<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1997
REGISTRATION NO. 333-28969
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
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 INDUSTRIAL (I.R.S.
JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) NUMBER)
360 EAST 22ND STREET
LOMBARD, IL 60148-4989
(630) 620-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
THOMAS J. QUARLES
SENIOR VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER, SECRETARY AND GENERAL
COUNSEL
360 EAST 22ND STREET
LOMBARD, IL 60148-4989
(630) 620-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DENNIS V. OSIMITZ
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
APPROXIMATE DATE COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of MML Merging Company, a wholly
owned subsidiary of Metromail Corporation, with and into Atlantes Corporation
("Atlantes"), pursuant to the Merger Agreement described herein.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [_]
---------------
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 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
[LOGO ATLANTES(TM)]
- --------------------------------------------------------------------------------
Dear Shareholder: June 19, 1997
We are pleased to invite you to a Special Meeting of Shareholders of
Atlantes Corporation ("Atlantes") to be held on June 30, 1997, at 2:00
P.M., local time, at the offices of Atlantes, 90 Madison Street, Denver,
Colorado.
Atlantes has entered into an Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 17, 1997 among Metromail Corporation
("Metromail"), MML Merging Company, a wholly-owned subsidiary of Metromail
("Mergerco"), and Atlantes pursuant to which Mergerco would merge with and
into Atlantes (the "Merger") and the shareholders of Atlantes would receive
for each share of Common Stock, no par value, of Atlantes ("Atlantes Common
Stock"), held by them immediately prior to the Effective Time of the Merger
(1) 1.241 shares of Common Stock, $.01 par value, of Metromail ("Metromail
Common Stock"), or, at the election of the holder thereof but subject to
certain limitations, $25.99 in cash plus (2) the right to receive shares of
Metromail Common Stock depending on the achievement of certain performance
targets. At the Special Meeting, you will be asked to approve the Merger
Agreement and to approve, as part of the Merger Agreement, the acceleration
of vesting of unvested stock options held by the Chairman of the Board of
Atlantes that could otherwise result in "parachute payments" for federal
income tax purposes (the "Parachute Proposal").
After careful consideration, your Board of Directors unanimously approved
the Merger Agreement and the transactions contemplated thereby. The Board
believes that the proposed Merger is fair, equitable and in the best
interests of Atlantes and its shareholders and recommends that you vote FOR
the proposal to approve the Merger Agreement and FOR the Parachute
Proposal. The accompanying Proxy Statement/Prospectus provides a detailed
description of the proposed Merger. Please give this material your
thoughtful attention.
Approval of the Merger Agreement requires the affirmative vote of the
holders of two-thirds of the outstanding shares of Atlantes Common Stock.
It is a condition to the obligations of Metromail to proceed with the
Merger that the Parachute Proposal be approved by holders of more than 75%
of the shares of Atlantes Common Stock outstanding immediately prior to the
Effective Time of the Merger (disregarding shares held by the Chairman).
Accordingly, your vote is very important. To ensure that your shares are
represented, please vote, date, sign and mail the enclosed proxy in the
envelope provided, whether or not you expect to be present at the Special
Meeting.
Please notice that if you desire to elect to receive cash in lieu of the
1.241 shares of Metromail Common Stock that you would otherwise receive
upon consummation of the Merger in exchange for each of your shares of
Atlantes Common Stock, you must submit the enclosed Form of Election, in
accordance with the instructions on that form, no later than 5:00 P.M., New
York time, on June 27, 1997.
Sincerely,
E. Thomas Detmer, Jr.
President
Copies of the accompanying Proxy Statement/Prospectus are also being sent
to holders of warrants and options to purchase shares of Atlantes Common
Stock. Although such holders are not entitled to vote at the Special
Meeting, we urge them to read carefully the accompanying Proxy
Statement/Prospectus and Form of Election.
ATLANTES CORPORATION
- ------------------------- -------------------------
90 Madison Street . Denver, CO 80206
303.394.9077 FAX 303.394.2902
<PAGE>
ATLANTES CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 30, 1997
To the Shareholders of Atlantes Corporation:
A Special Meeting of Shareholders of Atlantes Corporation ("Atlantes") will
be held at 2:00 P.M., local time, on June 30, 1997, at the offices of
Atlantes, 90 Madison Street, Denver, Colorado, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of May 17, 1997 (the "Merger Agreement") among Metromail
Corporation ("Metromail"), MML Merging Company, a wholly-owned subsidiary
of Metromail ("Mergerco"), and Atlantes.
2. To consider and vote upon a proposal to approve, as part of the Merger
(as defined below), the acceleration of vesting of unvested stock options
held by the Chairman of the Board of Atlantes that could otherwise result
in "parachute payments" for federal income tax purposes (the "Parachute
Proposal").
3. To transact such other business as may be properly brought before the
meeting.
As described more fully in the accompanying Proxy Statement/Prospectus, the
Merger Agreement provides for, among other things:
(i) the merger (the "Merger") of Mergerco with and into Atlantes; and
(ii) the conversion of each share of Common Stock, no par value, of
Atlantes ("Atlantes Common Stock") outstanding immediately prior to the
Merger (other than shares held by Atlantes shareholders who properly
exercise their dissenters' rights under Colorado law) into (1) 1.241 shares
of Common Stock, $.01 par value, of Metromail ("Metromail Common Stock"),
or, at the election of the holder thereof but subject to certain
limitations, $25.99 in cash, plus (2) the right to receive shares of
Metromail Common Stock in the years 1999 through 2002 depending on the
achievement of certain performance targets in years 1998 through 2001.
After careful consideration, your Board of Directors unanimously approved
the Merger Agreement. The Board recommends that you vote FOR the proposal to
approve the Merger Agreement and FOR the Parachute Proposal.
Shareholders of record at the close of business on June 17, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting.
Under Colorado law, the affirmative vote of holders of two-thirds of the
shares of Atlantes Common Stock outstanding on the Record Date is required to
approve the Merger Agreement. It is a condition to the obligations of
Metromail to proceed with the Merger that the Parachute Proposal be approved
by holders of more than 75% of the shares of Atlantes Common Stock outstanding
immediately prior to the Merger (disregarding shares held by the Chairman). It
is, therefore, important that your shares be represented at the Special
Meeting regardless of the number of shares you may hold. ANY SHAREHOLDER HAS
THE RIGHT TO DISSENT AND TO RECEIVE PAYMENT OF THE FAIR VALUE OF THE
SHAREHOLDER'S SHARES OF ATLANTES COMMON STOCK UPON COMPLIANCE WITH ARTICLE 113
OF THE COLORADO BUSINESS CORPORATION ACT. FOR A DESCRIPTION OF DISSENTERS'
RIGHTS, SEE THE INFORMATION PROVIDED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS UNDER THE CAPTION "DISSENTERS' RIGHTS." See also Annex B
to the accompanying Proxy Statement /Prospectus for the text of Article 113 of
the Colorado Business Corporation Act. Notwithstanding the above, under the
Merger Agreement, if the holders of more than 1% of Atlantes Common Stock
properly exercise dissenters' rights, Metromail will have the right to decline
to consummate the Merger.
SHAREHOLDERS ARE URGED TO VOTE, SIGN AND MAIL THE ACCOMPANYING PROXY IN THE
ENVELOPE PROVIDED, WHETHER OR NOT THEY EXPECT TO BE PRESENT AT THE SPECIAL
MEETING.
<PAGE>
Please check to be certain of the manner in which your shares are
registered--whether individually, as joint tenants, or in a representative
capacity--and sign the proxy accordingly. Failure to do so may disqualify your
vote.
Kenneth W. Edwards, Jr.
Secretary
Denver, Colorado
June 19, 1997
IMPORTANT
Shareholders are urged to fill out, date and return the enclosed form of
Proxy in the enclosed, self-addressed envelope as promptly as possible, even
though they plan to attend the meeting. Any shareholder present at the meeting
may, nevertheless, vote personally on all matters.
Please note that if you desire to elect to receive cash in lieu of the 1.241
shares of Metromail Common Stock that you would otherwise receive upon
consummation of the Merger in exchange for each of your shares of Atlantes
Common Stock, you must submit the enclosed Form of Election, in accordance
with the instructions on that form, no later than 5:00 P.M., New York time on
June 27, 1997.
2
<PAGE>
ATLANTES CORPORATION
PROXY STATEMENT
--------------
METROMAIL CORPORATION
PROSPECTUS
--------------
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of Common Stock, no par value ("Atlantes Common
Stock"), of Atlantes Corporation, a Colorado corporation ("Atlantes"), in
connection with the solicitation of proxies by the Board of Directors of
Atlantes (the "Atlantes Board") for use at its Special Meeting of Shareholders
to be held at the offices of Atlantes, 90 Madison Street, Denver, Colorado, on
June 30, 1997 at 2:00 p.m., local time, and any adjournments thereof (the
"Atlantes Special Meeting").
This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger
dated as of May 17, 1997 (the "Merger Agreement") among Metromail Corporation,
a Delaware corporation ("Metromail"), MML Merging Company, a Colorado
corporation and wholly-owned subsidiary of Metromail ("Mergerco"), and
Atlantes. The Merger Agreement provides for the merger (the "Merger") of
Mergerco with and into Atlantes, with Atlantes surviving as a wholly-owned
subsidiary of Metromail. Subject to the terms and conditions of the Merger
Agreement, each share of Atlantes Common Stock outstanding immediately prior
to the Effective Time (as defined in the Merger Agreement) of the Merger will
be converted into (i) 1.241 shares of Common Stock, $.01 par value, of
Metromail ("Metromail Common Stock"), or, at the election of the holder
thereof but subject to certain limitations, $25.99 in cash, plus (ii) the
right to receive shares of Metromail Common Stock in years 1999 through 2002
depending on the achievement of certain performance targets in years 1998
through 2001. Each share of Metromail Common Stock issued pursuant to the
Merger will be accompanied by a right (the "Metromail Right") to purchase from
Metromail one one-thousandth of a share of Junior Participating Preferred
Stock, Series A (the "Metromail Series A Preferred Stock"), subject to the
provisions described under "DESCRIPTION OF METROMAIL COMMON STOCK--Certain
Charter and By-law Provisions; Metromail Rights Agreement." Notwithstanding
the foregoing, holders of Atlantes Common Stock have the right to dissent from
the Merger and to receive payment of the fair value of their stock upon full
compliance with Article 113 of the Colorado Business Corporation Act (the
"CBCA"). See "DISSENTERS' RIGHTS." If holders of more than 1% of the shares of
Atlantes Common Stock outstanding immediately prior to the Effective Time
properly demand dissenters' rights, Metromail will have the right to decline
to consummate the Merger. See "THE MERGER AGREEMENT--Conditions Precedent to
the Merger."
HOLDERS OF ATLANTES COMMON STOCK WHO WISH TO RECEIVE CASH IN LIEU OF THE
1.241 SHARES OF METROMAIL COMMON STOCK THAT THEY WOULD RECEIVE IN EXCHANGE FOR
EACH OF THEIR SHARES OF ATLANTES COMMON STOCK UPON CONSUMMATION OF THE MERGER
MUST RETURN THE FORM OF ELECTION THAT ACCOMPANIES THIS PROXY
STATEMENT/PROSPECTUS TO THE EXCHANGE AGENT (AS DEFINED HEREIN) BY 5:00 P.M.,
NEW YORK TIME, ON JUNE 27, 1997. HOLDERS OF ATLANTES COMMON STOCK WHO DO NOT
WISH TO RECEIVE CASH INSTEAD OF SHARES OF METROMAIL COMMON STOCK NEED NOT
RETURN SUCH FORM OF ELECTION. SEE "THE MERGER AGREEMENT--CASH ELECTION."
SHAREHOLDERS OF ATLANTES AND HOLDERS OF ATLANTES STOCK OPTIONS AND WARRANTS
SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS INCLUDING, IN PARTICULAR, THE FACTORS DISCUSSED UNDER THE
HEADING "RISK FACTORS" BEGINNING ON PAGE 11.
The consummation of the Merger is subject, among other things, to the
approval of the Merger Agreement by two-thirds of the votes entitled to be
cast at the Atlantes Special Meeting. It is also a condition to the
obligations of Metromail that the acceleration of vesting of unvested stock
options held by the Chairman of the Board of Atlantes that could otherwise
result in "parachute payments" for federal income tax purposes be approved by
the holders of more than 75% of the shares of Atlantes outstanding immediately
prior to the Effective Time (disregarding shares held by the Chairman).
This Proxy Statement/Prospectus also constitutes the Prospectus of Metromail
filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Metromail Common Stock which may be issued pursuant to the Merger.
Metromail Common Stock is listed for trading on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "ML." There is no established public trading
market for Atlantes Common Stock. On May 16, 1997, the last trading day ending
prior to the public announcement of the execution of the Merger Agreement, the
last sale price of Metromail Common Stock, as reported on the NYSE Composite
Transactions Tape, was $21.625 per share. On June 18, 1997, the last trading
day prior to the date of this Proxy Statement/Prospectus, the last reported
sale price of Metromail Common Stock, as reported on the NYSE Composite
Transactions Tape, was $22.00 per share.
This Proxy Statement/Prospectus, the accompanying form of proxy and Form of
Election and the other enclosed documents are first being mailed to
shareholders of Atlantes on or about June 19, 1997.
--------------
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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------
The date of this Proxy Statement/Prospectus is June 19, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 1
SUMMARY.................................................................... 2
Atlantes Special Meeting................................................. 2
Parties to the Merger Agreement.......................................... 3
The Merger............................................................... 3
The Merger Agreement..................................................... 4
Comparative Rights of Stockholders; Description of Metromail Common
Stock................................................................... 6
Dissenters' Rights....................................................... 6
Metromail Selected Historical Financial Data............................. 7
Atlantes Selected Historical Financial Data.............................. 8
Comparative Per Share Data Of Metromail and Atlantes..................... 9
Market Prices and Dividends Paid......................................... 10
RISK FACTORS............................................................... 11
ATLANTES SPECIAL MEETING................................................... 13
Date, Place and Time..................................................... 13
Purpose.................................................................. 13
Record Date; Voting Rights............................................... 13
Quorum................................................................... 13
Proxies.................................................................. 14
Solicitation of Proxies.................................................. 14
Required Vote............................................................ 14
Dissenters' Rights....................................................... 14
PARTIES TO THE MERGER AGREEMENT............................................ 15
Metromail................................................................ 15
Atlantes................................................................. 15
Mergerco................................................................. 15
THE MERGER................................................................. 16
General.................................................................. 16
Metromail's Reasons for the Merger....................................... 17
Atlantes' Reasons for the Merger; Recommendation of its Board of
Directors............................................................... 18
Opinion of Atlantes' Financial Advisor................................... 19
Interests of Certain Persons in the Merger............................... 20
Certain Material Federal Income Tax Consequences......................... 22
Anticipated Accounting Treatment......................................... 26
Operation of Atlantes After the Effective Time........................... 26
Resales of Metromail Common Stock........................................ 27
THE MERGER AGREEMENT....................................................... 27
Conversion of Shares in the Merger....................................... 27
Atlantes Warrants........................................................ 28
Atlantes Stock Options................................................... 28
Cash Election............................................................ 28
No Fractional Shares..................................................... 30
Adjustment of Exchange Ratio............................................. 30
Contingent Shares........................................................ 30
Exchange Agent; Procedures for Exchange of Certificates and Delivery of
Cash.................................................................... 34
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Representations and Warranties...................................... 35
Conduct of Business Pending the Merger.............................. 36
Conditions Precedent to the Merger.................................. 37
Termination......................................................... 39
Fees and Expenses................................................... 39
Amendment and Waiver; Governing Law................................. 39
PARACHUTE PROPOSAL.................................................... 40
VOTING AGREEMENTS..................................................... 41
DESCRIPTION OF METROMAIL COMMON STOCK................................. 41
Metromail Common Stock.............................................. 41
Metromail Preferred Stock........................................... 41
Certain Charter and By-law Provisions; Metromail Rights Agreement... 42
Transfer Agent and Registrar........................................ 45
COMPARISON OF THE RIGHTS OF HOLDERS OF METROMAIL COMMON STOCK AND
ATLANTES COMMON STOCK.............................................. 46
Dividend Rights..................................................... 46
Voting Rights....................................................... 46
Directors........................................................... 46
Call of Special Meetings............................................ 47
Action by Shareholders Without a Meeting............................ 48
Shareholder Proposals............................................... 48
Amendment to Charter Document....................................... 48
Amendment and Repeal of By-laws..................................... 49
Approval of Mergers and Asset Sales................................. 49
Dissenters' Rights.................................................. 49
Indemnification of Directors and Officers........................... 50
Anti-Takeover Provisions............................................ 50
Rights of Inspection................................................ 51
Liquidation Rights.................................................. 51
DISSENTERS' RIGHTS.................................................... 51
Dissenters' Rights.................................................. 51
Who May Dissent..................................................... 51
Requirements To Be Met By A Dissenter Before The Vote On The Merger
Agreement Is Taken................................................. 52
Notice Required To Be Given By Atlantes To Dissenting Shareholders
If The Merger Agreement Is Approved................................ 52
Dissenter's Procedures To Demand Payment............................ 52
Payment For Shares.................................................. 53
Failure To Effect Merger............................................ 53
Shares Acquired After Announcement Of Merger Agreement.............. 53
Procedure For Dissenter To Follow If Dissenter Is Dissatisfied With
Payment Made Or Offered By Atlantes................................ 53
Court Action For Appraisal.......................................... 54
ADDITIONAL INFORMATION REGARDING METROMAIL............................ 55
Business of Metromail............................................... 55
General............................................................. 55
Products and Services............................................... 55
International Operations............................................ 58
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Metromail's Database..................................................... 58
Competition.............................................................. 59
Regulation............................................................... 60
Customers and Seasonality................................................ 61
Computer Operations...................................................... 61
Employees................................................................ 61
Facilities............................................................... 62
Legal Proceedings........................................................ 62
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 63
ADDITIONAL INFORMATION REGARDING ATLANTES.................................. 67
Description of Business.................................................. 67
Market Price and Dividends on Atlantes Common Stock And Related
Shareholder Matters..................................................... 68
Voting Securities and Principal Holders Thereof.......................... 68
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 70
EXPERTS.................................................................... 72
LEGAL OPINIONS............................................................. 73
METROMAIL CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS................... F-1
ATLANTES FINANCIAL STATEMENTS.............................................. F-2
Annex A Merger Agreement
Annex B Article 113 of the CBCA
Annex C Opinion of The Wallach Company, Inc.
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Metromail is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices of the SEC: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the SEC maintains a Web site
(http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants who file electronically with the SEC.
Metromail files electronically with the SEC. Copies of such materials relating
to Metromail can also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
This Proxy Statement/Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Reference is made to the
Registration Statement and the Exhibits thereto for further information.
Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an Exhibit to the
Registration Statement or otherwise filed with the SEC are not necessarily
complete and reference is hereby made to the copy thereof so filed for more
detailed information, each such statement being qualified in its entirety by
such reference.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER METROMAIL OR ATLANTES. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF METROMAIL OR ATLANTES SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
----------------
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO
METROMAIL AND MERGERCO HAS BEEN PROVIDED BY METROMAIL. ALL INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO ATLANTES HAS BEEN
PROVIDED BY ATLANTES.
1
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto.
This Proxy Statement/Prospectus contains certain forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. When used in this
Proxy Statement/Prospectus, the words "anticipate," "believe," "estimate,"
"intend" and "expect" and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements of Metromail are based
on Metromail's current views and assumptions and involve risks and
uncertainties that include, among other things, the factors described herein
under "Risk Factors," and under "Risk Factors" in Metromail's Registration
Statement on Form S-1 (No. 333-2042).
----------------
SHAREHOLDERS OF ATLANTES AND HOLDERS OF OPTIONS TO PURCHASE ATLANTES COMMON
STOCK ("ATLANTES STOCK OPTIONS") AND WARRANTS TO PURCHASE ATLANTES COMMON STOCK
("ATLANTES WARRANTS") ARE URGED TO READ THIS PROXY STATEMENT/PROSPECTUS AND THE
ANNEXES HERETO IN THEIR ENTIRETY AND SHOULD CONSIDER CAREFULLY THE INFORMATION
SET FORTH HEREIN UNDER "RISK FACTORS."
----------------
ATLANTES SPECIAL MEETING
Date, Place and Time. The Atlantes Special Meeting will be held on June 30,
1997 at 2:00 p.m., local time, at the offices of Atlantes, 90 Madison Street,
Denver, Colorado.
Purpose. To consider and vote upon (i) a proposal to approve the Merger
Agreement and (ii) a proposal to approve, as part of the Merger Agreement, the
acceleration of vesting of unvested stock options held by the Chairman of the
Board of Atlantes that could otherwise result in "parachute payments" for
federal income tax purposes (the "Parachute Proposal") and to transact such
other business as may properly come before the Atlantes Special Meeting. See
"ATLANTES SPECIAL MEETING--Purpose."
Record Date; Voting Rights. Only holders of record of Atlantes Common Stock
at the close of business on June 17, 1997 (the "Atlantes Record Date") are
entitled to receive notice of and to vote at the Atlantes Special Meeting. At
the close of business on the Atlantes Record Date, there were 476,803 shares of
Atlantes Common Stock outstanding, each of which entitles the registered holder
thereof to one vote on each matter voted upon at the Atlantes Special Meeting.
See "ATLANTES SPECIAL MEETING--Record Date; Voting Rights."
Quorum. The holders of a majority of the shares of Atlantes Common Stock
outstanding and entitled to vote must be present in person or represented by
proxy at the Atlantes Special Meeting in order for a quorum to be present. In
the event that a quorum is not present at the Atlantes Special Meeting, it is
expected that such meeting will be adjourned or postponed to allow for the
solicitation of additional proxies. See "ATLANTES SPECIAL MEETING--Quorum."
Required Vote. Approval of the Merger Agreement will require the affirmative
vote of the holders of two-thirds of the shares of Atlantes Common Stock
outstanding on the Atlantes Record Date. Approval of the Parachute Proposal
will require the affirmative vote of the holders of at least 75% of the shares
of Atlantes Common Stock outstanding immediately prior to the Effective Time of
the Merger, other than the shares held by the Chairman of Atlantes. If the
holders of all outstanding Atlantes Warrants were to exercise such warrants
prior to the Effective Time (assuming no holders of Atlantes Stock Options were
to exercise such options), the holders of approximately 91% of the shares of
Atlantes Common Stock outstanding on the Atlantes Record Date (disregarding
shares held by the Chairman) would be required to approve the Parachute
Proposal. See "ATLANTES SPECIAL MEETING--Required Vote" and "PARACHUTE
PROPOSAL."
Voting Agreements. The holders of 193,760 shares of Atlantes Common Stock
outstanding at the close of business on the Atlantes Record Date (approximately
40.6% of the shares of Atlantes Common Stock then
2
<PAGE>
outstanding) have signed agreements obligating them to vote in favor of
approval of the Merger Agreement and the Parachute Proposal and against certain
other actions. See "VOTING AGREEMENTS."
Share Ownership of Management. At the close of business on the Atlantes
Record Date, directors and executive officers of Atlantes were the record
owners of an aggregate of 153,321 (approximately 32.2%) of the shares of
Atlantes Common Stock then outstanding. Such shares do not include the shares
subject to the voting agreements described above. Atlantes expects that all
such shares will be voted in favor of approval of the Merger Agreement and the
Parachute Proposal. See "ATLANTES SPECIAL MEETING--Required Vote."
PARTIES TO THE MERGER AGREEMENT
Metromail. Metromail is a leading provider of database marketing, direct
marketing and reference products and services in the United States and the
United Kingdom. Metromail helps its customers identify and reach targeted
audiences, utilizing its comprehensive, proprietary consumer database
encompassing more than 90% of U.S. households, as well as providing database
marketing software and related services. Metromail is a Delaware corporation,
its principal executive offices are located at 360 East 22nd Street, Lombard,
Illinois 60148, its telephone number is (630) 620-3300 and its Internet address
is http://www.metromail.com. For further information concerning Metromail, see
"ADDITIONAL INFORMATION REGARDING METROMAIL," "METROMAIL CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS," and "AVAILABLE INFORMATION."
Atlantes. Atlantes has developed a proprietary computer database which
accumulates and provides access to consumer product purchasing information.
Atlantes provides consumer database management services, primarily to durable
goods manufacturers, in exchange for consumer product purchasing information
derived from customer response cards and the right to sell selected parts of
the consumer database, in the form of customer lists, to the direct marketing
industry. Atlantes also provides consumer database and information design
services to its clients. Atlantes is a Colorado corporation, its principal
executive offices are located at 90 Madison Street, Denver, Colorado 80206, and
its telephone number is (303) 394-9077. For further information concerning
Atlantes, see "ADDITIONAL INFORMATION REGARDING ATLANTES" and "ATLANTES
FINANCIAL STATEMENTS."
Mergerco. Mergerco was incorporated in Colorado on May 7, 1997 solely for the
purpose of consummating the Merger and the other transactions contemplated by
the Merger Agreement. Mergerco has minimal assets and no business and has
carried on no activities which are not directly related to its formation and
its execution of the Merger Agreement. Its principal executive offices are
located at 360 East 22nd Street, Lombard, Illinois 60148, and its telephone
number is (630) 620-3300.
THE MERGER
Recommendation of the Atlantes Board. The Board of Directors of Atlantes (the
"Atlantes Board") has unanimously determined that the Merger is fair, equitable
and in the best interests of Atlantes and its shareholders and has unanimously
approved the Merger Agreement. THE ATLANTES BOARD UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF ATLANTES VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT
AND IN FAVOR OF THE PARACHUTE PROPOSAL AT THE ATLANTES SPECIAL MEETING. See
"THE MERGER--Atlantes' Reasons for the Merger; Recommendation of its Board of
Directors."
Opinion of Financial Advisor. The Wallach Company, Inc. ("The Wallach
Company") has delivered its written opinion, dated May 17, 1997 (the "Fairness
Opinion"), to the Atlantes Board to the effect that, subject to the various
considerations set forth in such opinion, as of that date the consideration to
be received in the Merger by Atlantes shareholders was fair to Atlantes'
shareholders from a financial point of view. For information on the assumptions
made, matters considered and limits of the review by The Wallach Company, see
"THE MERGER--Opinion of Atlantes' Financial Advisor." Holders of Atlantes
Common Stock are urged to read carefully and in its entirety the Fairness
Opinion, a copy of which appears as Annex C to this Proxy Statement/Prospectus.
3
<PAGE>
Interests of Certain Persons in the Merger. Certain executive officers of
Atlantes, one of whom is also a director of Atlantes, have interests in the
Merger in addition to their interests as shareholders of Atlantes. In
connection with the execution of the Merger Agreement, Metromail entered into
employment agreements (the "Employment Agreements") with Mr. E. Thomas Detmer,
Jr., President of Atlantes, Mr. William Anderson, Vice President--Operations of
Atlantes, and Mr. Peter A. O'Neil, Vice President--Client Services of Atlantes,
which are conditioned upon consummation of the Merger in accordance with the
terms of the Merger Agreement. Shares of Atlantes Common Stock, Atlantes Stock
Options and Atlantes Warrants held by executive officers and directors of
Atlantes will be converted pursuant to the Merger in the same manner as those
held by other holders. See "THE MERGER--Interests of Certain Persons in the
Merger."
Material Federal Income Tax Consequences. For a description of certain
material federal income tax consequences of the Merger, see "THE MERGER--
Certain Material Federal Income Tax Consequences." Holders of Atlantes Common
Stock, Atlantes Stock Options and Atlantes Warrants are urged to consult with
their own tax advisors with respect to the potential tax effects of the
proposed Merger on such holders.
Anticipated Accounting Treatment. The Merger will be accounted for as a
"purchase" for accounting and financial reporting purposes in accordance with
Accounting Principles Board Opinion No. 16 ("APB No. 16"). For purposes of
preparing Metromail's consolidated financial statements, Metromail will
establish a new accounting basis for Atlantes's assets and liabilities based
upon the fair values thereof and Metromail's purchase price, including the
direct costs of the acquisition. A final determination of required purchase
accounting adjustments and of the fair value of the assets and liabilities of
Atlantes has not yet been made. Accordingly, the purchase accounting
adjustments made in connection with the development of the pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus are
preliminary and are subject to adjustment. After the Merger, Metromail will
undertake a study to determine the fair value of Atlantes's assets and
liabilities and will make appropriate purchase accounting adjustments upon
completion of such study. For financial reporting purposes, Metromail will
consolidate the results of Atlantes's operations with those of Metromail's
operations, beginning with the consummation of the Merger, but Metromail's
financial statements for prior periods will not be restated as a result of the
Merger. See "THE MERGER--Anticipated Accounting Treatment."
THE MERGER AGREEMENT
Conversion of Shares in the Merger. At the Effective Time of the Merger,
Mergerco will be merged with and into Atlantes, with Atlantes continuing as the
surviving corporation (the "Surviving Corporation") and a wholly-owned
subsidiary of Metromail. As a result of the Merger, the separate corporate
existence of Mergerco will cease, and Atlantes will succeed to all the rights
and be responsible for all the obligations of Mergerco in accordance with the
CBCA. Subject to the terms and conditions of the Merger Agreement, each share
of Atlantes Common Stock outstanding immediately prior to the Effective Time of
the Merger will be converted into (i) 1.241 shares of Metromail Common Stock
or, at the election of the holder thereof but subject to certain limitations,
$25.99 in cash, plus (ii) the right to receive shares of Metromail Common Stock
in years 1999 through 2002 depending on the achievement of certain performance
targets in years 1998 through 2001 ("Contingent Shares"), as described below.
Each share of Metromail Common Stock issued pursuant to the Merger will be
accompanied by a Metromail Right, subject to the provisions described under
"DESCRIPTION OF METROMAIL COMMON STOCK--Certain Charter and By-law Provisions;
Metromail Rights Agreement." Cash will be paid in lieu of any fractional share
of Metromail Common Stock. Notwithstanding the foregoing, holders of Atlantes
Common Stock have the right to dissent from the Merger and to receive payment
of the fair value of their stock upon full compliance with Article 113 of the
CBCA. If holders of more than 1% of the shares of Atlantes Common Stock
outstanding immediately prior to the Effective Time properly exercise
dissenters' rights, Metromail will have the right to decline to consummate the
Merger. See "THE MERGER AGREEMENT--Conversion of Shares in the Merger," "--Cash
Election," "--No Fractional Shares," "--Adjustment of Exchange Ratio," "--
Contingent Shares" and "--Conditions Precedent to the Merger" and "DISSENTERS'
RIGHTS."
4
<PAGE>
HOLDERS OF ATLANTES COMMON STOCK WHO WISH TO RECEIVE CASH IN LIEU OF THE
1.241 SHARES OF METROMAIL COMMON STOCK THAT THEY WOULD RECEIVE IN EXCHANGE FOR
EACH OF THEIR SHARES OF ATLANTES COMMON STOCK UPON CONSUMMATION OF THE MERGER
MUST RETURN THE FORM OF ELECTION THAT ACCOMPANIES THIS PROXY
STATEMENT/PROSPECTUS TO AMERICAN STOCK TRANSFER AND TRUST COMPANY (THE
"EXCHANGE AGENT") BY 5:00 P.M., NEW YORK TIME, ON JUNE 27, 1997. HOLDERS OF
ATLANTES COMMON STOCK WHO DO NOT WISH TO RECEIVE CASH INSTEAD OF SHARES OF
METROMAIL COMMON STOCK NEED NOT RETURN SUCH FORM OF ELECTION. SEE "THE MERGER
AGREEMENT--CASH ELECTION."
Contingent Shares. Each holder of Atlantes Common Stock, Atlantes Warrants or
Atlantes Stock Options immediately prior to the Effective Time (each, a "Record
Holder") will be entitled to receive Contingent Shares in the years 1999
through 2002 depending on the achievement of certain performance targets in
each of the calendar years ending December 31, 1998 through 2001. The
performance targets are based upon the number of Qualifying Records (as defined
herein) loaded into Atlantes's or Metromail's database during each such
calendar year. If all performance targets are met, the Record Holders will be
entitled to receive Contingent Shares having a value (based on an average price
of Metromail Common Stock over a period of ten consecutive trading days ending
five trading days before the delivery date), in the aggregate, of $12,500,000,
subject to certain limitations and subject to reduction in the event Metromail
incurs certain losses and expenses that it is permitted to offset against the
amounts otherwise payable. The allocation of Contingent Shares among Record
Holders who held Atlantes Common Stock, Atlantes Warrants and Atlantes Stock
Options is intended to place each holder of Atlantes Warrants or Atlantes Stock
Options in the same position with respect to Contingent Shares as if the holder
had exercised the Atlantes Warrants or Atlantes Stock Options prior to the
Merger. Following the occurrence of certain Exceptional Events (as defined
herein), the Record Holders's right to receive Contingent Shares will become
fixed and will no longer be based upon prospective achievement of performance
targets. See "THE MERGER AGREEMENT--Contingent Shares."
Atlantes Warrants. At the Effective Time of the Merger, each Atlantes Warrant
outstanding immediately prior to the Effective Time will be converted into (i)
1.193 shares of Metromail Common Stock or, at the election of the holder but
subject to certain limitations, $24.99 in cash, plus (ii) the right to receive
Contingent Shares. See "THE MERGER AGREEMENT--Atlantes Warrants" and "--Cash
Election." Holders of Atlantes Warrants will receive a notice from Atlantes
notifying them of their rights to exercise Atlantes Warrants before the Merger
and receive Atlantes Common Stock before the Merger. A holder of Atlantes
Warrants who exercises Atlantes Warrants and receives Atlantes Common Stock and
who exchanges Atlantes Common Stock for Metromail Common Stock in accordance
with the Merger Agreement will have different tax consequences than a holder of
Atlantes Warrants who elects to exchange Atlantes Warrants directly for
Metromail Common Stock. See "THE MERGER--Certain Material Federal Income Tax
Consequences."
Atlantes Stock Options. At the Effective Time of the Merger, each Atlantes
Stock Option outstanding immediately prior to the Effective Time will be
converted into (i) a specified number of shares of Metromail Common Stock
(1.193 shares for each Atlantes Stock Option with an exercise price of $1.00
per share; 1.181 shares for each Atlantes Stock Option with an exercise price
of $1.25 per share; 1.169 shares for each Atlantes Stock Option with an
exercise price of $1.50 per share; and 1.145 shares for each Atlantes Stock
Option with an exercise price of $2.00 per share), or, at the election of the
holder thereof, $25.99 less the applicable exercise price of the Atlantes Stock
Option in cash, plus (ii) the right to receive Contingent Shares. See "THE
MERGER AGREEMENT--Atlantes Stock Options" and "--Cash Election."
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the shareholders of
Atlantes of the Merger Agreement : (i) by mutual written consent of Metromail
and Atlantes; (ii) by either Metromail or Atlantes if the other (or Mergerco if
Atlantes is the terminating party) has failed to comply in any material respect
with any of its covenants or agreements contained in the Merger Agreement
required to be complied with prior to the date of such termination or
materially
5
<PAGE>
breaches any representation or warranty that is not qualified as to materiality
or breaches any representation or warranty that is so qualified (in each case
after a five business day cure period following notice of such breach) or if
the requisite shareholder approval is not obtained; or (iii) by either
Metromail or Atlantes if (A) the Merger has not been effected on or prior to
the close of business on August 31, 1997, subject to certain limitations, or
(B) any court or other governmental entity having jurisdiction has permanently
enjoined, restrained or otherwise prohibited the transactions contemplated by
the Merger Agreement by final and nonappealable order, decree, ruling or other
action. See "THE MERGER AGREEMENT--Termination."
Fees and Expenses. The Merger Agreement provides that Metromail and Atlantes
will each pay their own respective costs and expenses incurred by it in
connection with the preparation, negotiation, execution, delivery and
performance of the Merger Agreement, except that Metromail will pay the fees of
The Wallach Company if the Merger is consummated. If certain costs and expenses
of Atlantes exceed specified amounts, Metromail will be entitled to offset such
excess against future Contingent Payment Amounts (as defined herein). See "THE
MERGER AGREEMENT--Fees and Expenses."
COMPARATIVE RIGHTS OF STOCKHOLDERS; DESCRIPTION OF METROMAIL COMMON STOCK
The rights of shareholders of Atlantes currently are governed by the CBCA and
Atlantes's Articles of Incorporation (the "Atlantes Charter") and By-laws (the
"Atlantes By-laws"). Upon consummation of the Merger, shareholders of Atlantes
will become stockholders of Metromail, which is a Delaware corporation, and
their rights as stockholders of Metromail will be governed by the Delaware
General Corporation Law (the "DGCL"), and Metromail's Third Amended and
Restated Certificate of Incorporation (the "Metromail Certificate of
Incorporation") and By-laws (the "Metromail By-laws"). See "COMPARISON OF THE
RIGHTS OF HOLDERS OF METROMAIL COMMON STOCK AND ATLANTES COMMON STOCK" for a
discussion of the material differences between the rights of holders of
Atlantes Common Stock and the rights of holders of Metromail Common Stock. See
"DESCRIPTION OF METROMAIL COMMON STOCK" for a description of Metromail Common
Stock.
DISSENTERS' RIGHTS
Holders of Atlantes Common Stock have the right to dissent from the Merger
and to receive payment of the fair value of their shares upon full compliance
with Article 113 of the CBCA. A copy of Article 113 of the CBCA is attached
hereto as Annex B. If holders of more than 1% of the shares of Atlantes Common
Stock outstanding immediately prior to the Effective Time properly exercise
dissenters' rights, Metromail will have the right to decline to consummate the
Merger. See "DISSENTERS' RIGHTS" and "THE MERGER AGREEMENT--Conditions
Precedent to the Merger."
6
<PAGE>
METROMAIL SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical consolidated and combined
financial data of Metromail. Statement of operations data for each of the three
years in the period ended December 31, 1996 and balance sheet data as of
December 31, 1995 and 1996 have been derived from the audited consolidated and
combined financial statements of Metromail contained herein. Statement of
operations data for the three month periods ended March 31, 1996 and March 31,
1997 and balance sheet data as of March 31, 1997 are derived from the unaudited
consolidated and combined financial statements of Metromail contained herein.
Statement of operations data for the year ended December 31, 1993 and balance
sheet data as of December 31, 1994 are derived from audited consolidated and
combined financial statements of Metromail not contained herein. Statement of
operations data for the year ended December 31, 1992 and balance sheet data as
of December 31, 1992 and 1993 and March 31, 1996 and 1997 are derived from
unaudited information. The selected historical financial data should be read in
conjunction with "ADDITIONAL INFORMATION REGARDING METROMAIL--Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Metromail Consolidated and Combined Financial Statements and related notes
thereto, each included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- ------------------
1992 1993 1994(1) 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Direct marketing sales.. $ 78,833 $ 84,904 $100,060 $122,303 $150,756 $ 26,984 $ 35,149
Database marketing
sales.................. 41,531 42,779 56,746 67,410 76,267 14,910 16,539
Reference sales......... 33,317 36,032 38,665 47,474 54,422 12,475 14,112
-------- -------- -------- -------- -------- -------- --------
Total net sales...... 153,681 163,715 195,471 237,187 281,445 54,369 65,800
Database and production
costs.................. 86,184 95,016 108,806 134,361 155,708 33,606 41,178
Amortization of
goodwill............... 6,054 6,054 6,608 7,446 7,572 1,889 1,908
Selling expenses........ 26,252 29,625 37,107 45,913 53,240 11,821 12,817
General and
administrative
expenses............... 13,232 12,372 14,408 16,645 25,524 4,909 6,022
Provisions for doubtful
accounts............... 1,798 1,959 1,848 2,180 2,143 419 488
-------- -------- -------- -------- -------- -------- --------
Earnings from
operations........... 20,161 18,689 26,694 30,642 37,258 1,725 3,387
Interest expense--
related party.......... 21,337 22,112 18,999 21,329 10,178 5,345 --
Interest expense........ -- -- -- 80 776 60 291
Other expense (income)--
net.................... (57) (138) 24 (87) (207) (5) (117)
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
income taxes......... (1,119) (3,285) 7,671 9,320 26,511 (3,675) 3,213
Income taxes............ 2,034 1,181 5,684 6,585 12,649 (788) 1,950
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
from operations
before
cumulative effect of
accounting change... (3,153) (4,466) 1,987 2,735 13,862 (2,887) 1,263
Cumulative after-tax
effect of change in
accounting for post
retirement benefits
other
than pensions.......... -- 4,388 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).... $ (3,153) $ (8,854) $ 1,987 $ 2,735 $ 13,862 $ (2,887) $ 1,263
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT
END OF PERIODS):
Total assets............ $289,353 $293,691 $328,768 $378,721 $443,406 $375,678 $441,314
Total debt (2).......... 187,863 202,503 219,737 250,376 21,468 253,290 21,014
Total shareholders'
equity (2)............. 84,739 75,872 78,959 85,392 360,548 82,603 361,766
</TABLE>
- --------
(1) In 1994, Metromail purchased Customer Insight Company for approximately
$20.0 million. In 1995, an affiliate of R.R. Donnelley & Sons Company
("R.R. Donnelley") acquired International Communication & Data Plc ("ICD")
for approximately $15.3 million. See Notes 1 and 14 of Notes to
Consolidated and Combined Financial Statements of Metromail.
(2) In June 1996, Metromail completed an initial public offering of 13,800,000
shares of Metromail Common Stock (the "IPO"). Prior to the IPO, Metromail
had been a wholly-owned subsidiary of R.R. Donnelley. Approximately $247.4
million of the net proceeds of $267.4 million from the IPO were used to
repay the amounts owed by Metromail to a subsidiary of R.R. Donnelley and
the amounts owed by a subsidiary of Metromail under a revolving credit
facility. See Note 1 of Notes to Consolidated and Combined Financial
Statements of Metromail.
7
<PAGE>
ATLANTES SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of
Atlantes. Statement of operations data for each of the three years in the
period ended December 31, 1996 and balance sheet data as of December 31, 1995
and 1996 have been derived from the audited financial statements of Atlantes
contained herein. Statement of operations data for the three month periods
ended March 31, 1997 and March 31, 1996 and balance sheet data as of March 31,
1997 are derived from the unaudited financial statements of Atlantes contained
herein. Statement of operations data for the year ended December 31, 1993 and
balance sheet data as of December 31, 1993 and 1994 are derived from audited
financial statements of Atlantes not contained herein. Statement of operations
data for the year ended December 31, 1992 and balance sheet data as of December
31, 1992 and March 31, 1996 are derived from unaudited information. The
selected historical financial data should be read in conjunction with
"ADDITIONAL INFORMATION REGARDING ATLANTES--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Atlantes
Financial Statements and related notes thereto, each included elsewhere herein.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH
FOR THE YEARS ENDED DECEMBER 31, 31,
---------------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- ---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Direct marketing sales.. $ 8,053 $ 111,908 $1,000,461 $ 1,167,185 $ 1,834,765 $ 356,353 $ 672,548
Database and production
costs.................. (3,356) (191,197) (455,285) (565,942) (748,747) (167,285) (221,490)
General and
administrative
expenses............... (142,481) (329,865) (952,283) (1,116,297) (1,380,130) (285,838) (392,652)
--------- --------- ---------- ----------- ----------- --------- ---------
Earnings (losses) from
operations............. (137,784) (409,154) (407,107) (515,054) (294,112) (96,770) 58,406
Interest expense........ -- (2,919) (166,270) (4,270) -- -- (3,917)
--------- --------- ---------- ----------- ----------- --------- ---------
Net income (loss)....... $(137,784) $(412,073) $ (573,377) $ (519,324) $ (294,112) $ (96,770) $ 54,489
========= ========= ========== =========== =========== ========= =========
BALANCE SHEET DATA (AT
END OF PERIODS):
Total Assets............ $ 22,211 $ 526,502 $ 992,665 $ 655,476 $ 484,167 $ 556,701 $ 588,676
Total Debt.............. 70,000 9,500 460,758 -- -- -- 3,917
Total Stockholders'
Equity (Deficit)....... (48,345) 463,272 401,488 526,002 336,793 450,231 412,582
</TABLE>
8
<PAGE>
COMPARATIVE PER SHARE DATA OF METROMAIL AND ATLANTES
The following table sets forth certain selected per share data for Metromail
and Atlantes on historical and unaudited pro forma combined bases. The
unaudited pro forma financial data assume that the Merger had been consummated
at the beginning of the earliest period presented and give effect to the Merger
as a "purchase" under generally accepted accounting principles. Book value data
for all pro forma presentations is based upon the number of outstanding shares
of Metromail Common Stock adjusted to include the shares of Metromail Common
Stock expected to be issued in the Merger, assuming that no holder of Atlantes
Common Stock, Atlantes Warrants or Atlantes Options makes a cash election, and
no holder of Atlantes Warrants or Atlantes Options exercises such warrants or
options before the Effective Time, and disregarding the delivery of any
Contingent Shares. Based on these assumptions and the number of shares of
Atlantes Common Stock outstanding at the close of business on March 31, 1997,
holders of Atlantes Common Stock would receive an aggregate of 832,105 shares
of Metromail Common Stock upon consummation of the Merger. The information set
forth below should be read in conjunction with the historical Consolidated and
Combined Financial Statements of Metromail and the Financial Statements of
Atlantes, including the notes thereto, appearing elsewhere herein. See
"METROMAIL CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS" and "ATLANTES
FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR THE
THE THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Metromail Historical:
Income per common share........................... $ .62 $ .06
Cash dividends declared per common share.......... -- --
Book value per common share....................... $4.69 $4.66
Atlantes Historical:
Net income (loss) per common share................ $(.62) $ .09
Cash dividends declared per common share.......... -- --
Book value per common share....................... $ .53 $ .65
Metromail Unaudited Pro Forma:(1)
Income per common share........................... $ .57 $ .05
Cash dividends declared per common share.......... -- --
Book value per common share....................... $4.56 $4.52
Atlantes Equivalent for one share of Metromail
Common Stock:
Income (loss) per common share.................... $(.01) $ .00
Cash dividends declared per common share.......... -- --
Book value per common share....................... $ .01 $ .02
</TABLE>
- --------
(1) The unaudited pro forma earnings per share data for the year ended December
31, 1996 and the three months ended March 31, 1997 and the book value as of
December 31, 1996 and March 31, 1997 illustrate the results (under
Metromail's accounting policies) as if the transaction had occurred on
January 1, 1996. The pro forma per share data are based on information and
upon certain assumptions that Metromail believes are reasonable. The pro
forma per share data do not purport to represent what Metromail's results
of operations or financial position would have actually have been or to
project Metromail's results of operations for any future period or
financial position for any future date.
9
<PAGE>
MARKET PRICES AND DIVIDENDS PAID
Metromail Common Stock trades on the NYSE under the symbol "ML." There is no
established public trading market for Atlantes Common Stock. Trading of
Metromail's Common Stock commenced on the NYSE on June 14, 1996 in connection
with its initial public offering. Prior to such offering, Metromail Common
Stock was not listed or traded on any organized market system. The following
table sets forth, for the periods indicated, the range of the high and low
sales prices of Metromail Common Stock as reported on the New York Stock
Exchange Composite Transactions Tape. Metromail has not paid dividends on its
Common Stock in the periods shown. Atlantes has not paid dividends on its
Common Stock since its incorporation in 1991. At the close of business on the
Atlantes Record Date, there were 19 holders of record of the outstanding shares
of Atlantes Common Stock.
<TABLE>
<CAPTION>
METROMAIL
COMMON STOCK
-------------
HIGH LOW
------ ------
<S> <C> <C>
1996
Quarter ended June 30, 1996 (June 14 through June 30)..... 22 3/4 19 3/4
Quarter ended September 30, 1996.......................... 22 1/2 16
Quarter ended December 31, 1996........................... 23 3/8 16
1997
Quarter ending March 31, 1997............................. 22 1/4 15 1/2
Quarter ending June 30, 1997 (through June 17, 1997)...... 22 7/8 16 7/8
</TABLE>
Set forth below are: (i) the last reported per share sale price of Metromail
Common Stock, as reported on the New York Stock Exchange Composite Transactions
Tape, on May 16, 1997, the last trading day ending prior to the public
announcement of the execution of the Merger Agreement and (ii) the equivalent
pro forma sale price of Atlantes Common Stock (determined by multiplying such
last reported sale price of Metromail Common Stock by 1.241):
<TABLE>
<S> <C>
Metromail Common Stock........................................... $21.625
Atlantes Equivalent.............................................. $26.837
</TABLE>
On June 18, 1997, the last trading day prior to the date of this Proxy
Statement/Prospectus, the last reported sale price of Metromail Common Stock,
as reported on the New York Stock Exchange Composite Transactions Tape was
$22.00 per share. Shareholders are urged to obtain current market quotations
for Metromail Common Stock. No assurance can be given as to the future prices
of or markets for Metromail Common Stock.
10
<PAGE>
RISK FACTORS
Shareholders of Atlantes and holders of Atlantes Stock Options and Atlantes
Warrants should carefully consider all of the information contained in this
Proxy Statement/Prospectus including, in particular, the following:
MERGER CONSIDERATION
In determining whether to approve the transactions pursuant to the Merger
Agreement, shareholders of Atlantes should consider that the price of
Metromail Common Stock at the Effective Time as well as the prices at the date
of this Proxy Statement/Prospectus and at the date of the Atlantes Special
Meeting may vary as a result of changes in the business, operations or
prospects of Metromail, general market and economic conditions and other
factors. Although it is anticipated that the Effective Time will occur shortly
after the Atlantes Special Meeting, the Effective Time may occur at a later
date than the date of the Atlantes Special Meeting, and thus, there can be no
assurance that the sales price of Metromail Common Stock on the date of the
Atlantes Special Meeting will be indicative of the sales price of Metromail
Common Stock at or after the Effective Time. Shareholders of Atlantes should
also consider that the number of shares of Metromail Common Stock to be
delivered upon consummation of the Merger upon conversion of Atlantes Common
Stock, Atlantes Warrants and Atlantes Stock Options (other than Contingent
Shares) is fixed pursuant to the Merger Agreement. Changes in the price of
Metromail Common Stock will not result in an adjustment to such number and any
such changes will not, in and of themselves, constitute a basis for either
party to terminate the Merger Agreement. See "THE MERGER AGREEMENT--Conversion
of Shares in the Merger," "--Atlantes Warrants," and "--Atlantes Stock
Options."
THERE CAN BE NO ASSURANCE WITH RESPECT TO ANY MARKET PRICE OF METROMAIL
COMMON STOCK. BROAD MARKET FLUCTUATIONS, AS WELL AS GENERAL ECONOMIC OR
POLITICAL CONDITIONS, MAY ADVERSELY AFFECT THE MARKET PRICE OF THE METROMAIL
COMMON STOCK, REGARDLESS OF THE ACTUAL PERFORMANCE OF METROMAIL.
Pursuant to the Merger Agreement, holders of Atlantes Common Stock, Atlantes
Warrants and Atlantes Stock Options immediately prior to the Effective Time
will be entitled to receive Contingent Shares in 1999 through 2002 depending
on the achievement of certain performance targets in 1998 through 2001. The
number of Contingent Shares to be delivered with respect to any Measurement
Period (as defined herein) is determined first by calculating the "Contingent
Payment Amount." This is determined by comparing the number of customer
response cards that meet certain specifications, the data from which is loaded
into Atlantes' or Metromail's database during the particular Measurement
Period, to the specified performance targets. The Contingent Payment Amount is
subject to reduction if Metromail incurs certain losses and expenses that it
is permitted to offset against such amount. The number of Contingent Shares to
be delivered is equal to the Contingent Payment Amount, as it may be so
reduced, divided by the average of the per share closing prices on the NYSE of
Metromail Common Stock during the ten consecutive trading days ending on the
trading day which is five trading days immediately preceding the delivery
date. Holders of Atlantes Common Stock, Atlantes Warrants and Atlantes Options
should consider the following: whether, and to what extent, the performance
targets are met will be dependent on the management of Atlantes after the
Effective Time and that the control of the business of Atlantes will rest,
ultimately, with Metromail; there will be no Contingent Shares delivered for a
Measurement Period if the number of Qualifying Records is less than 80% of the
performance target for such period; the performance targets for the years 1998
through 2001 are 12,000,000, 15,000,000, 19,500,000 and 24,000,000 Qualifying
Records, respectively, compared to the approximately 6,000,000 Qualifying
Records collected by Atlantes during 1996; the aggregate of the Contingent
Payment Amounts for all four Measurement Periods cannot exceed $12,500,000,
and such maximum is subject to reduction if the Contingent Payment Amount for
a particular Measurement Period is less than the targeted amount for such
period; the number of Contingent Shares that can be delivered to holders of
Atlantes Common Stock, or in respect of Atlantes Common Stock and Atlantes
Warrants, cannot exceed the aggregate number of shares issued to such holders
at the Effective Time in respect of shares of Atlantes Common Stock, or shares
of Atlantes Common Stock and Atlantes Warrants, respectively; and there can be
no assurance that any Contingent Shares will be deliverable after the
Effective Time. See "THE MERGER AGREEMENT--Contingent Shares."
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FACTORS RELATING TO INVESTMENT IN METROMAIL COMMON STOCK
The following factors should be considered in evaluating an investment in
shares of Metromail Common Stock:
Regulation. Adoption of additional guidelines by the Direct Marketing
Association or new guidelines applicable to Metromail's reference services and
enactment of federal or state laws or regulations affecting either Metromail's
direct marketing or reference services could have the effect of materially
increasing the cost to Metromail of collecting certain kinds of information,
precluding the use by direct marketers of information that Metromail could
lawfully collect or otherwise materially adversely affecting Metromail's
business, operating results or financial condition. See "ADDITIONAL
INFORMATION REGARDING METROMAIL--Business of Metromail--Regulation."
Absence of Long-Term Contracts; Lack of Predictability of Sales;
Fluctuations in Operating Results. Metromail's sales, particularly with
respect to its direct marketing products, are generally not derived from long-
term contracts. Therefore, Metromail must continually engage in sales efforts
and must be prepared to adjust its pricing terms to meet competition.
Metromail's net sales are affected by a number of seasonal characteristics and
other factors, including, with respect to Metromail's direct marketing
services, the timing and extent of the direct marketing activities of
Metromail'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. Metromail's net sales can also be affected by the
availability of new or updated data. Thus, if Metromail does not update its
database as quickly as do its competitors, Metromail's net sales could be
adversely affected. The potential unpredictability of Metromail's net sales
can lead to fluctuations in quarterly and annual operating results, especially
because many expenses are incurred by Metromail 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.
Competition. The markets in which Metromail competes are highly competitive
and fragmented. Some of Metromail's competitors have, and potential
competitors may have, materially greater financial, technical and marketing
resources than Metromail that may allow them to compete effectively with
Metromail in respect of some or all of its database marketing, direct
marketing and reference services. See "ADDITIONAL INFORMATION REGARDING
METROMAIL--Business of Metromail--Competition."
Technological Changes and Software Development. Metromail's future success
is dependent on its ability to keep pace with technological improvements,
including as they affect Metromail's ability to input collected information
into its database and produce the information desired by its clients and the
costs of doing so. In addition, Metromail's future success in respect of its
marketing database software 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. If Metromail is unable to
keep pace with technological improvements or is unable, for technological or
other reasons, to develop and introduce new products or enhancements of
existing products in a timely and cost-effective manner in response to
changing market conditions or customer requirements, Metromail's business,
operating results or financial condition could be materially adversely
affected.
Litigation. Metromail cannot predict the effects, if any, that the
litigation discussed under "ADDITIONAL INFORMATION REGARDING METROMAIL--
Business of Metromail--Legal Proceedings" may have on its business, operating
results or financial condition, although such litigation could have an adverse
effect on Metromail (including through adverse publicity) if Metromail were
not to be successful in its defense or if Metromail's insurer were to deny
coverage.
Risk of Loss of Data Centers or Interruption of Telecommunications Services.
Metromail'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. In addition, the on-
line services provided by Metromail are dependent on telecommunications links
to the regional Bell operating companies. Metromail has
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taken precautions to protect its data centers and telecommunications links
from events that could interrupt its operations. Any damage to Metromail's
data centers or any failure of Metromail's telecommunication links that causes
interruptions in Metromail's operations could have a material adverse effect
on Metromail's business, operating results or financial condition.
Growth Through Acquisitions and New Products. Metromail's business strategy
includes growth through acquisitions of proprietary information and of
distribution channels and businesses complementary to Metromail's business.
Metromail has made a number of acquisitions in the past and believes that it
has been successful in integrating the acquired assets and businesses into
Metromail'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 Metromail's
operations. Metromail's business strategy also includes growth through the
introduction of new products or services that leverage the information
contained in Metromail's database. There can be no assurance that new products
or services introduced by Metromail will achieve acceptance.
ATLANTES SPECIAL MEETING
DATE, PLACE AND TIME
The Atlantes Special Meeting will be held on June 30, 1997 at 2:00 p.m.,
local time, at the offices of Atlantes, 90 Madison Street, Denver, Colorado.
PURPOSE
At the Atlantes Special Meeting, holders of Atlantes Common Stock will
consider and vote upon a proposal to approve the Merger Agreement and the
Parachute Proposal and to transact such other business as may properly come
before the Atlantes Special Meeting.
The Atlantes Board has unanimously determined that the Merger is fair,
equitable and in the best interests of Atlantes and its shareholders and has
unanimously approved the Merger Agreement. THE ATLANTES BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF ATLANTES VOTE IN FAVOR OF APPROVAL OF THE
MERGER AGREEMENT AND THE PARACHUTE PROPOSAL AT THE ATLANTES SPECIAL MEETING.
See "THE MERGER--Atlantes' Reasons for the Merger; Recommendation of its Board
of Directors."
RECORD DATE; VOTING RIGHTS
Only holders of record of Atlantes Common Stock at the close of business on
the Atlantes Record Date, June 17, 1997, are entitled to receive notice of and
to vote at the Atlantes Special Meeting. At the close of business on the
Atlantes Record Date, there were 476,803 shares of Atlantes Common Stock
outstanding, each of which entitles the registered holder thereof to one vote
on each matter voted upon at the Atlantes Special Meeting.
QUORUM
The holders of a majority of shares of Atlantes Common Stock outstanding and
entitled to vote must be present in person or represented by proxy at the
Atlantes Special Meeting in order for a quorum to be present.
Shares of Atlantes Common Stock represented by proxies which are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum on all matters, as will shares that are represented by
proxies that are executed by any broker, fiduciary or other nominee on behalf
of the beneficial owner(s) thereof regardless of whether authority to vote is
withheld by such broker, fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the Atlantes Special Meeting,
it is expected that such meeting will be adjourned or postponed to allow for
the solicitation of additional proxies.
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PROXIES
All shares of Atlantes Common Stock which are represented by properly
executed proxies received by Atlantes prior to or at the Atlantes Special
Meeting and not revoked will be voted at the Atlantes Special Meeting in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such shares will be voted FOR approval of the Merger Agreement
and FOR approval of the Parachute Proposal. The Atlantes Board does not know
of any other matters to be brought before the Atlantes Special Meeting. If any
other matters are properly presented at the Atlantes Special Meeting for
action, the persons named in the enclosed form of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment.
An Atlantes shareholder who has given a proxy may revoke it at any time
prior to its exercise by filing a written notice of such revocation with the
Secretary of Atlantes at or prior to the Atlantes Special Meeting, by
delivering to Atlantes a duly executed later dated proxy or by attending the
Atlantes Special Meeting and voting in person (although attendance at the
Atlantes Special Meeting will not in and of itself constitute a revocation of
a proxy). All written notices of revocation and other communications with
respect to revocation of proxies in connection with the Atlantes Special
Meeting should be addressed to Atlantes Corporation, 90 Madison Street,
Denver, Colorado 80206, Attention: Kenneth W. Edwards, Jr., Secretary.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Atlantes Board. All
expenses incurred in connection with the solicitation of proxies by and on
behalf of the Atlantes Board will be borne by Atlantes. In addition to the use
of the mails, proxies may be solicited personally or by telephone by
directors, officers and employees of Atlantes who will not be additionally
compensated therefor, but may be reimbursed for their out-of-pocket expenses
incurred in connection with such solicitation.
REQUIRED VOTE
Approval of the Merger Agreement will require the affirmative vote of the
holders of two-thirds of the shares of Atlantes Common Stock outstanding on
the Atlantes Record Date. Approval of the Parachute Proposal will require the
affirmative vote of the holders of at least 75% of the shares of Atlantes
Common Stock outstanding immediately prior to the Effective Time, disregarding
the shares held by the Chairman of Atlantes. If the holders of all outstanding
Atlantes Warrants were to exercise such warrants prior to the Effective Time
(assuming no holders of Atlantes Stock Options were to exercise such options),
the holders of approximately 91% of the shares of Atlantes Common Stock
outstanding on the Atlantes Record Date (disregarding shares held by the
Chairman) would be required to approve the Parachute Proposal.
Abstentions and votes which are not cast because the nominee-broker either
lacks or fails to exercise discretionary authority with respect to the
proposal to approve the Merger Agreement or the Parachute Proposal will have
the effect of votes against such proposal.
The holders of 193,760 shares of Atlantes Common Stock outstanding at the
close of business on the Atlantes Record Date (approximately 40.6% of the
shares of Atlantes Common Stock then outstanding) have signed agreements
obligating them to vote in favor of the Merger Agreement and against certain
other action. See "VOTING AGREEMENTS."
At the close of business on the Atlantes Record Date, directors and
executive officers of Atlantes were the record owners of an aggregate of
153,321 (approximately 32.2%) of the shares of Atlantes Common Stock then
outstanding. Such shares do not include the shares subject to the voting
agreements described above. Atlantes expects that all such shares will be
voted in favor of approval of the Merger Agreement and the Parachute Proposal.
DISSENTERS' RIGHTS
Holders of Atlantes Common Stock have the right to dissent from the Merger
and to receive payment of the fair value of their shares upon full compliance
with Article 113 of the CBCA. A copy of Article 113 of the
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CBCA is attached hereto as Annex B. If holders of more than 1% of the shares
of Atlantes Common Stock outstanding immediately prior to the Effective Time
properly exercise dissenters' rights, Metromail will have the right to decline
to consummate the Merger. See "DISSENTERS' RIGHTS" and "THE MERGER AGREEMENT--
Conditions Precedent to the Merger."
PARTIES TO THE MERGER AGREEMENT
METROMAIL
Metromail is a leading provider of database marketing, direct marketing and
reference products and services in the United States and the United Kingdom.
Metromail helps its customers identify and reach targeted audiences, utilizing
its comprehensive, proprietary consumer database encompassing more than 90% of
U.S. households, as well as providing database marketing software and related
services. Metromail is a Delaware corporation, its principal executive offices
are located at 360 East 22nd Street, Lombard, Illinois 60148, its telephone
number is (630) 620-3300 and its Internet address is http://www.metromail.com.
For further information concerning Metromail, see "ADDITIONAL INFORMATION
REGARDING METROMAIL," "METROMAIL CONSOLIDATED AND COMBINED FINANCIAL
STATEMENTS" and "AVAILABLE INFORMATION."
ATLANTES
Atlantes has developed a proprietary computer database which accumulates and
provides access to consumer product purchasing information. Atlantes provides
consumer database management services, primarily to durable goods
manufacturers, in exchange for consumer product purchasing information derived
from customer response cards and the right to sell selected parts of the
consumer database, in the form of customer lists, to the direct marketing
industry. Atlantes also provides consumer database and information design
services to its clients. Atlantes is a Colorado corporation, its principal
executive offices are located at 90 Madison Street, Denver, Colorado 80206,
and its telephone number is (303) 394-9077. For further information concerning
Atlantes, see "ADDITIONAL INFORMATION REGARDING ATLANTES" and "ATLANTES
FINANCIAL STATEMENTS."
MERGERCO
Mergerco was incorporated in Colorado on May 7, 1997 solely for the purpose
of consummating the Merger and the other transactions contemplated by the
Merger Agreement. Mergerco has minimal assets and no business and has carried
on no activities which are not directly related to its formation and its
execution of the Merger Agreement. Its principal executive offices are located
at 360 East 22nd Street, Lombard, Illinois 60148, and its telephone number is
(630) 620-3300.
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THE MERGER
The description of the Merger and the Merger Agreement contained in this
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a conformed copy of which
is attached hereto as Annex A and incorporated herein by reference.
GENERAL
At the Effective Time of the Merger, Mergerco will be merged with and into
Atlantes, with Atlantes continuing as the Surviving Corporation and a wholly-
owned subsidiary of Metromail. As a result of the Merger, the separate
corporate existence of Mergerco will cease, and Atlantes will succeed to all
the rights and be responsible for all the obligations of Mergerco in
accordance with the CBCA.
Subject to the terms and conditions of the Merger Agreement, each share of
Atlantes Common Stock outstanding immediately prior to the Effective Time of
the Merger will be converted into (i) 1.241 shares of Metromail Common Stock
or, at the election of the holder thereof but subject to certain limitations,
$25.99 in cash, plus (ii) the right to receive Contingent Shares. Each share
of Metromail Common Stock issued pursuant to the Merger Agreement will be
accompanied by a Metromail Right, subject to the provisions described under
"DESCRIPTION OF METROMAIL COMMON STOCK--Certain Charter and By-law Provisions;
Metromail Rights Agreement." Cash will be paid in lieu of any fractional share
of Metromail Common Stock. See "THE MERGER AGREEMENT--Conversion of Shares in
the Merger," "--Cash Election," "--No Fractional Shares," "--Adjustment of
Exchange Ratio," and "--Conditions Precedent to the Merger."
HOLDERS OF ATLANTES COMMON STOCK WHO WISH TO RECEIVE CASH IN LIEU OF THE
1.241 SHARES OF METROMAIL COMMON STOCK THAT THEY WOULD RECEIVE IN EXCHANGE FOR
EACH OF THEIR SHARES OF ATLANTES COMMON STOCK UPON CONSUMMATION OF THE MERGER
MUST RETURN THE FORM OF ELECTION THAT ACCOMPANIES THIS PROXY
STATEMENT/PROSPECTUS TO THE EXCHANGE AGENT BY 5:00 P.M., NEW YORK TIME, ON
JUNE 27, 1997. HOLDERS OF ATLANTES COMMON STOCK WHO DO NOT WISH TO RECEIVE
CASH INSTEAD OF SHARES OF METROMAIL COMMON STOCK NEED NOT RETURN SUCH FORM OF
ELECTION. SEE "THE MERGER AGREEMENT--CASH ELECTION."
Notwithstanding the foregoing, holders of Atlantes Common Stock have the
right to dissent from the Merger and to receive payment of the fair value of
their stock upon full compliance with Article 113 of the CBCA. If holders of
more than 1% of the shares of Atlantes Common Stock outstanding immediately
prior to the Effective Time properly exercise dissenters' rights, Metromail
will have the right to decline to consummate the Merger. See "DISSENTERS'
RIGHTS."
The Merger will become effective on the date of filing of Articles of
Merger, or such later date, not to be more than 90 days after the date the
Articles of Merger are filed, as may be specified in the Articles of Merger,
with the Secretary of State of the State of Colorado, which is anticipated to
occur promptly after the approval of the Merger Agreement and the Parachute
Proposal by the shareholders of Atlantes and following the satisfaction or
waiver of the conditions to the obligations of each of the parties to the
Merger Agreement. See "THE MERGER AGREEMENT--Conditions Precedent to the
Merger."
BACKGROUND OF THE MERGER
From time to time over the last twelve months, Atlantes received unsolicited
contacts from companies, including Metromail, indicating an interest in
acquiring or merging with Atlantes. On November 22, 1996, members of the
Atlantes Board discussed the various inquiries that had been received and the
short and long range prospects for Atlantes. The Atlantes Board decided at
that time to hire an investment advisor to assist Atlantes in its
consideration of various opportunities for sale of Atlantes.
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On December 10, 1996, the Atlantes Board retained The Wallach Company to
serve as its financial advisor in connection the possible sale of Atlantes
and, if requested, to provide a fairness opinion with respect to any proposal
received. At a January 31, 1997 meeting, after a presentation of strategic
buyer candidates by management and The Wallach Company, the Atlantes Board
agreed that the process of exploring a sale of Atlantes should target those
companies believed most likely to be interested in a strategic combination
with Atlantes, such parties to include those companies which had made prior
indications of interest and those additional companies determined after
consultation with The Wallach Company, management and the directors.
Following the January 31, 1997 meeting, management and The Wallach Company
prepared information materials describing Atlantes. Beginning February 4,
1997, The Wallach Company solicited indications of interest from nine
companies which were believed to have the strongest strategic opportunities
with Atlantes. Upon executing a confidentiality agreement, the contacted
parties were forwarded the information materials on Atlantes. In connection
with the process, the participants were given the opportunity to conduct a due
diligence review of Atlantes and received a set of procedures for the
submission of definitive proposals. The procedures set forth delivery
instructions, requested best offers, required that proposals remain in effect
until April 4, 1997, stated that all proposals would be reviewed by the
Atlantes Board, and required that all proposals be submitted by March 20,
1997.
As part of its due diligence review, each party was invited to attend a
three hour management presentation, further describing the business and
prospects for Atlantes. These presentations were given during the first part
of March.
By March 20, 1997, The Wallach Company, as representative of Atlantes, had
received responses from five entities, including Metromail, concerning their
interest in the acquisition of the outstanding common stock of Atlantes. On
March 21, 1997, The Wallach Company presented these responses to certain
members of management and the Atlantes Board . The Atlantes Board determined
at that meeting that, based on the economic value offered at closing, the
potential of future consideration pursuant to contingent payments, the lack of
contingencies relative to certain Atlantes' contracts and the alternative of
either stock or cash consideration, the proposal submitted by Metromail was
deemed to provide the best alternative for the Atlantes' shareholders. The
Atlantes Board also determined that the management team of Atlantes should
conduct a due diligence review of Metromail.
Accordingly, on April 1, 1997, the management team of Atlantes visited
Metromail for a presentation by the management of Metromail on the business
operations and prospects of Metromail. At that meeting, certain terms of the
Metromail proposal were clarified and negotiated with Metromail modifying its
indication of interest in a letter dated April 3, 1997. On April 4, 1997, the
Atlantes Board voted to approve proceeding with negotiation of a definitive
agreement with Metromail consistent with the terms of Metromail's modified
indication of interest. On April 7, 1997, Atlantes signed a no-shop agreement
with Metromail prohibiting the Company from holding any further merger or
transaction discussions with any other party for 60 days in order to allow
Metromail to complete its due diligence and to begin discussions leading to a
definitive agreement for the possible acquisition of Atlantes by Metromail.
The no-shop agreement was a condition to Metromail's continued interest in
acquiring Atlantes.
After the no-shop agreement was executed, Metromail began further due
diligence reviews of Atlantes. The parties also commenced negotiation and
drafting of the definitive agreements with the negotiations and reviews
continuing through May 17, 1997. On May 17, 1997, the Merger Agreement and
Employment Agreements were considered and approved by the Atlantes Board. In
addition, The Wallach Company delivered its oral opinion to the Atlantes Board
on May 17, 1997, which was subsequently confirmed in the Fairness Opinion,
that the consideration to be received by the shareholders of Atlantes pursuant
to the Merger Agreement is fair, from a financial point of view, to such
holders. The Merger Agreement was signed on May 17, 1997.
METROMAIL'S REASONS FOR THE MERGER
Metromail's strategy includes developing more sources of self-reported data,
as compared to the traditional compiled and proprietary data. Self-reported
data allows Metromail's clients to target their customers based on
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lifestyles and interests supplied by the ultimate consumer. Additionally,
self-reported data allows consumers to determine whether they want to allow
the data they provide to be used for direct marketing purposes. Although
Metromail currently has access to the Atlantes database through a sublicense
agreement with Experian, Inc. ("Experian"), which has an exclusive contract
with Atlantes to market Atlantes' database, Metromail believes its acquisition
of Atlantes will significantly increase the size and content of its self-
reported consumer lifestyle database by focusing the form and content of
Atlantes' questionnaires to complement Metromail's existing database and by
providing greater capital investment in the business.
ATLANTES' REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
The Atlantes Board has unanimously determined that the Merger is fair and in
the best interests of Atlantes and its shareholders and has unanimously
adopted the Merger Agreement. Accordingly, the Atlantes Board recommends that
the shareholders of Atlantes vote in favor of approval of the Merger Agreement
at the Atlantes Special Meeting.
In reaching its decision to adopt the Merger Agreement, the Atlantes Board
considered a number of factors, including the following:
(i) Information regarding the historical and current financial condition,
results of operations, business and prospects for Atlantes.
(ii) Information regarding the projected future earnings of Atlantes.
(iii) The strategic and financial alternatives available to Atlantes,
including remaining a separate company and the sale of Atlantes as a whole.
(iv) The future capital required for Atlantes to grow as a separate
company.
(v) The fact that, because Atlantes competes against companies which are
much larger and benefit from greater capitalization, an affiliation with a
larger, recognized company may provide opportunities for greater economic
growth for Atlantes.
(vi) While the ability to generate additional names for its database
should continue, Atlantes currently depends on an outside party for the
sale of its database. Metromail is currently a reseller of the information
in Atlantes' database pursuant to a contract with the outside party. A
combination with Metromail would increase the incentive for Metromail to
resell Atlantes' data, thereby increasing Atlantes' revenue.
(vii) The lack of a public market for the shares of Atlantes Common
Stock.
(viii) The terms and conditions of the Merger Agreement as reviewed and
discussed with Atlantes' management, financial advisors and legal counsel.
The Atlantes Board gave consideration to, among other things, the amount
and form of consideration offered to Atlantes' shareholders both initially
and potentially through the contingent payment provisions, the structure of
the proposed business combination, and the provisions related to various
contracts entered into by Atlantes.
(ix) The offers made by other interested parties.
(x) The financial condition, stock valuation and future prospects of
Metromail, including the ability of Metromail to complete the Merger in a
timely manner.
(xi) The absence of any term or condition which, in the opinion of the
Atlantes Board, could materially impede or impair the consummation of the
Merger.
(xii) The Employment Agreements entered into by three of Atlantes'
management team.
(xiii) The financial presentation of The Wallach Company and the opinion
of The Wallach Company, delivered to the Atlantes Board that the
consideration to be received by the shareholders of Atlantes pursuant to
the Merger Agreement is fair, from a financial point of view, to such
holders.
In the course of its discussions, the Atlantes Board extensively discussed
the price that would be obtained by the Atlantes shareholders, the nature of
the proposed merger consideration, the intended tax-free nature of the Merger,
the liquidity of the Metromail Common Stock and Metromail's strategic fit with
Atlantes. However, the Atlantes Board did not assign relative weights to the
foregoing factors or determine that any factor was of more importance than
other factors. Rather, the Atlantes Board viewed its position and
recommendations as being based on the totality of the information presented to
and considered by it. Accordingly, all of the foregoing factors impacted the
Atlantes Board's decision to some extent.
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THE ATLANTES BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF ATLANTES
VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT AND THE PARACHUTE PROPOSAL
AT THE ATLANTES SPECIAL MEETING.
OPINION OF ATLANTES' FINANCIAL ADVISOR
The Wallach Company was engaged by Atlantes pursuant to an engagement letter
dated December 10, 1996 (the "Engagement Letter") to act as its financial
advisor in connection with a potential sale of Atlantes and to render an
opinion as to the fairness, from a financial point of view, of the
consideration to be received by the holders of Atlantes Common Stock in any
proposed business combination or similar transaction. The Wallach Company, an
investment banking firm located in Denver, Colorado, is regularly engaged in
the sale of businesses and in the valuation of businesses and their securities
in connection with mergers and acquisitions. The Wallach Company has not
performed investment banking services for Atlantes or Metromail in the past.
In this role, The Wallach Company acted as financial advisor to Atlantes in
connection with the Merger and delivered the Fairness Opinion to the Atlantes
Board to the effect that, based upon and subject to the various considerations
set forth therein, as of the date thereof, the consideration to be received in
the Merger by the holders of Atlantes Common Stock is fair to such holders
from a financial point of view. No limitations were imposed by the Atlantes
Board upon The Wallach Company with respect to the investigations made or the
procedures followed by it in rendering the Fairness Opinion.
THE FULL TEXT OF THE FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
HERETO AS ANNEX C AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY. THE SUMMARY OF
THE FAIRNESS OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE FAIRNESS OPINION. THE
FAIRNESS OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
ATLANTES COMMON STOCK AS TO HOW SUCH HOLDER SHOULD VOTE ON THE MERGER
AGREEMENT OR ANY RECOMMENDATION WHATSOEVER.
Prior to the time that The Wallach Company delivered the Fairness Opinion,
The Wallach Company presented its analysis and provided a verbal opinion to
the Atlantes Board to the effect that, based upon and subject to the various
considerations set forth in the written Fairness Opinion, the consideration to
be received in the Merger by the holders of Atlantes Common Stock (consisting
of consideration to be received at the Effective Time and contingent payments)
is fair to such holders from a financial point of view. In arriving at the
Fairness Opinion, The Wallach Company reviewed (i) certain business and
financial information relating to Atlantes, which is a privately held company,
(ii) certain publicly available business and financial information relating to
Metromail, (iii) summary financial forecasts for Atlantes for the years ending
December 31, 1997 and 1998, (iv) certain financial and stock market data for
publicly held companies that operate in similar industries to Atlantes, (v)
the responses made by the other companies that considered the acquisition of
Atlantes and (vi) such other information as The Wallach Company deemed
necessary or appropriate. In addition, The Wallach Company met with the
management of Atlantes to discuss the past and current business operations,
financial conditions and prospects of Atlantes. The Wallach Company also had
discussions with certain members of Metromail's management regarding the past
and current business operations, financial condition and prospects of
Metromail.
In rendering the Fairness Opinion, The Wallach Company assumed and relied
upon the accuracy and completeness of all information supplied or otherwise
made available to it by Atlantes and Metromail and did not independently
verify nor assume any responsibility for independently verifying any of such
information. The Fairness Opinion was based on general economic, market,
monetary and other conditions as they existed and could be evaluated on, and
the information made available to The Wallach Company as of, the date of such
opinion. The Wallach Company expressed no opinion as to the likely trading
range of the Metromail Common Stock prior to or following the consummation of
the Merger, which may vary depending on, among other factors, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities.
19
<PAGE>
In rendering the Fairness Opinion, The Wallach Company considered the
prospects for value, liquidity and growth for Atlantes if it remained
independent. In addition, The Wallach Company attempted to find comparable
public companies, conduct discounted cash flow analysis, and discover other
merger and acquisitions of companies similar to Atlantes. In all situations,
The Wallach Company determined that, due to the relatively small size, minimal
earnings, limited capitalization and limited history of Atlantes, it was
improper to use these analytical approaches as the basis of rendering the
Fairness Opinion. Rather, The Wallach Company relied on the responses that it
received from the five parties that responded to The Wallach Company's
solicitations, expressing interest in acquiring Atlantes. Based on the
informational materials presented to prospective buyers, the opportunity for
each party to conduct due diligence prior to submitting a bid, the number of
knowledgeable parties contacted with regards to this acquisition opportunity
and the specific instructions concerning the submission of definitive
proposals, The Wallach Company concluded that the Metromail offer was fair,
from a financial point of view, to the Atlantes shareholders.
Pursuant to the terms of the Engagement Letter, Atlantes has agreed to pay
The Wallach Company, for advisory services and the issuance of the Fairness
Opinion, a fee of $280,000 at closing of the Merger plus additional fees which
may be paid in the event the Contingent Payment Amounts are received by the
Record Holders pursuant to the Merger Agreement. In the event that the maximum
Contingent Payment Amounts are received by the Record Holders, The Wallach
Company will be entitled to additional payments totaling $280,000. Payment of
the fee at closing plus future fees will be paid by Metromail. Atlantes also
agreed to reimburse The Wallach Company for the expenses reasonably incurred
by The Wallach Company in connection with its engagement and to indemnify The
Wallach Company and its officers, directors, agents and controlling persons
against certain expenses, losses, claims, damages or liabilities incurred in
connection with its services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Atlantes Board with respect to
approval of the Merger Agreement, Atlantes shareholders should be aware that
certain members of the Atlantes Board and executive officers of Atlantes have
interests in the Merger in addition to their interests as shareholders of
Atlantes.
Employment Agreements. In connection with the execution of the Merger
Agreement, Mr. Detmer, President of Atlantes and a member of the Atlantes
Board, Mr. Anderson, Vice President--Operations of Atlantes, and Mr. O'Neil,
Vice President--Client Services of Atlantes, have executed employment
agreements with Metromail which will replace existing agreements each of such
employees has with Atlantes. These Employment Agreements take effect at the
Effective Time.
Mr. Detmer's employment agreement (the "Detmer Employment Agreement")
provides for a term ending on December 31, 2001. Under his employment
agreement, Mr. Detmer will serve as President of Atlantes at an annual base
salary of no less than $138,000 per year. For the period ending December 31,
1997, Mr. Detmer's bonus and employee benefits will be determined in
accordance with the existing Atlantes's benefit plans. Beginning January 1,
1998, Mr. Detmer will be entitled to earn an annual bonus determined in
accordance with the Metromail Variable Pay Plan for appointed officers, to
receive certain perquisites and to participate in employee benefit plans
available generally to Metromail employees. During the term of the employment
agreement, Mr. Detmer will also be eligible to participate in Metromail stock
option plans in a manner consistent with participation by other executives
holding comparable positions within Metromail.
In the event of early termination of employment by Metromail other than for
Cause (as defined in the Detmer Employment Agreement) or death, Metromail
would continue to pay Mr. Detmer his current salary until the date of his
termination and would pay Mr. Detmer a lump sum severance of up to one year's
salary (subject to pro-rata reduction based upon the number of months of
advance notice received for such termination (reduced to zero if 12 months
notice)) and a proportionate share of any accrued and unpaid bonus or Variable
Pay. The Detmer Employment Agreement provides for a noncompete period until
the earlier of (i) December 31, 2003, or (ii) two years following the
termination of Mr. Detmer's employment if, during the term of the agreement,
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<PAGE>
Metromail terminates his employment other than for Cause or if Mr. Detmer
terminates his employment following a Termination Event (as defined below).
Mr. Anderson's employment agreement (the "Anderson Employment Agreement")
provides for a term ending on December 31, 1999. Under his employment
agreement, Mr. Anderson will serve as Vice President, Operations of Atlantes
at an annual base salary of no less than $126,000 per year. For the period
ending December 31, 1997, Mr. Anderson's bonus and employee benefits will be
determined in accordance with the existing Atlantes's benefit plans. Beginning
January 1, 1998, Mr. Anderson will be entitled to earn an annual bonus
determined in accordance with the Metromail Variable Pay Plan for directors
and managers, to receive certain perquisites and to participate in employee
benefit plans available generally to Metromail employees. During the term of
the employment agreement, Mr. Anderson will also be eligible to participate in
Metromail stock option plans in a manner consistent with participation by
other executives holding comparable positions within Metromail.
In the event of early termination of employment by Metromail other than for
Cause (as defined in the Anderson Employment Agreement) or death, Metromail
would continue to pay Mr. Anderson his current salary until the date of his
termination and would pay Mr. Anderson a lump sum severance of up to one
year's salary (subject to pro-rata reduction based upon the number of months
of advance notice received for such termination (reduced to zero if 12 months
notice)) and a proportionate share of any accrued and unpaid bonus or Variable
Pay. The Anderson Employment Agreement provides for a noncompete period until
the earlier of (i) December 31, 2001, or (ii) two years following the
termination of Mr. Anderson's employment if, during the term of the agreement,
Metromail terminates his employment other than for Cause or if Mr. Anderson
terminates his employment following a Termination Event.
Mr. O'Neil's employment agreement (the "O'Neil Employment Agreement")
provides for a term ending on June 30, 2000. Under his employment agreement,
Mr. O'Neil will serve as Vice President, Client Services of Atlantes at an
annual base salary of no less than $126,000 per year. For the period ending
December 31, 1997, Mr. O'Neil's bonus and employee benefits will be determined
in accordance with the existing Atlantes's benefit plans. Beginning January 1,
1998, Mr. O'Neil will be entitled to earn an annual bonus determined in
accordance with the Metromail Variable Pay Plan for directors and managers, to
receive certain perquisites and to participate in employee benefit plans
available generally to Metromail employees. During the term of the employment
agreement, Mr. O'Neil will also be eligible to participate in Metromail stock
option plans in a manner consistent with participation by other executives
holding comparable positions within Metromail.
In the event of early termination of employment by Metromail other than for
Cause (as defined in the O'Neil Employment Agreement) or death, Metromail
would continue to pay Mr. O'Neil his current salary until the date of his
termination and would pay Mr. O'Neil a lump sum severance of up to one year's
salary (subject to pro-rata reduction based upon the number of months of
advance notice received for such termination (reduced to zero if 12 months
notice)) and a proportionate share of any accrued and unpaid bonus or Variable
Pay. The O'Neil Employment Agreement provides for a noncompete period until
the earlier of (i) June 30, 2002, or (ii) two years following the termination
of Mr. O'Neil's employment if, during the term of the agreement, Metromail
terminates his employment other than for Cause or if Mr. O'Neil terminates his
employment following a Termination Event.
A "Termination Event" means, with respect to each of Messrs. Detmer,
Anderson and O'Neil, subject to certain exceptions, (i) a Change in Control
Termination Event (as defined in the Employment Agreements); (ii) the
relocation of such officer to a location outside the greater Denver, Colorado
area without his consent; (iii) such officer's demotion from his position in
Atlantes without his prior consent; or (iv) any reduction in the overall
benefits made available to such officer without his prior consent.
Atlantes Stock Options. Directors and executive officers of Atlantes hold
Atlantes Stock Options as follows:
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<PAGE>
<TABLE>
<CAPTION>
STOCK
OPTIONS
---------------
TOTAL STOCK
EXERCISE DATE OPTIONS
NAME PRICE GRANTED VESTED UNVESTED OWNED
---- -------- -------- ------ -------- -----------
<S> <C> <C> <C> <C> <C>
William Anderson................. $1.00 10/24/94 44,800 11,200
$2.00 9/21/96 1,500 6,000 63,500
Peter A. O'Neil.................. $1.00 10/21/94 4,000 1,000
$1.50 10/21/94 3,000 2,000
$2.00 9/21/96 1,500 6,000 17,500
Kenneth W. Edwards, Jr........... $1.25 10/21/94 3,000 2,000
$2.00 9/21/96 200 800 6,000
Jeffrey H. Schutz................ $1.50 10/21/94 3,600 2,400 6,000
</TABLE>
The Atlantes Corporation 1992 Stock Option Plan pursuant to which the
options listed above were granted provides for acceleration of vesting of
options upon a "change in control" (which includes the Merger). Such options
will, if they are outstanding immediately prior to the Effective Time, be
converted into the right to receive cash or shares of Metromail Common Stock.
See "THE MERGER AGREEMENT--Atlantes Stock Options" and "ADDITIONAL INFORMATION
REGARDING ATLANTES--Voting Securities and Principal Holders Thereof."
Atlantes Warrants. Directors and executive officers of Atlantes hold
Atlantes Warrants as follows:
<TABLE>
<CAPTION>
TOTAL
WARRANT DATE WARRANTS
NAME PRICE ISSUED WARRANTS OWNED
---- ------- -------- -------- --------
<S> <C> <C> <C> <C>
E. Thomas Detmer, Jr........................ $1.00 1/28/93 6,286
$1.00 12/23/93 100
$1.00 12/23/93 400 6,786
William Anderson............................ $1.00 1/28/93 12,500 12,500
Peter A. O'Neil............................. $1.00 12/23/93 625 625
Jeffrey H. Schutz........................... $1.00 11/15/94 600 600
</TABLE>
The warrants listed above will, if they are outstanding immediately prior to
the Effective Time, be converted into the right to receive cash or shares of
Metromail Common Stock. See "THE MERGER AGREEMENT-- Atlantes Warrants" and
"ADDITIONAL INFORMATION REGARDING ATLANTES--Voting Securities and Principal
Holders Thereof."
Indemnification of Directors. For a period of not less than six years from
and after the Effective Time, Metromail has agreed to, and to cause the
Surviving Corporation to, indemnify and hold harmless all past and present
directors of Atlantes to the full extent such persons may be indemnified by
Atlantes pursuant to the Atlantes Charter and Bylaws as in effect on the date
of execution of the Merger Agreement for acts and omissions occurring at or
prior to the Effective Time and to advance reasonable litigation expenses
incurred by such persons in connection with defending any action arising out
of such acts or omissions, subject to receipt of certain affirmations and an
undertaking, as provided by the CBCA.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of certain material federal income
tax consequences of the Merger. The discussion does not address all aspects of
federal taxation that may be relevant to holders of Atlantes Common Stock,
Atlantes Warrants or Atlantes Stock Options, and it might not be applicable to
any such holder who, for United States federal income tax purposes, is a
nonresident alien individual, foreign corporation, foreign partnership,
foreign trust or foreign estate, or who acquired Atlantes Common Stock or an
Atlantes Warrant pursuant to the exercise of employee stock options or
otherwise as compensation. This summary is not a complete description of all
the consequences of the Merger. Moreover, the individual circumstances of a
holder of Atlantes Common Stock, Atlantes Warrant or Atlantes Stock Option may
affect the tax consequences of the Merger to such holder.
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<PAGE>
THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), EXISTING AND PROPOSED TREASURY
REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS,
ALL OF WHICH ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. THE DISCUSSION SET FORTH BELOW DOES NOT
ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. HOLDERS OF
ATLANTES COMMON STOCK, ATLANTES WARRANTS OR ATLANTES STOCK OPTIONS ARE
THEREFORE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDERS, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL LAWS OR OTHER TAX LAWS.
Atlantes Common Stock
General. It is a condition to Atlantes' obligation to consummate the Merger
that Atlantes receive an opinion from its counsel, Holland & Hart LLP, and it
is a condition to Metromail's obligation to consummate the Merger that
Metromail receive an opinion from its counsel, Sidley & Austin, in each case
substantially to the effect that for federal income tax purposes:
(i) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and Atlantes, Mergerco and Metromail will each
be a party to such reorganization within the meaning of Section 368(b) of
the Code;
(ii) No gain or loss will be recognized by Metromail or Atlantes as a
result of the Merger;
(iii) No income, gain or loss will be recognized by the shareholders of
Atlantes upon the exchange of their Atlantes Common Stock for shares of
Metromail Common Stock or cash (or a combination thereof) pursuant to the
Merger, except that gain realized on such exchange will be recognized to
the extent of cash received (excluding cash, if any, received in lieu of
fractional shares of Metromail Common Stock), gain or loss will be
recognized with respect to cash, if any, received in lieu of fractional
shares of Metromail Common Stock and income will be recognized to the
extent of any amount treated as interest;
(iv) The aggregate tax basis of the shares of Metromail Common Stock
received in exchange for Atlantes Common Stock pursuant to the Merger
(including fractional shares of Metromail Common Stock for which cash is
received) will be the same as the aggregate tax basis of the Atlantes
Common Stock exchanged therefor, reduced by the amount of cash received in
such exchange (excluding cash, if any, received in lieu of fractional
shares of Metromail Common Stock), increased by any gain recognized by
reason of the receipt of such cash in such exchange, and increased by any
amount treated as interest;
(v) Except to the extent of Metromail Common Stock treated as interest,
the holding period for shares of Metromail Common Stock received in
exchange for Atlantes Common Stock pursuant to the Merger will include the
holding period of the Atlantes Common Stock exchanged therefor, provided
such Atlantes Common Stock was held as a capital asset by the shareholder
at the Effective Time; and
(vi) A shareholder of Atlantes who receives cash in lieu of a fractional
share of Metromail Common Stock will recognize gain or loss equal to the
difference, if any, between such shareholder's tax basis in such fractional
share (as described in clause (iv) above) and the amount of cash received.
An opinion of counsel is not binding on the Internal Revenue Service or the
courts.
In rendering such opinions, Holland & Hart LLP and Sidley & Austin may make
certain assumptions, and may receive and rely upon representations (which have
not been independently verified by counsel) contained in certificates of
Atlantes, Metromail, certain shareholders of Atlantes, and others. If any such
assumption or representation is inaccurate, such inaccuracy might jeopardize
the validity of the opinions rendered by counsel.
Computation of Gain. Cash received pursuant to an election to convert shares
of Atlantes Common Stock into cash rather than Metromail Common Stock will be
taxable only to the extent of the overall gain realized by
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<PAGE>
the shareholder in the Merger (with the realized gain in general equal to the
excess of such cash plus the value of Metromail Common Stock received or to be
received in the Merger, over the shareholder's tax basis in the Atlantes
Common Stock converted in the Merger). See clause (iii) under "General" above.
Because Metromail Common Stock might be received as Contingent Shares, the
extent of a shareholder's realized gain, and hence the extent to which such
cash will be taxable, might not be certain as of the time the cash is
received. Although not clear, one approach might be for a shareholder to
compute realized gain for this purpose by assuming that no Contingent Shares
will be received. Another approach might be to compute realized gain for this
purpose by assuming Contingent Shares having the maximum possible value will
be received. In either case, adjustments to income and basis would be required
upon an installment of Contingent Shares being received or upon a
determination that such installment will not be received, depending on the
assumption originally made. Other possible tax rules might apply. SHAREHOLDERS
OF ATLANTES WHO ELECT TO CONVERT ONE OR MORE SHARES OF ATLANTES COMMON STOCK
INTO CASH RATHER THAN METROMAIL COMMON STOCK ARE STRONGLY URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH AN ELECTION.
Basis Considerations. On the date of delivery to an Atlantes shareholder of
shares of Metromail Common Stock (upon the effectiveness of the Merger or as
Contingent Shares) or on the date of a determination that a scheduled
installment of Contingent Shares will not be delivered (each such time, an
"Allocation Date"), a portion of an Atlantes shareholder's tax basis in
Metromail Common Stock determined as described in clause (iv) under "General"
above but disregarding amounts treated as interest (hereinafter, "Aggregate
Metromail Tax Basis") must be temporarily allocated to the Metromail Common
Stock delivered or previously delivered, including fractional shares of
Metromail Common Stock for which cash is received, but excluding any portion
of delivered or previously delivered Metromail Common Stock treated as imputed
interest under the rules described below (collectively, the "Total Delivered
Shares") with the remainder of such shareholder's tax basis being "suspended"
until the next Allocation Date.
The portion of a shareholder's Aggregate Metromail Tax Basis allocated on
any Allocation Date to the Total Delivered Shares equals (a) such
shareholder's Aggregate Metromail Tax Basis (less the tax basis of any Total
Delivered Shares previously disposed of), multiplied by (b) a fraction, the
numerator of which is the number of Total Delivered Shares and the denominator
of which is the sum of the number of the Total Delivered Shares and the
maximum number of Contingent Shares which could be received by such
shareholder in the future, excluding any Total Delivered Shares previously
disposed of and also excluding any portion of such future Contingent Shares
which would be treated as imputed interest under the rules described below.
The amount allocated on an Allocation Date should be allocated pro rata among
the Total Delivered Shares held by such shareholder on an Allocation Date. The
portion of any Contingent Share received as imputed interest will have a tax
basis equal to its fair market value on the date such portion is treated as
having been received and, as described below, will have a holding period
beginning on such date.
The Merger Agreement provides that the maximum aggregate number of
Contingent Shares to which all holders of Atlantes Common Stock will be
entitled may not exceed the aggregate number of shares of Metromail Common
Stock received by such holders upon the effectiveness of the Merger
(hereinafter referred to as "Fixed Shares"). Nevertheless, the number of
Contingent Shares received by any particular holder of Atlantes Common Stock
relative to the number of Fixed Shares received by that holder might vary
significantly based on a number of factors, including the per share price of
Metromail Common Stock used to determine the number of Contingent Shares to be
delivered on a Contingent Share Delivery Date (as defined herein), the number
of shares of Atlantes Common Stock with respect to which such holder elects to
receive cash, and the extent to which other holders of Atlantes Common Stock
or holders of Atlantes Warrants elect to receive cash. In the absence of more
precise information, a shareholder should probably apply the foregoing rules
by assuming that (consistent with the overall limitation described above) such
holder will receive a number of Contingent Shares equal to the number of Fixed
Shares such holder would have received had the holder made no election to
convert shares of Atlantes Common Stock into cash.
For purposes of the foregoing rules, it is unclear how a shareholder should
determine the portion of future Contingent Shares which would be treated as
imputed interest under the rules described below. Because of the practical
difficulty in making such a determination, in the absence of relevant
information a shareholder might choose to apply the fraction set forth in the
second preceeding paragraph by assuming that no portion of future
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<PAGE>
Contingent Shares will be treated as imputed interest. Shareholders should
consult their own tax advisors in this regard.
AS A RESULT OF THESE BASIS RULES, AN ATLANTES SHAREHOLDER THAT SELLS ALL OR A
PORTION OF SUCH SHAREHOLDER'S FIXED SHARES OR PREVIOUSLY DELIVERED CONTINGENT
SHARES PRIOR TO THE TIME OF DELIVERY OF ALL CONTINGENT SHARES (OR THE
DETERMINATION THAT NO ADDITIONAL CONTINGENT SHARES WILL BE DELIVERED) WILL
GENERALLY RECOGNIZE SIGNIFICANTLY MORE GAIN (OR SIGNIFICANTLY LESS LOSS) ON
SUCH SALE THAN WOULD BE THE CASE IF SUCH SHAREHOLDER SOLD SUCH FIXED SHARES OR
PREVIOUSLY DELIVERED CONTINGENT SHARES AT THE SAME PRICE AFTER SUCH TIME.
SHAREHOLDERS ARE STRONGLY URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR
REGARDING THESE BASIS RULES.
Imputed Interest Rules; Related Holding Period Consequences. A portion of the
value of the Contingent Shares (if any) received by an Atlantes shareholder
(including a fractional Contingent Share for which cash is received) will be
treated as imputed interest under Section 483 of the Code and will be taxable
to the shareholder in the taxable year of receipt. The amount treated as
interest cannot be determined until the year in which the Contingent Shares are
received. The method for determining the amount of imputed interest is
demonstrated by Treas. Reg. 1.483-4. The amount of imputed interest would be
equal to the excess of the fair market value of the Contingent Shares received
(determined at the time of receipt) over the present value of such fair market
value as of the Effective Time, discounted at the applicable federal rate in
effect for imputed interest at the Effective Time. In general, imputed interest
payments aggregating $600 or more to a non-corporate recipient are required to
be reported to the Internal Revenue Service and the recipient thereof. As
described above, the portion of any Contingent Share received as imputed
interest will have a tax basis equal to its fair market value on the date such
portion is treated as having been received.
An Atlantes shareholder's holding period for the Contingent Shares will be
split with respect to each such share (or fractional share). An Atlantes
shareholder's holding period for a portion of each Contingent Share will
include the holding period for the Atlantes Common Stock surrendered in the
Merger (provided such shares of Atlantes Common Stock are held as capital
assets by the shareholder at the Effective Time) and an Atlantes shareholder's
holding period for the remaining portion of each Contingent Share will commence
on the date on which the Contingent Share is received. This splitting of the
holding period for each Contingent Share is determined based on the portion of
the value of each Contingent Share which is taxed as interest income pursuant
to the rules summarized in the preceding paragraph in comparison to the total
value of the Contingent Share on the date of receipt of such share, with that
portion of each such share which is taxed as interest income receiving the new
holding period.
Atlantes Warrants
A holder of an Atlantes Warrant who exercises such Atlantes Warrant prior to
the Merger will, with respect to Atlantes Common Stock received upon such
exercise and converted into Metromail Common Stock or cash (or a combination
thereof) pursuant to the Merger, have the federal income tax consequences
summarized above under "--Atlantes Common Stock."
A holder of Atlantes Warrants may choose not to exercise such Warrants and
may, instead exchange the Warrants for Metromail Common Stock or cash (or a
combination thereof). The exchange of Atlantes Warrants for Metromail Common
Stock or cash (or a combination thereof) will be a taxable transaction for
federal income tax purposes. In general, and subject to special rules, a holder
of Atlantes Warrants will recognize gain or loss based on the difference
between the amount of cash and the fair market value of Metromail Common Stock
received (whether received as Fixed Shares or Contingent Shares, but net of
amounts treated as imputed interest as described above) and the holder's tax
basis in the Atlantes Warrant. A portion of each installment of Contingent
Shares will, in general and subject to special rules, be treated for federal
income tax purposes as interest income under rules similar to those described
above under "--Atlantes Common Stock--Imputed Interest Rules; Related Holding
Period Consequences." Holders of Atlantes Warrants should consult their own tax
advisors as to the application of those rules, as well as the application of
the installment sale provisions of
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<PAGE>
the Code and the Treasury Regulations thereunder (or an election out of such
provisions), to the exchange of Atlantes Warrants for Metromail Common Stock or
cash (or a combination thereof) pursuant to the Merger.
Atlantes Options
Holders of Atlantes Stock Options will recognize ordinary compensation income
as a result of the receipt of Metromail Common Stock or cash (or a combination
thereof) in exchange for Atlantes Stock Options in the Merger. The amount
treated as compensation income will equal the amount of cash (if any) and the
fair market value of the shares of Metromail Common Stock received at the
Effective Time and the entire fair market value of the Contingent Shares, if
any, generally at the time such shares are received by an option holder. Such
amounts will be (i) subject to tax at the option holder's ordinary income tax
rate, (ii) subject to the hospital insurance portion of the tax under the
Federal Insurance Contributions Act (i.e., FICA tax) (currently 1.45%), and
(iii) depending on an option holder's individual circumstances, subject in
whole or in part to the old-age, survivors and disability portion of the FICA
tax (currently 6.2%). The amount of cash (if any) and the number of shares of
Metromail Common Stock otherwise payable to an option holder will generally be
reduced by the foregoing taxes and any other amounts Metromail is required to
withhold. An option holder will have a tax basis in the Metromail Common Stock
received in exchange for such holder's Atlantes Stock Options equal to the fair
market value of such stock on the date when it is received and the holding
period of such stock, for the purpose of determining whether a subsequent sale
thereof would result in the recognition of short-term or long-term capital gain
or loss, will generally commence on such date.
Dissenting Shareholders
A shareholder of Atlantes who exercises dissenters' rights as described below
under "DISSENTERS' RIGHTS" should, in general, treat the difference between the
tax basis of the Atlantes Common Stock held by such shareholder with respect to
which such rights are exercised and the amount received through the exercise of
such rights as capital gain or loss for federal income tax purposes although,
depending on the shareholder's particular circumstances, the amount received
through the exercise of such rights might be treated for federal income tax
purposes as dividend income.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" for accounting and financial
reporting purposes in accordance with APB No. 16. For purposes of preparing
Metromail's consolidated financial statements, Metromail will establish a new
accounting basis for Atlantes's assets and liabilities based upon the fair
values thereof and Metromail's purchase price, including the direct costs of
the acquisition. A final determination of required purchase accounting
adjustments and of the fair value of the assets and liabilities of Atlantes has
not yet been made. Accordingly, the purchase accounting adjustments made in
connection with the development of the pro forma financial information
appearing elsewhere in this Proxy Statement/Prospectus are preliminary and are
subject to adjustment. After the Merger, Metromail will undertake a study to
determine the fair value of Atlantes's assets and liabilities and will make
appropriate purchase accounting adjustments upon completion of such study. For
financial reporting purposes, Metromail will consolidate the results of
Atlantes's operations with those of Metromail's operations, beginning with the
consummation of the Merger, but Metromail's financial statements for prior
periods will not be restated as a result of the Merger.
OPERATION OF ATLANTES AFTER THE EFFECTIVE TIME
The Merger Agreement provides that the directors of Mergerco immediately
prior to the Effective Time will be the directors of Atlantes, as the Surviving
Corporation, after the Effective Time until their successors are duly elected.
The directors of Mergerco are Barton L. Faber, Chairman of Metromail, Susan L
Henricks, President and Chief Executive Officer of Metromail, and Thomas J.
Quarles, Senior Vice President, Chief Administrative Officer, General Counsel
and Secretary of Metromail.
Metromail has agreed in the Merger Agreement to operate or cause the business
of Atlantes to be operated in conformity with sound business practices and to
make or cause to be made all business decisions with respect to the business of
Atlantes in good faith. It is Metromail's current intention to provide Atlantes
with a reasonable opportunity to meet the Record Flow Performance Targets (as
herein defined) for each of the measurement periods described under "THE MERGER
AGREEMENT--Contingent Shares."
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RESALES OF METROMAIL COMMON STOCK
The shares of Metromail Common Stock issued in the Merger will be freely
transferrable, except that shares received by any person who may be deemed to
be an "affiliate" (as used in paragraphs (c) and (d) of Rule 145, under the
Securities Act, including, without limitation, directors and certain executive
officers) of Atlantes for purposes of such Rule 145, may not be resold except
in transactions permitted by such Rule 145 or as otherwise permitted under the
Securities Act.
THE MERGER AGREEMENT
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger and without any further
action on the part of any shareholder of Atlantes or Mergerco:
(i) each share of Atlantes Common Stock held in the treasury of Atlantes
will be canceled and no capital stock of Metromail or other consideration
will be delivered in exchange therefor;
(ii) each issued and outstanding share of capital stock of Mergerco will
be converted into one share of Common Stock, no par value, of the Surviving
Corporation;
(iii) each share of Atlantes Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled
as described in subparagraph (i) above) will be converted into (a) 1.241
shares of Metromail Common Stock, or, at the election of the holder thereof
but subject to certain limitations, $25.99 in cash, plus (b) the right to
receive Contingent Shares in years 1999 through 2002 depending on the
achievement of certain performance targets in years 1998 through 2001. See
"--Contingent Shares." Each share of Metromail Common Stock issued pursuant
to the Merger will be accompanied by a Metromail Right, subject to the
provisions described under "DESCRIPTION OF METROMAIL COMMON STOCK--Certain
Charter and By-law Provisions; Metromail Rights Agreement." Cash will be
paid in lieu of any fractional shares of Metromail Common Stock. See "--No
Fractional Shares." The number of shares of Metromail Common Stock to be
received by Atlantes shareholders is subject to adjustment under certain
circumstances. See "--Adjustment of Exchange Ratio."
Shares of Atlantes Common Stock converted as provided in subparagraph (iii)
of the preceding paragraph will no longer be outstanding and will
automatically be canceled and retired; and each holder of a certificate
representing any such shares of Atlantes Common Stock immediately prior to the
Effective Time will cease to have any rights with respect thereto, except the
right to receive, as hereinafter described: (i) certificates representing the
number of whole shares of Metromail Common Stock or cash into which such
shares of Atlantes Common Stock have been converted, (ii) certificates
representing Contingent Shares deliverable pursuant to the Merger Agreement,
(iii) certain dividends and other distributions and (iv) cash, without
interest, in lieu of any fractional share of Metromail Common Stock. See "--
Exchange Agent; Procedures for Exchange of Certificates."
HOLDERS OF ATLANTES COMMON STOCK WHO WISH TO RECEIVE CASH IN LIEU OF THE
1.241 SHARES OF METROMAIL COMMON STOCK THAT THEY WOULD RECEIVE IN EXCHANGE FOR
EACH OF THEIR SHARES OF ATLANTES COMMON STOCK UPON CONSUMMATION OF THE MERGER
MUST RETURN THE FORM OF ELECTION THAT ACCOMPANIES THIS PROXY
STATEMENT/PROSPECTUS TO THE EXCHANGE AGENT BY 5:00 P.M., NEW YORK TIME, ON
JUNE 27, 1997. HOLDERS OF ATLANTES COMMON STOCK WHO DO NOT WISH TO RECEIVE
CASH INSTEAD OF SHARES OF METROMAIL COMMON STOCK NEED NOT RETURN SUCH FORM OF
ELECTION. SEE "--CASH ELECTION."
Notwithstanding the foregoing, shares of Atlantes Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
Atlantes shareholders who do not vote in favor of the proposal to approve the
Merger Agreement and who demand properly in writing the fair value for such
shares in accordance with Article 113 of the CBCA (collectively, the
"Dissenting Shares") will not be converted into or represent the
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right to receive the consideration described above. Such Atlantes shareholders
will be entitled to receive payment of the fair value of such shares of
Atlantes Common Stock held by them in accordance with the provisions of the
CBCA, except that each Dissenting Share held by Atlantes shareholders who fail
to perfect or who effectively withdraw or lose their dissenters' rights under
the CBCA will be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive 1.241 shares
of Metromail Common Stock, plus the right to receive Contingent Shares, upon
surrender of the certificate or certificates that formerly evidenced such
shares of Atlantes Common Stock in the manner described under "--Exchange
Agent; Procedures for Exchange of Certificates and Delivery of Cash." See
"DISSENTERS' RIGHTS."
ATLANTES WARRANTS
By virtue of the Merger, each Atlantes Warrant outstanding immediately prior
to the Effective Time will be converted into (i) 1.193 shares of Metromail
Common Stock, or, at the election of the holder but subject to certain
limitations, $24.99 in cash, plus (ii) the right to receive Contingent Shares
in years 1999 through 2002 depending on the achievement of certain performance
targets in years 1998 through 2001. It is a condition to the obligations of
Metromail that Atlantes shall have received the written acknowledgment and
consent, in form reasonably acceptable to Metromail, of each holder of an
Atlantes Warrant outstanding as of the Effective Time that at the Effective
Time the Atlantes Warrant will be converted as so provided. Holders of
Atlantes Warrants will receive a notice from Atlantes notifying them of their
rights to exercise Atlantes Warrants before the Merger and receive Atlantes
Common Stock before the Merger. A holder of Atlantes Warrants who exercises
Atlantes Warrants and receives Atlantes Common Stock and who exchanges
Atlantes Common Stock for Metromail Common Stock in accordance with the Merger
Agreement will have different tax consequences than a holder of Atlantes
Warrants who elects to exchange Atlantes Warrants directly for Metromail
Common Stock. See "THE MERGER--Certain Material Federal Income Tax
Consequences."
ATLANTES STOCK OPTIONS
By virtue of the Merger, each Atlantes Stock Option outstanding immediately
prior to the Effective Time will be converted into (i) a specified number of
shares of Metromail Common Stock (1.193 shares for each Atlantes Stock Option
with an exercise price of $1.00 per share; 1.181 shares for each Atlantes
Stock Option with an exercise price of $1.25 per share; 1.169 shares for each
Atlantes Stock Option with an exercise price of $1.50 per share; and 1.145
shares for each Atlantes Stock Option with an exercise price of $2.00 per
share), or at the election of the holder thereof $25.99 less the applicable
exercise price of the Atlantes Stock Option in cash, plus (ii) the right to
receive Contingent Shares in years 1999 through 2002 depending on the
achievement of certain performance targets in years 1998 through 2001. It is a
condition to the obligations of Metromail that Atlantes shall have received
the written acknowledgment and consent, in form reasonably acceptable to
Metromail, of each holder of an Atlantes Stock Option outstanding as of the
Effective Time that at the Effective Time the Atlantes Stock Option will be
converted as so provided.
CASH ELECTION
General. Each holder of Atlantes Common Stock (other than holders of
Dissenting Shares), Atlantes Warrants and Atlantes Stock Options will be
entitled to receive cash instead of the shares of Metromail Common Stock to be
delivered at the Effective Time (i.e. the right to receive cash instead of
Metromail Common Stock does not apply to Contingent Shares), subject to
certain limitations in the case of holders of Atlantes Common Stock and
Atlantes Warrants.
Atlantes Common Stock. A holder of Atlantes Common Stock may elect to
receive for each share of Atlantes Common Stock $25.99 in cash instead of
1.241 shares of Metromail Common Stock. The maximum number of shares of
Atlantes Common Stock for which a cash election can be made (assuming there
are no Dissenting Shares) will be the lesser of (i) 15% of the number of
shares of Atlantes Common Stock outstanding immediately prior to the Effective
Time and (ii) such number as will be determined by Metromail at the Effective
Time such that the amount of cash paid in respect of Atlantes Common Stock
does not exceed 15% of the sum of (x) the amount of cash paid in respect of
Atlantes Common Stock and (y) the market value as of the Effective Date of
Metromail Common Stock delivered at the Effective Time to holders of Atlantes
Common Stock. If there are
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Dissenting Shares, the maximum number of shares of Atlantes Common Stock for
which a cash election can be made will be less than the number derived from
the previous sentence. If cash elections are received for a number of shares
of Atlantes Common Stock which exceeds the maximum number of shares for which
a cash election is permitted, the Exchange Agent (as defined below) will
determine by lot (or by such other method as is deemed reasonable by Metromail
and Atlantes) which of the shares of Atlantes Common Stock for which a cash
election was made will be converted into cash.
Atlantes Warrants. A holder of an Atlantes Warrant may elect to receive for
each Atlantes Warrant $24.99 in cash instead of 1.193 shares of Metromail
Common Stock. The maximum number of Atlantes Warrants for which a cash
election can be made will be the lesser of (i) 15% of the number of shares of
Atlantes Common Stock issuable upon exercise of Atlantes Warrants outstanding
immediately prior to the Effective Time and (ii) such number as will be
determined by Metromail at the Effective Time such that the amount of cash
paid in respect of Atlantes Warrants does not exceed 15% of the sum of (x) the
amount of cash paid in respect of Atlantes Warrants and (y) the market value
as of the Effective Date of Metromail Common Stock delivered at the Effective
Time to holders of Atlantes Warrants. If cash elections are received for a
number of shares of Atlantes Warrants which exceeds the maximum number of
Atlantes Warrants for which a cash election is permitted, the Exchange Agent
will determine by lot (or by such other method as is deemed reasonable by
Metromail and Atlantes) which of the Atlantes Warrants for which a cash
election was made will be converted into cash.
Atlantes Stock Options. Each holder of an Atlantes Stock Option will be
entitled to receive for each Atlantes Stock Option $25.99 in cash, less the
applicable exercise price of the option, instead of the number of shares of
Metromail Common Stock specified in clause (i) under "--Atlantes Stock
Options." There is no limitation to the number of Atlantes Stock Options for
which a cash election can be made.
Procedure for Cash Election. Holders of Atlantes Common Stock, Atlantes
Warrants and Atlantes Stock Options who wish to exercise the cash election
with respect to all or a portion of their Atlantes Common Stock, Atlantes
Warrants and Atlantes Stock Options must complete a Form of Election, copies
of which have been mailed, together with this Proxy Statement/Prospectus, to
shareholders of record on the Atlantes Record Date and to holders of Atlantes
Warrants and Atlantes Stock Options. An election shall have been properly made
only if the Exchange Agent shall have received, by 5:00 P.M., New York time,
on June 27, 1997, the business day preceding the date of the Special Meeting
(the "Election Date"), a Form of Election properly completed and signed and
accompanied by the stock certificates, warrant certificates or stock option
agreements representing the shares of Atlantes Common Stock, Atlantes Warrants
or Atlantes Options, respectively, as to which the Form of Election relates.
Holders of Atlantes Common Stock, Atlantes Warrants and Atlantes Stock Options
who do not wish to receive cash instead of shares of Metromail Common Stock
need not return a Form of Election.
Any holder may at any time prior to the Election Date change such holder's
election by written notice received by the Exchange Agent at or prior to the
Election Date accompanied by a properly completed Form of Election. Metromail
and Atlantes shall have the right in their sole discretion and by mutual
agreement to permit changes in Elections after the Election Date.
Any holder may at any time prior to the Election Date revoke such holder's
election by written notice received by the Exchange Agent at or prior to the
Election Date or by withdrawal prior to the Election Date of any stock
certificates, warrant certificates or stock option agreements previously
deposited with the Exchange Agent. Any revocation of an election may be
withdrawn by notice of such withdrawal delivered at or prior to the Election
Date. Any holder who shall have deposited any stock certificates, warrant
certificates or stock option agreements with the Exchange Agent shall again
have the right to withdraw such stock certificates, warrant certificates or
stock option agreements by written notice received by the Exchange Agent and
thereby revoke such holder's election as of the Election Date at any time
after the expiration of the period of 60 days following the Election Date if
the Merger shall not have been consummated prior thereto.
Metromail and Atlantes shall have the right to make rules, not inconsistent
with the terms of the Merger Agreement, governing the validity of Forms of
Election and the manner and extent to which elections are to be taken into
account in making the determinations prescribed by the Merger Agreement.
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NO FRACTIONAL SHARES
No certificates or scrip representing a fractional share of Metromail Common
Stock will be issued upon the surrender for exchange of a certificate or
agreement representing immediately prior to the Effective Time a share of
Atlantes Common Stock ("Atlantes Certificate"), an Atlantes Warrant ("Warrant
Certificate") or an Atlantes Stock Option ("Option Agreement"); no Metromail
dividend or other distribution or stock split will relate to any such
fractional share; and no such fractional share will entitle the record or
beneficial owner thereof to any voting or other rights of a stockholder of
Metromail. In lieu of any such fractional share, each holder who would
otherwise have been entitled thereto upon the surrender of Atlantes
Certificates, Warrant Certificates or Option Agreements for exchange will be
paid, in addition to other cash payments to which such holder is otherwise
entitled, an amount in cash (without interest) determined by multiplying such
holder's fractional interest by the lesser of (i) the arithmetic mean of the
high and low trading prices on the NYSE of Metromail Common Stock on the
Effective Date, (ii) the last sale price on the Effective Date of Metromail
Common Stock and (iii) the arithmetic mean of the high and low trading prices
on the NYSE of Metromail Common Stock for the ten trading days immediately
preceding the Effective Date.
ADJUSTMENT OF EXCHANGE RATIO
Appropriate and proportionate adjustments, if any, will be made to the
exchange ratio used to determine the number of shares of Metromail Common
Stock to which each holder of Atlantes Common Stock, Atlantes Warrants or
Atlantes Stock Options will be entitled upon conversion of such holder's
shares of Atlantes Common Stock, Atlantes Warrants or Atlantes Stock Options
in the event of any reclassification, stock split or stock dividend with
respect to Metromail Common Stock (or if a record date with respect to any of
the foregoing should occur) after the date of the Merger Agreement and prior
to the Effective Time.
CONTINGENT SHARES
Each Record Holder will be entitled to receive Contingent Shares in the
years 1999 through 2002 depending on the achievement of certain performance
targets in each of the calendar years ending December 31, 1998 through 2001
(each, a "Measurement Period").
The performance targets are based upon the number of Qualifying Records
loaded into Atlantes' or Metromail's database during each of the Measurement
Periods ("Annual Record Flow"). "Qualifying Records" means customer response
cards (which may be in electronic form) which (i) have been designed and
developed by Atlantes (or are cards designed and developed by another party,
but which meet certain specified criteria), (ii) seek responses from
purchasers of clients' products or services, (iii) seek certain demographic
and behavioral information, (iv) contain Acceptable Consumer Disclosure (as
defined in the Merger Agreement), and (v) are received by Atlantes with at
least the name and address information completed; provided that records that
contain a non-United States address and multiple records from the same person
for the same product will not be deemed Qualifying Records. The Merger
Agreement establishes targets for Annual Record Flow during each Measurement
Period (each a "Record Flow Performance Target") as follows: 12,000,000 for
the year ending December 31, 1998; 15,000,000 for the year ending December 31,
1999; 19,500,000 for the year ending December 31, 2000; and 24,000,000 for the
year ending December 31, 2001. Achievement of the performance targets is
measured by reference to the "Performance Percentage" which is determined by
dividing (i) the Annual Record Flow for such Measurement Period by (ii) the
applicable Record Flow Performance Target (such quotient being expressed as a
percentage).
For each Measurement Period, Record Holders are entitled to receive, subject
to the provisions related to offset described under "--Right of Offset," a
contingent payment amount (the "Contingent Payment Amount") determined by
multiplying the Contingent Payment Target Amount for such Measurement Period
by the Payment Percentage for such Measurement Period. The "Contingent Payment
Target Amount" for each of the Measurement Periods is as follows: $2,500,000
for each of the years ending December 31, 1998, 1999 and 2000, and $5,000,000
for the year ending December 31, 2001. The "Payment Percentage" for a
Measurement Period
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is determined by reference to the Performance Percentage for such Measurement
Period as follows: (i) if the Performance Percentage is less than 80%, then
the Payment Percentage is 0%; (ii) if the Performance Percentage is greater
than or equal to 80%, but less than 90%, then the Payment Percentage is 50%;
(iii) if the Performance Percentage is greater than or equal to 90%, but less
than 100%, then the Payment Percentage is 75%; and (iv) if the Performance
Percentage is greater than or equal to 100%, then the Payment Percentage is
equal to the Performance Percentage.
For each Measurement Period, on a date (the "Contingent Share Delivery
Date") determined in accordance with the Merger Agreement (generally the March
15 next following the end of the Measurement Period), each Record Holder will
be entitled to receive, with respect to each share of Atlantes Common Stock
deemed to be held by such Record Holder, the number of validly issued, fully
paid and nonassessable shares of Metromail Common Stock determined by dividing
(i) the Contingent Payment Amount Per Share (as defined below) for the
applicable Measurement Period by (ii) the average of the per share closing
prices on the NYSE of Metromail Common Stock (as reported in the NYSE
Composite Transactions) during the ten consecutive trading days ending on the
trading day which is five trading days immediately preceding such Contingent
Share Delivery Date (the "Metromail Stock Price"). "Contingent Payment Amount
Per Share" with respect to a Measurement Period means the number determined by
dividing (i) the sum of the Contingent Payment Amount and the amount of
quarterly cash dividends Record Holders would have received had the Contingent
Share Delivery Date immediately followed the end of such Measurement Period by
(ii) the total number of shares of Atlantes Common Stock outstanding or
issuable upon exercise of outstanding Atlantes Warrants or Atlantes Stock
Options at the Effective Time. The provisions for allocation of Contingent
Shares between Record Holders who held Atlantes Common Stock, Atlantes
Warrants and Atlantes Stock Options are intended to place each holder of
Atlantes Warrants or Atlantes Stock Options in the same position with respect
to Contingent Shares as if the holder had exercised the Atlantes Warrants or
Atlantes Stock Options prior to the Merger.
No dividends will be paid to the Record Holders with respect to any
Contingent Shares unless and until certificates for such shares have been
issued, but upon issuance of such certificates, the Record Holders will be
paid dividends having a record date on or after the applicable Contingent
Share Delivery Date.
No fractional shares of Metromail Common Stock will be issued or delivered
in respect of the issuance of Contingent Shares. In lieu of any fractional
shares to which a Record Holder would otherwise be entitled, each such Record
Holder will be entitled to receive a cash payment in an amount equal to (i)
the fraction of a share to which such Record Holder would otherwise have been
entitled multiplied by (ii) the Metromail Stock Price.
The issuance of Contingent Shares to Record Holders is subject to certain
restrictions on the maximum number of shares to be issued and the maximum
aggregate Contingent Payment Amount to be received. The maximum number of
Contingent Shares to which Record Holders will be entitled in respect of
shares of Atlantes Common Stock, or in respect of shares of Atlantes Common
Stock and Atlantes Warrants, in each case held immediately prior to the
Effective Time, may not exceed the aggregate number of shares issued to such
holders at the Effective Time in respect of such shares of Atlantes Common
Stock, or in respect of shares of Atlantes Common Stock and Atlantes Warrants,
respectively. (There is no similar restriction with respect to Contingent
Shares delivered in respect of Atlantes Stock Options.) Further, the aggregate
Contingent Payment Amount to which Record Holders will be entitled to receive
may not exceed the amount equal to $12,500,000 (which represents the sum of
the Contingent Payment Target Amounts for the four Measurement Periods) less
the sum of the Contingent Payment Target Shortfalls. For each Measurement
Period, "Contingent Payment Target Shortfall" means the excess, if any, of the
Contingent Payment Target Amount over the Contingent Payment Amount, without
giving effect to any offset as described below. Such restriction only limits
the Contingent Shares to be issued prospectively, and thus, Record Holders
will not be obligated to return any Contingent Shares earned and delivered for
completed Measurement Periods.
Disputes concerning the achievement of any performance targets or the amount
of any losses to be offset by Metromail will be resolved as described below
under "--Resolution of Disputes."
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Following the occurrence of certain Exceptional Events, the Record Holders's
right to receive Contingent Shares will become fixed and will no longer be
based upon prospective achievement of performance targets. An "Exceptional
Event" means any of the following:
(i) a final determination that Metromail has materially breached its
obligations described under "THE MERGER--Operation of Atlantes after the
Effective Time" and that such breach has materially adversely affected
Atlantes's opportunity to meet the Record Flow Performance Targets;
(ii) (A) the termination by Metromail or Atlantes of the employment with
Metromail or Atlantes of any two of Messrs. Detmer, O'Neil or Anderson for
any reason other than death, disability or "Cause" (as defined in their
respective Employment Agreements) or (B) if any two of such persons
terminate their employment with Metromail or Atlantes within three months
after the occurrence with respect to such persons of a "Termination Event"
(as defined in such person's Employment Agreement) if, in the case of
either clause (A) or (B), such termination occurs prior to December 31,
2001, in the case of Mr. Detmer, or December 31, 1999, in the case of
Messrs. O'Neil or Anderson;
(iii) a Change of Control (as defined in the Merger Agreement) of
Atlantes, which includes the sale of substantially all the assets of
Atlantes or if Metromail or its affiliates cease to own a majority of the
outstanding shares of Atlantes Common Stock;
(iv) the cessation by Atlantes (or a successor to Atlantes) of the
business of collecting data through the use of customer response cards; or
(v) the commencement by Atlantes or Metromail of a voluntary case under
the federal bankruptcy laws or the filing of a petition against Atlantes or
Metromail under the federal bankruptcy laws which petition is not dismissed
within 90 days.
If an Exceptional Event occurs after the Effective Date and on or prior to
December 31, 1998, then the Payment Percentage for each Measurement Period
will be deemed to be 100%. If an Exceptional Event occurs during any
Measurement Period (other than the first Measurement Period), then the Payment
Percentage for each Measurement Period not completed prior to the occurrence
of such Exceptional Event will be the percentage determined to be applicable
based on a Performance Percentage equal to the lesser of (i) 100% or (ii) the
average of the Performance Percentages for all Measurement Periods completed
prior to the occurrence of such Exceptional Event. The Contingent Share
Delivery Date with respect to each Measurement Period ending after the date of
the occurrence of such Exceptional Event will be not later than 15 days after
the end of such Measurement Period.
If the Exceptional Event is an event described in clause (iii), clause (iv)
(unless the cessation of business described in such clause has occurred
following a change in regulatory requirements that in the reasonable judgment
of Metromail has made it inadvisable for Atlantes to continue such business)
or clause (v) of the definition of Exceptional Event, the Contingent Payment
Committee (as defined below) may, by notice to Metromail within 15 days
following the occurrence of such Exceptional Event, elect, on behalf of all
Record Holders, to have there be a single Contingent Share Delivery Date,
which date must be no later than 15 days following Metromail's receipt of such
notice, and for the Record Holders to receive in the aggregate, in lieu of all
Contingent Shares otherwise payable after the date of such Exceptional Event,
the number of shares of Metromail Common Stock determined by dividing (i) an
amount equal to the present value (using a discount rate determined in
accordance with the Merger Agreement) of the Contingent Payment Amounts
otherwise payable following such Exceptional Event in the absence of such
election by (ii) the Metromail Stock Price.
Right of Offset. Metromail has the right to offset against the Contingent
Payment Amount (i) any and all Losses and Expenses (as defined below) incurred
by Metromail and its affiliates in connection with or arising from any breach
by Atlantes of any covenants in the Merger Agreement required to be performed
prior to the Effective Date or any breach of any warranty or inaccuracy of any
representation of Atlantes in the Merger Agreement as of the Effective Date,
(ii) the amount by which the accounts receivable of Atlantes as of the
Effective Date minus $5,000 exceed the amount collected in respect of such
receivables in the 12-month period
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after the Effective Date, and (iii) the amount by which certain fees and
expenses of Atlantes in connection with the Merger exceed specified amounts.
"Losses" is defined in the Merger Agreement to mean losses, costs,
obligations, liabilities, settlement payments, awards, judgments, fines,
penalties, damages, deficiencies or other charges, and "Expense" is defined in
the Merger Agreement to mean expenses reasonably incurred in connection with
investigating, defending or asserting any claim, action or proceeding incident
to any matter for which Metromail is entitled to offset under the Merger
Agreement, including court filing fees, court costs, arbitration fees or
costs, witness fees and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, consultants, accountants and other
professionals.
Metromail may not exercise its right of offset in respect of the items
described in clause (i) of the preceding paragraph until the aggregate amount
of Losses and Expenses exceeds $250,000, in which case the aggregate amount of
the offset in respect of such items will be limited to the amount by which
such Losses and Expenses exceeds $250,000. The right of offset will continue
until the obligations of Metromail to make any contingent payments have been
satisfied, provided that the right of offset on account of breaches of
warranty and inaccuracies of representations will terminate on the 18-month
anniversary of the Effective Date (other than with respect to certain
representations and warranties concerning the capitalization of Atlantes and
taxes), except that such rights will continue as to any Loss or Expense of
which Metromail has notified the Contingent Payment Committee before the date
such offset rights would otherwise terminate.
Resolution of Disputes. Pursuant to the Merger Agreement, a "Contingent
Payment Committee" will be established, initially consisting of Mr. Detmer
(the current President and Chief Executive Officer of Atlantes), Kyle Lefkoff
(currently a director of Atlantes, the investment manager of CVM Equity Funds
III, Ltd. and a general partner of CVM Equity Funds IV, Ltd.) and Jeffrey H.
Schutz (Chairman of the Atlantes Board). Any vacancy in the Contingent Payment
Committee caused by the death, resignation or incapacity of a member will be
filled by the agreement of the remaining members or, if there are no remaining
members, by the written designation of Record Holders deemed to hold a
majority of the shares of Atlantes Common Stock immediately prior to the
Effective Time.
Pursuant to the Merger Agreement, the Record Holders agree to indemnify the
Contingent Payment Committee ratably in accordance with their proportionate
interests in the Contingent Payment Amounts for any and all Losses and
Expenses imposed on, incurred by or asserted against the Contingent Payment
Committee in its capacity as such in any way relating to or arising out of the
Merger Agreement or the transactions contemplated thereby, and the Contingent
Payment Committee is entitled to direct Metromail to make any future
Contingent Payment Amounts to the Contingent Payment Committee to the extent
of such Losses and Expenses.
The Contingent Payment Committee is empowered under the Merger Agreement to
review the determinations of Metromail with respect to the Annual Record Flow,
the Performance Percentage, the Payment Percentage and the Contingent Payment
Amount for each Measurement Period, to review any claim of offset that
Metromail may make and to take action, and incur expenses, on behalf of the
Record Holders with respect to any disputes that may arise with respect to
these matters. If the Contingent Payment Committee objects to Metromail's
determinations with respect to any Measurement Period and Metromail and the
Contingent Payment Committee are unable to resolve the objections, the matters
in dispute will be submitted to Arthur Andersen LLP for resolution.
Pursuant to the Merger Agreement, Metromail must give written notice to the
Contingent Payment Committee of any claim on account of Losses and Expenses
for which a right of offset will be sought; provided, that the failure to
deliver written notice of any claim in respect of any action at law or any
suit in equity brought by a third party will not prejudice Metromail's rights
to offset unless such failure to give notice has materially prejudiced the
Record Holders. The Contingent Payment Committee will have the right to object
to any claim on account of Losses and Expenses within a period of 30 days
following the receipt of written notice from Metromail. Any dispute resulting
from the rejection of such claim will be resolved: (a) by a written agreement
between Metromail and the Contingent Payment Committee; (b) by binding
arbitration; or (c) by any other means to which Metromail and the Contingent
Payment Committee agree. Metromail will have the obligation to conduct
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and control, through counsel of its choosing, the defense, compromise or
settlement of any third party claim as to which a right of offset will be
sought by Metromail; provided that the Contingent Payment Committee may
participate, through counsel chosen by it and at its own expense, in the
defense of any such claim, action or suit; and provided, further, that
Metromail will not, without the written consent of the Contingent Payment
Committee (which consent may not be unreasonably withheld), pay, compromise or
settle any such claim for which the Contingent Payment Committee has
acknowledged that a right of offset may exist following the written request
for such an acknowledgment as provided in the Merger Agreement. If Metromail
does not conduct the defense of any such third party claim, the Contingent
Payment Committee will have the right to do so, at the expense of Metromail,
but, in such case, the Contingent Payment Committee may not, without the
written consent of Metromail (which consent may not be unreasonably withheld),
compromise or settle such claim.
If any claim to offset remains unresolved on a Contingent Share Delivery
Date, the portion of the Contingent Payment Amount, if any, which is not
subject to any claim of offset will be paid as described above under "--
Contingent Shares." Following the final determination of the amount of offset
pursuant to the procedures described above, any remaining Contingent Payment
Amount (without interest) which shall have been determined to be not subject
to offset shall be paid promptly, with the number of shares of Metromail
Common Stock to be delivered being determined by reference to the price of
Metromail Common Stock during the ten consecutive trading days ending five
trading days immediately preceding the date of delivery of shares representing
such payment.
All objections to the determinations of the Contingent Payment Amounts for
each Measurement Period and all disputes concerning claims of offset must be
resolved no later than four years and 11 months after the Effective Date.
Notwithstanding the foregoing, no later than five years after the Effective
Time, Metromail will transfer to the Exchange Agent, in trust for the Record
Holders, certificates representing the total number of Contingent Shares to be
paid, if any, pursuant to the Merger Agreement; and in no event will any
Contingent Shares be issued to a Record Holder more than five years after the
Effective Date.
No Assignment of Rights by Record Holders. The right of each Record Holder
to receive shares of Metromail Common Stock pursuant to the Merger Agreement
may not be assigned or transferred in any manner whatsoever except by
operation of law or by will. In no event will any right to Contingent Shares
be evidenced by negotiable certificates of any kind.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES AND DELIVERY OF CASH
American Stock Transfer and Trust Company has been selected to act as
Exchange Agent under the Merger Agreement. As soon as practicable after the
Effective Time (but no later than 30 days), (i) Metromail will deposit with
the Exchange Agent, in trust for the holders of Atlantes Certificates, Warrant
Certificates and Option Agreements, certificates representing the shares of
Metromail Common Stock issuable at the Effective Time ("Metromail
Certificates") in exchange for the outstanding shares of Atlantes Common
Stock, Atlantes Warrants and Atlantes Stock Options, and cash as required to
make payments in lieu of any fractional shares, and (ii) Metromail will make
available to the Surviving Corporation, which in turn will deposit with the
Exchange Agent in trust for the holders of Atlantes Certificates, Warrant
Certificates and Option Agreements, the cash into which the outstanding shares
of Atlantes Common Stock, Atlantes Warrants and Atlantes Stock Options have
been converted. The Exchange Agent will deliver the Metromail Certificates and
cash upon the surrender for exchange of the Atlantes Certificates, Warrant
Certificates and Option Agreements and a duly executed letter of transmittal.
As soon as practicable after the Effective Time (but no later than 30 days),
the Exchange Agent will mail or otherwise deliver to each record holder of an
Atlantes Certificate, Warrant Certificate or Option Agreement, a letter of
transmittal, which shall specify that delivery shall be effected, and risk of
loss and title to the Atlantes Certificates, Warrant Certificates or Option
Agreements shall pass, only upon actual delivery thereof to the Exchange Agent
and shall contain instructions for use in effecting the surrender of the
Atlantes Certificates, Warrant Certificates or Option Agreements in exchange
for the property described in the next sentence. Upon
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surrender for cancellation to the Exchange Agent of all Atlantes Certificates,
Warrant Certificates or Option Agreements held by any record holder of an
Atlantes Certificate, Warrant Certificate or Option Agreement together with
such letter of transmittal duly executed, such holder shall be entitled to
receive in exchange therefor (i) a Metromail Certificate representing the
number of whole shares of Metromail Common Stock into which the shares of
Atlantes Common Stock represented by the surrendered Atlantes Certificates,
Warrant Certificates or Option Agreement shall have been converted at the
Effective Time, (ii) any cash which such holder has the right to receive under
the provisions of the Merger Agreement described above under "--Conversion of
Shares," and (iii) the dividends and other distributions described in the
second succeeding paragraph. The Atlantes Certificates, Warrant Certificates
and Option Agreements so surrendered shall forthwith be cancelled.
On each Contingent Share Delivery Date or as promptly as practicable
thereafter, Metromail will deposit with the Exchange Agent in trust for the
Record Holders Metromail Certificates representing the total number of
Contingent Shares, if any, to be paid on such Contingent Share Delivery Date.
The Exchange Agent will deliver any such Metromail Certificates (or cash in
lieu of any fractional shares) payable to the Record Holders at the addresses
of the Record Holders as they appeared on the stock records of Atlantes at the
Effective Time or such other addresses as the Record Holders provide to the
Exchange Agent by written notice.
Any dividend or other distribution paid in respect of Metromail Common Stock
to holders of record on or after the Effective Date and otherwise payable to
the holder of an outstanding Atlantes Certificate, Warrant Certificate or
Option Agreement shall, until the surrender of such Atlantes Certificate,
Warrant Certificate or Option Agreement and the issuance of a Metromail
Certificate in respect thereof, be retained by Metromail, and no such dividend
or other distribution payable in respect of Metromail Common Stock shall be
paid to such holder until such Atlantes Certificate, Warrant Certificate or
Option Agreement shall have been so surrendered to Metromail. Upon surrender
of each such Atlantes Certificate, Warrant Certificate or Option Agreement and
issuance in exchange therefor of shares of Metromail Common Stock, there shall
be paid by Metromail to or at the direction of the holder of the Metromail
Certificate, the amount of all dividends and distributions which became
payable to holders of record on or after the Effective Date in respect of the
number of whole shares of Metromail Common Stock represented by the Metromail
Certificate so issued. In no event shall the holder of any Atlantes
Certificate, Warrant Certificate or Option Agreement be entitled to receive
interest on any of the funds to be received in the Merger or on any such
dividend or other distribution.
Metromail or the Exchange Agent shall be entitled to deduct and withhold
from the consideration (cash, shares of Metromail Common Stock or any
combination thereof, as applicable) otherwise payable pursuant to the Merger
Agreement to any holder of shares of Atlantes Common Stock, Atlantes Warrants
or Atlantes Stock Options such amounts as Metromail or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Metromail or the Exchange Agent, such
withheld amounts shall be treated for all purposes of the Merger Agreement as
having been paid to the holder of the shares of Atlantes Common Stock,
Atlantes Warrants or Atlantes Stock Options in respect of which such deduction
and withholding was made by Metromail or the Exchange Agent.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Atlantes, Metromail and Mergerco relating to, among other things, the
following matters (which representations and warranties are subject, in
certain cases, to specified exceptions): (i) the due organization, power and
standing of, and similar corporate matters with respect to each of Atlantes,
Metromail and Mergerco; (ii) each of Atlantes', Metromail's and Mergerco's
capitalization; (iii) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement by Atlantes, Metromail and Mergerco and
of the transactions contemplated thereby; (iv) the absence of any conflict
between the Merger Agreement and each of Atlantes', Metromail's or Mergerco's
articles of incorporation or certificate of incorporation, bylaws and certain
other agreements and documents and compliance with applicable laws; (v)
Atlantes' preparation and fair presentation of certain financial statements;
(vi) the absence of certain changes in the assets, business, financial
condition or results of operations of Atlantes
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or Metromail since December 31, 1996; (vii) the absence of undisclosed
liabilities of Atlantes; (viii) compliance by Atlantes with relevant tax laws;
(ix) the condition of Atlantes' assets; (x) the possession by Atlantes of all
licenses, permits, approvals and other authorizations relating to the conduct
of its business; (xi) the accuracy and completeness of the information
supplied for use in this Proxy Statement/Prospectus by Metromail, Mergerco and
Atlantes; (xii) matters related to real and personal property used by
Atlantes; (xiii) Atlantes's ownership of certain intellectual property rights;
(xiv) Atlantes' accounts receivable; (xv) Atlantes' employee benefit matters
and employee relations; (xvi) the existence of material contracts and
commitments of Atlantes and the absence of any breach or default under any
such contracts; (xvii) the compliance by Atlantes, Metromail and Mergerco with
applicable law and the absence of certain litigation against the respective
parties; (xviii) compliance by Atlantes with environmental laws; (xix)
insurance matters; (xx) broker's fees incurred by Atlantes, Metromail and
Mergerco; (xxi) the absence of any untrue statements of material fact or
omission to state a material fact in the Merger Agreement, any disclosure
schedule, or any certificate or document furnished pursuant to the terms of
the Merger Agreement by Atlantes or Metromail; (xxii) the good faith basis for
Atlantes' financial projections; (xxiii) receipt by Atlantes of an opinion
from its financial advisor; (xxiv) the vote required by shareholders of
Atlantes to approve the Merger; (xxv) the form of Atlantes' consumer
disclosure contained on customer response cards; (xxvi) the documents and
reports filed by Metromail with the SEC and the accuracy and completeness of
the information contained therein; and (xxvii) certain matters related to the
shares to be issued in the Merger. All representations and warranties of
Metromail expire at the Effective Time. The representations and warranties of
Atlantes expire on the eighteen month anniversary of the Effective Time,
except for those as to certain matters related to capitalization and taxes
which expire upon the final issuance of Contingent Shares.
CONDUCT OF BUSINESS PENDING THE MERGER
Atlantes has agreed that during the period from the date of the Merger
Agreement through the Effective Time, except to the extent that Metromail may
otherwise consent in writing or as expressly contemplated by the Merger
Agreement, it will carry on its business in, and not enter into any material
transaction other than in accordance with, the ordinary course consistent with
past practice and, to the extent consistent therewith, use its reasonable best
efforts to preserve intact its current business organization, keep available
the services of its current officers and preserve its relationships with
customers, sources of data and others having business dealings with it.
Without limiting the generality of the foregoing, Atlantes has agreed that
it will not, except to the extent that Metromail may otherwise consent in
writing or as expressly contemplated by the Merger Agreement: (i) declare, set
aside or pay any dividends on, or make any other actual, constructive or
deemed distributions to any holder of its capital stock or other interest
convertible into or exchangeable for its capital stock, or otherwise make any
payments to any such persons; (ii) split, combine or reclassify any of its
capital stock or any security or other interest convertible into or
exchangeable for such capital stock or (except as and to the extent required
in the event of the exercise of any Atlantes Warrant or Atlantes Stock Option)
issue, sell or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock; (iii) purchase,
redeem or otherwise acquire any shares of capital stock of Atlantes or any
other securities thereof; (iv) issue, deliver, sell, pledge, dispose of or
otherwise encumber any shares of its capital stock or other securities (except
as and to the extent required in the event of the exercise of any Atlantes
Warrant or Atlantes Stock Option); (v) amend its Articles of Incorporation or
By-laws; (vi) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; (vii) subject to certain
exceptions, incur or assume any indebtedness for borrowed money, enter into
(as lessee) any capitalized lease obligation, guarantee any such indebtedness
or obligation, issue or sell any debt securities, guarantee any debt
securities of others or make any loans, advances or capital contributions to,
or investments in, any other person; (viii) make or incur any new capital
expenditure or expenditures which, individually, is in excess of $25,000 or,
in the aggregate, are in excess of $25,000; (ix) alter through merger,
liquidation, reorganization, restructuring or in any other fashion its
corporate structure; (x) enter into or adopt, or amend, any bonus, incentive,
deferred compensation, insurance, medical, hospital, disability or severance
plan, agreement or arrangement or enter into
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or amend any employee benefit plan or employment, consulting or management
agreement, other than any such amendment to an employee benefit plan that is
made to maintain the qualified status of such plan or its continued compliance
with applicable law; (xi) make any change in accounting practices or policies
applied in the preparation of its audited financial statements, except as
required by generally accepted accounting principles; (xii) modify any of the
agreements, understandings, obligations, commitments, indebtedness or other
obligations set forth in any of the schedules to the Merger Agreement, enter
into certain other agreements, understandings, obligations or commitments, or
incur any indebtedness or obligation, or enter into any contract which
requires any approval or consent by any other person to the transactions
contemplated by the Merger Agreement; (xiii) subject to certain exceptions,
pay or commit to pay any bonus to any officer or employee of Atlantes or make
any other material change in the compensation of its employees; (xiv) enter
into any contract for the purchase of real property or exercise any option to
purchase real property or any option to extend an existing lease; (xv) sell,
lease (as lessor), transfer or otherwise dispose of (including any transfers
from Atlantes to any shareholder or any of its affiliates), or mortgage or
pledge, or impose or suffer to be imposed any encumbrance on, any of
Atlantes's assets, other than inventory and minor amounts of personal property
sold or otherwise disposed of for fair value in the ordinary course of
business consistent with past practice and other than certain permitted
encumbrances; (xvi) cancel any debts owed to or claims held by Atlantes
(including the settlement of any claims or litigation) other than in the
ordinary course of business consistent with past practice; or (xvii) enter
into any other transaction affecting the business of Atlantes, other than in
the ordinary course of business consistent with past practice or as expressly
contemplated by the Merger Agreement.
Atlantes has agreed that it will not, and will not authorize or permit any
of its affiliates or any officer, director, employee, investment banker,
attorney or other adviser or representative of Atlantes or any of its
affiliates to (i) solicit, initiate, or encourage the submission of, any
Acquisition Proposal (as hereinafter defined) or (ii) enter into any agreement
with respect to any Acquisition Proposal, participate in any discussions or
negotiations regarding, or furnish to any person any information for the
purpose of facilitating the making of, or take any other action to facilitate
any inquiries or the making of, any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. Atlantes is
required to promptly advise Metromail of any Acquisition Proposal and any
inquiries with respect to any Acquisition Proposal. For purposes of this
Agreement, "Acquisition Proposal" means any proposal for a merger or other
business combination involving Atlantes or any of its affiliates or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in Atlantes or any of its affiliates, any voting securities of
Atlantes or any of its affiliates or a substantial portion of the assets of
Atlantes.
Each of the parties has agreed to use its reasonable best efforts not to
take any action, or to enter into any transaction, which would cause any of
its representations or warranties contained in the Merger Agreement to be
untrue or to result in a breach of any of its covenants in the Merger
Agreement. Each party has agreed to promptly notify the other parties of any
action, suit or proceeding that shall be instituted or threatened against such
party to restrain, prohibit or otherwise challenge the legality of any
transaction contemplated by the Merger Agreement. Metromail has agreed to
promptly advise Atlantes in writing of any change or event having a Material
Adverse Effect (as defined in the Merger Agreement) on Metromail and its
subsidiaries taken a whole. Atlantes has agreed to promptly advise Metromail
in writing of (i) any change or event having a Material Adverse Effect on
Atlantes, (ii) any notice or other communication from any third person
alleging that the consent of such third person is or may be required in
connection with the transactions contemplated by the Merger Agreement, and
(iii) any material default under certain Atlantes agreements or an event
which, with notice or lapse of time or both, would become such a default on or
prior to the Effective Time and of which Atlantes has knowledge.
CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of Metromail, Mergerco and Atlantes to effect the
Merger are subject, among other things, to the fulfillment or waiver, prior to
the Effective Time, of the following conditions (which conditions are subject,
in certain cases, to specific exceptions): (i) the approval of the Merger
Agreement by the
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requisite vote of the holders of Atlantes Common Stock; (ii) the authorization
for listing on NYSE, upon official notice of issuance, of the Metromail Common
Stock issuable in the Merger; (iii) receipt of certain governmental approvals;
(iv) the effectiveness of the Registration Statement in accordance with the
provisions of the Securities Act, no issuance of a stop order suspending the
effectiveness of the Registration Statement by the SEC and the receipt of all
necessary state securities law authorizations; and (v) no temporary
restraining order, preliminary or permanent injunction or other order issued
by a court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, and no action,
suit, investigation or proceeding shall have been instituted or threatened to
restrain or prohibit or otherwise challenge the legality or validity of the
transactions contemplated by the Merger Agreement.
Metromail's and Mergerco's obligations to consummate the Merger are subject
to the fulfillment or waiver, prior to the Effective Time, of the following
conditions: (i) there having been no material breach by Atlantes in the
performance of its covenants and agreements; (ii) all representations and
warranties of Atlantes contained in the Merger Agreement shall have been and
continue to be true and correct in all material respects; (iii) Atlantes must
have received consents, in form and substance reasonably satisfactory to
Mergerco and Metromail, to the transactions contemplated hereby from the other
parties to certain contracts, leases, agreements and permits to which Atlantes
is a party or by which Atlantes or any of its assets is affected; (iv) the
absence since the date of the Merger Agreement of any (A) change or event
having a Material Adverse Effect on Atlantes, (B) material adverse federal or
state legislative or regulatory change affecting Atlantes's business or its
products or services; or (C) material damage to Atlantes's assets by fire,
flood, casualty, act of God or the public enemy or other cause, regardless of
insurance coverage for such damage; (v) Metromail having received comfort
letters addressed to Metromail from Arthur Andersen LLP, the independent
public accountants for Metromail and for Atlantes, dated (A) the date of
mailing of this Proxy Statement/Prospectus to the shareholders of Atlantes and
(B) the Effective Date, in each case in form and substance reasonably
satisfactory to Metromail, covering such matters as Metromail shall reasonably
request; (vi) Metromail having received an opinion of Sidley & Austin related
to certain tax matters; (vii) Atlantes having delivered to Metromail, not more
than 20 days prior to the Effective Date, a certificate to certain tax matters
and, on the Effective Date, a notification to the Internal Revenue Service
signed by a responsible corporate officer of Atlantes; (viii) holders of not
more than 1% of Atlantes Common Stock then outstanding shall have (A)
delivered to Atlantes, before the Atlantes Shareholder Meeting, a written
notice of intention to demand payment of their shares of Atlantes Common Stock
pursuant to Article 113, Section 201, of the CBCA and (B) not voted in favor
of or consented to the Merger; (ix) the approval of the Parachute Proposal by
the holders of more than 75% of the outstanding shares of Atlantes Common
Stock (other than the shares held by those persons who may be recipients of
payments that could constitute "parachute payments"); (x) Atlantes having
received the written acknowledgment and consent of each holder of an Atlantes
Stock Option outstanding as of the Effective Time as to the conversion of such
Atlantes Stock Options as described herein; (xi) Atlantes having received the
written acknowledgment and consent of each holder of an Atlantes Warrant
outstanding as of the Effective Time as to the conversion of such Atlantes
Warrants as described herein; (xii) Metromail having received the written
agreements from certain affiliates of Atlantes described under "THE MERGER--
Resales of Metromail Common Stock;" (xviii) termination of the Loan and
Security Agreement dated as of March 12, 1997, by and between Silicon Valley
Bank and Atlantes and release of the encumbrances arising thereunder; and
(xix) Atlantes having delivered to Metromail a certificate or certificates,
dated as of the Effective Time, executed by the President or any Vice
President of Atlantes, to the effect that the conditions set forth in (i),
(ii), (iv) and (viii) above have been satisfied.
The obligations of Atlantes under the terms of the Merger Agreement are
subject to the fulfillment or waiver, prior to the Effective Time, of the
following conditions: (i) there having been no material breach by Metromail or
Mergerco in the performance of their respective covenants and agreements; (ii)
all representations and warranties of Metromail and Mergerco contained in the
Merger Agreement shall have been and continue to be true and correct in all
material respects; (iii) the absence since the date of the Merger Agreement of
any change or event having a Material Adverse Effect on Metromail and its
subsidiaries taken as a whole; (iv) Atlantes having received comfort letters
addressed to Atlantes from Arthur Andersen LLP, the independent public
accountants for Metromail and for Atlantes, dated (A) the date of mailing of
this Proxy Statement/
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Prospectus to the shareholders of Atlantes and (B) the Effective Date, in each
case in form and substance reasonably satisfactory to Atlantes, covering such
matters as Atlantes shall reasonably request; (v) Atlantes having received an
opinion of Holland & Hart, LLP related to certain tax matters; and (vi)
Metromail and Mergerco having delivered to Atlantes a certificate or
certificates, dated as of the Effective Time, executed by the President or any
Vice President of Metromail and Mergerco, respectively, to the effect that the
conditions set forth in (i), (ii), and (iii) above have been satisfied.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval by the shareholders of Atlantes of
the Merger Agreement or the Parachute Proposal:
(i) by mutual written consent of Metromail and Atlantes;
(ii) by either Metromail or Atlantes if (A) the other (or Mergerco if
Atlantes is the terminating party) has failed to comply in any material
respect with any of its covenants or agreements contained in the Merger
Agreement required to be complied with prior to the date of such
termination or materially breaches any representation or warranty that is
not qualified as to materiality or breaches any representation or warranty
that is so qualified (in each case after a five business day cure period
following notice of such breach) or (B) the shareholders of Atlantes have
failed to approve the Merger at the Atlantes Special Meeting; or
(iii) by either Metromail or Atlantes if (A) the Merger has not been
effected on or prior to the close of business on August 31, 1997; provided,
however, that the right to terminate the Merger Agreement pursuant to this
clause is not available to any party whose willful failure to fulfill any
obligations of the Merger Agreement has been the cause of, or resulted in,
the failure of the Merger to have occurred on or prior to the aforesaid
date, or (B) any court or other governmental entity having jurisdiction
over a party hereto shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable.
If the Merger Agreement is terminated pursuant to its terms, such
termination will be without liability of any party to any other party to the
Merger Agreement; provided, that if such termination results from the willful
breach by a party of the representations, warranties or covenants of such
party contained in the Merger Agreement, such party will be fully liable for
any and all damages, costs and expenses (including reasonable counsel fees)
sustained or incurred by the other party to the Merger Agreement.
FEES AND EXPENSES
The Merger Agreement provides that Metromail and Atlantes will each pay
their own respective costs and expenses incidental to the preparation of the
Merger Agreement, the performance of and compliance with all agreements and
conditions contained in the Merger Agreement and the consummation of the
transactions contemplated thereby, except that if the Merger is consummated,
Metromail will pay the fees of The Wallach Company. Metromail has the right to
offset against the Contingent Payment Amount, expenses incurred by Atlantes
with respect to legal and accounting fees and fees payable to The Wallach
Company in the event such expenses exceed amounts specified in the Merger
Agreement. See "--Contingent Shares."
AMENDMENT AND WAIVER; GOVERNING LAW
The Merger Agreement may be changed, waived, discharged or, except as stated
above, terminated only by an instrument in writing signed by the party or
parties against which enforcement of such change, waiver, discharge or
termination is sought.
The Merger Agreement shall be construed in accordance with and governed by
the laws of the State of Colorado.
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PARACHUTE PROPOSAL
Under the so-called "Golden Parachute" rules of Section 280G of the Code, a
company cannot deduct, and Section 4999 of the Code imposes a 20% non-
deductible excise tax on, certain compensatory payments made by a corporation
that are contingent upon a change in the control of the corporation. For this
purpose, the value of the acceleration of the vesting of otherwise unvested
stock options is treated as a payment of such compensation. The Golden
Parachute rules are applicable if two conditions (among others) are satisfied.
First, the compensatory payments must be made to a person to whom these rules
apply (an employee or independent contractor, in either case, who is an
officer of the company, who is a shareholder that owns stock having a value
equal to the lesser of $1 million or 1% of the value of the stock of the
company or who is "highly compensated"). Second, the amount of the payment
must generally exceed three times the person's average annual compensation for
the period consisting of the most recent five taxable years ending prior to
the date of the change in control.
The Merger will result in a change in control of Atlantes under the Golden
Parachute rules. Atlantes is not making any material cash payments to
employees to whom the Golden Parachute rules apply. Moreover, although
employment agreements are being entered into by Metromail with three of
Atlantes' key officers, these employment agreements are not paid in
consideration for anything other than services to be rendered in the future
and are regarded by the parties as reasonable in light of the services to be
performed. Nevertheless, Atlantes will be treated as having made a payment
subject to these rules equivalent to the value (determined under Treasury
Regulations) of the acceleration of the vesting of employee stock options held
by persons subject to the Golden Parachute rules. Based upon proposed Treasury
Regulations, Atlantes has determined that in only one case does the value of
this acceleration exceed three times the average annual salary of a person to
whom these rules would apply.
Jeffrey Schutz, a non-employee director of Atlantes, holds vested options to
acquire 3,600 shares of Atlantes Common Stock and holds unvested options to
acquire 2,400 shares of Atlantes Common Stock. The options for 1,200 shares
would vest on October 21, 1997 in the absence of the Merger, and the remaining
options would otherwise vest on October 21, 1998. The vested and unvested
options were issued to Mr. Schutz on October 21, 1994. These options,
consistent with all the options issued to Atlantes' employees, were subject to
a four-year vesting schedule, with 20% of the options becoming vested on the
date of grant and 20% on each anniversary of the date of the grant of the
options. Any unvested options would have been terminated if Mr. Schutz had
ceased to be a director. The exercise price of the options is $1.50 per share,
a price that was determined consistent with the manner in which Atlantes
priced the exercise prices at which options were granted to other employees.
The anticipated change in control of Atlantes resulting from the Merger will
accelerate the vesting of the options held by Mr. Schutz, which acceleration
will be subject to the Golden Parachute rules. Mr. Schutz has served as
director without compensation. Because Mr. Schutz has served without
compensation, his average annual compensation prior to the change in control
effectuated by the Merger will be $0, and any value of the acceleration of the
vesting of his unvested options would be subject to the Golden Parachute
rules.
A non-publicly traded company (such as Atlantes) can avoid the Golden
Parachute rules if appropriate approval for payments are made by a vote of
shareholders who own, immediately before the change in control, more than 75%
(by voting power) of the corporation's stock and who receive full and truthful
disclosure of the material facts and such additional information as is
necessary to make the disclosure not materially misleading at the time the
disclosure was made. In order to avoid the effect of the Golden Parachute
rules under this shareholder approval rule, proposed Treasury Regulations
require that a shareholder vote must determine the right of the particular
person to retain the payment (in this case the acceleration of the vesting of
options to acquire 2,400 shares). Accordingly, at the Atlantes Special
Meeting, shareholders of Atlantes will be asked to approve the Parachute
Proposal. Approval of the Parachute Proposal will require the affirmative vote
of the holders of at least 75% of the shares of Atlantes Common Stock
outstanding immediately prior to the Merger, disregarding shares owned by Mr.
Schutz. If the holders of all outstanding Atlantes Warrants were to exercise
such warrants prior to the Effective Time (assuming no holders of Atlantes
Stock Options were to exercise such options), the holders of approximately 91%
of the shares of Atlantes Common Stock outstanding on the Atlantes Record Date
(disregarding shares held by Mr. Schutz) would be required to approve the
Parachute Proposal.
THE ATLANTES BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF ATLANTES
VOTE IN FAVOR OF APPROVAL OF THE PARACHUTE PROPOSAL.
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It is a condition to the obligations of Metromail to proceed with the Merger
that the Parachute Proposal be approved by holders of more than 75% of the
outstanding shares of Atlantes Common Stock (other than shares held by certain
disqualified persons). See "THE MERGER AGREEMENT--Conditions Precedent to the
Merger."
VOTING AGREEMENTS
CVM Equity Fund III, Ltd. and CVM Equity Fund IV, Ltd., being the holders,
in the aggregate, of 193,760 shares of Atlantes Common Stock outstanding at
the close of business on the Atlantes Record Date (approximately 40.6% of the
shares of Atlantes Common Stock then outstanding), have signed agreements
obligating them to vote in favor of approval of the Merger Agreement and the
Parachute Proposal and against (i) any action or agreement that would result
in a breach of any covenant, representation or warranty, or any other
obligation or agreement, of Atlantes under the Merger Agreement and (ii) any
action that is intended, or that could be reasonably expected, to impede,
interfere with, delay, postpone or discourage, or adversely affect the
contemplated economic benefits to Metromail of the Merger and the actions or
transactions contemplated by the Merger Agreement.
DESCRIPTION OF METROMAIL COMMON STOCK
The statements set forth under this heading with respect to the DGCL, the
Metromail Certificate of Incorporation, the Metromail By-laws and the Rights
Agreement dated as of February 24, 1997 (the "Metromail Rights Agreement")
between Metromail and American Stock Transfer and Trust Company, as Rights
Agent (copies of which have been filed as Exhibits to the Registration
Statement) are summaries thereof and do not purport to be complete; such
statements are subject to the detailed provisions of the DGCL, the Metromail
Certificate of Incorporation, the Metromail By-laws and the Metromail Rights
Agreement. See "AVAILABLE INFORMATION."
The authorized capital stock of Metromail consists of 75,000,000 shares of
Metromail Common Stock and 20,000,000 shares of Preferred Stock, par value
$.01 per share (the "Metromail Preferred Stock"), of which 75,000 shares have
been designated as Metromail Series A Preferred Stock. At May 31, 1997,
22,256,900 shares of Metromail Common Stock were issued and outstanding,
2,700,000 shares of Metromail Common Stock were reserved for issuance pursuant
to various stock plans and 180,100 shares of Metromail Common Stock were held
as treasury stock. At May 31, 1997, no shares of Metromail Preferred Stock
were issued and 75,000 shares of Metromail Series A Preferred Stock were
reserved for issuance upon exercise of the Metromail Rights.
METROMAIL COMMON STOCK
Holders of Metromail 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
Metromail Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Metromail 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 Metromail Preferred Stock. Upon
the liquidation, dissolution or winding up of Metromail, the holders of
Metromail Common Stock are entitled to receive ratably the net assets of
Metromail available after the payment of all debts and other liabilities and
subject to the prior rights of holders of any outstanding Metromail Preferred
Stock. Holders of Metromail Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Metromail Common
Stock are, and the shares of Metromail Common Stock issued pursuant to the
Merger will be, when issued, fully paid and nonassessable. The rights,
preferences and privileges of holders of Metromail Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of Metromail Preferred Stock which Metromail may designate and
issue in the future.
METROMAIL PREFERRED STOCK
The Board of Directors of Metromail 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 Metromail Preferred Stock in one
or more classes or series and to fix or alter the designations, powers,
preferences, rights and any
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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 Metromail 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
Metromail. See "--Certain Charter and By-law Provisions; Metromail Rights
Agreement."
CERTAIN CHARTER AND BY-LAW PROVISIONS; METROMAIL RIGHTS AGREEMENT
Certain provisions of the Metromail Certificate of Incorporation and
Metromail 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 Metromail 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
Metromail. Moreover, under the DGCL, in the case of a corporation having a
classified board of directors, the stockholders may remove a director only for
cause. These provisions, when coupled with provisions of the Metromail
Certificate of Incorporation authorizing only the Board of Directors to fill
vacant directorships, will preclude stockholders of Metromail 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 Metromail 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 Metromail.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The Metromail 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 Metromail 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 Metromail 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 Metromail Certificate of Incorporation does not allow the stockholders
of Metromail 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
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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 Metromail Certificate of Incorporation,
Metromail has expressly elected not to be governed by Section 203; provided
that this election does not apply to a business combination between Metromail
and R.R. Donnelley.
Limitations of Liability
The Metromail 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
Metromail 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 Metromail or its stockholders, (ii) actions or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) payment of an improper dividend or improper repurchase of
Metromail'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 Metromail 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 Metromail Certificate of Incorporation
does not eliminate its directors' duty of care. The inclusion of this
provision in the Metromail 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 Metromail 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 Metromail By-laws also provide that Metromail will indemnify its
directors and officers to the fullest extent permitted by Delaware law.
Metromail 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 Metromail or another entity that the
director or officer serves at Metromail'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 Metromail's
best interest.
Metromail Rights Agreement
Pursuant to the Metromail Rights Agreement, each holder of an outstanding
share of Metromail Common Stock has received, and each person receiving a
share of Metromail Common Stock issued after the close of business on March 7,
1997 (the "Record Date") and prior to the earliest of the Distribution Date
(as defined below), the redemption of the Metromail Rights, the exchange of
the Metromail Rights and the expiration of the Metromail Rights (and, in
certain cases, following the Distribution Date), will receive one Metromail
Right. Each Metromail Right entitles the registered holder to purchase from
Metromail one one-thousandth of a share of Metromail Series A Preferred Stock
at a price of $100 per one one-thousandth of a preferred share (the "Metromail
Purchase Price"), subject to adjustment.
Metromail Rights will be evidenced by certificates representing Metromail
Common Stock and not by separate certificates until the earlier to occur of
(i) the expiration of Metromail's redemption right following the date of
public disclosure that a person other than an Exempt Person (as defined below)
(an "Acquiring Person"), together with persons affiliated or associated with
such Acquiring Person, has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding Metromail Common Stock
(the "Stock Acquisition Date") or (ii) the tenth business day after the date
of commencement or public disclosure of an intention to commence a tender
offer or exchange offer by a person other than an Exempt Person if, upon
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consummation of the offer, such person could acquire beneficial ownership of
15% or more of the outstanding Metromail Common Stock (the earlier of such
dates being called the "Distribution Date"). The Metromail Rights Agreement
provides that, until the Distribution Date (or earlier redemption, exchange or
expiration of the Metromail Rights), the Metromail Rights will be transferred
with and only with the Metromail Common Stock. Until the Distribution Date (or
earlier redemption, exchange or expiration of the Metromail Rights), new
certificates evidencing Metromail Common Stock issued after March 7, 1997,
upon transfer or new issuance of Common Stock, will contain a notation
incorporating the Metromail Rights Agreement by reference. Until the
Distribution Date (or earlier redemption, exchange or expiration of the
Metromail Rights) the surrender for transfer of any certificate for Metromail
Common Stock, with or without such notation, will also constitute the transfer
of the Metromail Rights associated with the Metromail Common Stock represented
by such certificate. As soon as practicable following the Distribution Date,
separate certificates evidencing the Metromail Rights ("Metromail Right
Certificates") will be mailed to holders of record of Metromail Common Stock
as of the close of business on the Distribution Date, and such separate
Metromail Right Certificates alone will evidence the Metromail Rights.
The Metromail Rights will first become exercisable after the Distribution
Date (unless sooner redeemed or exchanged). The Metromail Rights will expire
at the close of business on March 7, 2007 (the "Expiration Date"), unless
earlier redeemed or exchanged by Metromail as described below.
The Metromail Purchase Price payable, and the number of shares of Metromail
Series A Preferred Stock or other securities, cash or other property issuable,
upon exercise of the Metromail Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend or distribution
on, or a subdivision, combination or reclassification of, the Metromail Series
A Preferred Stock, (ii) upon the grant to holders of Metromail Series A
Preferred Stock of certain rights, options or warrants to subscribe for shares
of Metromail Series A Preferred Stock or securities convertible into shares of
Metromail Series A Preferred Stock at less than the current market price of
the Preferred Shares or (iii) upon the distribution to holders of shares of
Metromail Series A Preferred Stock of evidences of indebtedness or assets
(excluding regular periodic cash dividends) or of subscription rights or
warrants (other than those referred to above). In addition, the Metromail
Purchase Price payable and the number of shares of Metromail Series A
Preferred Stock purchasable, on exercise of a Metromail Right is subject to
adjustment in the event that Metromail should (i) declare or pay any dividend
on the Metromail Common Stock payable in Metromail Common Stock or (ii) effect
a subdivision or combination of Metromail Common Stock into a different number
of shares of Metromail Common Stock.
In the event that there is public disclosure that an Acquiring Person has
become such, proper provision will be made so that each holder of a Metromail
Right, other than Metromail Rights that are (or were under certain
circumstances) beneficially owned by the Acquiring Person and certain related
persons and transferees (which will thereafter be void), on or after the
earlier of the Distribution Date and the first public disclosure that an
Acquiring Person has become such, will thereafter have the right to receive
upon exercise that number of shares of Metromail Common Stock (or other
securities) having (as of the date of occurrence of the triggering event) a
market value of two times the exercise price of a Metromail Right. In
addition, Metromail's Board of Directors has the option of exchanging all or
part of the Metromail Rights (excluding void Metromail Rights) for Metromail
Common Stock on a one-for-one basis in the manner described in the Metromail
Rights Agreement. In the event that, at any time following public disclosure
that an Acquiring Person has become such, Metromail is involved in a merger or
other business combination transaction where Metromail is not the surviving
corporation or where Metromail Common Stock is changed or exchanged or in a
transaction or transactions where 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
Metromail Right (other than the Acquiring Person and certain related persons
or transferees) shall thereafter have the right to receive, upon the exercise
thereof at the then current exercise price of the Metromail Right, that number
of shares of common stock of the acquiring company or Metromail, as the case
may be, which at the time of such transaction would have a market value of two
times the exercise price of the Metromail Right.
No adjustment in the Metromail Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Metromail
Purchase Price. No fractional shares of Metromail Series A
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Preferred Stock will be issued (other than fractions which are integral
multiples of one one-thousandth of a shares of Metromail Series A Preferred
Stock, which may, at the election of Metromail, be evidenced by depositary
receipts) and in lieu thereof an adjustment in cash will be made based on the
market price of the shares of Metromail Series A Preferred Stock on the last
trading date prior to the date of exercise.
At any time prior to public disclosure that an Acquiring Person has become
such, the Board of Directors of Metromail may redeem the Metromail Rights in
whole, but not in part, at a price of $.01 per Metromail Right (the
"Redemption Price"), payable in cash, shares (including fractional shares of
Metromail Common Stock or any other form of consideration deemed appropriate
by the Board of Directors. Immediately upon action of the Board of Directors
ordering redemption of the Metromail Rights, the ability of holders to
exercise the Metromail Rights will terminate and the only right of such
holders will be to receive the Redemption Price.
At any time prior to a public disclosure that an Acquiring Person has become
such, the Board of Directors of Metromail may amend or supplement the
Metromail Rights Agreement, including without limitation, the beneficial
ownership percent at which a person becomes an Acquiring Person and the
definition of exempt person to include any person in addition to persons
described therein, without the approval of the Rights Agent or any holder of
the Metromail Rights, except for an amendment or supplement which would change
the Redemption Price. Thereafter, the Board of Directors of Metromail may
amend or supplement the Metromail Rights Agreement without such approval only
to cure ambiguity, correct or supplement any defective or inconsistent
provision or change or supplement the Metromail Rights Agreement in any manner
which will not adversely affect the interests of the holders of the Metromail
Rights (other than an Acquiring Person or an affiliate or associate thereof).
Immediately upon the action of the Metromail Board of Directors providing for
any amendment or supplement, such amendment or supplement will be deemed
effective.
The shares of Metromail Series A Preferred Stock purchasable upon exercise
of the Metromail Rights will not be redeemable. Each share of Metromail Series
A Preferred Stock will be entitled to a minimum preferential quarterly
dividend payment equal to the greater of $25 per share and 1,000 times the
dividend declared per share of Metromail Common Stock. In the event of
liquidation, the holders of the shares of Metromail Series A Preferred Stock
will be entitled to a minimum preferential liquidation payment equal to the
greater of $100 per share and 1,000 times the payment made per share of
Metromail Common Stock. Each share of Metromail Series A Preferred Stock will
have 1,000 votes per share, voting together with the Metromail Common Stock.
In the event of any merger, consolidation or other transaction in which the
Metromail Common Stock is exchanged, each share of Metromail Series A
Preferred Stock will be entitled to receive 1,000 times the amount received
per share of Metromail Common Stock. The rights described in this paragraph
are protected by customary antidilution provisions.
The Metromail Rights have certain anti-takeover effects. The Metromail
Rights may cause substantial dilution to a person that attempts to acquire
Metromail on terms not approved by the Board of Directors of Metromail, except
pursuant to an offer conditioned on a substantial number of Metromail Rights
being acquired. The Metromail Rights should not interfere with any merger or
other business combination approved by the Board of Directors prior to the
time a person has acquired beneficial ownership of 15% or more of Metromail
Common Stock, because until such time the Metromail Rights may generally be
redeemed by Metromail at $.01 per Metromail Right.
Exempt Persons include R.R. Donnelley so long as (i) R.R. Donnelley is the
beneficial owner in the aggregate of not less than 15% of the outstanding
common stock of Metromail and (ii) the aggregate beneficial
ownership of R.R. Donnelley of the Metromail Common Stock is not in excess of
the base percentage owned by them at a specified time plus 2%. Exempt persons
also include certain transferees of R.R. Donnelley which beneficially own less
than 20% of the outstanding Metromail Common Stock.
Until a Metromail Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Metromail, including, without limitation, the
right to vote or to receive dividends.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Metromail Common Stock is American
Stock Transfer and Trust Company.
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COMPARISON OF THE RIGHTS OF
HOLDERS OF METROMAIL COMMON STOCK
AND ATLANTES COMMON STOCK
The statements set forth under this heading with respect to the CBCA, the
DGCL, the Atlantes Charter, the Atlantes By-laws, the Metromail Certificate of
Incorporation, the Metromail By-laws and the Metromail Rights Agreement
(copies of which have been filed as Exhibits to the Registration Statement)
are brief summaries and do not purport to be complete; such statements are
subject to the detailed provisions of the CBCA, the DGCL, the Atlantes
Charter, the Atlantes By-laws, the Metromail Certificate of Incorporation, the
Metromail By-laws and the Metromail Rights Agreement. See "AVAILABLE
INFORMATION."
The following summary compares certain rights of the holders of Atlantes
Common Stock to the rights of the holders of Metromail Common Stock. The
rights of Atlantes shareholders are governed principally by the CBCA, the
Atlantes Charter and the Atlantes By-laws. Upon effectiveness of the Merger,
such shareholders will become holders of Metromail Common Stock and their
rights will be governed principally by the DGCL, the Metromail Certificate of
Incorporation and the Metromail By-laws.
DIVIDEND RIGHTS
The rights of Atlantes shareholders and Metromail stockholders with respect
to the receipt of dividends are substantially the same. See "DESCRIPTION OF
METROMAIL COMMON STOCK--Metromail Common Stock" and "SUMMARY--Market Prices
and Dividends Paid."
Under the CBCA, a corporation may make a distribution to its shareholders
unless, after giving effect to such distribution, (i) the corporation would
not be able to pay its debts as they become due in the usual course of
business, or (ii) the corporation's total assets would be less than the sum of
its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to
those receiving the distribution.
Under the DGCL, a corporation may pay dividends out of surplus (defined as
the excess, if any, of net assets over capital) or, if no such surplus exists,
out of its net profits for the fiscal year in which such dividends are
declared and/or for its preceding fiscal year, provided that dividends may not
be paid out of net profits if the capital of such corporation is less than the
aggregate amount of capital represented by the outstanding stock of all
classes having a preference upon the distribution of assets.
VOTING RIGHTS
Each share of Atlantes Common Stock and each share of Metromail Common Stock
entitles holders thereof to one vote on each matter submitted to a vote of
such holders. Neither the holders of shares of Atlantes Common Stock nor the
holders of shares of Metromail Common Stock have cumulative voting rights in
the election of directors.
Under the CBCA, directors are elected by a plurality of the votes cast.
Pursuant to the Atlantes By-laws, other matters submitted to a vote of the
Atlantes shareholders require for approval the affirmative vote of a majority
of the shares represented at the meeting and entitled to vote on the subject
matter. However, the transitional provisions of the CBCA impose a two-thirds
voting requirement on certain actions, including actions to approve an
amendment to the Atlantes Charter and actions to approve a merger or plan of
share exchange. See "--Amendment to Charter Document" and "--Approvals of
Mergers and Asset Sales." For information regarding the comparable voting
rights of the holders of Metromail Common Stock, see "DESCRIPTION OF METROMAIL
COMMON STOCK--Metromail Common Stock."
DIRECTORS
Number and Election of Directors; Removal. Under both the CBCA and the DGCL,
the charter document, and the by-laws of a corporation may specify the number
of directors. The Atlantes Charter provides that the
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number of directors shall be no less than 3 (unless there are fewer than 3
shareholders of record). The Atlantes By-laws provide that the Atlantes Board
shall consist of not less than 3 nor more than 7 directors, each serving for a
term of one year, with the Atlantes shareholders and the Atlantes Board having
the authority to determine the exact number of directors. Any vacancy
occurring in the Atlantes Board or newly created directorship may be filled by
the affirmative vote of the remaining directors. The Atlantes By-laws also
provide that directors may be removed from office as provided by the CBCA.
Under the CBCA, the shareholders may remove a director under limited
circumstances either with or without cause. Atlantes has contractually agreed
that CVM Equity Fund III, Ltd. and CVM Equity Fund IV, Ltd. shall together
have the right to nominate and elect one member of the Atlantes Board so long
as either entity is a shareholder of Atlantes.
For information regarding the number, election, removal and nomination of
Metromail Directors and the classification of the Metromail Board, see "Board
of Directors" under "DESCRIPTION OF METROMAIL COMMON STOCK--Certain Charter
and By-law Provisions; Metromail Rights Agreement."
Fiduciary Duties of Directors. Under the CBCA, a director is required to
perform his or her duties as a director, including the duties as a member of
any committee of the directors upon which such director may serve, in good
faith, with the care that an ordinarily prudent person in a like position
would use under similar circumstances and in a manner such director reasonably
believes to be in the best interests of the corporation.
Under the DGCL, the business and affairs of a corporation are managed by or
under the direction of its board of directors. In exercising their powers,
directors are charged with an unyielding fiduciary duty to protect the
interests of the corporation and to act in the best interests of its
stockholders. In recognition of the managerial prerogatives granted to the
directors of a Delaware corporation, Delaware law presumes that, in making a
business decision, such directors are disinterested and act on an informed
basis, in good faith and in the honest belief that the action taken was in the
best interests of such corporation, which presumption is known as the
"business judgment rule." A party challenging the propriety of a decision of a
board of directors bears the burden of rebutting the applicability of the
presumption of the business judgment rule by demonstrating that, in reaching
their decision, the directors breached one or more of their fiduciary duties--
good faith, loyalty and due care. If the presumption is not rebutted, the
business judgment rule attaches to protect the directors and their decisions,
and their business judgments will not be second guessed. Where, however, the
presumption is rebutted, the directors bear the burden of demonstrating the
entire fairness of the relevant transaction. Notwithstanding the foregoing,
Delaware courts subject directors' conduct to enhanced scrutiny in respect of
defensive actions taken in response to a threat to corporate control and
approval of a transaction resulting in a sale of such control.
Liability of Directors. Both the CBCA and the DGCL permit a corporation to
limit the personal liability of its directors, with specified exceptions.
Under the CBCA, the articles of incorporation may provide that a director
shall not be liable for monetary damages for breach of fiduciary duty as a
director, provided, however, that such limitation of liability shall not apply
to any breach of the director's duty of loyalty to the corporation or to its
shareholders, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, the payment of unlawful
distributions to shareholders as set forth in Section 7-108-403 of the CBCA or
any transaction from which the director directly or indirectly derived an
improper personal benefit. The Atlantes Charter does not limit the liability
of its directors.
The DGCL permits a corporation to include in its charter a provision
limiting or eliminating the liability of its directors to such corporation or
its stockholders for monetary damages arising from a breach of fiduciary duty,
except for: (i) a breach of the duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) a declaration of a
dividend or the authorization of the repurchase or redemption of stock in
violation of the DGCL or (iv) any transaction from which the director derived
an improper personal benefit. The Metromail Certificate of Incorporation
eliminates director liability to the fullest extent permitted by the DGCL. See
"DESCRIPTION OF METROMAIL COMMON STOCK--Certain Charter and By-law Provisions;
Metromail Rights Agreement--Limitations of Liability."
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CALL OF SPECIAL MEETINGS
Under the CBCA, a special meeting of shareholders may be called by (i) the
board of directors or the persons authorized by the bylaws or resolution of
the board of directors to call such meeting or (ii) the written demand of
holders of 10% of the outstanding shares of a corporation entitled to be cast
on any issue proposed to be considered at the meeting. The Atlantes By-laws
provide that special meetings of Atlantes shareholders may be called by the
President, the Atlantes Board or holders of 10% or more of the outstanding
shares.
The DGCL permits special meetings of stockholders to be called by the board
of directors and such other persons, including stockholders, as the
certificate of incorporation or bylaws may provide. The DGCL does not require
that stockholders be given the right to call special meetings.
Meetings of stockholders of Metromail may be called only by the Chairman of
the Board, the President, or the President or the Secretary at the written
request of a majority of the Board of Directors. "See "DESCRIPTION OF
METROMAIL COMMON STOCK--Certain Charter and By-law Provisions; Metromail
Rights Agreement--Special Meetings of Stockholders."
ACTION BY SHAREHOLDERS WITHOUT A MEETING
Under the CBCA, unless the articles of incorporation of such corporation
provide otherwise, any action that may be taken by shareholders at a meeting
may be taken without a meeting with the unanimous written consent of all
shareholders entitled to vote thereat. The Atlantes By-laws permit the
shareholders to so act by written consent in lieu of meeting.
The DGCL permits the stockholders of a corporation to consent in writing to
any action without a meeting, unless the certificate of incorporation of such
corporation provides otherwise, provided such consent is signed by
stockholders having at least the minimum number of votes required to authorize
such action at a meeting of stockholders at which all shares entitled to vote
thereon were present and voted. The Metromail Certificate of Incorporation
does not permit stockholders to act without a meeting. See "DESCRIPTION OF
METROMAIL COMMON STOCK--Certain Charter and By-law Provisions; Metromail
Rights Agreement--No Action by Written Consent of the Stockholders."
SHAREHOLDER PROPOSALS
The Metromail Certificate of Incorporation, but not the Atlantes Charter or
By-laws, restricts the manner in which nominations for Directors may be made
by stockholders. The Atlantes By-laws do not limit the ability of Atlantes
shareholders to bring other business before a meeting of shareholders. The
Metromail By-laws establish certain requirements that must be satisfied by a
stockholder in order to bring other business before a meeting of stockholders.
See "DESCRIPTION OF METROMAIL COMMON STOCK--Certain Charter and By-law
Provisions; Metromail Rights Agreement--Advance Notice Requirements for
Stockholder Proposals and Director Nominations."
AMENDMENT TO CHARTER DOCUMENT
To approve a charter amendment proposed by the Board, the CBCA requires,
unless the articles of incorporation, the by-laws or any action by the board
of directors requires a greater vote, that the votes cast favoring approval
exceed the votes cast against such proposal or, in cases in which class voting
is required, such approval by each class. The Atlantes By-laws specifies that
the affirmative vote of a majority of the shares represented at the meeting
shall be required to approve any matter presented at such meeting. However,
for corporations incorporated prior to June 30, 1994, Section 7-117-101(7) of
the CBCA provides that unless the articles of incorporation of such
corporation contain a provision establishing the vote of the shareholders
required to amend the articles of incorporation, such amendment shall be
approved by each voting group entitled to vote separately on the amendment by
two-thirds of all the votes entitled to be cast on the amendment by that
voting group. Atlantes was incorporated prior to June 30, 1994, and the
Atlantes Charter is silent as to the required vote for approving an amendment
to the Atlantes Charter. Thus, the two-thirds voting requirement is applicable
to Atlantes.
Under the DGCL and the Metromail Certificate of Incorporation, charter
amendments may generally be approved by the Metromail Board and the
affirmative vote of the holders of a majority of the outstanding shares of
voting stock entitled to vote thereon.
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AMENDMENT AND REPEAL OF BY-LAWS
With certain exceptions relating to quorum or voting requirements for
directors or shareholders, the CBCA provides that either the Board or the
shareholders may amend the by-laws. The Atlantes By-laws provide that they may
be altered, amended or repealed and new bylaws may be adopted by a majority of
the Atlantes Board present at any meeting of the Board of Directors at which a
quorum is present.
Under the DGCL, holders of a majority of the voting power of a corporation
and, when provided in the Charter, the directors of the corporation, have the
power to adopt, amend and repeal the by-laws of a corporation. The Metromail
Certificate of Incorporation grants the Metromail Board of Directors such
power.
APPROVAL OF MERGERS AND ASSET SALES
In addition to Board approval, the CBCA requires that mergers,
consolidations, dissolutions, and dispositions of all or substantially all of
a corporation's assets be approved, by each voting group entitled to vote
separately on such action, by a majority of all the votes entitled to be cast
on such proposal by that voting group unless the articles or the by-laws
specify a different proportion. The Atlantes Charter does not specify a
different proportion. However, for corporations incorporated prior to June 30,
1994, Section 7-117-101(8) of the CBCA provides that unless the articles of
incorporation of such corporation contain a provision establishing the vote of
the shareholders required to approve a plan of merger or a plan of share
exchange, such plan of merger or plan of share exchange shall be approved by
each voting group entitled to vote separately on the plan by two-thirds of all
the votes entitled to be cast on the plan by that voting group. Atlantes was
incorporated prior to June 30, 1994, and the Atlantes Charter is silent as to
the required vote for approving a plan of merger or plan of share exchange.
Thus, the two-thirds voting requirement is applicable to Atlantes.
Under the DGCL, unless required by its charter (the Metromail Certificate of
Incorporation contains no such requirement), no vote of the stockholders of a
constituent corporation surviving a merger is necessary to authorize a merger
if: (i) the agreement of merger does not amend the charter of such constituent
corporation; (ii) each share of stock of such constituent corporation
outstanding prior to such merger is to be an identical outstanding or treasury
share of the surviving corporation after such merger; (iii) either no shares
of common stock of the surviving corporation and no shares, securities or
obligations convertible into such common stock are to be issued under such
agreement of merger, or the number of shares of common stock issued or
initially issuable does not exceed 20% of the number thereof outstanding
immediately prior to such merger; and (iv) certain other conditions are
satisfied. In addition, the DGCL provides that a parent corporation that is
the record holder of at least 90% of the outstanding shares of each class of
stock of a subsidiary may merge such subsidiary into such parent corporation
without the approval of such subsidiary's stockholders or board of directors.
Whenever the approval of the stockholders of a corporation is required for an
agreement of merger or consolidation or for a sale, lease or exchange of all
or substantially all of its assets, such agreement, sale, lease or exchange
must be approved by the affirmative vote of the holders of a majority of
outstanding shares of such corporation entitled to vote thereon.
DISSENTERS' RIGHTS
Under the CBCA, dissenting shareholders are entitled to dissenters' rights
in connection with the sale, lease, exchange, transfer, or other disposition
of all or substantially all of the assets of a corporation and in certain
merger transactions. Shareholders of the surviving corporation are entitled to
dissenters' rights in any merger in which such shareholders are entitled to
vote on such merger. See "THE MERGER--Dissenters' Rights."
The DGCL provides for appraisal rights only in the case of certain mergers
or consolidations and not (unless the certificate of incorporation of a
corporation so provides, which the Metromail Certificate of Incorporation does
not) in the case of other mergers, a sale or transfer of all or substantially
all of its assets or an amendment to its charter. Moreover, the DGCL does not
provide appraisal rights in connection with a merger or consolidation (unless
the certificate of incorporation so provides, which the Metromail Certificate
of
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Incorporation does not) to the holders of shares of a constituent corporation
listed on a national securities exchange (or designated as a national market
system security by the National Association of Securities Dealers, Inc.) or
held of record by more than 2,000 stockholders, unless the applicable
agreement of merger or consolidation requires the holders of such shares to
receive, in exchange for such shares, any property other than shares of stock
of the resulting or surviving corporation, shares of stock of any other
corporation listed on a national securities exchange (or designated as
described above) or held of record by more than 2,000 holders, cash in lieu of
fractional shares or any combination of the foregoing. In addition, the DGCL
denies appraisal rights to the stockholders of the surviving corporation in a
merger if such merger did not require for its approval the vote of the
stockholders of such surviving corporation. See "--Approval of Mergers and
Asset Sales."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The CBCA provides that a corporation may indemnify, against liability
incurred in a proceeding, a person made a party to the proceeding because the
person is or was a director if: (i) the person conducted himself or herself in
good faith and reasonably believed (a) in the case of conduct in an official
capacity with the corporation, that his or her conduct was in the
corporation's best interests and (b) in all other cases, that his or her
conduct was not opposed to the corporation's best interests, and (ii) in the
case of any criminal proceeding, the person had no reasonable cause to believe
his or her conduct was unlawful. A Colorado corporation may not indemnify a
director (i) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation, or
(ii) in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in an
official capacity, in which proceeding the director was adjudged liable on the
basis that he or she derived an improper personal benefit. The Atlantes By-
laws provide that Atlantes shall indemnify to the full extent authorized or
permitted by law, any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director or officer of Atlantes or is or was serving at
the request of Atlantes in any capacity with any other corporation,
partnership, joint venture, trust or other enterprise.
Section 145 of the DGCL generally provides that a corporation may indemnify
its officers and directors who were or are a party to any action, suit, or
proceeding by reason of the fact that he was a director, officer, or employee
of the corporation by, among other things, a majority vote of a quorum
consisting of directors who were not parties to such action, suit, or
proceeding; provided that such officers and directors acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation. The Metromail Certificate of Incorporation
provides for indemnification of officers and directors to the fullest extent
permitted by Delaware law. The Metromail Certificate of Incorporation also
provides that Metromail may indemnify employees and agents of Metromail to the
fullest extent then permitted by Delaware law.
Additionally, under the DGCL, advancement of expenses is permitted, but a
person receiving such advances must undertake to repay those expenses if it is
ultimately determined that he or she is not entitled to indemnification. The
Metromail Certificate of Incorporation provides that Metromail will (in the
case of any action, suit, or proceeding against a director) or may (in the
case of any action, suit or proceeding against an officer, trustee, employee
or agent) pay expenses incurred in defending a proceeding in advance of the
final disposition of such proceeding as authorized by the Metromail Board upon
receipt of the undertaking described above.
ANTI-TAKEOVER PROVISIONS
There are no limitations under the CBCA with respect to interested
shareholder business combinations nor are there any restrictions in Atlantes
Charter or By-laws with respect to such interested shareholder transactions.
For information on such provisions of the DGCL, see "DESCRIPTION OF METROMAIL
COMMON STOCK--Certain Charter and By-law Provisions; Metromail Rights
Agreement--Delaware Takeover Statute."
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RIGHTS OF INSPECTION
Under both the CBCA and the DGCL, every stockholder, upon proper written
demand stating the purpose thereof and subject to certain other restrictions,
may inspect the corporate books and records as long as such inspection is for
a proper purpose and during normal business hours. Under both statutes, a
"proper purpose" is any purpose reasonably related to the interest of the
inspecting person as a stockholder.
LIQUIDATION RIGHTS
The rights of the holders of Atlantes Common Stock upon the liquidation or
dissolution of Atlantes are substantially the same as the holders of Metromail
Common Stock upon the liquidation or dissolution of Metromail. See
"DESCRIPTION OF METROMAIL COMMON STOCK--Metromail Common Stock."
DISSENTERS' RIGHTS
The following is a summary of Article 113 of the CBCA and the procedures for
Atlantes shareholders dissenting from the Merger Agreement and exercising
dissenters' rights. This summary is qualified in its entirety by reference to
Article 113 of the CBCA, which is attached hereto as Annex B. Annex B should
be reviewed carefully by any shareholder who wishes to exercise statutory
dissenters' rights or who wishes to preserve the right to do so. FAILURE
STRICTLY TO COMPLY WITH THE PROCEDURES SET FORTH IN ARTICLE 113 OF THE CBCA
WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
DISSENTERS' RIGHTS
Under Article 113 of the CBCA ("Article 113"), if the Merger Agreement is
approved and the Merger is consummated, holders of Atlantes Common Stock who
exercise their dissenters' rights in accordance with Article 113 will be
entitled to have the "fair value" of their shares paid to them in cash by
complying with the provisions of Article 113. The term "fair value" is defined
in Article 113 to mean the value of the shares immediately before the
Effective Time, excluding any appreciation or depreciation in anticipation of
the Merger except to the extent that exclusion would be inequitable. Reference
herein to "dissenters' rights" is a general reference to a shareholder's right
to dissent to the Merger and obtain payment for the shareholder's shares in
accordance with Article 113.
WHO MAY DISSENT
Each shareholder of Atlantes Common Stock may dissent to the Merger and
obtain payment of the fair value of the shareholder's shares by following the
procedures provided in Article 113 and summarized herein. The rights of the
shareholder may differ depending on whether the shareholder is a shareholder
of record holding shares for two or more beneficial shareholders or the
shareholder is a beneficial shareholder whose shares are held of record by one
or more record shareholders, as follows:
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the record shareholder's name only if the
record shareholder dissents with respect to all shares beneficially owned
by any one person and causes Atlantes to receive written notice which
states (1) such dissent and (2) the name, address, and federal taxpayer
identification number, if any, of each person on whose behalf the record
shareholder asserts dissenters' rights.
(b) A beneficial shareholder may assert dissenters' rights as to the
shares held on the beneficial shareholder's behalf only if (1) the
beneficial shareholder causes Atlantes to receive the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights, and (2) the beneficial shareholder
dissents with respect to all shares beneficially owned by the beneficial
shareholder.
Atlantes may require that, when a record shareholder dissents with respect
to the shares held by any one or more beneficial shareholders, each such
beneficial shareholder must certify to Atlantes that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial
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shareholder have asserted, or will timely assert, dissenters' rights as to all
such shares as to which there is no limitation on the ability to exercise
dissenters' rights. Any such requirement will be stated in the "Dissenters'
Notice" that is referred to below.
REQUIREMENTS TO BE MET BY A DISSENTER BEFORE THE VOTE ON THE MERGER AGREEMENT
IS TAKEN
A shareholder who wishes to assert dissenters' rights must (a) cause
Atlantes to receive, before the vote is taken on the Merger Agreement, written
notice of the shareholders' intention to demand payment for the shareholder's
shares if the Merger Agreement is approved (the "Shareholder's Notice of
Intent to Dissent") and (b) not vote the shares in favor of the Merger
Agreement. A shareholder who does not satisfy the foregoing requirements is
not entitled to demand payment for the shareholder's shares under Article 113.
NOTICE REQUIRED TO BE GIVEN BY ATLANTES TO DISSENTING SHAREHOLDERS IF THE
MERGER AGREEMENT IS APPROVED
If the Merger Agreement is approved, Atlantes will give a written
dissenters' notice (the "Dissenters' Notice") to each shareholder who has
complied with the provisions summarized above and who is entitled to demand
payment for shares under Article 113. The Dissenters' Notice may be given
before the Effective Date of the Merger and will in any event be given no
later than ten days after the Effective Date of the Merger. The Dissenters'
Notice will (a) state that the Merger Agreement was approved and state the
Effective Date or the proposed Effective Date of the Merger; (b) state an
address at which Atlantes will receive a Payment Demand (as defined below) and
the address of a place where certificates for certificated shares must be
deposited; (c) supply a Payment Demand form for demanding payment for shares,
which form will request the shareholder to state an address to which payment
is to be made; (d) set the date (the "Payment Demand Date") by which Atlantes
must receive the Payment Demand and certificates for shares, which Payment
Demand Date will not be less than thirty days after the date the Dissenters'
Notice is given; (e) if Atlantes has chosen to impose such a requirement,
state that, when a record shareholder dissents with respect to the shares held
by any one or more beneficial shareholders, each shareholder, and the record
shareholder or record shareholders of all shares owned beneficially by the
beneficial shareholder, have asserted, or will timely assert, dissenters'
rights as to all such shares as to which there is no limitation on the ability
to exercise dissenters' rights; and (f) be accompanied by a copy of Article
113.
DISSENTER'S PROCEDURES TO DEMAND PAYMENT
If the shareholder has given a Shareholder's Notice of Intent to Dissent in
accordance with the provisions summarized above and wishes to assert the
shareholder's dissenters' rights (such a person being referred to in this
summary as a "Dissenter"), the Dissenter must (a) cause Atlantes to receive a
payment demand (the "Payment Demand," which may, but need not, be on the
Payment Demand form provided by Atlantes with the Dissenter's Notice), duly
completed, and (b) deposit the Dissenter's certificates for shares. A
Dissenter will have all rights of a shareholder, except the right to transfer
the shares, until the Effective Date of the Merger but will have, after the
Effective Date of the Merger, only the right to receive payment of the shares
as to which payment has been demanded.
The Payment Demand and deposit of certificates by a Dissenter will be
irrevocable unless (1) the Effective Date has not occurred within sixty days
after the Payment Demand Date, or (2) Atlantes fails to make payment to the
Dissenter, within sixty days after the Payment Demand Date, of the amount
Atlantes estimates to be the fair value of the Dissenter's shares, plus
accrued interest. If the Effective Date of the Merger is more than sixty days
after the Payment Demand Date, then Atlantes will be required to send a new
Dissenters' Notice and the provisions summarized above will again be
applicable.
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If a Dissenter fails to demand payment and deposit certificates representing
the shares as to which dissent is made, as required by the Dissenters' Notice,
by the Payment Demand Date, the Dissenter will not be entitled to payment for
the shares under Article 113 and will become a shareholder in Metromail as if
the Dissenter has not exercised any dissenters' right.
PAYMENT FOR SHARES
Upon the Effective Date of the Merger, or upon receipt of a Payment Demand
given in accordance with the provisions of Article 113, whichever is later,
Atlantes will pay each Dissenter who has complied with the requirements for
demanding payment stated in Article 113, at the address stated in the Payment
Demand, or, if no such address is stated in the Payment Demand, at the address
shown on Atlantes's current record of shareholders for the record shareholder
holding the Dissenter's shares, the amount Atlantes estimates to be the fair
value of the Dissenter's shares, plus accrued interest. The payment will be
accompanied by: (a) Atlantes's balance sheet, statement of changes in
shareholders' equity, statement of cash flow and other financial statements
complying with the requirements of Section 7-113-206(2)(a); (b) a statement of
Atlantes's estimate of the fair value of the shares; (c) an explanation of how
the interest was calculated; (d) a statement of the Dissenter's right to
demand payment in accordance with the provisions of Article 113 regarding the
Dissenter's Responsive Notice summarized below; and (e) a copy of Article 113.
FAILURE TO EFFECT MERGER
If the Effective Date of the Merger does not occur within sixty days after
the Payment Demand Date, Atlantes will return the deposited certificates. If
the Effective Date of the Merger occurs more than sixty days after Payment
Demand Date, then Atlantes shall send a new Dissenters' Notice, as provided in
Section 7-113-203, and the appropriate provisions of Article 113 shall again
be applicable.
SHARES ACQUIRED AFTER ANNOUNCEMENT OF MERGER AGREEMENT
Atlantes may, in or with the Dissenters' Notice, state the date of the first
announcement to news media or to shareholders of the terms of the Merger
Agreement (the "Announcement Date") and state that the Dissenter must certify
in writing, in or with the Payment Demand, whether or not the Dissenter (or
the person on whose behalf the Dissenter asserts dissenters' rights) acquired
beneficial ownership of the shares before the Announcement Date. With respect
to any Dissenter who does not so certify in writing, in or with the Payment
Demand, that the Dissenter or the person on whose behalf the Dissenter asserts
dissenters' rights acquired beneficial ownership of the shares before the
Announcement Date, Atlantes may, in lieu of making payment for the shares,
offer to make such payment if the Dissenter agrees to accept the payment in
full satisfaction of the demand. Any such offer will include: (a) Atlantes's
balance sheet, statement of changes in shareholders' equity, statement of cash
flow and other financial statements complying with the requirements of Section
7-133-206(2)(a); (b) a statement of Atlantes's estimate of the fair value of
the shares; (c) an explanation of how the interest was calculated; (d) a
statement of the Dissenter's right to demand payment in accordance with the
provisions of Article 113 regarding the Dissenter's Responsive Notice
summarized below; and (e) a copy of Article 113.
PROCEDURE FOR DISSENTER TO FOLLOW IF DISSENTER IS DISSATISFIED WITH PAYMENT
MADE OR OFFERED BY ATLANTES
A Dissenter may give notice (the "Dissenter's Responsive Notice") to
Atlantes in writing of the Dissenter's estimate of the fair value of the
Dissenter's shares and of the amount of interest due and may demand payment of
such estimate (less any payment made by Atlantes as contemplated above) or may
reject Atlantes's offer made as contemplated above with respect to shares
acquired after the Announcement Date and may demand payment of the fair value
of the shares and interest due, if: (a) the Dissenter believes that the amount
paid or offered by
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Atlantes, as the case may be, is less than the fair value of the shares or
that the interest due was incorrectly calculated; (b) Atlantes fails to make
payment within sixty days after the Payment Demand Date, or (c) Atlantes does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares as required if the Effective Date of the
Merger has not occurred within sixty days after the Payment Demand Date. A
Dissenter waives the right to demand payment as outlined above unless the
Dissenter causes Atlantes to receive the Dissenter's Responsive Notice within
thirty days after Atlantes made or offered payment for the Dissenter's shares.
COURT ACTION FOR APPRAISAL
If the Dissenter's demand for payment pursuant to the Dissenter's Responsive
Notice remains unresolved, Atlantes may, within sixty days after receiving the
Dissenter's Responsive Notice, commence a proceeding and petition the district
court of Denver County, Colorado to determine the fair value of the
Dissenter's shares and accrued interest. If the Dissenter's demand for payment
remains unresolved within that sixty day period and Atlantes does not commence
the proceeding within that period, Atlantes must pay to the Dissenter the
amount demanded in the Dissenter's Responsive Notice.
Atlantes shall make all Dissenters whose demands remain thus unresolved
parties to the proceeding as in an action against their shares, and all
parties shall be served with a copy of the petition in the manner provided in
Article 113. The court may appoint one or more persons as appraisers to
receive evidence and recommend a decision on the question of fair value. The
appraisers have the powers described in the order appointing them, or in any
amendment to such order. The parties to the proceeding are entitled to the
same discovery rights as parties in other civil proceedings. Each Dissenter
made a party to the proceeding will be entitled to judgment for the amount, if
any, by which the court finds the fair value of the Dissenter's shares, plus
interest, exceeds the amount paid by Atlantes, or for the fair value, plus
interest, of the Dissenter's shares for which Atlantes elected to withhold
payment under the provisions outlined above.
The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court, and
will assess the costs against Atlantes; except that the court may assess costs
against all or some of the Dissenters, in amounts the court finds equitable,
to the extent the court finds the Dissenters acted arbitrarily, vexatiously,
or not in good faith in demanding payment. The court may also assess the fees
and expenses of counsel and experts for the respective parties, in amounts the
court finds equitable, (a) against Atlantes and in favor of any Dissenters if
the court finds Atlantes did not substantially comply with the requirements of
part 2 of Article 113; or (b) against either Atlantes or one or more
Dissenters, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights provided in
Article 113. If the court finds that the services of counsel for any Dissenter
were of substantial benefit to other Dissenters similarly situated, and that
the fees for those services should not be assessed against Atlantes, the court
may award to said counsel reasonable fees to be paid out of the amounts
awarded to the Dissenters who were benefitted.
THE ABOVE IS MERELY A SUMMARY OF ARTICLE 113 OF THE CBCA. THIS SUMMARY IS
QUALIFIED BY REFERENCE TO THOSE SECTIONS, WHICH ARE SET FORTH IN THEIR
ENTIRETY AS ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. ATLANTES SHAREHOLDERS
DESIRING TO EXERCISE DISSENTERS' RIGHTS SHOULD REFER TO THE FULL TEXT OF ANNEX
B AND SHOULD CONSULT COUNSEL SINCE FAILURE TO COMPLY STRICTLY WITH THE
PROVISIONS OF THE STATUTE WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
If holders of more than 1% of the shares of Atlantes Common Stock
outstanding immediately prior to the Effective Time properly exercise
dissenters' rights, Metromail will have the right to decline to consummate the
Merger. See "THE MERGER AGREEMENT--Conditions Precedent to the Merger."
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ADDITIONAL INFORMATION REGARDING METROMAIL
BUSINESS OF METROMAIL
GENERAL
Metromail is a leading provider of database marketing, direct marketing and
reference products and services in the United States and the United Kingdom.
Metromail helps its customers identify and reach targeted audiences utilizing
its comprehensive, proprietary consumer database encompassing more than 90% of
the households in the United States, as well as providing database marketing
software and related services. Metromail provides its information, information
services and software 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. Its clients include Fortune 500
companies, as well as numerous mid-size and small businesses.
Metromail was incorporated under the laws of the State of Delaware in 1979.
It is a successor to several predecessor businesses, including a list
development business that was started in 1946. Metromail became a public
company in 1984 and remained so until mid-1987 when it was acquired by R. R.
Donnelley. Metromail has made several acquisitions, including the acquisition
in 1994 of the assets of Customer Insight Company, a company that develops PC-
based marketing oriented database solutions ("CIC"). Data by Design, a
database marketing consulting service in the United Kingdom ("DBD"), and
International Communication & Data Plc, a compiler of lists in the United
Kingdom primarily through the use of surveys ("ICD"), were acquired by R. R.
Donnelley in 1994 and 1995, respectively. Metromail managed the United Kingdom
operations since their acquisition by R. R. Donnelley, with ownership being
transferred to Metromail in early 1996. On June 19, 1996, Metromail completed
an initial public offering of 13,800,000 shares of its common stock (the
"IPO"), resulting in the reduction of R. R. Donnelley's ownership in Metromail
to approximately 38.4%.
PRODUCTS AND SERVICES
Metromail provides three general categories of products and services to its
clients: Database Marketing Services (including database marketing software
and services and list enhancement services), Direct Marketing Services
(including list development and personalization printing and lettershop
services) and Reference Services (including on-line services and directory
publishing). Database Marketing Services accounted for 29.0%, 28.4% and 27.1%
of Metromail's total net sales in the years ended December 31, 1994, 1995 and
1996, respectively; Direct Marketing Services accounted for 51.2%, 51.6% and
53.6% of Metromail's total net sales in the years ended December 31, 1994,
1995 and 1996, respectively; and Reference Services accounted for 19.8%, 20.0%
and 19.3% of total net sales in 1994, 1995 and 1996, respectively
Database Marketing Services
Database Marketing Software and Services. Metromail, through CIC, 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 to determine their appropriate marketing initiatives.
Metromail's software products are designed to enable each client to maintain
its database on its own personal computer for quick desktop access to
information. Alternatively, the client can choose to have Metromail house the
client's database on the mainframe computer in Metromail's Lombard, Illinois
data center and, with the use of Metromail'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.
Metromail targets a variety of industries for these software products and
services, focusing on the financial services, telecommunications, catalog,
publishing, cable television, transportation, entertainment and travel-related
services industries. Metromail currently supports over 2,000 installations of
these products at over 340 client sites.
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Metromail's software products provided by CIC 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, Metromail collects an annual
license and maintenance fee that is approximately 20% of the initial license
fee. In connection with some installations, Metromail, as a service, purchases
and re-sells to the client certain computer equipment such as storage devices
and other peripherals.
List Enhancement Services. Metromail 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.
Metromail's list enhancement services enable a client to process information
utilized in direct mail campaigns. These processes help Metromail's clients
identify persons on lists supplied by the client likely to respond favorably
to the client's mailing, improve the delivery of the items mailed and reduce
the postage costs of a direct mail campaign. Typically, a client sends to
Metromail hundreds of lists, aggregating millions of names that have been
rented from list brokers or other sources and the client's current customer
list. Using its computer resources and proprietary software, Metromail
consolidates these lists, corrects addresses and ZIP codes and eliminates
duplicate names (the merge/purge process). A client can enhance this
consolidated list by incorporating certain of the characteristics contained in
Metromail's database and/or INSOURCE, an enhancement database that combines
Metromail's National Consumer Database and other proprietary databases with
the consumer databases of Experian Information Solutions Inc. (formerly TRW
Target Marketing Services) to provide in-depth information on approximately
95% of all U.S. households. INSOURCE, introduced in late 1996, is able to
append more than 300 data variables to customer records, including hobbies,
interests, product preferences and investment, educational and occupational
information. Metromail believes INSOURCE is the most complete enhancement
database currently available in the market.
Metromail also uses its database to enhance a client's proprietary customer
list and to make that list more deliverable. Metromail 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 Metromail'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, Metromail saves its clients money on the
mailing of these enhanced lists by carrier route coding, ZIP code presorting
and overlaying 9-digit ZIP codes.
Metromail provides list enhancement services to approximately 400 clients
annually, most of whom are involved in continuity marketing (e.g., record
clubs), financial services, insurance, magazine and book publishing, mail
order and catalog merchandising or retail. Metromail provides these services
primarily from its facilities in Lombard, Illinois.
Direct Marketing Services
List Development Services. Metromail 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. 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 Metromail
with a trade area definition and a customer profile. Metromail 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 Metromail's marketing services and statistical
software to identify the geographic, demographic and other marketing
characteristics in Metromail's database that singly and in combination
describe the best prospects for the client's direct marketing campaign.
Metromail 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 Metromail's
database. In addition, Metromail may design,
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conduct and analyze market surveys or test mailings. From this research and
testing Metromail defines relevant market segments and their respective sizes
and ranks these segments according to their relative potential value to the
client.
Metromail provides lists to approximately 15,000 clients annually. Metromail
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 for targeted 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 requests for
certain information may be as high as $1,000 per thousand names. Lists are
generally delivered in the form of computer tape or mailing labels. Metromail
provides its list development services from its facilities in Lincoln,
Nebraska.
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
Metromail. In 1996, 22 of Metromail's top 25 list development and enhancement
clients used these services in addition to its list services. Metromail
provides processing and mailing services to direct mail advertisers from
facilities located in Mt. Pleasant, Iowa; Rutland, Vermont; Seward, Nebraska;
and Lincoln, 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, Metromail 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.
Metromail is one of the largest providers of commercial lettershop services
in the United States. At its three lettershop facilities, Metromail 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. Metromail has installed and improved special equipment in its
production facilities that permits production of a high volume of polywrapped
advertising materials. Metromail has also established an integrated
computerized system of scheduling, production and inventory control.
Metromail's lettershop services processed over 1.2 billion pieces of mail in
1996. 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 Metromail's
database. The most important of these services are Metromail's MetroNet and
National Directory Assistance ("NDA") services.
Metromail's MetroNet service provides users with on-line or electronic
access to Metromail's MetroNet Master file (a subset of Metromail's database),
change of address files, 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 Metromail's clients to
confirm certain information that is contained on credit applications submitted
to them (such as name and address, but not credit history).
Metromail's NDA services provide 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. Metromail markets these services,
which were
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commenced in 1995, to telephone companies, operator service providers and
other organizations with high-volume directory assistance needs. As of
December 31, 1996, Metromail had entered into contracts to provide these
services to approximately 25 clients. Metromail is in various stages of
testing with some of these clients and at the end of 1996 was sending invoices
to 23 clients for services being provided by Metromail.
Directory Publishing Services. Metromail publishes the Cole directories,
local "reverse" directories covering approximately 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
Metromail'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.
Metromail 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
supplied on an annual subscription basis for prices ranging from $75 to over
$600, depending on the size of the market. In 1996, approximately 73% of
leases for Cole directories were renewed.
Metromail publishes, prints and binds the Cole directories at its Lincoln,
Nebraska facility. In addition, Metromail provides certain printing and
binding services for other publishers of short-run directories.
Cole(R), MetroBase(R), Metromail(R), Metromail's National Consumer Data
Base(R), MetroNet(R), MetroSearch(R) and NDA(R) are registered trademarks of
Metromail; AnalytiX(R) is a registered trademark of Customer Insight Company;
BehaviorBank is a service mark of Metromail; Explore is a trademark of
Customer Insight Company; INSOURCE is a service mark of Metromail and Experian
Information Solutions Inc.; and Windows(R) is a registered trademark of
Microsoft Corporation.
INTERNATIONAL OPERATIONS
Metromail's international operations consist primarily of its operations in
the United Kingdom of ICD, one of Britain's leading consumer lifestyle and
financial list developers and providers, and DBD, a provider of database
marketing consulting services. ICD acquires consumer lifestyle data primarily
through mailed surveys. During 1996, ICD received lifestyle data for 3.5
million individuals, bringing the number of individuals included in
Metromail's lifestyle file to 8.6 million. Another ICD product, the British
Investor Database, is compiled from share registers and contains 7.7 million
share transactions. More than 2,000 companies either sponsor survey questions
or rent data from ICD. Through DBD, ICD also offers a range of high value
analytical and consultancy services.
METROMAIL'S DATABASE
Metromail maintains and continually updates a large proprietary database
that contains geographic, demographic, individual and other marketing
information on over 90% of the households in the United States. Metromail
believes that its database is one of the most complete, highest quality and
up-to-date direct marketing databases in the United States and is a principal
reason that clients use Metromail'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, presence of other family members, estimated household income and
home ownership.
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Metromail 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 Metromail.
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 Metromail obtains primarily through the
use of consumer surveys, Metromail does not collect data directly from
consumers. Among the publicly available sources used by Metromail are the
"white pages" (Metromail's primary source of names, addresses and telephone
numbers), public records of driver's license registrations, real estate
transactions and U.S. census data. Metromail has arrangements with numerous
third parties that provide proprietary data to Metromail. These providers
include certain of Metromail's clients that provide Metromail with data
relating to their recent direct marketing experiences.
In 1993, Metromail began collecting data directly from consumers in response
to surveys. Metromail distributes to consumers, primarily through co-op
mailings, package inserts and magazine inserts, survey 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 Metromail's clients by developing specific survey questions which
seek the desired information. Survey respondents complete and return
questionnaires to Metromail because they become eligible to receive offers of
coupons, samples and information from manufacturers, pharmaceutical companies,
financial institutions and other service providers. Incentives such as
sweepstakes offers, prizes and extensions to subscribed services are also
provided when appropriate to increase response rates. Metromail provides
disclosure to potential survey respondents regarding the intended use of the
data thereby reducing privacy concerns because respondents are voluntarily
completing the surveys acknowledging that they understand how the information
may be used. Metromail does not use the information collected through surveys
for its reference services and has stated that it will not do so unless
disclosure is provided in the survey regarding the use of such information for
reference services. Metromail expects to continue to expand its use of surveys
as a data collection method. As indicated above under "International
Operations," Metromail is using the survey method as a means to develop its
database in the United Kingdom.
Metromail is dedicated to being a leader in ethical management of consumer
data. It has developed information management practices applicable to its
direct marketing services and its reference services. Metromail 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 Metromail possesses about them and any requests
that their names be suppressed in Metromail's database so that they do not
receive unwanted marketing solicitations.
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, database marketing and reference
services provided by Metromail, Metromail believes that it provides the
broadest range of these types of services of any company in the direct
marketing services, database marketing services and reference services
industries.
In 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. Metromail competes in marketing database services on the basis of
the quality of its software products. Metromail 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 Metromail provides. In reference services, Metromail competes on the
basis of the quality, accuracy and scope of the information contained in its
database,
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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.
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 concerns about individual privacy and the collection,
distribution and use of information about individuals, the Direct Marketing
Association (the "DMA"), which is the leading trade association of direct
marketers, has established certain guidelines for fair information practices
which it recommends be followed by participants in the direct marketing
industry. Metromail was actively involved in the formulation of the DMA's
guidelines, and many of Metromail's significant direct marketing clients have
adopted and implemented such guidelines. In addition, Metromail has adopted
and is implementing information management practices, principles and
procedures which supplement those of the DMA. 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. Metromail is
a subscriber and receives updated lists from the DMA monthly and promptly
suppresses in its database all information concerning the individuals who
appear on the DMA lists.
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 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 September 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.
In March, 1997, a bill seeking to restrict the sale of data was introduced
in the United States Congress. The Children's Privacy Protection and Parental
Empowerment Act seeks to prohibit list brokers (including Metromail) 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
years old) without the written consent of a parent of that child. A similar
version of this bill was introduced in the United States Congress in 1996 but
was not enacted into law.
In 1996, Congress asked the Federal Reserve Board (the "FRB") to examine the
availability to the general public of sensitive consumer identification
information, including social security numbers, mother's maiden names, prior
addresses and dates of birth. The FRB invited companies to respond to
questions relating to the collection, maintenance and use of sensitive data.
In March, 1997, the FRB published its findings that (i) there is little hard
evidence on how fraud due to the usage of sensitive data occurs, the frequency
with which it occurs or the amounts of associated losses and (ii) at the
present time, losses attributed to identity theft do not appear to pose a
significant risk to insured depository institutions.
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The Federal Trade Commission (the "FTC") continues to conduct workshops and
studies on the protection and use of personal information. These workshops and
studies examine the collection and availability of personal information on the
Internet and on "look-up" services and the collection and availability of
children's information. Metromail has been actively working with the FTC on
these and other issues. FTC Commissioners have stated publicly that they
prefer industry self-regulation over government regulations.
Because of the possibility of increased regulation brought on by privacy
concerns, Metromail collects certain data directly from individuals, who agree
that their information may be used for direct marketing and other purposes.
Although Metromail intends to continue to pursue actively the collection of
self-reported data, the percentage of data in Metromail's current database
that constitutes self-reported data is small.
Metromail is not aware of any generally accepted industry guidelines for the
use of information on individuals in connection with Metromail's reference
services. Metromail has adopted its own privacy principles for its reference
services.
Certain of the reference services provided by Metromail to certain credit
card issuer associations and their member banks are subject to the Fair Credit
Reporting Act ("FCRA"). Amendments to the FCRA, scheduled to become effective
on September 30, 1997, 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 by creditors in some direct marketing
programs.
CUSTOMERS AND SEASONALITY
Metromail's business is based on long-standing client relationships.
Although sales are not guaranteed under long-term contracts, a substantial
portion of Metromail's net sales is derived from clients that Metromail has
served for many years. Net sales to the top 25 clients (almost all of which
have been clients for five or more years) amounted to $65.9 million in 1994,
$68.6 million in 1995 and $75.4 million in 1996. Net sales to the top 25
clients accounted for 33.7%, 28.9% and 26.8% of total net sales in 1994, 1995
and 1996, respectively, as Metromail 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.
Metromail's business is somewhat seasonal with the majority of Metromail's
net sales and earnings from operations historically occurring in the second
half of a year. Furthermore, in 1997, Metromail's U.K. operations will
distribute only one survey (in the third quarter 1997) compared to two in 1996
(second quarter and fourth quarter 1996), reflecting the new nine month
production cycle for this portion of the U.K. operation's business. See "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Outlook".
COMPUTER OPERATIONS
Metromail's data centers run on computer systems designed to provide
advanced processing capabilities, provide flexibility to meet Metromail's and
its clients' changing needs and contain costs. Metromail'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 223 MIPS (millions of instructions per
second) of processing power and the IBM ES9000 located at the Lombard data
center has 270 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.
Metromail also supports alternate platforms from IBM, Hewlett Packard and
Sequent, which have approximately a terabyte of DASD attached to them.
In 1996, Metromail completed a major redesign of the file structure of its
database. This redesign, which commenced in 1994, 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.
EMPLOYEES
As of December 31, 1996, Metromail had approximately 3,080 employees, of
whom approximately 2,975 were located in the United States and approximately
105 were located in the United Kingdom. The domestic employees included
approximately 275 officers and managerial employees, approximately 275
employees
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engaged in sales or sales support and approximately 210 programmers, system
engineers and systems analysts. The domestic employees also include
approximately 1,360 hourly employees, most of whom are engaged in providing
lettershop services. Metromail employs part-time workers as needed, primarily
in lettershop services.
None of Metromail's employees is covered by a collective bargaining
agreement. Metromail believes that its relations with its employees are good.
FACILITIES
Metromail's principal executive offices and one of Metromail's data centers
are located in Lombard, Illinois, where Metromail 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. Metromail also owns a 233,000
square foot facility in Lincoln, Nebraska, which includes Metromail'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). Metromail leases its 31 regional sales offices pursuant to
leases that in general have three-year terms. Metromail's marketing database
services operate from a 54,000 square foot leased facility in the Denver,
Colorado area.
LEGAL PROCEEDINGS
In 1993, Metromail 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, Metromail 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,
Metromail 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,
Metromail 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 (Beverly J. Dennis v. Metromail Corporation et al., Cause
No. 96-04451) against Metromail, 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 Metromail 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 Metromail, 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.
Metromail 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. In April, 1997, the Court dismissed the complaints against 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.
In addition, in April, 1997, a third amended complaint was filed naming three
additional plaintiffs, none of whom alleged that he or she received any
offensive letter from a prisoner that key punched data. Metromail does not
anticipate that the developments of April, 1997 will have any adverse impact
on the outcome of this suit.
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Metromail intends to defend vigorously this suit. Metromail had removed the
case to the United States District Court for the Western District of Texas but
the case was subsequently remanded to state court. Metromail has filed a
motion to dismiss all counts against it. If the motion is not granted,
Metromail intends to challenge certification of the class, and Metromail
believes that if such challenge is successful, this litigation would not have
a material adverse effect on Metromail. 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. Metromail has made a preliminary estimate that its
costs of litigating the case will be $1.5 million. Metromail's insurer has
agreed to assume the defense of this case subject to a reservation of rights
to deny coverage. In the event Metromail's insurer were to successfully deny
coverage, R. R. Donnelley has agreed to pay the legal fees and expenses
incurred by Metromail in defending this case, but Metromail would be
responsible for any other amounts payable by it as a result of this case.
Because of such agreements to pay such fees and expenses, such legal fees and
expenses will not affect Metromail's cash flows; however, if R. R. Donnelley
were to pay such fees and expenses, applicable accounting principles would
require Metromail 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.
Metromail is subject to various claims and legal actions which arise in the
ordinary course of business. Metromail 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 Metromail.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three months ended March 31, 1997 compared to the three months ended March
31, 1996
Total net sales increased 21.0% to $65.8 million for the first quarter of
1997 from $54.4 million for the first quarter of 1996. This $11.4 million
increase was comprised of an $8.2 million, or 30.3%, increase in direct
marketing sales, a $1.6 million, or 10.9%, increase in database marketing
sales and a $1.6 million, or 13.1%, increase in reference sales. Within direct
marketing services, list services in the U.S. and U.K., as well as lettershop
services, all produced double digit growth over the prior year first quarter.
Sales growth for database marketing services, which includes software sales
and list enhancement services, resulted primarily from strong demand for
Metromail's AnalytiX and Explore software products. The growth in reference
sales was primarily due to a 30.4% increase in Metromail's MetroNet and
National Directory Assistance ("NDA") on-line services along with 2.5% growth
in the directory business.
Database and production costs primarily represent expenses incurred to
maintain Metromail's database and to customize data for client use, including
salaries and wages, annual costs to acquire data and amortization of
capitalized data costs, facility costs and depreciation of equipment. Database
and production costs increased for the three months ended March 31, 1997 to
$41.2 million, or 62.6% as a percentage of total net sales, from $33.6 million
for the three months ended March 31, 1996, or 61.8% as a percentage of total
net sales. Approximately $3.1 million of the increase was due to increased
volume in the lettershops, increased staffing and facility costs to support
the growth of Metromail's software business and online services. Increased
salary costs across all operations accounted for the balance of the increase.
The increase as a percentage of total net sales was primarily due to the
increased costs incurred for the higher than planned volume at the
lettershops, which have higher production costs as a percentage of total net
sales compared to the other operations of Metromail.
Selling expense of $12.8 million increased $1.0 million, or 8.5%, from the
three months ended March 31, 1996, and decreased as a percentage of total net
sales to 19.5% from 21.7% in the prior year period. The improvement in selling
expense as a percentage of total net sales was due to increased efficiencies
across the sales organizations.
General and administrative expenses increased $1.1 million, or 22.7%, from
the three months ended March 31, 1996 primarily due to increased staff costs
associated with being a stand alone public company. None of these costs were
incurred in the first quarter of 1996.
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Earnings from operations of $3.4 million increased $1.7 million for the
three months ended March 31, 1997 from $1.7 million for the three months ended
March 31, 1996 due to the foregoing factors.
Interest expense-related party, primarily paid to a subsidiary of R. R.
Donnelley, of $5.3 million for the three months ended March 31, 1996, was zero
for the three months ended March 31, 1997 due to the elimination of the
related party debt subsequent to completion of the IPO.
Metromail's tax expense increased $2.7 million compared to the first quarter
of 1996 due to the increase in earnings before income taxes. The effective tax
rate exceeds the U.S. federal statutory rate primarily due to the effect of
non-deductible goodwill amortization.
Net income increased $4.2 to $1.3 million compared to a $2.9 million loss
for the first quarter of 1996 as a result of the foregoing factors.
Year ended December 31, 1996 compared to the year ended December 31, 1995
Total net sales increased 18.7% to $281.4 million for 1996 from $237.2
million for 1995. This $44.2 million increase resulted from a $28.5 million,
or 23.3%, increase in direct marketing sales, an $8.8 million, or 13.1%,
increase in database marketing sales and a $6.9 million, or 14.6%, increase in
reference sales. Direct marketing sales growth was due to $17.7 million of
additional sales of U.K. business due to growth, completion by ICD of two
surveys in 1996 compared to one in 1995 and the inclusion of a full twelve
months of sales of ICD (acquired in May 1995). Additional direct marketing
growth was due to increased lettershop volume of $3.7 million and more modest
increases across the traditional direct marketing services of list and U.S.
survey. Database marketing sales growth was due to strong demand for the
AnalytiX and Explore database products. Reference services sales growth was
primarily due to a 28.7% increase in Metromail's MetroNet and NDA on-line
services plus a 5.8% increase in directory publishing services.
Database and production costs increased from $134.4 million for 1995, or
56.7% as a percentage of total net sales, to $155.7 million, or 55.3% as a
percentage of total net sales, for 1996. This growth was due to increased
expenses of $4.9 million related to the second U.K. survey, start-up costs of
the NDA on-line services of $5.7 million, increased production costs to
support the higher sales volume for the lettershops, increased costs to
support the growth in marketing database services, increased U.S. survey
expenses, expenses related to the upgrade of computer capacity and increased
directory publishing costs. The decrease in the database and production costs
as a percentage of total net sales was due to improved efficiencies at ICD
(primarily the second survey, which has production costs as a percentage of
total net sales less than Metromail's other operations) and increased sales in
the traditional direct marketing areas, which improved the coverage of fixed
costs. The decrease in database and production costs as a percentage of total
net sales was partially offset by increased costs related to the start up of
the NDA on-line services.
Selling expense increased $7.3 million, or 16.0%, from 1995 and decreased as
a percentage of total net sales from 19.4% for 1995 to 18.9% for 1996. The
increase in the amount is due to the increase in sales and related selling
expenses across all operations and from ICD, where selling expenses as a
percentage of total net sales are higher than Metromail's other operations.
General and administrative expenses grew $8.9 million, or 53.3%, from 1995
and as a percentage of total net sales from 7.0% to 9.1% for 1996. The
increase resulted primarily from the acquisition and growth of ICD, and
increased staff costs associated with being a stand alone public company.
Earnings from operations of $37.3 million for 1996 increased $6.7 million
from $30.6 million for 1995 due to the foregoing factors.
Interest expense-related party decreased $11.1 million due to the use of the
IPO net proceeds to repay the amount owed to a subsidiary of R. R. Donnelley.
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<PAGE>
Interest expense of $0.8 million resulted from borrowings under a credit
agreement with a syndicate of banks (See "--Changes in Financial Condition")
required to pay related party debt for ICD and provide operating funds in the
U.K.
Metromail's tax expense in 1996 increased $6.1 million compared to 1995 due
to the increase in earnings before income taxes. The effective tax rate
exceeds the U.S. federal statutory rate primarily due to the effect of non-
deductible goodwill amortization.
Net income increased $11.2 million to $13.9 million for 1996 as a result of
the foregoing factors.
Year ended December 31, 1995 compared to the year ended December 31, 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 $22.2 million,
or 22.2%, increase in direct marketing sales, a $10.7 million, or 18.9%,
increase in database marketing sales and a $8.8 million, or 22.7%, increase in
reference sales. Direct marketing sales growth resulted primarily from strong
demand for list development and lettershop services. List development sales
increased $10.2 million due to growth of 8.1% in sales to national list
accounts, 12.7% in sales to small business accounts and 51.9% in sales of the
BehaviorBank list product. 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. Database marketing growth
included $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. The increase in reference sales reflected in large part the strong
growth in on-line services, including the NDA and MetroNet services.
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 Metromail'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. regarding a
contract dispute ($0.7 million) and the inclusion of CIC for a full year ($0.6
million), as well as increased expenses across Metromail'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 Metromail 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.
Metromail'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.
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<PAGE>
Net income increased $0.7 million, or 37.6%, to $2.7 million in 1995 as a
result of the foregoing factors.
Changes in Financial Condition
For the first three months of 1997, operating cash flow (net income plus
depreciation and amortization) of $8.8 million increased $6.2 million over the
prior year period. For 1996, operating cash flow of $42.2 million increased
$18.6 million from 1995. Metromail believes that cash flows from operations
will be sufficient to fund its on-going operations on a long-term basis, as
well as continued growth and investment. Metromail expects the credit
agreement described below to be available for seasonal cash needs and
acquisitions.
Capital expenditures and investments for the first three months of 1997
totaled $9.7 million, an increase of $1.8 million over the first three months
of 1996, primarily due to a minority investment in a provider of database
marketing and direct marketing services. Capital expenditures for 1996 totaled
$37.6 million, an increase of $9.1 million over the prior year. The increase
was due to funding for the second U.K. survey, database redesign, data center
expansion and various administrative software packages required as a stand
alone public company.
Metromail has entered into a credit agreement with a syndicate of banks (the
"Credit Agreement") under which it is entitled to borrow up to $45 million on
a revolving credit basis. Borrowings under the Credit Agreement mature in 2001
and bear interest (i) at the prime rate announced by the bank acting as Agent
for the syndicate, (ii) at the LIBOR rate plus, depending on Metromail'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. At March 31, 1997
there was $21.0 million outstanding under the credit agreement resulting from
the repayment of related party debt and borrowings to provide operating funds
for Metromail's U.K. operations.
Under the terms of a stock repurchase program approved by the Board of
Directors in December 1996, Metromail repurchased 54,800 shares of Common
Stock for $1.0 million during the three months ended March 31, 1997 and
125,100 shares of Common Stock for $2.1 million in 1996.
Outlook
Historically, Metromail's net sales build quarterly through the year, with
the majority of net sales being achieved in the second half of a given year.
In 1994, 1995 and 1996 total net sales of Metromail during the second half of
the year constituted 56.3%, 55.3% and 56.0%, respectively, of the total net
sales for the year.
Many of Metromail's expenses are incurred ratably through the year and, when
combined with the quarterly revenue pattern discussed above, result
historically in fluctuations in earnings from operations for the year.
Earnings from operations are strongest in the second half of the year.
Earnings from operations in the second half of 1994, 1995 and 1996 constituted
70.4%, 55.6% and 72.0%, respectively, of total earnings from operations for
the year. Had the deferral of approximately $2.0 million of expenses from the
second quarter of 1995 to the third and fourth quarters of 1995 (resulting in
a $2.0 million negative impact on earnings from operations for the second half
of 1995) not taken place, Metromail estimates that the percentage of earnings
for the second half of 1995 would have been approximately 62.1% of the full
year's earnings from operations.
Management of Metromail expects the historical patterns of larger second
half portions of the year's sales and operating earnings to occur again in
1997. Furthermore, in 1997, the U.K. operations will distribute only one
survey (in the third quarter 1997) compared to two in 1996 (second quarter and
fourth quarter 1996) reflecting the new nine month production cycle for this
portion of the U.K. operation's business. The 1996 surveys produced $7.4
million and $9.8 million of revenue in the second and fourth quarters of 1996,
respectively. The second and fourth quarters of 1997 will not include any U.K.
survey revenue. In 1997 the U.K. survey revenue will be reflected in
Metromail's results in the third quarter. Revenues in 1998 are expected to
include two surveys for Metromail's U.K. operations.
Metromail is required to adopt Statement of Financial Accounting Standards
(SFAS) No. 128 on Earnings per Share and SFAS No. 129 on Capital Structure for
both interim and annual periods ending after December 15, 1997. Earlier
adoption is prohibited. The impact of the adoption of these standards is not
expected to be material to Metromail's financial statements.
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<PAGE>
ADDITIONAL INFORMATION REGARDING ATLANTES
DESCRIPTION OF BUSINESS
Since its formation as a Colorado corporation in late 1991, Atlantes has
become one of the leading consumer database development companies in the
United States. Currently working with over 170 corporations ("clients")
including many well known U.S. corporations, Atlantes obtains information from
product registration questionnaires, warranty questionnaires, and other
questionnaires related to the purchase of consumer products. Atlantes manages
the process of computerizing these questionnaires through third party data
entry vendors and creates and maintains databases using proprietary PC based
database management systems. These systems enable clients to obtain valuable
information about, and provide clients access to, their consumers. This
information contains not only product related information, but also certain
demographic and behavioral information important to the client and to
Atlantes.
In return for these services, Atlantes receives ownership of certain
information, including the consumer's name, address, demographic and
behavioral information. This data is then sold in the form of targeted mailing
lists to direct marketers throughout the United States. Currently, this data
is marketed by a third party, Experian, which has an exclusive contract with
Atlantes to market Atlantes' database. Experian sublicenses the Atlantes'
database to third party resellers, of which Metromail is the leading reseller
of such data.
Initially, Atlantes intended to develop its own list sales organization to
market its database and, in 1994, attempted to do this. However, Atlantes
determined in late 1994 that the time and expense involved would require
substantial additional working capital and began exploring strategic alliances
with other companies within the direct marketing industry. On December 23,
1994, Atlantes entered into an agreement with Experian, Inc. (formerly the
Target Marketing Services division of TRW, Inc.) whereby Experian was given
the exclusive right to market Atlantes' database through December 31, 1999.
Pursuant to this agreement, Atlantes receives a fee for each record sent to
Experian, plus 50% of the list sales revenue generated by Experian from sales
of data from Atlantes' database. Revenue from Experian under this agreement
totaled approximately 75%, 78% and 86% of total revenues of Atlantes for 1994,
1995 and 1996, respectively.
Atlantes competes in the consumer database management industry. Access to
demographic and behavioral data enables direct marketers to fine tune their
screening of the database for attributes which make the recipient of the
direct marketing solicitation more likely to respond. This screening and the
ability to target more likely buyers becomes more and more important to direct
mail advertisers as the costs of the mailing (design, paper, printing,
postage, and handling) increase.
A number of other companies collect consumer data for sale to third parties,
but Atlantes differentiates itself by collecting demographic and behavioral
information on the consumer directly from product registration questionnaires
filled out by the consumer, where the consumer is informed that the data
provided may be used for direct marketing purposes unless the consumer
otherwise indicates. The only other known competitor to compete in this niche
is R.L. Polk & Company ("Polk"), through the division formerly known as
National Demographics and Lifestyles ("NDL"). Founded in 1975, NDL was
acquired by Polk in 1988 and is well established in the marketplace. Atlantes
has had to overcome its relative newness to the market, its smaller size, its
limited financial resources, and the fact that initially, few companies were
utilizing Atlantes' database management services. These factors have limited,
to a certain extent, Atlantes' ability to market to the larger manufacturers
of durable goods.
Although both companies use self-reported data, Atlantes differentiates
itself from Polk by collecting its data on a short questionnaire format. A
typical Atlantes designed questionnaire will include seven to ten behavioral
and demographics questions in addition to the general consumer and product
information. Questions found on a short questionnaire typically include
requests for information regarding the consumer's income level, education
level, recent purchases and family size. In contrast, Polk's questionnaires
will typically contain approximately 20-25 life style and demographics related
questions. The long questionnaire format contains much more information about
the habits and demographics of a consumer. However, the length of the
questionnaire increases the total printing costs, may lower response rates
from the consumers, increases the cost of keying the data into a computer,
slows the time it takes to prepare the data for sale and delays the response
to client information requests.
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<PAGE>
Atlantes has enjoyed strong database growth with the addition of 4.26
million, 6.14 million, and 8.23 million records during the years ended
December 31, 1994, 1995 and 1996, respectively, and with the addition of 2.80
million records during the three month period ended March 31, 1997. Atlantes'
client base is well diversified, with no single client generating more than
5.2% of Atlantes' annual questionnaire flow. Moreover, Atlantes also enjoys a
broad industry diversification, with nine separate industries, each
representing at least 7% of Atlantes' annual questionnaire flow.
Atlantes' senior management team has broad experience with over 50 years of
combined work experience in the direct marketing industry. Atlantes now
employs 13 people on a full-time basis.
Despite having strong growth in its clients and questionnaire flow, Atlantes
has generated net losses of $573,377, $519,324 and $294,112 on revenues of
$1,000,461, $1,167,185 and $1,834,765 for the years ended December 31, 1994,
1995 and 1996, respectively. For the three months ended March 31, 1997,
Atlantes has generated net income of $54,489 on revenue of $672,548. See "--
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "ATLANTES FINANCIAL STATEMENTS."
MARKET PRICE AND DIVIDENDS ON ATLANTES COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
As of June 17, 1997, the Atlantes Record Date, there were issued and
outstanding 476,803 shares of Atlantes Common Stock, held by 19 owners of
record. There is no established public market for Atlantes Common Stock.
Atlantes has never paid a cash dividend on the Atlantes Common Stock.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the beneficial
ownership of Atlantes Common Stock: (i) by each stockholder known by Atlantes
to own beneficially more than five percent (5%) of the outstanding Atlantes
Common Stock; (ii) by each member of the Atlantes' Board; and (iii) by all
directors and executive officers of Atlantes as a group. This information is
as of June 17, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES TOTAL
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY OUTSTANDING
OWNER (1) OWNED (2) SHARES (3)
------------------------------ ------------ -----------
<S> <C> <C>
William Anderson (4) 71,300 13.3%
E. Thomas Detmer, Jr. (5) 138,572 28.7%
Kenneth W. Edwards, Jr. (6) 3,200 *
Kyle Lefkoff (7) 265,045 50.6%
Boulder Ventures
1634 Walnut Street, #302
Boulder, Co 80302
Peter A. O'Neil (8) 12,250 2.5%
Jeffrey H. Schutz (9) 10,110 2.1%
The Centennial Funds
1428 15th Street
Denver, CO 80202
Black Fox Investment Group LLC (10)
455 Weaver Park Road 30,000 6.2%
Suite 100
Longmont, CO 80501
CVM Equity Fund III, Ltd. (11) 169,178 33.9%
4845 Pearl East Circle
Suite 300
Boulder, CO 80301
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES TOTAL
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED (1) SHARES (2)
------------------- ------------ -----------
<S> <C> <C>
CVM Equity Fund IV, Ltd. (12) 62,975 12.8%
4845 Pearl East Circle
Suite 300
Boulder, CO 80301
David O. Wolf (13) 68,001 13.8%
50 South Steele Street
Suite 777
Denver, CO 80209
Wolf Venture Fund I LLC 53,001 11.1%
50 South Steele Street
Suite 777
Denver, CO 80209
All directors and executive officers as a group (6 500,477 82.6%
persons) (14)
</TABLE>
- --------
*Less than 1% of the outstanding shares
(1) Except as otherwise indicated, the address of each of the persons in this
table is as follows: Atlantes Corporation, 90 Madison Street, Denver, CO
80206
(2) Except as otherwise indicated, each person in the table possesses sole
voting and sole investment power with respect to all shares of Atlantes
Common Stock listed in the table as owned by such person. CVM Equity Fund
III and CVM Equity Fund IV have agreed to vote their shares of Atlantes
Common Stock in favor of approval of the Merger Agreement and the
Parachute Proposal. See "Voting Agreements."
(3) Percentage of total outstanding shares is calculated separately for each
person on the basis of the actual number of outstanding shares as of June
17, 1997 and assumes, for purposes of the calculation, that shares
issuable upon exercise of options or warrants exercisable within 60 days
held by such person (but no other shareholders) had been issued as of
such date.
(4) Includes 46,300 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Stock Options which are vested or which will vest within 60 days
of the date of this Proxy Statement/Prospectus. Also includes 12,500
shares of Atlantes Common Stock issuable upon exercise of Atlantes
Warrants. Does not include 17,200 shares of Atlantes Common Stock
issuable upon exercise of Atlantes Stock Options which will vest more
than 60 days after June 17, 1997, unless the shareholders of Atlantes
approve the Merger, in which case all unvested options will become
immediately exercisable.
(5) Includes 6,786 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Warrants.
(6) Includes 3,200 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Stock Options which are vested or which will vest within 60 days
of the date of this Proxy Statement/Prospectus. Does not include 2,800
shares of Atlantes Common Stock issuable upon exercise of Atlantes Stock
Options which will vest more than 60 days after June 17, 1997, unless the
shareholders of Atlantes approve the Merger, in which case all unvested
options will become immediately exercisable.
(7) Includes 147,135 shares of Atlantes Common Stock and 22,043 shares of
Atlantes Common Stock issuable upon exercise of Atlantes Warrants held by
CVM Equity Fund III. Also includes 46,625 shares of Atlantes Common Stock
and 16,350 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Warrants held by CVM Equity Fund IV. Mr. Lefkoff is the
investment manager of CVM Equity Fund III and a general partner of CVM
Equity Fund IV. As such, Mr. Lefkoff may be deemed to share voting
control and investment power over these shares. Mr. Lefkoff disclaims
beneficial ownership of all 232,153 of these shares. Also includes 8,703
shares of Atlantes Common Stock and 6,250 shares of Atlantes Common Stock
issuable upon exercise of Atlantes Warrants held by L-M Partnership II,
and 15,439 shares of Atlantes Common Stock and 2,500 shares of Atlantes
Common Stock issuable upon exercise of Atlantes Warrants held by LLGM
Partnership. Mr. Lefkoff is a limited partner of both L-M Partnership II
and LLGM Partnership, and disclaims beneficial ownership to all but his
pro rata ownership of shares held by such entities.
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<PAGE>
(8) Includes 8,500 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Stock Options which are vested or which will vest within 60 days
of the date of this Proxy Statement/Prospectus. Also includes 625 shares
of Atlantes Common Stock issuable upon exercise of Atlantes Warrants.
Does not include 9,000 shares of Atlantes Common Stock issuable upon
exercise of Atlantes Stock Options which will vest more than 60 days
after June 17, 1997, unless the shareholders of Atlantes approve the
Merger, in which case all unvested options will become immediately
exercisable.
(9) Includes 3,600 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Stock Options which are vested or which will vest within 60 days
of the date of this Proxy Statement/Prospectus. Also includes 600 shares
of Atlantes Common Stock issuable upon exercise of Atlantes Warrants.
Does not include 2,400 shares of Atlantes Common Stock issuable upon
exercise of Atlantes Stock Options which will vest more than 60 days
after June 17, 1997, unless the shareholders of Atlantes approve the
Merger, in which case all unvested options will become immediately
exercisable.
(10) Includes 5,000 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Warrants.
(11) Includes 22,043 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Warrants.
(12) Includes 16,350 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Warrants.
(13) Includes 53,001 shares of Atlantes Common Stock held by Wolf Venture Fund
I LLC, 5,000 shares of Atlantes Common Stock issuable upon exercise of
Atlantes Warrants held by David O. Wolf, 5,000 shares of Atlantes Common
Stock issuable upon exercise of Atlantes Warrants held by the Melvin H.
Schlessinger Trust, and 5,000 shares of Atlantes Common Stock issuable
upon exercise of Atlantes Warrants held by Elaine S. Wolf. Mr. Wolf may
be deemed to share voting control and investment power over all of these
shares, but Mr. Wolf disclaims beneficial ownership of all but 5,000 of
these shares.
(14) Includes 265,045 shares reflected in Mr. Lefkoff's ownership total. Mr.
Lefkoff disclaims beneficial ownership of all of these shares except for
his pro rata ownership of shares held by L-M Partnership II and LLGM
Partnership. Also includes 61,600 shares of Atlantes Common Stock
issuable upon exercise of Atlantes Stock Options which are vested or
which will vest within 60 days of the date of this Proxy
Statement/Prospectus. Also includes 67,654 shares of Atlantes Common
Stock issuable upon exercise of Atlantes Warrants. Does not include
31,400 shares of Atlantes Common Stock issuable upon exercise of Atlantes
Stock Options which will vest more than 60 days after June 17, 1997,
unless the shareholders of Atlantes approve the Merger, in which case all
unvested options will become immediately exercisable.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Atlantes has developed a proprietary computer database which accumulates and
provides access to consumer product purchasing information. Atlantes provides
consumer database management services, primarily to durable goods
manufacturers, in exchange for consumer product purchasing information and the
right to sell selected parts of the consumer database, in the form of customer
lists, to the direct marketing industry. Atlantes also provides consumer
database and information design to its clients.
In December 1994, Atlantes entered into an exclusive arrangement with
Experian giving Experian the exclusive right to market Atlantes' database
through December 31, 1999. Direct marketing sales to Experian accounted for
approximately 75%, 78%, 86% and 91% of Atlantes' revenues for the years ended
December 31, 1994, 1995 and 1996 and the three months ended March 31, 1997,
respectively
RESULTS OF OPERATIONS
Three months ended March 31, 1996 and 1997
Direct Marketing Sales. Direct marketing sales for the three months ended
March 31, 1997 were $672,548 compared with $356,353 for the same period in
1996. Data sales to Experian increased 44% to $380,769 for the three months
ended March 31, 1997 compared to $265,218 for the three months ended March 31,
1996, due to database growth, expansion of types of data sold and an increase
in the contracted base price per record. Direct marketing list sales increased
311% to $230,191 for the three months ended March 31, 1997 compared to $56,047
for the three months ended March 31, 1996, primarily due to two additional
distribution channels being added during 1996. Client service sales increased
88% to $60,431 for the three months ended March 31, 1997 from $32,083 for the
three months ended March 31, 1996 primarily due to growth in marketing
research services provided to Atlantes' database clients.
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<PAGE>
Database and Production Costs. Database and production costs were $221,490
for the three months ended March 31, 1997, compared to $167,285 for the same
period for 1996. The increase was due primarily to a 67% increase in database
records processed to 2.80 million for the three months ended March 31, 1997
from 1.68 million for the same period in 1996.
General and Administrative Expenses. General and administrative expenses
were $392,652 for the three months ended March 31, 1997, compared to $285,838
for the same period in 1996. The increase was primarily due to increased
expenses in the areas of salaries and salary related costs of personnel
engaged in administrative functions, and client services and costs such as
rent, insurance, telephone, legal, postage, depreciation, financing and merger
and acquisition costs.
Interest Expense. Interest expense increased to $3,917 for the three months
ended March 31, 1997 from $0 for the same period in 1996 primarily due to a
borrowing on a revolving line of credit that Atlantes entered into in March
1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Direct Marketing Sales. Direct marketing sales for the year ended December
31, 1996, were $1,834,765 compared with $1,167,185 for the same period in
1995. A major component of the increase was an increase in data sales to
Experian which increased 57% to $1,219,453 in 1996 compared to $775,728 in
1995 due to database growth, expansion of types of data sold and an increase
in the contracted base price per record. Direct marketing list sales increased
82% to $370,813 in 1996 compared to $203,543 in 1995 primarily due to two
additional distribution channels being added during 1996. Client service sales
increased 45% to $233,865 from $161,248 primarily due to growth in marketing
research services provided to Atlantes' database clients.
Database and Production Costs. Database and production costs were $748,747
for the year ended December 31, 1996 compared to $565,942 for the same period
for 1995. The increase was due primarily to a 34% increase in database records
processed to 8.23 million for the year ended December 31, 1996 from 6.14
million for the same period in 1995.
General and Administrative Expenses. General and administrative expenses
were $1,380,130 for the year ended December, 31, 1996, compared to $1,116,297
for the same period in 1995. The increase was primarily due to increased
expenses in the areas of salaries and salary related costs of personnel
engaged in administrative functions, and client services and costs such as
rent, insurance, telephone, legal, postage, depreciation, and travel and
entertainment.
Interest Expense. Interest expense decreased to $0 for the year ended
December 31, 1996 from $4,270 for the same period in 1995 as the interest
bearing short-term notes outstanding at December 31, 1994 were converted to
equity in the first quarter 1995 and Atlantes had no additional borrowings in
1995 and 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Direct Marketing Sales. Direct marketing sales for the year ended December
31, 1995 were $1,167,185 compared with $1,000,461 for the same period in 1994.
Data sales to Experian increased 6% to $775,728 in 1995 compared to $734,306
in 1994 due to database growth. Direct marketing list sales increased 66% to
$203,543 in 1995 compared to $122,668 in 1994 primarily as a result of
increased marketing efforts of Atlantes' database. Client service sales
increased 25% to $161,248 from $128,845 as Atlantes began providing marketing
research services to its database clients.
Database and Production Costs. Database and production costs were $565,942
for the year ended December 31, 1995 compared to $455,285 for the same period
for 1994. The increase was due primarily to a 44% increase in database records
processed to 6.14 million for the year ended December 31, 1995 compared to
4.26 million for the same period in 1994. The additional volume allowed
Atlantes to negotiate lower data entry pricing.
71
<PAGE>
General and Administrative Expenses. General and administrative expenses
were $1,116,297 for the year ended December, 31, 1995, compared to $952,283
for the same period in 1994. The increase was primarily due to increased
expenses in the areas of salaries and salary related costs of personnel
engaged in administrative functions, and client services and costs such as
rent, insurance, travel and entertainment and telephone costs.
Interest Expense. Interest expense decreased to $4,270 for the year ended
December 31, 1995 from $166,270 for the same period in 1994 as the interest
bearing short-term notes outstanding at December 31, 1994 were converted to
equity in the first quarter 1995. In addition, in 1994, Atlantes incurred
interest expense related to the issuance of warrants in connection with the
extension of the maturities of the notes to shareholders.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1991, Atlantes has financed its activities through
the issuance of debt instruments, equity in private placement transactions and
revenue from direct marketing sales. From its inception in September 1991 to
March 31, 1997, Atlantes had received cash of approximately $1,716,000 from
debt and equity transactions, while sales in the same period were
approximately $4,800,000. At March 31, 1997, Atlantes had approximately
$204,000 in cash.
Cash used in operations was $970,965 for the year ended December 31, 1994
compared to cash provided by operations of $259,882 for the year ended
December 31, 1995. The increase was primarily due to a decrease in accounts
receivable related to a payment of approximately $734,000 for initial services
provided to Experian in 1994. Cash used in Atlantes' operations was $161,587
for the year ended December 31, 1996 compared to cash provided by operations
of $259,882, for the year ended December 31, 1995. The increase in cash used
in Atlantes' operations in 1996 compared to 1995 was primarily due to the
increase in accounts receivable, as well as expansion of operations resulting
from increased sales. Cash provided by operations was $26,346 for the three
months ended March 31,1997 compared to cash used in operations of $82,519 for
the three months ended March 31, 1996. The decrease in cash used in Atlantes'
operations for the first quarter of 1997 compared to the first quarter of 1996
was primarily due to net income of $54,489 reported by Atlantes in the first
quarter 1997 compared to a net loss of $96,770 in the first quarter 1996.
Capital expenditures were primarily comprised of purchases of furniture and
fixtures and computer equipment. Capital expenditures were $39,161, $55,318
and $30,142 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $13,663 and $12,509 for the three months ended March 31,
1996 and 1997, respectively.
Since its inception in September 1991, Atlantes has recorded accumulated
losses of $1,917,742 and has working capital of $344,369 as of March 31, 1997.
While the timing and amount of capital requirements cannot be predicted with
certainty, Atlantes believes that cash on hand, available borrowings of
approximately $246,000 as of March 31, 1997 under its revolving line of credit
and funds generated from operations will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 to 18
months. Thereafter, if Atlantes' operating plans change, Atlantes may be
required to raise additional sources of financing to support its operating and
financing needs. There can be no assurance that Atlantes will not be required
to raise additional funding sooner or that such additional funding, if needed,
will be available on terms attractive to Atlantes, or at all.
EXPERTS
The consolidated and combined financial statements and schedules of
Metromail as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, appearing in this Proxy
Statement/Prospectus and in the Registration Statement have been audited by
Arthur Andersen LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere in this Proxy Statement/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.
72
<PAGE>
The financial statements of Atlantes at December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, appearing in
this Proxy Statement/Prospectus and in the Registration Statement have been
audited by Arthur Andersen LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere in this Proxy Statement/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.
LEGAL OPINIONS
The validity of the Metromail Common Stock issued pursuant to the Merger
Agreement will be passed upon for Metromail by Sidley & Austin, Chicago,
Illinois.
73
<PAGE>
METROMAIL CORPORATION
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated and Combined Balance Sheets as of December 31, 1995 and 1996
and unaudited as of March 31, 1997...................................... F-3
Consolidated and Combined Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and unaudited for the Three Months
Ended March 31, 1996 and 1997........................................... F-4
Consolidated and Combined Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1994, 1995 and 1996 and unaudited for
the Three Months Ended March 31, 1997................................... F-5
Consolidated and Combined Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and unaudited for the Three Months
Ended March 31, 1996 and 1997........................................... F-6
Notes to Consolidated and Combined Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Metromail
Corporation and Affiliates:
We have audited the accompanying consolidated and combined balance sheets of
Metromail Corporation and Affiliates as of December 31, 1996 and 1995, and the
related consolidated and combined statements of operations, changes in
shareholders' equity and cash flows for each of the three years ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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, 1996 and 1995 and the results of its operations
and cash flows for each of the three years ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 21, 1997
F-2
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
ASSETS 1995 1996 1997
- --------------------------------------------------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and equivalents............................... $ -- $ 18,530 $ 19,811
Receivables, less sales allowances and allowances
for doubtful accounts of $3,965 in 1995, $4,461 in
1996 and $4,546 in 1997........................... 68,438 99,219 89,019
Inventories........................................ 5,658 6,722 7,172
Prepaid expenses................................... 7,449 8,552 12,485
Current deferred income taxes...................... 625 793 793
-------- -------- --------
Total current assets......................... 82,170 133,816 129,280
Net property, plant and equipment, at cost, less
accumulated depreciation of $43,392 in 1995,
$50,701 in 1996 and $52,922 in 1997............... 37,545 45,313 45,115
Goodwill and other intangibles, net of accumulated
amortization of $66,614 in 1995, $86,372 in 1996
and $86,084 in 1997............................... 252,526 255,799 258,163
Deferred income taxes.............................. 149 -- --
Other assets....................................... 6,331 8,478 8,756
-------- -------- --------
Total assets................................. $378,721 $443,406 $441,314
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------
<S> <C> <C> <C>
Accounts payable................................... $ 5,742 $ 6,608 $ 5,130
Accrued compensation............................... 6,073 8,540 6,500
Short-term debt.................................... 1,884 -- --
Short-term debt and advances-due to related party.. 248,492 -- --
Deferred revenue................................... 6,721 9,050 9,165
Other accrued liabilities.......................... 19,206 28,560 29,852
-------- -------- --------
Total current liabilities...................... 288,118 52,758 50,647
Long-term debt..................................... -- 21,468 21,014
Deferred income taxes.............................. -- 1,591 1,601
Other noncurrent liabilities....................... 5,211 7,041 6,286
-------- -------- --------
Total noncurrent liabilities................... 5,211 30,100 28,901
Shareholders' equity:
Common stock, $.01 par value, authorized
75,000,000 shares; issued 8,600,000 shares in
1995, and 22,437,000 shares in 1996 and 1997,
respectively. Preferred stock, $.01 par value,
authorized 20,000,000 shares; no shares issued
in 1995, 1996 and 1997.......................... 86 224 224
Treasury stock, at cost, 125,100 shares in 1996
and 179,900
shares in 1997.................................. -- (2,146) (3,133)
Additional paid-in capital....................... 111,779 374,832 375,590
Retained deficit (includes cumulative adjustment
for currency
translation of ($237) in 1995, $3 in 1996 and
$184 in 1997)................................... (26,473) (12,362) (10,915)
-------- -------- --------
Total shareholders' equity..................... 85,392 360,548 361,766
-------- -------- --------
Total liabilities and shareholders' equity..... $378,721 $443,406 $441,314
======== ======== ========
</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, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Direct marketing sales.......... $100,060 $122,303 $150,756 $26,984 $35,149
Database marketing sales........ 56,746 67,410 76,267 14,910 16,539
Reference sales................. 38,665 47,474 54,422 12,475 14,112
-------- -------- -------- ------- -------
Total net sales............... 195,471 237,187 281,445 54,369 65,800
Database and production costs... 108,806 134,361 155,708 33,606 41,178
Amortization of goodwill........ 6,608 7,446 7,572 1,889 1,908
Selling expenses................ 37,107 45,913 53,240 11,821 12,817
General and administrative ex-
penses......................... 14,408 16,645 25,524 4,909 6,022
Provisions for doubtful ac-
counts......................... 1,848 2,180 2,143 419 488
-------- -------- -------- ------- -------
Earnings from operations...... 26,694 30,642 37,258 1,725 3,387
Interest expense--related party. 18,999 21,329 10,178 5,345 --
Interest expense................ -- 80 776 60 291
Other expense (income)--net..... 24 (87) (207) (5) (117)
-------- -------- -------- ------- -------
Earnings (loss) before income
taxes........................ 7,671 9,320 26,511 (3,675) 3,213
Income tax expense (benefit).... 5,684 6,585 12,649 (788) 1,950
-------- -------- -------- ------- -------
Net income (loss)........... $ 1,987 $ 2,735 $ 13,862 $(2,887) $ 1,263
======== ======== ======== ======= =======
Net income (loss) per share
(Note 2)................... $ 0.09 $ 0.12 $ 0.62 $ (0.13) $ 0.06
======== ======== ======== ======= =======
Weighted average number of
shares of common stock and
common stock equivalents
outstanding................ 22,427 22,427 22,427 22,434 22,284
======== ======== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated and Combined Financial Statements.
F-4
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON TREASURY PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK CAPITAL DEFICIT EQUITY
------ -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
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 earnings..... -- -- -- 13,862 13,862
Currency translation...... -- -- -- 249 249
Common stock issued in
IPO...................... 138 -- 263,053 -- 263,191
Treasury stock acquired... -- (2,146) -- -- (2,146)
---- ------- -------- -------- --------
Balance at December 31,
1996....................... 224 (2,146) 374,832 (12,362) 360,548
Current year earnings
(unaudited).............. -- -- -- 1,263 1,263
Currency translation
(unaudited).............. -- -- -- 184 184
Restricted Stock
(unaudited).............. -- -- 758 -- 758
Treasury stock acquired
(unaudited).............. -- (987) -- -- (987)
---- ------- -------- -------- --------
Balance at March 31, 1997... $224 ($3,133) $375,590 $(10,915) $361,766
==== ======= ======== ======== ========
</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,
---------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used
in) operating activities: (UNAUDITED)
Net income (loss) from
operations.................. $ 1,987 $ 2,735 $ 13,862 ($2,887) $ 1,263
Depreciation and amortization
of intangibles.............. 8,174 13,405 20,810 3,548 5,595
Amortization of goodwill..... 6,607 7,446 7,572 1,889 1,908
Other--net................... 121 -- -- -- --
Net change in assets and
liabilities................. (8,685) (13,651) (18,511) 2,298 3,441
-------- -------- -------- ------- -------
Net cash provided by
operating activities...... 8,204 9,935 23,733 4,848 12,207
Cash flows used for investing
activities:
Capital expenditures........... (9,940) (28,459) (37,589) (7,860) (7,719)
Other investments including
acquisitions, net of cash... (19,987) (15,330) -- -- (1,950)
-------- -------- -------- ------- -------
Net cash used for investing
activities................ (29,927) (43,789) (37,589) (7,860) (9,669)
Cash flows provided by (used
for) financing activities:
Borrowings and advances from
related parties............. 253,396 325,381 131,592 75,389 --
Repayments of borrowings and
advances from related party. (231,673) (296,526) (380,084) (74,431) --
Change in borrowings......... -- 1,300 19,584 1,956 (454)
Change in capital stock...... -- -- 138 -- --
Proceeds from initial public
offering.................... -- -- 263,053 -- --
Purchase of treasury stock... -- -- (2,146) -- (987)
Capital contribution from R.
R. Donnelley................ -- 3,935 -- -- --
-------- -------- -------- ------- -------
Net cash provided by (used
for) financing activities. 21,723 34,090 32,137 2,914 (1,441)
-------- -------- -------- ------- -------
Effect of exchange rate changes
on cash and cash equivalents.. -- (236) 249 98 184
-------- -------- -------- ------- -------
Net increase (decrease) in cash
and equivalents............... -- -- 18,530 -- 1,281
Cash and equivalents at begin-
ning of period................ -- -- -- -- 18,530
-------- -------- -------- ------- -------
Cash and equivalents at end of
period........................ $ -- $ -- $ 18,530 $ -- $19,811
======== ======== ======== ======= =======
The changes in assets and liabilities, net of balances assumed through
acquisitions, were as follows:
Decrease (increase) in assets:
Receivables--net............. $(12,418) $ (8,470) $(30,781) 9,040 10,200
Inventories--net............. (829) (1,244) (1,064) (1,409) (450)
Prepaid expenses............. 432 (4,545) (1,103) (1,089) (3,933)
Current deferred income
taxes....................... (486) 560 (168) -- --
Deferred income taxes........ -- (149) 149 -- --
Other assets................. (1,602) (3,106) (2,147) (1,076) 480
Increase (decrease) in liabili-
ties:
Accounts payable............. 246 (1,954) 866 (860) (1,478)
Accrued compensation......... 2,299 151 2,467 (1,272) (2,040)
Deferred revenue............. 2,924 1,157 2,329 (1,285) 115
Other accrued liabilities.... (2,034) 4,873 8,859 (400) 1,292
Deferred income taxes........ 28 (1,121) 252 -- 10
Other noncurrent liabilities. 2,755 197 1,830 649 (755)
-------- -------- -------- ------- -------
Net change in assets and
liabilities............... $ (8,685) $(13,651) $(18,511) $ 2,298 $ 3,441
======== ======== ======== ======= =======
</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" 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. 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.
Metromail was a wholly owned subsidiary of R. R. Donnelley & Sons Company
("R. R. Donnelley") until June 19, 1996 when the Company completed an initial
public offering of 13.8 million shares of its common stock (the "IPO"),
reducing R. R. Donnelley's ownership in the Company to 38.4%. Metromail had
been 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, as well as International Communication
& Data Plc ("CD") and Data by Design ("DBD"), which were affiliates of
Metromail in 1995. ICD was an affiliate of Metromail and an indirect wholly
owned subsidiary of R. R. Donnelley located in the United Kingdom. DBD was 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. ICD was
contributed to Metromail by R. R. Donnelley in February 1996. Subsequent to
this contribution, ICD purchased all of the assets of DBD. 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. Metromail, its wholly
owned subsidiaries, ICD and DBD are collectively referred to hereinafter as
the "Company".
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.
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 an initial term of
three years. The license provides for an initial license fee, subsequent
annual license and maintenance fees and customer support service fees. Initial
license fee 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. Annual license and maintenance fees are recognized
over the balance of the contract in accordance with specific contract terms.
F-7
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 $3.6 million, $5.1
million and $5.0 million for the years ended 1994, 1995 and 1996,
respectively.
Per Share Information
Net income per share for the years ended December 31, 1996, 1995 and 1994
has been computed using the weighted average number of common stock and common
stock equivalents outstanding for the year ended December 31, 1996 which
reflects the shares issued by the Company upon completion of the IPO as if
they were outstanding for all years presented.
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 included in shareholders' equity 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 3 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 the cost of databases and data,
internal software, software development 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.
Costs incurred for routine maintenance and updating of databases are
expensed as incurred. However, the Company does capitalize the costs incurred
to acquire databases, significantly enhance existing databases, acquire lists
and acquire data through Company-generated surveys. Such databases and data
enhancements are stated at cost and are amortized over their estimated useful
life of three years.
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, 1996 included $9.7 million related to a major
redesign of the file structure
F-8
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
of the Company's database. This new database structure supports the delivery
of the Company's information service offerings. The costs related to this
redesign will be amortized 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, 1994, 1995 and 1996. Management does
not believe any material impairment of long-lived assets exists as of December
31, 1996.
Income Taxes
Metromail and its wholly owned subsidiaries have been included in the
consolidated federal income tax return of R. R. Donnelley through June 19,
1996 (the date of completion of the IPO). 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. Prior to completion of the IPO, income taxes were paid by R. R.
Donnelley on behalf of Metromail.
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.
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
Prior to completion of the IPO, the Company participated in various employee
benefit programs which were sponsored by R. R. Donnelley. These programs
included medical, dental and life insurance and workers'
F-9
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
compensation. The Company reimbursed R. R. Donnelley for its proportionate
cost of these programs based on historical experience and relative headcount.
The costs reimbursed to R. R. Donnelley included 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 $7.3 million, $8.8
million and $5.5 million in the years ended December 31, 1994 and 1995 and the
period from January 1, 1996 through the completion of the IPO, respectively.
These 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 prior to
completion of the IPO. Except as discussed below, 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 in respect of
periods ended prior to completion of the IPO.
At the completion of the IPO, the Company and R. R. Donnelley entered into a
Benefit Administration Services Agreement. This agreement, among other things,
permitted the Company to continue to participate in the welfare plans of R. R.
Donnelley until the Company established its own welfare plans, which it did on
July 1, 1996. The Benefit Administration Services Agreement also required the
Company to 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 continued to participate in such plans
following completion of the IPO 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. The costs incurred by the Company under this
agreement in respect of the Company's participation in R. R. Donnelley's
employee benefit plans for the period from completion of the IPO through
December 31, 1996 were $1.3 million.
Post-Retirement Medical and Life Insurance Benefits
Prior to completion of the IPO, the Company also participated in a post-
retirement benefit program sponsored by R. R. Donnelley, which provides
certain post-retirement medical and life insurance benefits. Prior to
completion of the IPO, the Company 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 to the reimbursement of these costs of
approximately $2.1 million, $1.8 million and $1.2 million in the years ended
December 31, 1994, 1995 and 1996, respectively. Under the Benefit
Administration Services Agreement, the Company assumed the liability to
provide retiree medical and life insurance benefits with respect to active
employees who had not yet satisfied the age and service eligibility
requirements to receive such benefits as of the completion of the IPO and R.
R. Donnelley retained the liability to provide retiree benefits to all active
and terminated employees who had met the age and service requirements for
eligibility as of the completion of the IPO. 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 $4.8 million and $6.0 million as of December 31,
1995 and 1996, 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 other noncurrent
liabilities in the accompanying financial statements.
Corporate Services
Prior to completion of the IPO, R. R. Donnelley provided certain support
services to the Company, including legal, tax, treasury, benefits
administration, real estate, audit and corporate development services. These
charges were 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 $1.4 million,
$1.8 million and $1.3 million for the years ended December 31, 1994 and 1995
and
F-10
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
the period from January 1, 1996 through the completion of the IPO,
respectively, and are included in general and administrative expenses in the
accompanying income statements. 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 during
the periods prior to completion of the IPO. However, the Company believes that
such allocation was reasonable and in accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin No. 55.
At the completion of the IPO, the Company and R. R. Donnelley entered into a
Transition Services Agreement, pursuant to which R. R. Donnelley or its
affiliates agreed to perform certain legal, environmental, real estate, risk
management and tax services for the Company, and the Company agreed to furnish
R. R. Donnelley certain financial information. The costs incurred by the
Company under this agreement for the period from completion of the IPO through
December 31, 1996 were $0.2 million.
Metromail Computer Processing Services
Prior to completion of the IPO, the Company provided computer processing
services to R. R. Donnelley for most of the corporate software applications
used by R. R. Donnelley. The Company charged 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
$3.1 million, $3.5 million and $1.8 million for the years ended December 31,
1994 and 1995 and the period from January 1, 1996 through the completion of
the IPO, respectively. These amounts have been recorded as reductions of
database and production costs in the accompanying income statement. The
Company believes these reimbursed costs reasonably approximate the actual
costs incurred by the Company.
At the completion of the IPO, the Company entered into a Data Center
Services Agreement with R. R. Donnelley. Under the Data Center Services
Agreement, the Company provides 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 IPO 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 pays
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. The fees paid by R. R. Donnelley under the agreement for the
period from completion of the IPO through December 31, 1996 were $2.3 million.
Sales through R. R. Donnelley
The Company sold products and services to clients who were also clients of
R. R. Donnelley. For some of these sales, the Company's clients were billed by
R. R. Donnelley. R. R. Donnelley then allocated to the Company that portion of
the revenue attributable to the Company's performed services, as agreed upon
by the Company and its client. Sales approximated $20.9 million, $22.7 million
and $21.8 million for the years ended December 31, 1994, 1995 and 1996,
respectively. The receivables from the Company's clients related to sales
prior to the completion of the IPO are excluded from the Company's balance
sheets as R. R. Donnelley retained risk of loss with collection. The
receivables from R. R. Donnelley related to these sales were included in
short-term debt and advances due to related party discussed in Note 11.
F-11
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At the completion of the Offering, the Company and R. R. Donnelley entered
into a Sales Agreement. Pursuant to the Sales Agreement, if R. R. Donnelley
successfully sells the services of the Company to a customer, R. R. Donnelley
will, following performance of the services, invoice and seek to collect the
amounts owed from such 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. Under this agreement, revenue
attributable to the Company's performed services are recognized at the
completion of the Company's services. The Company retains the risk of loss
related to these sales and $4.9 million of sales are included in receivables
at December 31, 1996.
Stock Purchase Plan
Prior to completion of the IPO, the Company participated in a stock purchase
plan for selected managers and key staff employees which was sponsored by R.
R. Donnelley. Under the plan, the Company contributed an amount equal to 70%
of participants' contributions, of which 50% was applied to the purchase of R.
R. Donnelley Common Stock and 20% was paid in cash. Amounts charged to expense
by the Company for this plan were $0.6 million and $0.3 million for the years
ended December 31, 1994 and 1995, respectively. The Company did not
participate in this plan in 1996. Accordingly, no amounts were charged to
expense by the Company for this plan for the year ended December 31, 1996.
Pursuant to the Benefit Administration Services Agreement between R. R.
Donnelley and the Company, the Company ceased being a participant in the R. R.
Donnelley stock purchase plan at completion of the IPO.
Tax Allocation and Indemnification Agreement
Prior to completion of the IPO, the Company was included in the consolidated
federal income tax return of R. R. Donnelley and filed on a combined basis
with R. R. Donnelley in certain states. Thus, rather than paying income taxes
directly in these jurisdictions, the Company made 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 provided that the consolidated or
combined tax liability was 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. As a result of completion of
the IPO, the Company is no longer permitted to be included in such
consolidated and combined tax returns. Instead, it files 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 entered into
by the Company and R. R. Donnelley at the completion of the IPO, the Company
remained obligated to pay to R. R. Donnelley any income taxes shown on R. R.
Donnelley's 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 IPO (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).
F-12
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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 that prior to completion of the IPO 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.
4. INVENTORIES
The components of the Company's inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $2,662 $2,119
Work in process............................................ 4,060 3,539
------ ------
Total.................................................... $6,722 $5,658
====== ======
</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,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................. $ 1,439 $ 1,439
Buildings and improvements........................... 30,328 27,208
Machinery, equipment and computer hardware........... 64,247 52,290
-------- --------
Total property and equipment....................... 96,014 80,937
Accumulated depreciation............................. (50,701) (43,392)
-------- --------
Net property and equipment......................... $ 45,313 $ 37,545
======== ========
</TABLE>
Depreciation expense included in the Consolidated and Combined Statements of
Operations was $5.2 million, $6.5 million and $8.6 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-13
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Databases and software development costs.............. $ 65,410 $ 44,811
Goodwill.............................................. 276,761 274,329
-------- --------
Total intangibles................................. 342,171 319,140
Accumulated amortization.............................. (86,372) (66,614)
-------- --------
Total intangibles, net............................ $255,799 $252,526
======== ========
</TABLE>
Amortization expense included in the Consolidated and Combined Statements of
Operations was $9.6 million, $14.4 million and $19.8 million for the years
ended December 31, 1994, 1995 and 1996, respectively.
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 $4.0 million
and $4.9 million as of December 31, 1995 and 1996, 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 $1.8 million expire in the year 2010. The benefits
associated with these credits are recorded in earnings from operations in the
amount of approximately $1.0 million for each of the years ended December 31,
1994, 1995 and 1996. 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
F-14
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................... $2,178 $1,386 $1,602
Interest cost on the projected benefit obliga-
tion........................................... 2,391 2,027 1,893
Actual (return) loss on plan assets............. (5,410) (6,506) 625
Amortization of unrecognized prior service costs
and of net obligation at adoption of SFAS No.
87 and deferrals............................... 2,549 4,542 (2,443)
------ ------ ------
Total expense............................... $1,708 $1,449 $1,677
====== ====== ======
</TABLE>
The actuarial computations that derived the above amounts assumed a discount
rate on the projected benefit obligations of 7.50% at December 31, 1996, 7.25%
at December 31, 1995 and 8.5% at December 31, 1994, an expected long-term rate
of return on Plan assets of 9.5% and annual salary increases of 4.0%.
In June of 1992 certain accrued benefits and assets relating thereto were
transferred to the Plan from the Oregon Printing Industry Pension Plan (the
"OPI Benefits"). In connection with the IPO, in July of 1996, the OPI Benefits
(approximately $1.9 million) were transferred from the Plan to the R. R.
Donnelley Norwest Pension Plan. Had these assets been excluded from plan
assets, pension expense would not have been materially impacted for the years
ended December 31, 1994, 1995 and 1996, 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>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of Plan assets............................. $38,432 $33,095
------- -------
Actuarial present value of benefit obligations:
Vested.............................................. 24,482 22,756
Non-vested.......................................... 1,527 1,709
------- -------
Total accumulated benefit obligations................. 26,009 24,465
Additional amounts related to projected wage increas-
es................................................... 9,175 9,264
------- -------
Projected benefit obligations for services rendered to
date................................................. 35,184 33,729
------- -------
Plan assets (liabilities) under projected benefit ob-
ligations............................................ 3,248 (634)
Unrecognized prior service cost....................... 1,213 867
Unrecognized net (gain) loss from experience.......... (2,385) 1,157
Unrecognized portion of net transition obligation..... 751 920
------- -------
Prepaid pension costs............................... $ 2,827 $ 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.
F-15
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Benefits under the Pension 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 retirement benefits is limited by such
provisions, an amount equal to any reduction in retirement benefits will be
paid as supplemental benefit under the Unfunded Supplemental Benefit Plan
effective January 1, 1996. In 1996, $0.3 million was charged to expense. The
accumulated benefit obligation of $0.4 million was recorded in other accrued
liabilities at December 31, 1996. At December 31, 1996 the related projected
benefit obligation was $1.2 million.
As a subsidiary of R. R. Donnelley, the Company also provided certain health
care and life insurance benefits for retired employees as part of a post-
retirement benefit program sponsored by R. R. Donnelley. Subsequent to the
IPO, the Company continues to provide certain health care and life insurance
benefits for retired employees similar to those sponsored under the R. R.
Donnelley program. 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.
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 or the Company during 1994, 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 913 $1,088 $1,353
Interest cost..................................... 646 742 707
Amortization of prior service cost................ (378) -- --
------ ------ ------
Total expense................................. $1,181 $1,830 $2,060
====== ====== ======
</TABLE>
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>
1996 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Accumulated post-retirement benefit obligation for active
plan participants not yet fully eligible to retire and
receive benefits.......................................... $4,766 $4,647
Unrecognized prior service cost.......................... 863 --
Unrecognized net gain.................................... 345 185
------ ------
Net post-retirement liability............................ $5,974 $4,832
====== ======
</TABLE>
This liability, net of associated deferred taxes receivable from R. R.
Donnelley, has been reflected in other noncurrent liabilities. R. R. Donnelley
is liable for payments of post-retirement medical and life insurance benefits
for all other employees of the Company as of the completion of the IPO.
The actuarial computations assume a discount rate of 7.25% (8.5% at December
31, 1995) 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 1996 post-retirement benefit expense
by less than $0.1 million and the accumulated post-retirement benefit
obligation as of December 31, 1996 by approximately $0.2 million.
F-16
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASE OBLIGATIONS
The Company leases office space and various equipment. The leases are mainly
accounted for as operating leases. Rental costs under the operating lease
agreements approximated $8.7 million, $9.4 million and $10.0 million for the
years ended December 31, 1994, 1995 and 1996, respectively.
Minimum future lease obligations in effect at December 31, 1996 are:
<TABLE>
<CAPTION>
OBLIGATION
--------------
(IN THOUSANDS)
<S> <C>
Period ending December 31,
1997..................................................... $10,747
1998..................................................... 9,697
1999..................................................... 8,905
2000..................................................... 7,331
2001 and thereafter...................................... 8,878
-------
Total.................................................. $45,558
=======
</TABLE>
The Company is treating the lease of a computer as a capital lease. This
lease was initiated on October 1, 1996 and is for a five-year period. The
gross asset value recorded under this lease is $4.8 million. Accumulated
amortization at December 31, 1996 was approximately $0.2 million and was
included in depreciation expense for the year.
Minimum future lease obligations and imputed interest in effect at December
31, 1996 are:
<TABLE>
<CAPTION>
OBLIGATION
-------------------------
(IN THOUSANDS)
PRINCIPAL INTEREST TOTAL
--------- -------- ------
<S> <C> <C> <C>
Period ending December 31,
1997.......................................... $ 822 $347 $1,169
1998.......................................... 892 277 1,169
1999.......................................... 969 200 1,169
2000.......................................... 1,051 118 1,169
2001.......................................... 847 29 876
------ ---- ------
Total....................................... $4,581 $971 $5,552
====== ==== ======
</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
"ADDITIONAL INFORMATION REGARDING METROMAIL--Business of Metromail--Legal
Proceedings."
F-17
<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 and advances due to a related party consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
----- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable and accrued interest payable to Caslon
Incorporated:
Grid Note, dated October 12, 1987..................... $ -- $ 57,934
Fixed Note, 9.75%, dated August 13, 1987.............. -- 160,000
Advance due R. R. Donnelley........................... -- 30,558
----- --------
Total debt and accrued interest..................... $ -- $248,492
===== ========
</TABLE>
Caslon Incorporated is a wholly owned subsidiary of R. R. Donnelley. The
Grid Note was paid in full with a portion of the net proceeds of the IPO.
Prior to completion of the IPO, the Grid Note funded operating and investing
activities of the Company's domestic operations. Interest on the Grid Note was
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, 1995, the interest rate on the Grid
Note was 8.75%. The Fixed Note was paid in full with a portion of the net
proceeds of the IPO. Interest on the Fixed Note was 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 $5.2 million
as of December 31, 1995.
The debt is classified on the accompanying balance sheet in accordance with
the above stated terms. The Grid Note and the Fixed Note are classified as
short term at December 31, 1995.
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. Prior to
completion of the IPO, this payable was periodically transferred by R. R.
Donnelley into the Grid Note borrowings discussed above.
12. DEBT
Prior to the IPO, ICD had a $4.6 million revolving credit agreement. The
amount outstanding under this facility was $1.9 million at December 31, 1995.
The Company has entered into a credit agreement with a syndicate of banks
(the "Credit Agreement") under which it is entitled to borrow up to $45
million on a revolving credit basis. Borrowings under the Credit Agreement
mature in 2001 and bear interest (i) at the prime rate announced by the bank
acting as agent for the syndicate, (ii) at the 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. At
December 31, 1996, there was $21.5 million outstanding under the credit
agreement resulting from the repayment of related party debt for ICD and
borrowings to provide operating funds for the Company's U.K. operations.
Interest paid, net of capitalized interest and related party interest, was
$0.6 million in 1996.
F-18
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
13. INCOME TAXES
The components of the provision for taxes for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal............................................. $ 9,118 $5,435 $4,929
State............................................... 1,989 832 755
Foreign............................................. 1,542 318 --
------- ------ ------
Total tax provision............................... $12,649 $6,585 $5,684
======= ====== ======
</TABLE>
The current and deferred portions of the income tax provision are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current........................................... $12,357 $7,295 $6,142
Deferred.......................................... 292 (710) (458)
------- ------ ------
Total provision................................. $12,649 $6,585 $5,684
======= ====== ======
</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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal rate............................................ 35.0% 35.0% 35.0%
State taxes............................................. 6.0 8.9 9.8
Foreign taxes........................................... -- 2.4 --
Goodwill amortization................................... 8.9 23.0 27.7
Other................................................... 0.8 1.4 1.6
---- ---- ----
Effective tax rate.................................... 50.7% 70.7% 74.1%
==== ==== ====
</TABLE>
As of December 31, 1995 and 1996, total current deferred tax assets and
total noncurrent deferred tax (liability) asset are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Allowance for doubtful accounts........................... $ 690 $ 594
Inventory................................................. (1,086) (1,200)
Vacation liability........................................ 756 678
Payroll and related liabilities........................... -- 153
Miscellaneous, other...................................... 433 400
------ ------
Total net current deferred tax asset.................... 793 625
------ ------
Accumulated depreciation.................................. (3,906) (3,006)
Goodwill and intangibles.................................. 1,172 974
Other intangibles......................................... (1,014) 1,146
Pension accrual........................................... (267) (898)
Post retirement liabilities............................... 2,424 1,933
Miscellaneous, other...................................... -- --
------ ------
Total net noncurrent deferred tax (liability) asset..... (1,591) 149
------ ------
Total................................................... $ (798) $ 774
====== ======
</TABLE>
F-19
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
Taxes payable are included in debt and advances due to R. R. Donnelley and
its subsidiaries for the year ended December 31, 1995. Taxes payable at
December 31, 1996 are included in other accrued liabilities. Cash payments for
income taxes were $7.2 million for the period from completion of the IPO
through December 31, 1996.
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.
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.
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.
15. STOCK INCENTIVE PLANS
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. Under the 1996 Stock Incentive Plan, 1,168,500 options and
37,000 shares of restricted Common Stock were granted in 1996. The 1,147,500
options granted on June 19, 1996 have an exercise price per share of $20.50
and the 3,500 options granted on August 27, 1996 have an exercise price per
share of $18.1875. These options vest in four annual 25% installments on each
of the first four anniversaries of the date of grant. Non-employee directors
of the Company were granted 17,500 options on September 1, 1996. Such options
have an exercise price per share of $17.5626 and vest on September 1, 1997.
Each option granted under the 1996 Stock Incentive Plan has a 10-year term.
Options to purchase 142,750 shares of Common Stock were granted on June 19,
1996 under the 1996 Broad-Based Employee Stock Plan and have an exercise price
of $20.50. Each such option has a 10-year term and will become exercisable on
June 19, 1999. No options were exercised or cancelled during 1996.
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for stock
options been determined consistent with FASB Statement No. 123, the Company's
net income and net income per share for 1996 would have been reduced by $1.6
million and $0.07, respectively. These plans were not effective for 1995,
accordingly 1995 and prior years were not affected by this accounting. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: weighted
average risk-free interest of 7.1%; no expected dividend yield; expected life
of ten years; weighted average volatility of 36%. Management has provided this
information in accordance with the requirements of FASB Statement No. 123. The
value attached
F-20
<PAGE>
METROMAIL CORPORATION AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
to the stock options using the Black-Scholes model, which was intended to
value short-term, publicly-traded options, may vary significantly due to the
lack of history to measure the market for the Common Stock. The Company will
continue to revise this calculation annually to report a more current
estimate.
16. OTHER ACCRUED LIABILITIES
The balance in other accrued liabilities consists of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Taxes.................................................... $ 7,755 $ 4,671
Capital lease............................................ 4,581 4,670
Data/royalties........................................... 3,363 3,806
Amount due to related party.............................. 4,600 --
Customer deposits........................................ 422 2,127
Other.................................................... 7,839 3,932
------- -------
Total................................................ $28,560 $19,206
======= =======
</TABLE>
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1996:
Direct marketing sales................. $26,984 $37,121 $34,028 $52,623
Database marketing sales............... 14,910 18,838 20,792 21,727
Reference sales........................ 12,475 13,387 13,410 15,150
------- ------- ------- -------
Total net sales...................... 54,369 69,346 68,230 89,500
Earnings from operations............... 1,725 8,713 10,893 15,927
Net income (loss)...................... (2,887) 1,484 5,947 9,318
Earnings (loss) per share.............. (.13) 0.07 0.27 0.42
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1995:
Direct marketing sales................. $25,303 $28,557 $31,853 $36,590
Database marketing sales............... 13,557 16,305 16,165 21,383
Reference sales........................ 10,972 11,531 13,105 11,866
------- ------- ------- -------
Total net sales...................... 49,832 56,393 61,123 69,839
Earnings from operations............... 3,095 10,445 7,267 9,835
Net income (loss)...................... (1,733) 2,464 548 1,456
Earnings (loss) per share.............. (0.07) 0.11 0.02 0.06
</TABLE>
F-21
<PAGE>
ATLANTES CORPORATION
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-23
Balance Sheets as of December 31, 1995 and 1996 and unaudited as of March
31, 1997................................................................. F-24
Statements of Operations for the Years Ended December 31, 1994, 1995 and
1996 and unaudited for the Three Months Ended March 31, 1997............. F-25
Statements of Stockholders' Equity for the Years Ended December 31, 1994,
1995 and 1996 and unaudited for the Three Months Ended March 31, 1997.... F-26
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and unaudited for the Three Months Ended March 31, 1996 and 1997.... F-27
Notes to Financial Statements............................................. F-28
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Atlantes Corporation:
We have audited the accompanying balance sheets of Atlantes Corporation (a
Colorado corporation) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atlantes Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years ended December 31, 1996 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
February 6, 1997.
F-23
<PAGE>
ATLANTES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
ASSETS
------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash..................................... $ 377,973 $ 186,244 $ 203,998
Accounts receivable (Note 5)............. 195,769 234,614 316,465
Prepaid expenses......................... 8,970 -- --
---------- ---------- ----------
Total current assets................... 582,712 420,858 520,463
---------- ---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment.................. 22,433 29,474 29,474
Computer equipment....................... 108,888 108,040 120,549
Leasehold improvements................... 3,816 -- --
---------- ---------- ----------
135,137 137,514 150,023
Accumulated depreciation................. (63,977) (75,705) (83,310)
---------- ---------- ----------
Property and equipment, net............ 71,160 61,809 66,713
---------- ---------- ----------
OTHER ASSETS, net of accumulated
amortization of $594, $698 and $698,
respectively.............................. 1,604 1,500 1,500
---------- ---------- ----------
Total assets........................... $ 655,476 $ 484,167 $ 588,676
========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable......................... $ 93,714 $ 105,535 $ 150,991
Accrued payroll related expenses......... 34,742 38,689 12,451
Other accrued liabilities................ 1,018 3,150 8,735
Revolving line of credit................. -- -- 3,917
---------- ---------- ----------
Total current liabilities.............. 129,474 147,374 176,094
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 4
and 5)
STOCKHOLDERS' EQUITY (Note 3):
Preferred stock, no par value; 500,000
shares authorized, none issued.......... -- -- --
Common stock, no par value; 1,000,000
shares authorized, 476,803 shares issued
and outstanding......................... 1,777,135 1,882,038 1,903,338
Warrants for the purchase of 100,287
shares of common stock.................. 426,986 426,986 426,986
Accumulated deficit...................... (1,678,119) (1,972,231) (1,917,742)
---------- ---------- ----------
Total stockholders' equity............. 526,002 336,793 412,582
---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $ 655,476 $ 484,167 $ 588,676
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-24
<PAGE>
ATLANTES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------ --------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Direct marketing sales.. $1,000,461 $ 1,167,185 $ 1,834,765 $ 356,353 $ 672,548
Database and production
costs.................. (455,285) (565,942) (748,747) (167,285) (221,490)
General and
administrative
expenses............... (952,283) (1,116,297) (1,380,130) (285,838) (392,652)
---------- ----------- ----------- --------- ---------
Earnings (losses) from
operations............. (407,107) (515,054) (294,112) (96,770) 58,406
Interest expense........ (166,270) (4,270) -- -- (3,917)
---------- ----------- ----------- --------- ---------
Net income (loss)..... $ (573,377) $ (519,324) $ (294,112) $ (96,770) $ 54,489
========== =========== =========== ========= =========
Net income (loss) per
share (Note 2)....... $ (1.50) $ (1.11) $ (0.62) $ (0.20) $ 0.09
========== =========== =========== ========= =========
Weighted average
number of shares of
common stock and
common stock
equivalents
outstanding.......... 382,336 466,749 476,803 476,803 635,167
========== =========== =========== ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-25
<PAGE>
ATLANTES CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
WARRANTS FOR
COMMON STOCK COMMON STOCK
------------------ ----------------
NUMBER NUMBER TOTAL
OF OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
------- ---------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1993................... 369,836 $ 802,871 69,212 $245,819 $ (585,418) $ 463,272
Issuance in June 1994
of common stock and
warrants for common
stock for cash of
$100,000 and
conversion of
$100,000 of principal
and accrued interest
on notes payable to
stockholders (Notes
3)................... 25,000 170,833 5,000 29,167 -- 200,000
Issuance of warrants
in November 1994 in
connection with the
extension of the
maturities of notes
payable to
stockholders (Notes
3)................... -- -- 26,075 152,000 -- 152,000
Compensation related
to the issuance of
stock options to
employees (Note 3)... -- 159,593 -- -- -- 159,593
Net loss.............. -- -- -- -- (573,377) (573,377)
------- ---------- ------- -------- ----------- ---------
BALANCES, December 31,
1994................... 394,836 1,133,297 100,287 426,986 (1,158,795) 401,488
Issuance in January
1995 of common stock
for cash of $82,705
and conversion of
$477,130 principal
and accrued interest
on notes payable to
stockholders (Note
3)................... 81,967 559,835 -- -- -- 559,835
Compensation related
to the issuance of
stock options to
employees (Note 3)... -- 84,003 -- -- -- 84,003
Net loss.............. -- -- -- -- (519,324) (519,324)
------- ---------- ------- -------- ----------- ---------
BALANCES, December 31,
1995................... 476,803 1,777,135 100,287 426,986 (1,678,119) 526,002
Compensation related
to the issuance of
stock options to
employees (Note 3)... -- 104,903 -- -- -- 104,903
Net loss.............. -- -- -- -- (294,112) (294,112)
------- ---------- ------- -------- ----------- ---------
BALANCES, December 31,
1996................... 476,803 1,882,038 100,287 426,986 (1,972,231) 336,793
Compensation related
to the issuance of
stock options to
employees (Note 3)
(unaudited).......... -- 21,300 -- -- -- 21,300
Net income
(unaudited).......... -- -- -- -- 54,489 54,489
------- ---------- ------- -------- ----------- ---------
BALANCES, March 31, 1997
(unaudited)............ 476,803 $1,903,338 100,287 $426,986 $(1,917,742) $ 412,582
======= ========== ======= ======== =========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-26
<PAGE>
ATLANTES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------- ------------------
1994 1995 1996 1996 1997
---------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (573,377) $(519,324) $(294,112) $(96,770) $ 54,489
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating
activities--
Depreciation and
amortization 12,647 43,188 36,602 6,950 7,605
Loss on retirement of
assets -- -- 2,996 -- --
Noncash compensation
related to issuance of
stock options to
employees 159,593 84,003 104,903 21,000 21,300
Financing costs
resulting from value
of warrants issued to
note holders 152,000 -- -- -- --
Accrued interest
converted to common
stock -- 4,270 -- -- --
(Increase) decrease
in--
Accounts receivable (806,213) 642,554 (38,845) 10,255 (81,851)
Prepaid expenses and
deposits 6,696 (5,966) 8,970 (950) --
Increase (decrease)
in--
Accounts payable 49,854 19,769 11,820 460 45,456
Accrued payroll
related expenses and
other accrued
expenses 33,650 (8,612) 6,079 (23,464) (20,653)
Advances from
employees (5,815) -- -- -- --
---------- --------- --------- -------- --------
Net cash provided by
(used in) operating
activities (970,965) 259,882 (161,587) (82,519) 26,346
---------- --------- --------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment (39,161) (55,318) (30,142) (13,663) (12,509)
---------- --------- --------- -------- --------
Net cash used in
investing activities (39,161) (55,318) (30,142) (13,663) (12,509)
---------- --------- --------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from revolving
line of credit -- -- -- -- 3,917
Proceeds from stockholder
loans 559,758 -- -- -- --
Repayments of stockholder
loans (9,500) -- -- -- --
Proceeds from issuance of
common stock and
warrants related to
common stock 100,000 82,705 -- -- --
Proceeds from stock
subscription receivable 445,000 -- -- -- --
---------- --------- --------- -------- --------
Net cash provided by
financing activities 1,095,258 82,705 -- -- 3,917
---------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN
CASH 85,132 287,269 (191,729) (96,182) 17,754
CASH, beginning of period 5,572 90,704 377,973 377,973 186,244
---------- --------- --------- -------- --------
CASH, end of period $ 90,704 $ 377,973 $ 186,244 $281,791 $203,998
========== ========= ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Payment of notes payable
and accrued interest
through issuance of
common stock $ -- $ 477,130 $ -- $ -- $ --
========== ========= ========= ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-27
<PAGE>
ATLANTES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS
Nature of Business
Atlantes Corporation (the "Company") was incorporated in the state of
Colorado in September 1991. The Company has developed a proprietary computer
database which accumulates and provides access to consumer product purchasing
information. The Company provides consumer database management services,
primarily to durable goods manufacturers, in exchange for consumer product
purchasing information and the right to sell selected parts of the consumer
database, in the form of customer lists, to the direct marketing industry. The
Company also provides consumer database and information design services to its
customers.
As of March 31, 1997, the Company has an accumulated deficit of $1,917,742,
and has incurred operating losses for each of the previous three full fiscal
years. The Company may need additional working capital in the future; however,
there is no assurance that such working capital will be available. Management
plans to fund future operations through various sources including (a) current
cash on hand, (b) increased continuing revenue, and (c) funding from a line-
of-credit from a financial institution (Note 7).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Database Development
The costs of developing and analyzing the consumer database are expensed as
incurred.
Property and Equipment
Property and equipment are carried at original cost. Depreciation is
calculated on the straight-line method over the estimated useful lives
(ranging from 3 to 7 years) of the respective assets. The cost of normal
maintenance and repairs is expensed as incurred. Material expenditures which
increase the life of an asset are capitalized and depreciated over the
estimated remaining useful life of the asset. The cost of properties sold, or
otherwise disposed of, and the related accumulated depreciation is removed
from the respective accounts, and any resulting gains or losses are reflected
in current operations.
Revenue Recognition Policy
Revenue is recorded when the services have been performed, the data has been
delivered to the customer, and all significant contingencies regarding the
transaction are satisfied.
Interim Results (unaudited)
The accompanying balance sheet as of March 31, 1997, the statements of
operations and of cash flows for the three months ended March 31, 1996 and
1997, and the statement of stockholders' equity for the three months ended
March 31, 1997 are unaudited. In the opinion of management, these interim
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the results of the
interim periods. Operating results for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
F-28
<PAGE>
ATLANTES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and short-term trade
receivables and payables. The carrying values of cash and short-term trade
receivables and payables approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit and Market Risk
The Company has no significant off balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash with
financial institutions, in the form of demand deposits.
The Company performs ongoing evaluations of its customers' financial
condition and generally does not require collateral. Its accounts receivable
balances are domestic and are concentrated among institutions within the
direct marketing industry which is a concentration of market risk. The
Company's operations may be affected by economic fluctuations in this
industry.
Net Income (Loss) Per Share
The Company's net income (loss) per share is based upon the weighted average
of common stock outstanding. Common stock issuable upon the exercise of stock
options and stock warrants has been included in the computation, to the extent
dilutive, using the treasury stock method.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax
bases of assets, liabilities and carryforwards. Deferred tax assets are
recognized for the expected future effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards. Deferred tax
assets are then reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, more likely than not based on current
circumstances, are not expected to be realized (see Note 6).
Effects of Recently Issued Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"), which supersedes Accounting Principles Board Opinion No. 15,
"Earnings Per Share" ("APB No. 15"). SFAS No. 128 simplifies the requirements
for reporting earnings per share ("EPS") by requiring companies only to report
"basic" and "diluted "EPS. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997 but requires retroactive
restatement upon adoption. The Company will adopt SFAS No. 128 in the fourth
quarter of 1997. The Company does not believe such adoption will have a
material effect on either its previously reported earnings per share.
In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure" ("SFAS No. 129"),
which continues the existing requirements of APB No. 15 but expands the number
of companies subject to portions of its requirements. Specifically, SFAS No.
129 requires that entities previously exempt from the requirements of APB No.
15 disclose the pertinent rights and privileges of all securities in addition
to ordinary common stock. SFAS No. 129 is effective for periods ending after
December 15, 1997. The Company was not exempt from APB No. 15; accordingly,
the adoption of SFAS No. 129 will not have any effect on the Company.
F-29
<PAGE>
ATLANTES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) STOCKHOLDERS' EQUITY
Common Stock and Warrants
During December 1993, the Company issued units of Company securities for $40
per unit. Each unit entitles the holder to five shares of common stock and one
warrant to purchase common stock for $1 per share. The $40 unit price was
allocated $6.83 to each share of common stock and $5.83 to each warrant. As of
December 31, 1993, the Company had issued 13,381 units by converting principal
and accrued interest on notes payable of $90,240 in exchange for 2,256 units
and 11,125 units in exchange for a $445,000 subscription receivable. The
subscription receivable was paid in January 1994. Also in connection with the
transaction, three shareholders received warrants to purchase 7,900 shares of
the Company's common stock for $1 in consideration for loans previously made
to the Company. These warrants were issued at no cost to the holders.
During June 1994, the Company entered into a securities purchase agreement
to issue 5,000 units of common stock for $40 per unit. Each unit entitles the
holder to five shares of common stock and one warrant to purchase common stock
at $1 per share. The $40 unit price was allocated $6.83 to each share of
common stock and $5.83 to each warrant. The Company received cash proceeds of
$100,000 and converted $100,000 of principal and accrued interest on notes
payable to stockholders to equity.
During November 1994, the Company issued warrants to purchase 26,075 shares
of the Company's common stock for $1 per share in connection with notes
payable agreements.
During January 1995, the Company issued 12,109 shares of common stock for
$82,705 of cash and converted $477,130 of principal and accrued interest on
notes payable to stockholders into 69,858 shares of common stock.
As of December 31, 1996, the Company has reserved 100,287 shares of common
stock for issuance upon exercise of outstanding warrants. Each warrant
entitles the holder to purchase one share of common stock at $1 per share. The
purchase right represented by the warrant is exercisable in whole or in part,
at any time following the grant date until the earlier of five years from the
grant date or the effective date of an initial public offering.
Stock Option Plan
The Company has adopted a Stock Option Plan (the "Plan") to provide
directors, officers and other employees options to purchase up to 122,910
shares of the Company's common stock. Under the terms of the Plan, the Board
of Directors may grant directors, officers and employees either nonqualified
or incentive stock options (as defined by the Internal Revenue Service). The
options vest annually over a five-year period with the first year vested in
advance unless special provisions are voted on by the Board of Directors on an
individual basis, and expire ten years from the date of grant. In addition,
vesting will be automatic upon the sale of the Company or a merger whereby the
Company is not the surviving entity. Total compensation related to the grant
of stock options at less than their fair market value on the date of grant
through December 31, 1995 and 1996 totaled $425,845 and $530,345,
respectively, of which $160,782, $84,003 and $104,903 were recorded for the
years ended December 31, 1994, 1995 and 1996, respectively, and has been
included in general and administrative expense, and as of December 31, 1996,
$180,657 of deferred compensation will be recognized over the remaining
vesting period.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
SFAS 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of
compensation cost for such plans using the intrinsic value based method
prescribed by APB Opinion No. 25,
F-30
<PAGE>
ATLANTES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
"Accounting for Stock Issued to Employees" ("APB 25"), provided that pro forma
disclosures are made of net income or loss, assuming the fair value based
method of SFAS 123 had been applied. The Company has elected to account for
its stock-based compensation plans under APB 25; accordingly, for purposes of
the pro forma disclosures presented below, the Company has computed the fair
values of all options granted during 1996 using the Black-Scholes pricing
model and the following weighted average assumptions (no options were granted
during 1995):
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Risk-free interest rate......................................... 6.44%
Expected dividend yield......................................... 0%
Expected lives outstanding...................................... 5.0 years
Expected volatility............................................. .001%
</TABLE>
To estimate the lives of options for this valuation, it was assumed options
will be exercised upon becoming fully vested. All options are assumed to vest.
Cumulative compensation costs recognized in pro forma net income or loss with
respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture.
Because the Company's common stock is not publicly traded, the expected market
volatility assumed to be .001%. Actual volatility of the Company's common
stock may vary. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of options granted.
For the years ended December 31, 1995 and 1996, the Company recorded $84,003
(relating to options granted prior to 1995) and $104,903, respectively, of
compensation expense, in accordance with APB 25. Additional pro forma stock-
based compensation, net of the effect of forfeitures, was $0 and $7,932 for
1995 and 1996, respectively. These amounts are amortized ratably over the
vesting periods of the options or recognized at date of grant if no vesting
period is required.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and pro forma net loss would
have been reported as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<C> <S> <C> <C>
Net loss: As reported.............................. $(519,324) $(294,112)
Pro forma................................ $(519,324) $(302,044)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
A summary of stock options as of December 31, 1994, 1995 and 1996 and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
BALANCES, as of December 31, 1993 10,000 $1.00
Granted 71,500 $1.12
-------
BALANCES, as of December 31, 1994 81,500 $1.10
Granted -- --
-------
BALANCES, as of December 31, 1995 81,500 $1.10
Granted 20,900 $2.00
-------
BALANCES, as of December 31, 1996 102,400 $1.10
=======
Weighted average fair value of options
granted as of December 31, 1996 $5.54
</TABLE>
F-31
<PAGE>
ATLANTES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about the options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 64,500 7.6 years $1.00 53,182 $1.00
$1.50 17,000 7.8 years $1.50 10,200 $1.50
$2.00 20,900 9.7 years $2.00 4,180 $2.00
------- ------
102,400 8.1 years $1.29 67,562 $1.13
======= ======
</TABLE>
(4) COMMITMENTS
Office Lease
The Company leases office space expiring March 31, 1998, under a
noncancelable operating lease. Aggregate future minimum rental commitments
under noncancelable operating leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31--
1997.......................................................... $ 59,761
1998.......................................................... 24,820
1999.......................................................... 10,358
2000.......................................................... 5,138
--------
Totals........................................................ $100,077
========
</TABLE>
Rent expense was $41,708, $32,242 and $41,535 for the years ended December
31, 1994, 1995 and 1996, respectively.
The Company is subject to various claims and business disputes in the
ordinary course of business. Management does not anticipate that the ultimate
outcome of these issues will have a material impact on the Company's financial
position or results of operations.
(5) MAJOR CUSTOMERS
For 1994, 1995 and 1996, the Company had one major customer which
individually comprised more than 10% of total sales. Revenue from this
customer totaled approximately 75%, 78% and 86%, respectively, of total
revenue. At December 31, 1995 and 1996, this customer comprised approximately
50% and 62% of accounts receivable, respectively.
(6) INCOME TAXES
From its inception, the Company has generated losses in each full fiscal
year for both financial reporting and tax purposes. The potential future tax
benefit of the net operating loss carryforward is approximately $572,000 as of
December 31, 1996. This asset has been completely offset by a valuation
allowance because it does not satisfy the realization criteria set forth in
SFAS No. 109.
For income tax reporting purposes, the Company may utilize approximately
$1,500,000 of net operating loss carryforwards which expire beginning in 2009.
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including changes in ownership interests, such as that discussed
in Note 7.
F-32
<PAGE>
ATLANTES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(7) SUBSEQUENT EVENTS (UNAUDITED)
On March 12, 1997, the Company entered into a $250,000 revolving line of
credit with a financial institution. The revolving line of credit bears
interest at prime plus 1.5%, is due on March 12, 1998, and is collateralized
by certain assets of the Company. The revolving line of credit also includes
various covenants and restrictions, some of which relate to quick ratio and
tangible net worth and profitability. The Company was in compliance with its
covenants as of March 31, 1997.
On May 17, 1997, the Company entered into an agreement with Metromail
Corporation ("Metromail"), pursuant to which the Company would become a
wholly-owned subsidiary of Metromail upon consummation of the merger, which is
expected in the second or third quarter of 1997.
F-33
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 17, 1997
AMONG
METROMAIL CORPORATION,
MML MERGING COMPANY
AND
ATLANTES CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I DEFINITIONS.................................................... A-1
1.1. Definitions.................................................... A-1
ARTICLE II THE MERGER AND CONVERSION TERMS............................... A-5
2.1. The Merger..................................................... A-5
2.2. Conversion Terms............................................... A-5
2.3. Election of Stock or Cash...................................... A-7
2.4. Proration of Company Common Stock.............................. A-8
2.5. Proration of Company Warrants.................................. A-9
2.6. Company Stock Options.......................................... A-9
2.7. Parent to Make Cash Available.................................. A-10
2.8. Parent to Make Stock Certificates Available.................... A-10
2.9. Dividends and Distributions; Withholding....................... A-11
2.10. Fractional Shares.............................................. A-12
2.11. Changes in Parent Common Stock................................. A-12
2.12. Dissenters' Rights............................................. A-12
ARTICLE III CONTINGENT SHARES............................................ A-12
3.1. Definitions.................................................... A-12
3.2. Target Performance Criteria.................................... A-15
3.3. Determination of Contingent Payments........................... A-15
3.4. Delivery and Valuation of Contingent Shares.................... A-16
3.5. Contingent Payment Committee................................... A-17
3.6. Assignability.................................................. A-17
3.7. Maximum Number of Contingent Shares; Maximum Aggregate
Contingent Payment Amounts.................................... A-18
3.8. Right of Offset................................................ A-18
3.9. Time Limit..................................................... A-20
3.10. Operation of the Business of the Company After the Effective
Time........................................................... A-20
3.11. Contingent Payments Following Exceptional Events............... A-20
3.12. Delivery of Only Parent Common Stock........................... A-20
ARTICLE IV CLOSING....................................................... A-20
4.1. Closing Date................................................... A-20
4.2. Filing Articles of Merger and Effectiveness.................... A-21
4.3. Parent's Deliveries............................................ A-21
4.4. Mergerco's Deliveries.......................................... A-21
4.5. The Company's Deliveries....................................... A-21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. A-22
5.1. Organization and Capital Structure............................. A-22
5.2. Subsidiaries................................................... A-23
5.3. Authority...................................................... A-23
5.4. Financial Statements........................................... A-24
5.5. Operations Since Balance Sheet Date............................ A-24
5.6. No Undisclosed Liabilities..................................... A-25
5.7. Taxes.......................................................... A-26
5.8. Availability of Assets......................................... A-27
5.9. Governmental Permits........................................... A-27
5.10. Registration Statement and Proxy Statement..................... A-27
5.11. Real Property.................................................. A-27
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.12. Condemnation............ A-28
5.13. Personal Property....... A-28
5.14. Personal Property
Leases.................. A-28
5.15. Intellectual Property;
Software................ A-28
5.16. Accounts Receivable..... A-29
5.17. Title to Property....... A-29
5.18. Employee Benefit Plans.. A-29
5.19. Employee Relations...... A-31
5.20. Contracts; Warranties... A-31
5.21. Status of Contracts..... A-32
5.22. No Violation, Litigation
or Regulatory Action.... A-33
5.23. Environmental Matters... A-33
5.24. Insurance............... A-33
5.25. No Finder............... A-33
5.26. Disclosure.............. A-33
5.27. Financial Projections... A-33
5.28. Opinion of Financial
Advisor................. A-34
5.29. Vote Required........... A-34
5.30. Acceptable Consumer
Disclosure.............. A-34
ARTICLE VI REPRESENTATIONS AND
WARRANTIES OF PARENT AND
MERGERCO......................... A-34
6.1. Organization and Capital
Structure............... A-34
6.2. Authority............... A-34
6.3. No Finder............... A-35
6.4. Parent SEC Documents.... A-35
6.5. Operations Since
December 31, 1996....... A-36
6.6. Registration Statement
and Proxy Statement..... A-36
6.7. Issuance of Merger
Shares.................. A-36
6.8. No Violation, Litigation
or Regulatory Action.... A-36
6.9. Disclosure.............. A-37
ARTICLE VII ACTION PRIOR TO THE
EFFECTIVE TIME................... A-37
7.1. Registration Statement.. A-37
7.2. Action by Shareholders.. A-37
7.3. Action by Parent........ A-37
7.4. Investigation of the
Company and Parent...... A-37
7.5. Preserve Accuracy of
Representations and
Warranties.............. A-38
7.6. Consents of Third
Parties; Governmental
Approvals............... A-38
7.7. Conduct of Business by
the Company Prior to the
Effective Time.......... A-38
7.8. Notification of Certain
Matters................. A-40
7.9. Mutual Cooperation;
Reasonable Best Efforts. A-40
7.10. No Solicitation......... A-40
7.11. Listing Application..... A-40
7.12. Subsequent Financial
Statements.............. A-40
7.13. Comfort Letters......... A-40
7.14. Reorganization.......... A-41
7.15. Affiliate Letters....... A-41
ARTICLE VIII ADDITIONAL AGREE-
MENTS............................ A-41
8.1. Accounts Receivable..... A-41
8.2. Third Party Standstill
Agreements.............. A-42
8.3. Indemnification of
Directors............... A-43
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IX CONDITIONS PRECEDENT TO THE MERGER............................ A-43
9.1. Conditions to Each Party's Obligation to Effect the Merger.... A-43
9.2. Conditions to Obligation of the Company to Effect the Merger.. A-44
9.3. Conditions to Obligations of Parent and Mergerco to Effect the
Merger........................................................ A-45
ARTICLE X TERMINATION.................................................... A-47
10.1. Termination Rights............................................ A-47
10.2. Notice of Termination......................................... A-48
10.3. Effect of Termination......................................... A-48
ARTICLE XI GENERAL PROVISIONS............................................ A-48
11.1. Survival of Obligations....................................... A-48
11.2. Confidential Nature of Information............................ A-48
11.3. No Public Announcement........................................ A-48
11.4. Notices....................................................... A-48
11.5. Successors and Assigns........................................ A-49
11.6. Entire Agreement; Amendments.................................. A-49
11.7. Interpretation................................................ A-49
11.8. Waivers....................................................... A-49
11.9. Enforcement of this Agreement................................. A-50
11.10. Fees and Expenses............................................. A-50
11.12. Partial Invalidity............................................ A-50
11.12. Execution in Counterparts..................................... A-50
11.13. Further Assurances............................................ A-50
11.14. Governing Law................................................. A-50
11.15. Submission to Jurisdiction.................................... A-50
11.16. Arbitration................................................... A-50
</TABLE>
LIST OF EXHIBITS
Exhibit A:Form of Employment Agreements
Exhibit B:Form of Affiliate Letter
A-iii
<PAGE>
SCHEDULES
Schedule 3.2Earn-out Tables
Schedule 3.11Discount Rate
Schedule 5.1(A)Foreign Qualifications
Schedule 5.1(B)Capitalization
Schedule 5.1(C)Holders of Common Stock, Warrants and Stock Options
Schedule 5.1(D)Agreements regarding Capital Stock
Schedule 5.2Subsidiaries
Schedule 5.3(B)Authority
Schedule 5.4Financial Statements
Schedule 5.5Operations Since Balance Sheet Date
Schedule 5.5(A)Material Changes or Events
Schedule 5.5(B)Changes in the Course of Business
Schedule 5.6Liabilities
Schedule 5.7(A)Tax Liabilities
Schedule 5.7(B)Net Operating Losses
Schedule 5.7(D)Parachute Payments
Schedule 5.8Availability of Assets
Schedule 5.9(A)Governmental Permits
Schedule 5.9(B)Obligations Under Governmental Permits
Schedule 5.11Real Property
Schedule 5.13Personal Property
Schedule 5.14Personal Property Leases
Schedule 5.15(A)Intellectual Property
Schedule 5.15(B)Owners and Licensors of Computer Software
Schedule 5.15(C)Agreements regarding: Intellectual Property and Software
Schedule 5.15(D)Exceptions to Intellectual Property and Software Ownership
Schedule 5.15(E)Material Breach regarding Intellectual Property and Software
Schedule 5.15(F)Exceptions to Registration and Ownership of Intellectual
Property and Software
Schedule 5.15(G)Infringements to Intellectual Property
Schedule 5.15(H)Trade Secrets
Schedule 5.17Title to Property
Schedule 5.18(A)Employee Welfare Benefit Plans
Schedule 5.18(B)Non-ERISA Commitments
Schedule 5.18(D)Administration of ERISA Plan
Schedule 5.18(G)Salesperson Remuneration
Schedule 5.18(H)Conflicts of Interest
Schedule 5.18(I)Material Property and Services
Schedule 5.19Employee Relations
Schedule 5.20Contracts; Warranties
Schedule 5.21Status of Contracts
Schedule 5.22Violation, Litigation and Regulatory Action
Schedule 5.23Environmental Matters
Schedule 5.24Insurance
Schedule 5.25Wallach Fee
Schedule 5.30Consumer Disclosure
Schedule 5.30(i)Exception to Consumer Disclosure
Schedule 6.8Litigation
Schedule 7.7Conduct of Business
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 17, 1997,
among Metromail Corporation, a Delaware corporation ("Parent"), MML Merging
Company, a Colorado corporation ("Mergerco"), Atlantes Corporation, a Colorado
corporation (the "Company"), (Mergerco and the Company being hereinafter
sometimes referred to as the "Constituent Corporations").
WITNESSETH:
WHEREAS, Mergerco is a Colorado corporation having an authorized capital of
1,000 shares of common stock, par value $.01 per share, 100 shares of which
are issued and outstanding and owned of record and beneficially by Parent; and
WHEREAS, the Company is a Colorado corporation having an authorized capital
of (i) 1,000,000 shares of common stock, no par value per share (the "Company
Common Stock"), of which, as of the date hereof, 476,803 shares are issued and
outstanding, and (ii) 500,000 shares of preferred stock, no par value per
share, none of which, as of the date hereof, is issued and outstanding; and
WHEREAS, the respective Board of Directors of each of the Constituent
Corporations has approved and adopted this Agreement pursuant to which
Mergerco shall be merged with and into the Company (the "Merger") and has
directed that this Agreement be submitted to their respective shareholders for
approval; and
WHEREAS, for federal income tax purposes, the parties hereto intend the
Merger to constitute a reorganization described in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Parent, Mergerco and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed among the parties as follows:
ARTICLE I
Definitions
1.1. Definitions In this Agreement, the following terms have the meanings
specified or referred to in this Section 1.1 and shall be equally applicable
to both the singular and plural forms. Any agreement referred to below shall
mean such agreement as amended, supplemented and modified from time to time to
the extent permitted by the applicable provisions thereof and by this
Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Associate" of any Person means (i) a corporation or organization of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity and (iii) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
director or officer of the Person or any of its parents or subsidiaries.
"Balance Sheet" means the audited balance sheet of the Company as of
December 31, 1996 included in Schedule 5.4.
"Balance Sheet Date" means December 31, 1996.
A-1
<PAGE>
"CBCA" means the Colorado Business Corporation Act, as amended.
"Closing" means the closing of the Merger of Mergerco with and into the
Company in accordance with Article IV.
"Closing Date" has the meaning specified in Section 4.1.
"Code" has the meaning specified in the fourth recital of this Agreement.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Company Agreements" has the meaning specified in Section 5.21.
"Company Ancillary Agreements" means all agreements, instruments and
documents being or to be executed and delivered by the Company under this
Agreement or in connection herewith.
"Company Common Stock" has the meaning specified in the second recital of
this Agreement.
"Company Group" means any "affiliated group" (as defined in Section 1504(a)
of the Code without regard to the limitations contained in Section 1504(b) of
the Code) that, at any time on or before the Effective Time, includes or has
included the Company or any subsidiary or any predecessor of or successor to
the Company or any subsidiary (or another such predecessor or successor), or
any other group of corporations that, at any time on or before the Effective
Time, files or has filed Tax Returns on a combined, consolidated or unitary
basis with the Company or any subsidiary or any predecessor of or successor to
the Company or any subsidiary (or another such predecessor or successor).
"Company Property" means any real or personal property, plant, building,
facility, structure, underground storage tank, equipment or unit, or other
asset owned, leased or operated by the Company (including any surface water
thereon or adjacent thereto and any soil or ground water thereunder), whether
currently or at any previous time.
"Company Shareholder Meeting" has the meaning specified in Section 7.2.
"Company Stock Options" means the option agreements granted under the
Company's 1992 Stock Option Plan for the purchase of an aggregate of 102,400
shares of Company Common Stock.
"Company Warrants" means the warrants to purchase an aggregate of 100,287
shares of Company Common Stock, as set forth in Schedule 5.1.
"Confidentiality Agreement" means that certain Confidentiality Agreement
dated February 7, 1997 between Parent and the Company.
"Contaminant" means any waste, pollutant, hazardous or toxic substance or
waste, petroleum, petroleum-based substance or waste, special waste, or any
constituent of any such substance or waste.
"Contingent Shares" means the shares of Parent Common Stock which may be
issued from time to time pursuant to Article III.
"Court Order" means any judgment, order, award or decree of any foreign,
federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Dissenting Shares" means shares of Company Common Stock held by any
shareholder of the Company who shall have taken the necessary steps under the
CBCA to dissent and obtain payment for the Company Common Stock held by such
shareholder and who otherwise is and becomes entitled to receive such payment
under the CBCA.
A-2
<PAGE>
"Effective Date" and "Effective Time" have the respective meanings specified
in Section 4.2.
"Effective Date Parent Common Stock Value" means the lesser of (i) the
arithmetic mean of the high and low trading prices on the NYSE of Parent
Common Stock on the Effective Date (as reported in the NYSE Composite
Transactions), (ii) the last sale price on the Effective Date, or the closing
bid price if no sale occurred on the Effective Date, of Parent Common Stock on
the NYSE, and (iii) the arithmetic mean of the high and low trading prices on
the NYSE of the Parent Common Stock (as reported in the NYSE Composite
Transactions) for the 10 trading days immediately preceding the Effective
Date.
"Employment Agreements" means those certain Employment Agreements between
Parent and E. Thomas Detmer, Jr., William Anderson and Peter A. O'Neil,
respectively, each in the form contained in Exhibit A.
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect
in title, covenant or other restriction of any kind.
"Environmental Law" means all Requirements of Laws derived from or relating
to all federal, state and local laws or regulations relating to or addressing
the environment, health or safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means (i) any corporation which at any time on or before
the Effective Time is or was a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code) as the
Company; (ii) any partnership, trade or business (whether or not incorporated)
which at any time on or before the Effective Time is or was under common
control (within the meaning of Section 414(c) of the Code) with the Company;
and (iii) any entity which at any time on or before the Effective Time is or
was a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as either the Company, any corporation described
in clause (i) or any partnership, trade or business described in clause (ii).
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Expense" means any and all expenses reasonably incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs, witness
fees and reasonable fees and disbursements of legal counsel, investigators,
expert witnesses, consultants, accountants and other professionals).
"Fixed Shares" means the aggregate number of shares of Parent Common Stock
into which shares of Company Common Stock and Company Warrants are converted
pursuant to Sections 2.2(d)(i) and 2.2(f)(i), respectively.
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Governmental Permits" has the meaning specified in Section 5.9.
"IRS" means the Internal Revenue Service.
"Leased Real Property" has the meaning specified in Section 5.11.
"Losses and Expenses" means any and all losses, costs, obligations,
liabilities, settlement payments, awards, judgments, fines, penalties,
damages, expenses, deficiencies or other charges.
"Material Adverse Effect" means any change or effect (or any development
that, insofar as can be reasonably foreseen, would result in any change or
effect) (exclusive of (i) any changes in economic conditions generally or
relating to the consumer self-reporting data business generally and (ii)
changes in laws and regulations of general applicability) that is materially
adverse to the assets, business, financial condition, results of operations or
prospects of the applicable Person or Persons.
A-3
<PAGE>
"Merger" has the meaning in the third recital of this Agreement.
"Merger Shares" means the Fixed Shares, the Contingent Shares and the Option
Shares.
"Mergerco" has the meaning specified in the first paragraph of this
Agreement.
"NYSE" means the New York Stock Exchange, Inc.
"Option Shares" means the number of shares of Parent Common Stock into which
shares of Company Stock Options are converted pursuant to Section 2.2(h)(i).
"Parent" has the meaning specified in the first paragraph of this Agreement.
"Parent Ancillary Agreements" means all agreements, instruments and
documents being or to be executed and delivered by Parent under this Agreement
or in connection herewith.
"Parent Common Stock" means common stock, par value $.01 per share, of
Parent.
"Parent Group Member" means Parent and its Affiliates and their respective
successors and assigns, including, after the Effective Time, the Surviving
Corporation.
"Parent SEC Documents" has the meaning specified in Section 6.4.
"Permitted Encumbrances" means (a) liens for taxes and other governmental
charges and assessments which are not yet due and payable, (b) liens of
landlords and liens of carriers, warehousemen, mechanics and materialmen and
other like liens arising in the ordinary course of business for sums not yet
due and payable and (c) other liens or imperfections on property which are not
material in amount, do not interfere with, and are not violated by the
consummation of the transactions contemplated by, this Agreement, and do not
materially detract from the value or marketability of, or materially impair
the existing use of, the property affected by such lien or imperfection.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Proxy Statement/Prospectus" has the meaning set forth in Section 7.1.
"Registration Statement" has the meaning set forth in Section 7.1.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any
Company Property, including the movement of Contaminants through or in the
air, soil, surface water, groundwater or any Company Property.
"Remedial Action" means actions required to (i) clean up, remove, treat or
in any other way address Contaminants in the indoor or outdoor environment;
(ii) prevent the Release or threatened Release or minimize the further Release
of Contaminants or (iii) investigate and determine if a remedial response is
needed and to design such a response and post-remedial investigation,
monitoring, operation and maintenance and care.
"Requirements of Laws" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, and zoning requirements and Environmental
Laws) or common law.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
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"Surviving Corporation" has the meaning specified in Section 2.1.
"Tax" (and, with correlative meaning, "Taxes") means: (i) any federal,
state, local or foreign net income, gross income, gross receipts, windfall
profit, severance, property, production, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad
valorem, value-added, transfer, stamp, or environmental 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, addition to tax or
additional amount imposed by any governmental authority; and (ii) any
liability of the Company for the payment of amounts with respect to payments
of a type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group, or as a result of any
obligation of the Company under any Tax Sharing Arrangement or Tax indemnity
arrangement.
"Tax Return" means 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.
"Tax Sharing Arrangement" means any written or unwritten agreement or
arrangement for the allocation or payment of Tax liabilities or payment for
Tax benefits with respect to a consolidated, combined or unitary Tax Return
which Tax Return includes the Company.
ARTICLE II
The Merger and Conversion Terms
2.1. The Merger. (a) Subject to the conditions contained herein and in
accordance with the provisions of this Agreement and the CBCA, at the
Effective Time (as hereinafter defined), Mergerco shall be merged with and
into the Company, which, as the corporation surviving the Merger (the
"Surviving Corporation"), shall continue unaffected and unimpaired by the
Merger to exist under and be governed by the laws of the State of Colorado.
Upon the effectiveness of the Merger, the separate existence of Mergerco shall
cease except to the extent provided by law in the case of a corporation after
its merger into another corporation.
(b) The Merger shall have the effects set forth in Article 111, Section 106
of the CBCA.
(c) The Articles of Incorporation and By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall continue in full force and
effect as the Articles of Incorporation and By-Laws of the Surviving
Corporation. The directors of Mergerco immediately prior to the Effective Time
shall be the directors of the Surviving Corporation, who shall serve until
their respective successors are duly elected and qualified. The officers of
the Company immediately prior to the Effective Time shall be the officers of
the Surviving Corporation until their respective successors are duly elected
and qualified.
2.2. Conversion Terms. As of the Effective Time, by virtue of the Merger and
without any action on the part of any shareholder of the Company or Mergerco:
(a) Each share of common stock of Mergerco issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one fully paid and nonassessable share of common stock, no par value per
share, of the Surviving Corporation.
(b) All shares of Company Common Stock that immediately prior to the
Effective Time are held in the treasury of the Company shall be cancelled
and revert to the status of authorized but unissued shares and no capital
stock of the Surviving Corporation, cash or other consideration shall be
paid or delivered in exchange therefor.
(c) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time which under Section 2.4 is to be converted into
the right to receive cash and the contingent right to receive shares of
Parent Common Stock shall be converted into:
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(i) the right to receive $25.99 in cash, and
(ii) the contingent right to receive, at the time provided in Section
3.4, shares of Parent Common Stock as provided in Article III.
(d) Except for shares of Company Common Stock converted pursuant to
Section 2.2(c) into the right to receive cash and the contingent right to
receive shares of Parent Common Stock and except for Dissenting Shares, and
subject to Sections 2.9 and 2.10, each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time shall be converted
into:
(i) 1.241 validly issued, fully paid and nonassessable shares of
Parent Common Stock, and
(ii) the contingent right to receive, at the time provided in Section
3.4, shares of Parent Common Stock as provided in Article III.
(e) Each Company Warrant outstanding immediately prior to the Effective
Time which under Section 2.5 is to be converted into the right to receive
cash and the contingent right to receive shares of Parent Common Stock
shall, with respect to each share of Company Common Stock issuable upon
exercise of such Company Warrant, be converted into:
(i) the right to receive $24.99 in cash (being $25.99 minus $1.00,
the warrant price for each Company Warrant); and
(ii) the contingent right to receive at the time provided in Section
3.4, shares of Parent Common Stock as provided in Article III.
(f) Each Company Warrant outstanding immediately prior to the Effective
Time except for Company Warrants converted pursuant to Section 2.2(e) into
the right to receive cash and the contingent right to receive shares of
Parent Common Stock shall, with respect to each share of Company Common
Stock issuable upon exercise of such Company Warrant, be converted into:
(i) 1.193 validly issued, fully paid and nonassessable shares of
Parent Common Stock, and
(ii) the contingent right to receive, at the time provided in Section
3.4, shares of Parent Common Stock as provided in Article III.
(g) Subject to Section 2.9(b), each Company Stock Option outstanding
immediately prior to the Effective Time which under Section 2.6 is to be
converted into the right to receive cash and the contingent right to
receive shares of Parent Common Stock shall, with respect to each share of
Company Common Stock issuable upon exercise of such Company Stock Option,
be converted into:
(i) the right to receive $25.99 minus the exercise price of such
Company Stock Option, in cash, and
(ii) the contingent right to receive at the time provided in Section
3.4, shares of Parent Common Stock as provided in Article III.
(h) Subject to Section 2.9(b), each Company Stock Option outstanding
immediately prior to the Effective Time except for Company Stock Options
converted pursuant to Section 2.2(g) into the right to receive cash and the
contingent right to receive shares of Parent Common Stock shall, with
respect to each share of Company Common Stock issuable upon exercise of
such Company Stock Option, be converted into:
(i) (A) for each Company Stock Option with an exercise price of $1.00
per share, 1.193 validly issued, fully paid and nonassessable shares of
Parent Common Stock; (B) for each Company Stock Option with an exercise
price of $1.25 per share, 1.181 validly issued, fully paid and
nonassessable shares of Parent Common Stock;(C) for each Company Stock
Option with an exercise price of $1.50 per share, 1.169 validly issued,
fully paid and nonassessable shares of Parent Common Stock;(D) for each
Company Stock Option with an exercise price of $2.00 per share, 1.145
validly issued, fully paid and nonassessable shares of Parent Common
Stock; and
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(ii) the contingent right to receive, at the time provided in Section
3.4, shares of Parent Common Stock as provided in Article III.
(i) All shares of Company Common Stock, all Company Warrants and all
Company Stock Options converted pursuant to this Section 2.2 shall no
longer be outstanding and shall automatically be cancelled and retired, and
each holder of a certificate or agreement theretofore representing a share
of Company Common Stock ("Company Certificate"), a Company Warrant
("Warrant Certificate") or a Company Stock Option ("Stock Option
Agreement") shall cease to have any rights with respect thereto, except the
right to receive, upon surrender of such Company Certificate, Warrant
Certificate or Stock Option Agreement in accordance with Sections 2.7 and
2.8, cash and/or shares of Parent Common Stock as provided in this Section
2.2, cash in lieu of fractional shares as contemplated by Section 2.10,
shares of Parent Common Stock and cash in lieu of fractional shares
pursuant to Article III and dividends and distributions as contemplated by
Section 2.9.
2.3. Election of Stock or Cash (a) Each holder of shares of Company Common
Stock (other than holders of shares to be cancelled as set forth in Section
2.2(b) and Dissenting Shares), Company Warrants or Company Stock Options may
specify in a request made in accordance with the provisions of this Section
2.3 (an "Election") (i) the number of whole shares, or, with respect to
Company Warrants or Company Stock Options, the number of whole shares into
which such Company Warrants or Company Stock Options may be converted upon
exercise, which such holder desires to have converted into the right to
receive cash in the Merger (a "Cash Election") and (ii) the number of whole
shares, or, with respect to Company Warrants or Company Stock Options, the
number of whole shares into which such Company Warrants or Company Stock
Options may be converted upon exercise, which such holder desires to have
converted into shares of Parent Common Stock in the Merger (a "Stock
Election").
(b) Parent shall authorize American Stock Transfer and Trust Company (or
such other Person as shall be acceptable to Parent and the Company) to receive
Elections and to act as Exchange Agent hereunder (the "Exchange Agent").
Parent shall pay the fees and expenses of the Exchange Agent.
(c) Parent and the Company shall prepare, for use by shareholders of the
Company and by holders of Company Warrants or Company Stock Options, a form
(the "Form of Election") pursuant to which each such holder may make
Elections. The Form of Election shall be mailed, together with the Proxy
Statement/Prospectus, to shareholders of record of the Company as of the
record date for the Company Shareholder Meeting and to holders of Company
Warrants and Company Stock Options whose names are registered on the books and
records of the Company.
(d) The Company shall use reasonable best efforts to make the Form of
Election available to all persons who become shareholders of record of the
Company during the period between such record date and the business day prior
to the date of the Company Shareholder Meeting.
(e) An Election shall have been properly made only if the Exchange Agent
shall have received, by 5:00 p.m., Chicago time, on the business day (such
time on such day being referred to herein as the "Election Date") preceding
the date of the Company Shareholder Meeting, a Form of Election properly
completed and signed and accompanied by any Company Certificates, Warrant
Certificates or Stock Option Agreements representing the shares of Company
Common Stock, Company Warrants or Company Stock Options, respectively, as to
which such Form of Election relates.
(f) Any holder may at any time prior to the Election Date change such
holder's Election by written notice received by the Exchange Agent at or prior
to the Election Date accompanied by a properly completed Form of Election.
Parent and the Company shall have the right in their sole discretion and by
mutual agreement to permit changes in Elections after the Election Date.
(g) Any holder may at any time prior to the Election Date revoke such
holder's Election by written notice received by the Exchange Agent at or prior
to the Election Date or by withdrawal prior to the Election Date of
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any Company Certificates, Warrant Certificates or Stock Option Agreements
previously deposited with the Exchange Agent. Any revocation of an Election
may be withdrawn by notice of such withdrawal delivered at or prior to the
Election Date. Any holder who shall have deposited any Company Certificates,
Warrant Certificates or Stock Option Agreements with the Exchange Agent shall
again have the right to withdraw such Company Certificates, Warrant
Certificates or Stock Option Agreements by written notice received by the
Exchange Agent and thereby revoke such holder's Election as of the Election
Date at any time after the expiration of the period of 60 days following the
Election Date if the Merger shall not have been consummated prior thereto.
Parent shall obtain from the Exchange Agent an agreement to return all Forms
of Election and accompanying Company Certificates, Warrant Certificates or
Stock Option Agreements to the holders submitting the same in the event this
Agreement shall be terminated in accordance with its terms.
(h) Parent and the Company shall have the right to make rules, not
inconsistent with the terms of this Agreement, governing the validity of Forms
of Election, the manner and extent to which Elections are to be taken into
account in making the determinations prescribed by Sections 2.4, 2.5 and 2.6,
the issuance and delivery of certificates for shares of Parent Common Stock
("Parent Certificates") into which shares of Company Common Stock, Company
Warrants and Company Stock Options are converted in the Merger and the payment
for shares of Company Common Stock, Company Warrants and Company Stock Options
converted into the right to receive cash in the Merger.
2.4. Proration of Company Common Stock. The manner in which each share of
Company Common Stock (other than shares to be cancelled as set forth in
Section 2.2(b) and Dissenting Shares) shall be converted in the Merger into
shares of Parent Common Stock or the right to receive cash shall be as set
forth in this Section 2.4.
(a) The number of shares of Company Common Stock to be converted in the
Merger into the right to receive cash shall not exceed the lesser of:
(i) a number equal to (A) the product of 15% times the total number of
shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time minus (B) the number of Dissenting Shares; and
(ii) such number as shall be determined by Parent at the Effective Time
such that the sum of (A) the amount of cash paid in respect of shares of
Company Common Stock pursuant to Section 2.2(c)(i) plus (B) the amount
Parent estimates to be payable to holders of Dissenting Shares shall not
exceed the product of (x) 15% times (y) the sum of (1) the sum of the
amounts described in clauses (A) and (B) above plus (2) the product of (I)
the Effective Date Parent Common Stock Value times (II) the number of
shares of Parent Common Stock delivered pursuant to Section 2.2(d)(i)
(rounded down to the nearest whole share, the "Maximum Common Stock Cash
Election").
(b) If Cash Elections are received for a number of shares (the "Cash
Electing Common Shares") of Company Common Stock which exceeds the Maximum
Common Stock Cash Election, the number of Cash Electing Common Shares to be
converted into cash (and the contingent right to receive Parent Common Stock)
pursuant to Section 2.2(c) shall equal the Maximum Common Stock Cash Election.
The Exchange Agent shall determine by lot (or by such other method as is
deemed reasonable by Parent and the Company) which of such Cash Electing
Common Shares shall be so converted. The balance of such Cash Electing Common
Shares shall be converted into shares of Parent Common Stock (and the
contingent right to receive Parent Common Stock) pursuant to Section 2.2(d).
(c) If Common Stock Cash Elections are received for a number of shares of
Company Common Stock which is less than or equal to the Maximum Common Stock
Cash Election, each Cash Electing Common Share shall be converted in the
Merger into the right to receive cash (and the contingent right to receive
Parent Common Stock) pursuant to Section 2.2(c).
(d) Each Non-Electing Common Share (as defined in Section 2.4(e)) and each
share of Company Common Stock for which Stock Elections have been received
shall be converted into shares of Parent Common Stock (and the contingent
right to receive Parent Common Stock) pursuant to Section 2.2(d).
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(e) For the purpose of this Section 2.4, outstanding shares of Company
Common Stock (other than shares to be cancelled as set forth in Section 2.2(b)
and Dissenting Shares) as to which an Election is not in effect at the
Election Date shall be called "Non-Electing Common Shares." If Parent and the
Company shall determine for any reason that any Election was not properly made
with respect to shares of Company Common Stock, such Election shall be deemed
to be ineffective and shares of Company Common Stock covered by such Election
shall, for purposes hereof, be deemed to be Non-Electing Common Shares.
2.5. Proration of Company Warrants. The manner in which each Company Warrant
shall be converted in the Merger into shares of Parent Common Stock or the
right to receive cash shall be as set forth in this Section 2.5.
(a) The portion of Company Warrants, with respect to the number of shares of
Company Common Stock issuable upon exercise of such Company Warrants, to be
converted in the Merger into the right to receive cash shall not exceed the
lesser of
(i) the product of 15% times the total number of shares of Company Common
Stock issuable upon exercise of the Company Warrants outstanding
immediately prior to the Effective Time; and
(ii) such number as shall be determined by Parent at the Effective Time
such that the amount of cash paid in respect of Company Warrants pursuant
to Section 2.2(e)(i) shall not exceed the product of (A) 15% times (B) the
sum of (1) such amount of cash plus (2) the product of (I) the Effective
Date Parent Common Stock Value times (II) the number of shares of Parent
Common Stock delivered pursuant to Section 2.2(f)(i)
(rounded down to the nearest whole share, the "Maximum Warrant Cash
Election").
(b) If Cash Elections are received for a number of shares (the "Cash
Electing Warrant Shares") of Company Common Stock issuable upon exercise of
Company Warrants which exceeds the Maximum Warrant Cash Election, the number
of Cash Electing Warrant Shares to be converted into cash (and the contingent
right to receive Parent Common Stock) pursuant to Section 2.2(e) shall equal
the Maximum Warrant Cash Election. The Exchange Agent shall determine by lot
(or by such other method as is deemed reasonable by Parent and the Company)
which of such Cash Electing Warrant Shares shall be so converted. The balance
of such Cash Electing Warrant Shares shall be so converted into shares of
Parent Common Stock (and the contingent right to receive Parent Common Stock)
pursuant to Section 2.2(f).
(c) If Cash Elections are received for a number of shares of Company Common
Stock issuable upon exercise of Company Warrants which is less than or equal
to the Maximum Warrant Cash Election, each Cash Electing Warrant Share shall
be converted in the Merger into the right to receive cash (and the contingent
right to receive Parent Common Stock) pursuant to Section 2.2(e).
(d) Each Non-Electing Warrant Share (as defined in Section 2.5(e)) and each
share of Company Common Stock issuable upon exercise of Company Warrants for
which Stock Elections have been received shall be converted into shares of
Parent Common Stock (and the contingent right to receive Parent Common Stock)
pursuant to Section 2.2(f).
(e) For the purpose of this Section 2.5, shares of Company Common Stock
issuable upon exercise of Company Warrants as to which an Election is not in
effect at the Election Date shall be called "Non-Electing Warrant Shares." If
Parent and the Company shall determine for any reason that any Election was
not properly made with respect to any Company Warrant, such Election shall be
deemed to be ineffective and shares of Company Common Stock issuable upon
exercise of Company Warrants covered by such Election shall, for purposes
hereof, be deemed to be Non-Electing Warrant Shares.
2.6. Company Stock Options. The manner in which Company Stock Options shall
be converted in the Merger into shares of Parent Common Stock or the right to
receive cash shall be as set forth in this Section 2.6.
(a) For each share of Company Common Stock issuable upon exercise of Company
Stock Options with respect to which a Cash Election is received (the "Cash
Electing Option Shares"), each such share shall be
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converted in the Merger into the right to receive cash (and the contingent
right to receive Parent Common Stock) pursuant to Section 2.2(g).
(b) Each Non-Electing Option Share (as defined in Section 2.6(c)) and each
share of Company Common Stock issuable upon exercise of Company Stock Options
for which Stock Elections have been received shall be converted into shares of
Parent Common Stock (and the contingent right to receive Parent Common Stock)
pursuant to Section 2.2(h).
(c) For the purpose of this Section 2.6, shares of Company Common Stock
issuable upon exercise of Company Stock Options as to which an Election is not
in effect at the Election Date shall be called "Non-Electing Option Shares."
If Parent and the Company shall determine for any reason that any Election was
not properly made with respect to any Company Stock Option, such Election
shall be deemed to be ineffective and shares of Company Common Stock issuable
upon exercise of Company Stock Options covered by such Election shall, for
purposes hereof, be deemed to be Non-Electing Option Shares.
2.7. Parent to Make Cash Available. Parent shall make available to Mergerco,
which in turn shall make available to the Exchange Agent on the Effective
Date, cash sufficient to satisfy the payments to be made pursuant to Sections
2.2(c)(i), 2.2(e)(i) and 2.2(g)(i) (such cash to be included as part of the
Exchange Fund as defined in Section 2.8). After the Effective Time, the
Exchange Agent shall distribute to holders of shares of Company Common Stock,
Company Warrants and Company Stock Options converted into the right to receive
cash (and the contingent right to receive Parent Common Stock) pursuant to
Sections 2.2(c), 2.2(e) and 2.2(g), respectively, upon surrender to the
Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Company Certificates, Warrant Certificates or Stock
Option Agreements for cancellation, a check for an amount equal to the amounts
determined pursuant to Sections 2.2(c)(i), 2.2(e)(i) and 2.2(g)(i), such
distribution to be made as soon as practicable (but no later than 30 days)
following such surrender. In no event shall the holder of any such surrendered
Company Certificates, Warrant Certificates or Stock Option Agreements be
entitled to receive interest on any of the funds to be received in the Merger.
If such check is to be sent to a Person other than the Person in whose name
the Company Certificates, Warrant Certificates or Stock Option Agreements are
registered, it shall be a condition of the exchange that the Person requesting
such exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the delivery of such check to a Person other than the
registered holder of the Company Certificates surrendered or other than the
Person listed on any Warrant Certificate or Stock Option Agreement, or shall
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to a holder of a Company
Certificate, Warrant Certificate or Stock Option Agreement for any amount paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
2.8. Parent to Make Stock Certificates Available. (a) As soon as practicable
after the Effective Time (but no later than 30 days), Parent shall deposit
with the Exchange Agent, in trust for the holders of Company Certificates,
Warrant Certificates and Stock Option Agreements, Parent Certificates
representing the shares of Parent Common Stock issuable pursuant to Sections
2.2(d), 2.2(f) and 2.2(h) in exchange for the outstanding shares of Company
Common Stock, Company Warrants and Company Stock Options, and cash as required
to make payments in lieu of any fractional shares pursuant to Section 2.10
(such cash and shares of Parent Common Stock, together with any dividends or
distributions with respect thereto in accordance with Section 2.9 and cash
deposited pursuant to Section 2.7, being hereinafter referred to as the
"Exchange Fund").
(b) As soon as practicable after the Effective Time (but no later than 30
days), the Exchange Agent shall mail or otherwise deliver to each record
holder of a Company Certificate, Warrant Certificate or Stock Option Agreement
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Company Certificates, Warrant Certificates
or Stock Option Agreements shall pass, only upon actual delivery thereof to
the Exchange Agent and shall contain instructions for use in effecting the
surrender of the Company Certificates, Warrant Certificates or Stock Option
Agreements in exchange for the property described in the next
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sentence). Upon surrender for cancellation to the Exchange Agent of all
Company Certificates, Warrant Certificates or Stock Option Agreements (to the
extent not previously surrendered with a Form of Election) held by any record
holder of a Company Certificate, Warrant Certificate or Stock Option Agreement
together with such letter of transmittal duly executed, such holder shall be
entitled to receive in exchange therefor a Parent Certificate representing the
number of whole shares of Parent Common Stock into which the shares of Company
Common Stock represented by the surrendered Company Certificates, Warrant
Certificates or Stock Option Agreements shall have been converted at the
Effective Time pursuant to this Article II, cash in lieu of any fractional
share of Parent Common Stock in accordance with Section 2.10 and certain
dividends and other distributions in accordance with Section 2.9; and the
Company Certificates, Warrant Certificates or Stock Option Agreements so
surrendered shall forthwith be cancelled.
(c) Any portion of the Exchange Fund which remains undistributed to the
former holders of shares of Company Common Stock, Company Warrants and Company
Stock Options for six months after the Effective Time shall be delivered to
Parent, upon its request, and any such former holders who have not theretofore
complied with this Article II shall thereafter look only to Parent for payment
of their claim for shares of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock, any dividends or distributions with
respect to such shares of Parent Common Stock and any cash deposited pursuant
to Section 2.7. Neither Parent nor the Company shall be liable to any former
holder of shares of Company Common Stock, Company Warrant or Company Stock
Option for any such shares of Parent Common Stock held in the Exchange Fund
which are delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company shall be
closed, and no transfer of shares of Company Common Stock shall thereafter be
made. If, after the Effective Time, Company Certificates are presented to the
Surviving Corporation, they shall be cancelled and exchanged as provided in
this Article II.
2.9. Dividends and Distributions; Withholding. (a) Any dividend or other
distribution paid in respect of Parent Common Stock to holders of record on or
after the Effective Date and otherwise payable to the holder of an outstanding
Company Certificate, Warrant Certificate or Stock Option Agreement shall,
until the surrender of such Company Certificate, Warrant Certificate or Stock
Option Agreement and the issuance of a Parent Certificate in respect thereof,
be retained by Parent, and no such dividend or other distribution payable in
respect of Parent Common Stock shall be paid to such holder until such Company
Certificate, Warrant Certificate or Stock Option Agreement shall have been so
surrendered to Parent. Upon surrender of each such Company Certificate,
Warrant Certificate or Stock Option Agreement and issuance in exchange
therefor of shares of Parent Common Stock, there shall be paid by Parent to or
at the direction of the holder of the Parent Certificate, the amount of all
dividends and distributions which became payable to holders of record on or
after the Effective Date in respect of the number of whole shares of Parent
Common Stock represented by the Parent Certificate so issued. In no event
shall the holder of any Company Certificate, Warrant Certificate or Stock
Option Agreement be entitled to receive interest on any of the funds to be
received in the Merger or on any such dividend or other distribution.
(b) Parent or the Exchange Agent shall be entitled to deduct and withhold
from the consideration (cash, shares of Parent Common Stock or any combination
thereof, as applicable) otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock, Company Warrants or Company Stock
Options such amounts as Parent or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign Tax law (it being understood that the
Company shall be responsible for any employer's tax liability relating to any
such consideration or payment). On or before the business day preceding the
Effective Date, the Company will supply a certificate to Parent and the
Exchange Agent to determine the extent of such deductions or withholding and
the Company represents and warrants that such certificate will be complete and
correct. To the extent that amounts are so withheld by Parent or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock, Company Warrants or Company Stock Options in respect of which such
deduction and withholding was made by Parent or the Exchange Agent.
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2.10. Fractional Shares.. No certificates for fractions of shares of Parent
Common Stock and no scrip or other certificates evidencing fractional
interests in such shares shall be issued pursuant to Section 2.2. If the
conversion of a Person's aggregate holdings of Company Common Stock, Company
Warrants and Company Stock Options at any time results in a fractional share
of Parent Common Stock or interest therein, such Person shall, in lieu
thereof, be paid cash (without interest), rounded to the nearest cent, in an
amount determined by multiplying (i) the Effective Date Parent Common Stock
Value by (ii) the fractional interest to which such holder would otherwise be
entitled. Any person otherwise entitled to a fractional share or interest
shall not be entitled by reason thereof to any voting, dividend or other
rights as a stockholder of Parent.
2.11. Changes in Parent Common Stock. In the event that, during the period
between the date hereof and the Effective Time, any reclassification, stock
split, stock dividend or similar change in respect of the Parent Common Stock
shall occur, then appropriate adjustment shall be made in the number of shares
of Parent Common Stock and/or kind of securities issued as Parent Common Stock
in order to provide holders of Company Common Stock, Company Warrants and
Company Stock Options with the same number of shares of Parent Common Stock
and/or other securities that they would have received after such
reclassification, stock split, stock dividend or similar change if the
Effective Time had occurred immediately prior to such reclassification, stock
split, stock dividend or similar change (and all references herein to the
Parent Common Stock shall be deemed to refer to such adjusted number and/or
kind of securities).
2.12. Dissenters' Rights. Notwithstanding any provision of this Agreement to
the contrary, any Dissenting Shares shall not be converted into or represent a
right to receive any of the consideration provided in Section 2.2, but the
holder shall only be entitled to such rights as are granted by the CBCA. If a
holder of shares of Company Common Stock who has asserted dissenters' rights
as to such shares under Article 113, Section 202 of the CBCA shall effectively
withdraw or otherwise lose (through failure to perfect or otherwise) the right
to dissenters' rights, then, as of the Effective Time or the occurrence of
such event, whichever last occurs, such shares of Company Common Stock shall
be converted into and represent only the right to receive the consideration
provided in Section 2.2(d), without interest, upon the surrender of the
Company Certificate or Company Certificates representing such shares of
Company Common Stock. The Company shall give Parent prompt notice of any
written demands for dissenters' rights of any shares of Company Common Stock,
attempted withdrawals of such demands, and any other instruments served
pursuant to the CBCA received by the Company relating to dissenters' rights.
The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for dissenters'
rights, offer to settle any demands or approve any withdrawal of any such
demands.
ARTICLE III
Contingent Shares
3.1. Definitions. For the purpose of this Article III the following terms
shall have the meanings specified below:
"Acceptable Consumer Disclosure" means consumer disclosure contained on
customer response cards (which may be in electronic form) that meets the
standards adopted by Parent from time to time; provided that any such
disclosure which satisfies the standards of Parent prevailing at the time
such card designs are furnished to clients of the Company for use by
customers of such clients shall be deemed to be Acceptable Consumer
Disclosure notwithstanding a subsequent change to Parent's standards;
provided further, that as of the date hereof, Acceptable Consumer
Disclosure includes disclosure substantially equivalent to the disclosure
set forth in Schedule 5.30.
"Accounting Firm" means Arthur Andersen LLP, or such other accounting
firm as is mutually agreed to by Parent and the Contingent Payment
Committee.
"Aggregate Contingent Payment Amount" as of any date means, the aggregate
Contingent Payment Amounts (computed without regard to clause (ii) of the
definition of Contingent Payment Amount) for all Measurement Periods
completed prior to such date.
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"Annual Record Flow" for a Measurement Period means the sum of the
aggregate number of Qualifying Records, the data from which has been loaded
into the Company's or Parent's database during such Measurement Period.
"Change of Control of the Company" means (i) if Parent and its Affiliates
shall cease to own beneficially (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) a majority of the Company's
outstanding shares of capital stock generally entitled to vote in the
election of directors, or otherwise cease to have the right to elect a
majority of the directors of the Company or (ii) if all or substantially
all of the assets of the Company have been sold, exchanged or otherwise
transferred to a Person other than Parent or one or more of its Affiliates;
provided that the merger of the Company into Parent or any subsidiary of
Parent shall not constitute a Change of Control of the Company.
"Common Record Holder" means a holder of Company Common Stock at the
Effective Time who shall be deemed to be a Common Record Holder of that
number of shares of Company Common Stock equal to the number of shares of
Company Common Stock (other than Dissenting Shares) held by such holder at
the Effective Time.
"Contingent Payment Amount" with respect to each Measurement Period,
means (i) the Contingent Payment Target Amount for such Measurement Period
multiplied by the Payment Percentage for such Measurement Period minus (ii)
the amount of any Losses and Expenses which Parent is entitled to offset
pursuant to Section 3.8.
"Contingent Payment Amount Per Share" with respect to a Measurement
Period means the number (rounded to the nearest hundredth, or if there
shall not be a nearest hundredth, to the next lower hundredth) determined
by dividing (i) the sum of the Contingent Payment Amount and the Dividend
Payment Amount for such Measurement Period by (ii) the total number of
shares of Company Common Stock reflected in the Record Holder List.
"Contingent Payment Committee" means a committee consisting of three
members having the duties set forth in this Article III. The initial
members will be E. Thomas Detmer, Jr., Kyle A. Lefkoff and Jeffrey H.
Schutz. Any vacancy in the Contingent Payment Committee caused by the
death, resignation or incapacity of a member shall be filled by agreement
of the remaining members or, if there are no remaining members, by the
written designation of Record Holders deemed for purposes of Article III to
hold a majority of the shares of Company Common Stock.
"Contingent Payment Target Amount" with respect to each Measurement
Period, means the dollar amount set forth in Table 3.2(a) included in
Schedule 3.2 applicable to such Measurement Period.
"Contingent Payment Target Shortfall" for any Measurement Period means
the excess, if any, of (i) the Contingent Payment Target Amount for such
Measurement Period minus (ii) the Contingent Payment Amount (computed
without regard to clause (ii) of the definition of Contingent Payment
Amount) for such Measurement Period.
"Contingent Share Delivery Date" with respect to a Measurement Period,
means the later of (i) 75 days following the end of such Measurement Period
and (ii) the date 15 days following the date on which the Contingent
Payment Amount for such Measurement Period becomes binding on Parent and
the Record Holders in accordance with Section 3.3, except as otherwise
provided in Sections 3.8(e) and 3.11.
"Contingent Share Earned Date" means, with respect to a Measurement
Period, the first day after the end of such Measurement Period.
"Dividend Payment Amount" for a Measurement Period means the product of
(i) the dollar amount of quarterly cash dividends per share of Parent
Common Stock with a record date on or after the Contingent Share Earned
Date for such Measurement Period but prior to the Contingent Share Delivery
Date for such Measurement Period times (ii) the number determined by
dividing the Contingent Payment Amount for such Measurement Period by the
Parent Stock Price for such Measurement Period.
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"Exceptional Event" means the occurrence prior to December 31, 2001 of
any one of the following:
(i) a final determination by the arbitrator or arbitrators selected
pursuant to Section 11.16 that Parent has materially breached its
obligations under Section 3.10 and that such breach has materially
adversely affected the Company's opportunity to meet the Record Flow
Performance Targets;
(ii) (A) the termination by Parent or the Company of the employment
with Parent or the Company of any two of E. Thomas Detmer, Jr., Peter
O'Neil or William Anderson for any reason other than death, disability
or "Cause" (as defined in their respective Employment Agreements) or
(B) if any two of such persons terminate their employment by Parent or
the Company within three months after the occurrence with respect to
such persons of a "Termination Event" (as defined in such Employment
Agreements) if, in the case of either clause (A) or (B), such
termination occurs prior to December 31, 2001, in the case of Mr.
Detmer, or December 31, 1999, in the case of Mr. O'Neil or Mr.
Andersen;
(iii) a Change of Control of the Company;
(iv) the cessation by the Company (or a successor to the Company) of
the business of collecting data through the use of customer response
cards; or
(v) the commencement by the Company or Parent of a voluntary case
under the federal bankruptcy laws or the filing of a petition against
the Company or Parent under the federal bankruptcy laws which petition
is not dismissed within 90 days.
"Measurement Period" means each of the four calendar year periods ending
December 31, 1998, December 31, 1999, December 31, 2000 and December 31,
2001.
"Parent Stock Price" with respect to a Contingent Share Delivery Date,
means the average of the per share closing prices on the NYSE of Parent
Common Stock (as reported in the NYSE Composite Transactions) during the
ten consecutive trading days ending on the trading day which is five
trading days immediately preceding such Contingent Share Delivery Date.
"Payment Percentage" for a Measurement Period means the percentage set
forth in Table 3.2(b) included in Schedule 3.2 determined to be applicable
based on the Performance Percentage for such Measurement Period, except as
otherwise provided in Section 3.11.
"Performance Percentage" for a Measurement Period means the number
(expressed as a percentage) determined by dividing (i) Annual Record Flow
for such Measurement Period by (ii) the Record Flow Performance Target for
such Measurement Period.
"Qualifying Records" means customer response cards (which may be in
electronic form) which (i) have been designed and developed by the Company
(or are cards not designed and developed by the Company, but are determined
by Parent, in its sole discretion, to be in substantially the same form as
those designed and developed by the Company, provided that such cards are
received by the Company no later than six months following the date of the
consumer purchase transaction date associated with such cards and, provided
further, that the Company shall be given the right to use and the exclusive
right to market all of the demographic and behavioral data from such
cards), (ii) seek responses from purchasers of clients' products or
services, (iii) seek certain demographic and behavioral information, (iv)
contain Acceptable Consumer Disclosure, and (v) are received by the Company
with at least the name and address information completed; provided that
records that contain a non-United States address and multiple records from
the same person for the same product shall not be deemed Qualifying
Records.
"Record Flow Performance Target" with respect to a Measurement Period,
means the target for Annual Record Flow for such Measurement Period as set
forth in Table 3.2(a) included in Schedule 3.2.
"Record Holder" means a holder of Company Common Stock, Company Stock
Options or Company Warrants at the Effective Time who shall be deemed, for
purposes of this Article III, to be the holder of that number of shares of
Company Common Stock as follows: a holder of Company Common Stock shall be
deemed to be the Record Holder of that number of shares equal to the number
of shares of Company
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Common Stock (other than Dissenting Shares) held by such holder at the
Effective Time; a holder of Company Stock Options shall be deemed to be the
Record Holder of the number of shares of Company Common Stock equal to the
number of shares of Company Common Stock issuable upon exercise of such
Company Stock Options immediately prior to the Effective Time; and a holder
of Company Warrants shall be deemed to be the Record Holder of the number
of shares of Company Common Stock equal to the number of shares of Company
Common Stock issuable upon exercise of the Company Warrants immediately
prior to the Effective Time. A certificate as to the names and holdings of
the Record Holders, certified by the Secretary of the Company and agreed
upon by Parent and the Contingent Payment Committee shall be delivered at
Closing (the "Record Holder List"). Parent shall be entitled to rely on
such Record Holder List, as it may be amended from time to time by the
Contingent Payment Committee to reflect changes due to the disposition of
Dissenting Shares and transfers in accordance with Section 3.6, with
respect to the names and respective holdings of such persons.
"Warrant Record Holder" means a holder of Company Warrants at the
Effective Time who shall be deemed to be a Warrant Record Holder of that
number of shares of Company Common Stock equal to the number of Shares of
Company Common Stock issuable upon exercise of the Company Warrants
immediately prior to the Effective Time.
3.2. Target Performance Criteria. (a) The Record Flow Performance Target and
the Contingent Payment Target Amount for each of the Measurement Periods are
set forth in Table 3.2(a) included in Schedule 3.2.
(b) The Payment Percentage for each Measurement Period shall be determined
by reference to the Performance Percentage for such Measurement Period, as
determined in accordance with Table 3.2(b) included in Schedule 3.2.
3.3. Determination of Contingent Payments. (a) Not later than 30 days
following the end of each Measurement Period, Parent shall deliver to the
Contingent Payment Committee a certificate of Parent (each such certificate
being referred to as a "Preliminary Contingent Payment Report") setting forth
Parent's determination with respect to such Measurement Period of:
(i) the Annual Record Flow for such Measurement Period;
(ii) the Performance Percentage for such Measurement Period;
(iii) the Payment Percentage for such Measurement Period; and
(iv) the Contingent Payment Amount for such Measurement Period.
(b) Promptly following receipt of the Preliminary Contingent Payment Report,
the Contingent Payment Committee may review the same and, within 30 days after
the date of such receipt, may deliver to Parent a certificate setting forth
its objections to the determinations set forth in the Preliminary Contingent
Payment Report, together with a summary of the reasons therefor and
calculations which, in its view, are necessary to eliminate such objections.
If the Contingent Payment Committee does not so object within such 30-day
period, the determinations set forth in the Preliminary Contingent Payment
Report shall be final and binding on Parent and each of the Record Holders.
(c) If the Contingent Payment Committee so objects within such 30-day
period, Parent and the Contingent Payment Committee shall use their reasonable
efforts to resolve by written agreement (the "Agreed Adjustments") any
differences as to the determinations set forth in the Preliminary Contingent
Payment Report and, if the Contingent Payment Committee and Parent so resolve
any such differences, the determinations set forth in the Preliminary
Contingent Payment Report as adjusted by the Agreed Adjustments shall be final
and binding on Parent and each of the Record Holders.
(d) If any objections timely raised by the Contingent Payment Committee are
not resolved by Agreed Adjustments within the 15-day period next following
such 30-day period, then Parent and the Contingent
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Payment Committee shall submit the objections that are then unresolved to the
Accounting Firm which shall be directed by Parent and the Contingent Payment
Committee to seek to resolve the unresolved objections as promptly as
reasonably practicable and to deliver written notice to each of Parent and the
Contingent Payment Committee setting forth its resolution of the disputed
matters, and the determinations set forth in the Preliminary Contingent
Payment Report as adjusted by the Agreed Adjustments and by its resolution of
such objections shall be final and binding on Parent and each of the Record
Holders. All objections shall be resolved no later than four years and 11
months after the Closing Date.
(e) The parties hereto shall make available to Parent, the Contingent
Payment Committee (and its respective representatives) and, if applicable, the
Accounting Firm, such books, records and other information as any of the
foregoing may reasonably request to prepare or review any Preliminary
Contingent Payment Report or any matters submitted to the Accounting Firm.
(f) The fees and expenses of the Accounting Firm shall be paid by Parent if
the determination by the Accounting Firm of the unresolved objections
submitted to it pursuant to Section 3.3(d) was closer to the position taken by
the Contingent Payment Committee than to the position taken by Parent and
shall be paid by the Record Holders if the determination by the Accounting
Firm of the unresolved objections submitted to it pursuant Section 3.3(d) was
closer to the position taken by Parent than to the position taken by the
Contingent Payment Committee. Any fees and expenses payable by the Record
Holders pursuant to this Section 3.3(f) shall be, to the extent available,
paid and offset against any amounts otherwise payable to Record Holders.
3.4. Delivery and Valuation of Contingent Shares. (a) On each Contingent
Share Delivery Date or as promptly as practicable thereafter, Parent shall
deposit with the Exchange Agent in trust for the Record Holders certificates
representing the total number of Contingent Shares, if any, to be paid on such
Contingent Share Delivery Date pursuant to this Article III.
(b) On each Contingent Share Delivery Date, each Record Holder shall be
entitled to receive, with respect to each share of Company Common Stock deemed
to be held by such Record Holder according to the Record Holder List, the
number of validly issued, fully paid and nonassessable shares of Parent Common
Stock determined by dividing (i) the Contingent Payment Amount Per Share for
the applicable Measurement Period by (ii) the Parent Stock Price for such
Measurement Period.
(c) In the event of any reclassification, stock split or stock dividend with
respect to the Parent Common Stock, any change of the Parent Common Stock into
other securities or any other dividend or distribution with respect to the
Parent Common Stock, other than quarterly cash dividends, as the same may be
adjusted from time to time in the ordinary course, or if a record date with
respect to any of the foregoing should occur after a Contingent Share Earned
Date and prior to a Contingent Share Delivery Date, the number of shares
determined in accordance herewith shall be appropriately adjusted so as to
afford the equitable benefit of such changes to the Record Holders.
(d) Unless and until certificates for Contingent Shares shall be delivered
to the Record Holders, no dividends payable to holders of record of shares of
Parent Common Stock shall be paid to the Record Holders with respect to such
Contingent Shares, but there shall be paid to the Record Holders (i) upon such
delivery to the Record Holders or as soon as practicable thereafter,
dividends, without interest, with a record date on or after the relevant
Contingent Share Delivery Date and a payment date prior to the date of
delivery of such certificate to the Record Holder; and (ii) at the appropriate
payment date or as soon as practicable thereafter, the dividends, without
interest, with a record date prior to the delivery of the certificate to the
Record Holders, but on or after the applicable Contingent Share Delivery Date,
and a payment date subsequent to such delivery.
(e) The Exchange Agent shall deliver any certificates representing
Contingent Shares payable to the Record Holders pursuant to this Article III
to the Record Holders at the addresses of the Record Holders as they appeared
on the stock records of the Company at the Effective Time or such other
addresses as the Record Holders shall provide to the Exchange Agent by written
notice. No fractional shares of Parent Common Stock
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shall be issued or delivered pursuant to this Article III. In lieu of any
fractional shares, any Record Holder otherwise entitled hereunder to receive
fractional shares of Parent Common Stock but for this Section 3.4(e) will be
entitled hereunder to receive instead a cash payment in lieu thereof, without
interest, in an amount equal to (i) the fraction of a share to which such
Record Holder would otherwise have been entitled multiplied by (ii) the Parent
Stock Price with respect to the applicable Contingent Share Delivery Date.
3.5. Contingent Payment Committee. By accepting any consideration under this
Agreement each Record Holder shall be deemed to have agreed as follows:
(a) The Record Holders irrevocably appoint and authorize the Contingent
Payment Committee to act as their agent hereunder with such powers as are
delegated hereunder to the Contingent Payment Committee, together with such
other powers as are incidental thereto, and to take such other actions in
connection with the foregoing as the Contingent Payment Committee may deem
necessary or appropriate, including without limitation, agreeing to any
adjustments to the definitions contained in this Article III or to the
tables contained in Schedule 3.2. The Contingent Payment Committee (i)
shall have no duties or responsibilities except as expressly set forth
herein, (ii) shall not be responsible in its capacity as the Contingent
Payment Committee for any recitals, statements, representations or
warranties contained herein, or in any certificate or other document
referred to herein, the validity, effectiveness or enforceability of this
Agreement, the failure of the Company to achieve any targets, or the
failure of any party to perform any of its obligations hereunder, (iii)
shall not be required to initiate or conduct any litigation or collection
proceedings, and (iv) shall not be responsible for any action taken or
omitted to be taken hereunder, except for, in the case of any member of the
Contingent Payment Committee, his own gross negligence or willful
misconduct. The Contingent Payment Committee may consult with legal
counsel, independent public accountants and other experts selected by it at
the sole expense of the Record Holders, and shall not be liable for any
action taken or omitted to be taken in good faith by them in accordance
with the advice of such counsel, independent public accountants or experts.
(b) The Contingent Payment Committee shall be entitled to rely upon any
certification, notice or other communication believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper
Person or Persons and delivered in accordance with this Agreement. The
Contingent Payment Committee shall not be required to take any action which
shall expose the members thereof to personal liability or which is contrary
to this Agreement or applicable law.
(c) The Contingent Payment Committee shall not be deemed to have
knowledge or notice of the occurrence of any event unless they shall have
received written notice thereof in accordance with this Agreement.
(d) The Record Holders agree to indemnify the Contingent Payment
Committee ratably in accordance with their proportionate interests in the
Contingent Payment Amounts for any and all Losses and Expenses of any kind
and nature whatsoever that may be imposed on, incurred by or asserted
against the Contingent Payment Committee in its capacity as such in any way
relating to or arising out of this Agreement or the transactions
contemplated hereby, including the enforcement of any of the terms hereof,
and the Contingent Payment Committee shall be entitled to direct Parent to
make any future Contingent Payment Amounts to the Contingent Payment
Committee to the extent of such Losses and Expenses.
(e) Parent and the Company shall be entitled to rely on any and all
action taken by the Contingent Payment Committee under this Agreement
without any liability to, or obligation to inquire of, any of the Record
Holders, and shall be entitled to rely on any written action purporting on
its face to be an action of the Contingent Payment Committee and signed by
any two members of the Contingent Payment Committee as an action of the
Contingent Payment Committee.
3.6. Assignability. The right of each Record Holder to receive shares of
Parent Common Stock pursuant to this Agreement may not be assigned or
transferred in any manner whatsoever except by operation of law or by will. In
no event shall any right to Contingent Shares pursuant to this Article III be
evidenced by negotiable certificates of any kind.
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3.7. Maximum Number of Contingent Shares; Maximum Aggregate Contingent
Payment Amounts. (a) The aggregate number of Contingent Shares to which Common
Record Holders shall be entitled pursuant to the terms of this Article III
shall not exceed the number of Fixed Shares received by such Common Record
Holders pursuant to Section 2.2(d)(i), and the aggregate number of Contingent
Shares to which Common Record Holders and Warrant Record Holders shall be
entitled pursuant to the terms of this Article III shall not exceed the number
of Fixed Shares. The number of Fixed Shares received by Common Record Holders
and the total number of Fixed Shares shall be specified separately in a
certificate mutually agreed by the parties hereto and delivered at the
Closing. Such certificate, as so delivered, shall be deemed to form a part of
this Agreement. The maximum number of Contingent Shares is subject to
adjustment pursuant to Section 3.4(c).
(b) The aggregate Contingent Payment Amount to which Record Holders shall be
entitled pursuant to the terms of this Article III shall not exceed the excess
of (i) the amount specified in Schedule 3.2 as the maximum aggregate
Contingent Payment Amount minus (ii) the aggregate Contingent Payment Target
Shortfalls for all Measurement Periods (it being understood that nothing in
this Section 3.7(b) requires Record Holders to return to the Company or Parent
any shares of Parent Common Stock delivered to Record Holders with respect to
any Measurement Period on account of Contingent Payment Target Shortfalls that
occur in any Measurement Period subsequent to such Measurement Period).
3.8. Right of Offset.
(a) Subject to the provisions of this Section 3.8, Parent shall have the
right to offset against, and reduce the amounts otherwise payable in respect
of, the Contingent Payment Amount for any Measurement Period (including,
without limitation, any Measurement Period ending after the occurrence of an
Exceptional Event):
(i) the aggregate of any Losses and Expenses incurred by any Parent Group
Member in connection with or arising from any breach or failure to perform
by the Company of any of its agreements, covenants or obligations in this
Agreement required to be performed on or prior to the Effective Date;
(ii) the aggregate of any Losses and Expenses incurred by any Parent
Group Member in connection with or arising from any breach of any warranty
as of the Effective Date or the inaccuracy as of the Effective Date of any
representation or warranty contained or referred to in this Agreement or
any certificate delivered by or on behalf of the Company pursuant hereto;
(iii) the amount determined pursuant to Section 8.1(h);
(iv) the aggregate legal and accounting expenses (including fees,
expenses and disbursements) incurred by the Company in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
consummation of the Merger to the extent such legal and accounting expenses
exceed $125,000;
(v) the fees and expenses of the Accounting Firm as and to the extent
provided in Section 3.3(f); and
(vi) the fees payable to Wallach in excess of the amounts specified in
Schedule 5.25.
(b) No amounts shall be offset against or reductions made pursuant to
Section 3.8(a)(i) or (ii) until the aggregate amount of Losses and Expenses
incurred by the Parent Group Members under Section 3.8(a)(i) or (ii) exceeds
$250,000, in which case the aggregate amount of all Losses and Expenses
incurred by the Parent Group Members under Section 3.8(a)(i) or (ii) in excess
of $250,000 may be offset pursuant to Section 3.8(a)(i) or (ii).
(c) The right of offset provided for in this Section 3.8 shall continue
until the obligations of Parent to make any contingent payments under Article
III shall have been satisfied; provided, that the rights of offset under
Section 3.8(a)(ii) shall terminate on the eighteen month anniversary of the
Effective Time with respect to all representations and warranties in this
Agreement or in any certificate delivered pursuant hereto (other than with
respect to the representations and warranties contained in Section 5.1(b),
(c), (d) or (e) or 5.7, which shall continue as provided above), except that
such rights shall continue as to any Loss or Expense of which any Parent Group
Member has notified the Contingent Payment Committee in accordance with the
requirements of this Section 3.8 on or prior to the date such offset rights
would otherwise terminate in accordance with this
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Section 3.8, as to which such offset rights shall continue until the rights to
offset and the amount of the offset shall have been determined pursuant to
this Section 3.8.
(d) Any claim on account of Losses and Expenses which is not a Third Party
Claim (as defined below) shall be asserted by written notice (an "Offset Claim
Notice") given by Parent to the Contingent Payment Committee. An Offset Claim
Notice in respect to any action at law or suit in equity by a third party as
to which offset will be sought ("Third Party Claim") shall be given promptly
after the action, suit, investigation, or proceeding is commenced; provided,
that failure to give such notice shall not prejudice Parent hereunder, unless
such failure shall have materially prejudiced the Record Holders. Any Offset
Claim Notice shall describe in reasonable detail the facts giving rise to a
claim for offset hereunder, the amount or method of computation of the amount
of such claim, and a reference to the provision of this Agreement giving rise
to such claim. The Contingent Payment Committee shall have a period of 30 days
within which to respond thereto. If the Contingent Payment Committee does not
respond within such 30 day period, the Contingent Payment Committee shall be
deemed to have accepted the claim for offset and shall have no further right
to contest the validity of such claim. If the Contingent Payment Committee
does respond within such 30-day period and rejects such claim in whole or in
part, the dispute shall be resolved: (i) by the written agreement between
Parent and the Contingent Payment Committee; (ii) by binding arbitration
pursuant to Section 11.16; or (iii) by any other means to which Parent and the
Contingent Payment Committee shall agree. All disputes shall be resolved no
later than four years and eleven months after the Closing Date.
(e) If any Offset Claim Notice received by the Contingent Payment Committee
remains unresolved on a Contingent Share Delivery Date, the portion of the
Contingent Payment Amount, if any, which is not subject to any claim of offset
shall be paid in accordance with this Article III. Following the final
determination of the amount of offset pursuant to the procedures specified in
(d) above, any remaining Contingent Payment Amount (without interest) which
shall have been determined to be not subject to offset shall be paid promptly
in accordance with this Article III, except that for purposes of any delivery
of Contingent Shares in respect of such unresolved claims after such
Contingent Share Delivery Date, "Parent Stock Price" shall be determined by
reference to the 10 consecutive trading days ending five trading days
immediately preceding such subsequent date of delivery; "Contingent Payment
Amount" shall mean the remaining portion of the Contingent Payment Amount due
to Record Holders; and "Contingent Share Delivery Date" shall mean the date
designated by Parent no later than 15 days following the final determination
of the remaining Contingent Payment Amount due.
(f) Parent shall have the obligation to conduct and control, through counsel
of its choosing, the defense, compromise or settlement of any Third Party
Claim as to which offset will be sought by Parent hereunder; provided, that
the Contingent Payment Committee may participate, through counsel chosen by it
and at its own expense, in the defense of any such claim, action or suit; and
provided, further, that Parent shall not, without the written consent of the
Contingent Payment Committee (which written consent shall not be unreasonably
withheld), pay, compromise or settle any such claim, action or suit, except
that no such consent shall be required if, following a written request from
Parent, the Contingent Payment Committee shall fail, within 14 days after the
making of such request, to acknowledge and agree in writing that, if such
claim, action or suit shall be adversely determined, Parent can offset Losses
and Expenses relative to such claim, action or suit as provided in this
Section 3.8; and provided, further, that if Parent does not conduct the
defense of any such Third Party Claim, the Contingent Payment Committee shall
have the right to do so, at the expense of Parent, but, in such case, the
Contingent Payment Committee shall not, without the written consent of Parent
(which consent shall not be unreasonably withheld), compromise or settle such
claim, action or suit. Notwithstanding the foregoing, Parent shall have the
right to pay, settle or compromise any such claim, action or suit without such
consent, provided that in such event Parent shall waive any right to offset
therefor hereunder unless such consent is unreasonably withheld.
(g) Except for remedies which cannot be waived as a matter of law,
including, without limitation remedies for fraud, if the Closing occurs, the
exclusive remedy of Parent on account of the matters described in Section
3.8(a)(i) through (vi) shall be the rights set forth in this Section 3.8.
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3.9. Time Limit. Notwithstanding any other provision of this Agreement, no
later than five years after the Effective Time, Parent will transfer to the
Exchange Agent in trust for the Record Holders, and the Exchange Agent will
transfer to the Record Holders, certificates representing the total number of
Contingent Shares to be paid, if any, pursuant to this Article III; and in no
event will any Contingent Shares be issued to a Record Holder more than five
years after the Effective Date.
3.10. Operation of the Business of the Company After the Effective Time.
During the period subsequent to the Effective Date and prior to December 31,
2001, Parent shall operate or cause the business of the Company to be operated
in conformity with sound business practices and shall make and cause to be
made all business decisions with respect to the business of the Company in
good faith. It is the current intention of Parent to provide the Company with
a reasonable opportunity to meet the Record Flow Performance Targets for each
of the Measurement Periods.
3.11. Contingent Payments Following Exceptional Events. (a) If an
Exceptional Event shall occur after the Effective Date and on or prior to
December 31, 1997, or during the first Measurement Period, then the Payment
Percentage for each Measurement Period shall be deemed to be 100%.
(b) If an Exceptional Event shall occur during any Measurement Period (other
than the first Measurement Period), then the Payment Percentage for each
Measurement Period not completed prior to the occurrence of such Exceptional
Event shall be the percentage set forth in Table 3.2(b) determined to be
applicable based on a Performance Percentage equal to the lesser of (i) 100%
or (ii) the average of the Performance Percentages for all Measurement Periods
completed prior to the occurrence of such Exceptional Event.
(c) If an Exceptional Event shall occur, then, notwithstanding Section 3.3,
the Contingent Share Delivery Date with respect to each Measurement Period
ending after the date of the occurrence of such Exceptional Event shall be
such date no later than 15 days after the end of such Measurement Period as
shall be designated by Parent, provided that if the Exceptional Event is an
event described in clause (iii), clause (iv) (unless the cessation of business
described in such clause has occurred following a change in regulatory
requirements that in the reasonable judgment of Parent has made it inadvisable
for the Company to continue such business) or clause (v) of the definition of
Exceptional Event, the Contingent Payment Committee may, by notice to Parent
within 15 days following the occurrence of such Exceptional Event, elect, on
behalf of all Record Holders, to have there be a single Contingent Share
Delivery Date, which date shall be no later than 15 days following Parent's
receipt of such notice, and for the Record Holders to receive in the
aggregate, in lieu of all amounts otherwise payable under this Article III
after the date of such Exceptional Event, the number of shares of Parent
Common Stock determined by dividing (i) an amount equal to the present value
(using a discount rate determined in accordance with Schedule 3.11) of the
Contingent Payment Amounts otherwise payable following such Exceptional Event
in the absence of the election under this proviso by (ii) the Parent Stock
Price.
3.12. Delivery of Only Parent Common Stock. Except as provided in Sections
3.4(d) (relating to dividends with a record date on or after the applicable
Contingent Share Delivery Date) and 3.4(e) (relating to cash in lieu of
fractional shares), but otherwise notwithstanding anything to the contrary in
this Article III, in no event shall any consideration be delivered to Record
Holders pursuant to this Article III other than in the form of Parent Common
Stock.
ARTICLE IV
Closing
4.1. Closing Date. The Closing of the Merger (the "Closing") shall take
place at the offices of Holland & Hart LLP, 555 17th Street, Suite 3200,
Denver, Colorado at 10:00 A.M., local time, no later than the third business
day after which each of the conditions set forth in Article IX shall have been
(and continue to be) fulfilled or waived, or at such other time and place as
Parent and the Company may agree in writing. The date on which the Closing is
actually held is hereinafter sometimes referred to as the "Closing Date."
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4.2. Filing Articles of Merger and Effectiveness. Subject to the fulfillment
or waiver of the conditions to the respective obligations of each of the
parties set forth in Article IX, as the case may be, at the Closing the
parties shall cause the Merger to be consummated by filing Articles of Merger
(which shall be in form and substance reasonably satisfactory to the parties
hereto), executed and acknowledged in accordance with the laws of the State of
Colorado, in the office of the Secretary of State of the State of Colorado.
The Merger shall become effective upon such filing as provided by the CBCA.
The date and time on such date of effectiveness of the Merger are herein
called, respectively, the "Effective Date" and the "Effective Time."
4.3. Parent's Deliveries. Subject to fulfillment or waiver of the conditions
set forth in Article IX, at the Effective Time Parent shall deliver to the
Company all of the following:
(a) a copy of the Certificate of Incorporation of Parent, certified as of
a recent date by the Secretary of State of the State of Delaware;
(b) a certificate of good standing of Parent, issued as of a recent date
by the Secretary of State of the State of Delaware;
(c) a certificate of the Secretary or an Assistant Secretary of Parent,
dated the Effective Date, in form and substance reasonably satisfactory to
the Company, as to (i) no amendments to the Certificate of Incorporation of
Parent since a specified date; (ii) the By-laws of Parent; (iii) the
resolutions of the Board of Directors (or Committee thereof) of Parent
authorizing the execution and performance of this Agreement and the
transactions contemplated herein; and (iv) the incumbency and signatures of
the officers of Parent executing this Agreement and any Parent Ancillary
Agreement;
(d) an opinion of Sidley & Austin, counsel to Parent and Mergerco, dated
the Effective Date and in form and substance reasonably satisfactory to the
Company;
(e) the Employment Agreements duly executed by Parent; and
(f) the certificate contemplated by Section 9.2, duly executed by the
President or any Vice President of Parent.
4.4. Mergerco's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article IX, at the Effective Time Mergerco shall
deliver to the Company all of the following:
(a) a copy of the Articles of Incorporation of Mergerco certified as of a
recent date by the Secretary of State of the State of Colorado;
(b) a certificate of good standing of Mergerco, issued as of a recent
date by the Secretary of State of the State of Colorado;
(c) a certificate of the Secretary or an Assistant Secretary of Mergerco,
dated the Effective Date, in form and substance reasonably satisfactory to
the Company, as to (i) no amendments to the Articles of Incorporation of
Mergerco since a specified date; (ii) the By-laws of Mergerco; (iii) the
resolutions of the Board of Directors (or Committee thereof) of Mergerco
authorizing the execution and performance of this Agreement and the
transactions contemplated herein and the written consent of Parent as sole
shareholder of Mergerco approving this Agreement in accordance with Article
107, Section 104 of the CBCA; and (iv) the incumbency and signatures of the
officers of Mergerco executing this Agreement; and
(d) the certificate contemplated by Section 9.2, duly executed by the
President or any Vice President of Mergerco.
4.5. The Company's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article IX, at the Effective Time the Company shall
deliver to Parent all of the following:
(a) a copy of the Articles of Incorporation of the Company, certified as
of a recent date by the Secretary of State of the State of Colorado;
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(b) a certificate of good standing of the Company, issued as of a recent
date by the Secretary of State of the State of Colorado;
(c) a certificate of the Secretary or an Assistant Secretary of the
Company, dated the Effective Date, in form and substance reasonably
satisfactory to Parent, as to (i) no amendments to the Articles of
Incorporation of the Company since a specified date; (ii) the By-laws of
the Company; (iii) the resolutions of the Board of Directors of the Company
authorizing the execution and performance of this Agreement, adoption of
the Plan of Merger and the transactions contemplated herein in accordance
with Article 107, Section 103 of the CBCA; (iv) approval by the
shareholders of the Company of the Plan of Merger in accordance with
Article 107, Section 103 of the CBCA; and (v) the incumbency and signatures
of the officers of the Company executing this Agreement and any Seller
Ancillary Agreement;
(d) An opinion of Holland & Hart LLP, counsel to the Company, dated the
Effective Date and in form and substance reasonably satisfactory to Parent;
(e) all consents, waivers or approvals obtained by the Company with
respect to the consummation of the transactions contemplated by this
Agreement;
(f) the Employment Agreements duly executed by E. Thomas Detmer, Jr.,
William Anderson and Peter A. O'Neil;
(g) resignations of each of the directors of the Company, effective as of
the Effective Time;
(h) the certificates contemplated by Section 9.3, duly executed by the
President or any Vice President of the Company;
(i) the statement and notification (relating to FIRPTA) as provided
pursuant to Section 9.3(f);
(j) copies of the written acknowledgments of the holders of Company
Warrants and Company Stock Options to be delivered pursuant to Sections
9.3(i) and 9.3(j);
(j) copies of the affiliate letters to be delivered pursuant to Sections
9.3(k); and
(k) evidence of the termination of the Loan and Security Agreement
referred to in Section 9.3(l) and the release of all Encumbrances arising
thereunder.
ARTICLE V
Representations and Warranties of the Company
As an inducement to Parent and Mergerco to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company represents and
warrants to Parent and Mergerco:
5.1. Organization and Capital Structure. (a) The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado. The Company is duly qualified to transact business as a
foreign corporation and is in good standing in each of the jurisdictions
listed in Schedule 5.1(A), which are the only jurisdictions in which the
ownership or leasing of its assets or the conduct of its business requires
such qualification, and no other jurisdiction has demanded, requested or, to
the best of the Company's knowledge, otherwise indicated that the Company is
required so to qualify. The Company has full corporate power and authority to
own or lease and to operate and use its assets and to carry on its business as
now conducted. True and complete copies of the Articles of Incorporation and
all amendments thereto and of the By-laws, as amended, of the Company have
been delivered to Parent.
(b) The authorized capital of the Company consists of 1,000,000 shares of
Company Common Stock, no par value, of which (i) 476,803 shares of Company
Common Stock have been issued and are outstanding, (ii) no shares of Company
Common Stock are held as treasury shares, (iii) 100,287 shares of Company
Common Stock are reserved for future issuance pursuant to outstanding Company
Warrants, (iv) 102,400 shares of Company Common Stock are reserved for future
issuance pursuant to outstanding stock options, and (v) 20,510 shares of
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Company Common Stock are reserved for issuance pursuant to options available
for grant under the Company's 1992 Stock Option Plan, each as set forth in
Schedule 5.1(B), and shares of Preferred Stock, no par value, none of which is
issued and outstanding or reserved for any purpose.
(c) All of the Company Common Stock, Company Warrants and Company Stock
Options are held of record and, to the knowledge of the Company, beneficially
by the holders and in the amounts identified in Schedule 5.1(C). Schedule
5.1(C) also sets forth, as of the date hereof, the "warrant price" per share
of each Company Warrant and the exercise price per share of each Company Stock
Option. The initial exercise price per share of each Company Stock Option was
not less than 25% of the fair market value of a share of Company Common Stock
on the effective date of grant. True and complete copies of the stock record
books and other securities transfer records, Company Stock Option agreements,
and Company Warrant certificates of the Company have been delivered to Parent.
(d) Except for the Company Stock Options and Company Warrants and except as
set forth in Schedule 5.1(D), there are no agreements, arrangements, options,
warrants, calls, rights or commitments of any character to which the Company
is a party relating to the issuance, sale, purchase or redemption of any
shares of capital stock or other equity interest of the Company, whether on
conversion of other securities or otherwise. Except as set forth in Schedule
5.1(D), none of the issued and outstanding shares of capital stock of the
Company has been issued in violation of, or is subject to, any preemptive or
subscription rights. Except as set forth in this Agreement and in Schedule
5.1(D), the Company is not a party to any shareholder agreement, voting trust
agreement or any other similar contract, agreement, arrangement, commitment,
plan or understanding restricting or otherwise relating to the voting,
dividend, ownership or transfer rights of any shares of capital stock of the
Company.
(e) All of the outstanding shares of Company Common Stock are validly
issued, fully paid and nonassessable. All of the outstanding Company Warrants
and, Company Stock Options are legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at laws).
(f) True and complete copies of the minute books of the Company have been
delivered to Parent. Without limiting the generality of the foregoing, the
minute books of the Company contain complete and accurate records of all
meetings held of, and corporate actions taken by, the shareholders, board of
directors and committees of the board of directors of the Company, and no such
meetings have been held for which minutes have not been prepared or are not
contained in such minute books, except for meetings of the board of directors
or committees thereof at which no material corporate action was taken.
(g) The Company is its sole own "ultimate parent entity" (as defined in 16
C.F.R. (S)801.1(a)(3) (1996)). The "person" (as defined in 16 C.F.R.
(S)801.1(a)(1) (1996)) of which the Company is the sole "ultimate parent
entity" (as defined above) does not have "annual net sales" (as defined in 16
C.F.R. (S)801.11 (1996) or "total assets" (as defined in 16 C.F.R. (S)801.11
(1996)) of $10,000,000 or more.
5.2. Subsidiaries. Except as set forth in Schedule 5.2, the Company does
not, directly or indirectly, (i) own, of record or beneficially, any
outstanding voting securities or other equity interests in any corporation,
partnership, limited liability company, joint venture or other entity or (ii)
control any corporation, partnership, joint venture or other entity.
5.3. Authority. (a) The Company has full corporate power and authority to
execute, deliver and perform this Agreement and all of the Company Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Company Ancillary Agreements by the Company have been duly authorized and
approved by the Company's board of directors and, except for approval of the
Plan of Merger by the holders of a majority of the outstanding shares of
Company Common Stock entitled to vote thereon at the Company Shareholder
Meeting and the filing contemplated by Section 4.2, no other corporate
proceedings on the part of the Company
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are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is the legal, valid and binding obligation of the Company
enforceable in accordance with its terms, and each of the Company Ancillary
Agreements has been duly authorized by the Company and upon execution and
delivery by the Company will be a legal, valid and binding obligation of the
Company enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
the effect of general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
(b) Except as set forth in Schedule 5.3(B), neither the execution and
delivery of this Agreement or any of the Company Ancillary Agreements or the
consummation of any of the transactions contemplated hereby or thereby nor
compliance with or fulfillment of the terms, conditions and provisions hereof
or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon, any of the Company's assets, under (1) the Articles of Incorporation
of the Company, (2) any Company Agreement, (3) any other material note,
instrument, agreement, mortgage, lease, license, franchise, permit or other
authorization, right, restriction or obligation to which the Company is a
party or any of their respective assets or business is subject or by which
the Company is bound, (4) any Court Order to which the Company is a party
or any of its assets or business is subject or by which the Company is
bound, or (5) any Requirements of Laws affecting the Company or its assets
or business; or
(ii) require the approval, consent, authorization or act of, or the
making by the Company of any declaration, filing or registration with, any
Person, except as provided in Section 4.2.
5.4. Financial Statements. Schedule 5.4 contains (a) the balance sheets of
the Company as of December 31, 1996, 1995, 1994 and 1993 and the related
statements of operations (the "Audited Statements of Operations"),
shareholders' equity and cash flows for each of the years then ended, together
with the appropriate notes to such financial statements, accompanied by the
report thereon of Arthur Andersen, independent public accountants, and in the
case of 1993, the report of Brenner, Gleasen and Hogan, independent public
accountants, (the "Audited Financial Statements") and (b) the unaudited
balance sheet of the Company as of March 31, 1997 and the related unaudited
statements of operations, shareholders' equity and cash flows for the three
months then ended (the "Unaudited Financial Statements". Except as disclosed
in the notes thereto and except, in the case of the Unaudited Financial
Statements, the omission of footnote disclosures and normal year-end
adjustments, the Audited Financial Statements and the Unaudited Financial
Statements have been prepared in conformity with generally accepted accounting
principles consistently applied and fairly present in all material respects
the financial position of the Company at the dates of such balance sheets and
the results of its operations and cash flows for the respective periods
indicated. Except as set forth in Schedule 5.4 or in the Unaudited Financial
Statements, the Unaudited Financial Statements include all adjustments, which
consist only of normal recurring accruals, necessary for such fair
presentation, other than normal year-end audit adjustments. None of the
financial statements referred to in this Section 5.4 contains any material
items of special or nonrecurring income except as expressly specified therein.
All costs and expenses incurred in generating the revenues reflected in the
Audited Statements of Operations during the respective periods covered thereby
which are required by generally accepted accounting principles to be reflected
in the Audited Statements of Operations are so reflected.
5.5. Operations Since Balance Sheet Date. (a) Except as set forth in
Schedule 5.5(A), since the Balance Sheet Date, there has been:
(i) no Material Adverse Effect with respect to the Company; and
(ii) no damage, destruction, loss or claim, whether or not covered by
insurance, or condemnation or other taking adversely affecting in any
material respect any of the Company's assets or its business.
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(b) Except as set forth in Schedule 5.5(B), since the Balance Sheet Date,
the Company has conducted its business only in the ordinary course and in
conformity with past practice. Without limiting the generality of the
foregoing, since the Balance Sheet Date, except as set forth in such Schedule,
the Company has not:
(i) ssued, delivered or agreed (conditionally or unconditionally) to
issue or deliver, or granted any option, warrant or other right to
purchase, any of its capital stock or other equity interest or any security
convertible into its capital stock or other equity interest;
(ii) ssued, delivered or agreed (conditionally or unconditionally) to
issue or deliver any of its bonds, notes or other debt securities, or
borrowed or agreed to borrow any funds, or entered into, as lessee, any
capitalized lease obligations (as defined in Statement of Financial
Accounting Standards No. 13), other than in the ordinary course of business
consistent with past practice;
(iii) paid any obligation or liability (absolute or contingent) other
than current liabilities reflected on the Balance Sheet and current
liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice;
(iv) declared or made, or agreed to declare or make, any payment of
dividends or distributions to its shareholders or purchased or redeemed, or
agreed to purchase or redeem, any of its capital stock or other equity
interest, except in each case as provided herein;
(v) except in the ordinary course of business consistent with past
practice, made or permitted any material amendment or termination of any
Company Agreement;
(vi) undertaken or committed to undertake capital expenditures exceeding
$25,000 for any single project or related series of projects;
(vii) made charitable donations in excess of $5,000 in the aggregate;
(viii) sold, leased (as lessor), transferred or otherwise disposed of
(including any transfers from the Company to any shareholder or any
Affiliates of any shareholder), or mortgaged or pledged, or imposed or
suffered to be imposed any Encumbrance on, any of the assets reflected on
the Balance Sheet or any assets acquired by the Company after the Balance
Sheet Date, except for inventory and minor amounts of personal property
sold or otherwise disposed of for fair value in the ordinary course of its
business consistent with past practice and except for Permitted
Encumbrances;
(ix) cancelled any debts owed to or claims held by the Company (including
the settlement of any claims or litigation) other than in the ordinary
course of its business consistent with past practice;
(x) instituted any increase in any compensation to any employee of the
Company or in any profit-sharing, bonus, incentive, deferred compensation,
insurance, pension, retirement, medical, hospital, disability, welfare or
other benefits made available to employees of the Company;
(xi) made any change in the accounting principles and practices used by
the Company from those applied in the preparation of the Balance Sheet and
the related statements of operations, shareholder's equity and cash flow
for the twelve months ended on the Balance Sheet Date;
(xii) prepared or filed any Tax Return inconsistent with past practice
or, on any such Tax Return, taken any position, made any election, or
adopted any method that is inconsistent with positions taken, elections
made or methods used in preparing or filing similar Tax Returns in prior
periods (including, without limitation, positions, elections or methods
which would have the effect of deferring income to periods after the
Effective Time or accelerating deductions to periods prior to the Effective
Time); or
(xiii) entered into or become committed to enter into any other material
transactions except in the ordinary course of business consistent with past
practice.
5.6. No Undisclosed Liabilities. Except as set forth in Schedule 5.6, the
Company is not subject to any liability (including, without limitation,
unasserted claims, whether known or unknown), whether absolute,
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contingent, accrued or otherwise, which is not shown or which is in excess of
amounts shown or reserved for in the Balance Sheet, other than liabilities of
the same nature as those set forth in the Balance Sheet and the notes thereto
and reasonably incurred in the ordinary course of its business consistent with
past practice after the Balance Sheet Date.
5.7. Taxes. (a) Except as set forth on Schedule 5.7(A), (i) each of the
Company and each Company Group has filed all Tax Returns required to be filed;
(ii) all such Tax Returns are complete and accurate and disclose all Taxes
required to be paid by the Company and each Company Group for the periods
covered thereby and all Taxes shown to be due on such Tax Returns have been
timely paid; (iii) all Taxes (whether or not shown on any Tax Return) owed by
the Company or any Company Group have been timely paid; (iv) none of the
Company or any member of any Company Group has waived or been requested to
waive any statute of limitations in respect of Taxes which waiver is currently
in effect; (v) no Tax Returns referred to in clause (i) have been examined by
any taxing authority; (vi) there is no action, suit, investigation, audit,
claim or assessment pending or, to the knowledge of the Company, proposed or
threatened with respect to Taxes of the Company or any Company Group and, to
the knowledge of the Company, no basis exists therefor; (vii) no deficiencies
have been asserted or assessed against the Company; (viii) the Company has no
Tax Sharing Arrangements or Tax indemnity arrangements (other than this
Agreement); (ix) there are no liens for Taxes upon the assets of the Company
except liens relating to current Taxes not yet due; (x) all Taxes which the
Company or any Company Group are required by law to withhold or to collect for
payment have been duly withheld and collected, and have been paid or accrued,
reserved against and entered on the books of the Company and (xi) the Company
has not been a member of any Company Group and the Company has not had any
direct or indirect ownership in any corporation, partnership, joint venture or
other entity. The accruals and reserves on the Statements of Operation and
Unaudited Financial Statements in respect of Taxes are adequate to cover all
unpaid Taxes of the Company in respect of periods through the dates thereof.
With respect to periods after the dates thereof through the Effective Date,
adequate accruals and reserves for all unpaid Taxes of the Company have been
established on the books of the Company.
(b) Except as may be limited as a result of the transactions contemplated by
this Agreement, the "regular" and "alternative minimum tax" net operating loss
carryforwards of the Company for each of the taxable years ended prior to the
date of this Agreement (collectively, the "Prior NOLs") are set forth (for
each year) on Schedule 5.7(B) and are each available to the Company for a
period of fifteen taxable years from the end of the taxable year in which the
applicable Prior NOL was incurred. Except as may be limited as a result of the
transactions contemplated by this Agreement, a good faith estimate of the
"regular" and "alternative minimum tax" net operating loss of the Company for
the period beginning immediately after the most recently ended taxable year
and ending on the date of the Unaudited Financial Statements (collectively,
the "Interim NOLs" and, together with the Prior NOLs, the "NOLs") are set out
on Schedule 5.7(B) and will, to the extent not utilized to offset income for
the period beginning immediately after the date of the Unaudited Financial
Statements and ending on the Effective Date, be available to the Company and
for a period of fifteen taxable years following the Effective Date. Except as
may be limited as a result of the transactions contemplated by this Agreement,
none of the NOLs constitute separate return limitation year ("SRLY") or
consolidated return change of ownership ("CRCO") losses immediately prior to
the Closing Date, none of the NOLs will be limited immediately prior to the
Closing Date by Section 382 or 384 of the Code and the regulations thereunder,
and none of the NOLs constitutes "dual consolidated losses" immediately prior
to the Closing Date (as defined in Section 1503 of the Code and the
regulations thereunder).
(c) No transaction contemplated by this Agreement is subject to withholding
under Section 1445 of the Code and no stock transfer Taxes, sales Taxes, use
Taxes, real estate transfer or gains Taxes, or other similar Taxes will be
imposed on the transactions contemplated by this Agreement.
(d) No payment or other benefit, and no acceleration of the vesting of any
options, payments or other benefits, will be, as a direct or indirect result
of the transactions contemplated by this Agreement, an "excess parachute
payment" to a "disqualified individual" as those terms are defined in Section
280G of the Code and the Treasury Regulations thereunder. Except as set forth
on Schedule 5.7(D), no payment or other benefit, and
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no acceleration of the vesting of any options, payments or other benefits,
will, as a direct or indirect result of the transactions contemplated by this
Agreement, be (or under Section 280G of the Code and the Treasury Regulations
thereunder be presumed to be) a "parachute payment" to a "disqualified
individual" as those terms are defined in Section 280G of the Code and the
Treasury Regulations thereunder, without regard to whether such payment or
acceleration is reasonable compensation for personal services performed or to
be performed in the future.
5.8. Availability of Assets. Except as set forth in Schedule 5.8, the assets
owned or leased by the Company constitute all the assets used in its business
(including, but not limited to, all books, records, computers and computer
programs and data processing systems) and are in good condition (subject to
normal wear and tear and immaterial impairments of value and damage) and
serviceable condition and are generally suitable for the uses for which
intended.
5.9. Governmental Permits. (a) The Company owns, holds or possesses all
licenses, franchises, permits, privileges, immunities, approvals and other
authorizations from Governmental Bodies which are necessary to entitle it to
own or lease, operate and use its assets and to carry on and conduct its
business substantially as currently conducted (herein collectively called
"Governmental Permits"). Schedule 5.9(A) sets forth a list and brief
description of each Governmental Permit, except for such incidental licenses,
permits and other authorizations which would be readily obtainable by any
qualified applicant without undue burden in the event of any lapse,
termination, cancellation or forfeiture thereof. Complete and correct copies
of all of the Governmental Permits have heretofore been delivered to Parent.
(b) Except as set forth in Schedule 5.9(B), (i) the Company has fulfilled
and performed its obligations under each of the Governmental Permits, and no
event has occurred or condition or state of facts exists which constitutes or,
after notice or lapse of time or both, would constitute a breach or default
under any such Governmental Permit or which permits or, after notice or lapse
of time or both, would permit revocation or termination of any such
Governmental Permit, or which might adversely affect in any material respect
the rights of the Company under any such Governmental Permit; (ii) no notice
of cancellation, of default or of any material dispute concerning any
Governmental Permit, or of any event, condition or state of facts described in
the preceding clause, has been received by, or is known to, the Company; and
(iii) each of the Governmental Permits is valid, subsisting and in full force
and effect and will continue in full force and effect after the Effective Date
of the Merger, in each case without (x) the occurrence of any breach, default
or forfeiture of rights thereunder, or (y) the consent, approval, or act of,
or the making of any filing with, any Governmental Body.
5.10. Registration Statement and Proxy Statement. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement or the Proxy Statement/Prospectus
(each as defined in Section 7.1) will (i) in the case of the Registration
Statement, at the time it becomes effective under the Securities Act, contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or (ii) in the case of the Proxy Statement/Prospectus,
at the time of the mailing thereof to the shareholders of the Company, at the
time of each of the Company Shareholder Meeting and at the Effective Time,
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event with respect to the Company, its directors or
officers shall occur which is required to be described in the Proxy
Statement/Prospectus or the Registration Statement, such event shall be so
described and, to the extent required by the CBCA, an appropriate amendment or
supplement shall be disseminated to the shareholders of the Company. The
Registration Statement will comply (with respect to information relating to
the Company) as to form in all material respects with the provisions of the
Securities Act, and the Proxy Statement/Prospectus will comply (with respect
to information relating to the Company and the Merger) as to form in all
material respects with the provisions of the Exchange Act.
5.11. Real Property. The Company does not own, and has never owned, and does
not have the right to acquire, any real property. Schedule 5.11 sets forth a
list and brief description of each lease or similar agreement
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(showing the parties thereto, any amendments or modifications thereof, annual
rental, expiration date, renewal and purchase options, if any, the
improvements thereon, the uses being made thereof, and the location and the
legal description of the real property covered by such lease or other
agreement) under which the Company is lessee of, or holds or operates, any
real property owned by any third Person (the "Leased Real Property").
5.12. Condemnation. Neither the whole nor any part of any Leased Real
Property is subject to any pending suit for condemnation or other taking by
any public authority or other Person, and, to the best knowledge of the
Company, no such condemnation or other taking is threatened or contemplated.
5.13. Personal Property. Schedule 5.13 contains a detailed list of all
machinery, equipment, vehicles, furniture and other personal property owned by
the Company having an original cost of $1,000 or more.
5.14. Personal Property Leases. Schedule 5.14 contains a brief description
of each lease or other agreement or right, whether written or oral (including
in each case the annual rental, the expiration date thereof and a brief
description of the property covered), under which the Company is lessee of, or
holds or operates, any machinery, equipment, vehicle or other tangible
personal property owned by a third Person.
5.15. Intellectual Property; Software. (a) Schedule 5.15(A) contains a list
of all intellectual property owned by, licensed to, or used by the Company in
the conduct of the Company's business ("Intellectual Property") but excluding
from Schedule 5.15(A) Intellectual Property of third Persons in computer
equipment, components, peripheral devices or hardware that are generally
commercially available. The Intellectual Property includes:
(i) all United States, state and foreign trademarks, service marks,
logos, trade dress and trade names (including all assumed or fictitious
names under which the Company is conducting its business or has within the
previous five years conducted its business), whether registered or
unregistered, and pending applications to register the foregoing, any of
which are material to the operations of the Company's business
("Trademarks");
(ii) all United States and foreign copyrights, whether registered or
unregistered and pending applications to register the same, any of which
are material to the operations of the Company's business ("Copyrights");
and
(iii) all (A) data and databases; and (B) confidential ideas, trade
secrets, know-how, concepts, methods, processes, formulae, reports,
customer lists, mailing lists, business plans, or other proprietary
information which are material to the operation of the Company's business
("Trade Secrets").
(b) Except as otherwise provided in Schedule 5.15(B), the Company does not
own or use in the conduct of the Company's business any computer software
programs or software systems ("Software"), except, however, that Schedule
5.15(B) may omit Software licensed to the Company that is available in
consumer retail stores and subject to license agreements that become effective
when the purchaser breaks the Software package.
(c) Schedule 5.15(C) contains a list and description of all material
agreements, contracts, licenses, sublicenses, assignments and indemnities
which relate or pertain to any Intellectual Property listed in Schedule
5.15(A) or to disclosure or use of ideas or information of the Company or
third Persons to which the Company is a party, showing in each case the
parties thereto and the material terms thereof.
(d) Except as disclosed in Schedule 5.15(D), the Company either: (i) owns
the entire right, title and interest in and to the Intellectual Property
listed in Schedule 5.15(A) free and clear of any Encumbrance; or (ii) has the
perpetual, royalty-free right to use the same.
(e) Except as disclosed in Schedule 5.15(E), the Company is not in breach of
any material provision of any material agreement, contract, license,
sublicense, assignment or indemnity which relates to any of the Intellectual
Property listed in Schedule 5.15(A), and the Company has not taken any action
which would impair or otherwise materially adversely affect its rights in any
of the Intellectual Property listed in Schedule 5.15(A). The Company has all
right, power and authority with respect to the Intellectual Property listed in
Schedule 5.15(A), to execute
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and deliver this Agreement and the Company Ancillary Agreements, to consummate
the transactions contemplated hereby and thereby and to comply with or fulfill
the terms, conditions or provisions hereof or thereof. The transactions
contemplated by this Agreement and the Company Ancillary Agreements shall have
no material adverse effect on the validity and enforceability of any of the
Intellectual Property listed in Schedule 5.15(A) and the Company's ability to
use, license and transfer the Intellectual Property listed in Schedule 5.15(A)
immediately after the Effective Time shall be as identical as possible under
the law to the Company's ability to use, license, and transfer the
Intellectual Property listed in Schedule 5.15(A) immediately prior to the
Effective Time.
(f) Except as disclosed in Schedule 5.15(F): (i) the Intellectual Property
owned by the Company is valid and enforceable; and (ii) the Company has the
sole and exclusive right to bring actions for infringement or unauthorized use
of the Intellectual Property listed in Schedule 5.15(A) owned by the Company,
and to the best knowledge of the Company, there is no basis for any such
action. Correct and complete copies of all items identified in Section 5.15(c)
entered into on or prior to March 31, 1997 have heretofore been delivered by
the Company to Parent and correct and complete copies of all other items
identified in Schedule 5.15(c) will be delivered by the Company to Parent
prior to the Effective Date.
(g) Except as disclosed in Schedule 5.15(G), no infringement of any
copyright, trademark, service mark, trade name, patent, patent right, trade
secret or other property right of any other Person has occurred or results in
any way from the operations of the Company's business. No claim of any
infringement of any copyright, trademark, service mark, trade name, patent,
patent right, trade secret or other property right of any other Person has
been made or asserted to the Company in respect of the operations of the
Company's Business. The Company has not had notice of, or knowledge of any
basis for, a claim against the Company that its operations, activities,
products, software, equipment, machinery or processes of the Company's
business infringe any copyright, trademark, service mark, trade name, patent,
patent right, trade secret or other property right of any other Person.
(h) Except as disclosed in Schedule 5.15(H): the Company has maintained and
protected the Trade Secrets listed in Schedule 5.15(A) it owns with
appropriate proprietary notices, confidentiality and non-disclosure agreements
and such other measures as are necessary to protect the proprietary, trade
secret or confidential information contained therein.
(i) The Company does not own and has not filed any patents, patent
applications, continuations, continuations-in-part, divisions, reissues,
patent disclosures, inventions (whether or not patentable) or improvements
thereto. The Company owns no trademark or copyright registrations or
applications.
5.16. Accounts Receivable. All accounts receivable of the Company have
arisen from bona fide transactions by the Company in the ordinary course of
its business. All accounts receivable reflected in the Balance Sheet are good
and collectible in the ordinary course of business at the aggregate recorded
amounts thereof, net of any applicable allowance for doubtful accounts
reflected in the Balance Sheet.
5.17. Title to Property. The Company has good title to all of its assets
reflected on the Balance Sheet as being owned by it and all of the assets
thereafter acquired by it (except to the extent that such assets have been
disposed of after the Balance Sheet Date in the ordinary course of business
consistent with past practice), free and clear of all Encumbrances, except for
Permitted Encumbrances and except as set forth in Schedule 5.17.
5.18. Employee Benefit Plans. (a) Set forth in Schedule 5.18(A) is a true
and complete list of each "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA) maintained by the Company, or with respect
to which the Company is or will be required to make any payment, or which
provides or will provide benefits to present or prior employees of the Company
due to such employment (the "ERISA Benefit Plans"). Neither the Company nor
any ERISA Affiliate has ever maintained, contributed to, or had any potential
liability (whether direct, indirect contingent or otherwise) with respect to
any "employee pension benefit plan" (as such term is defined in Section 3(2)
of ERISA), including but not limited to any plan subject to Title IV of ERISA.
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(b) Other than those listed in Schedule 5.18(A), set forth in Schedule
5.18(B) is a true and complete list of each of the following to which the
Company is a party or with respect to which it is or will be required to make
any payment (the "Non-ERISA Commitments"):
(i) each retirement, savings, profit sharing, deferred compensation,
severance, stock ownership, stock purchase, stock option, performance,
bonus, incentive, vacation or holiday pay, hospitalization or other
medical, disability, life or other insurance, or other welfare, benefit or
fringe benefit plan, policy, trust, understanding or arrangement of any
kind, whether written or oral; and
(ii) each employee collective bargaining agreement and each agreement,
understanding or arrangement of any kind, whether written or oral, with or
for the benefit of any present or prior officer, director, employee, agent
or consultant (including, without limitation, each employment,
compensation, deferred compensation, severance or consulting agreement or
arrangement, confidentiality agreement, covenant not to compete and any
agreement or arrangement associated with a change in ownership or control
of the Company, but excluding employment agreements terminable by the
Company without premium or penalty on notice of thirty (30) days or less
under which the only monetary obligation of the Company is to make current
wage or salary payments and provide current fringe benefits).
The Company has delivered to Parent correct and complete copies of (i) all
written Non-ERISA Commitments and (ii) all insurance and annuity policies and
contracts and other documents relevant to any Non-ERISA Commitment. Schedule
5.18(B) contains a complete and accurate description of all oral Non-ERISA
Commitments. Except as disclosed in Schedule 5.18(A) or Schedule 5.18(B), none
of the ERISA Benefit Plans or the Non-ERISA Commitments is subject to the law
of any jurisdiction outside of the United States of America.
(c) The Company has delivered to Parent with respect to each ERISA Benefit
Plan, correct and complete copies, where applicable, of (i) all plan documents
and amendments thereto, trust agreements and amendments thereto and insurance
and annuity contracts and policies, (ii) the current summary plan description,
(iii) the Annual Reports (Form 5500 series) and accompanying schedules, as
filed, for the most recently completed three plan years for which such reports
have been filed, (iv) the financial statements for the most recently completed
three plan years for which such statements have been prepared and (v) all
correspondence with the IRS, Department of Labor and Pension Benefit Guaranty
Corporation concerning any controversy.
(d) There is no pending or, to the best knowledge of the Company, threatened
claim in respect of any of the ERISA Benefit Plans other than claims for
benefits in the ordinary course of business. Except as set forth in Schedule
5.18(D), each of the ERISA Benefit Plans (i) has been administered in
accordance with its terms and (ii) complies in form, and has been administered
in accordance, with the requirements of ERISA and, where applicable, the Code.
The Company and each ERISA Affiliate has complied with the health care
continuation requirements of Part 6 of Title I of ERISA. The Company has no
obligation under any ERISA Benefit Plans or otherwise to provide health or
other welfare benefits to any prior employees or any other person, except as
required by Part 6 of Title I of ERISA. The consummation of the transaction
contemplated by this Agreement will not result in an increase in the amount of
compensation or benefits or accelerate the vesting or timing of payment of any
compensation or benefits payable to or in respect of any participant. The
Company is in compliance with the requirements of the Workers Adjustment and
Retraining Notification Act ("WARN") and has no liabilities pursuant to WARN.
(e) Neither the Company nor, to the best knowledge of the Company, any other
"disqualified person" (within the meaning of Section 4975 of the Code) or
"party in interest" (within the meaning of Section 3(14) of ERISA) has taken
any action with respect to any ERISA Benefit Plan which could subject any such
plan (or its related trust) or the Company or any officer, director or
employee of any of the foregoing to the penalty or tax under Section 502(i) or
Section 502(l) of ERISA or Section 4975 of the Code.
(f) The Company has no potential liability, whether direct or indirect,
contingent or otherwise, under (a) Part 6 of Title I of ERISA or Section 4980B
of the Code, (b) Sections 502(i) or 502(l) of ERISA or Section 4975 of the
Code, (c) Section 302 of ERISA or Section 412 of the Code or (d) Title IV of
ERISA.
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(g) Schedule 5.18(G) contains: (i) a list of all employees or commission
salespersons of the Company as of the date hereof; (ii) the then current
annual compensation of, and a description of the fringe benefits (other than
those generally available to employees of the Company) provided by the Company
to any such employees or commission salespersons; (iii) a list of all present
or former employees or commission salespersons of the Company in calendar year
1996 who have terminated or given notice of their intention to terminate their
relationship with the Company since January 1, 1997; (iv) a list of any
increase, effective after December 31, 1996, in the rate of compensation of
any employees or commission salespersons if such increase exceeds 5% of the
previous annual salary of such employee or commission salesperson; and (v) a
list of all substantial changes in job assignments of, or arrangements with,
or promotions or appointments of, any employees or commission salespersons
described in clause (i).
(h) Except as set forth in Schedule 5.18(H), (i) to the best knowledge of
the Company, the Company is not involved in any transaction or other situation
with any employee, officer, director or Affiliate of the Company which may be
generally characterized as a "conflict of interest", including, but not
limited to, direct or indirect interests in the business of competitors,
suppliers or customers of the Company, and (ii) there are no situations with
respect to the Company which involved or involves (A) the use of any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity, (B) the making of any direct or
indirect unlawful payments to government officials or others from corporate
funds or the establishment or maintenance of any unlawful or unrecorded funds,
(C) the violation of any of the provisions of The Foreign Corrupt Practices
Act of 1977, or any rules or regulations promulgated thereunder, (D) the
receipt of any illegal discounts or rebates or any other violation of the
antitrust laws or (E) any investigation by the SEC or any other federal,
foreign, state or local government agency or authority.
(i) Except as set forth in Schedule 5.18(I) hereto, since December 31, 1995,
the Company has not, directly or indirectly, purchased, leased from others or
otherwise acquired any material property or obtained any material services
from, or sold, leased to others or otherwise disposed of any material property
or furnished any material services to (except with respect to remuneration for
services rendered as a director, officer or employee of the Company), in the
ordinary course of business or otherwise, (i) any shareholder of the Company,
(ii) any Affiliate of the Company, (iii) any person who is an officer or
director of the Company or (iv) any Associate of any person referred to in
clause (i), (ii) or (iii) above. Except as set forth in Schedule 5.18(I)
hereto, the Company does not owe any amount in excess of $10,000 to, or have
any contract with or commitment to, any shareholder, director, officer or
employee of the Company (other than for compensation for current services not
yet due and payable and reimbursement of expenses arising in the ordinary
course of business) and none of such persons owes any amount in excess of
$10,000 to the Company.
5.19. Employee Relations. Except as set forth in Schedule 5.19, the Company
has complied in all material respects with all applicable laws, rules and
regulations which relate to prices, wages, hours, discrimination in employment
and collective bargaining and to the operation of its business and is not
liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. The Company believes that the Company's
relations with its employees are satisfactory. The Company is not a party to
any collective bargaining agreement, and the Company is not a party to, and it
is not affected by or to the knowledge of the Company threatened with, any
dispute or controversy with a union or with respect to unionization or
collective bargaining involving its employees. To the knowledge of the
Company, the Company is not materially affected by any dispute or controversy
with a union or with respect to unionization or collective bargaining
involving any source of data or customer of the Company. Schedule 5.19 sets
forth a description of any union organizing or election activities involving
any non-union employees of the Company which have occurred since January 1,
1996 or, to the best knowledge of the Company, are threatened as of the date
hereof.
5.20. Contracts; Warranties. Except as set forth in Schedule 5.20 or any
other Schedule hereto, the Company is not a party to or bound by:
(i) any contract for the purchase, sale or lease of real property;
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(ii) any contract for the purchase of materials used in the ordinary
course of business which involved the payment of more than $25,000 in 1996,
which the Company reasonably anticipates will involve the payment of more
than $25,000 in 1997 or which extends beyond December 31, 1997;
(iii) any contract for the sale of goods or services which involved the
payment of more than $25,000 in 1996, which the Company reasonably
anticipates will involve the payment of more than $25,000 in 1997 or which
extends beyond December 31, 1997;
(iv) any contract for the purchase, licensing or development of Software
to be used by the Company (other than for scheduling purposes only,
computer software programs that are available in consumer retail stores and
subject to license agreements that become effective when the purchaser
breaks the software package);
(v) any consignment, distributor, dealer, manufacturers representative,
sales agency, advertising representative or advertising or public relations
contract which involved the payment of more than $25,000 in 1996, which the
Company reasonably anticipates will involve the payment of more than 25,000
in 1997 or which extends beyond December 31, 1997;
(vi) any guarantee of the obligations or liabilities of customers,
suppliers, officers, directors, employees, Affiliates of the Company or
others;
(vii) any agreement which provides for, or relates to, the incurrence by
the Company of debt for borrowed money or the extension of credit (other
than in the ordinary course of business consistent with past practice) by
the Company to any other Person;
(viii) any agreement or understanding with a third Person that restricts
the Company from carrying on its business anywhere in the world;
(ix) any contract which provides for, or relates to, any non-competition
or confidentiality arrangement with any Person, including any current or
former officer or employee of the Company;
(x) any contract or group of related contracts for capital expenditures
in excess of $25,000 for any single project or related series of projects;
(xi) any partnership, joint venture or other similar arrangement or
agreement involving a sharing of profits or losses;
(xii) any other contract which involves payments or receipts by the
Company of more than $25,000;
(xiii) any contract not made in the ordinary course; or
(xiv) any contract for any purpose (whether or not made in the ordinary
course of the business or otherwise not required to be listed or described
in Schedule 5.20) which is material to the Company or its business.
5.21. Status of Contracts. Except as set forth in Schedule 5.21 or in any
other Schedule hereto, each of the leases, contracts and other agreements
listed in Schedules 5.11, 5.14, 5.15, 5.18 and 5.20 (collectively, the
"Company Agreements") constitutes a valid and binding obligation of the
parties thereto and is in full force and effect and (except as set forth in
Schedule 5.3 and except for those Company Agreements which by their terms will
expire prior to the Effective Time or are otherwise terminated prior to the
Effective Time in accordance with the provisions hereof) will continue in full
force and effect after the Effective Time, in each case without breaching the
terms thereof or resulting in the forfeiture or impairment of any rights
thereunder and without the consent, approval or act of, or the making of any
filing with, any other party. The Company has fulfilled and performed its
obligations under each of the Company Agreements, and the Company is not in,
or to the best knowledge of the Company alleged to be in, breach or default
under, nor is there or to the best knowledge of the Company is there alleged
to be any basis for termination of, any of the Company Agreements and, to the
best knowledge of the Company, no other party to any of the Company Agreements
has breached or defaulted thereunder, and no event has occurred and no
condition or state of facts exists which, with the passage of time
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or the giving of notice or both, would constitute such a default or breach by
the Company or, to the best knowledge of the Company, by any such other party.
The Company is not currently renegotiating any of the Company Agreements or
paying liquidated damages in lieu of performance thereunder. Complete and
correct copies of each of the Company Agreements have heretofore been
delivered to Parent.
5.22. No Violation, Litigation or Regulatory Action. Except as set forth in
Schedule 5.22:
(i) the Company's assets and their uses comply with all applicable
Requirements of Laws and Court Orders;
(ii) the Company has complied with all Requirements of Laws and Court
Orders which are applicable to the Company's assets or its business;
(iii) there are no lawsuits, claims, suits, proceedings or investigations
pending or, to the best knowledge of the Company, threatened against or
affecting the Company or its assets or business nor, to the best knowledge
of the Company, is there any basis for any of the same, and there are no
lawsuits, suits or proceedings pending in which the Company is the
plaintiff or claimant;
(iv) there is no action, suit or proceeding pending or, to the best
knowledge of the Company, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement; and
(v) to the best knowledge of the Company, no legislative or regulatory
proposal has been adopted or is pending which could adversely affect the
Company's business in any material respect.
5.23. Environmental Matters. Except as set forth in Schedule 5.23:
(i) the Company's past and present operations of the Company's business
have complied and are in compliance with all applicable Environmental Laws;
(ii) none of the Leased Real Property requires any Remedial Action by the
Company under applicable Environmental Laws involving any expenditure by
the Company to respond to any Contaminant including, without limitation,
asbestos-containing materials; and
(iii) the Company has no contingent liability arising under any
Environmental Laws, or common laws, relating to any Company Property or the
Company's operations prior to the Closing Date.
5.24. Insurance. Schedule 5.24 sets forth a list and brief description
(including nature of coverage, limits, deductibles, premiums and the loss
experience for the most recent five years with respect to each type of
coverage) of all policies of insurance maintained, owned or held by the
Company on the date hereof. The Company shall keep or cause such insurance or
comparable insurance in full force and effect through the Effective Date.
5.25. No Finder. Neither the Company nor any Person acting on behalf of the
Company or any of the shareholders of the Company has paid or become obligated
to pay any fee or commission to any broker, finder or intermediary for or on
account of the transactions contemplated by this Agreement other than to The
Wallach Company, Inc. ("Wallach"). Complete and correct copies of the
engagement and indemnification agreements entered into with Wallach have been
furnished to Parent and the fees payable thereunder are set forth in Schedule
5.25.
5.26. Disclosure. None of the representations or warranties of the Company
contained herein, none of the information contained in the Schedules referred
to in this Article V, and none of the other information or documents furnished
or to be furnished to Parent or any of its representatives by the Company or
its representatives pursuant to the terms of this Agreement, is false or
misleading in any material respect or omits to state a fact herein or therein
necessary to make the statements herein or therein not misleading in any
material respect.
5.27. Financial Projections. The Company has made available to Parent
certain financial projections with respect to the Company's business which
projections were prepared for internal use only. The Company makes
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no representation or warranty regarding the accuracy of such projections or as
to whether such projections will be achieved or otherwise, except that they
represent and warrant that such projections were prepared in good faith and
are based on assumptions believed by them to be reasonable.
5.28. Opinion of Financial Advisor. The Company has received the opinion of
Wallach, dated the date hereof, to the effect that, subject to the provisions
set forth in such letter, as of the date hereof, the consideration to be
received in the Merger by the Company's shareholders is fair to the Company's
shareholders from a financial point of view, a copy of which opinion has been
delivered to Parent.
5.29. Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock is the only vote of the holders
of any class or series of capital stock of the Company necessary to approve
this Agreement.
5.30. Acceptable Consumer Disclosure. Except as set forth in Schedule
5.30(i), all of the consumer response cards designed and developed by the
Company and distributed to its clients for use by their customers within the
six months preceding the date hereof contain disclosures substantially as
provided in Schedule 5.30.
ARTICLE VI
Representations and Warranties of Parent and Mergergo
As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, Parent and Mergerco hereby
jointly and severally represent and warrant to the Company:
6.1. Organization and Capital Structure. (a) Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to own or lease and to
operate and use its properties and assets and to carry on its business as now
conducted. Mergerco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado. Mergerco was organized
solely for the purpose of engaging in the transactions contemplated by this
Agreement and has not engaged in any business since it was incorporated which
is not in connection with this Agreement.
(b) The authorized capital of Mergerco consists of 1,000 shares of common
stock, par value $.01 per share, of which 100 have been issued and are
outstanding and none are held as treasury shares. All of the outstanding
shares of capital stock of Mergerco are validly issued, fully paid and
nonassessable and owned of record and beneficially by Parent, free from all
Encumbrances.
6.2. Authority. (a) Parent has full corporate power and authority to
execute, deliver and perform this Agreement and all of the Parent Ancillary
Agreements. The execution, delivery and performance of this Agreement and the
Parent Ancillary Agreements by Parent have been duly authorized and approved
by Parent's board of directors or a duly authorized committee thereof and,
except for the adoption of this Agreement by Parent as the sole shareholder of
Mergerco in accordance with Section 7.3, no other corporate proceedings on the
part of Parent are necessary to authorize this Agreement, the Parent Ancillary
Agreements and the transactions contemplated hereby and thereby. This
Agreement has been duly authorized, executed and delivered by Parent and is
the legal, valid and binding obligation of Parent enforceable in accordance
with its terms, and each of the Parent Ancillary Agreements has been duly
authorized by Parent and upon execution and delivery by Parent will be a
legal, valid and binding obligation of Parent enforceable in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(b) Mergerco has full corporate power and authority to execute, deliver and
perform this Agreement. The execution, delivery and performance of this
Agreement by Mergerco have been duly authorized and approved by Mergerco's
board of directors and, except for the approval of the Plan of Merger by
Parent in accordance with
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the Section 7.3 and the filing contemplated by Section 4.2, no other corporate
proceedings on the part of Mergerco are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Mergerco and is the legal, valid and
binding agreement of Mergerco enforceable in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).
(c) Neither the execution and delivery of this Agreement or any of the
Parent Ancillary Agreements or the consummation of any of the transactions
contemplated hereby or thereby (including the filing with the SEC of the
Registration Statement and the Proxy Statement/Prospectus included therein and
the issuance of the Merger Shares in accordance with the terms hereof), nor
compliance with or fulfillment of the terms, conditions and provisions hereof
or thereof will:
(i) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon any of Parent's or Mergerco's assets under, (1) the Certificate or
Articles of Incorporation or By-laws of Parent or Mergerco, (2) any
material note, instrument, agreement, mortgage, lease, license, franchise,
permit or other authorization, right, restriction or obligation to which
either Parent or Mergerco is a party or any of their respective material
assets or business is subject or by which either Parent or Mergerco or
Parent is bound, (3) any material Court Order to which either Parent or
Mergerco or Parent is a party or by which either Parent or Mergerco is
bound or (4) any material Requirements of Laws affecting Parent or
Mergerco, except for, in the case of clauses (2) or (3) of this
subparagraph (ii), any such conflicts, breaches, defaults, rights or
Encumbrances that, individually or in the aggregate, would not have a
Material Adverse Effect on Parent and its subsidiaries, taken as a whole,
materially impair the ability of Parent to perform its obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby; or
(ii) require the approval, consent, authorization or act of, or the
making by either Parent or Mergerco of any declaration, filing or
registration with, any third Person, except for the filing of appropriate
documents with the SEC under the Securities Act and the Exchange Act, the
filing contemplated by Section 4.2 with the Secretary of State of the State
of Colorado and appropriate documents with the relevant authorities of
other jurisdictions in which the Company is qualified to do business, such
consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under takeover or blue sky laws of various
states, and such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent and its subsidiaries, taken as a whole, materially impair the
ability of Parent to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
6.3. No Finder. Neither Mergerco or Parent nor any Person acting on behalf
of Mergerco or Parent has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement other than to Lehman Brothers Inc.
6.4. Parent SEC Documents. Parent has filed all documents required to be
filed by it with the SEC since June 13, 1996. As of their respective dates,
all documents filed by Parent with the SEC since June 13, 1996 (the "Parent
SEC Documents") complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and none of the Parent
SEC Documents included an untrue statement of a material fact or omitted 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. The
consolidated financial statements of Parent included in the Parent SEC
Documents complied as to form in all material respects with the applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of the unaudited
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statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated therein or in
the notes thereto) and fairly present the consolidated financial position of
Parent and its consolidated Subsidiaries as at the respective dates thereof
and the consolidated results of their operations and their consolidated cash
flows for the respective periods then ended (subject, in the case of the
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein). Parent has supplied the Company with true and
complete copies of the Parent SEC Documents (except for any registration
statements on Form S-8).
6.5. Operations Since December 31, 1996. Except as set forth in the Parent
SEC Documents, since December 31, 1996, there has been no material adverse
change in the assets, business, financial condition, results of operations of
Parent and its subsidiaries, taken as a whole.
6.6. Registration Statement and Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by
reference in the Registration Statement or the Proxy Statement/Prospectus
included therein relating to the Company Shareholder Meeting will (i) in the
case of the Registration Statement, at the time it becomes effective under the
Securities Act, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading or (ii) in the case of the Proxy
Statement/Prospectus, at the time of the mailing thereof to the stockholders
of Parent and the Company, at the time of each of the Company Shareholder
Meeting and at the Effective Time, include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
with respect to Parent, its directors, officers or any of its subsidiaries
shall occur which is required to be described in the Proxy
Statement/Prospectus or the Registration Statement, such event shall be so
described, and an appropriate amendment or supplement shall be promptly filed
with the SEC and, to the extent required by law, disseminated to the
shareholders of the Company. The Registration Statement will comply (with
respect to information relating to Parent, Mergerco and the Merger) as to form
in all material respects with the provisions of the Securities Act, and the
Proxy Statement/Prospectus will comply (with respect to information relating
to Parent, Mergerco and the Merger) as to form in all material respects with
the provisions of the Exchange Act.
6.7. Issuance of Merger Shares. The Merger Shares, when issued and delivered
in accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free and clear of any preemptive rights of any Person.
6.8. No Violation, Litigation or Regulatory Action. Except as set forth in
Schedule 6.8 or in Parent SEC Documents:
(i) the assets of Parent and its subsidiaries and their uses comply with
all applicable Requirements of Laws and Court Orders, except where failure
to comply would not have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole;
(ii) each of Parent and its subsidiaries has complied with all
Requirements of Laws and Court Orders which are applicable to Parent's
assets or its business, except where failure to comply would not have a
Material Adverse Effect on Parent and its subsidiaries, taken as a whole;
(iii) there are no lawsuits, claims, suits, proceedings or investigations
pending or, to the best knowledge of Parent, threatened against or
affecting Parent or its subsidiaries or the assets or business of Parent or
its subsidiaries which would reasonably be expected to have a Material
Adverse Effect on Parent and its subsidiaries, taken as a whole;
(iv) there is no action, suit or proceeding pending or, to the best
knowledge of Parent, threatened which questions the legality or propriety
of the transactions contemplated by this Agreement; and
(v) to the best knowledge of Parent, no legislative or regulatory
proposal has been adopted or is pending which could adversely affect
Parent's business in any material respect.
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6.9. Disclosure. None of the representations or warranties of Parent
contained herein, none of the information contained in Schedule 6.8, and none
of the other information or documents furnished or to be furnished to the
Company or any of its representatives by Parent or its representatives
pursuant to the terms of this Agreement, is false or misleading in any
material respect or omits to state a fact herein or therein necessary to make
the statements herein or therein not misleading in any material respect.
ARTICLE VII
Action Prior to the Effective Time
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Effective Time:
7.1. Registration Statement. Parent shall prepare and file with the SEC as
soon as practicable a registration statement on Form S-4 (the "Registration
Statement") containing a proxy statement/prospectus covering the Merger Shares
to be issued (the form of such proxy statement/prospectus, together with any
amendments thereof or supplements thereto, mailed to the Company's
shareholders in connection with the meeting referred to in Section 7.2 is
herein referred to as the "Proxy Statement/Prospectus") and shall use its
reasonable best efforts to have the Registration Statement declared effective
by the SEC as soon as practicable. The Registration Statement and the Proxy
Statement/Prospectus will comply as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder. The Registration Statement, when
declared effective by the SEC, and the Proxy Statement/Prospectus, at the time
of its mailing or delivery to the shareholders of the Company and at the time
of the meeting referred to above, will not include 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; provided, however,
that the foregoing shall not apply to the extent that any such untrue
statement of a material fact or omission to state a material fact was made by
Parent in reliance upon and in conformity with written information concerning
the Company or its Affiliates furnished to Parent by the Company or any of its
Affiliates expressly for inclusion in the Registration Statement. Parent shall
also take any action required to be taken under state blue sky or securities
laws in connection with the issuance of the Merger Shares pursuant to the
Merger. The Company shall, and shall cause its Affiliates to, furnish Parent
all information concerning themselves required for use in the Registration
Statement, including, without limitation, financial statements of the Company
which are required to be included in the Registration Statement or which are
necessary to prepare pro forma financial statements and information to be
included in the Registration Statement. If, at any time prior to the Effective
Time, any event with respect to the Company or any of its Affiliates should
occur which is required to be described in an amendment of, or a supplement
to, the Proxy Statement/Prospectus or the Registration Statement, such event
shall be so described, and such amendment shall be promptly filed with the SEC
and, as required by law, disseminated to shareholders of the Company. Parent
will advise the Company, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment thereto has been filed, of the issuance of any stop order, of the
suspension of the qualification for offering or sale in any jurisdiction of
the Merger Shares issuable pursuant to the Merger or any request by the SEC
for an amendment or supplement of the Registration Statement or for additional
information.
7.2. Action by Shareholders. The Company shall call a meeting of its
shareholders (the "Company Shareholder Meeting") to be held as promptly as
practicable after the effectiveness of the Registration Statement for the
purpose of voting upon approval of this Agreement. The Company shall, through
its Board of Directors, recommend to the shareholders approval of the Merger
and shall not withdraw such recommendation.
7.3. Action by Parent. Parent, as the sole shareholder of Mergerco, shall
take such actions as may be necessary to approve the Merger and adopt this
Agreement under the CBCA.
7.4. Investigation of the Company and Parent. The Company shall afford to
the officers, employees and authorized representatives of Parent and Parent
shall afford the officers, employees and authorized representatives
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of the Company (in each case including, without limitation, its independent
public accountants, attorneys, environmental consultants and financial
advisors), reasonable access during normal business hours to the offices,
properties, employees and business and financial records (including, without
limitation, computer files, retrieval programs and similar documentation) of
the Company or Parent, as the case may be, to the extent Parent or the
Company, as the case may be, shall deem necessary or desirable, and shall
furnish to Parent or the Company, as the case may be, or such party's
authorized representatives such additional information concerning the
operations, properties and businesses of the Company or Parent, as the case
may be, as may be reasonably requested in writing, to enable Parent or the
Company or such party's authorized representatives to verify the accuracy of
the representations and warranties contained in this Agreement, to verify the
accuracy of the financial statements referred to in Sections 5.4 or contained
or referred to in the Parent SEC Documents, as the case may be, and to
determine whether the conditions set forth in Articles IX have been satisfied.
Parent and the Company agree that such investigations shall be conducted in
such manner as not to interfere unreasonably with the operation of the
business of the Company or Parent, as the case may be. No investigation made
by Parent or the Company or such party's authorized representatives hereunder
shall affect the representations and warranties of the parties hereunder.
7.5. Preserve Accuracy of Representations and Warranties. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty contained in Article V or VI of this Agreement
inaccurate as of the Effective Time. Each party shall promptly notify the
other parties of any action, suit or proceeding that shall be instituted or
threatened against such party to restrain, prohibit or otherwise challenge the
legality of any transaction contemplated by this Agreement. Each party shall
promptly notify the other parties of any lawsuit, claim, proceeding or
investigation that may be instituted or, to the best knowledge of such party,
threatened against such party which would have been listed in Schedule 5.22 or
Schedule 6.8, respectively, if such lawsuit, claim, proceeding or
investigation had arisen prior to the date hereof.
7.6. Consents of Third Parties; Governmental Approvals. (a) The Company will
act diligently and reasonably to secure, before the Effective Time, the
consent, approval or waiver, in form and substance reasonably satisfactory to
Parent, from any party to any Company Agreement required to satisfy the
conditions set forth in Section 9.3(b); provided that no party hereto shall
have any obligation to offer or pay any consideration in order to obtain any
such consents or approvals; and provided, further, that the Company shall not
make any agreement or understanding affecting the Company or its assets or
business as a condition for obtaining any such consents or waivers except with
the prior written consent of Parent. During the period prior to the Effective
Time, Parent shall act diligently and reasonably to cooperate with the Company
to obtain the consents, approvals and waivers contemplated by this Section
7.6(a).
(b) During the period prior to the Effective Time, the parties hereto shall
act diligently and reasonably, and shall cooperate with each other, to secure
any consents and approvals of any Governmental Body required to be obtained by
them in order to permit the consummation of the transactions contemplated by
this Agreement or to otherwise satisfy the conditions set forth in Section
9.1(c); provided that the Company shall not make any agreement or
understanding affecting the Company or its assets or business as a condition
for obtaining any such consents or approvals except with the prior written
consent of Parent.
7.7. Conduct of Business by the Company Prior to the Effective Time. Except
as expressly contemplated by this Agreement, the Company shall carry on its
business in, and not enter into any material transaction other than in
accordance with, the ordinary course consistent with past practice and, to the
extent consistent therewith, use its reasonable best efforts to preserve
intact its current business organization, keep available the services of its
current officers and preserve its relationships with customers, sources of
data and others having business dealings with it (except, in each case, with
the prior written consent of Parent). Without limiting the generality of the
foregoing, and except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions to any holder of its capital
stock or other interest convertible into or exchangeable for its capital
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stock, or otherwise make any payments to any such Persons (other than any
such payments or distributions otherwise permitted to be made under this
Agreement), (B) split, combine or reclassify any of its capital stock or
any security or other interest convertible into or exchangeable for such
capital stock or (except as and to the extent required in the event of the
exercise of any Company Warrant or Company Stock Option) issue, sell or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any other
securities thereof;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock or other securities (including, without
limitation, any rights, warrants or options to acquire any shares of its
capital stock or other securities) (except as and to the extent required in
the event of the exercise of any Company Warrant or Company Stock Option);
(iii) amend its Articles of Incorporation or By-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof;
(v) except as set forth in Schedule 7.7, incur or assume any indebtedness
for borrowed money, enter into (as lessee) any capitalized lease
obligation, guarantee any such indebtedness or obligation, issue or sell
any debt securities, guarantee any debt securities of others or make any
loans, advances or capital contributions to, or investments in, any other
Person;
(vi) make or incur any new capital expenditure or expenditures which,
individually, is in excess of $25,000 or, in the aggregate, are in excess
of $25,000;
(vii) alter through merger, liquidation, reorganization, restructuring or
in any other fashion its corporate structure;
(viii) enter into or adopt, or amend, any bonus, incentive, deferred
compensation, insurance, medical, hospital, disability or severance plan,
agreement or arrangement or enter into or amend any employee benefit plan
or employment, consulting or management agreement, other than any such
amendment to an employee benefit plan that is made to maintain the
qualified status of such plan or its continued compliance with applicable
law;
(ix) make any change in accounting practices or policies applied in the
preparation of the Audited Financial Statements, except as required by
generally accepted accounting principles;
(x) modify any of the agreements, understandings, obligations,
commitments, indebtedness or other obligations set forth in any of the
Schedules to this Agreement, enter into any agreement, understanding,
obligation or commitment, or incur any indebtedness or obligation, of the
type that would have been required to be listed on Schedule 5.20 if in
existence on the date hereof, or enter into any contract which requires any
approval or consent by any other Person to the transactions contemplated by
this Agreement;
(xi) except as set forth in Schedule 7.7, pay or commit to pay any bonus
to any officer or employee of the Company or make any other material change
in the compensation of its employees;
(xii) enter into any contract for the purchase of real property or
exercise any option to purchase real property or any option to extend a
lease listed in Schedule 5.11;
(xiii) sell, lease (as lessor), transfer or otherwise dispose of
(including any transfers from the Company to any shareholder or any of its
Affiliates), or mortgage or pledge, or impose or suffer to be imposed any
Encumbrance on, any of the Company's assets, other than inventory and minor
amounts of personal property sold or otherwise disposed of for fair value
in the ordinary course of business consistent with past practice and other
than Permitted Encumbrances;
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(xiv) cancel any debts owed to or claims held by the Company (including
the settlement of any claims or litigation) other than in the ordinary
course of business consistent with past practice; or
(xv) enter into any other transaction affecting the business of the
Company, other than in the ordinary course of business consistent with past
practice or as expressly contemplated by this Agreement.
7.8. Notification of Certain Matters. Parent shall promptly advise the
Company in writing of any change or event having a Material Adverse Effect on
Parent and its subsidiaries taken a whole. The Company shall promptly advise
Parent in writing of (i) any change or event having a Material Adverse Effect
on the Company, (ii) any notice or other communication from any third Person
alleging that the consent of such third Person is or may be required in
connection with the transactions contemplated by this Agreement, and (iii) any
material default under any Company Agreement or event which, with notice or
lapse of time or both, would become such a default on or prior to the
Effective Time and of which the Company has knowledge.
7.9. Mutual Cooperation; Reasonable Best Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable, to consummate and make effective, as soon as reasonably
practicable, the Merger.
(b) Each party hereto shall use its reasonable best efforts not to take any
action, or to enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or to
result in a breach of any of its covenants in this Agreement.
7.10. No Solicitation. The Company shall not, nor shall it authorize or
permit any of its Affiliates or any officer, director, employee, investment
banker, attorney or other adviser or representative of the Company or any of
its Affiliates to, (i) solicit, initiate, or encourage the submission of, any
Acquisition Proposal (as hereinafter defined) or (ii) enter into any agreement
with respect to any Acquisition Proposal, participate in any discussions or
negotiations regarding, or furnish to any person any information for the
purpose of facilitating the making of, or take any other action to facilitate
any inquiries or the making of, any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. Without limiting
the foregoing, it is understood that any violation, of which the Company or
any of its Affiliates had actual knowledge at the time of such violation, of
the restrictions set forth in the immediately preceding sentence by any
officer, director, employee, investment banker, attorney, employee, or other
adviser or representative of the Company or any of its Affiliates, whether or
not such Person is purporting to act on behalf of the Company or any of its
Affiliates or otherwise, shall be deemed to be a breach of this Section 7.10
by the Company and its Affiliates. The Company promptly shall advise Parent of
any Acquisition Proposal and any inquiries with respect to any Acquisition
Proposal. For purposes of this Agreement, "Acquisition Proposal" means any
proposal for a merger or other business combination involving the Company or
any of its Affiliates or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in the Company or any of its
Affiliates, any voting securities of the Company or any of its Affiliates or a
substantial portion of the assets of the Company.
7.11. Listing Application. Parent will promptly file an application to list
on the NYSE, subject to official notice of issuance, the Merger Shares to be
issued pursuant to Section 3.1 and will use its reasonable best efforts to
effect such listing on the NYSE, subject to official notice of issuance, on or
prior to the Effective Time.
7.12. Subsequent Financial Statements. Prior to the Effective Date, the
Company shall deliver to Parent, not later than 15 days after the end of each
monthly period and in the form customarily prepared by the Company, the
unaudited internal financial statements of the Company, including an income
statement, for the monthly period then ended and for the period from the
beginning of the current fiscal year to the end of such monthly period.
7.13. Comfort Letters. (a) The Company shall use its reasonable best efforts
to cause to be delivered to Parent a "comfort" letter of Arthur Andersen, the
Company's independent public accountants, dated the date on which the
Registration Statement shall become effective, and addressed to Parent and the
Company, in form and
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substance reasonably satisfactory to Parent and as is reasonably customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company a "comfort" letter of Arthur Andersen, Parent's independent public
accountants, dated the date on which the Registration Statement shall become
effective, and addressed to the Company and Parent, in form and substance
reasonably satisfactory to the Company and as is reasonably customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
7.14. Reorganization. During the period from the date of this Agreement
through the Effective Time, unless Parent and the Company shall otherwise
agree in writing, neither Parent nor the Company shall knowingly take or fail
to take any action which action or failure would jeopardize qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the
Code or would cause any of the representations and warranties set forth in the
Company Tax Certificate or the Parent Tax Certificate to be untrue or
incorrect in any material respect.
7.15. Affiliate Letters. Prior to the Effective Time, the Company shall
cause to be prepared and delivered to Parent a list (reasonably satisfactory
to counsel for Parent) identifying each person who, at the time of the Company
Shareholder Meeting, may be deemed to be an "affiliate" of the Company, as
such term is defined for purposes of paragraphs (c) and (d) of Rule 145 under
the Securities Act (the "Rule 145 Affiliates"). The Company shall use its
reasonable best efforts to cause each person who is identified as a Rule 145
Affiliate in such list to deliver to Parent on or prior to the Effective Time,
a written agreement, in a form substantially as set forth as Exhibit B hereto,
that such Rule 145 Affiliate represents and covenants that such Person will
not, among other things, sell, transfer or otherwise dispose of any Fixed
Shares issued to such Rule 145 Affiliate in connection with the Merger, except
pursuant to an effective registration statement or in compliance with Rule 145
or another exemption from the registration requirements of the Securities Act,
having provided an opinion of counsel reasonably acceptable to Parent to such
effect. After the Effective Time, Parent shall satisfy the conditions set
forth in Rule 144(c)(1) promulgated by the SEC under the Securities Act for so
long as any Rule 145 Affiliate is subject to the provisions of Rule 145(d).
ARTICLE VIII
Additional Agreements
8.1. Accounts Receivable. (a) As promptly as practicable following the
Closing Date (but not later than 30 days after the Closing Date), the Company
shall prepare, in accordance with the generally accepted accounting
principles, a schedule (the "Preliminary Receivables Schedule") setting forth
the outstanding gross amount of the uncollected accounts receivable of the
Company as of the Effective Date.
(b) Promptly following receipt of the Preliminary Receivables Schedule, the
Contingent Payment Committee may review the same and, within 30 days after the
date of such receipt, may deliver to Parent a certificate setting forth their
objections to the Preliminary Receivables Schedule, together with a summary of
the reasons therefor and calculations which, in their view, are necessary to
eliminate such objections. If the Contingent Payment Committee does not so
object within such 30-day period the determinations set forth in the
Preliminary Receivables Schedule shall be final and binding on Parent and each
of the Record Holders, and the Preliminary Receivables Schedule shall
constitute the "Receivables Schedule."
(c) If the Contingent Payment Committee so objects within such 30-day
period, Parent and the Contingent Payment Committee shall use their reasonable
efforts to resolve by written agreement (the "Agreed Receivables Adjustments")
any differences as to the determinations set forth in the Preliminary
Receivables Schedule and, in the event the Contingent Payment Committee and
Parent so resolve any such differences, the determinations set forth in the
Preliminary Receivables Schedule as adjusted by the Agreed Receivables
Adjustments shall be final
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and binding on Parent and each of the Record Holders, and the Preliminary
Receivables Schedule as so adjusted shall constitute the "Receivables
Schedule."
(d) If any objections raised by the Contingent Payment Committee are not
resolved by Agreed Receivables Adjustments within the 30-day period next
following such 30-day period, then Parent and Contingent Payment Committee
shall submit the objections that are then unresolved to the Accounting Firm
which shall be directed by Parent and the Contingent Payment Committee to
resolve the unresolved objections as promptly as reasonably practicable and to
deliver written notice to each of Parent and the Contingent Payment Committee
setting forth its resolution of the disputed matters, and the determinations
set forth in the Preliminary Receivables Schedule as adjusted by the Agreed
Receivables Adjustments and by its resolution of such objections shall be
final and binding on Parent and each of the Record Holders, and the
Preliminary Receivables Schedule as so adjusted shall constitute the
"Receivables Schedule."
(e) The parties hereto shall make available to Parent, the Contingent
Payment Committee and, if applicable, the Accounting Firm, such books, records
and other information (including work papers) as any of the foregoing may
reasonably request to prepare or review the Preliminary Receivables Schedule
or any matters submitted to the Accounting Firm.
(f) The fees and expenses of the Accounting Firm shall be paid by Parent if
the determination by the Accounting Firm of the unresolved objections
submitted to it pursuant to Section 8.1(d) was closer to the position taken by
the Contingent Payment Committee than to the position taken by Parent and
shall be paid by Parent, which shall have the right to offset such payment
pursuant to Section 3.8, if the determination by the Accounting Firm of the
unresolved objections submitted to it pursuant to Section 8.1(d) was closer to
the position taken by the Contingent Payment Committee.
(g) From and after the Closing Date, Parent shall cause the Company to use
its best efforts to collect the accounts receivable reflected in the
Receivables Schedule (the "Receivables") generally in accordance with the
billing and collection practices presently applied by the Company in the
collection of its accounts and notes receivable, except that with respect to
any particular Receivable, neither Parent nor the Company shall be under any
obligation to commence or not to commence litigation to effect collection and
may make any adjustment, concession or settlement which in the good faith
judgment of Parent is commercially reasonable. In connection with such
collections, if a payment is received from a debtor who has not designated the
invoice being paid thereby, such payment shall be applied to the earliest
invoice outstanding to the Company with respect to indebtedness of such
account debtor, except for those invoices which are subject to a dispute to
the extent of such dispute.
(h) If, after giving effect to all adjustments, concessions and settlements
made and collection fees incurred (in each case in accordance with Section
8.1(g), Company has not collected, within 12 months after the Closing Date, an
amount equal to the excess of the Receivables over $5,000 (such excess being
referred to herein as the "Net Amount of Receivables"), then Parent shall have
the right to set-off against, and to reduce the amounts payable in respect of,
the Contingent Payment Amount for any Measurement Period equal to:
(i) the Net Amount of Receivables, minus
(ii) the amount collected in cash (after giving effect to the items set
forth above) by the Company during such 12-month period in respect of the
Receivables.
8.2. Third Party Standstill Agreements. During the period from the date of
this Agreement through the Effective Time, the Company shall not terminate,
amend, modify or waive any provision of any confidentiality or standstill
agreement to which the Company is a party (other than any involving Parent).
During such period, the Company shall enforce, to the fullest extent permitted
under applicable law, the provisions of any such agreement, including, but not
limited to, by obtaining injunctions to prevent any breaches of such
agreements and to enforce specifically the terms and provisions thereof in any
court of the United States of America or of any state having jurisdiction.
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8.3. Indemnification of Directors. (a) For a period of not less than six
years from and after the Effective Time, Parent agrees to, and to cause the
Surviving Corporation to, indemnify and hold harmless all past and present
directors (the "Indemnified Parties") of the Company to the full extent such
persons may be indemnified by the Company pursuant to the Company's Articles
of Incorporation and Bylaws as in effect as of the date hereof for acts and
omissions occurring at or prior to the Effective Time and shall advance
reasonable litigation expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that such
persons provide the requisite affirmations and undertaking, as set forth in
Article 109, Section 104 of the CBCA.
(b) Any Indemnified Party will promptly notify the Parent and the Surviving
Corporation of any claim, action, suit, proceeding or investigation for which
such party may seek indemnification under this Section; provided, however,
that the failure to furnish any such notice shall not relieve Parent or the
Surviving Corporation from any indemnification obligation under this Section
except to the extent Parent or the Surviving Corporation is materially
prejudiced thereby. In the event of any such claim, action, suit, proceeding,
or investigation, (x) the Surviving Corporation will have the right to assume
the defense thereof, and the Surviving Corporation will not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred thereafter by such Indemnified Parties in
connection with the defense thereof, except that all Indemnified Parties (as a
group) will have the right to retain one separate counsel, reasonably
acceptable to such Indemnified Party and Parent, at the expense of the
indemnifying party if the named parties to any such proceeding include both
the Indemnified Party and the Surviving Corporation and the representation of
such parties by the same counsel would be inappropriate due to a conflict of
interest between them, (y) the Indemnified Parties will cooperate in the
defense of any such matter, and (z) the Surviving Corporation will not be
liable for any settlement effected without its prior written consent.
ARTICLE IX
Conditions Precedent to the Merger
9.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party hereto to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. The Plan of Merger shall have been approved by
the holders of a majority of the outstanding shares of Company Common Stock
and the holders of a majority of the outstanding shares of Common Stock of
Mergerco, in each case as required by the CBCA.
(b) NYSE Listing. The NYSE shall have approved for listing, upon official
notice of issuance, the Merger Shares to be issued pursuant to this
Agreement.
(c) Governmental Approvals. The parties shall have received all approvals
and actions of or by all Governmental Bodies which are necessary to
consummate the transactions contemplated hereby, which are either specified
in Schedule 5.3 or otherwise required to be obtained prior to the Closing
by applicable Requirements of Laws or which are necessary to prevent a
Material Adverse Effect on the Company.
(d) Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall have been entered by the
SEC. Parent shall have received all necessary permits and otherwise
complied with any state securities laws applicable to the issuance of the
Merger Shares pursuant to this Agreement.
(e) No Order. No temporary restraining order, preliminary or permanent
injunction or other order issued by a court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger shall be in effect. No action, suit, investigation or proceeding
shall have been instituted or threatened to restrain or prohibit or
otherwise challenge the legality or validity of the transactions
contemplated hereby.
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9.2. Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. There
shall have been no material breach by Parent or Mergerco in the performance
of any of their respective covenants and agreements herein; none of the
representations and warranties of Parent or Mergerco contained or referred
to herein that is qualified as to materiality shall be untrue or incorrect
in any respect and at the Effective Time such representations and
warranties shall be true and correct as though made at the Effective Time
except for changes therein specifically permitted by this Agreement or
resulting from any transaction expressly consented to in writing by the
Company; none of such representations or warranties that is not so
qualified shall be untrue or incorrect in any material respect and at the
Effective Time such representations and warranties shall be true and
correct in all material respects as though made at the Effective Time
except for changes therein specifically permitted by this Agreement or
resulting from any transaction expressly consented to in writing by the
Company; and there shall have been delivered to the Company a certificate
or certificates to such effect, dated the Effective Date and signed on
behalf of Parent by the President or any Vice President of Parent and on
behalf of Mergerco by the President or any Vice President of Mergerco.
(b) No Changes or Destruction of Property. Between the date hereof and
the Effective Time, there shall have been no change or event having a
Material Adverse Effect on Parent and its subsidiaries taken as a whole;
and there shall have been delivered to the Company a certificate or
certificates to such effect, dated the Effective Date and signed on behalf
of Parent by the President or any Vice President of Parent and on behalf of
Mergerco by the President or any Vice President of Mergerco.
(c) Comfort Letters. The Company shall have received comfort letters
addressed to the Company from Arthur Andersen, the independent public
accountants for Parent and for the Company, dated (i) the date of mailing
of the Proxy Statement/Prospectus to the shareholders of the Company and
(ii) the Effective Date, in each case in form and substance reasonably
satisfactory to the Company, covering such matters as the Company shall
reasonably request.
(d) Tax Opinion. The Company shall have received an opinion of Holland &
Hart LLP, in form and substance reasonably satisfactory to the Company,
dated the Effective Date, substantially to the effect that, for federal
income tax purposes:
(i) The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Mergerco and Parent
will each be a party to such reorganization within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) No income, gain or loss will be recognized by the shareholders
of the Company upon the exchange of their Company Common Stock for
shares of Parent Common Stock or cash (or a combination thereof)
pursuant to the Merger, except that gain will be recognized to the
extent of cash received (excluding cash, if any, received in lieu of
fractional shares of Parent Common Stock), gain or loss will be
recognized with respect to cash, if any, received in lieu of fractional
shares of Parent Common Stock and income will be recognized to the
extent of any amount treated as interest;
(iv) The aggregate tax basis of the shares of Parent Common Stock or
cash (or a combination thereof) received in exchange for Company Common
Stock pursuant to the Merger (including fractional shares of Parent
Common Stock for which cash is received) will be the same as the
aggregate tax basis of the Company Common Stock exchanged therefor,
reduced by the amount of cash received in such exchange (excluding
cash, if any, received in lieu of fractional shares of Parent Common
Stock), increased by any gain recognized by reason of the receipt of
such cash in such exchange, and increased by any amount treated as
interest;
(v) Except to the extent of Parent Common Stock treated as interest,
the holding period for shares of Parent Common Stock received in
exchange for Company Common Stock pursuant to the Merger
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will include the holding period of the Company Common Stock exchanged
therefor, provided such Company Common Stock was held as a capital
asset by the shareholder at the Effective Time; and
(vi) A shareholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such shareholder's tax basis
in such fractional share (as described in clause (iv) above) and the
amount of cash received.
In rendering such opinion, Holland & Hart LLP may receive and rely upon
representations of the Company, Parent and certain shareholders of the
Company.
9.3. Conditions to Obligations of Parent and Mergerco to Effect the Merger.
The obligation of Parent and Mergerco to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. There
shall have been no material breach by the Company in the performance of any
of their respective covenants and agreements herein; none of the
representations and warranties of the Company contained or referred to
herein that is qualified as to materiality shall be untrue or incorrect in
any respect and at the Effective Time such representations and warranties
shall be true and correct as though made at the Effective Time except for
changes therein specifically permitted by this Agreement or resulting from
any transaction expressly consented to in writing by Parent and Mergerco or
any transaction permitted by Section 7.7; none of such representations or
warranties that is not so qualified shall be untrue or incorrect in any
material respect and at the Effective Time such representations and
warranties shall be true and correct in all material respects as though
made at the Effective Time except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Parent and Mergerco or any transaction permitted
by Section 7.7; and there shall have been delivered to Parent and Mergerco
a certificate or certificates to such effect, dated the Effective Date and
signed on behalf of the Company by the President or any Vice President of
the Company.
(b) Consents Under Agreements. The Company shall have received consents,
in form and substance reasonably satisfactory to Mergerco and Parent, to
the transactions contemplated hereby from the other parties to all
contracts, leases, agreements and permits to which the Company is a party
or by which the Company or any of its assets is affected and which are
specified in Schedule 9.3 or are otherwise necessary to prevent a Material
Adverse Effect on the Company.
(c) No Changes or Destruction of Property. Between the date hereof and
the Effective Time, there shall have been(i) no change or event having a
Material Adverse Effect on the Company; (ii) no material adverse federal or
state legislative or regulatory change affecting the Company's business or
its products or services; and (iii) no material damage to the Company's
assets by fire, flood, casualty, act of God or the public enemy or other
cause, regardless of insurance coverage for such damage; and there shall
have been delivered to Parent and Mergerco a certificate or certificates to
such effect, dated the Effective Date and signed on behalf of the Company
by the President or any Vice President of the Company.
(d) Comfort Letters. Parent shall have received comfort letters addressed
to Parent from Arthur Andersen, the independent public accountants for
Parent and for the Company, dated (i) the date of mailing of the Proxy
Statement/Prospectus to the shareholders of the Company and (ii) the
Effective Date, in each case in form and substance reasonably satisfactory
to Parent, covering such matters as Parent shall reasonably request.
(e) Tax Opinion. Parent shall have received an opinion of Sidley &
Austin, in form and substance reasonably satisfactory to Parent, dated the
Effective Date, substantially to the effect that, for federal income tax
purposes:
(i) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Company, Mergerco and Parent will
each be a party to such reorganization within the meaning of Section
368(b) of the Code;
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(ii) No gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) No income, gain or loss will be recognized by the shareholders
of the Company upon the exchange of their Company Common Stock for
shares of Parent Common Stock or cash (or a combination thereof)
pursuant to the Merger, except that gain will be recognized to the
extent of cash received (excluding cash, if any, received in lieu of
fractional shares of Parent Common Stock), gain or loss will be
recognized with respect to cash, if any, received in lieu of fractional
shares of Parent Common Stock and income will be recognized to the
extent of any amount treated as interest;
(iv) The aggregate tax basis of the shares of Parent Common Stock or
cash (or a combination thereof) received in exchange for Company Common
Stock pursuant to the Merger (including fractional shares of Parent
Common Stock for which cash is received) will be the same as the
aggregate tax basis of the Company Common Stock exchanged therefor,
reduced by the amount of cash received in such exchange (excluding
cash, if any, received in lieu of fractional shares of Parent Common
Stock), increased by any gain recognized by reason of the receipt of
such cash in such exchange, and increased by any amount treated as
interest;
(v) Except to the extent of Parent Common Stock treated as interest,
the holding period for shares of Parent Common Stock received in
exchange for Company Common Stock pursuant to the Merger will include
the holding period of the Company Common Stock exchanged therefor,
provided such Company Common Stock were held as a capital asset by the
shareholder at the Effective Time; and
(vi) A shareholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such shareholder's tax basis
in such fractional share (as described in clause (iv) above) and the
amount of cash received.
In rendering such opinion, Sidley & Austin may receive and rely upon
representations of the Company, Parent and certain shareholders of the
Company.
(f) FIRPTA Certificate. The Company shall have delivered to Parent, not
more than 20 days prior to the Effective Date, a statement in accordance
with Treas. Reg. (S)(S) 1.1445-2(c)(3) and 1.897-2(h) certifying that the
Company is not, and has not been, a "United States real property holding
corporation" for purposes of Sections 897 and 1445 of the Code, and Parent
shall have no actual knowledge that such statement is false or receive a
notice that the statement is false pursuant to Treas. Reg. (S) 1.1445-4. In
addition, the Company shall have delivered to Parent on the Effective Date
the notification to the Internal Revenue Service, in accordance with the
requirements pursuant to Treas. Reg. (S) 1.897-(h)(2), of delivery of the
statement referred to in the preceding sentence, signed by a responsible
corporate officer of the Company. The Company acknowledges that Parent may
cause the Company to file such notification with the Internal Revenue
Service on or after the Effective Date.
(g) Dissenters. Holders of not more than 1% of the Company Common Stock
then outstanding shall have (i) delivered to the Company, before the
Company Shareholder Meeting, a written notice of intention to demand
payment of their shares of Company Common Stock pursuant to Article 113
Section 201 of the CBCA and (ii) not voted in favor of or consented to the
Merger; and there shall have been delivered to Parent and Mergerco a
certificate to such effect, dated the Effective Date and signed on behalf
of the Company by the President or any Vice President of the Company.
(h) Shareholder Approval of Certain Payments. In the reasonable judgment
of Parent, the "shareholder approval requirements" of Treasury Regulation
Section 1.280G-1, Q/A-7 shall have been satisfied with respect to any
payments or benefits that otherwise would constitute "excess parachute
payments" as such term is defined in Section 280G of the Code as a result
of the transactions contemplated by this Agreement, and the Company shall
have provided Parent with written evidence thereof reasonably satisfactory
to Parent.
(i) Company Stock Options. The Company shall have received the written
acknowledgment and consent, in form reasonably acceptable to Parent, of
each holder of a Company Stock Option outstanding as of the Effective Time
that at the Effective Time the Company Stock Option shall be converted into
the rights
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described in Section 2.2, and that after the Effective Time neither the
Company nor Parent has any obligations to such holders pursuant to such
Company Stock Option, except for the obligations of Parent contained in
this Agreement.
(j) Company Warrants. The Company shall have received the written
acknowledgment and consent, in form reasonably acceptable to Parent, of
each holder of a Company Warrant outstanding as of the Effective Time that
at the Effective Time the Company Warrant shall be converted into the
rights described in Section 2.2, and that after the Effective Time neither
the Company nor Parent has any obligations to such holders pursuant to such
Company Warrant, except for the obligations of Parent contained in this
Agreement.
(k) Affiliate Agreements. Parent shall have received the written
agreements from the Rule 145 Affiliates of the Company described in Section
7.15.
(l) Loan and Security Agreement. The Loan and Security Agreement dated as
of March 12, 1997, by and between Silicon Valley Bank and the Company shall
have been terminated, and the Encumbrances arising thereunder shall have
been released.
Notwithstanding the failure of any one or more of the foregoing conditions,
Parent may proceed with the Closing without satisfaction, in whole or in part,
of any one or more of such conditions and without written waiver.
ARTICLE X
Termination
10.1. Termination Rights. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval by the
stockholders of the Company of the matters presented in connection with the
Merger:
(a) by mutual written consent of Parent and the Company;
(b) by Parent if (i) the Company shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with prior to the date of such
termination, which failure to comply has not been cured within five
business days after receipt by the Company of notice of such failure to
comply, or (ii) the shareholders of the Company shall not approve the
Merger at the Company Shareholder Meeting or any adjournment thereof;
(c) by the Company if (i) Parent or Mergerco shall have failed to comply
in any material respect with any of its respective covenants or agreements
contained in this Agreement required to be complied with prior to the date
of such termination, which failure to comply has not been cured within five
business days after receipt by Parent of notice of such failure to comply,
or (ii) the shareholders of the Company shall not approve the Merger at the
Company Shareholder Meeting or any adjournment thereof;
(d) by either Parent or the Company if there has been (i) a material
breach by the other (or Mergerco if the Company is the terminating party)
of any representation or warranty that is not qualified as to materiality
or (ii) a breach by the other (or Mergerco if the Company is the
terminating party) of any representation or warranty that is qualified as
to materiality, in each case which breach has not been cured within five
business days after receipt by the breaching party of notice of the breach;
and
(e) by either Parent or the Company if: (i) the Merger has not been
effected on or prior to the close of business on August 31, 1997; provided,
however, that the right to terminate this Agreement pursuant to this clause
(e) shall not be available to any party whose willful failure to fulfill
any obligation of this Agreement has been the cause of, or resulted in, the
failure of the Merger to have occurred on or prior to such date; or (ii)
any court or other Governmental Entity having jurisdiction over a party
hereto shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable.
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10.2. Notice of Termination. Any party desiring to terminate this Agreement
pursuant to Section 10.1 shall give notice of such termination to each of the
other parties to this Agreement.
10.3. Effect of Termination. In the event that this Agreement shall be
terminated pursuant to this Article X, all further obligations of the parties
under this Agreement (other than Sections 11.2 and 11.10) shall be terminated
without further liability of any party to the others; provided, however, that
nothing herein shall relieve any party from liability for its willful breach
of this Agreement.
ARTICLE XI
General Provisions
11.1. Survival of Obligations. All representations, warranties, covenants
and obligations contained in this Agreement shall survive the consummation of
the transactions contemplated by this Agreement, except that the
representations and warranties of Parent shall terminate on the Closing Date
and the representations and warranties of the Company shall terminate as
provided in Section 3.8.
11.2. Confidential Nature of Information. Each party agrees that it will
treat in confidence all documents, materials and other information which it
shall have obtained regarding the other parties during the course of the
negotiations leading to the consummation of the transactions contemplated
hereby (whether obtained before or after the date of this Agreement), the
investigation provided for herein and the preparation of this Agreement and
other related documents, and, in the event the transactions contemplated
hereby shall not be consummated, each party will return to the other parties
all copies of nonpublic documents and materials which have been furnished in
connection therewith. Such documents, materials and information shall not be
communicated to any third Person (other than, in the case of Parent and
Mergerco, to their counsel, accountants, financial advisors or lenders, and in
the case of the Company, to its counsel, accountants or financial advisors).
No other party shall use any confidential information in any manner whatsoever
except solely for the purpose of evaluating the proposed Merger; provided,
however, that after the Effective Time, Parent and the Surviving Corporation
may use or disclose any confidential information included in the assets of the
Company as of the Effective Time or otherwise reasonably related to the assets
or business of the Company. The obligation of each party to treat such
documents, materials and other information in confidence shall not apply to
any information which (i) is or becomes available to such party from a source
other than such party, (ii) is or becomes available to the public other than
as a result of disclosure by such party or its agents, (iii) is required to be
disclosed under applicable law or judicial process, but only to the extent it
must be disclosed, or (iv) such party reasonably deems necessary to disclose
to obtain any of the consents or approvals contemplated hereby.
11.3. No Public Announcement. No party hereto shall, without the approval of
all of the other parties, make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to
the extent that any such party shall be so obligated by law or the rules of
any stock exchange, in which case such party shall so advise the other parties
and all parties shall use their reasonable best efforts to cause a mutually
agreeable release or announcement to be issued; provided that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement or to comply with accounting and SEC disclosure
obligations.
11.4. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered when
delivered personally or four days after being mailed by registered or
certified mail, return receipt requested, or one day after being sent by
private overnight courier addressed as follows:
If to Parent or Mergerco, to:
Metromail Corporation
360 East 22nd Street
Lombard, Illinois 60148
Attention:Thomas J. Quarles
Senior Vice President and General Counsel
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with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention:Dennis V. Osimitz
If to the Company (prior to the Effective Time), to:
Atlantes Corporation
Suite 503
90 Madison Street
Denver, Colorado 80206
Attention:E. Thomas Detmer, Jr.
with a copy to:
Holland & Hart LLP
555 Seventeenth St.
Denver, Colorado 80202-3979
Attention:Betty Carter Arkell
If to the Contingent Payment Committee, to:
Jeffrey Schutz
1428 15th Street
Denver, Colorado 80202
or to such other address as such party may indicate by a notice delivered to
the other parties hereto.
11.5. Successors and Assigns. (a) The rights of each party under this
Agreement shall not be assignable by such party prior to the Effective Time
without the written consent of each of the other parties. Following the
Effective Time, any party may assign any of its rights hereunder, but no such
assignment shall relieve it of its obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns. The successors and
permitted assigns hereunder shall include without limitation, in the case of
Parent, any permitted assignee as well as the successors in interest to such
permitted assignee (whether by merger, liquidation (including successive
mergers or liquidations) or otherwise). Nothing in this Agreement, expressed
or implied, is intended or shall be construed to confer upon any Person other
than the parties and successors and assigns permitted by this Section 11.5,
the Contingent Payment Committee and the Record Holders any right, remedy or
claim under or by reason of this Agreement.
11.6. Entire Agreement; Amendments. This Agreement and the Exhibits and
Schedules referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior
agreements, understandings or letters of intent between or among any of the
parties hereto, including without limitation the Confidentiality Agreement.
This Agreement shall not be amended, modified or supplemented except by a
written instrument signed by an authorized representative of each of the
parties hereto.
11.7. Interpretation. Titles to articles and headings to sections herein are
inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. The Schedules
and Exhibits referred to herein shall be construed with and as an integral
part of this Agreement to the same extent as if they were set forth verbatim
herein. Except as expressly stated to the contrary herein, all dollar amounts
in this Agreement refer to lawful money of the United States of America.
11.8. Waivers. Any term or provision of this Agreement may be waived, or the
time for its performance may be extended, by the party or parties entitled to
the benefit thereof. Any such waiver shall be validly and
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sufficiently authorized for the purposes of this Agreement if, as to any
party, it is authorized in writing by an authorized representative of such
party. The failure of any party hereto to enforce at any time any provision of
this Agreement shall not be construed to be a waiver of such provision, nor in
any way to affect the validity of this Agreement or any part hereof or the
right of any party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to constitute a waiver of
any other or subsequent breach.
11.9. Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the terms or
provisions of this Agreement were not performed in accordance with their
specific wording or were otherwise breached. It is accordingly agreed that
each of the parties hereto shall be entitled to an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms
and provisions hereof in any court of the United States of America or any
state having jurisdiction, such remedy being in addition to any other remedy
to which any party may be entitled at law or in equity.
11.10. Fees and Expenses. Except as otherwise provided in Section 3.8 and
except that, if the Merger is consummated, Parent shall pay Wallach the
amounts set forth on Schedule 5.25 at the times set forth on such Schedule in
respect of its services to the Company, each of the parties hereto shall bear
its own costs and expenses (including, without limitation, fees and
disbursements of its counsel, accountants and other financial, legal,
accounting or other advisors and any expenses incurred by or on behalf of any
party in connection with the Registration Statement and the Proxy
Statement/Prospectus), incurred by it in connection with the preparation,
negotiation, execution, delivery and performance of this Agreement.
11.12. 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.
11.12. 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 each of the
parties hereto and delivered to each of the other parties.
11.13. Further Assurances. From time to time after the Effective Time, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of Mergerco, the Company or
otherwise, such deeds and other instruments and to take or cause to be taken
such further or other action as shall be necessary or desirable in order to
vest or perfect in or to confirm, of record or otherwise, in the Surviving
Corporation title to, and possession of, all of the property, rights,
privileges, powers, immunities and franchises of Mergerco and the Company and
otherwise carry out the purposes of this Agreement.
11.14. Governing Law. 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 Colorado.
11.15. Submission to Jurisdiction. Each of the parties hereto hereby
irrevocably submits in any suit, action or proceeding arising out of or
related to this Agreement or any of the transactions contemplated hereby to
the non-exclusive jurisdiction of the United States District Court for the
Northern District of Illinois and the jurisdiction of any court of the State
of Illinois located in Chicago, Illinois, and irrevocably waives any immunity
from the jurisdiction of such courts and any claim of improper venue, forum
non conveniens or any similar objection which it might otherwise be entitled
to raise in any such suit, action or proceeding.
11.16. Arbitration. Any controversy arising under, out of, in connection
with, or relating to, this Agreement, and any amendment hereof, or the breach
hereof, shall be determined and settled by arbitration in Denver, Colorado, by
a person or persons mutually agreed upon, or in the event of a disagreement as
to the selection of
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the arbitrator or arbitrators, in accordance with the rules of the American
Arbitration Association, except that nothing in this Section shall preclude
any party from seeking injunctive relief or specific performance in any court
of competent jurisdiction. Any award rendered therein shall specify the
findings of fact of the arbitrator or arbitrators and the reasons for such
award, with reference to and reliance on relevant law. Any such award shall be
final and binding on all of the parties thereto and their successors and
assigns, and judgment may be entered thereon by any court having jurisdiction
thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
METROMAIL CORPORATION
/s/ Susan L. Henricks
By___________________________________
Name: Susan L. Henricks
Title:President and CEO
(Corporate Seal)
ATTEST:
/s/ Daniel G. Kazan
By_____________________________
Name: Daniel G. Kazan
Title:Assistant Secretary
MML MERGING COMPANY
/s/ Susan L. Henricks
By___________________________________
Name: Susan L. Henricks
Title:President
ATTEST:
/s/ Daniel G. Kazan
By_____________________________
Name: Daniel G. Kazan
Title:Assistant Secretary
ATLANTES CORPORATION
/s/ E. Thomas Detmer, Jr.
By___________________________________
Name: E. Thomas Detmer, Jr.
Title:President and CEO
(Corporate Seal)
(ATTEST)
/s/ Kenneth W. Edwards
By_____________________________
Name: Kenneth W. Edwards
Title:Secretary
A-51
<PAGE>
ANNEX B
ARTICLE 113
DISSENTERS' RIGHTS
PART 1
RIGHT OF DISSENT--PAYMENT FOR SHARES
7-113-101 DEFINITIONS. For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101,C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section 7-107-
204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 RIGHT TO DISSENT. (1) A shareholder, whether or not entitled to
vote, is entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party if:
(I) Approval by the shareholders of that corporation is required for the
merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102(.1I); and
(d) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of an entity controlled by the corporation
if the shareholders of the corporation were entitled to vote upon the consent
of the corporation to the disposition pursuant to section 7-112-102(2).
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(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (I) of this section, of the fair value of the shares of any class
or series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the National Association of Securities
Dealers Automated Quotation System, or were held of record by more than two
thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) Shares of any other corporation which at the effective date of the plan
of merger or share exchange either will be listed on a national securities
exchange registered under the federal "Securities Exchange Act of 1934", as
amended, or on the national market system of the National Association of
Securities Dealers Automated Quotation System, or will be held of record by
more than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event
of a reverse split that reduces the number of shares owned by the shareholder
to a fraction of a share or to scrip if the fractional share or scrip so
credited is to be acquired for cash or the scrip is to be voided under section
7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the by-laws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the record shareholder's name only if the record shareholder
dissents with respect to all shares beneficially owned by any one person and
causes the corporation to receive written notice which states such dissent and
the name, address, and federal taxpayer identification number, if any, of each
person on whose behalf the record shareholder asserts dissenters' rights. The
rights of a record shareholder under this subsection (1) are determined as if
the shares as to which the record shareholder dissents and the other shares of
the record shareholder were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
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(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders,
each such beneficial shareholder must certify to the corporation that the
beneficial shareholder and the record shareholder or record shareholders of
all shares owned beneficially by the beneficial shareholder have asserted, or
will timely assert, dissenters' rights as to all such shares as to which there
is no limitation on the ability to exercise dissenters' rights. Any such
requirement shall be stated in the dissenters' notice given pursuant to
section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201 NOTICE OF DISSENTERS' RIGHTS. (1) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at
a shareholder's meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials,
if any, that, under articles 101 to 117 of this title, are required to be
given to shareholders entitled to vote on the proposed action at the meeting.
Failure to give notice as provided by this subsection (1) shall not affect any
action taken at the shareholders' meeting for which the notice was to have
been given, but any shareholder who was entitled to dissent but who was not
given such notice shall not be precluded from demanding payment for the
shareholder's shares under this article by reason of the shareholder's failure
to comply with the provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any written or oral solicitation of a shareholder to execute a
writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or
may be entitled to assert dissenters' rights under this article, by a copy of
this article, and by the materials, if any, that, under articles 101 to 117 of
this title, would have been required to be given to shareholders entitled to
vote on the proposed action if the proposed action were submitted to a vote at
a shareholders' meeting. Failure to give notice as provided by this subsection
(2) shall not affect any action taken pursuant to section 7-107-104 for which
the notice was to have been given, but any shareholder who was entitled to
dissent but who was not given such notice shall not be precluded from
demanding payment for the shareholder's shares under this article by reason of
the shareholder's failure to comply with the provisions of section 7-113-
202(2).
7-113-202 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If a proposed corporate
action creating dissenters' rights under section 7-113-102 is submitted to a
vote at a shareholders' meeting and if notice of dissenters' rights has been
given to such shareholder in connection with the action pursuant to section 7-
113-201(1), a shareholder who wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken, written
notice of the shareholder's intention to demand payment for the shareholder's
shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2) a
shareholder who wishes to assert dissenters' rights shall not execute a
writing consenting to the proposed corporate action.
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<PAGE>
(3) A shareholder who does not satisfy the requirements of subsection (1) or
(2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203 DISSENTERS' NOTICE. (1) If a proposed corporate action creating
dissenters' rights under section 7-113-102 is authorized, the corporation
shall give a written dissenters' notice to all shareholders who are entitled
to demand payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective
date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands
and the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand
and certificates for certificated shares, which date shall not be less than
thirty days after the date the notice required by subsection (1) of this
section is given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204 PROCEDURE TO DEMAND PAYMENT. (1) A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203(2)(d), duly completed,
or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the
right to receive payment for the shares after the effective date of such
corporate action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit or certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205 UNCERTIFICATED SHARES. (1) Upon receipt of a demand for payment
under section 7-113-204 from a shareholder holding uncertificated shares, and
in lieu of the deposit of certificates representing the shares, the
corporation may restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
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<PAGE>
7-113-206 PAYMENT. (1) Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under
section 7-113-102 or upon receipt of a payment demand pursuant to section 7-
113-204, whichever is later, the corporation shall pay each dissenter who
complied with section 7-113-204, at the address stated in the payment demand,
or is no such address is stated in the payment demand, at the address shown on
the corporation's current record of shareholders for the record shareholder
holding the dissenter's shares, the amount the corporation estimates to be the
fair value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent fiscal
year or, if that is not available, the corporation's balance sheet as of the
end of a fiscal year ending not more than sixteen months before the date of
payment, an income statement for that year, and, if the corporation
customarily provides such statements to shareholders, a statement of changes
in shareholders' equity for that year and a statement of cash flow for that
year, which balance sheet and statements shall have been audited if the
corporation customarily provides audited financial statements to shareholders,
as well as the latest available financial statements, if any, for the interim
or full-year period, which financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenters' right to demand payment under section 7-
113-209; and
(e) A copy of this article.
7-113-207 FAILURE TO TAKE ACTION. (1) If the effective date of the corporate
action creating dissenters' rights under section 7-113-102 does not occur
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set
by the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new
dissenters' notice, as provided in section 7-113-293, and the provisions of
sections 7-113-204 to 7-113-209 shall again be applicable.
7-113-208 SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT
OF PROPOSED CORPORATE ACTION. (1) The corporation may, in or with the
dissenters' notice given pursuant to section 7-113-203, state the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action creating dissenters' rights under section 7-113-102
and state that the dissenter shall certify in writing, in or with the
dissenter's payment demand under section 7-113-204, whether or not the
dissenter (or the person on whose behalf dissenters' rights are asserted)
acquired beneficial ownership of the shares before that date. With respect to
any dissenter who does not so certify in writing, in or with the payment
demand, that the dissenter or the person on whose behalf the dissenter asserts
dissenters' rights acquired beneficial ownership of the shares before such
date, the corporation may, in lieu of making the payment provided in section
7-113-206, offer to make such payment if the dissenter agrees to accept it in
full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206(2).
7-113-209 PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER. (1)
A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section 7-
113-208 and demand payment of the fair value of the shares and interest due,
if:
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(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated.
(b) The corporation fails to make payment under section 7-113-206 within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand; or
(c) The corporation does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares as required by
section 7-113-207(1).
(2) A dissenter waives the right to demand payment under this section unless
the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made
or offered payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301 COURT ACTION. (1) If a demand for payment under section 7-113-209
remains unresolved, the corporation may, within sixty days after receiving the
payment demand, commence a proceeding and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay to each
dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where
the corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which
its registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the preceding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding
commenced under subsection (2) of this section as in an action against their
shares, and all parties shall be served with a copy of the petition. Service
on each dissenter shall be by registered or certified mail, to the address
stated in such dissenter's payment demand, or if no such address is stated in
the payment demand, at the address shown on the corporation's current record
of shareholders for the record shareholder holding the dissenter's shares, or
as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to such order. The parties to the
proceeding are entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding commenced under subsection
(2) of this section is entitled to judgment for the amount, if any, by which
the court finds the fair value of the dissenter's shares, plus interest,
exceeds the amount paid by the corporation, or for the fair value, plus
interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302 COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under section 7-113-209.
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(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court
finds the corporation did not substantially comply with the requirements of
part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to said counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
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[LETTERHEAD THE WALLACH COMPANY]
ANNEX C
May 17, 1997
The Board of Directors
Atlantes Corporation
90 Madison Street
Denver, CO 80206
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the common shareholders of Atlantes Corporation (the "Company") of
the proposed merger (the "Merger") of MML Merging Company, a wholly owned
subsidiary of Metromail Corporation ("Acquiror"), with and into the Company,
pursuant to the Merger Agreement dated May 17, 1997 (the "Agreement"). Under
the terms of the Agreement, each outstanding share of Company common stock, no
par value, will be converted into 1.241 shares of Acquiror common stock, $.01
par value (the "Company/Acquiror Exchange Ratio") or into $25.99 in cash. In
addition, each common shareholder of the Company may be entitled to future
payments ("Contingent Payment Amount") of Acquiror common stock if certain
performance criteria are met by the Company following the Merger. While the
management of the Company believes that these performance criteria can be met,
there can be no assurance that they will be attained or that any future
consideration will be received by the Company's shareholders.
In arriving at our opinion, we have, among other things:
i.reviewed certain financial statements and other financial information
of the Company;
ii.reviewed the current condition and growth prospects for the Company,
including financial data prepared by Company management;
iii.discussed the past and current operations and financial conditions
and the prospectus of the Company, including the need for future equity
capital, with Company management;
iv.considered the prospect for value, liquidity, and growth if the
Company were to remain independent;
v.reviewed the process used in marketing the Company, including a review
of the potential acquirors contacted and their responses relative to a
potential acquisition of the Company;
vi.compared the various offers received from interested parties and
determined that the Acquiror offer represented the highest value in
absolute terms;
vii.examined the price and trading activity for Acquiror;
viii. reviewed the Agreement among Acquiror and the Company;
ix.analyzed the price obtainable for the Company's shares at this time
compared with the risks involved and possible price available at a later
time;
x.reviewed the implications for the Company's shareholders receiving
Acquiror stock with regards to prospects for value, liquidity, dividend
yield and growth;
xi.met with Acquiror management and reviewed certain publicly available
financial statements of Acquiror;
xii.evaluated the future growth prospects of Acquiror following the
Merger.
We have assumed without independent verification the accuracy and
completeness of the financial and other information regarding the Company that
was provided to potential acquirors. We have not prepared or acquired an
independent valuation or appraisal of any of the assets. With respect to
business plans and forecasts, we have assumed that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of the Company as to the future performance of the
Company. Furthermore, we have assumed that the Merger will be consummated on a
timely basis in accordance with its terms and pursuant to the Agreement. We
have also taken into account our assessment of general economic, market and
financial
<PAGE>
conditions as they exist, as well as our experience in connection with similar
transactions and securities valuations generally. Our opinion necessarily is
based upon conditions as they exist and can be evaluated as of the date of
this opinion.
The Wallach Company is an investment banking firm engaged in the valuation
of business and their securities in connection with mergers and acquisitions,
private placements, and valuations for corporate and other purposes. The
Wallach Company, as the Company's financial adviser, assisted with the
marketing and negotiations leading to the Agreement for which it has and will
receive compensation.
It is understood that this letter is for the information of the Company's
Board of Directors only and may not be used for any other purpose without our
prior written consent, provided, however, that we hereby consent to the
inclusion of this opinion in any registration statement or proxy statement
used in connection with the Merger so long as the opinion is included in its
entirety in such registration statement or proxy statement.
Based on our analysis of the foregoing, the assumptions described above and
upon such other factors we deem relevant, it is our opinion that, as of the
date hereof, the consideration to be received by each of the Company's
shareholders in the Merger, including the Company/Acquiror Exchange Ratio and
the potential Contingent Payment Amount, is fair to the Company's shareholders
from a financial point of view.
The Wallach Company, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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.
Pursuant to Section 145 and the Restated Certificate of Incorporation, the
Registrant maintains directors' and officers' liability insurance coverage.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of Exhibits included as part of this
Registration Statement. Items marked with an asterisk are filed herewith.
<TABLE>
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of May 17, 1997 by
and among Metromail, MML Merging Company and Atlantes Cor-
poration (included as Annex A to the Proxy Statement/ Pro-
spectus). Schedules and exhibits to the Agreement and Plan
of Merger are omitted pursuant to Item 601(b)(2) of Regu-
lation S-K. Metromail hereby agrees to furnish copies of
such schedules and exhibits to the SEC upon request.
3.1 Third Restated Certificate of Incorporation of Metromail
Corporation, as amended. (2)
3.2 By-laws of Metromail Corporation. (1)
4. Rights Agreement, dated as of February 24, 1997, between
Metromail Corporation and American Stock Transfer and
Trust Company, as Rights Agent. (3)
**5. Opinion of Sidley & Austin regarding the legality of the
securities being registered.
*8.1 Opinion of Sidley & Austin regarding certain federal in-
come tax consequences of the merger.
10.1 Form of Transition Services Agreement between Metromail
Corporation and R. R. Donnelley. (1)
10.2 Form of Sales Agreement between Metromail Corporation and
R.R. Donnelley. (1)
10.3 Form of Benefit Administration Services Agreement between
Metromail Corporation and R. R. Donnelley. (1)
10.4 Form of Data Center Services Agreement between Metromail
Corporation and R. R. Donnelley. (1)
</TABLE>
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<TABLE>
<C> <S> <C>
10.5 Form of Tax Allocation and Indemnification Agreement be-
tween Metromail Corporation and R. R. Donnelley. (1)
10.6 Employment Agreement between Metromail Corporation and
Barton L. Faber. (1)
10.7 Employment Agreement between Metromail Corporation and Su-
san L. Henricks. (1)
10.8 Employment Agreement between Metromail Corporation and
Ronald G. Eidell. (2)
10.9 Employment Agreement between Metromail Corporation and
Thomas J. Quarles. (2)
10.10 Employment Agreement dated June 16, 1994 between Customer
Insight Company and Tery R. Larrew. (1)
10.11 Management Agreement between Metromail Corporation and
Barton L. Faber. (2)
10.12 Management Agreement between Metromail Corporation and Su-
san L. Henricks. (2)
10.13 Management Agreement between Metromail Corporation and
Ronald G. Eidell. (2)
10.14 Management Agreement between Metromail Corporation and
Thomas J. Quarles. (2)
10.15 Management Agreement between Metromail Corporation and
Tery R. Larrew. (2)
10.16 Amended and Restated Metromail Corporation 1996 Stock In-
centive Plan. (5)
10.17 Metromail Corporation 1996 Broad-Based Employee Stock
Plan. (1)
10.18 Metromail Corporation 1997 Employee Stock Purchase Plan.
(6)
10.19 Metromail Corporation Directors' Deferred Retainer Plan.
(2)
10.20 Form of Credit Agreement among Metromail Corporation and
certain Subsidiaries, as Borrower, the Banks named therein
and the First National Bank of Chicago, as Administrative
Agent. (2)
10.21 Registration Rights Agreement, dated as of February 24,
1997, between Metromail Corporation and R. R. Donnelley.
(4)
10.22 Acknowledgment and Agreement, dated as of February 24,
1997, between Metromail Corporation and R. R. Donnelley.
(4)
21. List of Subsidiaries of Metromail Corporation. (2)
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Arthur Andersen LLP.
**24. Powers of Attorney.
**99.1 Voting Agreement, dated as of May 17, 1997, between CVM
Equity Fund III, Ltd. and Metromail Corporation.
**99.2 Voting Agreement, dated as of May 17, 1997, between CVM
Equity Fund IV, Ltd. and Metromail Corporation.
*99.3 Form of Proxy to be mailed to the shareholders of Atlan-
tes.
*99.4 Form of Election.
</TABLE>
- --------
**Previously filed.
(1) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form S-1 (No. 333-2042) that became effective on June 13, 1996, and
incorporated herein by reference.
(2) Filed as an Exhibit to Metromail Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by reference.
(3) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form 8-A, filed on February 26, 1997, and incorporated herein by reference.
(4) Filed as an Exhibit to Metromail Corporation's Current Report on Form 8-K
dated February 24, 1997, and incorporated herein by reference.
(5) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form S-8 (No. 333-28143) that became effective on May 30, 1997, and
incorporated herein by reference.
II-2
<PAGE>
(6) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form S-8 (No. 333-28137) that became effective on May 30, 1997, and
incorporated herein by reference.
(b) 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.
(c) Not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15 (d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(c) (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145 (c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
II-3
<PAGE>
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10 (a) (3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment 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.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
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.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this Form S-4, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT AMENDMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN LOMBARD,
ILLINOIS ON JUNE 18, 1997.
Metromail Corporation
/s/ Kenneth A. Glowacki
By: _________________________________
Kenneth A. Glowacki
Vice President, Finance
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT AMENDMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director and Chairman June 18, 1997
____________________________________ (principal executive
Barton L. Faber officer)
* Director, President and June 18, 1997
____________________________________ Chief Executive Officer
Susan L. Henricks
* Senior Vice President and June 18, 1997
____________________________________ Chief Financial Officer
Ronald G. Eidell (principal financial
officer)
/s/ Kenneth A. Glowacki Vice President, Finance June 18, 1997
____________________________________ (principal accounting
Kenneth A. Glowacki officer)
* Director June 18, 1997
____________________________________
Robert C. McCormack
* Director June 18, 1997
____________________________________
Peter F. Murphy
* Director June 18, 1997
____________________________________
Jonathan P. Ward
</TABLE>
/s/ Thomas J. Quarles
*By: __________________________
Thomas J. Quarles
Attorney-in-Fact
II-5
<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 21, 1997. Our audit was made for the purpose of
forming an opinion on the basic financial statements as a whole. The schedule
immediately following this report is presented for purposes of complying with
the Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states 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
January 21, 1997
II-6
<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, 1995...... 3,586 5,067 2,180 465 (7,333) 3,965
For the Year Ended
December 31, 1996...... 3,965 4,979 2,143 -- (6,626) 4,461
</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) Represent additions to the reserve resulting from the purchase of ICD in
1995.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of May 17, 1997 by
and among Metromail, MML Merging Company and Atlantes Cor-
poration (included as Annex A to the Proxy Statement/ Pro-
spectus). Schedules and exhibits to the Agreement and Plan
of Merger are omitted pursuant to Item 601(b)(2) of Regula-
tion S-K. Metromail hereby agrees to furnish copies of such
schedules and exhibits to the SEC upon request.
3.1 Third Restated Certificate of Incorporation of Metromail
Corporation, as amended. (2)
3.2 By-laws of Metromail Corporation. (1)
4. Rights Agreement, dated as of February 24, 1997, between
Metromail Corporation and American Stock Transfer and Trust
Company, as Rights Agent. (3)
**5. Opinion of Sidley & Austin regarding the legality of the
securities being registered.
*8.1 Opinion of Sidley & Austin regarding certain federal income
tax consequences of the merger.
10.1 Form of Transition Services Agreement between Metromail
Corporation and R. R. Donnelley. (1)
10.2 Form of Sales Agreement between Metromail Corporation and
R.R. Donnelley. (1)
10.3 Form of Benefit Administration Services Agreement between
Metromail Corporation and R. R. Donnelley. (1)
10.4 Form of Data Center Services Agreement between Metromail
Corporation and R. R. Donnelley. (1)
10.5 Form of Tax Allocation and Indemnification Agreement be-
tween Metromail Corporation and R. R. Donnelley. (1)
10.6 Employment Agreement between Metromail Corporation and Bar-
ton L. Faber. (1)
10.7 Employment Agreement between Metromail Corporation and Su-
san L. Henricks. (1)
10.8 Employment Agreement between Metromail Corporation and Ron-
ald G. Eidell. (2)
10.9 Employment Agreement between Metromail Corporation and
Thomas J. Quarles. (2)
10.10 Employment Agreement dated June 16, 1994 between Customer
Insight Company and Tery R. Larrew. (1)
10.11 Management Agreement between Metromail Corporation and Bar-
ton L. Faber. (2)
10.12 Management Agreement between Metromail Corporation and Su-
san L. Henricks. (2)
10.13 Management Agreement between Metromail Corporation and Ron-
ald G. Eidell. (2)
10.14 Management Agreement between Metromail Corporation and
Thomas J. Quarles. (2)
10.15 Management Agreement between Metromail Corporation and Tery
R. Larrew. (2)
10.16 Amended and Restated Metromail Corporation 1996 Stock In-
centive Plan. (5)
10.17 Metromail Corporation 1996 Broad-Based Employee Stock Plan.
(1)
10.18 Metromail Corporation 1997 Employee Stock Purchase Plan.
(6)
10.19 Metromail Corporation Directors' Deferred Retainer Plan.
(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
10.20 Form of Credit Agreement among Metromail Corporation and
certain Subsidiaries, as Borrower, the Banks named therein
and the First National Bank of Chicago, as Administrative
Agent. (2)
10.21 Registration Rights Agreement, dated as of February 24,
1997, between Metromail Corporation and R. R. Donnelley.
(4)
10.22 Acknowledgment and Agreement, dated as of February 24,
1997, between Metromail Corporation and R. R. Donnelley.
(4)
21. List of Subsidiaries of Metromail Corporation. (2)
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Arthur Andersen LLP.
**24. Powers of Attorney.
**99.1 Voting Agreement, dated as of May 17, 1997, between CVM Eq-
uity Fund III, Ltd. and Metromail Corporation.
**99.2 Voting Agreement, dated as of May 17, 1997, between CVM Eq-
uity Fund IV, Ltd. and Metromail Corporation.
*99.3 Form of Proxy to be mailed to the shareholders of Atlantes.
*99.4 Form of Election.
</TABLE>
- --------
**Previously filed.
(1) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form S-1 (No. 333-2042) that became effective on June 13, 1996, and
incorporated herein by reference.
(2) Filed as an Exhibit to Metromail Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by
reference.
(3) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form 8-A, filed on February 26, 1997, and incorporated herein by
reference.
(4) Filed as an Exhibit to Metromail Corporation's Current Report on Form 8-K
dated February 24, 1997, and incorporated herein by reference.
(5) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form S-8 (No. 333-28143) that became effective on May 30, 1997, and
incorporated herein by reference.
(6) Filed as an Exhibit to Metromail Corporation's Registration Statement on
Form S-8 (No. 333-28137) that became effective on May 30, 1997, and
incorporated herein by reference.
2
<PAGE>
PROXY ATLANTES CORPORATION
This Proxy is solicited on behalf of the Board of Directors of Atlantes
Corporation for a special meeting of the shareholders to be held on June 30,
1997.
The undersigned does hereby appoint Kenneth W. Edwards, Jr. and E. Thomas
Detmer, Jr., or either of them, as proxies of the undersigned, with full power
of substitution, to vote all of the shares of the Common Stock of Atlantes
Corporation (the "Company"), which the undersigned is entitled to vote at the
Special Meeting of Shareholders to be held on June 30, 1997, commencing at 2:00
p.m. local time, at the Company's headquarters located at 90 Madison Street,
Denver, CO 80206, and at any or all adjournments of said meeting, and instructs
them to vote as follows:
1. PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER, DATED MAY 17, 1997,
AMONG METROMAIL CORPORATION, MML MERGING COMPANY AND THE COMPANY (THE
"AGREEMENT AND PLAN OF MERGER").
[_] FOR[_] AGAINST[_] ABSTAIN
2. PROPOSAL TO APPROVE THE ACCELERATION OF VESTING OF UNVESTED STOCK OPTIONS
HELD BY THE CHAIRMAN OF THE BOARD OF THE COMPANY THAT COULD OTHERWISE RESULT IN
"PARACHUTE PAYMENTS" FOR FEDERAL INCOME TAX PURPOSES.
[_] FOR[_] AGAINST[_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon any other
proposal which may properly come before the meeting or adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER AND FOR THE
PROPOSAL TO APPROVE THE ACCELERATION OF VESTING OF UNVESTED STOCK OPTIONS HELD
BY THE CHAIRMAN OF THE BOARD OF THE COMPANY.
Please sign exactly as name (or names) appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: _____________________________________
--------------------------------------------
Printed Name of Shareholder
--------------------------------------------
Signature
--------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
Exhibit 8.1
[S&A Letterhead]
June 18, 1997
Metromail Corporation
360 East 22nd Street
Lombard, Illinois 60148
Ladies and Gentlemen:
We refer to the Agreement and Plan of Merger dated as of May 17, 1997
(the "Agreement") among Metromail Corporation, a Delaware corporation
("Parent"), MML Merging Company, a Colorado corporation and a direct wholly-
owned subsidiary of Parent ("Mergerco"), and Atlantes Corporation, a Colorado
corporation (the "Company"), which provides for the merger (the "Merger") of
Mergerco with and into the Company on the terms and conditions therein set
forth, the time at which the Merger becomes effective being hereinafter referred
to as the "Effective Time." Capitalized terms not defined herein have the
meanings specified in the Agreement.
As provided in the Agreement, at the Effective Time, by reason of the
Merger: (i) all outstanding shares of Company Common Stock then held in the
treasury of the Company will be canceled, and no capital stock of Parent, cash
or other consideration will be delivered in exchange therefor; (ii) each then
outstanding share of capital stock of Mergerco will be converted into one fully
paid and nonassessable share of Common Stock, no par value per share, of the
Company, as the Surviving Corporation; and (iii) subject to the right of
holders of Company Common Stock to dissent from the Merger, each then
outstanding share of Company Common Stock, each then outstanding Company
Warrant, and each then outstanding Company Stock Option will be converted into a
specified number of shares of Parent Common Stock (or, if elected by a holder
thereof and subject to certain limitations, into a specified amount of cash)
plus additional shares of Parent Common Stock on a deferred, contingent basis,
all as more fully set forth in the Agreement. Cash will be paid in lieu of
fractional shares of Parent Common Stock.
Under Section 2.4 of the Agreement, the number of shares of Company
Common Stock to be converted in the Merger into the right to receive cash is
subject to a limitation that depends, in part, on an amount Parent estimates to
be payable to holders of Dissenting Shares. For purposes of this opinion we have
assumed, with your consent, that Parent's estimate of the amount to be payable
to holders of Dissenting Shares will equal the amount actually required to be so
paid.
For purposes of this opinion we have also assumed, with your consent,
as follows:
<PAGE>
1. There is no plan or intention on the part of the shareholders of
the Company to sell, exchange or otherwise dispose of a number of shares of
Parent Common Stock (including, without limitation, Contingent Shares) to
be received in the Merger in exchange for Company Common Stock that would
reduce the Company shareholders' ownership of Parent Common Stock so
received (or to be received) to a number of shares having a value,
excluding the value of Parent Common Stock treated as having been received
as interest, as of the Effective Time, of less than 50% of the value of all
of the formerly outstanding shares of Company Common Stock outstanding
immediately prior to the Effective Time. For the purposes of the preceding
sentence, (i) all shares of Company Common Stock which are to be (a)
exchanged for cash or other property as a part of the Merger, (b)
surrendered by Company shareholders exercising dissenters' rights or (c)
exchanged for cash in lieu of fractional shares of Parent Common Stock are,
in each case, treated as outstanding shares of Company Common Stock
immediately prior to the Effective Time. Furthermore, all shares of Company
Common Stock held by Company shareholders and all shares of Parent Common
Stock (including, without limitation, Contingent Shares) which are to be
received by holders of Company Common Stock in the Merger that, as to all
such shares, have been or will be sold, redeemed or disposed of, either
prior or subsequent to the Effective Time pursuant to any overall plan of
which the Merger is a part, will be considered for purposes of the first
sentence of this paragraph 1. Notwithstanding the foregoing, CVM Equity
Fund III, Ltd., CVM Equity Fund IV, Ltd., LM Partnership II, CBJ
Partnership, LLGM Partnership and Wolf Venture I, LLC, each of which is a
partnership for federal income tax purposes and a holder of Company Common
Stock, plans to distribute the shares of Parent Common Stock received in
the Merger to its partners in accordance with their interests in each such
partnership. For purposes of this paragraph 1, the partners of each such
partnership will be treated as holders of Company Common Stock prior to the
Effective Time and of Parent Common Stock thereafter (by reason of holding
an indirect interest in such Stock through such a partnership or by reason
of holding a direct interest in Parent Common Stock upon any such
distribution).
2. There is no plan or intention on the part of those holding Company
Warrants to sell, exchange or otherwise dispose of a number of shares of
Parent Common Stock (including, without limitation, Contingent Shares) to
be received in the Merger in exchange for Company Warrants that would
reduce the Company Warrant holders' ownership of Parent Common Stock so
received (or to be received) to a number of shares having a value,
excluding the value of Parent Common Stock treated as having been received
as interest, as of the Effective Time, of less than 50% of the value of all
of the formerly outstanding Company Warrants immediately prior to the
Effective Time. For the purposes of the preceding sentence all Company
Warrants which are to be exchanged for cash or other property as a part of
the Merger, or exchanged for cash in lieu of fractional shares of Parent
Common Stock, are treated as outstanding Company Warrants immediately prior
to the Effective Time. Furthermore, all Company Warrants, and all shares of
Parent Common Stock (including, without limitation, Contingent Shares)
which are to be received in exchange for Company Warrants in the Merger,
that, as to all such Company Warrants and shares, have been or will be
sold, redeemed or disposed of (in all cases other than through an exercise
of a Company Warrant) either prior or subsequent to the Effective Time
pursuant to any overall plan of which the Merger is a part will be
considered for purposes of the first sentence of this paragraph 2.
Notwithstanding the foregoing, CVM Equity Fund III, Ltd.,
-2-
<PAGE>
CVM Equity Fund IV, Ltd., LM Partnership II, CBJ Partnership and LLGM
Partnership, each of which is a partnership for federal income tax purposes
and a holder of Company Warrants, plans to distribute the shares of Parent
Warrants received in the Merger to its partners in accordance with their
interests in each such partnership. For purposes of this paragraph 2, the
partners of each such partnership will be treated as holders of Company
Warrants prior to the Effective Time and of Parent Common Stock thereafter
(by reason of holding an indirect interest in Company Warrants or Parent
Common Stock through such a partnership or by reason of holding a direct
interest in Parent Common Stock upon any such distribution).
The Merger and the Agreement are more fully described in Parent's
Registration Statement on Form S-4 (the "Registration Statement") relating to
the registration of shares of Parent Common Stock to which this opinion is an
exhibit, which is being filed by Parent with the Securities and Exchange
Commission pursuant to the Securities Act of l933, as amended. The Registration
Statement includes the Proxy Statement/Prospectus (the "Prospectus") of Parent
and the Company.
In rendering the opinions expressed below, we have relied upon the
accuracy of the facts, information and representations and the completeness of
the covenants contained in the Agreement, the Prospectus and such other
documents as we have deemed relevant and necessary. Such opinions are
conditioned, among other things, not only upon such accuracy and completeness as
of the date hereof, but also the continuing accuracy and completeness thereof as
of the Effective Time. Moreover, we have assumed the absence of any change to
any of such instruments between the date hereof and the Effective Time.
In addition to the assumptions set out above, we have also assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, the legal capacity of all natural persons and the conformity
with original documents of all copies submitted to us for our examination. We
have further assumed that: (i) the transactions related to the Merger or
contemplated by the Agreement will be consummated (A) in accordance with the
Agreement and (B) as described in the Prospectus; (ii) the Merger will qualify
as a statutory merger under the laws of the State of Colorado; and (iii) as of
the date hereof, and as of the Effective Time (as if made as of the Effective
Time), the written statements made by executives of Parent and the Company
contained in the Parent Tax Certificate and the Company Tax Certificate,
respectively, are and will be accurate in all respects.
In rendering the opinions expressed below, we have considered the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Regulations promulgated thereunder by the United States Treasury
Department (the "Regulations"), pertinent judicial authorities, rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. It should be noted that the Code, the Regulations and such judicial
decisions, administrative interpretations and other authorities are subject to
change at any time and, in some circumstances, with retroactive effect; and any
such change could affect the opinions stated herein.
-3-
<PAGE>
Based upon and subject to the foregoing, it is our opinion, as counsel
for Parent, that:
(i) The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Mergerco and Parent will
each be a party to such reorganization within the meaning of Section 368(b)
of the Code;
(ii) No gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) No income, gain or loss will be recognized by the shareholders
of the Company upon the exchange of their Company Common Stock for shares
of Parent Common Stock or cash (or a combination thereof) pursuant to the
Merger, except that gain realized on such exchange will be recognized to
the extent of cash received (excluding cash, if any, received in lieu of
fractional shares of Parent Common Stock), gain or loss will be recognized
with respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock and income will be recognized to the extent of any
amount treated as interest;
(iv) The aggregate tax basis of the shares of Parent Common Stock
received in exchange for Company Common Stock pursuant to the Merger
(including fractional shares of Parent Common Stock for which cash is
received) will be the same as the aggregate tax basis of the Company Common
Stock exchanged therefor, reduced by the amount of cash received in such
exchange (excluding cash, if any, received in lieu of fractional shares of
Parent Common Stock), increased by any gain recognized by reason of the
receipt of such cash in such exchange, and increased by any amount treated
as interest;
(v) Except to the extent of Parent Common Stock treated as interest,
the holding period for shares of Parent Common Stock received in exchange
for Company Common Stock pursuant to the Merger will include the holding
period of the Company Common Stock exchanged therefor, provided such
Company Common Stock was held as a capital asset by the shareholder at the
Effective Time; and
(vi) A shareholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss equal
to the difference, if any, between such shareholder's tax basis in such
fractional share (as described in clause (iv) above) and the amount of cash
received.
Based solely upon and subject to the foregoing, it is also our opinion
that the statements under the caption "THE MERGER--Certain Material Federal
Income Tax
-4-
<PAGE>
Consequences" in the Prospectus, to the extent that they constitute matters of
law or legal conclusions, are correct in all material respects.
Except as expressly set forth in paragraphs (i) through (vi),
inclusive, and in the preceding paragraph, you have not requested, and we do not
herein express, any opinion concerning the tax consequences of, or any other
matters related to, the Merger.
We assume no obligation to update or supplement this letter to reflect
any facts or circumstances which may hereafter come to our attention with
respect to the opinions expressed above, including any changes in applicable law
which may hereafter occur.
We hereby consent to the filing of this letter 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,
-5-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Anderson LLP
Chicago, Illinois
June 19, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Anderson LLP
Denver, Colorado,
June 19, 1997.
<PAGE>
FORM OF ELECTION
To Accompany Certificates for Shares of Common Stock ("Shares") of Atlantes
Corporation ("Atlantes"), Certificates Representing Warrants to Purchase
Shares ("Warrants") and Stock Option Agreements Representing Options to
Purchase Shares ("Options").
Deposited in connection with an election to receive cash in the proposed
merger (the "Merger") of MML Merging Company, a wholly owned subsidiary of
Metromail Corporation ("Metromail") with and into Atlantes.
ANY HOLDER OF SHARES, WARRANTS OR OPTIONS WHO WISHES TO ELECT TO RECEIVE
CASH IN THE MERGER ("CASH ELECTION") MUST DELIVER THIS FORM OF ELECTION TO
AMERICAN STOCK TRANSFER AND TRUST COMPANY (THE "EXCHANGE AGENT") BY 5:00 P.M.,
NEW YORK TIME, ON JUNE 27, 1997 (THE "ELECTION DATE").
Holders of Shares, Warrants or Options wishing to receive Common Stock of
Metromail for all their Shares, Warrants or Options should not submit this
Form of Election.
This Form of Election should be sent or delivered as follows:
By Mail, by Overnight Courier or by Hand:
American Stock Transfer and Trust Company
40 Wall Street
46th Floor
New York, New York 10269-0436
(If by mail, certified mail recommended)
DELIVERY OF THIS FORM OF ELECTION TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
Atlantes has entered into an Agreement and Plan of Merger (the "Merger
Agreement") dated as of May 17, 1997 among Metromail, MML Merging Company, a
wholly-owned subsidiary of Metromail ("Mergerco"), and Atlantes pursuant to
which, subject to the terms and conditions thereof, Mergerco will merge with
and into Atlantes and the shareholders of Atlantes will be entitled to receive
for each Share held by them immediately prior to the effective time (the
"Effective Time") of the Merger (1) 1.241 shares of Common Stock, $.01 par
value, of Metromail ("Metromail Common Stock"), or, at the election of the
holder thereof but subject to certain limitations, $25.99 in cash, plus (2)
the right to receive shares of Metromail Common Stock depending on the
achievement of certain performance targets ("Contingent Shares").
At the Effective Time of the Merger, each Warrant outstanding immediately
prior to the Effective Time will be converted into (i) 1.193 shares of
Metromail Common Stock, or at the election of the holder but subject to
certain limitations, $24.99 in cash, plus (ii) the right to receive Contingent
Shares.
At the Effective Time of the Merger, each Option outstanding immediately
prior to the Effective Time will be converted into (i) a specified number of
shares of Metromail Common Stock (1.193 shares for each Option with an
exercise price of $1.00 per share; 1.181 shares for each Option with an
exercise price of $1.25 per share; 1.169 shares for each Option with an
exercise price of $1.50 per share; and 1.145 shares for each Option with an
exercise price of $2.00 per share), or, at the election of the holder thereof,
$25.99 less the applicable exercise price of the Option in cash, plus (ii) the
right to receive Contingent Shares.
The Cash Election is subject to the terms and conditions set forth in the
Merger Agreement and the Proxy Statement/Prospectus furnished to holders of
Shares, Warrants and Options, each of which is incorporated herein by
reference. Additional copies of the Proxy Statement/Prospectus are available
from the Exchange Agent upon request.
<PAGE>
Pursuant to the Merger Agreement, the number of Shares and Warrants to be
converted into the right to receive cash in the Merger is subject to certain
limitations. No assurance can be given that a Cash Election by any given
shareholder or Warrant holder, including this Cash Election by the
undersigned, can be accommodated. Rather, the Cash Election by each holder of
Shares or Warrants, including this Election by the undersigned, will be
subject to the results of the election and allocation procedures set forth in
the Merger Agreement and described in the Proxy Statement/Prospectus. There is
no limitation on the number of Options for which a Cash Election may be made.
See "The Merger Agreement--Cash Election" in the accompanying Proxy
Statement/Prospectus for a more detailed description of the Cash Election.
Holders of Shares, Warrants and/or Options who wish to exercise the Cash
Election with respect to all or a portion of their Shares, Warrants and/or
Options must complete this Form of Election, copies of which have been mailed,
together with the Proxy Statement/Prospectus, to shareholders of record on the
Atlantes Record Date (as defined in the Proxy Statement/Prospectus) and to
holders of Warrants and Options whose names are registered on the books and
records of Atlantes. A Cash Election shall have been properly made only if the
Exchange Agent shall have received, by 5:00 P.M. New York time, on the
Election Date, a Form of Election properly completed and signed and
accompanied by the stock certificates, warrant certificates or stock option
agreements representing the Shares, Warrants and/or Options as to which the
Form of Election relates. Holders who do not make the Cash Election or do not
comply with the Cash Election procedure set forth in the Proxy
Statement/Prospectus and this Form of Election will receive Metromail Common
Stock and will not receive any cash in the Merger (other than cash in lieu of
fractional shares of Metromail Common Stock).
EACH HOLDER OF SHARES, WARRANTS AND/OR OPTIONS IS STRONGLY ENCOURAGED TO
READ THE PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE
CONTENTS THEREOF, THE MERGER AND THIS FORM OF ELECTION WITH SUCH HOLDER'S
PERSONAL FINANCIAL AND TAX ADVISORS PRIOR TO DECIDING WHETHER TO MAKE A CASH
ELECTION. THE TAX CONSEQUENCES OF A CASH ELECTION WILL VARY DEPENDING UPON A
NUMBER OF FACTORS. FOR CERTAIN INFORMATION REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES OF AN ELECTION, SEE "THE MERGER--CERTAIN MATERIAL FEDERAL INCOME
TAX CONSEQUENCES" IN THE PROXY STATEMENT/PROSPECTUS.
BOX 1 DESCRIPTION OF SHARES SUBJECT TO CASH ELECTION
- -------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED SHARES
HOLDER(S)
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST, IF
NECESSARY)
- -------------------------------------------------------------------------------
SHARE NUMBER OF NUMBER OF
CERTIFICATE SHARES SHARES
NUMBER(S) REPRESENTED SUBJECT TO
BY CASH
CERTIFICATE(S) ELECTION*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL
SHARES
- -------------------------------------------------------------------------------
*Unless otherwise indicated, it will be assumed that all Shares
represented by any certificates delivered to the Exchange Agent are
subject to Cash Election.
2
<PAGE>
BOX 2 DESCRIPTION OF WARRANTS SUBJECT TO CASH ELECTION
- -------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED WARRANTS
HOLDER(S)
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST, IF
NECESSARY)
- -------------------------------------------------------------------------------
DATE OF NUMBER OF NUMBER OF
WARRANT WARRANTS WARRANTS
CERTIFICATE REPRESENTED SUBJECT TO
BY CASH
CERTIFICATE(S) ELECTION*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL
WARRANTS
- -------------------------------------------------------------------------------
*Unless otherwise indicated, it will be assumed that all Warrants
represented by any certificates delivered to the Exchange Agent are
subject to Cash Election.
BOX 3 DESCRIPTION OF OPTIONS SUBJECT TO CASH ELECTION
- -------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF OPTIONS
HOLDER(S)
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- -------------------------------------------------------------------------------
EXERCISE DATE OF NUMBER OF NUMBER OF
PRICE STOCK SHARES OPTION
OPTION SUBJECT TO SHARES
AGREEMENT STOCK SUBJECT TO
OPTION CASH
AGREEMENT(S) ELECTION*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL SHARES
- -------------------------------------------------------------------------------
*Unless otherwise indicated, it will be assumed that all Shares issuable
upon exercise of Options ("Option Shares") represented by any agreement
delivered to the Exchange Agent are subject to Cash Election.
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned, pursuant to the terms and conditions of the Merger
Agreement, hereby deposits with the Exchange Agent (i) the certificates
representing Shares described in Box 1, (ii) the certificates representing
Warrants described in Box 2 and/or (iii) the stock option agreements
evidencing the Options described in Box 3 and hereby makes the Cash Election
with respect to the Shares, Warrants and/or Options indicated in the last
column of each of Boxes 1, 2 and 3, upon the terms and subject to the
conditions set forth in the Proxy Statement/Prospectus, the receipt of which
is hereby acknowledged, and in this Form of Election.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to make the Cash Election with respect to the Shares,
Warrants and/or Options described above. The undersigned will, upon request,
execute and deliver any additional documents deemed by Atlantes or Metromail
to be necessary or desirable to complete the Cash Election.
3
<PAGE>
All obligations of the undersigned hereunder shall be binding upon the
heirs, personal representatives, successors and assigns of the undersigned.
Any Cash Election may only be revoked in accordance with the procedures set
forth in the Merger Agreement. See Instruction 5 and "The Merger Agreement--
Cash Election" in the accompanying Proxy Statement/Prospectus.
BOX 4 SIGN HERE
- -------------------------------------------------------------------------------
Signature(s) of Owner(s)
- -------------------------------------------------------------------------------
Name(s) ___________________________________________________________________
- -------------------------------------------------------------------------------
(Please Print)
Capacity (full title)
- -------------------------------------------------------------------------------
Address ___________________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Zip Code)
---------------------------------------------------------------------------
Area Code and Telephone Number ____________________________________________
Taxpayer Identification Number ____________________________________________
Dated: _____________________________________________________________, 199
- -------------------------------------------------------------------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s), warrant certificate(s) or stock option agreement(s)
or by the person(s) authorized to become registered holder(s) by
certificates and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or other person acting in a fiduciary or
representative capacity, please set forth full title and see Instruction
3).
BOX 5 GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 8)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized Signature(s) ___________________________________________________
Name ______________________________________________________________________
Name of Firm ______________________________________________________________
Address ___________________________________________________________________
(Include Zip Code)
---------------------------------------------------------------------------
Area Code and Telephone Number ____________________________________________
Dated: _____________________________________________________________ , 1997
4
<PAGE>
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the cash to be received in the Merger and the certificate
for shares of Metromail Common Stock in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the cash to be received in the Merger and the
certificate for shares of Metromail Common Stock to the undersigned at the
address shown below the undersigned's signature(s). In the event that both
"Special Payment Instructions" and "Special Delivery Instructions" are
completed, please issue the check for the cash to be received in the Merger
and the certificate for shares of Metromail Common Stock to the person(s) so
indicated.
BOX 6 SPECIAL PAYMENT INSTRUCTIONS BOX 7 SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 8) (SEE INSTRUCTION 9)
- ------------------------------------- -------------------------------------
To be completed ONLY if the check To be completed ONLY if the check
for the cash to be received in the for the cash to be received in the
Merger and the certificate for Merger and the certificate for
shares of Metromail Common Stock shares of Metromail Common Stock
are to be issued in the name of are to be mailed to someone other
someone other than the than the undersigned or to the
undersigned. undersigned at an address other
than that shown below the
undersigned's signature(s).
Issue [_] Check [_] Certificate
to:
Mail [_] Check [_] Certificate to:
Name ______________________________
(Please Print) Name ______________________________
(Please Print)
Address ___________________________
Address ___________________________
-----------------------------------
-----------------------------------
-----------------------------------
(Zip Code) -----------------------------------
(Zip Code)
-----------------------------------
(Taxpayer Identification or Social -----------------------------------
Security No.) (Taxpayer Identification or Social
Security No.)
(See Substitute Form W-9) (See Substitute Form W-9)
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE CASH ELECTION.
If you wish to make a Cash Election, this Form of Election should be
properly filled in, dated and signed and delivered, together with all
certificates for Shares and/or Warrants and/or stock option agreements for
Options for which you are making the Cash Election, to the Exchange Agent at
the appropriate address set forth on the front hereof. Please read and follow
carefully the instructions regarding completion of this Form of Election set
forth below. If you have any questions concerning this Form of Election or
require any information or assistance, see Instruction 11.
ANY HOLDER OF SHARES, WARRANTS AND/OR OPTIONS WHO INTENDS TO RECEIVE ONLY
METROMAIL COMMON STOCK IN THE MERGER SHOULD NOT SUBMIT THIS FORM OF ELECTION
AND SHOULD NOT SUBMIT CERTIFICATES OR AGREEMENTS FOR EXCHANGE UNTIL SUCH
HOLDER RECEIVES THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE
AGENT WHICH WILL BE MAILED AFTER THE CONSUMMATION OF THE MERGER.
5
<PAGE>
1. Delivery of Form of Election. This Form of Election is to be used to make
the Cash Election. A properly completed and duly executed Form of Election,
and any other documents required by this form, must be received by the
Exchange Agent at its address set forth above on or prior to the Election
Date. No alternative, conditional or contingent Cash Elections are permitted.
THE METHOD OF DELIVERY OF THIS FORM AND ALL OTHER REQUIRED DOCUMENTS IS AT
THE ELECTION AND RISK OF THE HOLDER OF SHARES, WARRANTS AND/OR OPTIONS. IF
THIS FORM IS SENT BY MAIL, CERTIFIED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY TO THE EXCHANGE AGENT.
2. Inadequate Space. If the space provided herein is inadequate, list and
attach hereto on a separate schedule, the information requested with respect
to Shares, Warrants and/or Options subject to a Cash Election.
3. Signatures on Form of Election. If this Form of Election is signed by the
registered holder of the Shares, Warrants and/or Options, the signature must
correspond with the name as written on the face of the certificates for Shares
and/or Warrants and on the stock option agreement for Options without
alteration, enlargement or any change whatsoever. If any of the Shares,
Warrants and/or Options subject to a Cash Election are owned of record by two
or more joint owners, all such owners must sign this form.
If any of the Shares, Warrants and/or Options subject to a Cash Election are
registered in different names, it will be necessary to complete, sign and
submit as many separate Forms of Election as there are different
registrations.
If this Form of Election is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by Atlantes and Metromail, proper evidence
satisfactory to Atlantes and Metromail of their authority so to act must be
submitted.
4. Irregularities and Waiver of Conditions. All questions as to the
validity, form and eligibility (including time of receipt) of any Cash
Election will be determined by Metromail and Atlantes, in their sole
discretion, which determination shall be final and binding. Metromail and
Atlantes reserve the absolute right to reject any Cash Election determined by
them not to be in proper form, or the acceptance of which may, in the opinion
of their respective counsel, be unlawful. Metromail and Atlantes also reserve
the absolute right to waive any defect or irregularity in any Cash Election
with respect to any particular Shares, Warrants and/or Options or any
particular holder, and such interpretations of the terms and conditions of the
Cash Election (including these instructions) shall be final and binding.
Unless waived, any defects or irregularities in connection with a Cash
Election must be cured within such time as Metromail and Atlantes shall
determine. None of Metromail, Atlantes or any other person will be under any
duty or obligation to give notice of any defects or irregularities in Cash
Elections, nor shall any of them incur any liability for failure to give such
notice.
5. Change or Revocation of Election. Any holder may at any time prior to the
Election Date change such holder's election by written notice received by the
Exchange Agent at or prior to the Election Date and accompanied by a properly
completed Form of Election. Metromail and Atlantes have the right in their
sole discretion and by mutual agreement to permit changes in Cash Elections
after the Election Date. Any holder may at any time prior to the Election Date
revoke such holder's election by written notice received by the Exchange Agent
at or prior to the Election Date or by withdrawal prior to the Election Date
of any stock certificates, warrant certificates or stock option agreements
previously deposited with the Exchange Agent. Any revocation of an election
may be withdrawn by notice of such withdrawal delivered at or prior to the
Election Date. Any holder who shall have deposited any stock certificates,
warrant certificates or stock option agreements with the Exchange Agent shall
again have the right to withdraw such stock certificates, warrant certificates
or stock option agreements by written notice received by the Exchange Agent
and thereby revoke such holder's
6
<PAGE>
election as of the Election Date at any time after the expiration of the
period of 60 days following the Election Date if the Merger shall not have
been consummated prior thereto.
6. Lost Certificates. If you are not able to locate your stock certificates,
warrant certificates or stock option agreements, you should contact Atlantes,
at 90 Madison Street, Denver, Colorado 80206. In such event, Atlantes will
forward additional documentation for you to complete in order to effectively
deposit such lost or destroyed certificate(s) or agreements.
7. Stock Transfer Taxes. If payment of the cash to be received in the Merger
or the certificate for shares of Metromail Common Stock are to be issued in
the name of any person other than the registered holder(s), then the amount of
any transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such person will be
deducted from the purchase price unless satisfactory evidence of the payment
of such taxes, or exemption therefrom, is submitted.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Form of
Election.
8. Special Payment Instructions. If the check for the cash to be received in
the Merger or the certificate for shares of Metromail Common Stock are to be
issued in the name of someone other than the registered holder(s) of the
Shares, Warrants and/or Options, you must follow the guidelines below. Note
that in each circumstance listed below, holders must have signatures
guaranteed and complete Box 6.
(a) Endorsement and Guaranty. The certificate(s) for such Shares must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the
certificate for such Shares. Warrant certificates and stock option agreements
must be accompanied by evidence of due transfer, in each case to the person
who is to receive the cash and/or Metromail Common Stock. The signature(s) of
the registered holder(s) on any such certificates, stock powers or other
documents must correspond with the name(s) written upon the face of the
certificate(s) or agreements in every particular and must be guaranteed by an
Eligible Guarantor Institution as defined below.
DEFINITION OF ELIGIBLE GUARANTOR INSTITUTION
Generally, an Eligible Guarantor Institution, as defined in Rule 17Ad-15
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, means:
1) Banks as defined in Section 3(a) of the Federal Deposit Insurance Act.
2) Brokers, dealers, municipal securities dealers, municipal securities
brokers, government securities dealers and government securities brokers,
as those are defined under the Exchange Act.
3) Credit unions (as that term is defined in Section 19 (b)(1)(A) of the
Federal Reserve Act).
4) National securities exchanges, registered securities associations and
clearing agencies, as those terms are used under the Exchange Act.
5) Savings associations (as that term is defined in Section 3(b) of the
Federal Deposit Insurance Act).
(b) Transferee's Signature. The Form of Election must be signed by the
transferee or assignee, or such person's agent, and should not be signed by
the transferor or assignor. The signature of such transferee or assignee must
be guaranteed by an Eligible Guarantor Institution as provided in Instruction
8(a).
(c) Correction of or Change in Name. For a correction of name or for a
change in name which does not involve a change in ownership, proceed as
follows: For a change in name by marriage, the Form of Election should be
signed, for example, "Mary Doe, now by marriage Mary Jones." For a correction
in name, the Form of Election should be signed, for example, "James E. Brown,
incorrectly inscribed as J. E. Brown." The
7
<PAGE>
signature in each case should be guaranteed in the manner described in
Instruction 8(a) above and the holder should complete Box 6.
9. Special Instructions for Delivery by the Exchange Agent. The check for
the cash to be received in the Merger and the certificates for shares of
Metromail Common Stock will be mailed to the address set forth in Box 4 unless
instructions to the contrary are given in Box 7 entitled "Special Delivery
Instructions."
10. Substitute Form W-9. Holders of Shares, Warrants and/or Options are
required to provide the Exchange Agent with such holder's correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9, which is provided below,
unless an exemption applies. Failure to provide the information on the
Substitute Form W-9 may subject the holder to a $50 penalty and to 31% federal
income tax backup withholding on the payment of the cash and/or shares of
Metromail Common Stock to be received in the Merger.
11. Requests for Assistance or Additional Copies. Requests for information
or additional copies of this Form of Election or the Proxy
Statement/Prospectus should be directed to the Exchange Agent at American
Stock Transfer and Trust Company, 40 Wall Street, 46th Floor, New York, New
York 10005.
IMPORTANT TAX INFORMATION
Under federal income tax law, holders of Shares, Warrants and/or Options are
required to provide the Exchange Agent with such holder's correct TIN on the
Substitute Form W-9. If such holder is an individual, the TIN is such holder's
Social Security Number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, payments that are made to such holder with
respect to Shares, Warrants and/or Options converted in the Merger may be
subject to backup withholding.
Certain holders (including, among others, generally all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that holder must submit a statement, signed under penalties
of perjury, attesting to that individual's exempt status. Such statements may
be obtained from the Exchange Agent. All exempt recipients (including foreign
persons wishing to qualify as exempt recipients) should see the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the holder. 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 taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding on payments that are made
to a holder with respect to Shares, Warrants and/or Options converted in the
Merger, the holder is required to notify the Exchange Agent of such holder's
correct TIN by completing the form certifying that the TIN provided on the
Substitute Form W-9 is correct.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The holder is required to give the Exchange Agent the Social Security Number
or Employer Identification Number of the record owner of the Shares, Warrants
and/or Option. If the Shares, Warrants and/or Option are in more than one name
or are not in the name of the actual owner, consult the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report.
8
<PAGE>
PAYOR'S NAME: AMERICAN STOCK TRANSFER AND TRUST COMPANY
- -------------------------------------------------------------------------------
PART I--PLEASE PROVIDE YOUR TIN:
TIN IN THE BOX AT THE RIGHT
AND CERTIFY BY SIGNING AND
DATING BELOW.
SUBSTITUTE --------------------------
FORM W-9 Social Security
DEPARTMENT OF THE TREASURY, Number or Employer
INTERNAL REVENUE SERVICE Identification Number
----------------------------------------------------------
PAYOR'S REQUEST FOR PART II--For Payees exempt from backup withholding, see
the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 and
complete as instructed therein.
TAXPAYER ----------------------------------------------------------
IDENTIFICATION NUMBERCertification--Under penalties of perjury, I certify
that:
("TIN") (1) The number shown on this form is my correct TIN (or
AND CERTIFICATION I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding because (a)
I am exempt from backup withholding or (b) I have
not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as
a result of a failure to report all interest or
dividend, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
----------------------------------------------------------
SIGNATURE: ____________________
DATE: _________________________
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2). (Also see the instructions in
the enclosed Guidelines.)
NOTE:
FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
MERGER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR
TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a TIN has not been issued to
me, and either (1) I have mailed or delivered an application to receive a
TIN to the appropriate IRS Center or Social Security Administration
Officer or (2) I intend to mail or deliver an application in the near
future. I understand that if I do not provide a TIN by the time of
payment, 31% of all payments pursuant to the Merger made to me thereafter
will be withheld until I provide a number.
Signature: _________________________
Date: _______________________________
9
