<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 1-10263
THE OFFICIAL INFORMATION COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1341805
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
250 West 57th, Suite #2421, New York, New York 10106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 247-5160
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OR 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
As of November 4, 1999, 112,367 shares of common stock were
outstanding, of which 72,367 were owned by VS&A T/SF, L.L.C. 34,541, 3,831 and
1,628 were owned by Fir Tree Value Fund LP., Fir Tree Institutional Value Fund
L.P. and Fir Tree Value Partners L.D.C., respectively.
<PAGE>
PART I
Item 1. Financial Information
2
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
------ 1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 3,878
Accounts receivable, less reserve for doubtful accounts 21,872 17,555
Inventories 195 231
Deferred tax assets 75 260
Prepaid expenses and other current assets 3,041 1,726
----- -----
Total current assets 25,183 23,650
------ ------
Notes receivable and investments 265 411
--- ---
Property, plant and equipment, at cost: 27,233 21,609
Less accumulated depreciation 15,427 12,584
------ ------
Property, plant and equipment, net 11,806 9,025
------ -----
Deferred tax assets 916 1,185
Intangibles and other assets, net 70,756 40,263
------ ------
$108,926 $74,534
======== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- 1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,526 $ 2,967
Accrued liabilities 15,804 9,984
Customer deposits 19,285 -
Deferred revenue 5,254 6,680
Current portion of notes payable 1,333 -
Other current liabilities 1,243 1,367
----- ------
Total current liabilities 46,445 20,998
------ ------
Long-term debt 98,500 98,500
Notes payable-excluding current portion 2,447 -
Other long term liabilities 1,417 2,238
Minority interest 14,768 6,991
Stockholders' equity (deficit):
Common stock, $.10 par value, 150,000 shares authorized 42 42
Additional paid-in capital 48,197 48,197
Retained earnings 11,586 12,044
------ ------
59,825 60,283
Treasury stock (114,476) (114,476)
--------- ---------
Total stockholders' equity (deficit) (54,651) (54,193)
-------- --------
$108,926 $74,534
======== =======
</TABLE>
4
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Operating revenues $30,700 $25,694 $79,931 $65,511
Interest and other income 16 75 42 419
Gain (loss) on sale of assets, net (22) 130 (22) 44
------ ------ ------ ------
Total revenues 30,694 25,899 79,951 65,974
------ ------ ------ ------
Costs and expenses:
Operating costs 13,133 11,240 35,676 30,598
General and administrative 8,398 6,706 24,037 19,246
Interest 2,651 2,662 8,066 8,036
Depreciation and amortization 2,473 2,336 6,453 5,142
----- ----- ----- -----
26,655 22,944 74,232 63,022
------ ------ ------ ------
Income before minority interest and income taxes 4,039 2,955 5,719 2,952
Minority interest in earnings of consolidated entity (3,784) (2,531) (5,777) (3,133)
Income tax expense (200) (258) (400) (304)
------- ------- ------- -------
Net income (loss) $ 55 $ 166 $ (458) $ (485)
==== ===== ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (458) $ (485)
Adjustments to reconcile net loss to net Cash provided by operating
activities:
Depreciation and amortization 6,453 5,142
Loss (gain) on sale of assets 22 (44)
Minority interest in earnings of consolidated entity 5,777 3,133
Deferred income taxes 454 148
Changes in operating assets and liabilities 4,961 1,802
----- -----
Total adjustments 17,667 10,181
------ ------
Net cash provided by operating activities 17,209 9,696
------ -----
Cash flows from investing activities:
Collections on contract and notes receivable 15 40
Capital expenditures (4,295) (3,309)
Proceeds from the sale of assets -- 1,625
Payments for acquisitions, net of cash acquired (17,082) (9,796)
Payments on deferred contract liabilities (122) (234)
----- -----
Net cash used in investing activities (21,484) (11,674)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings under line of credit 47,640 --
Principal payments of long-term debt and line of credit (49,243) (2,743)
Minority interest 2,000 4,500
Repurchase of common stock -- (3,600)
------ --------
Net cash provided by (used in) financing activities 397 (1,843)
------ --------
Net decrease in cash and cash equivalents (3,878) (3,821)
Cash and cash equivalents at beginning of period 3,878 10,564
----- ------
Cash and cash equivalents at end of period $ -- $6,743
===== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
THE OFFICIAL INFORMATION COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated condensed financial statements of
The Official Information Company ("TOIC" or the "Company"), include the
accounts of TOIC, its wholly-owned subsidiaries, TOIC Holdings, LLC
("Holdings LLC") and the limited liability companies owned by Holdings LLC
(the "Subsidiary LLCs"). Through its priority interest in Holdings LLC,
TOIC has voting, operational and management control of Holdings LLC and the
Subsidiary LLCs and, accordingly, the financial statements of these
entities are consolidated herein. Income allocated to TOIC from Holdings
LLC is the lesser of net earnings or the preferred return, such amount
being defined as an 11% cumulative annual compounded return on TOIC's
undistributed capital in each LLC, respectively. Losses are allocated first
to the common members of Holdings LLC. TOIC and Holdings LLC share common
management, resources and control. Prior to the drop down restructuring
(see Note B) in February 1998, the operations of Holdings LLC and the
Subsidiary LLCs were wholly-owned by TOIC.
INTERIM REPORTING. The accompanying interim consolidated condensed
financial statements reflect all adjustment which, in the opinion of
management are considered necessary for a fair presentation of the interim
periods presented. All such adjustments are of a normal recurring nature.
Due to the seasonal nature of the business, the results of operations for
the three and nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31,
1999. For further information, refer to the consolidated financial
statements and related notes thereto included in TOIC's annual report on
Form 10-K for the year ended December 31, 1998.
RECLASSIFICATIONS
Certain 1998 account balances have been reclassified to conform to the 1999
consolidated financial statement presentation.
B. RECAPITALIZATION
During 1997, the Company adopted a two phased leveraged recapitalization
plan of the Company's ownership and capital structure. Phase I included a
tender offer for substantially all of TOIC's outstanding common stock;
selling newly-issued common stock to a new investor, VS&A-T/SF, L.L.C. and
repurchasing substantially all of the outstanding stock options. Phase II
was completed on February 27, 1998 and included a reverse stock split to
eliminate all shares of the Company's common stock other than those owned
by the Equity Investors (as defined below) and a restructuring of the
Company and its subsidiaries. As of September 30, 1999, VS&A-T/SF and
entities controlled by Fir Tree Partners (together referred to as the
Equity Investors) own approximately 64% and 36% of TOIC's common stock,
respectively.
The reverse stock split provided that each then outstanding share of common
stock other than treasury stock and stock owned by the Equity Investors was
converted into the right to receive $40.25 for each pre-split share.
<PAGE>
In the drop down restructuring, TOIC and certain of its wholly owned
subsidiaries contributed substantially all of the assets and liabilities of
TOIC's Business to Business Communication Segment into Holdings LLC in
exchange for a $45 million priority equity interest which carries an 11%
annual distribution. Simultaneous with this event, Holdings LLC contributed
the assets received to the Subsidiary LLCs in exchange for a 99% interest.
TOIC also purchased a priority interest in another limited liability
company ("Operating LLC"), which held the remaining 1% interest in the
Subsidiary LLCs. The Equity Investors purchased common equity interests in
Holdings LLC and Operating LLC for approximately $4.5 million in the same
proportion as their ownership of TOIC. Effective as of December 31, 1998,
Operating LLC merged with and into Holdings LLC, with Holdings LLC being
the surviving entity. TOIC has voting, operational and management control
of Holdings LLC.
C. DEBT GUARANTORS
Atwood Publishing LLC, Galaxy Information Services LLC, GEM Communications
LLC, I.T.S. Information Services, LLC, Holdings LLC (collectively the "LLC
Guarantors"), TISI, Records Search, Inc. ("RSI") and Corsearch,
(collectively, the "Subsidiary Guarantors" and, together with the LLC
Guarantors, the "Guarantors") are included in the consolidated results of
the Company. Because the Company, directly or indirectly, owns all (or, in
the case of Galaxy Information Services, LLC, a majority) of the voting
interests in the LLC Guarantors, the LLC Guarantors are considered wholly
owned subsidiaries (or, in the case of Galaxy Information Services, LLC, a
majority) of the Company as defined by Regulation S-X. The Company owns all
of the voting shares of the Subsidiary Guarantors.
Each of the Guarantors jointly and severally guarantee all of the Company's
debt, on a full and unconditional basis. For accounting purposes, all
Guarantors are consolidated. Separate financial statements and other
disclosures concerning the Guarantors are not presented because the
Company's management has determined that they are not material to
investors.
The Senior Credit Facility contains covenants, among others, restricting
the ability of the Company and the Guarantors to: (i) declare dividends or
redeem or purchase capital stock; (ii) prepay, redeem or purchase debt;
(iii) incur liens and engage in sale-leaseback transactions; (iv) make
loans and investments; (v) issue more debt; (vi) amend or otherwise alter
debt and other material agreements; (vii) make capital expenditures; (viii)
engage in mergers, acquisitions and asset sales; (ix) transact with
affiliates and (x) alter its lines of business. The net assets of the
Guarantors approximated $71,107,000 as of September 30, 1999.
Included in the 1999 financial results of the Guarantors are the nine
months activity of Atwood Publishing LLC, Galaxy Information Services LLC,
GEM Communications LLC, Holdings LLC, TISI, Corsearch and five months (from
May 1, 1999) activity of I. T. S. Information Services, LLC and one month
(from September 1, 1999) activity of Record Search, Inc. Included in the
1998 financial results of the Subsidiary Guarantors are the two months of
operations of Atwood Publishing, Inc., Galaxy Information Services, Inc.,
GEM Communications, Inc. and the nine months results of TISI and Corsearch.
8
<PAGE>
The following are condensed consolidating financial statements of The
Official Information Company and the Guarantors for each period presented:
SEPTEMBER 30,1999
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
- ------
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $1,868 $15,396 $7,919 $23,315 $ - $25,183
Notes receivable and
investments 53 15 197 212 - 265
Investment in subsidiaries
& affil. 59,511 4,500 7,096 11,596 (71,107) -
PPE-Net 226 5,554 6,026 11,580 - 11,806
Deferred tax assets 1,056 - (140) (140) - 916
Intangibles and other
assets-net 3,107 35,078 32,571 67,650 - 70,756
------------ ----------------- --------------- ----------------- ---------------- ------------------
Total assets $65,822 $60,543 $53,669 $114,213 $(71,107) $108,926
======= ======= ======= ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
Current liabilities $8,380 $30,089 $7,976 $38,065 $ - $46,445
Long term debt 98,500 - - - 98,500
Other liabilities 825 129 2,910 3,040 3,864
Minority interest 12,768 2,000 - 2,000 14,768
Total stockholders' equity
(deficit) (54,651) 28,325 42,782 71,107 (71,107) (54,651)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total liabilities and
stockholders' equity $65,822 $60,543 $53,669 $114,213 $(71,107) $108,926
======= ======= ======= ======== ========= ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30,1999
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ (375) $ 49,079 $ 31,247 $ 80,326 $- $ 79,951
Costs and expenses:
Operating costs - 24,724 10,952 35,676 - 35,676
General & admin. 2,306 11,542 10,189 21,731 - 24,037
Interest 8,015 4 47 51 - 8,066
Deprec. & amort. 378 3,293 2,782 6,074 - 6,453
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total costs 10,699 39,563 23,970 63,533 - 74,232
Income (loss) before income
taxes (11,074) 9,516 7,277 16,793 - 5,719
Minority interest - - - - (5,777) (5,777)
Income tax expense (400) - - - - (400)
Earnings (losses) of
subsidiaries 3,739 - - - (3,739) -
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net income (loss) $(7,735) $9,516 $7,277 $16,793 $(9,516) $(458)
======== ====== ====== ======= ======== ======
</TABLE>
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30,1999
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(7,736) $9,516 $7,277 $16,793 $(9,516) $(458)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities, net 688 3,293 2,803 6,074 5,777 12,562
Changes in assets and
liabilities, net 8,699 (7,573) 240 (7,333) 3,739 5,105
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net cash (used in) provided
by operating activities (1,652) 5,236 10,321 15,557 - 17,209
Cash flows from investing
activities:
Collections on
Contract & notes
Receivable 15 - - - 15
Capital expenditures (77) (1,993) (2.,225) (4,218) (4,295)
Payments for
acquisitions, net of
cash acquired - (7,961) (9,121) (17,082) (17,082)
Payments on deferred
contract liabilities (122) - - - (122)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net cash used in by
investing activities (184) (9,954) (11,346) (21,300) (21,484)
Cash flows from financing
activities:
Proceeds from borrowings
under line of credit 47,640 - - - 47,640
Principal payments of
long-term debt and
line of credit (49,243) - - - (49,243)
Minority interest - 2,000 - 2,000 2,000
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net cash (used in)
provided by financing
activities (1,603) 2,000 - 2,000 397
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net increase (decrease) in
cash and cash equivalents (135) (2,718) (1,025) (3,743) (3,878)
Cash and cash equivalents
at beginning of period 1,078 2,339 461 2,800 3,878
------------- ----------------- --------------- ----------------- ---------------- ------------------
Cash and cash equivalents
at end of period $943 $(379) $(564) $(943) $0
==== ====== ====== ====== ==
</TABLE>
10
<PAGE>
DECEMBER 31, 1998
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
- ------ TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $9,973 $4,337 $9,340 $13,677 $ - $23,650
Notes receivable and
investments (4,727) 5,138 - 5,138 - 411
Investment in subsidiaries
& affil. 46,694 517 7,096 7,613 (54,307) -
PPE-Net 193 4,462 4,370 8,832 9,025
Deferred tax assets 1,185 - - - - 1,185
-
Intangibles and other
assets-net 3,417 15,646 21,200 36,846 40,263
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total assets $56,735 $30,100 $42,006 $72,106 $(54,307) $74,534
======= ======= ======= ======= ========= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $4,529 $10,673 $5,796 $16,469 $ - $20,998
Long term debt 98,500 - - - - 98,500
Other liabilities 1,425 107 706 813 - 2,238
Minority interest 6,474 517 - 517 - 6,991
Total stockholders' equity
(deficit) (54,193) 18,803 35,504 54,307 (54,307) (54,193)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total liabilities and
stockholders' equity $56,735 $30,100 $42,006 $72,106 $(54,307) $74,534
======= ======= ======= ======= ========= =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30,1998
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $463 $31,027 $34,484 $65,511 $- $65,974
Costs and expenses:
Operating costs - 15,352 15,246 30,598 - 30,598
General &admin. 1,495 7,424 10,326 17,750 - 19,246
Interest 7,965 - 71 71 - 8,036
Deprec.& amort. 342 2,186 2,614 4,800 - 5,142
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total costs 9,802 24,963 28,257 53,220 - 63,022
Income (loss) before income
taxes (9,339) 6,064 6,227 12,291 2,952
Minority interest - - - - (3,133) (3,133)
Income tax expense (304) - - - (304)
Earnings (losses) of
subsidiaries 2,931 - - - (2,931) -
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net income (loss) $(6,712) $6,064 $6,227 $12,291 $(6,064) $(485)
======== ====== ====== ======= ======== ======
</TABLE>
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30,1998
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(6,712) $6,065 $6,227 $12,292 $(6,064) $(485)
Adjustments to reconcile
net income (loss) to net
cash (used in) provided by
operating activities, net 446 2,186 2,614 24,800 3,133 8,379
Changes in assets and
liabilities, net 3,158 4,273 (8,560) (4,287) 2,931 1,802
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net cash (used in) provided
by operating activity (3,108) 12,524 281 12,805 - 9,696
Cash flows from investing
activities:
Collections on
Contract & notes
Receivables 40 - - - - 40
Capital expenditures (156) (2,037) (1,116) (3,153) - (3,309)
Proceed from the
Sale of assets 1,625 - - - - 1,625
Payments for
Acquisitions, net of
Cash acquired - (9,796) - (9,796) - (9,796)
Payments on
Deferred contract
Liabilities (234) - - - - (234)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net cash provided by (used
in) investing activities 1,275 (11,833) (1,116) (12,949) - (11,674)
Cash flows from financing
activities:
Principal payments
of long-term debt (2,743) - - - - (2,743)
Minority interest 4,500 - - - - 4,500
Repurchase of
Common stock (3,600) - - - - (3,600)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net cash provided by
financing activities (1,843) - - - - (1,843)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net increase (decrease) in
cash and cash equivalents (3,676) 691 (835) (144) - (3,821)
Cash and cash equivalents
at beginning of period 7,540 2,170 854 3,024 - 10,564
------------- ----------------- --------------- ----------------- ---------------- ------------------
Cash and cash equivalents
at end of period $3,864 $2,861 $19 $2,880 $- $6,743
====== ====== === ====== == ======
</TABLE>
12
<PAGE>
THREE MONTHS ENDED SEPTEMER 30,1999
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $(299) $19,867 $11,126 $30,993 $- $30,694
Costs and expenses:
Operating costs - 9,233 3,900 13,133 - 13,133
General &admin. 592 4,257 3,549 7,806 - 8,398
Interest 2,638 - 13 13 - 2,651
Deprec.& amort. 126 1,332 1,015 2,347 - 2,473
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total costs 3,356 14,822 8,477 23,300 - 26,655
Income (loss) before income
taxes (3,654) 5,045 2,648 7,693 - 4,039
Minority interest - - - - (3,784) (3,784)
Income tax (expense) benefit (200) - - - - (200)
Earnings (losses) of
subsidiaries 1,260 - - - (1,260) -
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net income (loss) $(2,594) $5,045 $2,648 $7,692 $(5,044) $55
======== ====== ====== ====== ======== ===
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30,1998
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $205 $9,235 $16,459 $25,694 $- $25,899
Costs and expenses:
Operating costs - 2,653 8,587 11,240 - 11,240
General &admin. 477 1,798 4,430 6,228 - 6,706
Interest 2,640 - 22 22 - 2,662
Deprec.& amort. 122 1,082 1,132 2,214 - 2,336
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total costs 3,239 5,534 14,171 19,705 - 22,944
Income (loss) before income
taxes (3,034) 3,701 2,288 5,989 - 2,955
Minority interest - - - - (2,531) (2,531)
Income tax expense (258) - - - - (258)
Earnings (losses) of
subsidiaries 1,260 - - - (1,260) -
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net Income (loss) $(2,032) $3,701 $2,288 $5,989 $(3,791) $166
======== ====== ====== ====== ======== ====
</TABLE>
13
<PAGE>
D. BUSINESS SEGMENT INFORMATION
Operations of the Company are conducted primarily through two business
segments primarily within the continental United States. These segments
and the primary operations of each are as follows:
BUSINESS TO BUSINESS COMMUNICATIONS
Publisher (Atwood) of various convention/trade show publications and
trade journals, provider (Galaxy) of registration and housing services,
exhibitor marketing and information services all to the exposition
industry, provider (I.T.S.) of hotel reservation and travel services to
the exposition industry and owner (GEM) of the World Gaming Congress, a
trade show catering to the legalized gaming industry, and the publisher
of several trade magazines and newsletters.
INFORMATION SERVICES
Provider (TISI and RSI) of pre-employment screening information including
motor vehicle reports, truck driver employment information, worker's
compensation information, credit reports, criminal record reports and
other pre-employment screening information and services to the trucking,
gaming and other industries and motor vehicle reports to the insurance
industry. Provider (Corsearch) of trademark research and information
services, using both proprietary and public databases.
Corporate revenues consist principally of revenues from interest,
covenants-not-to-compete and miscellaneous non-operating income.
Operating profit is net revenues less applicable operating expenses and
segment general and administrative expenses. Corporate general and
administrative expenses are generally not allocated to each segment.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets consist principally of cash
and cash equivalents, notes receivable, prepaid expenses and corporate
furniture, fixtures and equipment. Capital expenditures include additions
to property, plant and equipment, goodwill and truck driver employment
and trademark information files.
No customer represented ten percent or more of the Company's revenue or
operating profit for any period presented.
14
<PAGE>
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands) (In thousands)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS:
Business to Business Communications $ 19,552 $ 16,168 $ 48,662 $ 37,960
Information Services 11,148 9,526 31,280 27,551
Corporate and other (6) 205 20 463
--- --- -- ---
$30,694 $25,899 $79,951 $65,974
======= ======= ======= =======
OPERATING INCOME:
Business to Business Communications $ 4,729 $ 3,791 $ 9,102 $ 6,154
Information Services 2,685 2,222 7,347 6,210
----- ----- ----- -----
Operating profit from segments 7,414 6,013 16,449 12,364
Corporate expenses, net (724) (396) (2,664) (1,376)
Interest expense (2,651) (2,662) (8,066) (8,036)
------- ------- ------- -------
Income before income taxes $ 4,039 $ 2,955 $5,719 $ 2,952
====== ====== ===== =====
DEPRECIATION AND AMORTIZATION:
Business to Business Communications $1,332 $1,082 $3,293 $2,517
Information Services 1,015 1,132 2,782 2,282
Corporate 126 122 378 343
--- --- --- ---
$2,473 $2,336 $6,453 $5,142
====== ====== ====== ======
EBITDA:
Business to Business Communications $6,062 $ 5,204 $12,395 $8,672
Information Services 3,700 3,022 10,128 8,492
Corporate (576) (404) (2,264) (1,078)
----- ----- ------- -------
$9,185 $7,822 $20,260 $16,086
====== ====== ======= =======
CAPITAL EXPENDITURES:
Business to Business Communications $1,036 $ 200 $1,993 $2,037
Information Services 622 110 2,225 1,116
Corporate 15 83 77 156
-- -- -- ---
$1,673 $393 $4,295 $3,309
====== ==== ====== ======
IDENTIFIABLE ASSETS AT SEPTEMBER 30 AND DECEMBER 31: 1999 1998
---- ----
Business to Business Communications $56,043 $34,206
Information Services 46,573 33,804
Corporate 6,310 6,524
-------- -------
$108,926 $74,534
======== =======
</TABLE>
15
<PAGE>
E. ACQUISITION AND DIVESTITURES
On April 30, 1999, the Company, through Galaxy, acquired substantially
all of the assets and assumed substantially all of the liabilities of
International Travel Services, Inc. ("ITS") for an aggregate purchase
price of $22,650,000 plus transaction costs. Of the total purchase
price of this transaction, $11,134,000 was paid out of proceeds from
the Company's line of credit, $2,000,000 was paid from a
contemporaneous minority equity investment in Galaxy Information
Services, LLC by certain former ITS shareholders and the remainder was
paid from existing cash. The acquisition was accounted for under the
purchase method of accounting.
On August 31, 1999, the Company, through TISI, acquired the all the
stock of Record Search, Inc. ("RSI") for an aggregate purchase price of
$12,780,000 plus transaction costs. Of the total purchase price of this
transaction, $9,000,000 was paid out from existing cash and the balance
in the form of a note to be paid over three years. The acquisition was
accounted for under the purchase method of accounting.
On October 6, 1999, the Company signed an agreement to sell all the
stock of Corsearch and execute a non-compete agreement in consideration
for approximately $20 million (subject to adjustments).
The following unaudited pro forma information is presented as if the
Company had completed the acquisitions as of January 1, 1998. The pro
forma information is not necessarily indicative of what the results of
operations would have been had the acquisitions taken place at January
1, 1998, or of the future results of operations.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands) (In thousands)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 32,012 $ 30,848 $ 88,838 $ 79,976
====== ====== ====== ======
Net income (loss) $ 18 $ 111 $ (689) $ (555)
== === ==== ====
</TABLE>
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
The Company is a diversified business information and media company which
principally operates two lines of business: (i) business and professional
information services and (ii) business to business marketing communications,
publishing and related services.
Information Services provides specialized information and database
management services to selected market segments. Total Information Services,
Inc. and its affiliates (collectively, "TISI") is a leading supplier of
pre-employment screening information to the trucking, gaming and other
industries and is a provider of risk assessment and underwriting information to
agents, underwriters and others in the insurance industry. Corsearch, Inc.
acquired by the Company in 1996, is the second largest supplier in the United
States of trademark and trade name searches and information research.
The Company's Business to Business Communications operations are
conducted through several individual businesses, each of which is characterized
by leading competitive positions within specialized market niches. Business to
Business Communications includes: (i) Atwood Publishing, LLC and its affiliates
(collectively, "Atwood"), the largest domestic independent publisher of
exposition and association related publications and directories; (ii) Galaxy
Information Services, LLC ("Galaxy"), the largest independent provider of trade
show and convention registration, exhibitor information and "lead" management
services in the United States; (iii) I.T.S. Information Services, LLC
("I.T.S."), a provider of housing, travel, event planning and registration
services for the tradeshow convention and exposition industry and (iv) GEM
Communications, LLC and its affiliates (collectively, "GEM"), the owner and
operator of the World Gaming Congress, the world's largest trade show catering
to the legalized gaming industry and the publisher of trade magazines directed
to the legalized gaming industry, principally IGWB, the leading gaming industry
magazine, and Casino Executive, the major magazine for casino management.
Effective January 31, 1998, the Company acquired the remaining interests in
Casino Publishing Company. In June, 1998, GEM acquired all the assets and rights
to the International Gaming Business Exposition, a conference and trade show
serving the casino gaming industry. On September 1, 1998, GEM acquired all the
stock of UK based InterGame Limited, the publisher of the leading series of
publications for the international coin-operated amusement and gaming machines
and amusement park businesses. During 1998, GEM had a 49% interest in Gaming for
Africa Expo, a gaming trade show and conference held in South Africa, and Gaming
for Africa, the leading trade magazine for gaming in Sub-Saharan Africa.
Effective as of January 1, 1999, GEM acquired, in a series of transactions, the
business of Gaming for Africa Expo and Gaming for Africa. The investment had
previously been accounted for under the equity method. On April 30, 1999, the
Company, through I.T.S. Information Services, LLC, acquired substantially all of
the assets and assumed substantially all of the liabilities of International
Travel Service, Inc. On September 1, 1999, the Company, though TISI, acquired
all of the outstanding stock of Record Search, Inc. ("RSI").
RESULTS OF OPERATION
Revenues. Revenues of $30.7 million and $80.0 million for the three and
nine months periods ended September 30, 1999 respectively, were $4.8 million
(19%) and $14.0 million (21%) higher, respectively, than the same periods in the
prior year. Business to Business Communications segment revenue totaled $19.6
million and $48.7 million for the three and nine months ended September 30,
1999, respectively, an increase of $3.4 million (21%) and $10.7 million (28%),
respectively, over the three and nine months ended
17
<PAGE>
September 30, 1998. Galaxy contributed $2.2 million and $6.1 million to the
revenue growth, respectively, over the same periods in the prior year. Galaxy's
growth resulted principally from increased registration and exhibitor volume,
the growth of new lead management and interactive services and inclusion of
I.T.S ($3.3 million and $5.4 million for three and nine months, respectively) as
of May 1, 1999. At Atwood, growth in new directories business, a strong increase
in new digital products and expansion of proprietary publishing led to a 10% and
13% increase in revenue in the three and nine months periods of 1999,
respectively, compared to the same periods in 1998. The inclusion of InterGame
($2.4 million) and Gaming for Africa ($562,000) which were not included in
consolidated 1998 results until September 1, 1998 and January 1, 1999,
respectively, contributed to a 11% and 29% increase in the three and nine
months, respectively, in revenue at GEM. GEM's revenue included revenue from the
World Gaming Congress & Expo, held in September 1999 and 1998. Excluding the
impact of acquisitions, the Business to Business Communications segment revenue
decreased 5% for the three months ended September 30, 1999 and increased 6%, for
the nine months ended September 30, 1999, compared with the same periods in the
prior year. The decrease for the three months ended September 30, 1999 is due to
a decline in revenue at Galaxy due to the absence of biennial shows.
The Information Services segment produced revenue of $11.1 million and
$31.3 million for the three and nine month periods ended September 30, 1999,
respectively, an increase of $1.6 million (17%) and $3.7 million (14%),
respectively, over the same three and nine month periods of 1998. TISI's revenue
increased 25% and 21% for the three and nine months ended September 30, 1999,
respectively, over the same periods of 1998. TISI's growth resulted principally
from increased criminal record volume and employment history searches, as
compared to the prior year, inclusion of RSI as of September 1, 1999 which added
$676,000 to TISI's revenue and the launch of World Gaming Network (WGN). WGN
provides pre-employment screening services to the casino gaming industry based
on the successful DAC model. TISI's Crimesearch affiliate experienced a 69%
increase in nine month 1999 revenue reflecting growing demand for criminal
records. Corsearch revenue decreased 7% and 8% during the three and nine months
of 1999, respectively, compared with 1998, due principally to lower search
volume. Excluding the impact of acquisitions, the Information Services segment
revenue increased 10% and 11%, respectively, for the three and nine months ended
September 30, 1999, compared with the same period in the prior year.
Operating Costs. Operating Costs increased $1.9 million (17%) and $5.1
million (17%) for the three and nine month periods ended September 30, 1999,
respectively. Operating Costs of the Business to Business Communications segment
increased by $1.6 million (20%) and $4.3 million (21%) for the three and nine
months ended September 30, 1999, respectively, on 21% and 28% higher revenue
compared with the same periods in 1998. This growth was attributable principally
to increased volume at Atwood and Galaxy and the inclusion of InterGame, Gaming
for Africa and I.T.S., which were not included in the consolidated results until
September 1, 1998, January 1, 1999 and May 1, 1999, respectively.
Operating Costs of the Information Services segment increased 10% and
7% for the three and nine month periods ended September 30, 1999, respectively,
compared to the same periods of 1998. The increase was attributable principally
to higher criminal record and pre-employment screening volume at TISI, inclusion
of RSI, offset partially by cost control measures instituted at Corsearch.
General and Administrative Expenses. General and Administrative
Expenses increased $1.7 million (25%) and $4.8 million (25%) for the three and
nine months ended September 30, 1999, respectively, compared with the same
periods in the prior year. Higher general and administrative expense was
primarily due to the inclusion of InterGame, Gaming for Africa, I.T.S. and RSI,
increased staff to support volume growth and new product development at TISI and
corporate business development costs, offset partially by cost control actions
taken at Corsearch.
18
<PAGE>
Depreciation and Amortization. Depreciation and Amortization increased
$138,000 (6%) and $1.3 million (26%) during the three and nine months ended
September 30, 1999, respectively, compared with the same periods in 1998. The
increase resulted principally from 1998 capital expenditure to acquire data,
expand exposition and trade show capacity and upgrade information technology and
increased amortization of goodwill due to acquisitions.
Interest Expense. Interest Expense totaled $2.7 million and $8.1
million for the three and nine months ended September 30, 1999, respectively,
compared with $2.7 million and $8.0 million for the same periods in 1998.
Interest expense results primarily from debt incurred in connection with the
Recapitalization.
EBITDA. EBITDA increased $1.4 million (17%) and $4.2 million (26%) to
$9.2 million and $20.3 million for the three and nine months ended September 30,
1999, respectively, compared with $7.8 million and $16.1 million, respectively,
during the same 1998 periods. The increase for the three months ended September
30, 1999 was principally attributable to higher EBITDA in the Business to
Business Communications segment (up $873,000 - 17%) and the Information Services
segment (up $677,000 - 22%). The increase for the nine months ended September
30, 1999 was principally attributable to higher EBITDA in the Business to
Business Communications segment (up $3.7 million - 43%) and the Information
Services segment (up $1.6 million - 19%) and partially offset by higher
corporate business development cost. Excluding the impact of acquisitions,
EBITDA in the Business to Business Communications segment decreased 4% for the
three month period ended September 30, 1999 and increased 2% for the nine months
period ended September 30, 1999, compared with the same period in the prior year
and EBITDA in total increased 2% and 12% for the same periods. The decrease for
the three months ended September 30, 1999 is due to a decline in EBITDA at
Galaxy because of the absence of biennial shows.
EBITDA, as presented, represents operating income plus depreciation and
amortization. EBITDA is included because management understands that such
information is considered by certain investors to be an additional basis on
which to evaluate the Company's ability to pay interest expense, repay debt and
make capital expenditures. Excluded from EBITDA are interest expenses, income
taxes, depreciation and amortization, unusual gains, minority interest in
consolidated subsidiaries, discontinued operations, net and extraordinary loss,
net of tax, each of which can significantly affect the Company's results of
operations and liquidity and should be considered in evaluating the Company's
financial performance. EBITDA is not intended to represent and should not be
considered more meaningful than, or an alternative to, measures of operating
performance as determined in accordance with generally accepted accounting
principles.
ACQUISITION AND DIVESTITURES
On April 30, 1999, the Company, through Galaxy, acquired substantially
all of the assets and assumed substantially all of the liabilities of
International Travel Services, Inc. ("ITS") for an aggregate purchase price of
$22,650,000 plus transaction costs. Of the total purchase price of this
transaction, $11,134,000 was paid out of proceeds from the Company's line of
credit, $2,000,000 was paid from a contemporaneous minority equity investment in
Galaxy Information Services, LLC by certain former ITS shareholders and the
remainder was paid from existing cash. The acquisition was accounted for under
the purchase method of accounting.
On August 31, 1999, the Company, through TISI, acquired the all the
stock of Record Search, Inc. ("RSI") for an aggregate purchase price of
$12,780,000 plus transaction costs. Of the total purchase price of this
transaction, $9,000,000 was paid out from existing cash and the balance in the
form of a note to be paid over three years. The acquisition was accounted for
under the purchase method of accounting.
19
<PAGE>
On October 6, 1999, the Company entered into an agreement with CT
Corporation System to sell all the stock of Corsearch and executed a non-compete
agreement in consideration for approximately $20 million (subject to
adjustments).
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Recapitalization, the Company: (i) borrowed $13
million under a $25.0 million revolving senior credit facility (the "Senior
Credit Facility") with First Union National Bank ("FUNB"); (ii) issued $80.0
million aggregate principal amount of notes pursuant to a facility (the "Bridge
Financing Facility") provided by First Union Corporation; and (iii) received
$40.0 million of equity contributions (the "Equity Contributions") from
VS&A-T/SF and Fir Tree. On October 29, 1997, the Company completed the private
sale to First Union Capital Markets Corp. (the "Initial Purchaser") of $100.0
million principal amount of Senior Subordinated Notes due 2007 (the "Old Notes")
at a price of 97% of the principal amount thereof. The Initial Purchaser resold
the Old Notes to a limited number of qualified institutional buyers at an
initial price to investors of 100% of the principal amount thereof, with net
proceeds to the Company of $97.0 million (the "Offering"). The Offering was a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Rule 144A and Section 4 thereof. The net proceeds of
the Notes sold pursuant to the Offering were applied to repay indebtedness
incurred in connection with the Recapitalization under the Senior Credit
Facility and the Bridge Financing Facility. On February 10, 1998, the Company
offered to exchange up to $100,000,000 aggregate principal amount of Old Notes
for up to an equal aggregate principal amount of new notes (the "New Notes" and,
together with the Old Notes, the "Notes")). The New Notes are obligations of the
Company entitled to the benefits of the Indenture (the "Indenture") relating to
the Old Notes and the form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes except that the New
Notes have been registered under the Securities Act and do not contain terms
with respect to transfer restrictions. On September 1, 1998, the Company
purchased $1.5 million of the New Notes at a price below par.
The Company's principal sources of funds are anticipated to be cash flows
from operating activities and borrowings under the Senior Credit Facility. Based
upon the successful implementation of management's business and operating
strategy, the Company believes that these funds will provide the Company with
sufficient liquidity and capital resources for the Company to meet its current
and future financial obligations, including the payment of principal and
interest on the Notes, as well as to provide funds for the Company's working
capital, capital expenditures and other needs. No assurance can be given,
however, that this will be the case. As of September 30, 1999, the Company had
$25.0 million of availability under the Senior Credit Facility. The Company's
future operating performance and ability to service or refinance the Notes and
to repay, extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control. In addition, any future acquisitions by
the Company would likely require additional financing.
In the event of a Change of Control (as defined in the Indenture), the
Company will be required to make an offer for cash to repurchase the Notes at
101% of the principal amount thereof, plus accrued and unpaid interest and
Additional Interest (as defined in the Indenture), if any, thereon to the
repurchase date. Certain events involving a Change of Control would result in an
event of default under the Senior Credit Facility or other indebtedness of the
Company that may be incurred in the future. Moreover, the exercise by the
holders of the Notes of their right to require the Company to repurchase the
Notes may cause an event of default under the Senior Credit Facility or such
other indebtedness, even if the Change of Control does not. Finally, there can
be no assurance that the Company will have the financial resources necessary to
repurchase the Notes upon a Change of Control.
20
<PAGE>
Capital Expenditures. Management anticipates that capital expenditures in
1999 will be approximately $7.0 million. The primary capital expenditures will
be for computer equipment and software, "reader boxes" at Galaxy and database
acquisitions at TISI and Corsearch. TISI continues to offer its customers in the
trucking industry credits for providing employment information to be utilized in
its database, which credits can be used against charges for future services from
such division. All of the credits earned are considered capital expenditures for
the acquisition of such data. Management anticipates positive cash flow from
operations in 1999, even after the anticipated capital expenditures for 1999.
Thus, with the Company's available cash reserves and cash flow, management does
not anticipate a need for additional capital during 1999 except for possible
future acquisitions.
INFLATION
Management anticipates the effect of inflation on the Company's operations
during 1999 will be primarily limited to the effects which general inflation
will have on costs in most areas in which the Company operates.
YEAR 2000 COMPLIANCE
GENERAL
TOIC's company-wide Year 2000 Project is proceeding on schedule. The
project was begun in earnest during the second quarter of 1998 and is addressing
the issue of information systems being unable to distinguish between the year
1900 and the year 2000. The general project phases common to all business units
are: (1) inventorying Year 2000 items; (2) assigning priorities to identified
items; (3) assessing the Year 2000 readiness of items determined to be material
to the Company; (4) repairing or replacing material items that are determined
not to be ready for the Year 2000; (5) testing repaired or replaced items; and
(6) designing and implementing contingency and business continuation plans for
all material items. At December 31, 1998, the inventory and priority assessment
phases for each business unit had been completed and detailed remediation plans
developed by business units considered to have material Year 2000 issues. Based
on the inventory, only TISI was determined to have material Year 2000 issues.
PROJECT
A dedicated TISI project team has been working on remediating core
processing applications as well as assessing the readiness of the infrastructure
portion of the systems. The project is 95% complete (though slightly behind
schedule), with different phases of the schedule being between 85% and 100%
complete. The remainder of 1999 is being reserved for final testing.
TISI's project is broken down by line of business and by steps in the
value chain - customer interaction, order processing/delivery, information
production/retrieval, billing, customer service, monitoring/management,
infrastructure and extended enterprise. For packaged software and hardware
components, TISI is evaluating vendors' statements about their products'
readiness and developing test plans where the components are material and
testing is possible. Several items have been identified as not ready for the
Year 2000 and plans are being made for remediation. All remediation in these
areas is scheduled to be complete by the end of October 1999.
For applications that have been developed in-house, active inventorying
and remediation has been underway since early in 1998. To date, all PC-based
applications have been found to be ready for the Year 2000 or have required only
minor changes, which have been completed. TISI has completed a general inventory
of its primary VMS-based processing applications and 98% of the detailed
inventory. Remediation of these systems has been divided into two phases and
TISI has completed nearly 95% of the
21
<PAGE>
first phase and nearly 90% of the second phase. All non-critical systems
(defined as cosmetically impacted or internal-use reporting only) will be
deferred until all critical systems have been remediated, tested and put back
into production. System level and comprehensive testing is being performed
throughout the remediation process. TISI expects that all critical application
remediation will be completed by the end of November, 1999.
TISI and the Company's other business units have contacted external
entities whose system interfaces could have a potential material impact on the
Company's internal systems, to assess their Year 2000 readiness and develop
action plans, if necessary. The Company believes that in those cases where
responses have been received all material issues have been identified and have
been or will be appropriately remedied.
In addition, the operating system software supplied by third parties
for certain of Corsearch's systems has been identified as not ready for the Year
2000. Corsearch's remediation plan called for replacing this operating system
software with an new version, which the vendor had originally represented would
be released during the second quarter of 1999. However, as a result of delays by
the vendor in the release of this new version of the operating system software,
Corsearch's has completed implementing its contingency plan by acquiring and
installing patches to its existing operating system software rather than wait
for the new version. These patches were installed and tested by the end of the
third quarter of 1999.
COSTS
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Year 2000 Project was approximately
$1.4 million nearly all of which related to the cost to repair or replace
software and related hardware problems. Substantially all budgeted funds had
been expensed.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The primary business
risk associated with Year 2000 is TISI's ability to provide employment screening
information to customers without interruption. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 Project is expected to reduce significantly
the Company's level of uncertainty about the Year 2000 problem. The Company can
not be certain that all external entities have provided accurate information
with regard to Year 2000 issues and remediation plans or that external entities
will complete remediation plans as represented. The Company believes that, with
the implementation of new business systems and completion of the Project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced. The Company expects to develop contingency plans if it is
determined that the Company or its external entities will not be materially Year
2000 compliant. Readers are cautioned that forward-looking statements contained
in the Year 2000 Update should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements".
22
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted AICPA Statement of Position ("SOP")
No.98-1, "Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." SOP No.98-1 requires certain cost in connection with the
developing or obtaining internally used software to be capitalized that
previously would have been expensed as incurred. The adoption of SOP No. 98-1
resulted in the capitalization of approximately $300,000 related to software
development.
The FASB also recently issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Post-retirement Benefits (SFAS 132) and Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 132 revises employer's disclosures about pension and other
post-retirement benefit plans. It does not change the measurement or recognition
of those plans. SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS 133 and SFAS 132 are not
expected to have a material impact on the Company's financial reporting as the
Company does not currently sponsor pension or other post-retirement benefit
plans. The Company is in the process of evaluating the effect of SFAS 133 and
SFAS 132.
FORWARD-LOOKING STATEMENTS
This Quarterly Report for the quarter ended September 30, 1999 as well as
other public documents of the Company contains forward-looking statements which
involve risks and uncertainties. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for certain forward-looking statements. When used
in this Quarterly Report, the words "estimate," "project," "anticipate,"
"expect," "intend," "believe," "seek," "plan," as well as variations of such
words and similar expressions, are intended to identify forward-looking
statements. While management believes these statements are reasonable, actual
results could differ materially from those projected by such forward-looking
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) List of Exhibits:
2.1 Stock Purchase Agreement dated as of October 6, 1999, by and
among CT Corporation System, The Official Information Company,
and Corsearch, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 13, 1999, the Registrant filed a Current Report on Form
8-K that reported on the acquisition of Records Search, Inc. (Items 2 and 7).
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: November 4, 1999
THE OFFICIAL INFORMATION COMPANY
By /s/ Ian L.M. Thomas
------------------------------------------
IAN L. M. THOMAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By /s/ Steven J. Hunt
------------------------------------------
STEVEN J. HUNT
CHIEF FINANCIAL OFFICER
<PAGE>
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 6, 1999
BY AND AMONG
CT CORPORATION SYSTEM,
THE OFFICIAL INFORMATION COMPANY
AND
CORSEARCH, INC.
<PAGE>
Table of Contents
(Not part of the Agreement)
Page No.
-------
ARTICLE I CERTAIN DEFINITIONS...............................................1
1.01 Affiliate........................................................1
1.02 Audit............................................................1
1.03 Business.........................................................1
1.04 Code.............................................................2
1.05 Computer Equipment...............................................2
1.06 Encumbrance......................................................2
1.07 Environmental Claims.............................................2
1.08 Environmental Laws...............................................2
1.09 Environmental Permits............................................2
1.10 Hazardous Materials..............................................2
1.11 Intellectual Property............................................2
1.12 Investment.......................................................3
1.13 Leased Tangible Property.........................................3
1.14 Licensed Intellectual Property...................................3
1.15 Material Adverse Effect..........................................3
1.16 Non-Owned Intellectual Property..................................3
1.17 Owned Intellectual Property......................................4
1.18 Owned Tangible Property..........................................4
1.19 Permit...........................................................4
1.20 Person...........................................................4
1.21 Proprietary Information..........................................4
1.22 Purchase Price...................................................4
1.23 Release..........................................................4
1.24 Shares...........................................................4
1.25 Software Product.................................................4
1.26 Subsidiary.......................................................5
1.27 Subsisting Contract..............................................5
1.28 Tangible Property................................................5
1.29 Tangible Property Leases.........................................5
1.30 Taxes............................................................5
1.31 Tax Authority....................................................5
1.32 Tax Laws.........................................................5
1.33 Tax Returns......................................................5
1.34 Technology.......................................................5
1.35 Third Party License..............................................6
ARTICLE II PURCHASE AND SALE OF SHARES; PURCHASE PRICE......................6
2.01 Purchase and Sale of the Shares..................................6
2.02 Purchase Price...................................................6
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2.03 Purchase Price Adjustment........................................6
ARTICLE III CLOSING AND PAYMENT OBLIGATION..................................8
3.01 Closing..........................................................8
3.02 Deliveries by Seller.............................................8
3.03 Deliveries by Purchaser..........................................8
3.04 Intercompany Arrangements........................................9
3.05 Treatment of Seller Guaranties...................................9
ARTICLE IV ADDITIONAL AGREEMENTS............................................9
4.01 Investigation....................................................9
4.02 Conduct of the Business Pending the Closing.....................10
4.03 Tax Matters.....................................................13
4.04 Pre-Merger Notification and Other Consents......................14
4.05 Further Cooperation.............................................14
4.06 Employees; Employee Benefits....................................14
4.07 Maintenance of Books and Records................................16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLER.....................16
5.01 Organization....................................................16
5.02 Capital Stock and Related Matters; No Investments...............17
5.03 Authorization...................................................17
5.04 Valid and Binding...............................................17
5.05 No Violation....................................................18
5.06 Consents and Approvals..........................................18
5.07 Financial Statements............................................18
5.08 Interim Operations..............................................19
5.09 Undisclosed Liabilities.........................................21
5.10 Taxes...........................................................21
5.11 Condition of Property...........................................22
5.12 Contracts and Commitments.......................................22
5.13 Intellectual Property and Technology............................24
5.14 Title to the Assets.............................................26
5.15 Land Use Matters................................................27
5.16 Environmental Matters...........................................27
5.17 Insurance.......................................................27
5.18 Employees and Labor Relations...................................28
5.19 Licenses; Permits...............................................29
5.20 Litigation......................................................29
5.21 Court Orders, Decrees, and Laws.................................30
5.22 Employee Benefit Plans; ERISA...................................30
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5.23 Customers and Vendors...........................................32
5.24 Accounts Receivable.............................................32
5.25 Broker's Fees...................................................32
5.26 Related-Party Transactions......................................32
5.27 Disclosure......................................................33
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER.....................33
6.01 Corporate Organization; Due Authorization.......................33
6.02 Authorization...................................................33
6.03 Consents and Approvals of Governmental Authorities..............33
6.04 No Violation....................................................34
6.05 Broker's Fees...................................................34
6.06 Litigation......................................................34
ARTICLE VII CONDITIONS OF CLOSING; CERTAIN COVENANTS.......................34
7.01 Conditions Precedent to the Obligations of Purchaser Hereunder..34
7.02 Conditions Precedent to the Obligations of the Seller Hereunder.35
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION...36
8.01 Survival of Representations and Warranties......................36
8.02 Notice of Damages...............................................36
8.03 Agreements to Indemnify.........................................37
8.04 Conditions of Indemnification of Third Party Claims.............37
8.05 Limitations on Indemnification..................................38
ARTICLE IX TERMINATION.....................................................39
9.01 Termination of Agreement........................................39
9.02 Effect of Termination...........................................40
ARTICLE X MISCELLANEOUS PROVISIONS........................................40
10.01 Expenses........................................................40
10.02 Notices.........................................................40
10.03 Binding; No Assignment..........................................41
10.04 Severability....................................................42
10.05 Governing Law; Consent to Jurisdiction and Venue................42
10.06 Knowledge.......................................................42
10.07 Counterparts....................................................42
10.08 Headings........................................................43
10.09 Entire Agreement; Amendment; Waiver.............................43
10.10 Third Parties...................................................43
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10.11 Publicity.......................................................43
10.12 Reference to Days...............................................43
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 6, 1999, by and among CT
Corporation System, a Delaware corporation ("Purchaser"), The Official
Information Company, a Delaware corporation ("Seller"), and Corsearch, Inc., a
Delaware corporation (the "Company").
WHEREAS, the Company is in the business of providing trademark,
copyright, corporate and domain name search services to customers throughout the
United States and Canada with respect to registered trademarks and pending
trademark applications anywhere in the world and registered copyrights,
corporate and domain names in the United States, and common law uses of
trademarks and service marks anywhere in the world, as well as by license of the
Company's "Corsearch Online" proprietary trademark search software to customers
(as such practices exist as of the date hereof, the "Business");
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of the Company (the "Shares"); and
WHEREAS, Purchaser wishes to purchase from the Seller, and the Seller
desires to sell to Purchaser, the Shares upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement each of the following terms shall have the
following meaning:
1.01 "Affiliate" shall mean an affiliate of an individual or entity as
the term "affiliate" is defined in the rules and regulations promulgated under
the Securities Act of 1933, as amended.
1.02 "Audit" shall mean any audit, assessment of Taxes, any other
examination or claim by any Tax Authority, judicial, administrative or other
proceeding or litigation (including any appeal of any such judicial,
administrative or other proceeding or litigation) relating to Taxes and/or Tax
Returns.
1.03 "Business" shall have the meaning provided such term in the first
WHEREAS clause of this Agreement.
1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended.
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1.05 "Computer Equipment" shall mean all computer equipment, devices
and accessories (including personal computers, workstations, servers, data
processing hardware and related telecommunications equipment, media and tools)
used in the Business.
1.06 "Encumbrance" shall mean any claim, mortgage, pledge, lien,
security or other third party right or interest of any kind whatsoever,
conditional sales agreement, option, encumbrance or charge of any kind affecting
real or personal property.
1.07 "Environmental Claims" shall mean any and all claims, actions,
causes of action, or other written notices by any Person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or civil or criminal
penalties) arising out of or resulting from (i) circumstances forming the basis
of any violation of any Environmental Laws or (ii) any releases of Hazardous
Materials at any real or personal property presently or formerly owned, leased
or managed by the Company or at any disposal facility which may have received
Hazardous Materials generated by the Company.
1.08 "Environmental Laws" shall mean any applicable federal, state,
local or foreign law, treaty, judicial decision, regulation, rule, judgment,
order, decree, injunction, permit or governmental restriction, each as in effect
on or prior to the Closing Date, relating to the environment, safety or health.
1.09 "Environmental Permits" shall mean Permits required by
Environmental Laws.
1.10 "Hazardous Materials" shall include (a) any element, compound, or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, biohazardous or infectious waste,
special waste, or solid waste under Environmental Laws; (b) petroleum,
petroleum-based or petroleum-derived products; (c) polychlorinated biphenyls;
(d) any substance exhibiting a hazardous waste characteristic including but not
limited to corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any asbestos-containing materials.
1.11 "Intellectual Property" shall mean all intellectual property and
all rights therein, whether common law, statutory or otherwise, domestic and
foreign, and all registrations and registration applications for any such
rights, including without limitation:
(a) patents (including all reissues, divisions, continuations
and extensions thereof);
(b) service marks, trademarks, trade names, brands, product
and service names, logos and other distinctive identifications used in commerce,
whether in connection with products or services, together with all goodwill
related to any of the foregoing, including without limitation those listed on
Schedule 5.13;
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(c) copyrights, including without limitation those listed on
Schedule 5.13;
(d) Technology; and
(e) other proprietary know-how, trade secrets and proprietary
non-public information.
1.12 "Investment" shall mean as applied to any Person (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any Person and (ii) any capital
contribution by such Person to any other Person.
1.13 "Leased Tangible Property" shall mean all Computer Equipment and
other machinery, furniture, equipment and other tangible personal property, in
each case which is subject to a leasehold interest held by the Company.
1.14 "Licensed Intellectual Property" shall mean Intellectual Property
which the Company uses or has the right to use pursuant to Third Party Licenses.
1.15 "Material Adverse Effect" shall mean an effect on the business,
financial condition or results of operations of the Company which effect, either
individually or when aggregated with other such effects, is adverse and
material; provided, however, that (a) the effects of changes that are generally
applicable to the industries in which the Company operates or to the United
States economy generally shall be excluded from such determination, and (b) the
effects of the failure of Robert Capshaw to continue his employment with the
Company for any reason, including without limitation the failure of the Company
or the Purchaser to enter into a new or extended employment agreement with
Robert Capshaw, shall be excluded from such determination.
1.16 "Non-Owned Intellectual Property" shall mean (a) Licensed
Intellectual Property and (b) Intellectual Property which is publicly available
for use without restriction or obligation of any kind to any other Person.
1.17 "Owned Intellectual Property" shall mean Intellectual Property (i)
created or developed by employees of the Company or (ii) to which the Company
has acquired, by purchase, assignment or other transfer the unconditional,
unrestricted, exclusive right to control or prevent any and all use of such
Intellectual Property by others without the consent or approval of or payment
to, any other Person.
1.18 "Owned Tangible Property" shall mean all Computer Equipment and
other machinery, furniture, equipment and other tangible personal property owned
by the Company.
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1.19 "Permit" shall mean any license, franchise, permit, consent,
order, approval, authorization or registration from, of or with a governmental
entity.
1.20 "Person" shall mean an individual, partnership, corporation,
limited liability company, association, joint stock company, trust, joint
venture, unincorporated organization and governmental entity or any department,
agency or political subdivision thereof.
1.21 "Proprietary Information" shall mean any process, design, formula,
know-how, information, invention, trade secret, technology, or research,
marketing or other data which has been developed by or for the Company and has
not entered the public domain.
1.22 "Purchase Price" shall have the meaning provided such term in
Section 2.02.
1.23 "Release" shall mean any spilling, leaking, pumping, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, dumping, or
disposing of Hazardous Materials (including the abandonment or discarding of
barrels, containers or other closed receptacles containing Hazardous Materials)
into the environment in violation of any applicable Environmental Law.
1.24 "Shares" shall mean the shares of common stock, par value $.01 per
share, of the Company on a fully diluted basis, after giving effect to the
deemed conversion, exercise or exchange of securities convertible, exercisable
or exchangeable into such shares of common stock.
1.25 "Software Product" shall mean the computer software program
licensed by the Company to others and identified on Schedule 5.13.
1.26 "Subsidiary" shall mean with respect to any Person, each entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
1.27 "Subsisting Contract" shall mean any contract, agreement,
commitment, lease, or restriction of any kind to which the Company is a party or
by which the Company is bound or to which any of the Company's assets are
subject, including without limitation Third Party Licenses.
1.28 "Tangible Property" shall mean the Owned Tangible Property and the
Leased Tangible Property.
1.29 "Tangible Property Leases" shall mean any Subsisting Contract
granting a right to use Leased Tangible Property.
1.30 "Taxes" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, wage, employment, excise, utility,
communications, production, occupancy,
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severance, stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, capital levy, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including, without
limitation, penalties, additions to tax, and interest attributable thereto
(together with any interest on any such interest, penalties and additions to
tax).
1.31 "Tax Authority" shall mean the Internal Revenue Service ("IRS")
and any other domestic or foreign authority responsible for the administration
of any Taxes.
1.32 "Tax Laws" shall mean the Code, federal, state, county, local or
foreign laws related to Taxes and any regulations or official administrative
pronouncements released thereunder.
1.33 "Tax Returns" shall mean all original and amended Federal, state,
local and foreign tax returns, declarations, statements, reports, schedules,
forms and information returns relating to Taxes.
1.34 "Technology" shall mean all formulae; algorithms; processes;
procedures; designs; ideas; concepts; strategic, business and other plans;
research; inventions and invention disclosure (whether patentable or
unpatentable); and all records of the foregoing; test, engineering and technical
data, know-how, proprietary information and methodologies; trade secrets;
technology; communications and associated peripheral devices and resources;
computer software, programs and code, both object and source, in whatever form
and media; databases; specifications, software manuals and program
documentation; and other information processing tangible and intangible items.
1.35 "Third Party License" shall mean all licenses, agreements,
obligations or other commitments under which a Person has granted the Company a
right to use any Intellectual Property in connection with the Company's business
but retains one or more rights to use such Intellectual Property, including
without limitation those Third Party Licenses listed and described on Schedule
5.13 hereto.
ARTICLE II
PURCHASE AND SALE OF SHARES; PURCHASE PRICE
2.01 Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement, Seller hereby agrees to sell, transfer, convey,
assign and deliver to Purchaser, and Purchaser hereby agrees to purchase,
acquire and accept from the Seller, the Shares, at the Closing on the Closing
Date (as defined in Section 3.01 hereof), free and clear of any Encumbrance
whatsoever. At the Closing, Seller shall deliver to Purchaser the Shares free
and clear of any Encumbrance along with appropriate stock powers duly executed
by Seller.
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2.02 Purchase Price. The aggregate purchase price (the "Purchase
Price") for the Shares shall be $16,500,000, as adjusted pursuant to Section
2.03. The Purchase Price shall be payable by wire transfer in immediately
available funds to such account of Seller as shall be designated by Seller in
writing at least two business days in advance of the Closing.
2.03 Purchase Price Adjustment. The Purchase Price shall be subject to
adjustment after the Closing as specified in this Section 2.03:
(a) Within 90 days after the Closing Date, Purchaser shall
deliver to Seller a balance sheet of the Company as at the Closing Date (a
"Closing Statement"), which shall be prepared by Purchaser's independent
accountants, KPMG Peat Marwick, LLP ("KPMG") in accordance with generally
accepted accounting principles consistently applied with those utilized in the
preparation of the Financial Statements. The Closing Statement delivered by
Purchaser is hereinafter referred to as the "Purchaser's Closing Statement."
(b) "Net Assets" shall mean (i) the assets of the Company as
of the Closing Date, excluding goodwill and any Other Assets that are with
respect to development costs of proprietary software of the Company in excess of
$150,000 (each as reflected in the Financial Statements (as defined in Section
5.07 below)), as reflected on the Accepted Closing Statement (as defined below)
minus (ii) the liabilities of the Company as of the Closing Date, as reflected
on the Accepted Closing Statement. "Closing Net Assets" shall mean the Net
Assets set forth on the Accepted Closing Statement.
(c) Subject to subsection (d) below, if Closing Net Assets is
less than zero, then Seller shall pay or cause to be paid to Purchaser, within
five (5) business days after delivery of the Accepted Closing Statement, an
aggregate amount in cash equal to Closing Net Assets amount. Subject to
subsection (d) below, if Closing Net Assets is greater than zero, then Purchaser
shall pay to Seller, within five (5) business days after delivery of the
Accepted Closing Statement, an aggregate amount in cash equal to Closing Net
Assets amount. The amount of such payment from Seller to Purchaser or from
Purchaser to Seller, as the case may be, is referred to herein as the
"Post-Closing Payment".
(d) Within thirty (30) days following delivery of Purchaser's
Closing Statement, Seller shall have the right to provide a Closing Statement
(the "Seller's Closing Statement") on the same basis as that prepared by KPMG
pursuant to Section 2.03(a) hereof. Purchaser shall provide to Seller and its
independent public accountants access to such of its records (including work
papers and all relevant personnel) as may reasonably be required for the
preparation and audit of Seller's Closing Statement. If Seller does not provide
a Closing Statement in accordance with this Section 2.03(d) or if the Seller's
Closing Statement does not demonstrate a Post-Closing Payment which is different
from that calculated by using the Purchaser's Closing Statement, then the
Purchaser's Closing Statement shall be deemed to be the "Accepted Closing
Statement." If the Seller's Closing Statement demonstrates a Post-Closing
Payment which is different than that calculated by using the Purchaser's Closing
Statement, then
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Purchaser and Seller, together with KPMG and Seller's independent public
accountants, shall endeavor to resolve such difference and if a resolution is
reached, such resolution shall determine the Post-Closing Payment and such
resolution shall be reflected on the Accepted Closing Statement. If no
resolution can be reached within thirty (30) days of completion of both the
Purchaser's Closing Statement and the Seller's Closing Statement, Seller and
Purchaser shall promptly select a third independent public accounting firm of
national reputation to arbitrate the dispute, to review the Closing Statements
and to determine the correct Closing Statement. Such determination, which shall
be final and binding on Purchaser and Seller, shall determine the Post-Closing
Payment and shall be deemed to be the Accepted Closing Statement. The fees and
expenses of the third independent public accounting firm shall be shared equally
by Seller and Purchaser.
(e) The Purchase Price shall be deemed to have been increased
or decreased, as the case may be, by the amount of the Post-Closing Payment.
ARTICLE III
CLOSING AND PAYMENT OBLIGATION
3.01 Closing. The consummation of the purchase and sale contemplated by
this Agreement (the "Closing") shall be held at the offices of Pryor Cashman
Sherman & Flynn LLP, 410 Park Avenue, New York, New York, at 11:00 A.M., local
time, no later than the fifth (5th) business day following the satisfaction or
waiver (by the Purchaser, in the case of the conditions in Section 7.01, and by
the Seller, in the case of the conditions in Section 7.02) of all of the
conditions to Closing set forth in Article VII hereof, or such other time, place
and date as may be mutually agreed upon by the parties hereto. The date of the
Closing is sometimes herein referred to as the "Closing Date".
3.02 Deliveries by Seller. The Seller agrees to deliver (or cause to be
delivered) to the Purchaser at the Closing on the Closing Date the following
agreements and documents, all reasonably satisfactory in form and substance to
Purchaser and its legal counsel:
(a) stock certificate representing the Shares, duly endorsed
or accompanied by duly executed instruments of transfer;
(b) a certificate of good standing and/or subsistence, dated
as of a recent date prior to the Closing, issued by the Secretary of State of
the State of Delaware and of each other jurisdiction in which the Company is
qualified to do business;
(c) all corporate minute and stock books, stock ledgers and
corporate seals of the Company;
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(d) written resignations of all officers and members of the
Board of Directors of the Company, other than Robert Capshaw;
(e) evidence of receipt of all consents set forth on Schedule
5.06;
(f) a duly executed copy of the Non-competition Agreement
substantially in the form attached hereto as Exhibit 3.02(f) (the
"Non-competition Agreement"); and
(g) such other assignment, transfer and assumption documents
and instruments as in the opinion of counsel for the Purchaser may be reasonably
required to effectuate the terms of this Agreement and to comply with the terms
hereof.
3.03 Deliveries by Purchaser. Subject to the terms and conditions of
this Agreement, in reliance on the representations, warranties and agreements of
the Seller contained herein, and in consideration of the Shares, Purchaser
agrees to deliver at the Closing the following, all reasonably satisfactory in
form and substance to Seller and its legal counsel:
(a) the wire transfer described in Section 2.02 hereof;
(b) a duly executed copy of the Non-competition Agreement; and
(c) such other assignment, transfer and assumption documents
and instruments as in the opinion of counsel for the Seller may be reasonably
required to effectuate the terms of this Agreement and to comply with the terms
hereof.
3.04 Intercompany Arrangements. On or prior to the Closing Date, all
intercompany accounts between the Company, on the one hand, and the Seller and
its Affiliates (excluding the Company), on the other hand, shall be converted
into equity without any payment of funds in connection therewith.
Notwithstanding the foregoing, any existing cash balance on the Company's books
as of the closing will be paid to the Seller. In addition, except as otherwise
expressly contemplated by this Agreement, all agreements and commitments,
whether written, oral or otherwise, which are solely between the Company, on the
one hand, and the Seller and its Affiliates (excluding the Company), on the
other hand, shall be terminated and of no further effect, without any further
action or liability on the part of the parties thereto.
3.05 Treatment of Seller Guaranties. Following the Closing, Purchaser
shall cause the Company to use commercially reasonable efforts to have released
and cancelled the Seller Guarantees (as hereinafter defined); provided, however,
that to the extent that any Seller Guaranty cannot be so released and cancelled,
Purchaser shall (a) use commercially reasonable efforts to cause itself or any
of its United States Affiliates to be substituted for the Seller and each of its
Affiliates directly affected thereby in respect of such Seller Guaranty, and (b)
if Purchaser is not able to either release and cancel such Seller Guaranty or
cause itself or any of its Affiliates to be so substituted in all respects in
respect of such Seller Guaranty, then Purchaser must indemnify, defend and hold
harmless each such Seller entity with respect to all liabilities or
8
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expenses which might arise or be incurred by such Seller entity with respect to
such Seller Guaranty. The term "Seller Guarantees" shall mean those guaranty
obligations of Seller identified on Schedule 3.05 hereto.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.01 Investigation. (a) The Seller and the Company agree to cooperate
fully with Purchaser and to give to Purchaser, its officers, employees,
auditors, legal counsel, representatives and agents reasonable access during
normal business hours to all such information, documents, premises and employees
as Purchaser considers necessary or advisable for purposes of Purchaser's
investigation of the Company and the Business; provided, however, that any such
access shall be conducted at Purchaser's expense, at a reasonable time, under
the supervision of Seller's personnel. Purchaser agrees to consult with the
Company in an effort to establish procedures designed to implement the
provisions of this Section 4.01 in order to minimize disruption to the Business.
Pending the Closing, Purchaser will, and will cause its Affiliates and
Representatives (as hereinafter defined) to, preserve the confidentiality of any
information provided to the Purchaser by the Company or the Seller relating to
the Company and the Business which is confidential in nature. In the event of
termination of this Agreement, Purchaser agrees to, and will cause its
Affiliates and Representatives to, maintain the confidentiality of such
information except to the extent that such item:
(i) is or becomes publicly known or generally known
in the industry through no act of Purchaser or its Affiliates or
Representatives;
(ii) is required to be disclosed to or by order of a
governmental agency or a court of law or otherwise as required by law;
provided that prior to any such disclosure notice of such requirement
of disclosure is provided to the Company and the Company is afforded
the reasonable opportunity to object to such disclosure; or
(iii) is required to be disclosed to the parties'
attorneys, accountants or other agents or employees (collectively,
"Representatives") working on this transaction.
(b) All such information and access shall be subject to the
terms and conditions of that certain Confidentiality Agreement dated February
19, 1998 between Seller and Trademark Research Corporation, a division of
Purchaser.
4.02 Conduct of the Business Pending the Closing. The Seller and the
Company agree that from the date hereof through the Closing Date, the Business
will be conducted only in the usual and ordinary course consistent with past
practice, and, except as may be permitted by this Agreement, or as otherwise
shown on Schedule 4.02 or approved in writing in advance by Purchaser, the
Seller and the Company agree as follows:
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(a) The Company will, so far as it is within its power to do
so, carry on the Business substantially in the same manner as heretofore
conducted, and the Company shall not institute any new methods of acquisition,
production, marketing, distribution, sale, lease, license, management,
operation, or engage in any transaction or activity, enter into any agreement or
make any commitment, except in the ordinary course of business and consistent
with past practice.
(b) The Company shall not institute any new methods of
accounting except in accordance with generally accepted accounting principles.
(c) The Company shall use commercially reasonable efforts to
preserve the Business intact, to protect and preserve the Company's assets, and
preserve its relationships with licensors, suppliers, distributors, customers,
contractors and employees.
(d) Except as otherwise specifically permitted pursuant to
this Agreement, the Company shall not:
(i) (A) Borrow or agree to borrow any funds or (B)
incur, or assume or become subject to, whether directly or by way of
guarantee or otherwise, any obligation or liability (absolute or
contingent), except in the case of clause (B) obligations and
liabilities incurred in the ordinary course of business and consistent
with past practice;
(ii) Permit or allow any of its assets to be
subjected to any Encumbrance of any kind or description (except
Encumbrances created by law);
(iii) declare any dividend or make any payment or
distribution of property (other than cash and cash equivalents) to the
Seller;
(iv) Dispose of or permit to lapse any rights to the
use of any Intellectual Property (and the Company shall take all
commercially reasonable actions in respect of any infringement of any
Intellectual Property of which it has knowledge), or dispose of or,
except in the ordinary course of business, disclose to any Person any
trade secret, formula, process or know-how not theretofore a matter of
public knowledge;
(v) Make any single capital expenditure or future
commitment in excess of $20,000 for additions to property, plant or
equipment or make aggregate capital expenditures or future commitments
in excess of $50,000 for additions to property, plant or equipment;
(vi) Pay, loan or advance (other than in the ordinary
course of business consistent with past practices) any amount to, or
sell, transfer or lease any properties or assets to, or enter into any
agreement or arrangement with, any Affiliate of the Company;
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(vii) Change any of the Company's banking or safe
deposit arrangements;
(viii) Grant or extend any power of attorney or act
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligation of any Person;
(ix) Other than in the ordinary course of business
consistent with past practice, pay any amounts (whether in cash or
property) to any employee of the Company, whether or not pursuant to
any Subsisting Contract, any plan, policy or program identified on
Schedule 5.22 hereto or any employment agreement under Schedule 5.18
hereto;
(x) Grant to any officer or employee any increase in
compensation or benefits, other than increases in compensation or
benefits for employees in the ordinary courses of business consistent
with past practice;
(xi) Pay any pension, retirement allowance or other
employee benefit not required by any plan, policy or program identified
on Schedule 5.22 hereto or any employment agreement set forth on
Schedule 5.18(a) hereto;
(xii) Adopt, agree to adopt, or make any announcement
regarding (i) the adoption of any new pension, retirement or other
employee benefit plan, policy or program, (ii) adoption of any
amendments to any existing plan, policy or program identified on
Schedule 5.22 as sponsored by the Company unless otherwise required by
applicable Law, or (iii) consent to the amendment of any existing plan,
policy or program identified on Schedule 5.22 as sponsored by the
Seller unless otherwise required by applicable Law; or
(xiii) Agree, whether in writing or otherwise, to do
any of the foregoing.
(e) No contract or commitment will be entered into, and no
purchase of supplies and no sale of any of the Company's assets will be made, by
or on behalf of the Company, except (i) normal contracts or commitments for the
purchase of, and normal purchases of, supplies or inventory or for the sale of
inventory, in each case made in the ordinary course of business and consistent
with past practice, and (ii) other contracts, commitments, purchases or sales in
the ordinary course of business and consistent with past practice.
(f) The Company shall maintain the insurance set forth on
Schedule 5.17 hereto and all property insured thereby shall be used, operated,
maintained and repaired in the ordinary course of business consistent with past
practice.
(g) The Company shall not do any act or omit to do any act, or
permit any act or omission to act (to the extent the Company has control over
such act or omission), which will cause a breach of any material contract or
commitment of the Company or which would cause
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the breach by the Company of any representation, warranty, covenant or agreement
made hereunder.
(h) The Company shall duly comply in all material respects
with all laws applicable to it and its properties, operations, business and
employees.
(i) The Company shall file all Federal, state, local and
foreign Tax Returns and amendments thereto required to be filed by it and shall
pay all Taxes shown as due and payable thereon. All returns and reports in
respect of employee withholdings, FICA, unemployment and other similar items and
other applicable taxes shall be timely made as shall all deposits and payments
due in respect of such taxes and obligations.
4.03 Tax Matters.
(a) Tax Returns. The Seller shall duly prepare, or cause to be
prepared, and file, or cause to be filed, on a timely basis all Tax Returns with
respect to the Company for any taxable periods ending on or before the Closing
Date ("Pre-Closing Tax Periods"). Such Tax Returns shall be filed on a basis
consistent with the Company's past practice in filing its Tax Returns. If such a
Tax Return must be signed on behalf of the Company, Purchaser shall promptly
cause it to be so signed. Purchaser shall duly prepare, or cause to be prepared,
and file, or cause to be filed, all Tax Returns with respect to the Company for
any taxable periods beginning after the Closing Date ("Post-Closing Tax
Periods") and for any taxable period which includes but does not end on the
Closing Date ("Straddle Period"). Unless Seller's written consent is first
obtained, Purchaser shall not take any action which would in any way alter the
balance of Taxes owing or Tax refunds or credits obtainable with respect to any
Pre-Closing Tax Periods. For purposes of this Agreement, in the case of any
Straddle Period, Taxes of the Company ("Pre-Closing Straddle Tax Liability") for
the portion of any Straddle Period (a "Pre-Closing Straddle Period") ending on
and including the Closing Date shall, where possible, be computed as if such
taxable period ended as of the close of business on the Closing Date. For
purposes of the foregoing, any items attributable to a Straddle Period which
cannot be taken into account in the manner so provided shall be allocated to the
Pre-Closing Straddle Period for purposes of determining the Pre-Closing Straddle
Tax Liability, pro rata, based upon the number of days in the Pre-Closing
Straddle Period, as compared to the total number of days in the Straddle Period,
provided that if any Straddle Period Tax is based on income, then such
allocation shall be based upon the amount of net income of the Company during
such Pre-Closing Straddle Period as compared to the total net income in the
Straddle Period. Unless otherwise indicated, a Pre-Closing Straddle Period shall
be treated as a "Pre-Closing Tax Period" for purposes of this Agreement. If
there is a Tax Audit adjustment relating to any Pre-Closing Tax Period and a
Post-Closing Tax Period which is the result of an income or deduction timing
difference, the parties will use best efforts to minimize any potential
penalties associated with any additional Tax and interest attributable to the
Audit adjustment and there shall be an adjusting payment by (i) the party as to
whom the liability for Taxes for which that party is responsible is decreased as
a result of the adjustment to (ii) the party as to whom the liability for Taxes
for which that party is responsible is increased as a result of the adjustment,
such payment
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to be in the amount equal to the lesser of the amount of such decrease or the
amount of such increase. For purposes of the immediately preceding sentence,
Seller shall be considered responsible for Tax liability for Pre-Closing Tax
Periods and the Company shall be considered responsible for Tax liability for
Post-Closing Tax Periods.
(b) Cooperation on Tax Matters. Purchaser and Seller shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section 4.03
(including amended Tax Returns for Pre-Closing Tax Periods (or portions thereof)
that Seller may reasonably request Purchaser to file) and any Audit. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to such
Audit. Purchaser shall not dispose of any records relating to Taxes paid or
payable by the Company and which are attributable to Pre-Closing Tax Periods
prior to the later of the expiration of the applicable limitations period on
assessment with respect to any such Taxes, the sixth anniversary of the Closing
Date or the final resolution of all Audits or litigation initiated prior to the
sixth anniversary of the Closing Date relating to any such Taxes.
(c) Audits. With respect to Audits relating to Pre-Closing Tax
Periods (other than Pre-Closing Straddle Periods) (a "Pre-Closing Audit") Seller
shall control all proceedings and may make all decisions taken in connection
therewith at Seller's sole discretion, provided that any such proceeding and any
such decision taken in connection therewith does not increase the Tax liability
for any Straddle Period or any Post-Closing Tax Period. Otherwise, no such
decision shall be implemented or effectuated without the prior written consent
of the Purchaser. The Seller shall keep the Purchaser fully apprised of all
aspects of any Pre-Closing Audit. With respect to any Audits relating to
Straddle Periods or Post-Closing Tax Periods, the Purchaser shall control all
proceedings and may make all decisions taken in connection therewith at
Purchaser's sole discretion, except that Purchaser shall permit Seller to
control those portions of any such proceedings that relate to a Pre-Closing
Straddle Period. The Purchaser shall keep the Seller fully apprised of all
aspects of any Audit relating to a Straddle Period.
(d) The Transfer Taxes, if any, concerning the transfer of the
Shares shall be payable by Purchaser.
4.04 Pre-Merger Notification and Other Consents. The Company, the
Seller and Purchaser shall proceed, as expeditiously as possible following the
execution of this Agreement, to file proper applications and notices and shall
cooperate in taking all steps that may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations of
the Federal Trade Commission thereunder (the "HSR Act") in order to advise the
Federal Trade Commission (the "FTC") and the United States Department of Justice
(the "DOJ") of the transactions described herein, and to obtain the waiver by
the FTC and the DOJ of any objection to the consummation of the transactions
contemplated hereby. All filing fees payable to the FTC and/or the DOJ in
connection with the filing under the HSR Act will be borne by the Purchaser. To
the extent required by law, each of the parties shall proceed to obtain any
other
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regulatory or government consent or waiver, and to effect any registrations or
filings as may be necessary to consummate the transactions contemplated hereby.
4.05 Further Cooperation. Each of Seller and Purchaser shall cooperate,
and use commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement.
4.06 Employees; Employee Benefits. (a) If any employee of the Company
becomes a participant in any employee benefit plan, practice or policy of
Purchaser or any of its Affiliates, such employee shall be given credit under
such plan for all service or employment prior to the Closing Date with, or
recognized by, the Company and its Affiliates and all service with the Company,
Purchaser or its Affiliates following the Closing Date but prior to the time
such employee becomes a participant, for purposes of determining eligibility and
vesting with respect to any employee benefit plan under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and for
purposes of eligibility and determining the amount of any benefit with respect
to any vacation plan or program and any employee welfare plan under Section 3(1)
of ERISA.
(b) In the event that any person who is an active employee of
the Company immediately prior to the Closing (an "Affected Employee") is
discharged by the Company as of or after the Closing, then Purchaser shall be
responsible for any and all severance costs for such Affected Employee and
Purchaser shall be responsible and assume all liability for all notices or
payments due to any such Affected Employees, and all notices, payments, fines or
assessments due to any government authority, pursuant to any applicable foreign,
federal, state or local law, common law, statute, rule or regulation with
respect to the employment discharge or layoff of employees by the Company after
the Closing, including, but not limited to, the Worker Adjustment and Retraining
Notification Act and any rules or regulations as have been issued in connection
with the foregoing. In the event any employee is discharged by the Company prior
to the Closing, the Seller shall be responsible for any and all severance costs
for such employee under those arrangements or plans identified on Schedule 5.22
as sponsored by the Seller whether payable prior to or after the Closing.
(c) As of the Closing, Affected Employees of the Company shall
cease active participation in the Seller's 401(k) Plan and in lieu thereof shall
participate in a retirement plan that is qualified under Section 401(a) of the
Code, contains a cash or deferral feature under Section 401(k) of the Code and
is designated by Purchaser which may be sponsored either by Purchaser or any
Affiliate of Purchaser (the "Purchaser 401(k) Plan"). Purchaser shall cause the
Purchaser 401(k) Plan to accept transfers of account balances of such Affected
Employees from the Seller's 401(k) Plan by way of direct rollover.
(d) As of the Closing, the Affected Employees shall cease
participation in Seller's cafeteria plan and Seller's health plans, other than
Seller's dependent care plan. During the period beginning on the Closing Date
and ending on December 31, 1999 the Affected
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Employees who participate in Seller's dependent care plan prior to the Closing
shall continue to participate in the Seller's dependent care plan. Seller shall
offer to each Affected Employee who participates in Seller's health plans (and
his or her dependents, if applicable) COBRA continuation coverage in Seller's
health plans after the Closing Date and to each Affected Employee who
participates in Sellers cafeteria plan COBRA continuation coverage in Seller's
cafeteria plans, in each case in the manner and to the extent required by
applicable law as Seller would have if such Affected Employee's employment with
the Company was terminated on the Closing Date. Beginning January 1, 2000, such
Affected Employees shall be eligible to participate in such employee welfare
plans as may be designated by Purchaser.
(e) Except as forth in this Section 4.06, as of and after the
Closing Date, Purchaser shall not assume any obligation or liability for and
Seller shall remain responsible for (i) any vested benefits accrued by Affected
Employees under any plans and programs sponsored by Seller, whether or not set
forth in any employment agreement with the Company, including, without
limitation, under any equity appreciation or stock option plans and (ii) any and
all obligations and liabilities to former employees of the Company (other than
Affected Employees) under Plans (as defined in Section 5.22(a) of this
Agreement) maintained by Seller that the Company is or becomes obligated to
provide prior to or after the Closing, including, without limitation, retirement
benefits, disability payments and the obligation to provide COBRA continuation
coverage to such former employees and their beneficiaries whether payable prior
to or after the Closing.
4.07 Maintenance of Books and Records. Each of the parties hereto shall
preserve, until at least the fifth anniversary of the Closing Date, all
pre-closing records possessed or to be possessed by such party relating to the
Company. After the Closing Date and up until at least the fifth anniversary of
the Closing Date, upon any reasonable request from a party hereto or its
representatives, the party holding such records shall (x) provide to the
requesting party or its representatives reasonable access to such records during
normal business hours and (y) permit the requesting party or its representatives
to make copies of such records, in each case at no cost to the requesting party
or its representatives (other than for reasonable out-of-pocket expenses). Such
records may be sought under this Section 4.07 for any reasonable purpose,
including, without limitation, to the extent reasonably required in connection
with the audit, accounting, tax, litigation, federal securities disclosure or
other similar needs of the party seeking such records.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
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5.01 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company does not have any Subsidiaries. The Company has all requisite corporate
power and authority to enable it to own, lease or otherwise hold its properties
and assets and to carry on its business as presently conducted. The Company is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except where the absence of such
qualifications, individually or in the aggregate, would not have a Material
Adverse Effect. A list of the jurisdictions in which the Company is so qualified
is set forth on Schedule 5.01 hereto.
5.02 Capital Stock and Related Matters; No Investments.
(a) The authorized capital stock of the Company consists of
500,000 shares of common stock, par value $.01 per share (the "Common Stock"),
of which 120,070.25 shares are issued and outstanding. The Shares constitute all
of the issued and outstanding shares of Common Stock of the Company.
(b) The Company has no outstanding stock or securities
convertible into or exchangeable for any shares for its capital stock or
containing any profit participation features, nor does it have outstanding any
rights or options to subscribe for or purchase its capital stock or any stock or
securities convertible into or exchangeable for any shares for its capital stock
or any stock appreciation rights or phantom stock plans. The Company is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock. All of the outstanding shares of the
Company's capital stock have been validly issued and are fully paid and
nonassessable and are owned by the Seller free and clear of any Encumbrances,
except those listed on Schedule 5.02, which Encumbrances shall be removed as of
the Closing Date.
(c) There are no statutory or contractual stockholders'
preemptive rights or rights of refusal with respect to the sale of the Shares
hereunder. Seller has not violated any applicable federal or state securities
laws in connection with the offer or sale of such Shares.
(d) The Company does not own or hold any Investment in any
other Person.
5.03 Authorization. Each of the Company and the Seller has all
requisite power and authority to enter into this Agreement and the other
agreements, instruments, documents and certificates (collectively, the "Related
Documents") to be executed and delivered by the Company or the Seller pursuant
hereto or in connection with the transactions contemplated hereby or thereby,
and to consummate the transactions contemplated hereby and thereby. All acts and
other proceedings required to be taken by the Company or the Seller to authorize
the execution, delivery and performance of this Agreement and the Related
Documents of which it is a party, and the consummation of the transactions
contemplated hereby and thereby have been duly and properly taken or, in the
case of the Company, will be taken prior to October 11, 1999.
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5.04 Valid and Binding. This Agreement constitutes (and, when executed
and delivered at Closing, each Related Document, to the extent that the Company
or the Seller is a party thereto, will constitute) a valid and binding
obligation of the Company or the Seller, enforceable against the signatory in
accordance with its terms, except that (i) such enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.05 No Violation. The execution and delivery of this Agreement and
each Related Document by the Company and the Seller, and the consummation of the
transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof does not and will not (subject only to obtaining any required
consents, approvals, authorizations, exemptions or waivers set forth on Schedule
5.06 hereto) conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under or result in the creation of any Encumbrance of any kind
upon any of the Company's assets under, any provision of (i) the Certificate of
Incorporation or By-laws of the Company, (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment or loan or other
agreement to which the Company or the Seller is a party or by which any of their
respective properties or assets are bound, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or the
Seller or the property or assets of any of them, except in the case of clauses
(ii) and (iii) for any such violations, breaches, defaults, rights of
termination, cancellation or acceleration or requirements which, individually or
in the aggregate, (x) would not have a Material Adverse Effect or would not
adversely affect the ability of the Seller to consummate the transactions
contemplated by this Agreement or (y) become applicable as a result of the
business or activities in which Purchaser is or proposes to be engaged or as a
result of any acts or omissions by, or the status of or any facts pertaining to,
Purchaser.
5.06 Consents and Approvals. Except for the applicable requirements of
the HSR Act or as set forth in Schedule 5.06 hereto, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority or any court or other tribunal, and no consent or waiver
of any party to any Subsisting Contract is required to be obtained by the
Company or the Seller in connection with the execution, delivery and performance
of this Agreement and the Related Documents or the consummation of the
transactions contemplated hereby or thereby, except if the failure to obtain
such consent would not, individually or in the aggregate, have a Material
Adverse Effect or adversely affect the ability of the Seller to consummate the
transactions contemplated by this Agreement.
5.07 Financial Statements. Seller and the Company have furnished to
Purchaser true, correct and complete copies of unaudited balance sheets of the
Company as of December 31, 1997 and December 31, 1998 and an unaudited balance
sheet of the Company as of August 31, 1999, as well as unaudited income
statements of the Company for the years ended December 31,
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1997 and December 31, 1998 and an unaudited income statement of the Company for
the eight-month period ended August 31, 1999 (collectively, the "Financial
Statements"), copies of which are attached hereto as Schedule 5.07. The
Financial Statements have been prepared by the Company on the basis of the books
and records maintained by the Company in the ordinary course of business in a
manner consistently used and applied throughout the periods involved. The
Financial Statements have been prepared in accordance with United States
generally accepted accounting principles and present fairly the assets,
liabilities and financial condition of the Company as at the respective dates
thereof (except as disclosed therein and other adjustments disclosed therein,
the absence of footnotes and, in the case of the August 31, 1999 Financial
Statement, subject to normal year end adjustments). The books and records of the
Company to which such statements relate fully and fairly reflect bona fide
transactions set forth therein.
5.08 Interim Operations. (a) Except as set forth on Schedule 4.02 or
Schedule 5.08, since December 31, 1998:
(i) the Business has been conducted by the Company only in the
ordinary and usual course consistent with past practices;
(ii) with respect to the Business, the Company has not:
(A) suffered any Material Adverse Effect;
(B) incurred any liabilities or obligations
(absolute, accrued, contingent or otherwise), except in the ordinary
and usual course of business and consistent with past practice, or
increased, or experienced any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves;
(C) paid, discharged or satisfied any claims,
liabilities or obligations (absolute, accrued, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary and usual course of business and consistent with past practice
of liabilities and obligations reflected or reserved against in the
Financial Statements or incurred in the ordinary and usual course of
business and consistent with past practice;
(D) permitted or allowed any of the Company's
material assets to be subjected to any Encumbrance (except Encumbrances
created by law);
(E) canceled any debts owing to the Company or waived
any claims or rights other than in the ordinary and usual course of
business and consistent with past practices;
(F) sold, transferred, or otherwise disposed of, any
of its assets, except in the ordinary and usual course of business and
consistent with past practice;
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(G) disposed of, failed to take reasonable steps to
protect, or permitted to lapse, any rights for the use of, any of the
Company's rights for the use of its Intellectual Property, or disposed
of, failed to take reasonable steps to protect, or disclosed to any
person any Proprietary Information or Confidential Information (as
hereinafter defined) not theretofore a matter of public knowledge,
other than in the ordinary and usual course of business and consistent
with past practices;
(H) made any change in any method of accounting or
accounting practice;
(I) except as set forth in the Financial Statements,
written down or written up the value of any inventory, increased
inventory levels in excess of historical levels for comparable periods
or written off as uncollectible any notes or accounts receivable, other
than in the ordinary course of business consistent with past practice;
(J) except as set forth in the Financial Statements,
made any single capital expenditure commitment in excess of $20,000 for
additions to property, plant, equipment or intangible capital assets or
made capital expenditure commitments in excess of $50,000 in the
aggregate for additions to property, plant, equipment or intangible
capital assets;
(K) made any material change in the manner in which
products or services have been developed or marketed, except in the
ordinary course of business consistent with past practice;
(L) had any labor dispute or received notice of any
grievance;
(M) borrowed or agreed to borrow any funds;
(N) other than cash and cash equivalents, paid and/or
declared any dividends with respect to its shares of capital stock,
whether in shares of capital stock or other property;
(O) granted to any officer or employee any increase
in compensation or benefits, other than increases of compensation or
benefits to employees in the ordinary course of business and consistent
with past practice;
(P) paid any pension, retirement allowance or other
employee benefit not permitted or required by any plan, policy or
program identified on Schedule 5.22 hereto or employment agreements set
forth on Schedule 5.18(a), other than in the ordinary course of
business consistent with past practices;
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(Q) adopted, agreed to adopt, or made any
announcement regarding (i) the adoption of any new pension, retirement
or other employee benefit plan, program or policy, (ii) the adoption of
any amendments to any existing plan, policy or program identified on
Schedule 5.22 as sponsored by the Company unless otherwise required by
applicable law, or (iii) consent to the amendment of any existing plan,
policy or program identified on Schedule 5.22 as sponsored by the
Seller unless otherwise required by applicable law; or
(R) suffered or agreed to take any of the actions set
forth in this subparagraph (ii).
(iii) None of the material assets of the Company have been
affected in any way as a result of fire, explosion or other casualty (whether
or not covered by insurance).
5.09 Undisclosed Liabilities. The Company does not have any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise), except for liabilities or obligations (i) disclosed on Schedule 5.09
hereto, (ii) disclosed in the Financial Statements, (iii) arising in the
ordinary course of business consistent with past practice under any Subsisting
Contract or (iv) incurred in the ordinary course of business consistent with
past practice since December 31, 1998.
5.10 Taxes. Except as set forth on Schedule 5.10 hereto:
(a) The Seller has filed or will timely file all Tax Returns
required by applicable law to be filed by or on behalf of the Company for all
Pre-Closing Tax Periods (other than Pre-Closing Straddle Periods), and such Tax
Returns that have been filed are, and those Tax Returns to be filed will be in
conformity with existing Tax laws in all material respects. The Company has
paid, or will pay, all Taxes required to be paid on or before the Closing Date,
or where payment is not yet due, has established or will establish, on or before
the Closing Date, an adequate reserve on its books and financial records for the
payment of all Taxes due from the Company, with respect to any Pre-Closing Tax
Period (including any Pre-Closing Straddle Tax Liability). All Taxes that the
Company is or was required by law to withhold, deposit or collect have been duly
withheld, deposited or collected and, to the extent required, have been paid to
the relevant Tax Authority.
(b) Except as described in Schedule 5.10(b), there are no
ongoing Audits of the Company and the Company has not been notified by any Tax
Authority that, nor to the knowledge of the Seller and the Company is, any such
Audit contemplated, threatened or pending. No information regarding any Tax
matter has been requested by any Tax Authority and no issue has been raised or
is currently pending by any Tax Authority in connection with any of the Tax
Returns of the Company.
(c) There are no claims, investigations, actions or
proceedings pending or, to the knowledge of the Company or the Seller,
threatened, against the Company by any Tax
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Authority for any past due Taxes with respect to which the Company would be
liable. There has been no waiver of any applicable statute of limitations nor
any consent for the extension of the time for the assessment of any Tax against
the Company.
(d) The Company is not delinquent in the payment of any amount
of Taxes and has not received written notice that there are any Tax liens upon
any property or assets of the Company, except liens for Taxes not yet due and
payable.
(e) The Company has not agreed to and is not required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(f) The Company is not liable for the Taxes of any Person,
including, without limitation, (a) under U.S. Treasury Regulations Section
1.1502-6 (or comparable provision of state, local or foreign law), (b) as a
transferee or successor, or (c) by contract, indemnity or otherwise.
(g) There is no Tax sharing agreement, Tax indemnity agreement
or other similar Tax sharing arrangement under which the Company has or
potentially has any liability.
(h) No claim has ever been issued by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
(i) Schedule 5.10(i) sets forth all the states for which the
Company is currently filing income or franchise Tax Returns (or similar type of
Tax Returns).
(j) The Company has, or on or prior to the Closing will
provide Purchaser with copies of: (i) all Tax Returns (or, in the case of a
consolidated or combined return, Seller will provide Purchaser, prior to the
original due date of the first Post-Closing Tax Period income Tax Return, with
copies of the portion thereof relating to the Company) filed by, or on behalf
of, the Company for periods beginning on or after January 1, 1995 (the
"Post-1994 Period"); (ii) all notices, protests or other correspondence relating
to any Post-1994 Period Taxes or Tax Returns; (iii) any elections or disclosure
of any controversial positions filed by or on behalf of the Company with any Tax
Authority (whether or not filed with any Tax Return); (iv) any letter rulings,
determination letters or similar documents issued by any Tax Authority with
respect to the Company; (v) any closing agreement entered into with any Tax
Authority; and (vi) Tax Return workpapers relating to the Tax Returns (or
portions thereof) referred to in clause (i).
5.11 Condition of Property. Except as set forth on Schedule 5.11, all
material Tangible Property of the Company is in good operating condition and
repair, reasonable wear and tear excepted, and all such material Tangible
Property is adequate for the uses to which it is being put. None of such
material Tangible Property is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs which are not material in nature or
cost.
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5.12 Contracts and Commitments. (a) Schedule 5.12 lists all Subsisting
Contracts (copies of which have heretofore been delivered to Purchaser) and all
currently effective oral agreements and commitments, if any, to which the
Company is a party and involving payments in excess of $50,000. Except as set
forth in Schedule 5.12(a) hereto, (i) all such Subsisting Contracts constitute
valid and binding agreements of the Company and, to the knowledge of the Seller
and the Company, each other party thereto, enforceable in accordance with their
terms, (ii) with respect to such Subsisting Contracts there are no existing
defaults by the Company or, to the knowledge of the Seller or the Company, by
any other party thereto and there is no event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default under such Subsisting Contracts by the Company or, to the
knowledge of the Seller or the Company, by any other party thereto, (iii) the
Company is not restricted by agreement from carrying on in any geographical
location the Business as conducted on the Closing Date and (iv) there are no
negotiations pending or in progress to revise any such Subsisting Contract.
(b) The only lease or sublease for real property to which the
Company is a party is that certain Sublease dated as of October __, 1996 (the
"Sublease") by and between Williamhouse, a division of American Pad & Paper
Company of Delaware, Inc., a Delaware corporation, and the Company, which
Sublease has not been amended, modified or extended. With respect to the
Sublease, (i) the Sublease is in full force and effect, is unmodified and is
binding and enforceable in accordance with its terms; (ii) all rental and other
charges payable pursuant to the terms and conditions of the Sublease have been
paid and no rent has been paid in advance more than 30 days; (iii) there are no
charges, offsets or defenses against the enforcement by the lessor thereunder of
any agreement, covenant or condition on the part of the Company to be performed
or observed pursuant to the terms of the Sublease; (iv) there are no defaults by
the Company of any material agreement, covenant or condition on the part of the
Company to be performed or observed pursuant to the terms of the Sublease; (v)
there are no actions or proceedings pending or to the knowledge of the Company
or the Seller, threatened, by the lessor under the Sublease; (vi) except for the
security deposits identified on Schedule 5.12(b) hereto, the lessor does not
hold any deposits for the Company's accounts on the Sublease; (vii) except as
set forth on Schedule 5.06 hereto, the consummation of the sale of the Shares
will not constitute a prohibited transfer or assignment under the Sublease; and
(viii) there are no defaults by the lessor of any agreement, covenant or
condition on the part of the lessor to be performed or observed pursuant to the
terms of the Sublease. The current expiration date and remaining options to
extend the Sublease are as set forth on Schedule 5.12(b) hereto. Minimum monthly
rent and additional rent under the Sublease are set forth on Schedule 5.12(b)
hereto.
(c) Except for those Third Party Licenses relating to
shrinkwrap general purpose software, (i) each Third Party License is a valid,
legally binding agreement, enforceable against the Company, and to the knowledge
of the Seller and the Company, each other party thereto in accordance with its
terms, and (ii) each Third Party License is in full force and effect and, with
respect to each, there is no default by the Company or, to the knowledge of the
Seller and the Company, any other party thereto, and there is no event which,
whether with or without
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notice, lapse of time, or the occurrence of any other event would constitute a
default by the Company or, to the knowledge of the Seller and the Company, any
other party thereto.
5.13 Intellectual Property and Technology. Schedule 5.13 sets forth a
true, complete and correct list of all Intellectual Property (other than
Technology) of the Company, and all computer software, programs and code (other
than shrinkwrap general purpose software) owned by or licensed to the Company,
including an indication in each case of which is Owned Intellectual Property and
which is Licensed Intellectual Property. Except as specifically set forth on
Schedule 5.13 hereto:
(a) The Company owns all legally enforceable right, title and
interest to all Intellectual Property and the Software Product (except for
Non-Owned Intellectual Property), free and clear of all Encumbrances and without
obligation to pay any royalties, license fees or other amounts to any other
Person.
(b) Each employee, agent, consultant and contractor who has
contributed to or participated in the conception, creation and development of
the Intellectual Property (other than Licensed Intellectual Property) on behalf
of the Company either (A) has been a genuine employee or has been party to a
duly executed "work-for-hire" agreement with the Company, in accordance with
applicable law, that (1) has contained therein representations to the effect
that all work produced pursuant to such agreement is the original work product
of such individual or entity and does not infringe the rights of any other
Person, and (2) has accorded and assigned to the Company all right, title and
interest in and to all tangible and intangible property arising from such work,
or (B) has executed a valid written assignment in favor of the Company as
assignee that has conveyed to the Company all right, title and interest in and
to all tangible and intangible property arising from such work throughout the
world, in perpetuity, in each case of (A) or (B) waiving any claim any such
individual or entity may have with respect to such tangible or intangible
property.
(c) To the knowledge of the Seller and the Company, there is
no unauthorized use, disclosure, infringement or misappropriation by any third
party, including any employee or former employee of the Company of any
Intellectual Property of the Company, or of any right of any third party in
Intellectual Property licensed by or through the Company. The Company has no
agreement to indemnify any individual or entity against any charge of
infringement of any Intellectual Property, other than indemnification provisions
normal and usual for the Company's industry contained in purchase orders or
license agreements arising in the ordinary course of business. The Company has
not received (nor does Seller or the Company have any knowledge of) any notice,
claim or allegation from any person or entity questioning the right of the
Company to unconditionally use, possess, transfer, convey or otherwise dispose
of any Intellectual Property (other than the Licensed Intellectual Property) or
questioning the right of the Company to use any Licensed Intellectual Property.
There is no interference, opposition, cancellation, reexamination or other
contest, proceeding, action, suit, hearing, investigation, charge, complaint,
demand, notice, claim, dispute nor any claim of infringement, misappropriation
or other violation by the Company of any Intellectual Property or other
proprietary rights of any other Person pending or,
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to the knowledge of Seller or the Company, threatened against the Company. No
governmental agency or authority has disputed the Company's right to obtain or
continue registration of any Intellectual Property where Seller has applied for
such registration, except where such dispute has been resolved in favor of
issuing or continuing such registration. The Company's use of the Owned
Intellectual Property in the Business, past and present, and to the knowledge of
the Seller and the Company, the Company's use of the Licensed Intellectual
Property in the Business, past and present, has not and does not violate,
interfere with or infringe upon the rights of any other Person nor does such use
by the Company constitute a breach of any agreement, obligation, promise or
commitment by which the Seller may be bound or constitute a violation of any
laws, regulations, ordinances, codes or statutes in any jurisdiction.
(d) Except for the customer agreements described on Schedule
5.13(d), no licenses or other rights have been granted by the Company, and the
Company has no obligation to grant any licenses or other rights, with respect to
any Intellectual Property. Except as described on Schedule 5.13(d), no claims
have been made by or against the Company for any violation or infringement by
others of any rights with respect to any Intellectual Property.
(e) The Company has all rights in Intellectual Property
necessary to conduct the Business as it is currently conducted by the Company.
(f) All statements and representations made by the Company in
any pending Intellectual Property applications, filings or registrations were
true in all material respects as of the time they were made. No registered
copyright, trademark, service mark or patent used in the Business has lapsed,
expired or been abandoned or canceled, or is subject to any injunction,
judgment, order, decree, ruling or charge or is subject to any pending or
threatened oppositions, cancellations, interferences or other proceedings before
the United States Patent and Trademark Office, the Trademark Trials and Appeals
Board, the United States Copyright Office or in any other registration authority
in any country.
(g) Except for Technology which is Non-Owned Intellectual
Property and which has not been modified by the Company since the Company
acquired or commenced use thereof, the documentation and the source code with
its embedded commentary, descriptions and indicated authorships, the
specifications and the other informational materials which describe the
operation, functions and technical characteristics applicable to the Technology
have been faithfully and accurately compiled in accordance with standards
generally practiced by companies whose principal business is creation or
development of software or other Technology and are sufficient to permit the
Company to support and maintain its products and services and enforce its rights
to control or prevent use of such Technology by others. The Technology conforms
in all material respects to the functional requirements, design specifications,
documentation and other specifications referred to in any documents, manuals and
other informational materials with respect to the Company's Technology, and will
perform substantially in accordance with the foregoing.
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(h) The Company has taken commercially reasonable actions to
protect against the existence of (A) any protective, encryption, security or
lock-out devices which might in any way interrupt, discontinue or otherwise
adversely affect the Technology or Purchaser's use thereof; and (B) any
so-called computer viruses, worms, trap or back doors, Trojan horses or any
other instructions, codes, programs, data or materials which could improperly,
wrongfully and/or without the authorization of Purchaser, interfere with the
operation or use of the Technology.
(i) The Company has taken all actions which a reasonably
prudent person in the Company's business would take to maintain its source code
as confidential and proprietary, to protect against the loss, theft or
unauthorized use of such source code, and to protect and preserve the
confidentiality of all Intellectual Property not otherwise protected by patents,
patent applications or copyright ("Confidential Information"). To the knowledge
of the Seller and the Company, all use, disclosure or appropriation of
Confidential Information owned by the Company by or to a third party has been
pursuant to the terms of an agreement between the Company and such third party.
All use, disclosure or appropriation of Confidential Information not owned by
the Company has been pursuant to the terms of an agreement between the Company
and the owner of such Confidential Information, or is otherwise lawful.
(j) All software, whether embedded or otherwise, used or
licensed for use in the Business as currently conducted is Year 2000 Compliant
(as hereinafter defined) or is reasonably expected to be Year 2000 Compliant by
December 31, 1999, excluding any loss in functionality attributable to software
provided by licensors or other third parties. Schedule 5.13(j) sets forth the
status of the testing and remediation procedures being undertaken by the Company
to determine Year 2000 Compliance. The Company is undertaking all reasonable
efforts necessary to determine whether any third party with whom the Company has
a material business relationship has software that is not Year 2000 Compliant
and to determine appropriate contingency plans. As used herein, "Year 2000
Compliant" shall mean that software has the ability to consistently and
accurately handle date information before, on and after January 1, 2000 without
a material loss of functionality, including but not limited to accepting date
input, providing date output, performing calculations on dates or portions of
dates and comparing, sequencing, storing and displaying dates, data or other
information.
5.14 Title to the Assets. The Company does not own any real property.
Except as described on Schedule 5.14 or in the Financial Statements, the Company
has good and marketable title to, or a valid leasehold interest in, the
properties and assets used by it, located on its premises or shown on the most
recent Financial Statement or acquired thereafter free and clear of all
Encumbrances, except for (i) properties and assets disposed of in the ordinary
course of business since December 31, 1998, (ii) Encumbrances for Taxes not yet
due and payable or Encumbrances for Taxes which are being contested in good
faith, and (iii) Encumbrances which are not material to the value of the
properties or assets encumbered and which do not impair in any material respect
the current use or operation of such properties and assets. The Company owns, or
has a valid leasehold or other interest in, and immediately after the Closing
the Company will continue to own, or have a valid leasehold or other interest
in, all assets necessary for the conduct of the Business as presently conducted
by the Company and to permit Purchaser
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(through the Company) to continue to conduct the Business in all respects in
substantially the same manner as the Business has been conducted through the
date hereof.
5.15 Land Use Matters. There are no pending or, to the knowledge of the
Company or the Seller, threatened, actions or proceedings that might prohibit,
restrict or impair the use and occupancy of the property covered by the
Sublease, or result in the suspension, revocation, impairment, forfeiture or
non-renewal of any required licenses, permits, certificates and approvals for
the use and occupancy and operation of the property covered by the Sublease,
other than such prohibitions, restrictions, suspensions, revocations,
impairments, forfeitures and non-renewals that would not result in a Material
Adverse Effect.
5.16 Environmental Matters.
(a) Compliance. Except as set forth on Schedule 5.16(a), (i)
the Company is in compliance with all applicable Environmental Laws, except
where the failure to be so in compliance would not have a Material Adverse
Effect; (ii) the Company has not received any written communication from any
Person or governmental entity that alleges that the Company is not in compliance
with applicable Environmental Laws; and (iii) there have not been any Releases
of Hazardous Materials by the Company or, to the knowledge of the Seller or the
Company, by any non-Affiliate of the Company, at any property currently or
formerly owned or operated by the Company that occurred during the period of the
Company's ownership or operation of such property, except where such Releases
would not have a Material Adverse Effect.
(b) Environmental Permits. Except as set forth on Schedule
5.16(b), the Company has all Environmental Permits necessary for the conduct and
operation of the Business, and all such permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending agency
approval, and the Company is in compliance with all terms and conditions of all
such Environmental Permits and are not required to make any expenditure in order
to obtain or renew any Environmental Permits, except where the failure to obtain
or be in such compliance and the requirement to make such expenditure would not
have a Material Adverse Effect on the Business.
(c) Environmental Claims. Except as set forth on Schedule
5.16(c), there are no Environmental Claims pending or, to the knowledge of the
Seller or the Company, threatened against the Company, or against any real or
personal property or operation that the Company owns, leases or manages.
(d) This Section 5.16 shall constitute the exclusive
representations and warranties in this Agreement with regard to environmental
matters.
5.17 Insurance. The Seller maintains for the benefit of the Company
policies of fire and casualty, liability, business interruption and other forms
of insurance in such amounts, with such deductibles and against such risks and
losses, as Seller believes are customary for
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companies engaged in similar businesses to the Company to protect the employees,
properties, assets, businesses and operations of the Company and will continue
such insurance in effect through the Closing. The insurance policies currently
maintained with respect to the Company and its assets and properties are listed
on Schedule 5.17 hereto, a summary of which has been provided to Purchaser. All
such policies are in full force and effect, all premiums due and payable thereon
have been paid and no written or oral notice of cancellation or termination has
been received with respect to any such policy which was not replaced on
substantially similar terms prior to the date of such cancellation. All such
policies will remain in full force and effect at least until the Closing Date.
5.18 Employees and Labor Relations. (a) Except as set forth on Schedule
5.18(a) hereto, (i) there is no labor strike or work stoppage or lockout
actually pending, or, to the knowledge of the Seller or the Company, threatened,
against or materially affecting the Company; during the past three years there
has not been any such action actually pending against the Company; and, to the
knowledge of the Seller or the Company, there has not been any such action
threatened against or materially affecting the Company; (ii) none of the
employees of the Company is represented by a union or subject to a collective
bargaining agreement and, to the knowledge of the Seller or the Company, no
union organizational campaign is in progress with respect to the employees of
the Company and no question concerning representation exists respecting such
employees; and (iii) the Company is in compliance in all material respects with
all applicable laws respecting employment and employment practices terms and
conditions of employment and wages and hours and is not engaged in any unfair
labor practice. Except as disclosed on Schedule 5.18(a) hereto, there are no
agreements or arrangements between the Company and an individual consultant,
former consultant, employee or former employee obligating the Company to make
any payment to any such individual as a result of the transactions contemplated
by this Agreement.
(b) Schedule 5.18(b) hereto contains the names of all persons
employed by the Company as of August 31, 1999 (the "Employees") and lists which
employees are part-time or temporary employees, salary, commission, bonus
entitlement and profit share arrangements both contractual and discretionary, an
indication of which employees are on short-term or long-term disability, date of
commencement of employment, and description of their function in the Business.
(c) A full copy of the standard terms of employment of the
Employees is attached hereto as Schedule 5.18(c). All Employees employed on
terms other than substantially in accordance with such standard terms are
employed pursuant to an employment agreement identified on Schedule 5.18(c).
(d) There are no loans outstanding from the Company to any of
the Employees.
(e) To the knowledge of the Seller or the Company, the Company
is not in breach of any material terms of employment of any of the Employees nor
so far as the Seller or
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the Company is aware is any Employee in breach of any material term of his or
her employment relationship.
(f) Except as specifically set forth on Schedule 5.18(f), as
of the date hereof, none of the Employees has given or received notice of
termination of his or her employment.
(g) None of the Employees is the subject of any material
disciplinary action nor is any Employee engaged in any grievance procedure.
5.19 Licenses; Permits. Schedule 5.19 sets forth, with respect to the
Company, all approvals, authorizations, certifications, consents, variances,
permissions, licenses, or permits to or from, or filings, notices, or recordings
to or with, federal, state, or local governmental authorities, in each case
which is material to the conduct of the Business (the "Authorizations"). The
Authorizations constitute all approvals, authorizations, certifications,
consents, variances, permissions, licenses, or permits to or from, or filings,
notices, or recordings to or with, federal, state, or local governmental
authorities that are required for the ownership and use of the assets of the
Company and the conduct of the Business under federal, state, and local law,
regulation, ordinance, zoning requirement, governmental restriction, order,
judgment, or decree, except where the failure to obtain such Authorizations
would not, individually or in the aggregate have a Material Adverse Effect. The
Company is in compliance with all terms and conditions of such required
Authorizations, except where the failure to be in compliance would not,
individually or in the aggregate, have a Material Adverse Effect. All of the
Authorizations are in full force and effect, and to the knowledge of the Company
and the Seller, no suspension or cancellation of any of them is being
threatened, nor will any of the Authorizations be affected by the consummation
of the transactions described in this Agreement, except as would not
individually or in the aggregate have a Material Adverse Effect. The Company is
in compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice, or demand letter issued, entered, promulgated, or
approved thereunder relating to or affecting the Business, except where the
failure to be in compliance would not, individually or in the aggregate have a
Material Adverse Effect.
5.20 Litigation. Except as set forth on Schedule 5.20, as of the date
hereof, there is no action, proceeding or investigation pending or, to the
knowledge of the Seller or the Company, threatened:
(i) which is or may be brought against or which involves the
Company or the Business; or
(ii) which questions or challenges the validity of, or seeks
damages or equitable relief on the basis of, this Agreement or any
action taken or to be taken by the Company or the Seller pursuant to
this Agreement or in connection with the transactions contemplated
hereby.
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5.21 Court Orders, Decrees, and Laws. There is no outstanding or, to
the knowledge of the Seller or the Company, threatened order, writ, injunction,
or decree of any court, governmental agency, or arbitration tribunal against the
Company involving or relating to the Business. The Company is not in material
violation of any applicable federal, state or local law, regulation, ordinance,
zoning requirement, governmental restriction, order, judgment or decree
affecting, involving or relating to the Business, and the Company has not
received any notices of any allegation of any such violation. The foregoing
shall be deemed to include laws and regulations relating to the federal patent,
copyright, and trademark laws, state trade secret and unfair competition laws,
and to all other applicable laws, including equal opportunity, wage and hour,
and other employment matters, and antitrust and trade regulations, safety
(including OSHA), building, zoning or health laws, ordinances and regulations,
but not Environmental Laws, which are governed exclusively by Section 5.16.
5.22 Employee Benefit Plans; ERISA.
(a) Schedule 5.22 hereto contains a list of each employee
benefit plan under Section 3(3) of ERISA and any other employment, consulting,
bonus, deferred compensation, incentive compensation, severance, termination or
post-employment pay, disability, hospitalization or other medical, dental,
vision, life or other insurance, stock purchase, stock option, stock
appreciation, stock award, pension, profit sharing, 401(k) or retirement plan,
agreement or arrangement, whether written or oral, tax-qualified under the Code
or non-qualified, whether covered by ERISA or not, maintained or contributed to
by the Company covering its employees, former employees, retirees or sales
personnel (collectively, "Plans"), with an indication of whether such Plans are
sponsored by the Seller or the Company. The Company does not have any legally
binding oral or written plan or other commitment, whether covered by ERISA or
not, to create or participate in any additional plan, agreement or arrangement
(other than a Plan) or to modify or change any existing Plan in any manner that
would affect any of its employees, former employees, retirees or sales
personnel, other than modifications or changes required by applicable law. The
Company has made available to Purchaser true and complete copies of the Plans,
the trusts and other contracts (including any amendments to any of the
foregoing) relating to the Plans and all other relevant documents governing or
relating to the Plans in effect on the date hereof (including without
limitation, the latest summary plan description, the latest annual report (and
all attachments) filed with the Internal Revenue Service with respect to each of
the Plans, and the latest favorable determination letter issued by the Internal
Revenue Service for each of the Plans as applicable).
(b) The Company does not maintain, nor, within the past 5
years has the Company maintained or contributed to, a "multiemployer plan", as
that term is defined in Section 3(37) of ERISA, or an employee benefit pension
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA.
(c) Full payment has been made of all amounts other than
routine claims for benefits which the Company is required to pay under the terms
of any Plan, or such amount has
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been accrued in accordance with and to the extent required by generally accepted
accounting principles.
(d) Each of the Plans is and has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to, ERISA and the Code, and all required material
governmental filings and material participant disclosures have been made on a
timely basis. Each Plan subject to Section 401(a) of the Code has received a
post Tax Reform Act of 1986 favorable determination from the IRS that the Plan
satisfies the requirements of Section 401(a) of the Code, and to the knowledge
of the Company and the Seller, no facts exist which could reasonably be expected
to adversely affect the tax-qualified status of any such Plan.
(e) There are no pending, or to the knowledge of the Company
or the Seller, pending, threatened or anticipated claims, litigation,
administrative actions or proceedings against or otherwise involving any of the
Plans or related trusts, or any fiduciary thereof, by any governmental agency,
or by any employee, former employee, retiree or sales personnel or by any
participant or beneficiary covered under any of the Plans, or otherwise
involving the Plans (other than routine claims for benefits). There is no
judgment, decree, injunction, rule or order of any court, governmental body,
commission, agency or arbitrator outstanding against or in favor of any Plan or,
to the knowledge of the Seller or the Company, any fiduciary thereof in that
capacity.
(f) Each Plan that is a "group health plan" (as defined in
Section 607(1) of ERISA) has been operated in compliance in all material
respects with the provisions of COBRA (Section 4980B of the Code), the Health
Insurance Portability and Accountability Act of 1996 and any applicable similar
state law. The Company is not the sole sponsor of, or sole participating
employer in, any Plan that is an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that has an underlying insurance contract.
Except as set forth on Schedule 5.22, the Company does not currently provide and
has no current obligation to provide for post-retirement or post-employment
health and welfare benefits, including but not limited to, severance, salary
continuation, termination, disability, death, or retiree health or medical
benefits except as required by applicable law.
(g) Except as specified in Schedule 5.18(a), the consummation
of the transactions contemplated by this Agreement will not, of itself, entitle
any current or former employee of the Company to severance pay, unemployment
compensation or any similar payment or accelerate the time of payment or
vesting, or increase the amount of compensation due to, or in respect of, any
current or former employee, nor will it result in the breach of any agreement
with any current or former employee.
5.23 Customers and Vendors. (a) On the Closing Date, the Company will
provide Purchaser with a true, complete and current list of all the customers of
its Business. Except as set forth in Schedule 5.23(a) hereto, no customer of the
Company accounted for more than four percent (4%) of the Company's revenues
during fiscal year 1998 or 1997.
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(b) Schedule 5.23(b) identifies each licensor, developer,
remarketer, distributor or supplier to whom the Company paid in the aggregate
$50,000 or more during the most recent fiscal year, together with, in each case,
the amount paid or billed during such period.
(c) Except as set forth on Schedule 5.23(a) or (b), as of the
date hereof, no customer or vendor listed on Schedule 5.23 (a) or (b) has
notified the Company in writing of an intention on its part to terminate such
customer's or vendor's agreement for services with the Company. At the Closing,
Seller will update Schedules 5.23(a) and (b) such that the immediately foregoing
sentence will be true and correct as of the Closing Date. Neither the Company
nor the Seller have taken any actions specifically intended to lead to the
termination of any such Person's agreement with the Company.
5.24 Accounts Receivable. All trade accounts receivable of the Company
have arisen in the ordinary course of business in arms-length transactions for
goods actually sold and services actually performed. The Company has available
in its records copies of invoices and of all existing customer agreements with
respect to all such accounts receivable.
5.25 Broker's Fees. Except for Veronis, Suhler & Associates, Inc., the
fees and expenses of which will be paid by the Seller, neither the Company, the
Seller nor anyone acting on their behalf have made any commitment or done any
other act which would create any liability for any brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement.
5.26 Related-Party Transactions. Except as disclosed in Schedule 5.26,
the Company is not party to any contract, agreement, license, lease, or
arrangement with, or any other commitment to, directly or indirectly, (1) the
Seller; (2) any officer or salaried employee of the Company or the Seller; (3)
to the knowledge of the Seller or the Company, any corporation, trust, or other
entity in which any such officer or salaried employee has a material equity or
participating interest; or (4) to the knowledge of the Seller or the Company,
any partnership in which any such officer or salaried employee has a partnership
or participating interest, in each case, relating to or involving the Business,
except, in each instance, for existing compensation arrangements listed in
Schedule 5.22. Each contract, agreement, license, lease, arrangement, and
commitment listed in Schedule 5.26 was entered into by the Company in the
ordinary course of business upon terms that are fair and reasonable to the
Company without regard to the status and relationship of such parties.
5.27 Disclosure. No representation or warranty by the Seller or the
Company in this Agreement and no statement contained herein or in any exhibit or
schedule furnished or to be furnished by the Seller or the Company to Purchaser
pursuant to the provisions hereof contains or will contain any untrue statement
of material fact or omits or will omit to state any material fact necessary in
order to make the statements herein or therein not misleading.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Seller as follows:
6.01 Corporate Organization; Due Authorization. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power to execute, deliver and
perform this Agreement and any Related Document to which it is a party. The
execution, delivery and performance of this Agreement and the Related Documents
have been duly and validly authorized by all necessary corporate actions on the
part of Purchaser and constitute valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except that (i) such enforcement may
be limited by or subject to any bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to or limiting
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
6.02 Authorization. Purchaser has all requisite power and authority to
enter into this Agreement and each Related Document to which it is, or at
Closing will be, a party, and to consummate the transactions contemplated hereby
and thereby. All acts and other proceedings required to be taken by Purchaser to
authorize the execution, delivery and performance of this Agreement and the
Related Documents of which it is, or at Closing will be, a party, and the
consummation of the transactions contemplated hereby and thereby have been duly
and properly taken.
6.03 Consents and Approvals of Governmental Authorities. Except for the
applicable requirements of the HSR Act to be complied with prior to Closing, no
consent, approval or authorization of, or declaration, filing or registration
with, any governmental authority is required to be obtained by Purchaser in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except for informational
filings with the Bureau of Economic Analysis of the United States Department of
Commerce.
6.04 No Violation. The execution and delivery of this Agreement and
each Related Document by the signatories thereto, and the consummation of the
transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof does not and will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under or result in the creation
of any Encumbrance of any kind upon any of the properties or assets of Purchaser
under, any provision of (i) the Certificate of Incorporation or By-laws of
Purchaser, (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment or loan or other agreement to which Purchaser is a
party or
32
<PAGE>
by which any of its properties or assets are bound, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Purchaser or its property or assets.
6.05 Broker's Fees. Neither Purchaser nor anyone acting on its behalf
has made any commitment or done any other act which would create any liability
for any brokerage, finder's or similar fees or commissions in connection with
the transactions contemplated by this Agreement.
6.06 Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of Purchaser, threatened, before any court
or arbitrator or any governmental authority which (a) would be reasonably likely
to have a material adverse effect on Purchaser or (b) in any manner challenges
or seeks to prevent or enjoin the transactions contemplated hereby.
ARTICLE VII
CONDITIONS OF CLOSING; CERTAIN COVENANTS
7.01 Conditions Precedent to the Obligations of Purchaser Hereunder.
All obligations of Purchaser hereunder with respect to the purchase and sale of
the Shares are subject to the fulfillment to the satisfaction of Purchaser and
its legal counsel, prior to or at the Closing, of each of the following
conditions, except to the extent that Purchaser may waive any one or more
thereof:
(a) The representations and warranties contained in Article V
hereof, the Schedules hereto and in all certificates and other documents
delivered or to be delivered by the Seller pursuant hereto or in connection with
the transactions contemplated hereby shall be true, complete and accurate in all
material respects as of the date when made and at and as of the Closing Date as
though such representations and warranties were made at and as of such date,
except for representations and warranties that speak as of a specific date or
time, which need only be true and correct as of such date or time.
(b) The Seller shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by it on or prior to the
Closing.
(c) No suit, action, investigation, inquiry or other
proceeding by any governmental body or other Person or legal or administrative
proceeding shall have been instituted or, to the knowledge of the Seller or the
Company, threatened, which seeks to restrain, enjoin, prevent the consummation
or otherwise restrict the transactions contemplated by this Agreement or which
questions the validity or legality of the transactions contemplated hereby.
(d) From the date of this Agreement to the Closing Date, the
Business shall not have suffered any Material Adverse Effect.
33
<PAGE>
(e) The Seller shall have received in writing any and all
consents, approvals, authorizations, exemptions or waivers set forth on Schedule
5.06 hereto.
(f) Any applicable waiting periods under the HSR Act shall
have expired or been terminated.
(g) The Seller shall have delivered to Purchaser, or cause to
be delivered to Purchaser, the other items required to be delivered to Purchaser
in accordance with Section 3.02 hereof.
(h) The Seller shall have furnished Purchaser with such
certificates to evidence compliance with the conditions set forth in this
Section 7.01 as may reasonably be requested by Purchaser or its legal counsel.
7.02 Conditions Precedent to the Obligations of the Seller Hereunder.
All obligations of the Seller hereunder with respect to the purchase and sale of
the Shares and the other agreements hereunder are subject to the fulfillment to
the satisfaction of the Seller and its legal counsel, prior to or at the
Closing, of each of the following conditions, except to the extent that the
Seller may waive any one or more thereof:
(a) The representations and warranties contained in Article VI
hereof, the Schedules hereto, and in all certificates and other documents
delivered or to be delivered by the Purchaser pursuant hereto or in connection
with the transactions contemplated hereby shall be true, complete and accurate
in all material respects as of the date when made and at and as of the Closing
Date as though such representations and warranties were made at and as of such
date, except for representations and warranties that speak as of a specific date
or time, which need only be true and correct as of such date or time.
(b) Purchaser shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by Purchaser on or prior to the
Closing.
(c) No suit, action, investigation, inquiry or other
proceeding by any governmental body or other Person or legal or administrative
proceeding shall have been instituted or threatened which seeks to restrain,
enjoin, prevent the consummation of or otherwise restrict the transactions
contemplated by this Agreement or which questions the validity or legality of
the transactions contemplated hereby.
(d) Any applicable waiting periods under the HSR Act shall
have expired or been terminated.
(e) Purchaser shall have made all payments and deliveries set
forth in Section 3.03.
34
<PAGE>
(f) Purchaser shall have furnished the Seller with such
certificates of Purchaser to evidence compliance with the conditions set forth
in this Section 7.02 as may reasonably be requested by the Seller or its legal
counsel.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
8.01 Survival of Representations and Warranties. All representations
and warranties made by any party hereto in this Agreement or in the attached
Schedules or in any exhibit or certificate delivered pursuant hereto shall
survive the Closing hereunder and any investigation at any time made by or on
behalf of any other party through April 1, 2001, except with respect to Sections
5.01, 5.02, 5.03, 5.04, 5.10, 5.16 and 5.22, which shall survive until the
expiration of the statute of limitations applicable thereto. No investigation by
Purchaser shall relieve the Seller from any liability for any misrepresentation,
misleading statement or omission made in this Agreement or in connection with
the transactions contemplated hereby.
8.02 Notice of Damages. A party seeking indemnity hereunder (the
"Indemnified Party") will give the party from whom indemnity is sought hereunder
(the "Indemnitor") prompt notice (hereinafter, the "Indemnification Notice") of
any demands, claims, actions or causes of action (collectively, "Claims")
asserted against the Indemnified Party. Failure to give such notice shall not
relieve the Indemnitor of any obligations which the Indemnitor may have to the
Indemnified Party under this Article VIII, except to the extent that such
failure has prejudiced the Indemnitor under the provisions for indemnification
contained in this Agreement. For purposes of this Article VIII, Purchaser, on
the one hand, and the Seller, on the other hand, shall be deemed to be the
"Indemnified Party" or the "Indemnitors", as the case may be.
8.03 Agreements to Indemnify.
(a) Subject to the terms and conditions of this Article VIII,
Seller covenants and agrees to indemnify, defend and hold harmless Purchaser and
its Affiliates (including any officer, director, stockholder, partner, member,
employee, agent or representative of any thereof) (a "Purchaser Affiliate") from
and against all assessments, losses, damages, liabilities, costs and expenses,
including without limitation interest, penalties and reasonable fees and
expenses of legal counsel (collectively, "Damages") imposed upon or incurred by
a Purchaser or any Purchaser Affiliate arising out of, in connection with or
resulting from any breach of any representation or warranty of, or
nonfulfillment of any covenant or agreement of, the Seller or the Company
contained in or made pursuant to this Agreement or any Schedule hereto, or any
certificate furnished or to be furnished to Purchaser hereunder or thereunder.
(b) Subject to the terms and conditions of this Article VIII,
Purchaser covenants and agrees to indemnify, defend and hold harmless the Seller
and its Affiliates
35
<PAGE>
(including any successor or assigns, officer, director, stockholder, partner,
member, employee, agent or representative thereof) from and against all Damages
imposed upon or incurred by such indemnified party arising out of or in
connection with or resulting from any breach of any representation or warranty
of, or nonfulfillment of any covenant or agreement of, Purchaser contained in or
made pursuant to this Agreement or any Schedule hereto, or any certificate or
other instrument furnished or to be furnished to the Company or the Seller
hereunder or thereunder.
(c) The Indemnitor shall reimburse an Indemnified Party
promptly after delivery of an Indemnification Notice certifying that the
Indemnified Party has incurred Damages after compliance with the terms of this
Article VIII, provided, however, that the Indemnitor shall have the right to
contest any such Damages or its obligations to indemnify therefor in accordance
with the terms of this Agreement.
(d) Notwithstanding anything to the contrary herein, any
obligation to indemnify hereunder shall be reduced by an amount equal to the
excess of (i) the amount of any net tax benefit derived by the party being
indemnified and its Affiliates as a result of the matter with respect to which
the indemnity is being made, over (ii) any net additional tax cost that would be
incurred by the indemnified party and its Affiliates as a result of the tax
basis adjustments arising out of the matter with respect to which the indemnity
is being made and the receipt of the indemnity payment.
8.04 Conditions of Indemnification of Third Party Claims. The
obligations and liabilities of an Indemnitor under Section 8.03 hereof with
respect to Damages resulting from Claims by persons not party to this Agreement
shall be subject to the following terms and conditions:
(a) Promptly after delivery of an Indemnification Notice in
respect of a Claim and subject to paragraph (c) of this Section 8.04, the
Indemnitor may elect, by written notice to the Indemnified Party, to undertake
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of Indemnitor. If the Indemnitor chooses to
defend any claim, the Indemnified Party shall cooperate with all reasonable
requests of the Indemnitor and shall make available to the Indemnitor any books,
records or other documents within its control that are necessary or appropriate
for such defense.
(b) In the event that the Indemnitor, within a reasonable time
after receipt of an Indemnification Notice, does not so elect to defend such
Claim, the Indemnified Party will have the right (upon further notice to the
Indemnitor) to undertake the defense, compromise or settlement of such Claim for
the account of the Indemnitor, subject to the right of the Indemnitor to assume
the defense of such Claim pursuant to the terms of paragraph (a) of this Section
8.04 at any time prior to settlement, compromise or final determination thereof,
provided, that the Indemnitor reimburses in full all costs of the Indemnified
Party (including reasonable attorney's fees and expenses) incurred by it in
connection with such defense prior to such assumption.
36
<PAGE>
(c) Anything in this Section 8.04 to the contrary
notwithstanding, (i) if the Indemnified Party reasonably believes there is a
reasonable probability that a Claim may materially and adversely affect the
Indemnified Party, the Indemnified Party shall have the right to participate in
the defense, compromise or settlement of such Claim, provided that the
Indemnitor shall not be liable for expenses of separate counsel of the
Indemnified Party engaged for such purpose, (ii) no person who has undertaken to
defend a Claim under Section 8.04(a) hereof shall, without written consent of
all Indemnified Parties, settle or compromise any Claim or consent to entry of
any judgment which does not include as an unconditional term thereof the release
by the claimant or the plaintiff of all Indemnified Parties from all liability
arising from events which allegedly give rise to such Claim; provided, however,
that in the case of a Claim relating to Taxes, (x) for purposes of clause (i)
"affect the Indemnified Party" shall mean an increase in that party's Tax
liability and (y) clause (ii) shall not apply, and (iii) any settlement,
compromise or consent to the entry of a judgment which involves payment of money
by any party shall require the consent of such party.
8.05 Limitations on Indemnification. (a) Notwithstanding anything to
the contrary provided elsewhere in this Agreement, the obligations of any
Indemnitor under this Agreement to indemnify any Indemnified Party with respect
to any Claim pursuant to Section 8.03 shall be of no force and forever barred
unless the Indemnified Party has given the Indemnitor notice of such claim prior
to April 1, 2001, provided that there shall be no time limit for Claims made for
a breach of the representations and warranties contained in Sections 5.01, 5.02,
5.03, 5.04, 5.10, 5.16 and 5.22 other than the statute of limitations applicable
thereto. In any event, the parties shall fully cooperate with each other and
their respective counsel in accordance with Section 8.04 in connection with any
such litigation, defense, settlement or other attempted resolution.
(b) No Claim by the Purchaser for indemnification pursuant to
this Article VIII may be made unless and until the Indemnified Party has
incurred, sustained or suffered Damages in respect of which the Indemnitor would
be liable under this Article VIII in excess of $100,000 in the aggregate (the
"Basket"), at which time all amounts of such Damages in excess of $100,000 may
be claimed and recovered as provided in this Agreement; provided, however, that
the Basket shall not apply to any Claims based on Section 4.03 or with respect
to any Claims based upon a breach of any representations and warranties set
forth in Sections 5.01, 5.02, 5.03, 5.04, 5.10, 5.22 and 5.25 (the "Basket
Exclusions").
(c) The maximum amount of Damages for which the Seller or
Purchaser may be liable under this Article VIII shall be the Purchase Price.
(d) Indemnification pursuant to this Article VIII shall be the
sole and exclusive remedy of each party hereto with respect to any claims
arising under or in connection with this Agreement.
(e) Any payments made by either party hereto pursuant to this
Article VIII shall be treated as an adjustment to the Purchase Price.
37
<PAGE>
ARTICLE IX
TERMINATION
9.01 Termination of Agreement. The parties may terminate this Agreement
prior to the Closing as follows:
(a) Purchaser, the Company and the Seller may terminate this
Agreement by mutual written consent;
(b) the Purchaser may terminate this Agreement by giving
written notice to the Seller and the Company if the Closing shall fail to occur
by reason of the failure of any condition precedent under Section 7.01 hereof
(unless the failure results primarily from a breach by Purchaser of any
representation, warranty or covenant contained in this Agreement);
(c) the Company and the Seller may terminate this Agreement by
giving written notice to the Purchaser if the Closing shall not have occurred by
reason of the failure of any condition precedent under Section 7.02 hereof
(unless the failure results primarily from a breach by the Company or the Seller
of any representation, warranty or covenant contained in this Agreement);
(d) either Purchaser, on the one hand, or the Company and the
Seller, on the other hand, may terminate this Agreement on 20 days written
notice if the other party is in material breach of this Agreement and such
breach is not cured within such 20 day period; or
(e) either Purchaser, on the one hand, or the Company and the
Seller, on the other hand, may terminate this Agreement upon written notice if
the Closing shall not have occurred on or prior to December 31, 1999.
9.02 Effect of Termination. If either Purchaser, on the one hand, or
the Company and the Seller, on the other hand, terminate this Agreement pursuant
to Section 9.01, (a) each of Purchaser, the Company and Seller will redeliver to
the party furnishing the same or destroy all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof; (b) neither the
Seller, the Company nor Purchaser shall make or issue, or cause to be made or
issued, any announcement or written statement concerning termination of this
Agreement or the transactions contemplated hereby for dissemination to the
general public without the prior written consent of the other parties except as
required by law or legal process; and (c) this Agreement shall become wholly
void and of no force or effect, without any liability or further obligation on
the part of the Seller, the Company or the Purchaser or any director, officer,
or principal thereof, except for liabilities of one party hereto to another
arising from a willful material breach of this Agreement
38
<PAGE>
prior to termination in accordance with Section 9.01 and except that the
provisions set forth in this Section 9.02 shall survive such termination.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.01 Expenses. Except as otherwise provided herein, Seller shall pay
all expenses incurred by or on behalf of Seller or the Company, and Purchaser
shall pay all expenses incurred by or on behalf of Purchaser, in each case in
connection with this Agreement or any transaction contemplated by this
Agreement, whether or not such transaction shall be consummated, including
without limitation all fees of its or their respective legal counsel and
accountants.
10.02 Notices. All notices, requests, demands, consents or waivers and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered by hand or by telecopy
(with immediate confirmation), one business day after being sent if by
nationally recognized overnight courier or if mailed, then four days after being
sent by certified or registered mail, return receipt requested with postage
prepaid:
(i) If to the Company or the Seller:
c/o The Official Information Company
250 West 57th Street, Suite 2421
New York, New York 10019
Attention: Chief Executive Officer
Telecopy: (212) 247-0026
(ii) If to Purchaser, to:
CT Corporation System
111 Eighth Avenue
New York, New York 10011
Attention: Christopher Cartwright
President
Telecopy: (212) 590-9363
with copies to
Wolters Kluwer U.S. Corporation
c/o Wolters Kluwer United States Inc.
161 North Clark Street, 48th Floor
Chicago, Illinois 60601-3221
Attention: Bruce C. Lenz
39
<PAGE>
Executive Vice President
Telecopy: (312) 425-0233
and to
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Arnold J. Schaab, Esq.
Telecopy: (212) 326-0806
or, in each case, to such other person or address as any party shall furnish to
the other parties in writing.
10.03 Binding; No Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties, except by operation of law and except that either party may assign all
or part of this Agreement and its rights hereunder (a) to an Affiliate or (b)
from and after the Closing to a person, not a party to this Agreement, who
acquires substantially all of the assets of such party and who assumes all of
the obligations of such party hereunder, provided in each such case that no such
assignment shall release such party from its duties and obligations hereunder.
10.04 Severability. If in any jurisdiction, any provision of this
Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
10.05 Governing Law; Consent to Jurisdiction and Venue.
(a) All of the terms, conditions, and other provisions of this
Agreement shall be interpreted and governed by reference to the laws of the
State of New York, and any dispute arising therefrom and the remedies available
shall be determined in accordance with such laws without giving effect to the
principles of conflicts of law.
(b) The Company and the Seller hereby irrevocably and
unconditionally submits to the non-exclusive jurisdiction of any New
40
<PAGE>
York State or Federal court sitting in New York County in any action or
proceeding commenced by Purchaser or to which Purchaser is a party arising out
of or relating to this Agreement, any other agreement or document delivered
pursuant hereto or any transaction contemplated hereby. The Company and the
Seller hereby irrevocably waives, to the fullest extent it or he may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. The Company and the Seller also irrevocably and unconditionally
consents to the service of any and all process in any such action or proceeding
by the mailing of copies of such process by certified mail to the Company or the
Seller and its or his counsel at their respective addresses specified in Section
10.02. The Company and the Seller further irrevocably and unconditionally agrees
that a final judgment in any such action or proceeding (after exhaustion of all
appeals or expiration of the time for appeal) shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
10.06 Knowledge. For purposes of this Agreement, "knowledge" of the
Seller and the Company shall be deemed to mean the actual knowledge of the
Seller after due inquiry of Ian L.M. Thomas, Robert Capshaw, Michael Roberts,
Kathy Ogur and Kelly Labiche.
10.07 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.08 Headings. The title of this Agreement and the headings of the
Sections and Articles of and the Schedules to this Agreement are for reference
purposes only and shall not be used in construing or interpreting this
Agreement.
10.09 Entire Agreement; Amendment; Waiver. This Agreement, including
any exhibits and schedules hereto and other documents, instruments and
certificates delivered pursuant to the terms hereof, sets forth the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof, and supersedes all prior agreements, promises, covenants,
arrangements, representations or warranties, whether oral or written, by any
party hereto or any officer, director, employee or representative of any party
hereto. No modification or waiver of any provision of this Agreement shall be
valid unless it is in writing and signed by the party to be charged therewith.
The waiver of breach of any term or condition of this Agreement shall not be
deemed to constitute a waiver of any other breach of the same or any other term
or condition.
10.10 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation other than the parties hereto
and their successors or assigns any rights or remedies under or by reason of
this Agreement.
10.11 Publicity. From the date hereof through the Closing Date, except
as required by law, neither the Seller, the Company nor Purchaser shall make any
announcement of the transactions contemplated hereby without the prior written
consent of the Seller, on the one hand, and the Purchaser, on the other. From
and after the Closing Date, except as otherwise required
41
<PAGE>
by law, neither the Seller nor the Company shall make any announcement, issue
any press release or disseminate information to the press or any third party
regarding this Agreement or the transactions contemplated by this Agreement
without the prior written consent of the Purchaser. The parties will cooperate
with each other in preparing an internal Company announcement designed to
provide information to employees of the Company as to transition issues and to
promote a smooth transition.
10.12 Reference to Days. All references to days in this Agreement shall
be deemed to refer to calendar days, unless otherwise specified.
[Remainder of Page Intentionally Left Blank]
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York, all on the day and year first
above written.
PURCHASER:
CT CORPORATION SYSTEM
By:
--------------------------------
Name:
Title:
SELLER:
THE OFFICIAL INFORMATION COMPANY
By:
--------------------------------
Name:
Title:
COMPANY:
CORSEARCH, INC.
By:
--------------------------------
Name:
Title:
43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 22,829
<ALLOWANCES> 957
<INVENTORY> 195
<CURRENT-ASSETS> 25,183
<PP&E> 27,233
<DEPRECIATION> 15,427
<TOTAL-ASSETS> 108,926
<CURRENT-LIABILITIES> 46,445
<BONDS> 98,500
0
0
<COMMON> 42
<OTHER-SE> (54,609)
<TOTAL-LIABILITY-AND-EQUITY> 108,926
<SALES> 79,931
<TOTAL-REVENUES> 79,951
<CGS> 35,676
<TOTAL-COSTS> 35,676
<OTHER-EXPENSES> 6,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,066
<INCOME-PRETAX> 5,719
<INCOME-TAX> 400
<INCOME-CONTINUING> (458)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
