which any payment is due to the
Banks hereunder that such Borrower will
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not make such payment in full, the Administrative Agent may assume that such
Borrower has made such payment in full to the Administrative Agent on such date
and the Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent such Borrower shall not have so made such
payment in full to the Administrative Agent, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Effective Rate.
SECTION 2.15. Sharing of Payments, Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Committed Advances made by it (other
than pursuant to Sections 2.08, 2.11, 2.12, 2.13(b), 2.19 or 2.20) in excess of
its ratable share of payments on account of the Committed Advances obtained by
all the Banks, such Bank shall forthwith purchase from the other Banks such
participations in the Committed Advances made by them as shall be necessary to
cause such purchasing Bank to share the excess payment ratably with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the purchase
price to the extent of such recovery together with an amount equal to such
Bank's ratable share (according to the proportion of (a) the amount of such
Bank's required repayment to (b) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. Each Borrower
agrees that any Bank so purchasing a participation from another Bank with
respect to Advances made to such Borrower pursuant to this Section 2.15 may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of such Borrower in the amount of such
participation.
SECTION 2.16. Currency Equivalents. (a) For purposes of this
Article II, (i) the equivalent in Dollars of any Alternative Currency shall be
determined by using the spot rate at which First Chicago's principal office in
London offers to exchange Dollars for such Alternative Currency in the interbank
market in London at 11:00 a.m. (London time) two Business Days prior to the date
on which such equivalent is to be determined, (ii) the equivalent in any
Alternative Currency of any other Alternative Currency shall be determined by
using the spot rate at which First Chicago's principal office in London offers
to exchange such Alternative Currency for the equivalent in such other
Alternative Currency in London at 11:00 a.m. (London time) two Business Days
prior to the date on which such equivalent is to be determined, and (iii) the
equivalent in any Alternative Currency of Dollars shall be determined by using
the spot rate at which First Chicago's principal office in London offers to
exchange such Alternative Currency for Dollars in London at 11:00 a.m. (London
time) two Business Days prior to the date on which such equivalent is to be
determined. The equivalent in Dollars of each Eurocurrency Rate Advance made in
an Alternative Currency shall be recalculated hereunder on each day that it is
necessary to determine the unused portion of each Bank's Commitment, or any or
all of the Advances on such date.
(b) If for the purpose of obtaining a judgment in any court with
respect to any obligation of a Borrower hereunder, it shall become necessary for
the Administrative Agent or any Bank entitled
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to receive payments hereunder to convert any amount into a currency other than
the currency denominated hereunder for such obligation, then such conversion
shall be made on the basis of rates (the "Exchange Rates") determined in the
manner described in subsection (a) above (or, if the applicable currency to be
converted is not at the time of conversion available in the interbank market in
London, then in such other interbank market as the Administrative Agent shall
determine to have adequate availability of such currency) and the date with
respect to which such an equivalent is to be determined shall be the first
Business Day preceding the date on which final judgment is entered. If pursuant
to any such judgment conversion is to be made with respect to a date other than
the date referred to above, and there shall occur a change between the Exchange
Rates in effect on such date and the Exchange Rates in effect on the date of
payment, (i) the applicable Borrower agrees to pay such additional amounts (if
any) as may be necessary to ensure that the amount paid is the amount in such
other currency which, when converted at the Exchange Rates as in effect on the
date of payment or distribution, is the amount then due hereunder in the
relevant currency and (ii) such Borrower shall not be required to pay any amount
in excess of the amount determined to be payable in connection with such
obligation, calculated on the basis of the Exchange Rates in effect on the first
Business Day preceding the date on which final judgment is entered. Any amount
due from a Borrower under this subsection (b) shall be due as a separate debt
and is not to be affected by or merged into any judgment being obtained for any
other sums due hereunder.
SECTION 2.17. Borrowing Subsidiaries. The Company may at any time or
from time to time add as a party to this Agreement any Subsidiary of the Company
as a "Borrowing Subsidiary" hereunder by causing such Subsidiary to execute and
deliver a duly completed Assumption Letter to the Administrative Agent, with the
written consent of the Company at the foot thereof. Upon such execution,
delivery and consent such Subsidiary shall for all purposes be a party hereto as
a Borrowing Subsidiary as fully as if it had executed and delivered this
Agreement. So long as the principal of and interest on all Advances made to any
Borrowing Subsidiary under this Agreement shall have been paid in full and all
other obligations of such Borrowing Subsidiary shall have been fully performed,
such Borrowing Subsidiary may, by not less than five Business Days' prior notice
to the Administrative Agent (which shall promptly notify the Banks thereof),
terminate its status as a "Borrowing Subsidiary."
SECTION 2.18. Reserved.
SECTION 2.19. Taxes. (a) Any and all payments by a Borrower
hereunder or under the Notes shall be made in accordance with Section 2.14, free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Bank and the Administrative
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Administrative Agent is
organized or any political subdivision thereof and taxes imposed on its income,
and franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Bank or the Administrative Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.19) such Bank or the Administrative Agent (as the case may be) receives an
amount equal
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to the sum it would have received had no deductions been made, (ii) such
Borrower shall make such deductions and (iii) such Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, each Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Notes or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Administrative Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.19) paid by such Bank or the Administrative Agent and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted; provided, that the Borrowers shall have no obligation under this
subsection (c) to indemnify any Bank or the Administrative Agent if a Borrower
shall have performed its obligations under subsection (a) and (b), thereby
providing such Bank or the Administrative Agent (as the case may be) the
wherewithal to make payment of any such Taxes or Other Taxes, or shall
demonstrate that payment of such Taxes or Other Taxes has been made, and such
Bank or the Administrative Agent (as the case may be) shall not have effected
such payment or made such demonstration of payment on a timely basis to the
relevant taxing authorities. This indemnification shall be made to the
Administrative Agent for the account of such Bank or the Administrative Agent
(as the case may be) within 30 days from the date such Bank or the
Administrative Agent makes written demand therefor (with a copy, in the case of
a demand by a Bank, of such demand to the Administrative Agent).
(d) Notwithstanding the foregoing, unless, prior to the Initial Borrowing
Date (in the case of a Bank listed on Schedule 2.01 hereto), and prior to the
effective date of the Assignment and Acceptance by which it became a Bank (in
the case of bank that became a Bank pursuant to such Assignment and Acceptance),
and in each case from time to time thereafter, if requested by any Borrower,
(i) each Bank organized under the laws of a jurisdiction outside the
United States shall have provided the Company with the forms prescribed by
the Internal Revenue Service of the United States certifying as to such
Bank's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank
hereunder or other documents satisfactory to the Company which shall
indicate that all payments to be made to such Bank hereunder are not
subject to United States withholding tax or are subject to such taxes at a
rate reduced to zero by an applicable tax treaty, neither the Company nor
any other Borrower shall have any obligation under the last sentence of
Section 2.19(a) to make any payments to or for the benefit of such Bank in
excess of the amounts otherwise payable under this Agreement, and
(ii) each Bank organized under the laws of a jurisdiction outside the
jurisdiction where any Borrowing Subsidiary is incorporated shall have
taken all steps prescribed by the applicable governmental authority in the
jurisdiction where such Borrowing
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Subsidiary is located so that such Bank is exempt from applicable
withholding taxes with respect to all payments to be made to such Bank
hereunder or so that all payments to be made to such Bank hereunder are not
subject to applicable withholding taxes or are subject to such taxes at a
rate reduced to zero by an applicable tax treaty, neither the Company nor
any other Borrower shall have any obligation under the last sentence of
Section 2.19(a) to make any payments to or for the benefit of such Bank in
excess of the amounts otherwise payable under this Agreement; provided,
however, that the applicable Borrower shall make the payments required by
the last sentence of Section 2.19(a) if the obligation to withhold arises
from a change in applicable law after the date hereof (or, with respect to
payments to a new Applicable Lending Office designated pursuant to Section
2.21, after the date such Bank designates such new Applicable Lending
Office).
Unless the applicable Borrower has received forms or other documents, including
Form 1001, Form 4224 or any other applicable tax forms from the United States or
any other applicable jurisdiction, such forms to be satisfactory to the Company,
indicating that payments hereunder are not subject to any withholding tax or are
subject to such tax at a rate reduced to zero by an applicable tax treaty, the
applicable Borrower shall withhold taxes from such payments at the applicable
statutory rate in the case of payments to or for any Bank organized under the
laws of a jurisdiction outside the United States (or in the case of a Borrowing
Subsidiary incorporated outside the United States, any Bank organized under the
laws outside of the jurisdiction where such Borrowing Subsidiary is
incorporated). Should a Bank become subject to Taxes because of its failure or
inability to deliver a form required hereunder, the Company shall take such
steps not requiring the expenditure of money as the Bank shall reasonably
request to assist the Bank to recover such Taxes.
SECTION 2.20. Defaulting Banks. (a) If at any time (i) any Bank
shall be a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted
Advance to a Borrower and (iii) such Borrower shall be required to make any
payment hereunder or under any Note to or for the account of such Defaulting
Bank, then such Borrower may, so long as no Event of Default shall have occurred
and be continuing at such time and to the fullest extent permitted by applicable
law, set off and otherwise apply the amount owed by the Borrower to or for the
account of such Defaulting Bank against the obligation of such Defaulting Bank
to make such Defaulted Advance. If a Borrower shall so set off and otherwise
apply the amount owed by such Borrower to or for the account of such Defaulting
Bank against the obligation of such Defaulting Bank to make any such Defaulted
Advance on any date, the amount so set off and otherwise applied by such
Borrower shall constitute for all purposes of this Agreement and the Notes an
Advance by such Defaulting Bank made on the date of such setoff. Such Advance
shall be a Base Rate Advance and shall be considered, for all purposes of this
Agreement, to comprise part of the Borrowing in connection with which such
Defaulted Advance was originally required to have been made pursuant to Section
2.01 or Section 2.03(a), as the case may be, even if the other Advances
comprising such Borrowing shall be Eurocurrency Rate Advances on the date such
Advance is deemed to be made pursuant to this Section 2.20(a). The applicable
Borrower shall notify the Administrative Agent at any time such Borrower makes a
setoff under this Section 2.20(a) and shall specify in such notice (A) the name
of the Defaulting Bank and the Defaulted Advance required to be made by such
Defaulting Bank and (B) the amount set off and otherwise applied in respect of
such Defaulted Advance pursuant to this Section 2.20(a). Any part of such
payment otherwise required to be made by such Borrower to or for the account of
such Defaulting Bank that is paid by such Borrower, after giving effect to the
amount set
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off and otherwise applied by such Borrower pursuant to this Section 2.20(a),
shall be applied by the Administrative Agent as specified in Section 2.20(b) or
2.20(c).
(b) If at any time (i) any Bank shall be a Defaulting Bank, (ii) such
Defaulting Bank shall owe a Defaulted Amount to the Administrative Agent or any
of the other Banks and (iii) a Borrower shall make any payment hereunder or
under any Note to the Administrative Agent for the account of such Defaulting
Bank, then the Administrative Agent may, on its behalf or on behalf of such
other Banks and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by such Borrower to or for the account of such
Defaulting Bank to the payment of each such Defaulted Amount to the extent
required to pay such Defaulted Amount. If the Administrative Agent shall so
apply any such amount to the payment of any such Defaulted Amount on any date,
the amount so applied by the Administrative Agent shall constitute for all
purposes of this Agreement and the Notes payment to such extent of such
Defaulted Amount on such date. Any such amount so applied by the Administrative
Agent shall be retained by the Administrative Agent or distributed by the
Administrative Agent to such other Banks, ratably in accordance with their
respective portions of such Defaulted Amounts payable at such time to the
Administrative Agent and such other Banks and, if the amount of such payment
made by such Borrower shall at any time be insufficient to pay all Defaulted
Amounts owing at such time to the Administrative Agent and the other Banks, in
the following order of priority:
(A) first, to the Administrative Agent for any Defaulted Amounts
owing to the Administrative Agent (solely in its capacity as Administrative
Agent) at such time; and
(B) second, to the other Banks for any Defaulted Amounts owing to the
other Banks (solely in their capacity as Banks) at such time, ratably in
accordance with such respective Defaulted Amounts owing to each other Bank
(solely in its capacity as a Bank) at such time.
Any part of such payment made by such Borrower for the account of such
Defaulting Bank remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this Section 2.20(b), shall be applied by the
Administrative Agent as specified in Section 2.20(c).
(c) If at any time, (i) any Bank shall be a Defaulting Bank, (ii) such
Defaulting Bank shall not owe a Defaulted Advance or a Defaulted Amount and
(iii) a Borrower, the Administrative Agent or any other Bank shall be required
to pay or to distribute any amount hereunder or under any Note to or for the
account of such Defaulting Bank, then such Borrower or such other Bank shall pay
such amount to the Administrative Agent to be held by the Administrative Agent,
to the fullest extent permitted by applicable law, in escrow or the
Administrative Agent shall, to the fullest extent permitted by applicable law,
hold in escrow such amount otherwise held by it. Any funds held by the
Administrative Agent in escrow under this Section 2.20(c) shall be deposited by
the Administrative Agent in an account with First Chicago, in the name and under
the control of the Administrative Agent, but subject to the provisions of this
Section 2.20(c). The terms applicable to such account, including the rate of
interest payable with respect to the credit balance of such account from time to
time, shall be First Chicago's standard terms applicable to escrow accounts
maintained with it. Any interest credited to such account from time to time
shall be held by the Administrative Agent in escrow under, and applied by the
Administrative Agent from time to time in accordance with the provisions of,
this Section 2.20(c). The Administrative Agent shall,
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to the fullest extent permitted by applicable law, apply all funds so held in
escrow from time to time to the extent necessary to make any Advances required
to be made by such Defaulting Bank and to pay any amount payable by such
Defaulting Bank hereunder to the Administrative Agent or any other Bank, as and
when such Advances or such amounts are required to be made or paid and, if the
amount so held in escrow shall any time be insufficient to make and pay all such
Advances and all such amounts required to be made or paid at such time, in the
following order of priority:
(A) first, to the Administrative Agent for any amounts due and
payable by such Defaulting Bank to the Administrative Agent hereunder
(solely in its capacity as Administrative Agent) at such time;
(B) second, to the other Banks for any amounts due and payable by
such Defaulting Bank to the other Banks hereunder (solely in their capacity
as Banks) at such time, ratably in accordance with such respective amounts
due and payable to each other Bank (solely in its capacity as Bank) at such
time; and
(C) third, to the applicable Borrower for any Advances required to be
made by such Defaulting Bank pursuant to the Commitment of such Defaulting
Bank at such time.
If such Defaulting Bank shall, at any time, cease to be a Defaulting Bank,
any funds held by the Administrative Agent in escrow at such time with respect
to such Defaulting Bank shall be distributed by the Administrative Agent to such
Defaulting Bank and applied by such Defaulting Bank to the amounts owing to such
Defaulting Bank at such time under this Agreement in accordance with the terms
of this Agreement.
(d) The rights and remedies against a Defaulting Bank under this Section
2.20 are in addition to other rights and remedies that the Borrowers may have
against such Defaulting Bank with respect to any Defaulted Advance and that the
Administrative Agent or any other Bank may have against such Defaulting Bank
with respect to any Defaulted Amount.
SECTION 2.21. Mitigation. Any Bank claiming any additional amounts
payable pursuant to Sections 2.12 or 2.19 or subject to Section 2.13 shall use
its reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any such additional amounts which may thereafter accrue under
Sections 2.12 or 2.19 or would avoid the unavailability of Eurocurrency Rate
Advances under Section 2.13 and would not, in any such case, in the judgment of
such Bank, be otherwise disadvantageous to such Bank.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. Conditions Precedent to Agreement. Except with resect
to Section 2.01 and 2.03, this Agreement shall become effective on the first day
on which the Administrative Agent shall
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have received the following, in form and substance reasonably satisfactory to
the Administrative Agent in sufficient copies for the Banks:
(a) This Agreement, executed by the Company, the Administrative Agent
and each of the Banks;
(b) A certificate of the Secretary of the Company certifying (A)
copies attached thereto of the resolutions of the Board of Directors of the
Company authorizing the Company's execution, delivery and performance of
this Agreement, and the completion of the Initial Public Offering and the
other transactions contemplated hereby, (B) copies attached thereto of the
Certificate of Incorporation and by-laws of the Company, and (C) the names
and true signatures of the officers of the Company authorized to sign this
Agreement and the Notes and other documents to be executed and delivered by
the Company hereunder; and
(c) A favorable opinion of Sidley & Austin, counsel for the Company,
substantially in the form of Exhibit F-1 hereto, with respect to the
opinions set forth in paragraphs 1, 2 and 3 (as to the Credit Agreement) of
such opinion.
SECTION 3.02. Conditions Precedent to Effectiveness of Sections 2.01
and 2.03. Sections 2.01 and 2.03 shall become effective on the first day (the
"Effective Date") on which all of the following conditions precedent have been
satisfied:
(a) In addition to the deliveries required by Section 3.01, the
Administrative Agent shall have received the following, in form and
substance reasonably satisfactory to the Administrative Agent and (except
for the Committed Notes) in sufficient copies for the Banks:
(i) A Committed Note executed by the Company, payable to each
Bank;
(ii) A certificate of the Secretary of the Company certifying
that as of the Effective Date there has been no change with respect
any of the certifications made pursuant to Section 3.01(b);
(iii) A certificate of a duly authorized officer of the Company,
dated the Effective Date, certifying that as of such date, (A) the
representations and warranties contained in Section 4.01 are correct
on and as of the Effective Date, (B) no event shall have occurred and
be continuing that constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both and (C) the conditions for the Effective
Date have been satisfied;
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(iv) A favorable opinion of Sidley & Austin, counsel for the
Company, substantially in the form of Exhibit F-1 hereto and a
favorable opinion of the General Counsel of the Company in the form of
Exhibit F-2 hereto;
(v) such information as the Administrative Agent and the Banks
may reasonably request to confirm the tax, legal and business
assumptions made in financial statements attached hereto as Exhibit H;
(b) The Company shall have paid all accrued fees and expenses of the
Administrative Agent and the Banks which are due and payable on the
Effective Date (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent);
(c) There shall have occurred no material adverse change in the
business, financial condition, operations, properties or performance of the
Company or its Subsidiaries from such business, financial conditions,
operations, properties or performance reflected in the Registration
Statement;
(d) There shall exist no action, suit or proceeding (investigative,
judicial or otherwise) against the Company or any of its Subsidiaries
pending before any court or arbitrator or any governmental body, agency or
official, or to the knowledge of any Responsible Officer of the Company,
threatened, that could reasonably be expected (i) to have a Material
Adverse Effect or (ii) to materially and adversely affect the legality,
validity or enforceability of this Agreement or any Note, and there shall
exist no injunction or temporary restraining order that, in the judgment of
the Administrative Agent and the Banks, would prohibit the Advances
hereunder;
(e) The representations and warranties contained in Section 4.01
shall be correct on and as of the Effective Date, as though made on and as
of such date;
(f) No event shall have occurred and be continuing which constitutes
an Event of Default or which would constitute an Event of Default but for
the requirement that notice be given or time elapse or both;
(g) The stock of International Communication & Data Services, Ltd.
("ICD") shall have been transferred to the Company and the assets of Data
By Design shall have been transferred to ICD, each on substantially the
terms described in the Registration Statement, or on other terms
satisfactory to the Banks;
(h) The Initial Public Offering shall have been consummated in
accordance with Delaware law and on terms and conditions set forth in the
Registration Statement and the Company shall have received net proceeds of
at least $210,000,000 from the Initial Public Offering;
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(i) The Company shall have repaid, or simultaneously with the
consummation of the Initial Public Offering and the initial Borrowing
hereunder shall pay, all of its Debt and any amounts owed to Donnelley;
(j) The Company shall have executed and delivered the Donnelley
Agreements and the Tax Allocation Agreement, which in each case shall
contain terms and conditions satisfactory to the Banks;
(k) The Company shall have delivered a certificate demonstrating
that, as of the Effective Date and after giving effect to the Initial
Public Offering and the transactions contemplated hereby, the Company would
have a Debt to Capitalization Ratio of less than 30%; and
(l) Such other information and documents as may reasonably be
required by the Administrative Agent and the Administrative Agent's
counsel.
For purposes of determining compliance with the conditions specified
above, each Bank shall be deemed to have consented to, approved and accepted,
and to be satisfied with, each document or other matter required thereunder to
be consented to or approved by or acceptable or satisfactory to the Banks unless
the officer of the Administrative Agent responsible for the transactions
contemplated by this Agreement shall have received notice from such Bank prior
to the proposed Effective Date, as notified by the Administrative Agent to the
Banks, specifying its objection thereto. The Administrative Agent shall
promptly notify the Banks of the occurrence of the Effective Date.
SECTION 3.03. Conditions Precedent to Initial Advance to Each
Borrowing Subsidiary. The obligation of each Bank to make its initial Advance
hereunder to any Borrowing Subsidiary is subject to the conditions precedent
that the Effective Date shall have occurred and the Administrative Agent shall
have received on or before the day of the initial Borrowing by such Borrowing
Subsidiary, as the case may be, the following, each in form and substance
reasonably satisfactory to the Administrative Agent and in sufficient copies for
the Banks:
(a) The Assumption Letter executed and delivered by such Borrowing
Subsidiary and containing the written consent of the Company at the foot
thereof, as contemplated by Section 2.17 hereof;
(b) A Committed Note executed by such Borrowing Subsidiary, payable
to each Bank;
(c) Certified copies of the resolutions of the Board of Directors of
such Borrowing Subsidiary approving the Assumption Letter and all other
documents evidencing corporate action and governmental approvals, if any,
required with respect thereto;
(d) A certificate of the Secretary or an Assistant Secretary of such
Borrowing Subsidiary, certifying the names and true signatures of the
officers of such Borrowing
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Subsidiary authorized to sign the Assumption Letter and the other documents
to be executed and delivered by such Borrowing Subsidiary hereunder; and
(e) An opinion of counsel to such Borrowing Subsidiary, substantially
in the form of Exhibit G hereto and as to such other matters as the
Administrative Agent shall reasonably request.
SECTION 3.04. Conditions Precedent to Each Committed Borrowing. The
obligation of each Bank to make a Committed Advance on the occasion of each
Committed Borrowing (including the initial Committed Borrowing) shall be subject
to the further conditions precedent that the Effective Date shall have occurred
and on the date of such Committed Borrowing the following statements shall be
true (and each of the giving of the applicable Notice of Committed Borrowing and
the acceptance by the applicable Borrower of the proceeds of such Committed
Borrowing shall constitute a representation and warranty by such Borrower that
on the date of such Committed Borrowing such statements are true):
(i) The representations and warranties contained in subsections (a),
(b), (c), (d), (e), (f) and (h) through (q) of Section 4.01 are correct on
and as of the date of such Committed Borrowing, before and after giving
effect to such Committed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date;
(ii) If such Borrower is not the Company, the representations and
warranties set forth in Sections 4.01(a) (except with respect to good
standing, to the extent that such Borrower is not incorporated in the
United States and the jurisdiction in which such Borrower is incorporated
does not recognize the concept of good standing), (b), (c) and (d) of the
Credit Agreement would be true and correct on and as of the date of such
Committed Borrowing if such Borrower were the "Company" and each Note
issued by such Borrower were one of the "Notes" referenced therein; and
(iii) No event has occurred and is continuing, or would result from
such Committed Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both.
SECTION 3.05. Conditions Precedent to Each Uncommitted Borrowing.
Each bidding Bank's obligation to make an Uncommitted Advance as part of an
Uncommitted Borrowing (including the initial Uncommitted Borrowing) is subject
to the conditions precedent that on the date of such Uncommitted Borrowing the
following statements shall be true (and each of the giving of the applicable
Notice of Uncommitted Borrowing and the acceptance by such Borrower of the
proceeds of such Uncommitted Borrowing shall constitute a representation and
warranty by such Borrower that on the date of such Uncommitted Borrowing such
statements are true):
(i) The representations and warranties contained in subsections (a),
(b), (c), (d), (e), (f) and (h) through (q) of Section 4.01 are correct on
and as of the date of such Uncommitted Borrowing, before and after giving
effect to such Uncommitted Borrowing
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and to the application of the proceeds therefrom, as though made on and as
of such date, and
(ii) If such Borrower is not the Company, the representations and
warranties set forth in Sections 4.01(a) (except with respect to good
standing, to the extent that such Borrower is not incorporated in the
United States and the jurisdiction in which such Borrower is incorporated
does not recognize the concept of good standing), (b), (c) and (d) of the
Credit Agreement would be true and correct on and as of the date of such
Committed Borrowing if such Borrower were the "Company" and each Note
issued by such Borrower were one of the "Notes" referenced therein; and
(iii) No event has occurred and is continuing, or would result from
such Uncommitted Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would constitute
an Event of Default but for the requirement that notice be given or time
elapse or both.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 4.01. Representations and Warranties of the Company. The
Company represents and warrants to the Banks as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of incorporation.
(b) The execution, delivery and performance by the Company of this
Agreement and the Notes are within the Company's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) the Company's certificate of incorporation, as amended, or
by-laws or (ii) law or any contractual restriction binding on or affecting
the Company.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the Company's due execution, delivery and performance of this
Agreement.
(d) This Agreement has been, and each of the Notes when delivered
hereunder will have been, duly executed and delivered by the applicable
Borrower. This Agreement is, and each of the Notes when delivered
hereunder will be, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with their respective terms,
subject to any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and to
general principles of equity.
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(e) The pro forma financial statements of the Company and its
Consolidated Subsidiaries, dated as of March 31, 1996, copies of which are
attached hereto as Exhibit H, present on a pro forma basis the financial
condition of the Company and such Subsidiaries as of such date, and reflect
on a pro forma basis those liabilities reflected in the notes thereto and
resulting from consummation of the Initial Public Offering and the other
transactions contemplated by this Agreement, and the payment or accrual of
all transaction costs payable on the Effective Date with respect to any of
the foregoing. The projections and assumptions expressed in the pro forma
financial statements referenced in this Section 4.01(e) were prepared in
good faith and are reasonable based on the information available to the
Company at the time so furnished.
(f) Except to the extent that any of the actions, suits or
proceedings as set forth on Schedule 4.01(f) ("Scheduled Litigation") is
hereafter adversely determined against the Company or any of its
Subsidiaries, there are no actions, suits or proceedings pending before any
court or arbitrator or any governmental body, agency or official, or, to
the knowledge of any Responsible Officer of the Company, threatened, that
could reasonably be expected (i) to have a Material Adverse Effect or (ii)
to materially and adversely affect the legality, validity or enforceability
of this Agreement or any Note. None of the Scheduled Litigation is likely
to be adversely determined against the Company in a manner that would have
a Material Adverse Effect.
(g) Reserved.
(h) Following application of the proceeds of each Advance to the
Company, not more than 25% of the value of the assets (either of the
Company only or of the Company and its Consolidated Subsidiaries) will be
Margin Stock subject to any restriction contained in any agreement or
instrument between the Company and any Bank or any affiliate of any Bank
relating to Debt within the scope of Section 6.01(e).
(i) The Company is not principally engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock and
no proceeds of any Advance to purchase or carry Margin Stock.
(j) The Advances to each Borrower, and all related obligations of
such Borrower under this Agreement, rank pari passu with all other
unsecured indebtedness for money borrowed or raised by such Borrower that
is not, by its terms, expressly subordinated to other such indebtedness of
such Borrower or that is not preferred by law of a jurisdiction other than
the United States.
(k) No Borrower is an "investment company" or a company "controlled"
by an "investment company", within the meaning of the Investment Company
Act of 1940, as amended.
(l) (i) All necessary Environmental Permits have been obtained and
are in effect for the operations and properties of the Company and its
Subsidiaries, and the Company
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and its Subsidiaries are in compliance with all such Environmental Permits,
except to the extent that the failure to so obtain or comply could not
reasonably be expected to have a Material Adverse Effect; and (ii) no
circumstances exist that could reasonably be expected to (A) form the basis
of an Environmental Action against the Company or any of its Subsidiaries
or any of their properties that could reasonably be expected to have a
Material Adverse Effect or (B) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability under any
Environmental Law that could reasonably be expected to have a Material
Adverse Effect.
(m) None of the properties owned or leased (i) by the Company or any
of its Consolidated Subsidiaries is listed or proposed for listing on the
National Priorities List under CERCLA or (ii) by the Company or any of its
Subsidiaries is the subject of any investigation or cleanup, whether
voluntary or required pursuant to any Environmental Law or ordered by any
governmental authority, that could reasonably be expected to have a
Material Adverse Effect.
(n) Except as set forth on Schedule 4.01(n), no ERISA Event has
occurred or is reasonably expected to occur with respect to any Plan.
(o) Neither the Company nor any of its ERISA Affiliates (i) has
incurred or is reasonably expected to incur any Withdrawal Liability with
respect to any Multiemployer Plan or (ii) has been notified by the sponsor
of a Multiemployer Plan that such Multiemployer Plan is in reorganization
or has been terminated, within the meaning of Title IV of ERISA, and no
such Multiemployer Plan is reasonably expected to be in reorganization or
to be terminated, within the meaning of Title IV of ERISA.
(p) No Plan has incurred any accumulated funding deficiency (as
defined in Sections 302(a)(2) of ERISA and 412(a) of the Internal Revenue
Code) whether or not waived.
(q) The written information, exhibits and reports prepared and
furnished by the Company or any Borrowing Subsidiary to the Administrative
Agent or to any Bank in connection with the negotiation of, or compliance
with, this Agreement, taken as a whole, contained no material misstatement
of fact nor omitted to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which
they were made, not misleading (it being understood that the Company does
not warrant the accuracy of any projections provided to the Banks pursuant
hereto or in connection herewith, but the Company warrants that all such
projections have been or will be prepared in good faith and have
represented or will represent a reasonable estimate of the anticipated
financial condition and results of operations for the period(s) in question
based on assumptions which the Company believes (at the time of
preparation) to be reasonable).
(r) As of the Initial Borrowing Date and immediately prior to the
making of the initial Advances:
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(i) a true and correct copy of the Registration Statement has
been delivered to the Banks and the Registration Statement is in full
force and effect without amendment or modification and no action has
been taken by any competent authority which restrains, prevents or
imposes any material adverse condition upon the Registration Statement
or the Initial Public Offering;
(ii) the information contained in the Registration Statement
does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and
(iii) all conditions precedent to, and all consents necessary to
permit, the Initial Public Offering pursuant to the Registration
Statement have been (satisfied or waived with the prior written
consent of the Administrative Agent and the Banks), and the Initial
Public Offering has been consummated in accordance with the
Registration Statement and any applicable laws.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
So long as any Advance shall remain unpaid or any Bank shall have any
Commitment hereunder, unless the Majority Banks shall otherwise consent in
writing:
SECTION 5.01. Compliance with Laws, Etc. The Company will comply,
and cause each of its Subsidiaries to comply, in all material respects with all
applicable laws, rules, regulations and orders, except for laws, rules,
regulations and orders the violation of which, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5.02. Reporting Requirements. The Company will furnish to
the Banks:
(a) within 60 days after the end of each of the first three quarters
of each fiscal year of the Company, consolidated unaudited balance sheets
of the Company and its Consolidated Subsidiaries, as at the close of each
such quarter and consolidated profit and loss and reconciliation of surplus
statements and a statement of cash flows of the Company and its
Consolidated Subsidiaries for the period from the beginning of such fiscal
year to the end of such quarter, certified by the chief financial officer
of the Company on behalf of the Company as fairly presenting the
consolidated financial position of the Company and its Consolidated
Subsidiaries as at the dates indicated and the profit and loss and cash
flows for the periods indicated in accordance with GAAP, subject to normal
year-end adjustments;
(b) within 90 days after the end of each fiscal year of the Company,
an unqualified (except for qualifications relating to changes in accounting
principles or practices reflecting changes in GAAP and required or approved
by the Company's
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independent public accountants) audit report certified by Arthur Andersen &
Co., L.L.P. or other independent public accountants acceptable to the
Majority Banks, prepared in accordance with GAAP on a consolidated basis
for itself and its Consolidated Subsidiaries, including balance sheets as
of the end of such period, related profit and loss and reconciliation of
surplus statements, and a statement of cash flows, accompanied by a report
of said accountants stating that, in connection with the foregoing, they
have obtained no knowledge of any failure of the Company to comply with the
requirements specified in each of Sections 5.10 through 5.12, or if, in the
opinion of such accountants, the Company has failed to comply with the
requirements specified in any such Section, stating the nature and status
of such failure; and (ii) within 180 days after the close of each of the
Company's fiscal years, the management letter prepared by such accountants
in connection with the financial statements for such fiscal year delivered
pursuant to the foregoing clause (i);
(c) simultaneously with the delivery of the reports referred to in
clauses (a) and (b) above, a certificate of a designated financial officer
of the Company (A) setting forth in reasonable detail the calculations
required to establish whether the Company was in compliance with the
requirements of Sections 5.10, 5.11 and 5.12 on the date of such financial
statements and (B) stating whether there exists on the date of such
certificate any Event of Default or condition or event which with notice or
lapse of time or both would become an Event of Default and, if any Event of
Default or any such condition or event then exists, setting forth the
details thereof and the action which the Company is taking with respect
thereto;
(d) promptly after the sending or filing thereof, copies of all
reports which the Company sends to its security holders generally, and at
any time that the Company is obligated to file any report or registration
statement with the Commission or any national securities exchange, copies
of all such reports and registration statements (other than Form S-8 or any
similar form);
(e) promptly following any Responsible Officer's knowledge thereof,
notice in writing of (i) the occurrence of any Event of Default or
condition or event which with notice or lapse of time or both would become
an Event of Default and, if any Event of Default or any such condition or
event then exists, setting forth the details thereof and the action which
the Company is taking with respect thereto, or (ii) the institution of, or
any adverse final judgment in, any litigation, arbitration proceeding or
governmental proceeding which, in the Company's judgment, if adversely
determined, could reasonably be expected to have a Material Adverse Effect,
or (iii) with respect to the Scheduled Litigation, the occurrence of any
adverse determination which is likely to result in a Material Adverse
Effect; and
(f) such other pertinent information as any Bank may reasonably
request.
SECTION 5.03. Use of Proceeds. The Borrowers will use the proceeds
of the Advances made under this Agreement only for general corporate purposes
otherwise permitted under this
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Agreement, including, without limitation, asset purchases, mergers, the purchase
of stock of other Persons, the repurchase of shares of capital stock of the
Company, the repayment of indebtedness, the funding of employee benefit plans of
the Company or its Subsidiaries and for other lawful purposes; provided, that,
no Borrower shall use the proceeds of any Advances made hereunder to acquire 20%
or more of the outstanding shares of the capital stock of any Person unless (a)
at the time of such acquisition, such Person shall have consented to such
acquisition either by having entered into an agreement with the Company or a
subsidiary of the Company contemplating a merger of such Person with or into the
Company or such subsidiary or by its Board of Directors having authorized,
approved or consented to such acquisition or (b) such Borrower shall have
obtained the prior written consent with respect thereto of (i) in the case of
any Committed Borrowing the proceeds of which shall be used to facilitate such
acquisition, the Banks and (ii) in the case of any Uncommitted Borrowing the
proceeds of which shall be used to facilitate such acquisition, the Banks
extending Uncommitted Advances in connection therewith; provided, further that
if the applicable Borrower shall have specified the intended use of proceeds of
an Uncommitted Borrowing in the Notice of Uncommitted Borrowing with respect
thereto, each Bank electing to offer to make one or more Uncommitted Advances in
response thereto shall be deemed to have provided the written consent required
under this Section 5.03 for such use of the proceeds of such Uncommitted
Advances. The Borrowers further agree that no proceeds of any Advance shall be
used to purchase or carry Margin Stock.
SECTION 5.04. Limitation on Liens, Etc. The Company will not create
or suffer to exist, or permit any of its Consolidated Subsidiaries to create or
suffer to exist, any Lien, upon or with respect to any of its properties (other
than Margin Stock), whether now owned or hereafter acquired, or assign, or
permit any of its Consolidated Subsidiaries to assign, any right to receive
income, in each case to secure any Debt of any Person or entity, other than:
(a) Liens arising in connection with the obligations of the Company
or any Subsidiary under industrial revenue bonds;
(b) Liens on assets of a Subsidiary of a Borrower to secure Debt of
such Subsidiary to any Borrower;
(c) Purchase money Liens claimed by sellers of goods on ordinary
trade terms provided that no financing statement has been filed to perfect
such Liens, and provided that no such Lien shall extend to assets of any
character other than the goods being acquired;
(d) Liens securing Debt on property of a corporation or firm (or
division thereof) that becomes a Subsidiary of the Company or of any of its
Subsidiaries after the date hereof in accordance with Section 5.05 and
existing at the time such corporation is merged or consolidated with the
Company or any Subsidiary, at the time such corporation or firm (or
division thereof) becomes a Subsidiary of the Company or any of its
Subsidiaries, or at the time of a sale, lease or other disposition of the
properties of a corporation or a firm (or division thereof) as an entirety
or substantially as an entirety to the Company or a Subsidiary, provided
that such Liens were not created in contemplation of such merger,
consolidation, acquisition, sale, lease or disposition and
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do not extend to assets other than those of the Person merged into or
consolidated with the Company or such Subsidiary or acquired by the Company
or such Subsidiary;
(e) Purchase money Liens constituting the interest of a lessor under
a lease that would be capitalized on the lessee's balance sheet in
accordance with GAAP, or under a sale-leaseback transaction, in each case
relating to equipment, provided that after giving effect thereto, no Event
of Default under Section 5.10 shall exist;
(f) Any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Liens referred to in
the foregoing subsections (a) through (e); provided, that, in the case of
Liens referred to in the foregoing subsections (c), (d) and (e), the
principal amount of Debt secured thereby shall not exceed the principal
amount of Debt so secured at the time of such extension, renewal or
replacement, and that such extension, renewal or replacement Lien shall be
limited to all or a part of the property which is subject to the Lien so
extended, renewed or replaced (plus improvements on such property); and
(g) Additional Liens securing Debt other than as may be included in
the foregoing subsections (a) through (f); provided, that the aggregate
outstanding principal amount of such Debt shall not at any time exceed 5%
of Consolidated Net Worth at such time.
SECTION 5.05. Merger; Sale of Assets. The Company will not, and will
not permit its Material Subsidiaries to, merge or consolidate with or into any
other Person, or in any twelve-month period sell, transfer, lease or otherwise
dispose of a material amount of its assets (whether now owned or hereafter
required), except that:
(a) the Company or a Material Subsidiary may acquire another
corporation by merger, provided that, if the Company is a party to such
merger, the Company is the surviving corporation, and provided further that
after giving effect to such merger, no Event of Default (or event which,
with the giving of notice or the passing of time or both would constitute
an Event of Default) shall exist; and
(b) any Material Subsidiary may merge or consolidate with or into, or
sell or otherwise dispose of any or all of its assets to, the Company or
another Subsidiary, and any Material Subsidiary that is not a Borrowing
Subsidiary may sell all or substantially all of its assets; provided that
(i) after giving effect to such merger, consolidation, sale or other
disposition, no Event of Default (or any event which, with the giving of
notice or the passing of time or both would constitute an Event of Default)
shall exist, and (ii) in the case of an asset sale by such a Material
Subsidiary, the assets to be sold do not constitute a material amount of
the assets of the Company and its Subsidiaries, taken as a whole.
For purposes of this Section 5.05, "a material amount" of assets shall
mean assets (A) constituting 10% or more of the consolidated assets of the
Company and its Consolidated Subsidiaries,
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or (B) generating 10% or more of the consolidated revenue of the Company and its
Consolidated Subsidiaries in any fiscal year.
SECTION 5.06. Books and Records; Inspection. The Company will, and
will cause each of its Subsidiaries to, (a) maintain complete and accurate books
and records, in which full and correct entries shall be made of all financial
transactions of the Company and each such Subsidiary in accordance with
generally accepted accounting principles, and (b) permit any Bank, the
Administrative Agent and their respective employees and agents, at such
reasonable times during normal business hours and as often as may be reasonably
requested, to inspect any of the properties of the Company or any of its
Subsidiaries and to inspect and make copies of the material books and records of
the Company and its Subsidiaries and to discuss the affairs and finances of the
Company and its Subsidiaries with their officers; provided, that such Bank or
the Administrative Agent shall have delivered a written request for such
inspection to the Company prior to the date of any such inspection.
SECTION 5.07. Corporate Existence; Maintenance of Rights and Permits.
Subject to the Company's rights under Section 5.05, the Company will, and will
cause each of its Material Subsidiaries to, at all times maintain its corporate
existence and preserve and keep, or cause to be preserved and kept, in full
force and effect its rights and franchises material to its businesses and all
licenses, permits, governmental approvals and authorizations, except to the
extent that the failure to do so would not have a Material Adverse Effect,
either individually or in the aggregate.
SECTION 5.08. Conduct of Business. The Company shall not, and shall
not permit any Material Subsidiary to, engage in any line of business other than
(a) the businesses engaged in by the Company and its Subsidiaries on the date
hereof and (b) any business or activities substantially similar or related
thereto (which shall include, without limitation, other businesses related to
the handling and/or distribution of data used or processed in the businesses
engaged in by the Company and its Subsidiaries on the date hereof).
SECTION 5.09. Payment of Taxes. The Company will pay and discharge,
and cause each of its Material Subsidiaries to pay and discharge, before the
same shall become delinquent, all material taxes, assessments and governmental
charges or levies imposed upon it or its property; provided, however, that
neither the Company nor any of its Material Subsidiaries shall be required to
pay or discharge any such tax, assessment, charge or levy that is being
contested in good faith and by proper proceedings and as to which appropriate
reserves are being maintained in accordance with GAAP, as long as no action has
been commenced to enforce any Lien securing any such tax, assessment, charge or
levy.
SECTION 5.10. Consolidated Debt to Capitalization Ratio. The Company
will at all times maintain a ratio of Consolidated Debt to Capitalization,
expressed as a percentage, of not more than 30%.
SECTION 5.11. Net Worth. The Company will at all times maintain
Consolidated Net Worth of not less than the sum of:
(a) 80% of Consolidated Net Worth on Effective Date; plus
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(b) 50% of Consolidated Net Income for each fiscal quarter that ends
after the Initial Borrowing Date and in which Consolidated Net Income is
greater than $0; plus
(c) 50% of the aggregate Net Proceeds of equity issued by the Company
after the Initial Borrowing Date.
SECTION 5.12. Fixed Charge Coverage. The Company will, as of the end
of each fiscal quarter after the Initial Borrowing Date, maintain a Fixed Charge
Coverage Ratio of not less than 3 to 1.
SECTION 5.13. Indebtedness of Subsidiaries. The Company will not
permit any Material Subsidiary, to create, incur or suffer to exist any Debt,
except:
(a) Debt incurred under this Agreement;
(b) Capitalized Leases existing as of the Effective Date, which
Capitalized Leases are described on Schedule 5.13 hereof, and any
extension, renewal or replacement (or successive extensions, renewals or
replacements) thereof in whole or in part; provided that the principal
amount of Capitalized Lease Obligations for any such extension, renewal or
replacement shall not exceed the principal amount of Capitalized Lease
Obligations at the time of such extension, renewal or replacement, and that
the property subject to such extended, renewed or replaced Capitalized
Lease shall be limited to all or a part of the property which is subject to
the Capitalized Lease so extended, renewed or replaced (plus improvements
on such property); and
(c) additional Debt having an aggregate outstanding principal balance
of not more than $10,000,000 at any one time.
SECTION 5.14. Maintenance of Properties. The Company will, and will
cause each Material Subsidiary to, do all things necessary to maintain,
preserve, protect and keep its property in good repair, working order and
condition, ordinary wear and tear excepted, and make all necessary and proper
repairs, renewals and replacements so that its business carried on in connection
therewith may be properly conducted at all times.
SECTION 5.15. Insurance. The Company will, and will cause each
Material Subsidiary to, maintain with financially sound and reputable insurance
companies insurance in such amounts and covering such risks as is consistent
with sound business practice, and the Company will furnish to any Bank upon
request full information as to the insurance carried.
SECTION 5.16. Transactions with Affiliates. Other than the Tax
Allocation Agreement, the Sales Agreement between Donnelley and the Company, the
Benefit Services Administration Agreement between Donnelley and the Company the
Data Services Agreement between Donnelley and the Company, and the Transition
Services Agreement (collectively, the "Donnelley Agreements") and except for
transactions between the Company and its Wholly-Owned Subsidiaries, the Company
will not, and will not permit any Material Subsidiary to, enter into any
transaction (including, without limitation,
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the purchase or sale of any property or service) with, or make any payment or
transfer to, any Affiliate the financial statements of which would not be
consolidated with those of the Company in accordance with GAAP, except in the
ordinary course of business and pursuant to the reasonable requirements of the
Company's or such Material Subsidiary's business and upon fair and reasonable
terms no less favorable to the Company or such Material Subsidiary than the
Company or such Material Subsidiary would obtain in a comparable arms-length
transaction.
SECTION 5.17. Certain Agreements. The Company will not terminate
prior to the scheduled termination thereof, amend or modify or permit any such
early termination, amendment or modification of any of the Donnelley Agreements
that could reasonably be expected to be adverse to the Banks without the consent
of the Majority Banks. The Transition Services Agreement, the Tax Allocation
Agreement and the other Donnelley Agreements shall remain in full force and
effect until their respective scheduled termination dates, except where such
termination will not be materially disadvantageous to the Banks.
SECTION 5.18. Investments. The Company will not, nor will it permit
any Material Subsidiary to, make or suffer to exist any Investments (including,
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, except:
(a) Short-term obligations of, or fully guaranteed by, the United
States of America.
(b) Commercial paper rated A-1 or better by Standard & Poor's Ratings
Group, a division of McGraw Hill, Inc. or P-1 or better by Moody's
Investors Service, Inc.
(c) Demand deposit accounts maintained in the ordinary course of
business.
(d) Certificates of deposit issued by and time deposits with
commercial banks (whether domestic or foreign) having capital and surplus
in excess of $100,000,000.
(e) Investments in Subsidiaries.
(f) Other Investments (i) in existence on the date hereof and
described in Schedule 5.18 hereto or (ii) which in the aggregate are less
than 10% of Consolidated Net Worth at any time.
ARTICLE VI
EVENTS OF DEFAULT
-----------------
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
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(a) A Borrower shall fail to pay when due any installment of
principal of any Advance; or
(b) A Borrower shall fail to pay any fee under this Agreement, or any
installment of interest on any Advance, within ten (10) days after the due
date thereof; or
(c) Any written representation or warranty made by a Borrower herein
or in connection with this Agreement shall prove to have been incorrect in
any material respect when made; or
(d) The Company shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.02(a), (b) or (e), 5.03, 5.04,
5.05, 5.08, 5.09, 5.10, 5.11, 5.12, 5.13, 5.16, 5.17 or 5.18 or (ii) any
other term, covenant or agreement contained in this Agreement, other than
in (a) or (b) above, on its part to be performed or observed if such
failure shall remain unremedied for 30 days after written notice thereof
shall have been given to the Company by the Majority Banks through the
Administrative Agent; or
(e) The Company or any Material Subsidiary shall fail to pay any
principal of or premium or interest on any Debt, or any obligations in
respect of acceptances, letters of credit or other similar instruments, of
the Company or such Material Subsidiary which is outstanding in a principal
amount of at least $2,000,000 in the aggregate (but excluding Debt arising
under this Agreement), when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt or other obligation; or any other event shall occur or condition shall
exist under any agreement or instrument relating to any such Debt or other
obligation and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or permit the acceleration of, the maturity of
such Debt or other obligation; or any Debt or other such obligation in
which the outstanding principal exceeds $2,000,000 shall be otherwise
declared to be due and payable (by acceleration or otherwise) or required
to be prepaid, redeemed, defeased or otherwise repurchased by the Company
or any Material Subsidiary (other than by a regularly-scheduled required
prepayment), or any offer to prepay, redeem, defease or purchase such Debt
shall be required to be made, prior to the stated maturity thereof; or
(f) The Company or any Material Subsidiary shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
the Company or any Material Subsidiary seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking
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the entry of an order for relief or the appointment of a receiver, trustee,
or other similar official for it or for any substantial part of its
property, and in the event of any such proceeding instituted against the
Company or any Material Subsidiary (but not instituted by it), such
proceeding shall remain undismissed or unstayed for a period of 60 days or
shall result in the entry of an order for relief, the appointment of a
trustee or receiver, or other action in such proceeding or result adverse
to the Company or such Material Subsidiary, as applicable, or the Company
or any Material Subsidiary shall take any corporate action to authorize any
of the actions set forth above in this subsection (f); or
(g) Donnelley shall at any time cease to own, directly or indirectly
through one or more of its Subsidiaries, outstanding equity securities of
the Company representing more than 20% of the stockholder's common equity
of the Company; or
(h) The Company shall incur liability in excess of $2,000,000 in the
aggregate as a result of one or more of the following: (i) the occurrence
of any ERISA Event; (ii) the partial or complete withdrawal of the Company
or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the
reorganization or termination of a Multiemployer Plan; or
(i) One or more final judgments or orders for the payment of money,
in an aggregate amount exceeding $2,000,000 at any one time outstanding
(exclusive of judgment amounts fully covered by insurance, to the extent
the insurer has admitted liability in respect thereof), shall be rendered
against the Company or any Material Subsidiary and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment or
order, or (ii) such judgments or orders shall not be discharged (or
provision shall not have been made for such discharge), a stay of execution
thereof shall not be obtained, or such judgments or orders shall not be
paid or bonded, within 60 days from the date of entry thereof, and the
Company or such Material Subsidiary, as the case may be, shall not, within
such 60-day period, appeal therefrom and cause the execution thereof to be
stayed pending such appeal; or
(j) Any Borrower's guaranty obligations under Article VII hereof for
any reason, other than acts or omissions of the Banks, cease to be in full
force and effect or are declared to be null and void; or any Borrower
denies that it has any further liability with respect thereto or gives
notice to such effect; or
(k) With respect to the Scheduled Litigation, the occurrence of any
adverse determination which is likely to result in a Material Adverse
Effect;
then, and in any such event, the Administrative Agent shall at the request, or
may with the consent, of the Majority Banks, by notice to the Company, (i)
declare the obligation of each Bank to make Advances to any Borrower to be
terminated, whereupon the same shall forthwith terminate, and (ii) declare the
Notes, all interest thereon and all other amounts payable under this Agreement
to be forthwith due and payable, whereupon the Notes, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby
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expressly waived by the Company; provided, however, that in the event of an
actual or deemed entry of an order for relief with respect to the Company under
the Federal Bankruptcy Code, (A) the obligation of each Bank to make Advances to
any Borrower shall automatically be terminated and (B) the Notes, all such
interest and all such amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by the Company.
ARTICLE VII
GUARANTEE
---------
SECTION 7.01. Unconditional Guarantee. For valuable consideration,
receipt whereof is hereby acknowledged, and to induce the Banks to make Advances
to each of the Borrowers, each Borrower hereby unconditionally guarantees to the
Banks and the Administrative Agent that the principal of and interest on each
Advance and all other amounts payable by each other Borrower hereunder shall be
promptly paid in full when due (whether at stated maturity, by acceleration or
otherwise) in accordance with the terms hereof and thereof, and, in the case of
any extension of time of payment, in whole or in part, that all such amounts
shall be promptly paid when due (whether at stated maturity, by acceleration or
otherwise) in accordance with the terms of such extension. In addition, each
Borrower hereby unconditionally agrees that upon default in the payment when due
(whether at stated maturity, by acceleration or otherwise) of any of such
principal, interest or other amounts, such Borrower shall forthwith pay the
same. Without limiting the generality of the foregoing, each Borrower's
liability shall extend to all amounts that constitute part of the obligations of
any other Borrower guaranteed under this Article VII and that would be owed by
any such other Borrower to any Bank or the Administrative Agent under this
Agreement or the Notes but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such Borrower. Notwithstanding the foregoing, the
liability of each Borrower under the foregoing guarantee shall at no time exceed
the maximum amount of liability which could be asserted against such Borrower
hereunder without (a) rendering such Borrower "insolvent" within the meaning of
Section 101(32) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent
Transfer Act (the "UFTA") or Section 2 of the Uniform Fraudulent Conveyance Act
(the "UFCA"), (b) leaving such Borrower with unreasonably small capital or
assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of
the UFTA, or Section 5 of the UFCA, or (c) leaving such Borrower unable to pay
its debts as they become due within the meaning of Section 548 of the Bankruptcy
Code, Section 4 of the UFTA or Section 6 of the UFCA.
SECTION 7.02. Validity. The obligations of each Borrower under this
Article VII are independent of the obligations of the other Borrowers guaranteed
hereunder, and a separate action or actions may be brought and prosecuted
against each Borrower to enforce its obligations under this Article VII,
irrespective of whether any action is brought against any other Borrower or
whether any other Borrower is joined in any such action or actions. The
obligations of each Borrower under this Article VII shall be unconditional
irrespective of (a) the genuineness, validity, regularity or enforceability of
the obligations of the other Borrowers under this Agreement, any Note or any
Assumption Letter, (b) any law, regulation or order of any jurisdiction
affecting any term of any obligation of any Borrower under this Agreement or the
rights of any Bank or the Administrative Agent with respect thereto, (c) any
change
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in the time, manner or place of payment of, or in any other term of, all or any
of the obligations of any Borrower guaranteed under this Article VII, or any
other amendment or waiver of or any consent to departure from this Agreement or
the Notes, (d) any change, restructuring or termination of the corporate
structure or existence of any Borrower or any of its Subsidiaries, or (e) to the
fullest extent permitted by applicable law, any other circumstance which might
otherwise constitute a legal or equitable discharge of a surety or guarantor.
SECTION 7.03. Waivers. Each Borrower hereby expressly waives
promptness, diligence, presentment, protest and any other notice with respect to
the obligations of such Borrower under this Article VII and any requirement that
any right or power be exhausted or any action be taken against any other
Borrower and all notices and demands whatsoever.
SECTION 7.04. Subrogation. Each Borrower shall be subrogated to the
rights of the Banks or the Administrative Agent against any other Borrower
hereunder only after the Banks and the Administrative Agent shall have been paid
in full all such amounts, with interest thereon, for which such other Borrower
shall have become indebted hereunder.
SECTION 7.05. Acceleration. Each Borrower agrees that, as between
it, on the one hand, and the Banks and the Administrative Agent, on the other
hand, the obligations of each other Borrower guaranteed by it under this Article
VII may be declared to be forthwith due and payable, or may be deemed
automatically to have been accelerated, as provided in Section 6.01 hereof for
purposes of this Article VII, notwithstanding any stay, injunction or other
prohibition (whether in a bankruptcy proceeding affecting such other Borrower or
otherwise) preventing such declaration as against such other Borrower and that,
in the event of such declaration or automatic acceleration, such obligations
(whether or not due and payable by such other Borrower) shall forthwith become
due and payable by such Borrower for purposes of this Article VII.
SECTION 7.06. Reinstatement. Each Borrower's obligations under this
Article VII shall be reinstated if at any time any payment received by any Bank
or the Administrative Agent from any other Borrower hereunder is required to be
repaid or returned by such Bank or the Administrative Agent, all as though such
payment had not been made.
SECTION 7.07. Continuing Guaranty; Assignments. This guarantee of
each Borrower shall (a) remain in full force and effect until the later of (i)
the cash payment in full of the obligations of any other Borrower guaranteed
under this Article VII and (ii) the Termination Date, (b) be binding upon such
Borrower, its successors and assigns and (c) inure to the benefit of, and be
enforceable by, the Banks and the Administrative Agent and their successors,
transferees and assigns (provided that the applicable transfers and assignments
are made in accordance with the terms of this Agreement).
SECTION 7.08. Contribution. (a) To the extent that any Borrower
shall make a payment under this Article VII (a "Guaranty Payment"), then such
Borrower shall be entitled to contribution and indemnification from, and be
reimbursed by, each of the other Borrowers in an amount, for each such other
Borrower, equal to a fraction of such Guaranty Payment, the numerator of which
is such Borrower's "Allocable Guaranty Amount" (as defined below) and the
denominator of which is the sum of the Allocable Guaranty Amounts of all of the
Borrowers. Any right to reimbursement arising
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from a Guaranty Payment shall be subordinate in right of payment to the prior
payment if full, in cash, of the all such amounts, with interest thereon, for
which the Borrowers shall have become indebted hereunder.
(b) As of any date of determination, the "Allocable Guaranty Amount"
of each Borrower shall be equal to the maximum amount of liability which could
be asserted against such Borrower hereunder with respect to the applicable
Guaranty Payment without (i) rendering such Borrower "insolvent" within the
meaning of Section 101(32) of the Bankruptcy Code, Section 2 of the UFTA or
Section 2 of the UFCA, (ii) leaving such Borrower with unreasonably small
capital or assets, within the meaning of Section 548 of the Bankruptcy Code,
Section 4 of the UFTA, or Section 5 of the UFCA, or (iii) leaving such Borrower
unable to pay its debts as they become due within the meaning of Section 548 of
the Bankruptcy Code, Section 4 of the UFTA or Section 6 of the UFCA.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
------------------------
SECTION 8.01. Appointment; Nature of Relationship. First Chicago is
hereby appointed by the Banks as the Administrative Agent hereunder, and each of
the Banks irrevocably authorizes the Administrative Agent to act as the
contractual representative of such Bank with the rights and duties expressly set
forth herein. The Administrative Agent agrees to act as such contractual
representative upon the express conditions contained in this Article VIII.
Notwithstanding the use of the defined term "Administrative Agent," it is
expressly understood and agreed that the Administrative Agent shall not have any
fiduciary responsibilities to any Bank by reason of this Agreement and that the
Administrative Agent is merely acting as the representative of the Banks with
only those duties as are expressly set forth in this Agreement. In its capacity
as the Banks' contractual representative, the Administrative Agent (a) does not
hereby assume any fiduciary duties to any of the Banks, (b) is a
"representative" of the Banks within the meaning of Section 9-105 of the Uniform
Commercial Code and (c) is acting as an independent contractor, the rights and
duties of which are limited to those expressly set forth in this Agreement.
Each of the Banks hereby agrees to assert no claim against the Administrative
Agent on any agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Bank hereby waives.
SECTION 8.02. Actions by the Administrative Agent. As to any matters
not expressly provided for by this Agreement (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Majority Banks, and such
instructions shall be binding upon all Banks and all holders of the Notes;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement or applicable law. The Administrative Agent
agrees to give to each Bank prompt notice of each notice given to it by any
Borrower pursuant to the terms of this Agreement. The Administrative Agent may
execute any of its duties as Administrative Agent hereunder and under any other
instrument, document or agreement executed in connection herewith by or through
employees, agents, and attorney-
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in-fact and shall not be answerable to the Banks, except as to money or
securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Each such agent shall be entitled to all of the rights and
benefits granted to the Administrative Agent hereunder, and each Bank shall
treat any notice given by any such agent as if it had been given directly by the
Administrative Agent. The Administrative Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Administrative Agent
and the Banks and all matters pertaining to the Administrative Agent's duties
hereunder.
SECTION 8.03. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent:
(a) may treat the payee of any Note as the holder thereof until the
Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Bank that is the payee of such Note, as assignor, and
an Eligible Assignee, as assignee, as provided in Section 9.07;
(b) may consult with legal counsel (including counsel for any
Borrower), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts;
(c) makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any statements, warranties or representations
(whether written or oral) made in or in connection with this Agreement;
(d) shall have no duty to ascertain, inquire into or verify the
performance or observance of any of the terms, covenants or conditions of
this Agreement on the part of any Borrower, the satisfaction of any
condition specified in Article III, except receipt of items required to be
delivered solely to the Administrative Agent, or the existence or possible
existence of any Default;
(e) shall have no duty to inspect the property (including the books
and records) of any Borrower;
(f) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of
this Agreement or any other instrument or document furnished pursuant
hereto;
(g) shall incur no liability under or in respect of this Agreement by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
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The Administrative Agent shall not be responsible to any Bank for any recitals,
statements, representations or warranties herein or for the perfection or
priority of any of Lien on any collateral.
SECTION 8.04. The Administrative Agent and Affiliates. With respect
to any financial institution which shall become the Administrative Agent
hereunder, and with respect to such financial institution's Commitment and the
Advances made by it, such financial institution shall have the same rights and
powers under this Agreement as any other Bank and may exercise the same as
though it were not the Administrative Agent; and the term "Bank" or "Banks"
shall, unless otherwise expressly indicated, include such financial institution
in its individual capacity, if applicable. Each such financial institution and
its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Borrower,
any of their respective Subsidiaries and any Person who may do business with or
own securities of any Borrower or any such Subsidiary, all as if such financial
institution were not the Administrative Agent and without any duty to account
therefor to the Banks.
SECTION 8.05. Bank Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Administrative Agent or any
other Bank and based on the financial statements referred to in Section 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 8.06. Indemnification. The Banks agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrowers), ratably
according to the respective principal amounts of the Notes held by each of them
(or, if no Notes are outstanding at the time or if any Notes are held by Persons
that are not Banks, ratably according to the respective amounts of their
Commitments) from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Administrative Agent in any way relating to or arising out
of this Agreement or any action taken or omitted by the Administrative Agent
under this Agreement; provided, that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Administrative
Agent's gross negligence or willful misconduct. Without limiting the foregoing,
each Bank agrees to reimburse the Administrative Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Administrative Agent in connection with the administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Administrative
Agent is not reimbursed for such expenses by the Borrowers.
SECTION 8.07. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving written notice thereof to the Banks and
the Company and may be removed at any time with or without cause by the Majority
Banks. Upon any such resignation or removal, the Majority Banks shall have the
right to appoint another Bank as successor Administrative Agent or, if
acceptable to the Company, any other commercial bank organized under the laws of
the United States of America
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or of any State thereof and having a combined capital and surplus of at least
$500,000,000. If no successor Administrative Agent shall have been so appointed
by the Majority Banks, and shall have accepted such appointment, within 30 days
after the retiring Administrative Agent gives notice of resignation or the
Majority Banks remove the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000 and otherwise acceptable to the
Company. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations under
this Agreement. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent.
ARTICLE IX
MISCELLANEOUS
-------------
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor any consent to any departure by
any Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Majority Banks, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, directly do any of the following:
(a) waive any of the conditions specified in Section 3.01, 3.02 or
5.03;
(b) increase the Commitments of the Banks or subject the Banks to any
additional obligations;
(c) reduce the principal of, or the stated rate at which interest
accrues on, the Notes or reduce the stated rate at which the Facility Fee
is calculated;
(d) postpone any date fixed for any payment of principal of, or
interest on, the Committed Advances or any fees or other amounts payable
hereunder;
(e) change the percentage of the Commitments, or of the aggregate
unpaid principal amount of the Notes, which shall be required for the Banks
or any of them to take any action hereunder; or
(f) amend this Section 9.01 or Article VII;
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provided, further, that no amendment, waiver or consent shall, unless in writing
and signed by the Administrative Agent in addition to the Banks required above
to take such action, affect the rights or duties of the Administrative Agent
under this Agreement or any Note.
SECTION 9.02. Notices, Etc. (a) All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy, telex or cable communication) and mailed, telegraphed,
telecopied, telexed, cabled or delivered,
(i) if to the Company, at its address at 360 E. 22nd Street, Lombard
IL 60148, Attention: Chief Financial Officer, telecopy number (708) 889-
5020 with a copy to 360 E. 22nd Street, Lombard IL 60148: attention General
Counsel, telecopy number (708) 889-5020;
(ii) if to any Borrowing Subsidiary, at the address specified in the
Assumption Letters pursuant to which it became a Borrowing Subsidiary, as
applicable, with a copy to the Company at the address specified herein;
provided, that any such notice may be given solely to the Company, at the
option of the party giving such notice;
(iii) if to any bank listed on the signature pages hereof, at its
Domestic Lending Office specified opposite its name on Schedule 2.1 hereto;
(iv) if to any other Bank, at its Domestic Lending Office specified in
the Assignment and Acceptance pursuant to which it became a Bank;
(v) if to the Administrative Agent, at the Domestic Lending Office
specified opposite its name on Schedule 2.1 hereto;
or as to the Borrowers and the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties, and
as to each such other party, at such other address as shall be designated by
such party in a written notice to the Company and the Administrative Agent. All
such notices and communications shall, when sent by overnight courier, mailed,
telecopied, telexed or cabled, be effective when delivered to such courier,
deposited in the mails, telecopied and confirmed by return telecopy, telex
answerback or delivered to the cable company, respectively, except that notices
and communications to the Administrative Agent pursuant to Articles II, III and
VIII shall not be effective until received by the Administrative Agent.
(b) If any notice required under this Agreement is permitted to be
made, and is made, by telephone, actions taken or omitted to be taken in
reliance thereon by the Administrative Agent or by any Bank shall be binding
upon the Company and each other Borrower notwithstanding any inconsistency
between the notice provided by telephone and any subsequent writing in
confirmation thereof provided to the Administrative Agent or such Bank;
provided, that any such action taken or omitted to be taken by the
Administrative Agent or such Bank shall have been in good faith and in
accordance with the terms of this Agreement.
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SECTION 9.03. No Waiver; Remedies. No failure on the part of any
Bank or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs and Expenses. (a) The Company agrees to pay (i)
expenses of the Agent, whether or not incurred prior to or subsequent to
closing, in investigation, preparation, negotiation, documentation, syndication
and administration, including reasonable expenses of and fees for attorneys for
the Administrative Agent (who may or may not be employees of the Agent) and,
during the continuance of an Event of Default, other advisors and professionals
engaged by the Administrative Agent and (ii) on demand all reasonable out-of-
pocket costs and expenses of the Administrative Agent (including, without
limitation, reasonable fees and expenses of counsel), in connection with any
amendments, modifications or waivers of the provisions hereof, or in determining
the rights and obligations of the parties hereto under this Agreement and the
Notes, or the enforcement (whether through negotiations, legal proceedings or
otherwise) of this Agreement and the other documents to be delivered hereunder;
provided, that if, in the event of any enforcement undertaken by the Banks
hereunder, it shall be determined that sufficient conflicts exist such that a
single law firm engaged by the Administrative Agent or the Majority Banks is
precluded by law or by standards of conduct from representing the Banks as a
group, and such conflicts would exist with respect to any other law firm
representing the Banks as a group, the Company agrees to pay on demand all
reasonable out-of-pocket costs and expenses of the minimum number of counsel
necessary in the reasonable judgment of the Banks to provide the Administrative
Agent and each Bank with appropriate legal representation in connection with the
enforcement of their respective rights hereunder, in connection with such
enforcement undertaking.
(b) The Company agrees to pay to the Administrative Agent such fees
as shall have been agreed to by the Administrative Agent and the Company in a
separate agreement regarding the provision by the Administrative Agent of
services as Administrative Agent under this Agreement.
SECTION 9.05. Right of Set-off. Upon (a) the occurrence and during
the continuance of any Event of Default and (b) the declaration that the
Advances are due and payable pursuant to the provisions of Section 6.01, each
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of any Borrower against any and all of the obligations of such Borrower now or
hereafter existing under this Agreement and the Notes held by such Bank,
irrespective of whether or not such Bank shall have made any demand under this
Agreement or such Notes and although such obligations may be unmatured. Each
Bank shall promptly notify the Company after any such set-off and application
made by such Bank; provided, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Bank may have.
SECTION 9.06. Binding Effect. This Agreement (other than Sections
2.01 and 2.03, which shall only become effective upon satisfaction of the
conditions set forth in Section 3.02) shall
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become effective upon the satisfaction of the conditions set forth in Section
3.01 and when it shall have been executed by the Company and the Administrative
Agent and when the Administrative Agent shall have been notified by each bank
listed on the signature pages hereof that it has executed this Agreement and
thereafter shall be binding upon and inure to the benefit of the Company, the
Administrative Agent and each Bank and their respective successors and assigns,
except that neither the Company nor any Borrowing Subsidiary shall have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Banks.
SECTION 9.07. Assignments and Participations. (a) Each Bank may,
upon obtaining the prior written consent of the Company and the Administrative
Agent (which consents shall not be unreasonably withheld or delayed), and each
Bank SHALL, if demanded by the Company in accordance with Section 2.05(b),
assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and the Committed Advances owing to it and the
Committed Notes held by it); provided, however, that:
(i) each such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under this Agreement (other than
any right to make Uncommitted Advances, Uncommitted Advances owing to it
and Uncommitted Notes owing to it);
(ii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Bank or an assignment of all of
a Bank's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Bank being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 (or
an integral multiple of $1,000,000 in excess thereof);
(iii) each such assignment made as a result of a demand by the Company
pursuant to Section 2.05(b) shall be arranged by the Company with the
approval of the Administrative Agent, which approval shall not be
unreasonably withheld or delayed, and shall be either an assignment of all
of the rights and obligations of the assigning Bank under this Agreement or
an assignment of a portion of such rights and obligations made concurrently
with another such assignment or other such assignments that, in the
aggregate, cover all of the rights and obligations of the assigning Bank
under this Agreement;
(iv) no Bank shall be obligated to make any such assignment as a
result of a demand by the Company pursuant to Section 2.05(b) unless and
until such Bank shall have received one or more payments from one or more
Eligible Assignees in an aggregate amount equal to the aggregate
outstanding principal amount of the Advances owing to such Bank, together
with accrued interest thereon to the date of payment of such principal
amount and from the Company or one or more Eligible Assignees in an
aggregate amount equal to the sum of (A) the amount such Bank would have
received under Section 2.11 had its Loans been prepaid on the date of such
assignment and (B)
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all other amounts payable to such Bank under this Agreement and the Notes
(including, without limitation, any amounts owing under Sections 2.12, 2.13
or 2.19);
(v) the parties to each such assignment shall execute and deliver to
the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance, together with any Note subject to such
assignment and a processing and recordation fee of $3,000; and
(vi) the Company's consent shall not be required for any such
assignment made after the occurrence and during the continuance of an Event
of Default.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and (y) the Bank
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Bank's rights and obligations under this Agreement, such Bank
shall cease to be a party hereto). Notwithstanding the foregoing, each Bank
may, without the Company's or the Administrative Agent's consent, assign all or
a portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment and the Advances owing to it) to
an affiliate of such Bank or to another Bank.
(b) By executing and delivering an Assignment and Acceptance, the
Bank assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such
assigning Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished
pursuant hereto;
(ii) such assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other instrument or document
furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance;
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(iv) such assignee will, independently and without reliance upon the
Administrative Agent, such assigning Bank or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;
(v) such assignee confirms that it is an Eligible Assignee;
(vi) such assignee appoints and authorizes the Administrative Agent
to act as the contractual representative of such Bank with the rights and
duties expressly set forth herein; and
(vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Bank.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee representing that it is an Eligible Assignee, and
consented to by the Company, if necessary, together with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit A
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Company. Within ten Business Days after its receipt of such notice, the Company
shall execute and deliver to the Administrative Agent in exchange for the
surrendered Note a new Note to the order of such Eligible Assignee in an amount
equal to the Commitment assumed by it (in the case of a Committed Note) or the
Uncommitted Advance or part thereof purchased by it (in the case of an
Uncommitted Note) pursuant to such Assignment and Acceptance and, if the
assigning Bank has retained a Commitment or a part of such Uncommitted Advance
hereunder, a new Note to the order of the assigning Bank in an amount equal to
the Commitment or of such Uncommitted Advance retained by it hereunder. Such
new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit C-1 or Exhibit C-2 hereto (as the case may
be).
(d) The Administrative Agent shall maintain at its address referred
to in Section 9.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Advances owing to,
each Bank from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the
Company, the Administrative Agent and the Banks may treat each Person whose name
is recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Company or any
Bank at any reasonable time and from time to time upon reasonable prior notice.
(e) Each Bank may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Advances owing to it and the Note or Notes held by it); provided, however,
that (i) such Bank's obligations under this Agreement (including, without
limitation, its
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Commitment hereunder) shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Bank shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Company, the Administrative Agent and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by any Borrower therefrom, except to the extent that such amendment,
waiver or consent would forgive any principal of or interest on the Notes or
forgive any part of the Facility Fee, or reduce the stated rate at which
interest or the Facility Fee is calculated, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or of the Facility Fee, in each case to the extent
subject to such participation.
(f) Any Bank may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 9.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Company or any other Borrower furnished to such Bank
by or on behalf of the Company or such other Borrower; provided, that, prior to
any such disclosure of non-public information, such Bank shall have obtained the
Company's consent and the assignee or participant or proposed assignee or
participant shall agree in a manner satisfactory to the Company to preserve the
confidentiality of any confidential information relating to the Company received
by it from such Bank.
(g) Notwithstanding any other provision set forth in this Agreement,
any Bank may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 9.08. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the internal laws (as opposed to
conflict of laws principles) of the State of Illinois.
SECTION 9.09. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 9.10. Confidentiality. Each Bank hereby agrees that it will
use reasonable efforts to keep confidential any information from time to time
supplied to it by the Company which the Company designates in writing at the
time of its delivery to the Bank is to be treated confidentially; provided,
however, that nothing herein shall affect the disclosure of any such
information:
(a) to the extent required by statute, rule, regulation or judicial
process;
(b) to counsel for any Bank or to their respective accountants;
(c) to bank examiners and auditors;
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<PAGE>
(d) any other Bank, or, subject to Section 9.07(c), any transferee or
prospective transferee of any Advance, any Note or any Commitment; or
(e) to any other Person in connection with any litigation to which
any one or more of the Banks is a party;
provided further, however, that each Bank hereby agrees that it will use
reasonable efforts to promptly notify the Company of any request for information
under this clause (e) or with respect to any request for information not
enumerated in this Section 9.10, if not otherwise prohibited from doing so.
SECTION 9.11. Non-Reliance by the Banks. Each Bank by its signature
to this Agreement represents and warrants that (a) it has not relied in the
extension of the credit contemplated by this Agreement, nor will it rely in the
maintenance thereof, upon any assets of the Company or its Subsidiaries
consisting of Margin Stock as collateral and (b) after reviewing the financial
statements of the Company and its Consolidated Subsidiaries referred to in
Section 4.01(e), such Bank has concluded therefrom that the consolidated cash
flow of the Company and its Consolidated Subsidiaries is sufficient to support
the credit extended to the Company pursuant to this Agreement.
SECTION 9.12. No Indirect Security. Notwithstanding any Section or
provision of this Agreement to the contrary, nothing in this Agreement shall (a)
restrict or limit the right or ability of the Company or any of its Subsidiaries
to pledge, mortgage, sell, assign, or otherwise encumber or dispose of any
Margin Stock, or (b) create an Event of Default arising out of or relating to
any such pledge, mortgage, sale, assignment or other encumbrance or disposition.
SECTION 9.13. Indemnification. The Company agrees to indemnify and
hold harmless the Administrative Agent, each Bank, and their respective
officers, directors, employees, and agents (any one of the foregoing being an
"Indemnified Party" and any two or more of the foregoing being "Indemnified
Parties") from and against, and pay the Indemnified Parties the amount of, any
and all claims, damages, liabilities, costs, and expenses (including, without
limitation, reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against an Indemnified Party relating in whole or in part to
this Agreement, the Notes, any documents delivered in connection herewith and
the transactions contemplated hereby, and in connection with or arising out of
or by reason of, or in connection with the preparation of a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with (a) this Agreement, the Notes, any of the transactions
contemplated herein or the use or proposed use of the proceeds of any Advances,
(b) any acquisition or proposed acquisition by the Company or any of its
Subsidiaries of all or any portion of the stock or all or substantially all of
the assets of any Person, or (c) the actual or alleged presence of Hazardous
Materials on any property of the Company or any of its Subsidiaries or any
Environmental Action relating to any of them, in each case whether or not such
investigation, litigation or proceeding is brought by the Company, any other
Borrower, their respective shareholders or creditors, an Indemnified Party or
any other Person, and whether or not an Indemnified Party is otherwise a party
thereto, provided, however, that this indemnification shall not apply to any
claim, damage, liability, cost or expense (i) arising from a dispute among Banks
or a dispute between any Bank and the Administrative Agent, or (ii) that is
found in a final, nonappealable judgment by a court of competent jurisdiction to
have resulted from an Indemnified Party's gross negligence or willful
misconduct. The covenants of the Company contained in this Section 9.13
-64-
<PAGE>
and in Sections 9.04, 2.12 and 2.19 shall survive the repayment of all amounts
due and payable under this Agreement and the termination of this Agreement.
SECTION 9.14. Partial Invalidity. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
SECTION 9.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THE ACTIONS OF THE COMPANY, ANY BORROWING SUBSIDIARY, THE ADMINISTRATIVE
AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT
THEREOF. EACH OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY BENCH TRIAL WITHOUT A JURY AND THAT ANY
PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
SECTION 9.16. Jurisdiction, Etc. (a) Each of the parties hereto
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any Illinois state court or federal court of the
United States of America sitting in Chicago, Illinois, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the Notes, or for recognition or enforcement of any judgment, and
each of the parties hereto irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in any such Illinois state court or, to the extent permitted by law, in such
federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement or the Notes
in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any
Illinois state or federal court. Each of the parties hereto irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
-65-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
METROMAIL CORPORATION
By:
---------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent and as a Bank
By:
---------------------------------
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
---------------------------------
Title:
BANK OF MONTREAL
By:
---------------------------------
Title:
-66-
<PAGE>
SCHEDULE 2.1
Domestic Eurocurrency Lending
Name of Bank Commitment Lending Office Office
- ------------ ---------- -------------- --------------------
The First National $15,000,000
Bank of Chicago
First Union National $15,000,000
Bank of North Carolina
Bank of Montreal $15,000,000
-67-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1993 JAN-01-1994 JAN-01-1995 JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 MAR-31-1995 MAR-31-1996
<CASH> 0 0 0 0 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 59,926 72,403 0 63,382
<ALLOWANCES> 0 (3,586) (3,965) 0 (3,984)
<INVENTORY> 0 4,414 5,658 0 7,067
<CURRENT-ASSETS> 0 68,932 90,244 0 84,831
<PP&E> 0 72,159 80,937 0 82,845
<DEPRECIATION> 0 (39,585) (43,392) 0 (45,133)
<TOTAL-ASSETS> 0 328,768 378,721 0 375,678
<CURRENT-LIABILITIES> 0 81,966 288,118 0 287,215
<BONDS> 0 0 379 0 379
<COMMON> 0 86 86 0 86
0 0 0 0 0
0 0 0 0 0
<OTHER-SE> 0 78,873 85,308 0 82,603
<TOTAL-LIABILITY-AND-EQUITY> 0 328,768 378,721 0 375,678
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 163,715 195,471 237,187 49,832 54,389
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 143,067 166,929 204,365 46,312 52,225
<OTHER-EXPENSES> (138) 24 (87) (10) (5)
<LOSS-PROVISION> 1,959 1,848 2,180 425 419
<INTEREST-EXPENSE> 22,112 18,999 21,409 4,968 5,405
<INCOME-PRETAX> (3,285) 7,671 9,320 (1,863) (5,175)
<INCOME-TAX> 1,181 5,684 6,585 (130) (788)
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 4,388 0 0 0 0
<NET-INCOME> (8,854) 1,987 2,735 (1,733) (2,887)
<EPS-PRIMARY> (1.03) 0.23 0.32 (0.20) (0.34)
<EPS-DILUTED> (1.03) 0.23 0.32 (0.20) (0.34)
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