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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO RULE 15d-2 PROMULGATED UNDER THE SECURITIES
- --- EXCHANGE ACT OF 1934 CONTAINING FINANCIAL STATEMENTS AND INCORPORATING
CERTAIN OTHER INFORMATION THEREIN
For the fiscal year ended December 31, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Street, Suite 2421, New York, New York 10019
(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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 29, 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.
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Official Information Company (formerly known as T/SF
Communications Corporation), a Delaware corporation formed in 1989 (together
with its subsidiaries, the "Company"), is a diversified business media,
communications and information company which principally operates two lines of
business: (i) business and professional database information services
("Information Services") and (ii) business to business communications,
publishing and related marketing services ("Business to Business
Communications"). Information Services includes: (i) Total Information
Services, Inc. ("TISI"), which, with its proprietary database, is the leading
provider of comprehensive pre-employment screening information used by the
trucking industry to facilitate compliance with U.S. Government regulations and
(ii) CORSEARCH, Inc. ("CORSEARCH"), the second largest provider in the United
States of trademark and trade name research to law firms and corporations.
Business to Business Communications is 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 (together with its subsidiary and affiliates,
"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 and (iii) GEM Communications, LLC (together with its
subsidiaries and affiliates, "GEM"), which owns and operates the World Gaming
Congress(R), the world's largest trade show catering to the legalized gaming
industry, and publishes trade magazines directed to the legalized gaming
industry, principally IGWB (formerly International Gaming and Wagering
Business), the leading publication catering to gaming industry executives. 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. In September 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. This transaction was accounted for as a purchase. The Company's
consolidated revenues and adjusted EBITDA (as defined herein) for the year
ended December 31, 1998 were approximately $96 million and $22 million,
respectively. Of such consolidated revenues, approximately 38% represented
Information Services and approximately 62% represented Business to Business
Communications. Of such adjusted EBITDA, approximately 51% represented
Information Services and approximately 49% represented Business to Business
Communications.
Pursuant to a tender offer (the "Tender Offer") completed on October 9,
1997 by the Company for its common stock, a purchase consummated on October 9,
1997 (the "Stock Purchase") by a subsidiary of VS&A-T/SF, L.L.C. ("VS&A-T-SF")
of 881,988 shares of common stock, the repurchase consummated on October 9,
1997 by the Company of certain employee stock options (the "Option
Repurchase"), a reverse stock split of the shares of common stock consummated
on February 27, 1998 that resulted in the elimination of all shares of common
stock other than those held by VS&A-T/SF and Fir Tree Value Fund, LP., Fir Tree
Institutional Value Fund L.P. and Fir Tree Value Partners L.D.C. (collectively,
"Fir Tree" and, together with VS&A-TSF, the "Equity Investors") (together with
certain related transactions, the "Second Step Transaction"), and the drop down
restructuring consummated on February 27, 1998 (the "Drop Down Restructuring"),
in each case as described below, the Company was recapitalized and VS&A-T/SF
and Fir Tree own approximately 64.4% and 35.6% of the common stock,
respectively. The Tender Offer, Stock Purchase, Option Repurchase, Second Step
Transaction and Drop Down Restructuring are collectively referred to herein as
the "Recapitalization." Unless otherwise indicated, references herein to
numbers of shares of common stock reflect the capitalization of the Company
after giving effect to the reverse stock split effected on February 27, 1998 as
part of the Second Step Transaction.
As part of the Recapitalization, VS&A-T/SF and Fir Tree caused the
Company, directly or indirectly, to contribute to T/SF Holdings, LLC ("Holdings
LLC") substantially all of the assets and liabilities of the predecessors of
Atwood, Galaxy and GEM in exchange for a $45.0 million preferred equity
interest in Holdings LLC and VS&A-T/SF and Fir Tree contributed $4.5 million to
acquire the common equity interests in Holdings LLC in the same proportion as
their ownership of the common stock immediately following the consummation of
the Recapitalization. These common equity interests in Holdings LLC and all
earnings and losses in excess of the
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preferred stockholders' annual distributions are reflected as minority
interests. The preferred equity interest held, directly or indirectly, by the
Company carries an 11% annual distribution rate and, together with a voting
agreement gives the Company total voting, operational and management control of
Holdings LLC. As part of the Recapitalization, Holdings LLC contributed
substantially all of the assets of the predecessors of Galaxy, Atwood and GEM
into several limited liability companies (the "Operating LLCs"). At the time of
the Recapitalization, 99% of the common equity interests of each Operating LLC
were owned by Holdings LLC and gave Holdings LLC voting, operational and
management control of such entities and a 1% common equity interest of each
Operating LLC was owned by T/SF Operating, LLC ("Operating LLC"). The preferred
equity interest in Operating LLC was owned by Holdings LLC and gave Holdings
LLC voting, operational and management control of Operating LLC and the common
equity interests of Operating LLC were held by VS&A-T/SF and Fir Tree in the
same proportion as their ownership of the common stock immediately following
the consummation of the Recapitalization. On December 31, 1998, Operating LLC
was merged into Holdings LLC, with Holdings LLC being the surviving entity. As
a result of such merger, Holdings LLC currently owns all of the common equity
interests of each Operating LLC. A chart illustrating the Company's ownership
structure set forth above is available upon request. In lieu of such chart,
which is unavailable on EDGAR, the following description is useful:
The Company conducts its business through several corporate and limited
liability company subsidiaries as follows:
1. Corporate Subsidiaries: The Company owns, directly or indirectly, several
active corporate subsidiaries through which it conducts certain of its
businesses such as Corsearch and TISI.
2. Limited Liability Company Subsidiaries: The Company, together with certain
of its active corporate subsidiaries, owns all of the outstanding
preferred interest in Holdings LLC, which holds all of the outstanding
interest in the several operating limited liability companies through
which TOIC conducts certain of its business such as GEM, Atwood and
Galaxy. There is also common interests of Holdings LLC which are held by
TOIC stockholders as described above.
Holdings LLC, Operating LLC and the Operating LLCs are collectively referred to
herein as the "LLC's." As a result of the control of the LLCs by the Company,
the financial results of the LLCs are included in the consolidated financial
statements of the Company as described more fully in Note 5 of the Company's
financial statements included herein.
INFORMATION SERVICES
Information Services provides specialized information and database
management services to selected market segments through TISI, a leading
supplier of pre-employment screening and CORSEARCH, the second largest supplier
in the United States of trademark and trade name searches and information
research.
TISI
Pre-Employment Screening Services
TISI, through its comprehensive databases, provides pre-employment
screening information and services to selected vertical markets that by
government regulation or business characteristic require a comprehensive
candidate background investigation prior to hiring.
Transportation Industry
TISI, which since 1983 has operated its transportation services business
under the trade name DAC Services ("DAC"), is the leading supplier of
comprehensive pre-employment screening information to the trucking industry and
a provider of driving record-related and other risk assessment and underwriting
information to the insurance industry. DAC, endorsed by the American Trucking
Associations since 1986 and the trucking associations of 41 states, currently
maintains a computer network providing on-line electronic access to a
proprietary employment
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history database of over 2.9 million job records concerning over 1.6 million
truck drivers. Management believes the demand for the information in its DAC
database is driven primarily by federal government regulation, the Company's
ability to provide the information on a timely basis and the Company's success
in marketing to the "truckload" segment of the trucking industry, which
historically exhibits high driver turnover. "Truckload" carriers, such as J.B.
Hunt and Schneider, typically are differentiated from "route" carriers and
"private fleet" carriers in that "truckload" carriers are hired by third
parties and do not have the steady, predetermined routes of a "route" carrier,
nor do they operate as an individual corporation's captive "private fleet"
(e.g., a retailer's "private fleet" of delivery trucks). As a result, the
Company believes the unpredictable nature of a driver's job for a "truckload"
carrier leads to inherently high driver turnover, which can be more than 100%
per year for some trucking companies. As federal regulations require extensive
screening of new truck drivers, this high turnover rate creates demand for
DAC's services.
DAC has virtually instantaneous computer access to Motor Vehicle Records
(MVRs) maintained by 30 states and alternative methods to access the MVRs of
the remaining 20 states. In addition, DAC maintains a database which contains
certain workers' compensation records from 36 states, which may be used by
prospective employers either to detect employers that have been omitted by a
prospective employee in his or her employment application or to determine job
suitability. In 1998, DAC began offering a manual searching capability for many
of those states which the workers' compensation records are not in DAC's
database.
Criminal records are maintained by approximately 3,300 jurisdictions in
the U.S. and there is no single source for all such records. However, DAC can
access for its customers' criminal records from any U.S. jurisdiction requested
by a customer. Management believes that the database of criminal records being
created by DAC will become an increasingly valuable asset, and may provide DAC
access to providing criminal records and other data to industries other than
trucking and insurance.
DAC obtains its MVRs, workers' compensation and criminal records
information from state or county archives, utilizing a nationwide network of
agents and representatives, direct computer connections and proprietary
databases. The information is resold at a mark-up over state and county fees
for such information. In 1998, the information was resold to approximately
14,000 customers.
Employers who access DAC's services have the option to choose only
those records that meet their specific information needs. In addition, DAC
offers a "Total Applicant Screening Services" product which provides a
customized package of DAC's pre-employment screening products.
For customers that want to perform their own background checks, the
Company publishes The Guide, a publication available to the general public. The
Guide lists thousands of telephone numbers and addresses for criminal record
jurisdictions, state motor vehicle departments and colleges and universities,
among others, which may be found helpful to those conducting their own
background searches.
Gaming Industry
During 1998 TISI formed World Gaming Network (WGN) to provide
pre-employment screening services to the casino gaming industry. Employment in
the casino gaming industry exceeds 400,000 people and is growing at 15%
annually. The industry spends approximately $28 million annually for employee
background screening. WGN, based on the successful DAC model, plans to provide
comprehensive employment history, criminal record, credit report, employment
verification and reference information and services to the industry.
Healthcare Industry
TISI also formed Healthcare Employment Screening Services (HESS) during
1998 to provide pre-employment screening services to the home healthcare and
nursing home industries. Much like the trucking industry, employers in these
industries are required by Federal and various State regulations to conduct
comprehensive background checks on prospective employees. HESS plans to offer a
comprehensive pre-employment screening service to this industry based on the
successful DAC model.
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INSURANCE INDUSTRY SERVICES
In addition to providing MVRs to the transportation industry, the Company
is also a leading supplier of MVRs to the insurance industry for the screening
of insurance applications. The Company, endorsed by the Professional Insurance
Agents' Association, provides over 5,000 insurance industry customers' access
to the Company's computer network to request MVRs and other information.
Approximately 85% of these customers are insurance agents, with the remaining
15% representing branch offices, managing general agents, brokers and a small
number of regional and home office locations. These customers primarily utilize
the Company's data in assessing insurance underwriting risk and also purchase
the Company's workers' compensation and credit report information. In its
effort to provide more complete information to its insurance industry
customers, May 1995 the Company became a licensed reseller of Choice Point's
CLUE(R) database, an insurance company database of previous insurance claims
which allows insurance companies to access claims data for underwriting
purposes.
CRIMINAL RECORDS SERVICES
CrimeSearch, Inc., a wholly owned subsidiary of TISI, is a leading
provider of criminal and civil court records and criminal record research to
the pre-employment screening and legal industries. Through it's network of 750
researchers CrimeSearch accesses criminal records in all counties in the United
States, Puerto Rico and all US territories and Canadian provinces. CrimeSearch,
acquired by TISI in 1996, has experienced strong demand for its services. 1998
revenue from external sources increased more than 100%.
ELECTRONIC DATA INTERCHANGE SERVICES
In 1997, DAC developed a product line called MessageXpress(R), which
provides electronic business communication services to transportation motor
carriers. DAC sold the assets associated with this product in January 1999.
CORSEARCH(R)
CORSEARCH, acquired by the Company in 1996, is believed to be the
second largest provider of trademark and trade name research services in the
United States. CORSEARCH provides comprehensive trademark and trade name
searches for 800 law firm and corporate clients. The number of basic trademark
and trade name searches executed by CORSEARCH was approximately 22,165 in 1998
an increase of 11% over 1997.
CORSEARCH currently searches three major classifications of trademark
information for its customers: (i) through its proprietary database,
CORBASE(R), the Company searches all federal trademarks that have been filed
with and registered by the U.S. Patent and Trademark Office("PTO"); (ii)
through its proprietary database CORSTATE(R), the Company searches trademarks
that have been filed with the Secretary of State offices of the 50 states and
Puerto Rico and (iii) through databases licensed to the Company by third
parties, the Company searches for common law usages of company names, product
names, trade names and brand names appearing in thousands of magazines,
monographs, journals, newspapers, press releases and periodicals.
The prices for CORSEARCH's basic search services vary depending upon the
turn-around time requested by the client for the particular search performed.
CORSEARCH provides five levels of pricing of basic searches which increase
incrementally for the five levels of timing provided, from CORSEARCH's
"standard" three to four day service to "ultrarush" (two hour same day
service). As the costs for each search remains substantially constant,
CORSEARCH's profit margins on searches increase along with the prices charged
for such services when services are ordered on a "rush" basis. A typical search
may consist of a search of the federal, state, common law and domain name usage
databases of trade names and trademarks.
CORSEARCH's highly trained, industry-focused researchers use CORSEARCH's
proprietary software, proprietary CORBASE(R) and CORSTATE(R) databases, third
party databases and, to a lesser extent, published resources for completing
customer searches. Although the majority of the information contained in
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CORSEARCH's state databases is publicly available from governmental authorities
and others, management believes that because of the cycle of intellectual
property registration renewals, it likely would take a new competitor several
years to compile a database containing the state registration information
currently maintained by CORSEARCH and its two primary competitors. New
competitors may purchase the federal database from the PTO but significant
computer programming would be needed to make it usable. Management believes
that CORSEARCH, which competes primarily on the quality, accuracy and
timeliness of its data, provides a consistently high level of service to its
clients. CORSEARCH's customers include small to mid-size law firms and
corporations as well as major companies.
CORSEARCH also has international search capabilities, primarily in
selected European countries, Canada and Mexico, and provides access to an
international database of pharmaceutical trademarks in use in 49 countries. In
1998 an Internet-based search service called CORSEARCH(R) OnLine was introduced
which serves as a quick and easy research tool for clients to "screen" the
availability of trademarks and trade names before undertaking more expensive
searches.
BUSINESS TO BUSINESS COMMUNICATIONS
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, the largest domestic independent
publisher of exposition and association related publications and directories;
(ii) Galaxy, the largest independent provider of trade show and convention
registration, exhibitor information and "lead" management services in the
United States and (iii) GEM, the world's leading owner and operator of trade
shows and publisher of trade magazines directed to the international legalized
gaming industry.
ATWOOD
Atwood, founded in 1982, is the leading independent publisher of daily
trade show and convention newspapers, directories, and related publishing
products that are directed to the attendees of U.S. trade shows and
conventions. Atwood competes primarily with trade magazines and the owners and
operators of expositions with in-house publishing capabilities who participate
only in their particular industry and do not have diverse markets or the
capabilities of Atwood. Atwood also publishes the trade journal EXPO, the
official publication of the International Association of Exposition Management,
and Presenting: Communications, a publication covering the audio-visual
presentation industry, and maintains an Internet website which is a database
for trade show managers and exhibitors.
Approximately 70% of Atwood's 1998 revenues were derived from its
publication of dailies and directories. During 1998, Atwood provided
publishing, communication or promotional services to approximately 51,000
exhibitors at approximately 155 trade shows and conventions, including 30 of
the "Tradeshow 200" exhibitions. Of the 155 trade shows to which Atwood
provided services in 1998, 60% represented trade shows served by Atwood in
1997. Related products provided by Atwood include pre- and post- convention
materials, literature kiosks and LeSack, a plastic bag filled with literature,
publications, product samples and other marketing information that is
distributed to attendees. Atwood also produces advertising and marketing
products such as Internet Guides, specialty products and restaurant and city
guides distributed to show attendees. Atwood provides magazine publishing
related services to trade associations, including editorial content, layout and
design of trade publications, advertising sales and circulation services.
Atwood's digital group provides CD ROMs, Internet applications, electronic
conference planners and buyer's guides.
Atwood has recently provided the rental of Marketing-oriented Interactive
Kiosks for Exhibitors ("MIKE"). MIKE permits exhibitors to create customized
interactive multimedia programs which are accessed by show attendees via
touchscreen technology on a kiosk that takes up minimal floor space. The
program can be customized to include survey questions that elicit information
from attendees, which allows exhibitors to qualify leads.
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GALAXY
Galaxy, founded in 1982, markets its comprehensive registration services,
automated "lead" management products and information services on an exclusive
basis to trade associations, promoters, exhibitors and attendees of exposition
and trade shows and conventions. Galaxy serves over 60,000 exhibitors and
nearly 3 million attendees annually. Among Galaxy's active clients are 51 of
the "Tradeshow 200" exhibitions, including four of the top five such
exhibitions. Of the 243 trade shows Galaxy provided services to in 1998, 83%
represented trade shows served by Galaxy in 1997.
Multiple versions of Galaxy's "Expocards" (magnetic stripe or
"smartcards") are utilized in the registration process to allow convention and
trade show exhibitors to digitally capture and manipulate attendee information
for "lead" management and follow-up. Galaxy's Expocard technology encodes
attendee registration data on a magnetic stripe attached to a plastic card or
on a computer chip "smartcard" which can be read by trade show and convention
exhibitors renting Galaxy's Expocard readers. The Expocard provides lead data
to exhibitors in electronic form and allows for other product applications. For
example, attendees can leave and retrieve messages at a message center kiosk
established by the Company on site for a fee. The Expocard permits the
conference host (usually a trade association or a for-profit show manager) to
receive information including demographic data, attendance results and exhibit
visitation patterns.
Galaxy's "Expocard Connect" is a PC-based system that reads the
Expocard's magnetic strip, allows the exhibitor to add qualifying information
to the data file, saves the data to the PC hard drive in a format compatible
with any data management program and, when networked, can transfer data
directly to a data management program.
Galaxy introduced a series of new information products during 1998
targeted towards show managers, attendees, and exhibitors. InfoManager is a
breakthrough in the delivery of registration data to the show manager. Using
InfoManager, the show manager has 24-hour access to their show registration
data via the Internet. InfoManager provides a variety of reports accessing
current and historical data. Matchmaker is Galaxy's first information product
specifically targeted to the attendee market. Using Matchmaker, the attendee
can receive via printed form or the Internet (expected in early 1999) a
complete list of all of the exhibits that they visited. In addition, valuable
information on each exhibitor is provided by the Matchmaker product. Lead
Assistant, introduced in late 1998, converts exhibitors' leads captured through
Galaxy's EXPOCARD into standard formats that are compatible with all of the
popular database management packages.
Galaxy Classics provides graphic design and printing services to its and
Atwood's convention and trade show and trade association customers, as well as
to select customers in the geographic areas surrounding Galaxy's headquarters
in Frederick, Maryland. Services include customized graphic design for
multimedia use and printing services, primarily for promotional and marketing
purposes.
Several of Galaxy's customers hold trade shows on a bi-annual or
tri-annual basis. Consequently, Galaxy's revenues vary from year to year. The
following table sets forth, for the years ended December 31, 1996, 1997 and
1998, the percentage of revenues of Galaxy generated from trade shows of
varying frequencies.
Years Ended December 31,
--------------------------
1996 1997 1998
------- ------- ------
Annual Shows................................. 85% 95% 90%
Bi-Annual Shows.............................. 11 3 9
Tri-Annual Shows............................. 3 1 1
Other Shows.................................. 1 1 0
------- ------- ------
100% 100% 100%
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GEM
GEM, founded in 1986 is the leading global provider of business
information and marketing resources for the legalized gaming industry. GEM owns
and operates the World Gaming Congress and EXPO, the largest legalized gaming
industry trade show in the world and the only trade show endorsed by the
American Gaming Association as the organization's official trade show. The
conference traditionally has been held annually in Las Vegas during September
or October of each year. Consequently, GEM's financial results are skewed
towards the second half. In 1998, the World Gaming Congress sold approximately
195,000 square feet of exhibition space and included approximately 23,000
attendees, an increase from 116,200 square feet and 17,500 attendees in 1994.
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. In September 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.
GEM publishes several trade magazines directed to the legalized gaming
industry, including IGWB. IGWB, with a qualified audited circulation of over
25,000, is the leading trade journal directed to the worldwide legalized gaming
industry. In addition, the Company owns Casino Executive, LLC (the successor to
Casino Publishing Company), the publisher of Casino Executive, a trade magazine
directed to casino management executives in North America.
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.
COMPETITION
Each of the Company's businesses is in competition with other suppliers
and vendors of services or products similar to those provided by the Company
and many of such competitors are significantly larger and have greater
resources than the Company. The following is a brief description of the
competitive environment in which each of the Company's businesses operates.
TISI
TISI has a leading market position in the trucking industry. In the
insurance industry, there are two TISI competitors which are significantly
larger and sell significantly more MVRs than TISI, as well as many regional
providers. Management believes that TISI's ability to maintain and grow its MVR
business in the insurance industry is dependent upon its ability to continue to
resell Choice Point's CLUE(R) data, as described above. Choice Point is the
largest competitor selling MVRs to the insurance industry. Competitors in the
casino gaming industry include Choice Point, Accufact and IRCS. Competition in
the home healthcare industry is fragmented along regional lines. Choice Point
and Background America, another regional firm, are believed to be the largest
competitors. Background America was recently acquired by Kroll-O'Gara Company.
Management believes that no other competitor has developed a national vertical
market strategy based on the DAC employment history record concept.
CORSEARCH
The trademark search business is dominated by Thomson & Thomson. Thomson &
Thomson is owned by a large international media/information conglomerate. There
is also one smaller competitor which, while doing fewer searches than
CORSEARCH, is owned by a large publishing/information company which specializes
in selling to law firms.
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Galaxy
Galaxy has two significant competitors, both of which provide services to
fewer shows in any given year than Galaxy and management believes that they do
not possess the resources of the Company. There are also smaller and regional
competitors as well as some large companies which provide other exposition
services which will compete in certain aspects of Galaxy's business.
Atwood
As a custom publisher, Atwood competes primarily on price, quality and
service and has been successful by targeting the publishing needs of the trade
show, convention and trade association market. Outside of that market there are
many custom publishers, some with significantly greater resources than the
Company. In the trade show, convention and trade association market, there are
competitors which, while concentrating on another set of services they perform
for their customers, will also provide publishing services as part of their
package of services. While several of these competitors are significantly
larger than Atwood, management believes that stronger competitors are trade
shows or associations with "in house" publishing capabilities and trade
magazine publishers with specialized knowledge in the industry that is the
subject of the trade show or convention.
GEM
In the gaming trade show business, there is one other significant U.S.
show (which is smaller than World Gaming Congress ), a large show held in
London each year (ATEI), and a variety of smaller niche or regional shows and
conferences throughout the world. A few of these are owned or managed by
competitors which are significantly larger than GEM. On February 4, 1999 the
Company announced that it had entered into discussions with ATE, Ltd.
for the acquisition of ATEI.
From a publishing standpoint, there is one other significant competitive
magazine serving the U.S. casino industry and several successful magazines and
newsletters serving vertical niches of the gaming industry in the U.S. and
worldwide industry, such as lotteries and pari-mutuals. Internationally, there
are a few magazines, particularly in Europe, which successfully serve the
casino industry and compete with the Company. To management's knowledge, none
of such competitors are significantly larger than GEM. In addition, GEM must
compete with other media for advertising dollars, such as direct mail and
direct selling. The latter is particularly important for potential U.S. casino
advertisers as so much of the industry is concentrated in a few locations.
SEASONAL FACTORS
The exposition services business is affected by the timing of conventions and
trade shows, with most such shows operating in the March-May and
September-November time frames. IGWB's results are significantly impacted by
the timing of its largest affiliate owned trade show, World Gaming Congress,
which was held in October in 1996 and 1997 and in September in 1998.
EMPLOYEES
As of January 31, 1999, the Company employed 692 persons on a full-time
basis including 283 in Information Services, 404 in Business to Business
Communications and five at the Company's corporate offices. None of the
Company's employees are subject to collective bargaining agreements. The
Company considers relations with its employees to be satisfactory. Most
employees are salaried, with sales personnel receiving commissions on sales.
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FINANCIAL INFORMATION
For financial information regarding the Company's business segments, see
Note 10 of Notes to Consolidated Financial Statements.
GOVERNMENT REGULATION
As a "consumer reporting agency," TISI is subject to the provisions of the
Fair Credit Reporting Act ("FCRA") and similar acts existing in the states and
is regulated by the FTC under the Federal Trade Commission Act. Under the FCRA,
a consumer reporting agency may furnish a "consumer report" to a customer only
for a permissible purpose allowed by the FCRA. Permissible purposes include
extension or review of credit, collecting an account, employment purposes,
underwriting of insurance, determining eligibility for a license or permit
granted by a governmental entity, or in connection with a business transaction
involving the consumer. All reports of TISI are treated by TISI as consumer
reports for purposes of the FCRA. In addition, TISI's Total Applicant Screening
reports are treated by TISI as "investigative consumer reports" within the
meaning of that term under the FCRA because they involve contacting third
parties. Certain additional restrictions apply to these reports.
The FCRA requires a consumer reporting agency to maintain reasonable
procedures designed to ensure that the restrictions on the use of certain
information are not violated. In addition, a consumer reporting agency must
follow reasonable procedures to assure maximum possible accuracy of the
information concerning the consumer about whom the report relates. The FCRA
also requires a consumer reporting agency, upon request from a consumer, to
disclose all information about that consumer in its file, together with the
source and the recipients of the information. In some cases, this information
must be delivered to the consumer at no cost, and in others the agency may
charge a reasonable fee. TISI does not charge a fee to a driver or other
individual or entity about whom or which data is provided to a customer if that
individual or entity has been turned down for a job or denied insurance within
the last 30 days. Otherwise, TISI may charge a $10.00 fee.
The Americans with Disabilities Act ("ADA") contains pre-employment
inquiry and confidentiality restrictions designed to prevent discrimination
against individuals in the hiring process. Although TISI's business is not
directly regulated by the ADA, the use by its customers of certain information
sold to them, such as workers' compensation histories or drug and alcohol test
results, is regulated, both with respect to the type of information and the
timing of its use. Similar state laws also affect TISI's business. Some states
have human rights laws that provide more protection than the ADA. A large
number of states also regulate the type of information which can be made
available to the public or to a third party or impose conditions to the release
of the information.
While the FCRA provides for civil liability sanctions against a consumer
reporting agency by a consumer for willful or negligent noncompliance with the
FCRA, and, as a result of the 1997 amendments, criminal penalties for willful
violations, by complying in good faith with the FCRA, TISI is protected from
liability by the FCRA even if there are inadvertent errors in the information
provided. TISI has developed and implemented internal policies designed to help
ensure that background information retrieved by it concerning a consumer is
accurate and that it otherwise complies with the provisions of the FCRA and
applicable state laws. In addition, each customer of TISI is required to sign a
user agreement, in which the customer agrees to accept responsibility for using
information provided by TISI in accordance with the provisions of the FCRA, the
ADA and local laws. TISI also has internal checks in place regarding access and
release of such information. The Company currently maintains liability
insurance to cover claims by customers or the subjects of reports for alleged
inaccurate information or misuse of information.
The FCRA was amended in 1997, effective October 1, 1997. Such amendments
required DAC's customers to significantly increase their compliance activities
and made it more difficult for them to utilize DAC's products. DAC was
successful in obtaining passage of additional amendments in November, 1998
which granted relief to the trucking industry for the most burdensome of these
requirements. While prior to the most recent amendments DAC's business was
negatively impacted by the 1997 amendments, the Company does not expect any
significant long-term impact from this legislation.
9
<PAGE>
In the 15 years it has been in business, TISI has not been found liable
for any violations of the FCRA, the ADA or similar state laws. The Company did
settle one case out of court for a nominal amount to avoid litigation expenses.
There can be no assurance, however, that the Company will not be found liable
for any such violations and that, if found so liable, the Company will not be
subject to adverse judgments in substantial amounts. In addition, there can be
no assurance that the FCRA, the ADA or similar state laws will not be amended
or subjected to different judicial or administrative interpretation in the
future. It is not possible at this time to predict the impact that any such
change might have on the Company's results of operations, financial condition
or liquidity.
The DOT is in the process of proposing and promulgating revised
regulations which, among other things, concern the requirements for
pre-employment screening of truck drivers. It is not possible at this time to
predict the impact that such regulations, if adopted, might have on the
Company's results of operations, financial condition or liquidity. If adopted
in their current form, such regulations would likely provide a greater demand
for access to employment history, MVRs and drug and alcohol test results of
truck drivers, such as the information provided by the Company.
FOREIGN SALES
The Company's net revenues for 1997 and 1998 to customers outside the U.S.
and Canada were $2.0 million and $5.1 million, respectively, representing 2.5%
and 5.3% of net revenues, respectively. All of such 1997 and 1998 net revenues
are attributable to Business to Business Communications.
TRADEMARKS, LICENSES AND PATENTS
The Company has registered numerous trademarks, including DAC Services(R),
CORSEARCH(R), CORSTATE(R), CORBASE(R), EXPO(R), World Gaming Congress(R) and
IGWB(R), in the United States and, in certain cases, in foreign countries in
which the Company does business. The Company believes that it owns or licenses
all intellectual property rights necessary to conduct its business.
ITEM 2. PROPERTIES
The Company conducts its principal operations at the facilities set
forth below:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASED/OWNED
-------- -------------- ------------
Information Services:
<S> <C> <C>
Tulsa, Oklahoma (TISI) (1) 40,650 Leased (Expires June 1999)
New York, New York (CORSEARCH) 22,000 Leased (Expires February 2009)
Business to Business Communications:
Frederick, Maryland (Galaxy) 51,000 Leased (Expires January 2003)
Overland Park, Kansas (Atwood) 22,715 Leased (Expires May 2000)
New York, New York (GEM) (2) 2,504 Sub-leased (Expires October 2001)
Las Vegas, Nevada 2,676 Leased (Expires May 2003)
Corporate:
New York, New York 1,679 Leased (Expires October 2003)
</TABLE>
- ------
(1) TISI also leases office space in Chicago, Illinois.
The Company sold its office space in Tulsa, Oklahoma in 1998.
Management believes that its facilities are suitable and adequate for its
immediate needs and that additional or substitute space is available if needed
to accommodate expansion.
10
<PAGE>
As a result of the merger of Tribune/Swab-Fox Companies, Inc.
("Tribune/Swab-Fox") with and into the Company, the Company acquired a 49.99%
membership interest in 1995 Land Company, L.L.C., an Oklahoma limited liability
company which owns undeveloped real estate in Tulsa, Oklahoma. The majority
member of this entity has sole management responsibility for this property and
the entity's business. The entity purchased three significant parcels of raw
land from the Company on December 30, 1994 for approximately $1.4 million in
cash and notes. In 1998, the Company sold its interest in 1995 Land Company for
$1,425,000 and recognized a gain of approximately $80,000.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and its subsidiaries
have been named as defendants in lawsuits and a party in various governmental
proceedings from time to time. While in the past, such matters have not had a
material adverse effect on the financial position, results of operation or
liquidity of the Company, and management does not anticipate that such matters
will have such an effect in the future, the outcome of suits and proceedings
cannot be predicted with certainty and, due to such inherent uncertainty of
litigation, there can be no assurance that the Company will not be subject to
adverse judgments in substantial amounts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
After giving effect to the Recapitalization consummated on February
27, 1998, VS&A-T/SF and Fir Tree owned approximately 64.4% and 35.6% of the
common stock, respectively. VS&A-T/SF is controlled by VS&A Communications
Partners II, L.P. ("VS&A Fund II"), a private equity fund affiliated with
Veronis, Suhler & Associates, Inc. ("VS&A"), an investment banking and research
firm specializing in the media and communications industry. Other investors in
VS&A-T/SF include two institutional investors and an affiliate of Ian L. M.
Thomas, the President and Chief Executive Officer of the Company. There is no
established public trading market for the Company's common stock. No dividends
were declared or paid during 1998. The terms of the Company's $25,000,000
Credit Agreement and 10 3/8 % Senior Subordinated Notes Due 2007 (the "Notes")
currently restrict the ability of the Company to pay dividends or make
distributions to its shareholders. See the Consolidated Financial Statements of
the Company and the Notes thereto.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for each of the last
five years.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Revenues
Information Services (a)................... $15,091 $17,950 $23,925 $31,690 $ 36,102
Business to Business Communications (b).... 39,665 53,089 42,891 49,403 59,455
Corporate and other........................ 2,163 1,039 1,826 1,366 880
------ ------ ------ ------ ------
Total revenues........................... 56,919 72,078 68,642 82,459 96,437
------ ------ ------ ------ ------
Expenses
Operating costs............................ 35,069 39,665 40,314 43,160 51,707
General and administrative expenses........ 11,862 11,841 15,207 24,041 22,640
Recapitalization and Reorganization Expenses -- -- -- 21,774 --
Depreciation and amortization.............. 3,118 3,601 4,018 4,996 7,078
------ ------ ------ ------ ------
Total expenses........................... 50,049 55,107 59,539 93,971 81,425
------ ------ ------ ------ ------
Operating income (loss)...................... 6,870 16,971 9,103 (11,512) 15,012
Interest expense............................. 736 859 581 3,696 10,676
------ ------ ------ ------ ------
Income (loss) before income taxes and other
Items...................................... 6,134 16,112 8,522 (15,208) 4,336
Income tax (provision) benefit............... (2,589) (58) (3,101) 2,636 (1,329)
Minority interest in consolidated subsidiaries (981) (266) -- -- (2,491)
Discontinued operations, net (2)............. (2,816) 37 -- -- --
------ ------ ------ ------ ------
Net income (loss).......................... $ (252) $15,825 $ 5,421 $ (12,572) $ 516
====== ======= ======= ========= ========
Years Ended December 31,
----------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
(dollars in thousands)
Other Financial Data (1):
Capital expenditures......................... $ 4,382 $ 2,589 $ 2,641 $ 5,541 $ 6,503
EBITDA (3)................................... 9,988 20,572 13,121 15,258 22,044
EBITDA margin (3)............................ 17.5% 28.5% 19.1% 18.5%% 22.9%
Ratio of earnings to fixed charges (4)....... 9.3x 19.8x 15.7x -- 1.4x
</TABLE>
12
<PAGE>
As of
December 31, 1998
-----------------
Balance Sheet Data:
Cash and equivalents...................................... $3,878
Total assets.............................................. 74,534
Total debt................................................ 100,752
Stockholders' deficit..................................... (54,193)
(1) In the merger of Tribune/Swab-Fox, then the owner of 78% of the common
stock, with and into the Company on May 25, 1995, the Company was the
surviving entity, from a legal standpoint. However, from an accounting
standpoint, the transaction was treated as a downstream merger. Thus, for
financial reporting purposes, the transaction was treated as a
recapitalization of Tribune/Swab-Fox, with Tribune/Swab-Fox as the
survivor. Accordingly, the historical financial statements of the Company,
as the surviving legal entity, are those historical financial statements
of Tribune/Swab-Fox prior to the merger. In addition, the Company was a
party to several events/transactions which affect the comparability of the
historical information presented above. See the Notes to Consolidated
Financial Statements for additional information on certain of these
events/transactions.
(a) With respect to Information Services, the Company acquired CORSEARCH
and CrimeSearch in August 1996.
(b) With respect to Business to Business Communications, the Company: (i)
acquired the stock of Galaxy in March 1994; (ii) sold the assets of
Shopper's Guide, Inc. (the "New Jersey Shopper"), a shopper-newspaper
operation, in April 1994; (iii) sold three trade journals and related
assets in July 1995; (iv) acquired 88% of Casino Publishing Co.
effective February 1, 1997 and the remainder effective January 31,
1998 (v) acquired a majority of Galaxy Expocard Europe, B.V. in May
1997, (vi) acquired IGBE in June 1998 and (vii) acquired InterGame,
Limited in September 1998.
(2) Restated to reflect real estate as a discontinued operation as of November
30, 1994.
(3) 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 expense,
income taxes, depreciation and amortization, recapitalization and
reorganizational expenses, unusual gain (including gains on disposition of
real estate in 1998), 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. EBITDA margin represents EBITDA as a percentage of
total revenues.
(4) In computing the ratio of earnings to fixed charges: (a) earnings have
been based on income from continuing operations before income taxes and
fixed charges and (b) fixed charges consist of interest and amortization
of debt discount expense. The coverage deficiency for the year ended
December 31, 1997 was approximately $15.2 million.
FORWARD-LOOKING STATEMENTS
This Annual Report for the year ended December 31, 1998 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 Annual 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
13
<PAGE>
such forward-looking statements. See "Business," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a diversified business media company which principally
operates two lines of business: (i) business and professional information
services and (ii) business to business communications, publishing and related
services. On May 25, 1995, Tribune/Swab-Fox, parent of the Company, merged with
and into the Company. Though the Company was the surviving legal entity in the
merger, because Tribune/Swab-Fox owned 78% of the Company's common stock prior
to the merger, the transaction is accounted for as a recapitalization of
Tribune/Swab-Fox with Tribune/Swab-Fox as the survivor (i.e., a downstream
merger). Accordingly, the historical financial statements of the Company, as
the surviving legal entity, are those historical financial statements of
Tribune/Swab-Fox.
In February 1997, the Company increased its ownership in Casino Publishing
Company, publisher of the trade journal, Casino Executive, to 88%, which is
included in the Company's consolidated operations since that date. 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. Effective May 1, 1997, the Company acquired a
majority ownership in Galaxy Expocard Europe B.V. and increased its ownership
to 73% effective July 1, 1997. On August 15, 1996, the Company acquired 100% of
the outstanding capital stock of CORSEARCH, which has been accounted for as a
purchase. CORSEARCH provides trademark and trade name research and is included
in the Company's consolidated operations since that date. On August 1, 1996 the
Company acquired all of the assets of CrimeSearch, Inc.
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.
Consolidated Operations
The following table summarizes the Company's historical results of
operations as a percentage of revenue for the years ended December 31, 1996,
1997 and 1998:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues:
Information Services............................................. 34.8% 38.4% 37.4 %
Business to Business Communications.............................. 62.5 59.9 61.7
Corporate and other.............................................. 2.7 1.7 0.9
------ ------ ------
Total revenues.............................................. 100.0 100.0 100.0
Expenses:
Operating costs.................................................. 58.7 52.3 53.6
General and administrative expenses.............................. 22.2 29.2 23.5
Recapitalization and reorganization expenses..................... -- 26.4 --
Depreciation and amortization.................................... 5.8 6.1 7.3
------ ------ ------
Total expenses.............................................. 86.7 114.0 84.4
------ ------ ------
Operating Income (Loss) before interest and income taxes.............. 13.3% (14.0)% 15.6%
====== ====== ======
EBITDA Margin......................................................... 19.1% 18.5% 22.9%
====== ====== ======
</TABLE>
14
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Versus Year Ended December 31, 1997
Revenues. Revenues of $96.4 million for the twelve months period ended
December 31, 1998, were $14.0 million (17%) higher than 1997. Business to
Business Communications segment Revenue totaled $59.5 million for the twelve
months ended December 31, 1998, an increase of $10.1 million (20%), over 1997.
At GEM, increased advertising and trade show volume and inclusion of the
InterGame results since September 1, 1998 contributed $2.3 million to the
growth. At Galaxy, the return of several bi-annual trade shows, an overall
increase in the number of shows completed during 1998 and Galaxy Europe, which
was not consolidated in the first quarter of 1997, contributed $5.8 million to
1998 revenue growth. Atwood increased revenues by 10% during 1998 compared with
1997 principally as a result of the addition of Dallas and Atlanta Market
Center business and strong periodical publishing advertising sales and 37%
growth in EXPO, a trade magazine directed at the U.S. convention and exposition
industry.
The Information Services segment produced revenue of $36.1 million for
the twelve month period ended December 31, 1998, an increase of $4.4 million
(14%) over 1997. Corsearch increased revenue 13% during 1998, compared with
1997. This return to double-digit growth from relatively flat revenue growth
during 1997, compared with 1996, resulted from increased sales and marketing
efforts. TISI's revenue increased 14% contributing $3.4 million to revenue
growth during 1998 over 1997, principally from increased demand for TISI's
pre-employment screening information and services and a 103% increase in 1998
revenue at TISI's Crimesearch affiliate reflecting growing demand for criminal
records.
Operating Costs. Operating Costs totaled $51.7 million, an increase of
$8.5 million (20%) for the twelve months ended December 31, 1998. Operating
Costs of the Business to Business Communications operations increased by $5.5
million (21%) for 1998, compared with 1997. The increase was attributable
principally to an increase in volume at Atwood, additional trade shows at
Galaxy, inclusion of Galaxy Europe for the year, two new shows managed by GEM
and acquisition of InterGame.
Information Services Operating Costs increased 19% during 1998,
compared with 1997. The increase was principally attributable to higher
research volume at Corsearch and higher criminal records and pre-employment
screening volume at TISI, offset partially in the first half of 1998 by lower
costs resulting from elimination of National Employment Screening Services,
Inc.("NESS"), an unprofitable business venture, closed by TISI in 1997.
General and Administrative Expenses. General and Administrative
Expenses totaled $22.6 million for the twelve months ended December 31, 1998, a
decrease of $1.4 million compared with 1997. General and Administrative
Expenses were favorably impacted during 1998 by the elimination of NESS
($177,000), restructuring of two unprofitable magazines to consolidate overhead
and reduction of corporate overhead (down $1.7 million - 57%) resulting
principally from elimination of the Tulsa, Oklahoma corporate office and
establishment of a smaller corporate office in New York City. The favorable
impact in General and Administrative Expenses was partially offset by expenses
attributable to the consolidation of Galaxy Europe ($530,000) which was not
included until May 1, 1997, and consolidation of InterGame ($460,000) from
September 1, 1998.
Depreciation and Amortization. Depreciation and Amortization increased
$2.1 million (42%) during the twelve months ended December 31, 1998 compared
with 1997. During the third quarter, the Company determined that its investment
in certain foreign subsidiaries had become impaired. Accordingly, during the
third quarter of 1998 the Company established an $820,000 reserve, which is
included in Depreciation and Amortization, to provide for this impairment. For
the twelve months ended December 31, 1998, capital spending totaled $6.5
million, an increase of $962,000 (17%) over 1997. Increased spending was
attributable principally to support of new online products and expansion of
capacity at Corsearch, additional reader rental boxes at Galaxy and computer
system upgrades at TISI.
15
<PAGE>
Interest Expense. Interest Expense totaled $10.7 million for the
twelve months ended December 31, 1998, compared with $3.7 million 1997. The
increase of $7.0 million over 1997 resulted from interest on the debt incurred
in connection with the 1997 Recapitalization.
EBITDA. EBITDA totaled $22.0 million for the twelve months ended
December 31, 1998 an increase of $6.8 million (45%) compared with 1997. The
increase during 1998 was principally attributable to higher EBITDA in the
Business to Business Communications segment (up $4.1 million-54%) and the
Information Services segment (up $4.0 million-56%), partially offset by the
impact of corporate and business development expenses. Reductions in corporate
overhead express contributed $1.7 million to improved EBITDA.
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, recapitalization and reorganizational
expenses, unusual gains (including gains on disposition of real estate in
1998), 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.
Year Ended December 31, 1997 Versus Year Ended December 31, 1996
Revenues. Revenues of $82.5 million for the year ended December 31, 1997
were $13.7 million, or 20.0%, higher than the year ended December 31, 1996.
Information Services revenue increased approximately $7.3 million, or 30.0%,
for 1997 as compared with 1996, of which approximately $4.8 million was
attributable to Corsearch (full year 1997 compared with four months 1996) and
$2.5 million was attributable principally to continued growth in TISI's
criminal record volume, and higher average prices from MVRs attributable to a
continued increase in the volume of TISI's premium service, "MVR Express."
Business to Business Communications revenue increased $6.4 million, or 15.0%,
for 1997 compared with 1996, principally because of an increase in trade show
directories produced during 1997, inclusion of Casino Executive trade journal
and Galaxy Europe revenue from the dates that a majority of Casino Publishing
Company and Galaxy Europe were acquired by the Company, reduced in part by
lower registration services due to a lower number of bi-annual trade shows in
1997, fewer pages of advertising in IGWB due to the loss of several large
advertisers in the lottery segment of the gaming industry and elimination of
two trade shows in 1997.
Operating Costs. Operating costs for the year ended December 31, 1997 were
$2.7 million, or 6.8%, higher than the year ended December 31, 1996.
Information Services costs increased $3.3 million, or 24.4%, for 1997 compared
with 1996, including approximately $2.4 million related to Corsearch with
substantially all of the remainder related to criminal records volume increases
and new product costs. Business to Business Communications costs decreased
$508,000, or 1.9%, during 1997 compared with 1996, attributable principally to
lower trade show costs due to the elimination in 1997 of two trade shows
partially offset by costs related to the increase in directories published
during 1997, additional payroll costs in 1997 related to the increases in
operating personnel throughout 1996 and early 1997, and Casino Executive costs
in 1997.
General and Administrative Expenses. General and administrative expenses
were $8.8 million, or 58.1%, higher for 1997, compared with 1996, substantially
all of which was attributable to business growth, the acquisition of CORSEARCH
and the initial consolidation in 1997 of Casino Executive and Galaxy Europe,
partially offset by lower corporate expenses from staff and other cost
reductions related to the Recapitalization. Corsearch expenses in 1997
reflected twelve months of operations compared with four months in 1996. The
Company acquired a controlling interest in and began consolidating Casino
Executive and Galaxy Europe in 1997.
16
<PAGE>
Depreciation and Amortization. Depreciation and amortization were $1.0
million, or 24.3%, higher for 1997, compared with 1996, substantially all
applicable to Corsearch, including amortization of goodwill related to the
acquisition.
Recapitalization and Reorganization Expenses. Non-recurring
recapitalization and reorganization expenses incurred in connection with the
Recapitalization totaled $21.8 million during 1997 and consisted principally of
stock options repurchased in connection with the Recapitalization ($9.9
million), costs associated with the Tender Offer ($3.9 million), incentive,
severance and retention bonus payments ($5.5 million) and other transition
costs ($2.5 million).
Interest Expense. Interest expense increased $3.1 million during the year
ended December 31, 1997, compared with the year ended December 31, 1996,
principally as the result of new debt incurred in connection with the
Recapitalization.
EBITDA. EBITDA totaled $15.2 million for the twelve months December 31,
1997 a increase of $2.1 million (16%) compared with 1996.
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, recapitalization and reorganizational expenses,
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
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. 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 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 $100.0 million 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 or interest rate increases as described herein. On
September 1, 1998 the Company purchased $1.5 million of the New Notes at a
price below par. The Company recorded a $60,000 gain on this transaction.
The Senior Credit Facility is a $25 million revolving credit facility
which is due and payable at maturity in September, 2004. The Senior Credit
Facility is secured by a first priority lien on substantially all of the
properties and assets of the Company and its subsidiaries, owned now or
acquired later. The Senior Credit Facility is
17
<PAGE>
guaranteed by all of the subsidiaries of the Company (the "Guarantors"). At the
Company's option, the interest rate per annum applicable to the Senior Credit
Facility will be a fluctuating rate of interest measured by reference either
to: (i) LIBOR plus the applicable borrowing margin or (ii) FUNB's base rate,
which is the greater of the published prime rate of FUNB or the overnight
federal funds rate plus 0.5% (the "FUNB Rate") plus the applicable borrowing
margin. The applicable borrowing margin for the Senior Credit Facility will
range from 1.75% to 2.75% for LIBOR based borrowings and 0.5% to 1.5% for FUNB
Rate based borrowings. The Company has agreed to pay certain fees with respect
to the Senior Credit Facility including (i) upfront facility fees, (ii) agent
and arrangement fees and (iii) commitment fees of 0.5% per annum on the unused
portion of the Senior Credit Facility. The entire amount of the Senior Credit
Facility was made available to the Company concurrently with the closing of the
Tender Offer. The commitments under the Senior Credit Facility are required to
be permanently reduced with: (i) 100% of the net cash proceeds of all
non-ordinary-course asset sales or other dispositions of the property by the
Company and its subsidiaries, including insurance and condemnation proceeds,
subject to limited exceptions and (ii) 100% of the net proceeds of issuance of
equity or debt obligations of the Company and its subsidiaries, subject to
limited exceptions (including the Offering). The Company may voluntarily reduce
the commitment in amounts of $1.0 million or more at any time without premium
or penalty. The Senior Credit Facility contains covenants, among others,
restricting the ability of the Company and the Guarantors to: (i) declare
dividends or redeem or repurchase 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 Company must also make
certain customary indemnification's of the lenders and their agents and will
also be required to comply with financial covenants (based on adjusted pro
forma EBITDA) with respect to: (i) a maximum leverage ratio; (ii) a maximum
senior leverage ratio; (iii) a minimum interest coverage ratio and (iv) a
minimum fixed charge coverage ratio. The Senior Credit Facility also contains
certain customary affirmative covenants. Events of default under the Senior
Credit Facility include: (i) the Company's failure to pay principal or interest
when due; (ii) the Company's material breach of any covenant, representation or
warranty contained in the loan documents; (iii) customary cross-default
provisions; (iv) events of bankruptcy, insolvency or dissolution of the Company
or the Guarantors; (v) the levy of certain judgments against the Company, any
Guarantor, or its assets; (vi) certain adverse events under ERISA plans of the
Company or the Guarantors; (vii) the actual or asserted invalidity of security
documents or guarantees of the Company or the Guarantors and (viii) a change of
control of the Company.
The Notes are unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt of the Company. The Notes are guaranteed on
a subordinated basis by all of the active wholly owned subsidiaries of the
Company. The Notes are limited in aggregate principal amount to $100.0 million
and mature on November 1, 2007. Interest on the Notes accrues at the rate of
10-3/8% per annum and will be payable semiannually in cash on each May 1 and
November 1, commencing on May 1, 1998. Interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from and including the date of issuance. The Notes will not be
entitled to the benefit of any mandatory sinking fund. The Notes may be
redeemed, at the Company's option, in whole at any time or in part from time to
time, on and after November 1, 2002, upon not less than 30 nor more than 60
days' notice, at certain specified redemption prices, plus, in each case,
accrued and unpaid interest thereon, if any, to the date of redemption. At any
time, or from time to time, on or prior to November 1, 2000, the Company may,
at its option, use the net cash proceeds of one or more Public Equity Offerings
(as defined in the Indenture) to redeem the Notes at a redemption price equal
to 110.375% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
principal amount of Notes originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 90 days after the consummation of any such Public Equity
Offering. The Indenture provides that upon the occurrence of a Change of
Control, each Holder will have the right to require that the Company purchase
all or a portion of such Holder's Notes, at a purchase price equal to 101% of
the principal amount thereof plus accrued interest to the date of purchase. The
Indenture contains covenants, among others, restricting the ability of the
Company and the Guarantors to: (i) declare dividends or redeem or repurchase
capital stock; (ii) prepay, redeem or purchase debt; (iii) make investments,
(iv) transact with affiliates, (v) incur additional indebtedness, (vi) restrict
the ability of subsidiaries to declare dividends of make loans to the Company,
(vii) amend or otherwise alter certain interests in TOIC Holdings, LLC, (viii)
sell assets,
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(ix) permit restricted subsidiaries to issue preferred stock, (x) incur liens
or (xi) alter business. The Indenture also contains certain customary
affirmative covenants and events of default.
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 February 28, 1999, the Company had
$23.7 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.
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
have been developed by business units
19
<PAGE>
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 on schedule overall and is 75% complete, with
different phases of the schedule being between 40% and 95% complete. The
portions of the project that are behind schedule are the portions that will
require the least amount of time to complete. The most time consuming portions
are on or ahead of schedule. The second half 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 unready for the Year
2000 and plans are being made for remediation. All remediation in these areas
is scheduled to be complete by the second quarter of 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 95% of the
detailed inventory. Remediation of these systems has been divided into two
phases and TISI has completed nearly 75% of the first phase and nearly 40% 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 the second quarter of 1999.
TISI and the Company's other business units are in the process of contacting
significant external entities, assessing their Year 2000 readiness and
developing action plans. The company expects to complete this survey by the end
of second quarter 1999 and, if necessary, will develop contingency plans based
on the survey results.
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 is approximately $1.4
million. The total amount expended on the Project through December 31, 1998,
was approximately $450,000, nearly all of which related to the cost to repair
or replace software and related hardware problems. The estimated future cost of
completing the Year 2000 Project is estimated to be approximately $930,000.
Funds for the Project are included in existing operating budgets.
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 and, in particular, about the Year 2000 compliance and readiness of
material external entities. 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
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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".
NEW ACCOUNTING PRONOUNCEMENTS
The FASB recently issued Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement
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 postretirement
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. These Statements are not expected to have a
material impact on the Company's financial reporting as the Company does not
currently sponsor pension or other postretirement benefit plans and does not
engage in the use of derivative instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14, Exhibits, Financial Statements, Schedules and Reports
on Form 8-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In January 1998, the Company replaced Arthur Andersen LLP with KPMG
LLP as the independent public accountants for the Company. KPMG LLP are the
accountants for VS&A Fund II.
Prior to engaging KPMG LLP, the Company consulted with KPMG LLP on the
accounting treatment for the Recapitalization.
There has not been in the last two years any adverse opinion,
disclaimer of opinion or qualified or modified opinion on the Company's audited
financial statements from Arthur Andersen LLP or any disagreement with Arthur
Andersen LLP on any matter which, if not resolved, would have caused Arthur
Andersen LLP to reference the subject matter of the disagreement in its report.
The decision to change accountants was approved by the board of
directors of the Company.
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Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to the current
Directors and executive officers of the Company and certain other key employees
of the Company and its subsidiaries. All Directors of the Company hold office
until the next Annual Meeting of Stockholders and until the election and
qualification of their successors. Each individual listed below is a citizen of
the United States, except for Ian L.M. Thomas who is a citizen of the United
Kingdom.
<TABLE>
<CAPTION>
NAME AGE POSITION
----- --- --------
<S> <C> <C>
John S. Suhler...................... 55 Chairman of the Board and Director
Ian L. M. Thomas.................... 61 President, Chief Executive Officer and Director
John J. Veronis..................... 71 Director
Jeffrey T. Stevenson................ 38 Director
S. Gerard Benford................... 60 Director
Jeffrey Tannenbaum.................. 36 Director
John Rolfe.......................... 30 Director
Stefan M. Selig..................... 36 Director
Steven J. Hunt...................... 54 Chief Financial Officer and Treasurer
Brian A. Meyer...................... 38 General Counsel and Secretary
Richard A. Wimbish.................. 55 President and Chief Operating Officer of TISI
W. Michael Goodwin.................. 48 President and Chief Executive Officer of Galaxy
Richard W. Moeller 60 President and Chief Executive Officer of GEM
William Newman 49 President and Chief Executive Officer of Atwood
</TABLE>
John S. Suhler co-founded VS&A in 1981, VS&A Communications Partners I,
L.P. ("VS&A Fund I") in 1987, VS&A Fund II in 1994 and VS&A Communications
Partners III, L.P. ("VS&A Fund III") in 1999 with Mr. Veronis. Mr. Suhler
currently is President and Co-Chief Executive of VS&A and is a Founding General
Partner of VS&A Fund I. Prior to forming VS&A, Mr. Suhler was a Corporate Vice
President of CBS and President of CBS Publishing Group.
Ian L. M. Thomas was previously employed as a Managing Director at VS&A.
Until June 15, 1998, Mr. Thomas' services were provided to the Company by VS&A,
with whom Mr. Thomas had an employment arrangement, and the Company reimbursed
VS&A for such services at cost. On June 15, 1998, Mr. Thomas entered into an
employment agreement which provides for his employment as President, Chief
Executive Officer and a Director through October 2002. Prior to his employment
at VS&A, Mr. Thomas completed a 24-year career at Reed Elsevier plc, where he
served as Chairman and Chief Executive Officer of Reed Telepublishing Ltd. and
as a member of the Board of Directors of both Reed Elsevier plc and Reed
International plc.
John J. Veronis co-founded VS&A in 1981, VS&A Fund I in 1987, VS&A Fund II
in 1994 and VS&A Fund III in 1999 with Mr. Suhler. Mr. Veronis currently is
Chairman and Co-Chief Executive of VS&A and is a Founding General Partner of
VS&A Fund I. Prior to forming VS&A, Mr. Veronis co-founded Psychology Today and
its parent company, CRM; served as President of Curtis Magazines and Publisher
of its Ladies Home Journal and was a general corporate executive at Interpublic
Group of Companies.
Jeffrey T. Stevenson has served as President and General Partner of VS&A
Fund III since February 1999, as President and General Partner of VS&A Fund II
since November 1994 and as President of VS&A Fund I since 1989. Mr. Stevenson
joined VS&A in 1982 and prior to joining VS&A Fund I was Executive Vice
President of VS&A in charge of corporate finance.
S. Gerard Benford has served as Executive Vice President and General
Partner of VS&A Fund III since February 1999, as Executive Vice President and
General Partner of VS&A Fund II since November 1994 and as
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Executive Vice President of VS&A Fund I since 1990. Prior to 1990, Mr. Benford
was a Corporate Vice President of Warner Communications Corporation and a
principal at Arthur Young & Company.
Jeffrey Tannenbaum founded Fir Tree Partners, a private investment firm,
in January 1994. From 1988 through 1993, Mr. Tannenbaum was an investment
professional at Kohlberg & Co., a corporate acquisition firm.
John Rolfe joined Fir Tree in February 1997. Prior to joining Fir Tree,
Mr. Rolfe was an investment banker with Donaldson, Lufkin & Jenrette
specializing in media and communications.
Stefan M. Selig has been a Managing Director in the Merger & Acquisition
Department of SG Cowen Securities Corp. since March 1998. Prior to joining SG
Cowen, Mr. Selig was a Managing Director in the Merger & Acquisition Department
of UBS Securities since August 1994. Prior to joining UBS, Mr. Selig was an
investment banker in the Mergers and Acquisitions Group at The First Boston
Corporation.
Steven J. Hunt was appointed Chief Financial Officer in November 1997.
Prior to joining the Company, he was the founder of Value Growth Partners,
International, a strategic and financial consulting firm, from 1995 to October
1997. Mr. Hunt previously served as Executive Vice President Business
Development and Planning and Chief Financial Officer of Patrick Media Group,
Inc., a subsidiary of GE Capital Corp. from 1991 to 1995.
Brian A. Meyer was appointed General Counsel in November 1997. Prior to
joining the Company, Mr. Meyer served as Senior Counsel at Revlon, Inc. from
May 1993 to October 1997. From January 1990 to April 1993, he was an attorney
at the law firm of Latham & Watkins.
Richard A. Wimbish joined TISI, a wholly-owned subsidiary of the Company,
as Controller in 1987 and became Executive Vice President in 1990. Mr. Wimbish
was made President and Chief Operating Officer of TISI in 1991. Prior to
joining TISI, Mr. Wimbish was Controller and Chief Financial Officer of Carlson
Reserve Corporation from 1981 through 1986.
William Newman joined the Company in June 1998 as President and Chief
Executive Officer of Atwood. Prior to joining the Company, from 1985, Mr.
Newman was President of Kansas' leading radio stations: KCFX-FM (Classic Rock);
KCIY-FM (Smooth Jazz); KXTR-FM (Classical); KQLR-FM (Rock) and the Kansas City
Chiefs Radio Network.
W. Michael Goodwin joined the Company in December 1996 as President and
Chief Executive Officer of the predecessors of both Atwood and Galaxy and in
June 1998 resigned his positions with Atwood. Prior to joining the Company, Mr.
Goodwin was founder and President of Falcon Sports Group, Inc., a company which
focused on developing and introducing new sports media properties. Prior to
this, Mr. Goodwin was Executive Vice President and Chief Operating Officer of
Professional Sports Publications, a publisher of sporting event game day
magazines (1992-1995).
Richard Moeller joined the Company in September 1998 as President and
Chief Executive Officer of GEM. Prior to joining the Company, from 1993 to
1995, Mr. Moeller was President of Johnson Hill Press, Inc., a magazine
publisher, and from 1996 to 1998, was President and Chief Executive Officer of
JDTV, Inc., a television programming database company.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is certain information with respect to the compensation of
each of the five most highly compensated executive officers of the Company and
its subsidiaries, based on salary and bonus earned during 1998, for services in
all capacities to the Company and its subsidiaries during each of the Company's
last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual -----------------------------
Compensation(1) Awards Payouts
--------------- --------- ------------------
Number of
Restricted Shares
Name and Principal Position Stock Underlying LTIP All Other
- --------------------------- Year Salary Bonus(2) Award(s) Options(3) Payouts Compensation(4)
---- ------ -------- -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ian L.M. Thomas(5) 1998 $175,000 $168,998 -- -- -- --
President and Chief Executive Officer 1997 38,836 -- -- -- -- --
1996 -- -- -- -- -- --
Steven J. Hunt 1998 $175,000 $35,000 -- -- -- $39,000
Chief Financial Officer 1997 29,167 -- -- -- -- --
1996 -- -- -- -- -- --
Brian A. Meyer 1998 $160,000 $32,000 -- -- -- --
General Counsel 1997 26,667 -- -- -- -- --
1996 -- -- -- -- -- --
Richard Wimbish 1998 $175,000 $49,000 -- -- -- 6,542
President, TISI 1997 165,000 25,000 -- -- -- 539,935
1996 155,000 41,491 -- 10,000 -- 5,429
Mike Goodwin 1998 $165,000 $52,800 -- -- -- --
President, Galaxy 1997 165,000 33,333 -- 20,000 -- 24,088
1996 -- -- -- -- -- --
</TABLE>
- ---------------
(1) No cash compensation other than the annual amounts described was paid to
any of the named executives attributable to the periods shown.
(2) Includes bonuses earned for the year, even if paid in another year.
(3) Consists solely of options to acquire shares of common stock.
(4) These amounts include the total value of the Company's contributions made
or accrued to the Company's 401(k) plan. All such persons are 100 percent
vested in their accounts under the Company's plan. In the case of Mr.
Hunt, this includes relocation expenses paid in 1998. In the case of Mr.
Goodwin with respect to 1997, this includes relocation expenses paid in
1997. In the case of Mr. Wimbish with respect to 1997, this also includes
a bonus of $535,000 in connection with the change of control.
(5) Mr. Thomas served as President and Chief Executive Officer from October 9,
1997. Until Mr. Thomas' U.S. Visa was transferred from VS&A to the
Company, Mr. Thomas' services were provided to the Company by VS&A, with
whom Mr. Thomas had an employment arrangement, and the Company reimbursed
VS&A for such services at cost. On June 15, 1998, Mr. Thomas entered into
an employment agreement with the Company that provides for his employment
through October 2002.
OPTIONS. The Company did not grant any options or stock appreciation
rights during 1998. The Company never granted any stock appreciation rights. In
1997, the Company terminated all stock option plans, except for the Company's
1994 Incentive Stock Plan, under which Mr. Wimbish was granted options
exerciseable into 16,750 shares of common stock (1,675 shares after giving
effect to a 10-for-1 reverse stock split effected in 1998). The
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<PAGE>
plan will survive solely with respect to such options and no further options
are outstanding, or will be granted, under such plan.
COMPENSATION OF DIRECTORS. Directors receive no additional compensation
for service on the Board of Directors or any committee thereof. Directors are
reimbursed by the Company for out-of-pocket expenses incurred by them in
connection with their service on the Board of Directors and any committee
thereof.
EMPLOYMENT AGREEMENTS. The Company is subject to employment agreements
with certain directors, officers or key employees, as follows:
Ian L.M. Thomas is President and Chief Executive Officer and a Director of
the Company. Until Mr. Thomas' U.S. Visa was transferred from VS&A to the
Company, Mr. Thomas' services were provided to the Company by VS&A, with whom
Mr. Thomas had an employment arrangement, and the Company reimbursed VS&A for
such services at cost. On June 15, 1998, Mr. Thomas entered into an employment
agreement with the Company that provides for his employment through October
2002 at a base salary of $175,000 per year, with annual increases based upon
the Consumer Price Index, plus a bonus (of up to 100% of his base salary) based
upon certain performance targets. Mr. Thomas also participates in the Company's
Chief Executive Officer Equity Appreciation Plan and Supplemental Chief
Executive Officer Equity Appreciation Plan. See "--Phantom Stock Plans."
Steven J. Hunt, hired by the Company in November 1997, is the Chief
Financial Officer of the Company. Mr. Hunt is party to an employment agreement
with the Company that provides for a five-year term at a base salary of
$175,000 per year, with annual increases based upon the Consumer Price Index,
plus a bonus (of up to 50% of his base salary) based upon certain performance
targets. Mr. Hunt also participates in the Company's Chief Financial
Officer/General Counsel Equity Appreciation Plan. See "--Phantom Stock Plans."
Brian A. Meyer, hired by the Company in November 1997, is the General
Counsel of the Company. Mr. Meyer is party to an employment agreement with the
Company that provides for a five-year term at a base salary of $160,000 per
year, with annual increases based upon the Consumer Price Index, plus a bonus
(of up to 50% of his base salary) based upon certain performance targets. Mr.
Meyer also participates in the Company's Chief Financial Officer/General
Counsel Equity Appreciation Plan. See "--Phantom Stock Plans."
W. Michael Goodwin was hired by the Company in December 1996, to serve as
President and Chief Executive Officer of the predecessors of both Atwood and
Galaxy. After a full-time Chief Executive Officer was hired for Atwood, Mr.
Goodwin relinquished his position with Atwood and became the full-time Chief
Executive Officer of Galaxy. Mr. Goodwin entered into a new employment
agreement as of January 1, 1998 which provides for his employment through
December 31, 2000 as President and Chief Executive Officer of Galaxy
Registration, LLC at a base salary of $165,000 annually, with annual increases
based upon the Consumer Price Index, and various incentives and bonus
opportunities, including participation in the Company's Key Executive Equity
Appreciation Plan.
Richard A. Wimbish entered into a new employment agreement with TISI as of
January 1, 1998 which provides for his employment through December 31, 2000 as
President and Chief Operating Officer of TISI at a base salary of $175,000
annually, with annual increases based upon the Consumer Price Index, and
various incentives and bonus opportunities, including participation in the
Company's Key Executive Equity Appreciation Plan. Mr. Wimbish continues to hold
options granted under the Company's 1994 Incentive Stock Plan, 1,675 shares of
common stock are issuable upon exercise of such options, 1,000 of which have an
exercise price of $13.874 per share and 675 of which have an exercise price of
$4.25 per share. The Company's 1994 Incentive Stock Plan, under which such
options were granted, therefore will survive (solely with respect to such
options).
William Newman was hired by the Company in June 1998 to serve as President
and Chief Executive Officer of Atwood. Mr. Newman entered into an employment
agreement as of June 22, 1998 which provides for his employment through
December 31, 2000 as President and Chief Executive Officer of Atwood
Publishing, LLC at a base salary of $165,000 annually, with annual increases
based upon the Consumer Price Index, and various incentives and bonus
opportunities, including participation in the Company's Key Executive Equity
Appreciation Plan.
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<PAGE>
Richard Moeller was hired by the Company in September 1998 to serve as
President and Chief Executive Officer of GEM. Mr. Moeller entered into an
employment agreement as of September 1, 1998 which provides for his employment
through August 31, 2001 as President and Chief Executive Officer of GEM
Communications, LLC at a base salary of $160,000 annually, with annual
increases based upon the Consumer Price Index, and various incentives and bonus
opportunities, including participation in the Company's Key Executive Equity
Appreciation Plan.
PHANTOM STOCK PLANS
The Company has established a Key Executive Equity Appreciation Plan (the
"Key Executive Phantom Stock Plan") for executives of the Company. Pursuant to
the Key Executive Phantom Stock Plan, executives can be awarded Equity
Appreciation Units ("Units") which constitute a "phantom" equity interest in
any appreciation in the value of the equity of the Company above the $59.6
million originally invested by VS&A-T/SF and Fir Tree in the Company and
Holdings LLC (the "Equity Appreciation") payable only in the event of a change
in control of the Company, as defined, or termination event, as defined. The
Units vest 20% per year over five years, provided that the executive remains an
employee of the Company and the annual EBITDA budget for the Company is
achieved (or, if not achieved, that 110% of the annual EBITDA budget for the
next year is achieved). Messrs. Wimbish, Goodwin, Newman and Moeller were
awarded Units equal to .3%, .2%, .25% and .175%, respectively, of the Equity
Appreciation under the Key Executive Phantom Stock Plan.
Ian L.M. Thomas, President and Chief Executive Officer of the Company, was
awarded Units equal to 2.5% of the Equity Appreciation under the Chief
Executive Officer Equity Appreciation Plan, which Units vest 20% per year over
five years, provided that Mr. Thomas remains an employee of the Company. Mr.
Thomas was awarded Units equal to an additional 2.5% of the Equity Appreciation
under the Supplemental Chief Executive Officer Equity Appreciation Plan, which
Units vest 100% upon a Change of Control (as defined in the Supplemental Chief
Executive Officer Equity Appreciation Plan), in the event that VS&A-T/SF has
received an internal rate of return on its investment in the common stock of
greater than 20% per annum.
Mr. Hunt, Chief Financial Officer of the Company, and Mr. Meyer, General
Counsel of the Company, were awarded Units equal to 1.5% and 1%, respectively,
of the Equity Appreciation under the Chief Financial Officer/General Counsel
Equity Appreciation Plan (together with the Key Executive Phantom Stock Plan,
the Chief Executive Officer Equity Appreciation Plan and the Supplemental Chief
Executive Officer Equity Appreciation Plan, the "Phantom Stock Plans"), which
Units vest 20% per year over five years, provided, in each case, that such
individual remains an employee of the Company.
Upon termination of an executive's employment by the Company for any
reason (other than Cause (as defined in the Key Executive Phantom Stock Plan)
or voluntary termination by the executive), the executive is entitled to
receive an amount equal to the value of his or her vested Units, payment of
which can be deferred until a Change in Control (as defined in the Key
Executive Phantom Stock Plan) of the Company. All Units awarded under the Chief
Executive Officer Equity Appreciation Plan and the Chief Financial
Officer/General Counsel Equity Appreciation Plan vest on a Change in Control
(as defined in each plan), and the executive is entitled to receive an amount
equal to the value of his or her Units (unless his or her employment terminated
prior to the Change in Control).
The maximum number of Units issuable under the Phantom Stock Plans would
constitute approximately 10% of the common equity interests of the Company.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On March 31, 1998, following the consummation of the Recapitalization on
February 27, 1998 and a 10-for-1 reverse stock split effected on March 30,
1998, VS&A-T/SF held 72,367 shares (or approximately 64.4%) and Fir Tree held
40,000 shares (or approximately 35.6%) of the common stock, constituting all of
the outstanding common stock. Upon consummation of the Tender Offer, Stock
Purchase and Option Repurchase, pending the Second Step Transaction on February
27, 1998, public shareholders held 101,969 shares of the common stock (or
approximately 7%), and VS&A-T/SF's shares constituted approximately 60% and Fir
Tree's shares constituted approximately 33% of the outstanding shares of the
common stock. No directors or executive officers of the Company own any shares
of the common stock. An affiliate of Ian L. M. Thomas, President and Chief
Executive Officer of the Company, has invested $750,000 to purchase 1.95% of
VS&A-T/SF.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
<S> <C> <C>
VS&A-T/SF, LLC 72,367 64.40%
350 PARK AVENUE
NEW YORK, NEW YORK
FIR TREE VALUE FUND LP. 34,541 30.74%
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FIR TREE INSTITUTIONAL VALUE FUND L.P. 3,831 3.41%
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FIR TREE VALUE PARTNERS L.D.C. 1,628 1.45%
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
VS&A-T/SF, Fir Tree (each, a "Stockholder") and the Company are parties to
a Stockholders Agreement (the "Stockholders Agreement"), dated as of October 9,
1997, with respect to the management of the Company and their ownership of
shares of the common stock.
The Stockholders Agreement provides each Stockholder the right to "tag"
along on any sale of shares by the other Stockholder, provides to VS&A-T/SF the
right to "drag" along Fir Tree on any sale of all of the common stock and
provides preemptive rights to each Stockholder.
The Stockholders Agreement provides that VS&A-T/SF and Fir Tree will vote
for a board consisting of a majority of members designated by VS&A-T/SF and a
number of Fir Tree designees in proportion to Fir Tree's ownership of common
stock. Accordingly, the board of directors of the Company consists of eight
members, five designated by VS&A-T/SF and three designated by Fir Tree. See
"Management."
The Stockholders Agreement provides that certain actions require approval
by a majority of the Fir Tree designees on the board, including an amendment of
the Certificate of Incorporation or By-Laws, a transaction with
27
<PAGE>
VS&A-T/SF or an affiliate, certain borrowings or management equity plans
pursuant to which management receives more than 10% of the common equity
interests of the Company.
At any time after October 9, 2002, Fir Tree has the right to force a sale
of the Company or its assets and the Stockholders are required to sell their
shares or vote in favor of a sale. If a definitive agreement for the sale of
the Company is not executed within 18 months after the notice from Fir Tree,
the Stockholders will vote their shares to elect a board consisting of a
majority of members designated by Fir Tree.
The Stockholders Agreement terminates in 10 years or upon an earlier
underwritten initial public offering of common stock.
Following the Recapitalization, VS&A was paid an investment banking fee of
$1.5 million by the Company, which was shared with Fir Tree pro rata (based on
the ratio in which VS&A-T/SF and Fir Tree own shares of the common stock).
In 1998, VS&A was paid a fee of $20,000 in connection with advisory
services provided to the Company with respect to the acquisition of
International Gaming Business Exposition and a monitoring fee of $90,000;
approximately 18% of both such fees were shared with Fir Tree pursuant to the
Stockholders Agreement.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Auditors'
Reports included herein:
See Index on page F-1
(2) Financial Statement Schedule:
The Financial Statement Schedules are omitted as they are
inapplicable or the required information is furnished in the
Consolidated Financial Statements of the Company or the Notes
thereto.
(3) List of Exhibits:
Exhibit
- -------
Number Description
- ------ -----------
2.1 Stock Purchase Agreement, dated as of August 15, 1997, among
VS&A Communications Partners II, L.P., VS&A-T/SF Inc. and T/SF
Communications Corporation (incorporated herein by reference to
Exhibit 2.1 to the Company's Registration Statement on Form S-4
dated February 10, 1998 (the "Registration Statement"))
2.2 Stock Purchase Agreement dated as of September 1, 1998 by and
among GEM Communications, LLC and the shareholders of InterGame
Limited (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated September 1, 1998).
2.3* Asset Purchase Agreement dated as of March 25, 1999 among TOIC
Acquisition, LLC, The Official Information Company,
International Travel Service, Inc. and William A. Patterson Jr.,
Stephen T. Martin and Edward A. Harris
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1997 (the "1997 Form 10-K"))
3.2 Amended and Restated By-laws of the Company (incorporated herein
by reference to Exhibit 3.2 to the Registration Statement)
4.1 Indenture, dated as of October 29, 1997, by and among T/SF
Communications Corporation, the Guarantors named therein and IBJ
Schroder Bank & Trust Company, as Trustee (incorporated herein
by reference to Exhibit 4.1 to the Registration Statement)
4.1(a) Form of Supplemental Indenture, by and among T/SF Communications
Corporation, the Guarantors named therein and IBJ Schroder Bank
& Trust Company, as Trustee (incorporated herein by reference to
Exhibit 4.1(a) to the Registration Statement)
4.2 Registration Rights Agreement, dated as of October 29, 1997, by
and among T/SF Communications Corporation, the Guarantors named
therein and First Union Capital Markets Corp. (incorporated
herein by reference to Exhibit 4.1(a) to the Registration
Statement)
4.3 Form of Old Note (included in Indenture filed as Exhibit 4.1)
4.4 Form of New Note (included in Indenture filed as Exhibit 4.1)
10.1 Credit Agreement, dated as of October 9, 1997, among T/SF
Communications Corporation and First Union Corporation (as
Lender and Agent) (incorporated herein by reference to Exhibit
10.2 to the Registration Statement)
10.2 Security Agreement, dated as of October 9, 1997, among T/SF
Communications Corporation, the Guarantors (as defined therein)
and First Union National Bank (incorporated herein by reference
to Exhibit 10.3 to the Registration Statement)
10.3 Stock Pledge Agreement, dated as of October 9, 1997, made by
VS&A-T/SF, Inc. and Fir Tree Value Fund, L.P., Fir Tree
Institutional Value Fund, L.P., and Fir Tree Value Partners,
LDC, in favor of First Union National Bank (incorporated herein
by reference to Exhibit 10.4 to the Registration Statement)
29
<PAGE>
10.4 Stock Pledge Agreement, dated as of October 9, 1997, made by
T/SF Communications Corporation in favor of First Union National
Bank (incorporated herein by reference to Exhibit 10.5 to the
Registration Statement)
10.5 Stock Pledge Agreement, dated as of October 9, 1997, made by
T/SF Holdings, LLC, in favor of First Union National Bank
(incorporated herein by reference to Exhibit 10.6 to the
Registration Statement)
10.6 Stock Pledge Agreement, dated as of October 9, 1997, made by
Atwood Convention Publishing, Inc., Galaxy Registration, Inc.,
G.E.M. Communications, Inc., Transportation Information
Services, Inc., T/SF Investment Co. and T/SF of Nevada, Inc., in
favor of First Union National Bank (incorporated herein by
reference to Exhibit 10.7 to the Registration Statement)
10.7* Employment Agreement by and between Richard Moeller and GEM
Communications, LLC, dated as of September 1, 1998.
10.8* Employment Agreement by and between William Newman and Atwood
Publishing, LLC, dated as of June 22, 1998.
10.9 Employment Agreement by and between Richard A. Wimbish and
Transportation Information Services, Inc., dated as of January
1, 1998 (incorporated herein by reference to Exhibit 10.8 to the
Registration Statement)
10.10 Form of Employment Agreement by and between Ian L.M. Thomas and
T/SF Communications Corporation (incorporated herein by
reference to Exhibit 10.9 to the Registration Statement)
10.10(a) Letter Agreement, dated October 9, 1997, by and between VS&A
Communications Partners, II, L.P., Veronis, Suhler & Associates,
Inc. and Ian L.M. Thomas (incorporated herein by reference to
Exhibit 10.9(a) to the Registration Statement)
10.11 Employment Agreement by and between Steven J. Hunt and T/SF
Communications Corporation, dated as of November 10, 1997
(incorporated herein by reference to Exhibit 10.10 to the
Registration Statement)
10.12 Employment Agreement by and between Brian A. Meyer and T/SF
Communications Corporation, dated as of November 10, 1997
(incorporated herein by reference to Exhibit 10.11 to the
Registration Statement)
10.13 Employment Agreement by and between Michael Goodwin and Galaxy
Registration, LLC, dated as of January 1, 1998 (incorporated
herein by reference to Exhibit 10.12 to the Registration
Statement)
10.14 T/SF Communications Corporation Chief Executive Officer Equity
Appreciation Plan (incorporated herein by reference to Exhibit
10.14 to the Registration Statement)
10.15 T/SF Communications Corporation Supplemental Chief Executive
Officer Equity Appreciation Plan (incorporated herein by
reference to Exhibit 10.15 to the Registration Statement)
10.16 T/SF Communications Corporation Chief Financial Officer/General
Counsel Equity Appreciation Plan (incorporated herein by
reference to Exhibit 10.16 to the Registration Statement)
10.17 T/SF Communications Corporation Key Executive Equity
Appreciation Plan (incorporated herein by reference to Exhibit
10.17 to the Registration Statement)
10.18 Stockholders' Agreement, dated as of October 9, 1997, among T/SF
Communications Corporation, VS&A-T/SF, L.L.C. and Fir Tree Value
Fund, L.P., Fir Tree Institutional Value Fund, L.P. and Fir Tree
Value Partners, LDC (incorporated herein by reference to Exhibit
10.18 to the Registration Statement)
10.19 Consulting Agreement by and between Howard G. Barnett, Jr. and
T/SF Communications Corporation, dated October 9, 1997
(incorporated herein by reference to Exhibit 10.19 to the
Registration Statement)
10.20 Consulting Agreement by and between Robert F. Craine, Jr. and
T/SF Communications Corporation, dated October 9, 1997
(incorporated herein by reference to Exhibit 10.20 to the
Registration Statement)
10.21 Consulting Agreement by and between J. Gary Mourton and T/SF
Communications Corporation, dated October 9, 1997 (incorporated
herein by reference to Exhibit 10.21 to the Registration
Statement)
10.22 T/SF Communications Corporation 1994 Incentive Stock Plan
(incorporated herein by reference to Exhibit A to the
Registrant's Proxy Statement for Annual Meeting of Stockholders
dated May 23, 1994)
30
<PAGE>
10.23 Settlement Agreement, dated and effective as of December 12,
1995, by and between T/SF Communications Corporation and Robert
J. Swab (incorporated herein by reference to Exhibit 10.18 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.24 Operating Agreement for 1995 Land Company, L.L.C., dated
December 20, 1994, by and between John C. Bumgarner, Jr. and
Tribune/Swab-Fox (incorporated herein by reference to Exhibit
10.20 of Tribune/Swab-Fox's Annual Report on Form 10-K for the
year ended December 31, 1994)
10.25 Stock Purchase Agreement, dated as of August 15, 1996, by and
among T/SF Investment Co. and the shareholders of CORSEARCH,
Inc. (incorporated herein by reference to Exhibit 2.1 to the
Form 8-K)
10.26 T/SF Communications Corporation and T/SF Holdings, LLC Key
Employee Bonus Plan (incorporated herein by reference to Exhibit
10.29 to the Registration Statement)
10.27 Voting Agreement dated as of February 6, 1998 among the Company
and certain subsidiaries (incorporated by reference to Exhibit
10.27 of the 1997 Form 10-K)
12* Statement re: computation of ratios
21* Subsidiaries of the Company
23.1* Consent of Arthur Andersen, LLP
27* Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
THE REGISTRANT FILED NO REPORTS ON FORM 8-K DURING THE LAST QUARTER OF
THE FISCAL YEAR ENDED DECEMBER 31, 1998.
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE OFFICIAL INFORMATION COMPANY
PAGE
----
Reports of independent auditors and public accountants F-2
Consolidated balance sheets as of December 31, 1998 and 1997 F-4
Consolidated statements of operations for the years ended
December 31, 1998, 1997 and 1996 F-6
Consolidated statements of changes in stockholders' equity (deficit) for
the years ended December 31, 1998, 1997 and 1996 F-7
Consolidated statements of cash flows for the years ended
December 31, 1998, 1997 and 1996 F-8
Notes to consolidated financial statements F-10
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Official Information Company:
We have audited the accompanying consolidated balance sheet of The Official
Information Company, its subsidiaries and controlled affiliates as of December
31, 1998 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Official
Information Company, its subsidiaries and controlled affiliates as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
February 9, 1999
F-2
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of The Official Information Company
(formerly T/SF Communications Corporation):
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of The Official Information Company
(formerly T/SF Communications Corporation) (a Delaware corporation) and
subsidiaries for the year ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations,
changes in stockholders' equity and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated statements of operations,
changes in stockholders' equity and cash flows. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The Official
Information Company (formerly T/SF Communications Corporation) and subsidiaries
for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Tulsa, Oklahoma
February 21, 1997
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED BALANCE SHEETS
((IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Assets 1998 1997
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,878 10,564
Accounts receivable, less reserve for doubtful accounts
of $856 in 1998 and $595 in 1997 17,555 11,018
Due from related entity 20 -
Inventories 231 329
Deferred tax assets 260 1,520
Notes receivable and other current assets 1,706 1,345
Refundable income taxes - 3,166
---------- -------
Total current assets 23,650 27,942
------ ------
Notes receivable and investments 411 1,769
----- -------
Property, plant and equipment, at cost:
Exposition equipment 7,301 4,083
Data processing and office furniture and equipment 14,308 12,880
------ ------
21,609 16,963
Less accumulated depreciation 12,584 9,910
------ -------
Property, plant and equipment, net 9,025 7,053
-------- -------
Deferred tax assets 1,185 1,150
Intangibles and other assets, net 40,263 33,052
------ ------
$ 74,534 70,966
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1998 1997
---------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,967 4,505
Accrued liabilities 9,984 9,261
Deferred revenue 6,680 2,843
Current portion of long-term debt 1,367 1,232
----- ---------
Total current liabilities 20,998 17,841
------ --------
Long-term debt 99,385 102,302
Other liabilities 1,353 1,425
Minority interest 6,991 -
Stockholders' equity (deficit):
Common stock, $.10 par value, 150,000 and 10,000,000 shares authorized at
December 31, 1998 and 1997,
respectively 42 419
Additional paid-in capital 48,197 47,820
Retained earnings 12,044 11,528
------ --------
60,283 59,767
Treasury stock (114,476) (110,369)
--------- -------
Total stockholders' equity (deficit) (54,193) (50,602)
-------- --------
$ 74,534 70,966
======== ========
</TABLE>
F-5
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Operating revenues $ 95,557 81,092 66,816
Interest and other income 834 1,577 1,478
Gain (loss) on sale of assets, net 46 (210) 348
---------- -------- --------
Total revenues 96,437 82,459 68,642
------ ------ ------
Costs and expenses:
Operating costs 51,707 43,160 40,314
General and administrative 22,640 24,041 15,207
Recapitalization and reorganizational expenses - 21,774 -
Interest 10,676 3,696 581
Depreciation and amortization 7,078 4,996 4,018
----- ------- -------
92,101 97,667 60,120
------ ------ ------
Income (loss) before income taxes 4,336 (15,208) 8,522
Income tax (expense) benefit (1,329) 2,636 (3,101)
Minority interest in consolidated subsidiaries (2,491) - -
------- ------ -------
Net income (loss) $ 516 (12,572) 5,421
======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 419 332 332
Issuance of common stock - 92 1
Retirement of common stock - (5) (1)
Reverse stock split (377) - -
----- ------- ---
Balance at end of year 42 419 332
-- --- ---
Additional paid-in capital:
Balance at beginning of year 47,820 13,754 13,475
Issuance of common stock - 35,350 111
Retirement of common stock - (1,372) (196)
Reverse stock split 377 - -
Compensation recognized on stock options,
net of tax benefit - 88 364
-------- --------- ---
Balance at end of year 48,197 47,820 13,754
------ ------ ------
Retained earnings:
Balance at beginning of year 11,528 24,100 18,679
Net income (loss) 516 (12,572) 5,421
--- -------- -----
Balance at end of year 12,044 11,528 24,100
------ ------ ------
Treasury stock: (284 shares)
Balance at beginning of year (110,369) - -
Repurchase of shares (3,600) (110,369) -
Minority shareholder conversion (507) - -
----------- --------------- ------
Balance at end of year (114,476) (110,369) -
--------- --------- ------
Total stockholders equity (deficit) $ (54,193) (50,602) 38,186
======== ======= ======
Common shares outstanding:
Beginning balance 4,191 3,318 3,318
Retirement of common stock - (50) (1)
Reverse stock split (3,770) - -
Issuance of common stock - 923 1
-------- --- ------
Balance at end of year 421 4,191 3,318
======== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 516 (12,572) 5,421
----- ------ -------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 7,078 4,996 4,018
Undistributed earnings of
unconsolidated subsidiary - (156) -
Accretion of interest expense - - 282
(Gain) loss on sale of assets (46) 201 (348)
Reserves provided on investments - 444 425
Compensation recognized on stock options,
net of tax benefit - 88 364
Gain on debt repurchase (60) - -
Deferred income taxes 1,225 (1,196) 309
Changes in assets and liabilities:
Accounts receivable and refundable
income taxes (2,639) (1,663) (483)
Inventories 98 (34) (12)
Current contract receivable and other
current assets (360) 1,208 390
Intangibles and other assets 308 (993) (160)
Accounts payable and accrued liabilities (1,646) 4,839 (1,389)
Deferred revenue 3,837 394 (912)
Minority interests 2,491 - -
------------- ---------- -------
Total adjustments 10,286 8,128 2,484
-------- ----- -------
Net cash provided by (used in) operating activities 10,802 (4,444) 7,905
------- ------- -------
Cash flows from investing activities:
Net sales of short-term investments - - 1,000
Collections on contract and notes receivable 41 345 1,372
Investments, net of distributions - 100 (212)
Capital expenditures (6,503) (5,541) (2,641)
Proceeds from the sale of assets 1,625 35 772
Payments for acquisition, net of cash acquired (10,246) (813) (15,691)
Payments on deferred contract liabilities (290) (638) (685)
-------- ----- --------
Net cash used in investing activities (15,373) (6,512) (16,085)
-------- ------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowing under long-term debt $ - 100,000 -
Principal payments of long-term debt (1,281) (1,493) (3,361)
Borrowings under bank lines-of-credit - 93,618 3,500
Payments under bank lines-of-credit - (93,000) (3,000)
Debt financing costs (294) (3,558) -
Issuance of common stock - 35,442 111
Retirement of bonds - -
(1,440) - -
Minority interest 4,500 - -
Repurchase of common stock (3,600) (111,746) (196)
---------- --------- -----
Net cash (used in) provided by financing activities (2,115) 19,263 (2,946)
--------- -------- -------
Net (decrease) increase in cash and cash equivalents (6,686) 8,307 (11,126)
Cash and cash equivalents at beginning of year 10,564 2,257 13,383
---------- --------- ------
Cash and cash equivalents at end of year $ 3,878 10,564 2,257
======= ======== =======
Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest $ 10,778 1,693 294
Income taxes (3,410) (1,209) 3,845
Cash paid for acquisitions:
Accounts receivable (753) (225) -
Investments - (102) -
Prepaid and other assets (9,817) (1,272) -
Property, plant and equipment (218) (239) -
Accounts payable and accrued liabilities 542 548 -
Deferred revenue - 106 -
Long-term debt - 371 -
--------- ---------- ------
$ (10,246) (813) -
======== ========= ======
Non-cash transaction
Reduction of minimum contingent consideration
(included in deferred contract liabilities) against
goodwill due to partial termination of agreement $ 972 -
====== ========== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
THE OFFICIAL INFORMATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Official Information Company, its subsidiaries and controlled
affiliates (collectively, the "Company", unless the context indicates
otherwise) is a diversified business media company which principally
operates two lines of business: 1) business and professional information
services ("Information Services") and 2) business to business
communications, publishing and related services ("Business to Business
Communications"). Business to Business Communications is conducted
through several subsidiaries whose specialized services include: 1)
providing media services to the gaming industry with trade magazines,
newsletters, conferences and a trade show; 2) providing exposition
services, primarily registration and lead management and 3) publication
services, primarily convention/trade show newspapers and directories.
Information Services includes: 1) pre-employment screening information,
primarily for the insurance and trucking industries, and 2)
trademark/tradename research to law firms and corporations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, its majority-owned subsidiaries and controlled affiliates. All
significant intercompany accounts and transactions have been eliminated
in consolidation. Minority interest consists of the equity interests in
Holdings LLC owned by VSA-T/SF, Fir Tree Value Fund LP., Fir Tree
Institutional Value Fund L. P. and Fir Tree Value Partners L.D.C.
INVENTORIES
Inventories are recorded at the lower of cost or market determined on a
first-in, first-out and average cost methods.
DEPRECIATION
Depreciation of property, plant and equipment is provided using the
straight-line method based on estimated useful lives of 3 years for
exposition equipment and ranging from 3 to 25 years for data processing
and office furniture and equipment.
INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include mainly goodwill related to
acquisitions and credits granted for truck driver employment information
files. These assets consist of the following:
F-10
<PAGE>
<TABLE>
<CAPTION>
Amortization December 31,
Period 1998 1997
------ ---- ----
(In thousands)
<S> <C> <C> <C>
Goodwill 15-30 years $ 41,494 31,224
Employment information costs 4 years 3,471 3,435
Debt financing costs and other Various 5,149 5,899
------- -------
50,114 40,558
Accumulated amortization (9,851) (7,506)
------- -------
$ 40,263 33,052
====== ======
</TABLE>
The Company's policy is to recognize an impairment of the carrying value
of goodwill when management's best estimate of undiscounted future cash
flows over the remaining amortization period is less than the carrying
amount. Under this method, the Company has determined that its
investment in certain foreign subsidiaries has become impaired.
Accordingly, during the third quarter of 1998 the Company recorded a
$820,000 reserve, which is included in Depreciation and Amortization.
TRANSLATION OF FOREIGN CURRENCY
The financial position and results of operations of the Company's
foreign subsidiaries are measured using local currency as the functional
currency. Revenues and expenses of such subsidiaries have been
translated into U.S. dollars at average exchange rates prevailing during
the period. Assets and liabilities have been translated at the rates of
exchange at the balance sheet date. Translation gains and losses are
deferred as a separate component of stockholders' equity. Aggregate
foreign currency transaction gain and losses are included in determining
net income.
REVENUE RECOGNITION
Information Services revenues are recognized when the research is
completed and reports are transmitted to the client. The cost of charges
from state motor vehicle record departments or other agencies which are
incurred by the Company as an agent for its customers are netted against
revenue. As provided in the agreements with customers, the Company
charges a fee for its service and is also reimbursed for direct charges.
Exposition services revenues are recognized when the services are
provided.
Advertising revenues from publishing are recognized when each
publication is published and distributed. Subscription revenue is
recognized ratably over the subscription period.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-11
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less are considered to be cash
equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS
Investments in the common stock of an affiliate in which the Company
owns a 49% interest is accounted for by the equity method. The excess of
cost of the investment over the Company's share of its net assets at the
acquisition date is being amortized straight line over 20 years. See
Note 3.
COMPUTER SOFTWARE
Included in property, plant and equipment are net deferred product
enhancement cost aggregating approximately $790,000 and $436,000 as of
December 31, 1998 and 1997, respectively. Included in depreciation and
amortization is amortization for product enhancement cost of
approximately $188,000 and $0 for 1998 and 1997, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of cash and cash
equivalents, trade accounts receivable and trade accounts payable
approximates the fair value because of the short maturity of those
instruments. The carrying amounts of notes payable (see Note 4)
approximates the fair value due to these debt instruments having
variable interest rates similar to those that are currently available to
the Company. The fair value of the Senior Subordinated Notes (see Note
4) at December 31, 1998, based on the current offered market price,
approximates its carrying value.
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 previousely 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 cost.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial
statements. It
F-12
<PAGE>
does not, however, specify when to recognize or how to measure items
that make up comprehensive income. SFAS 130 was issued to address the
concerns over the practice of reporting elements of comprehensive income
directly in equity. The Company adopted SFAS 130 in 1998. There were no
differences between the Company's comprehensive income and its net
income as reported.
The FASB also recently issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement 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 postretirement 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. These Statements are not expected to have a material
impact on the Company's financial reporting as the Company does not
currently sponsor pension or other postretirement benefit plans and does
not engage in the use of derivative instruments.
RECLASSIFICATIONS
Certain 1997 and 1996 account balances have been reclassified to conform
to the 1998 consolidated financial statement presentation.
2. RECAPITALIZATION
During 1997, the Company adopted a two phased leverage recapitalization
plan of the Company's ownership and capital structure. Phase I included
a tender offer for substantially all of the Company's outstanding common
stock (the "Tender Offer"); selling newly-issued common stock to a new
investor, VS&A-T/SF, L.L.C. (the "Stock Purchase"); and repurchasing
substantially all of the outstanding stock options under the Incentive
Stock Option Plan and the 1994 Incentive Stock Plan (the "Option
Repurchase").
Phase II of the leveraged recapitalization plan of the Company was
completed on February 27, 1998 which included a reverse stock split and
a drop down restructuring. The reverse stock split provides that each
then outstanding share of common stock other than treasury stock and
stock owned by the Equity Investors (as defined below) is converted into
the right to receive $40.25 for each pre-split share resulting in the
elimination of all shares of common stock other than those held by
Equity Investors.. Under the drop down restructuring plan, the Company
contributed substantially all of the assets and liabilities of the
Business to Business Communication Segment into T/SF Holdings LLC
(Holdings LLC) and related operating LLC's in exchange for a $45 million
preferred equity interest. The preferred equity interest will carry an
11% annual distribution and the Company will have total voting,
operational and management control of Holdings LLC. The Equity Investors
purchased common equity interests in Holdings LLC for approximately $4.5
million in the same proportion as their ownership of the common stock
immediately following the consummation of the Recapitalization. These
common equity interests in Holdings LLC and all earnings or losses in
excess of the preferred stockholders' annual distributions are reflected
as minority interest. Following the consummation of the
Recapitalization, VS&A-T/SF and Fir Tree Partners, an existing
stockholder, (together referred to as the Equity Investors) own 64.4%
and 35.6% of the Company's common stock, respectively.
The Tender Offer was consummated on October 9, 1997 for 2,742,092 shares
of common stock at $40.25 per share in cash or approximately $110.4
million. These shares are held in treasury at
F-13
<PAGE>
December 31, 1997. Excluding shares owned by the Equity Investors, an
aggregate of 10,197 shares remained outstanding. The Stock Purchase
between the Company and VS&A-T/SF, was consummated simultaneously with
the Tender Offer whereby the Company sold 881,988 shares of newly-issued
common stock at $40.25 per share or approximately $35.5 million.
In connection with the Tender Offer and Stock Purchase, holders of stock
options under the Company's two incentive stock option plans became
fully vested in all previously issued options and received an amount
equal to 1) the product of the number of shares of common stock issued
upon exercise of such options, multiplied by $40.25, less 2) the
exercise price of such options. The total cost of repurchasing these
options was approximately $10.0 million and has been included in
Recapitalization expense in the accompanying consolidated statement of
operations. The Incentive Stock Plan was terminated upon repurchase of
all of the outstanding options. The 1994 Incentive Stock Plan survives
solely with respect to options held by one individual currently employed
by the Company to purchase 1,675 shares. All of which are exercisable
and have an exercise price of $4.25 per share. No further options are
outstanding, or will be granted under this plan.
The Company borrowed $13 million and $80 million under a Senior Credit
Facility and a Bridge Facility, respectively, to finance the Tender
Offer and Option Repurchase. In October 1997, the Company issued $100
million in 10 3/8% Senior Subordinated Notes (the "Subordinated Notes")
the proceeds from which were used to repay amounts owed under the Senior
Credit Facility and the Bridge Facility. On September 1, 1998, the
Company purchased $1.5 million of the Subordinated Notes at a price
below par. The Company recorded a $60,000 gain on this transaction.
Total Recapitalization and Reorganization costs incurred in connection
with Phase I are summarized below. There were no significant costs
associated with Phase II.
(Thousands)
-----------
Cost associated with stock option repurchase $ 9,947
Tender offer - advisory and consulting fees 3,941
Severance, incentive and retention bonuses 5,540
Legal, accounting and other professional fees 1,612
Other 734
--------
$ 21,774
=========
3. ACQUISITIONS AND DISPOSITIONS OF ASSETS
On August 15, 1996, the Company acquired all of the issued and
outstanding capital stock of Corsearch, a leading provider of trademark
and tradename research and information services, using both proprietary
and public databases. The Company paid $14,400,000 in cash, $900,000 in
notes and assumed approximately $1,300,000 in additional non-operating
liabilities. In addition, the Company agreed to pay additional
consideration in 2000 and 2001 to the two senior managers/stockholders
of Corsearch predicated upon Corsearch achieving certain pre-tax income
levels in the years 1997, 1998 and 1999. At the date of acquisition, the
additional consideration expected to be paid in 2000 and 2001 was
$1,500,000 and was discounted at a rate of 8 1/2% and recorded in other
liabilities. Subsequent to 1997, one of the senior managers of CORSEARCH
terminated his service with the Company and thus waived his rights to
any additional consideration under the purchase agreement. Accordingly,
a portion of the contingent consideration discussed
F-14
<PAGE>
above was eliminated against goodwill. Costs in excess of assets
acquired were approximately $16,750,000 and are recorded in "Intangible
and other assets".
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. In September 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 industries. The Company paid
approximately $8.1 million in cash. Cost in excess of net assets
acquired was approximately $7.8 million and is recorded in "Intangible
and other assets". Pro forma results for 1998 assuming the acquisition
has been made at the beginning of the year would not be materially
different from reported results.
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 for
approximately $640,000.
4. LONG-TERM DEBT AND NOTE PAYABLE
Long-term debt outstanding consists of the following:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
10 3/8% Senior Subordinated Notes, interest payable semi-annually
with principal due at maturity in 2007 (A). $ 98,500 100,000
Note payable under a purchase agreement, discounted at 8.5% annual
payments per agreement with final payment in April, 2000.
920 1,219
Promissory notes, unsecured, payable semi-annually, plus interest,
through August 15, 1999, interest rate adjusts one percent below the
base rate of Citibank, N.A. (7.5% at December 31, 1998).
300 600
Promissory notes, unsecured, payable quarterly, plus interest, through
December 2000, interest rate adjusts semi-annually to the base rate of
Chase Manhattan Bank (7.5% at December 31, 1998).
166 249
7.5% promissory notes, unsecured, annual payment of $54,700, plus
interest, with final payment in February, 1999. 55 175
Capital lease obligation, monthly payments of $38,000 including
interest through June, 2000. 653 1,091
Other 158 200
---------- ----------
100,752 103,534
Less portion due within one year (1,367) (1,232)
--------- ---------
$ 99,385 102,302
====== =======
</TABLE>
F-15
<PAGE>
Installments due on long-term debt during each of the five years
subsequent to December 31, 1998, are as follows:
(In thousands)
1999 $ 1,367
2000 885
2001 -
2002 -
2003 -
Thereafter 98,500
---------
$ 100,752
=========
(A) On October 24, 1997, the Company issued $100 million of 10-3/8% senior
subordinated notes due 2007. The notes are general unsecured obligations
of the Company subordinated in right of payment to all existing and future
senior debt. The proceeds of the offering were used to repay borrowing
under the Senior Credit Facility and Bridge Financing Facility incurred in
connection with the Recapitalization transaction. 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.
The Notes contain restricted covenants which include, but are not limited
to: 1) incurring additional indebtedness; (2) paying dividends; (3)
selling assets; and (4) making certain investments. The Notes may be
redeemed in whole or in part by the Company on or after November 1, 2002.
Prior to that time, only $35 million can be redeemed at 110.375% of the
principal amount. On September 1, 1998, the Company purchased $1.5 million
of the New Notes at a price below par.
NOTES PAYABLE
The Company has a Senior Credit Facility ("the Senior Facility") with a
bank which provides for maximum borrowings of $25 million. Borrowings are
secured by a first priority lien on substantially all assets and
properties of the Company and its subsidiaries owned now or acquired in
the future. Interest is computed upon either the LIBOR plus the applicable
borrowing margin (based on the achievement of total leverage ratio) from
1.75% to 2.75% or a base rate indexed to the prime rate plus the
applicable borrowing margin of 0.5% to 1.5%. An annual commitment fee of
0.5% is charged on the unused portion of the Senior Facility. The Senior
Facility contains covenants similar to the Subordinated Notes as well as
financial covenants with respect to: 1) a maximum leverage ratio; 2) a
F-16
<PAGE>
maximum senior leverage ratio; 3) a minimum interest coverage ratio; and
4) a minimum fixed charge coverage ratio. The Senior Credit Facility
continues through September 2004.
5. DEBT GUARANTORS
Atwood Publishing LLC, Galaxy Information Services LLC, GEM
Communications LLC, Holdings LLC (collectively the "LLC Guarantors"),
TISI 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 of the voting interests in the LLC Guarantors, the
LLC Guarantors are considered wholly owned subsidiaries of the Company as
defined by Regulation S-X. The Company indirectly 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 $54,300,000 as of December 31,
1998.
Included in the 1998 financial results of the LLC Guarantors are the ten
months activity of Atwood Publishing LLC, Galaxy Information Services
LLC, GEM Communications LLC and Holdings LLC. 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 full year results of TISI and Corsearch.
The 1997 and 1996 financial results are prior to the Recapitalization
(See Note 2).
F-17
<PAGE>
The following are condensed consolidating financial statements of The
Official Information Company and the Guarantors for each period
presented:
<TABLE>
<CAPTION>
1998
----
BALANCE SHEET
-------------
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 3,417 15,646 21,200 36,846 40,263
assets-net
------------- ----------------- --------------- ----------------- ---------------- ------------------
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 99,043 - 342 342 - 99,385
Other liabilities 882 107 364 471 - 1,353
Minority interest 6,474 517 - 517 - 6,991
Total shareholders' equity
(deficit) (54,193) 18,803 35,504 54,307 (54,307) (54,193)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total liabilities and
Shareholders' equity $56,735 $30,100 $42,006 $72,106 $(54,307) $74,534
======= ======= ======= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
1998
----
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
---- --- ---------- -------- ----
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $880 $52,663 $43,230 $95,893 $(336) $96,437
Costs and expenses:
Operating costs - 27,013 24,694 51,707 - 51,707
General &admin. (205) 15,472 7,373 22,845 - 22,640
Interest 10,676 338 97 435 (435) 10,676
Deprec.& amort. 467 3,075 3,536 6,611 - 7,078
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total costs 10,938 45,898 35,700 81,598 (435) 92,101
Income (loss) before income
taxes (10,058) 6,765 7,530 14,295 99 4,336
Minority interest - (67) - (67) (2,424) (2,491)
Income tax (expense) benefit - (119) (1,210) (1,329) - (1,329)
Earnings (losses) of
subsidiaries 4,191 67 - 67 (4,258) -
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net Income (loss) $ (5,867) $6,646 $6,320 $12,966 $(6,583) $ 516
========= ====== ====== ======= ======== =====
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
1998
----
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
---- --- ---------- -------- ----
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (5,867) $6,646 $6,320 $12,966 $(6,583) $ 516
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities, net 1,501 3,160 3,536 6,696 - 8,197
Changes in assets and
liabilities, net (1,148) 3,532 (6,878) (3,346) 6,583 2,089
------------- ----------- --------------- ------------ ------------ -------------
Net cash (used in) provided
by operating activity (5,514) 13,338 2,978 16,316 - 10,802
Cash flows from investing
activities:
Collections on
Contract & notes
Receivable 41 - - - - 41
Capital expenditures (210) (2,923) (3,370) (6,293) - (6,503)
Proceed from the
Sale of assets 1,625 - - - - 1,625
Payments for
Acquisitions, net of
Cash acquired - (10,246) - (10,246) - (10,246)
Payments on
Deferred contract
Liabilities (290) - - - - (290)
------------- ----------- --------------- ------------ ------------ -------------
Net cash provided by (used
in) by investing activity 1,166 (13,169) (3,370) (16,539) - (15,373)
Cash flows from financing
activities:
Principal payments
of long-term debt (1,281) - - - - (1,281)
Debt financing cost (294) - - - - (294)
Retirement of bonds (1,440) - - - - (1,440)
Minority interest 4,500 4,500
Repurchase of - - - -
Common stock (3,600) (3,600)
------------- ----------- --------------- ------------ ------------ -------------
Net cash provided by (used
in) by financing activities (2,115) - - - - (2,115)
------------- ----------- --------------- ------------ ------------ -------------
Net increase (decrease) in
cash and cash equivalents (6,463) 169 (392) (223) - (6,686)
Cash equivalents at
beginning of year 7,541 2,170 854 3,024 - 10,564
------------- ----------- --------------- ------------ ------------ -------------
Cash equivalents at end of year $1,078 $2,339 $461 $2,800 $ - $3,878
====== ====== ==== ====== ===== ======
</TABLE>
F-19
<PAGE>
1997
----
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
TOIC SUBSIDIARY TOIC
---- ---------- ----
ASSETS CORPORATE GUARANTORS ELIMINATIONS CONSOLIDATED
------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets $12,923 $15,019 $ - $27,942
Notes receivable and
investments 1,579 190 - 1,769
Investment in subsidiaries & 33,437 624 (34,061) -
affil.
PPE-Net 318 6,735 - 7,053
Deferred tax assets 1,150 - - 1,150
Intangibles and other 8,327 24,725 - 33,052
assets-net
------------- --------------- ----------------- ------------
Total assets 57,734 47,293 (34,061) 70,966
====== ====== ======== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities 5,564 12,277 - 17,841
Long term debt 101,440 862 - 102,302
Other liabilities 1,332 93 - 1,425
Total shareholders' equity
(deficit) (50,602) 34,061 (34,061) (50,602)
------------- --------------- ----------------- ------------
Total liabilities and
Shareholders' equity $57,734 $47,293 $(34,061) $70,966
======= ======= ========= =======
<CAPTION>
1997
----
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
SUBSIDIARY TOIC
---------- ----
TOIC CORPORATE GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenue $1,366 $81,093 $ - $82,459
Costs and expenses:
Operating costs - 43,160 - 43,160
General & admin. 903 23,138 - 24,041
Recapitalization &
Reorganizational 21,774 - - 21,774
expenses
Interest 3,360 336 - 3,696
Deprec. & amort. 156 4,840 - 4,996
--------------------------- ---------------- ----------------- ------------------
Total costs 26,193 71,474 - 97,667
Income (loss) before
income taxes (24,827) 9,619 - (15,208)
Income tax (expense) 6,652 (4,016) - 2,636
benefit
--------------------------- ---------------- ----------------- ------------------
Net Income (loss) $(18,175) $5,603 $ - $ (12,572)
========== ====== ==== ==========
</TABLE>
F-20
<PAGE>
1997
----
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
TOIC SUBSIDIARY
---- ----------
CORPORATE GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
Net income (loss) $(18,175) $5,603 $ - $ (12,572)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities, net (184) 4,561 - 4,377
Changes in assets and
liabilities, net 5,153 (1,402) - 3,751
---------------- -------------------- ------------------- -----------------------
Net cash (used in)
provided by operating (13,206) 8,762 - (4,444)
activity
Cash flows from investing
activities:
Collections on
contract & notes
receivable 345 - - 345
Investments, net of
Distributions - 100 - 100
Capital expenditures (23) (5,518) - (5,541)
Proceed from the
sale of assets 35 - - 35
Payments for
acquisitions, net of
cash acquired - (813) - (813)
Payments on
deferred contract (638) - - (638)
liabilities
---------------- -------------------- ------------------- -----------------------
Net cash provided by
(used in) by investing
activity (281) (6,231) - (6,512)
Cash flows from financing
activities:
Borrowing under
long- term Debt 100,000 - - 100,000
Principal payments
of long-term debt (230) (1,263) - (1,493)
Borrowings under
bank lines-of-credit 93,618 - - 93,618
Payments under
bank lines-of-credit (93,000) - - (93,000)
Debt financing costs (3,558) - - (3,558)
Issuance of common stock 35,442 - - 35,442
Repurchase of
Common stock (111,746) - - (111,746)
---------------- -------------------- ------------------- -----------------------
Net cash provided by
(used in) by financing
activities 20,526 (1,263) - 19,263
---------------- -------------------- ------------------- -----------------------
Net increase (decrease)
in cash and cash
equivalents 7,039 1,268 - 8,307
Cash equivalents at
beginning of year 826 1,431 - 2,257
---------------- -------------------- ------------------- -----------------------
Cash equivalents at end
of year $7,865 $2,699 $ - $10,564
====== ====== ==== =======
</TABLE>
F-21
<PAGE>
1996
----
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
<TABLE>
<CAPTION>
SUBSIDIARY TOIC
---------- ----
TOIC CORPORATE GUARANTORS ELIMINATIONS CONSOLIDATED
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenue $1,397 $67,245 $ - $68,642
Costs and expenses:
Operating costs - 40,314 - 40,314
General & admin. 4,018 11,189 - 15,207
Interest 323 258 - 581
Deprec. & amort. 367 3,651 - 4,018
--------------------------- ---------------- ----------------- ------------------
Total costs 4,708 55,412 - 60,120
Income (loss) before
income taxes (3,311) 11,833 - 8,522
Income tax (expense)
benefit 1,343 (4,444) - (3,101)
--------------------------- ---------------- ----------------- ------------------
Net Income (loss) $ (1,968) $7,389 $ - $ 5,421
========= ====== === =======
<CAPTION>
1996
----
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
TOIC SUBSIDIARY
---- ----------
CORPORATE GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
Net income (loss) $(1,968) $7,389 $ - $ 5,421
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities, net 1,122 3,619 - 5,050
Changes in assets and
liabilities, net 5,021 (7,278) - (2,566)
---------------- -------------------- ------------------- -----------------------
Net cash (used in)
provided by operating
activity 4,175 3,730 - 7,905
Cash flows from investing
activities:
Net sales of investments 1,000 1,000
Collections on
Contract & notes
Receivable 1,372 - - 1,372
Capital expenditures (9) (2,632) (2,641)
Investments, net of - -
Distributions (212) (212)
Proceed from the -
Sale of assets 652 120 772
Payments for
Acquisitions, net - -
of cash acquired (15,691) (15,691)
Payments on
deferred contract
liabilities (327) (358) (685)
---------------- -------------------- ------------------- -----------------------
Net cash provided by
(used in) by investing
activity (13,215) (2,870) - (16,085)
F-22
<PAGE>
Cash flows from financing
activities:
Borrowing under
long-term Debt - - - -
Principal payments
of long-term debt (3,156) (205) - (3,361)
Borrowings under
bank lines-of-credit 3,500 - - 3,500
Payments under
bank lines-of-credit (3,000) - - (3,000)
Debt financing costs - - - -
Issuance of common stock 112 (1) - 111
Repurchase of
Common stock (197) 1 - (196)
---------------- -------------------- ------------------- -----------------------
Net cash provided by
(used in) by financing (2,741) (205) - (2,946)
activities
---------------- -------------------- ------------------- -----------------------
Net increase (decrease)
in cash and cash (11,780) 654 - (11,126)
equivalents
Cash equivalents at
beginning of year 12,608 775 - 13,383
---------------- -------------------- ------------------- -----------------------
Cash equivalents at end
of year $828 $1,429 $ - $2,257
==== ====== ==== ======
</TABLE>
6. INCOME TAXES
The provision for income tax expense (benefit) is comprised of the
following:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ (119) (1,824) 2,487
State 104 384 305
Foreign 119 - -
--- --------- ----
104 (1,440) 2,792
--- ----- -----
Deferred:
Federal 1,118 (1,178) 266
State 107 (18) 43
---- ------- -------
1,225 (1,196) 309
----- ----- ------
$ 1,329 (2,636) 3,101
===== ===== =====
</TABLE>
The reconciliation of income tax computed at the federal statutory rate
(34%) to income tax expense is as follows:
<TABLE>
Year Ended December 31,
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income tax provision at statutory rates $ 1,474 (5,171) 2,897
Minority share of LLC earnings (847) - -
F-23
<PAGE>
Amortization of acquired assets not deductible for
income tax purposes 362 395 262
State income taxes 141 253 232
Increase (reduction) in previously provided taxes
related to settlement of tax examinations - 344 (300)
Non-deductible recapitalization expenses - 1,680 -
Foreign taxes 119 - -
Other 80 (137) 10
---- ------ -------
$ 1,329 (2,636) 3,101
===== ======= =====
</TABLE>
F-24
<PAGE>
Significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
December 31,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Income recognized in different accounting period for
income tax purposes $ 91 182
Deferred severance benefits payable 491 517
Reserves on assets 497 497
Accrued expenses deductible when paid 607 776
Net operating loss carryforwards 2,185 2,806
Fixed asset basis differences 175 175
AMT credit carryforwards 24 -
----- ----
4,070 4,953
Less valuation allowance (1,786) (1,786)
----- -----
2,284 3,167
Deferred tax liabilities:
Other asset basis difference (471) (497)
Deductions recognized in different accounting periods (368) -
------- ------
Net deferred tax assets $ 1,445 2,670
===== =====
</TABLE>
At December 31, 1998, the Company had available net operating loss (NOL)
carryforwards for regular federal tax purposes of approximately $1.3
million which, will expire in 2012. The Company also has state NOL's
available of approximately $22 million which, expire at various dates
beginning in 2009 through 2012. The state NOL's were generated in prior
years, however, due to the nature of these losses their existence was
substantially in doubt pending the resolution of a revenue agents
examination. The examination was resolved in the Company's favor during
1997.
A valuation allowance is required when it is more likely than not that
all or a portion of the deferred tax assets will not be realized. The
ultimate realization of the deferred tax assets is dependent upon future
profitability. The Company has historically been profitable not
withstanding 1997 in which the Company incurred recapitalization
expenses. Management believes that such expenses are non-recurring. The
ability to utilize the state NOL's is further dependent on tax planning
strategies surrounding the drop down restructuring described in note 2.
Management believes that the elimination of non-recurring expenses will
result in future taxable income, however, there is no assurance of that
fact. Accordingly, a valuation allowance has been established, to reduce
the deferred tax assets to a level which, more likely than not, will be
realized. Based upon historical taxable income trends and projections
for future taxable income over the periods which the items giving rise
to deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of the net
deferred assets, net of the existing valuation allowance, at December
31, 1998.
F-25
<PAGE>
7. CAPITAL STOCK
RECAPITALIZATION AND STOCK OPTIONS
The Company completed a tender offer for substantially all of its
outstanding common stock during 1997 as part of a recapitalization plan
(see footnote 2 - Recapitalization). In 1997 and 1996, the Company
purchased and retired 50,000 shares ($27.50 per share) and 7,900 shares
($24.94 per share), respectively, of its Common Stock owned by certain
officers, directors and other related parties.
All outstanding options under the Company's Incentive Stock Option Plan
were repurchased in connection with the Recapitalization Plan described
in footnote 2 and the option plan was terminated following the
repurchase. Prior to December 31, 1996, there were options for 118,000
shares outstanding at option prices ranging from $5.50 to $15.00 per
share. During 1996, options for 103,000 shares were granted; no options
were exercised and options for 5,000 shares were canceled. Prior to
termination of the Plan in 1997, options had been granted at the
discretion of the Board of Directors' Compensation Committee at a
minimum exercise price of 100 percent of the market value of the
Company's Common Stock at the date of grant.
In connection with the Recapitalization, substantially all of the
outstanding options under the 1994 Incentive Stock Plan were
repurchased. A total of 1,675 remain outstanding to an individual at
December 31, 1998, all of which are exercisable and have an exercise
price of $4.25 per share. This plan will survive solely with respect to
such options; no further options will be granted. Options for 50,000
shares were granted in 1996 at option prices ranging from $13.88 to
$24.00 per share, and options for 15,000 shares were granted in 1995 at
an option price of $6.00 per share. The options were granted at the
market price of the Company's Common Stock at the effective date of the
grant. Options for 33,881 shares were exercised in 1997 for a total
price of $153,000 prior to the recapitalization transaction.
An Employee Stock Purchase Plan was terminated in 1997; no shares had
been issued under this plan. The Company matched 20 percent of each
employee's contributions with common stock (limited to 5 percent maximum
employee contribution) to the qualified 401(k) defined contribution
plan. During 1997 and 1996, 2,772 shares and 6,247 shares, respectively,
were issued to the 401(k) plan as matching contributions.
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock - Based
Compensation" (SFAS No. 123). SFAS No. 123 established financial
accounting and reporting standards for stock-based compensation plans
and to transactions in which an entity issues its equity instruments to
acquire goods and services from non-employees.
STOCK APPRECIATION PLAN
The Company has established a Key Executive Equity Appreciation Plan
("Stock Appreciation Plan") for certain executives of the Company.
Pursuant to the Stock Appreciation Plan, executives can be awarded
Equity Appreciation Units ("Units") which constitute a "phantom" equity
interest in any appreciation in the value of the equity of the Company
above the $59.6 million originally invested by VS&A-T/SF and Fir Tree in
the Company and Holdings LLC payable only in the event
F-26
<PAGE>
of a change in control, as defined, or termination event, as defined.
The Units vest ratably over five years, provided the executive remains
an employee of the Company and annual EBITDA budget, as defined, for the
Company is achieved (or, if not achieved, that 110% of the annual EBITDA
budget for the next year is achieved). The maximum number of Units
issuable under the Stock Appreciation Plan constitutes approximately 10%
of the common equity interests of the Company.
Certain executives were issued Units in 1998, under the Stock
Appreciation Plan, which constitute approximately 9.2% of the common
equity interest of the Company. Compensation expense associated with
these Units, as well as future Units, will be recorded once a change in
control or termination event, as defined, are deemed to be probable in
accordance with SFAS No. 5 Accounting for Contingencies.
STOCKHOLDERS AGREEMENT
VS&A-T/SF and Fir Tree (each a "Stockholder") and the Company are
parties to a Stockholders agreement (the "Agreement"), dated October 9,
1997, with respect to the management of the Company and their ownership
of shares of the common stock. The Agreement terminates at the earlier
of an underwritten initial public offering of common stock or ten years.
The Agreement provides that the Board of Directors be determined based
on the ownership percentages of VS&A-T/SF and Fir Tree which is 64.4%
and 35.6%, respectively. The Agreement provides that certain actions
require approval by a majority of the Fir Tree designees on the board
and that at any time after October 9, 2002, Fir Tree has the right to
force the sale of the Company or its assets and the Stockholders are
required to sell their shares or vote in favor of a sale.
8. COMMITMENTS AND CONTINGENCIES
Operating lease agreements of the Company are principally for office
facilities and equipment and expire at various dates through 2009. Rent
expense in 1998, 1997, and 1996 under operating leases was approximately
$2,020,000, $1,460,000, and $1,190,000 respectively.
As of December 31, 1998, future minimum lease payments are as follows:
Year Ending Minimum Lease
December 31, Payments
------------ --------
(In thousands)
1999 $ 1,663
2000 1,359
2001 1,179
2002 1,057
2003 580
Thereafter 2,204
--------
$ 8,042
========
The Company is a defendant in certain litigation arising out of
operations in the normal course of business. However, it is the opinion
of management that the ultimate liabilities relating thereto, if
F-27
<PAGE>
any, will not have a material adverse effect on the financial
position or results of operations of the Company.
9. RELATED PARTY TRANSACTIONS
In 1998, a stockholder was paid a fee of $20,000 in connection with
advisory services provided to the Company with respect to the
acquisition of International Gaming Business Exposition. In addition,
the Company paid its stockholders $90,000 and $20,000 in management fees
in 1998 and 1997, respectively. These costs are included in the
accompanying consolidated statement of operations. No such fees were
paid to any stockholder in 1996. In connection with the recapitalization
transactions completed in 1997, the Company paid the Equity Investors a
total of $1.6 million in fees for services related to the structure and
implementation of the recapitalization plan.
10. BUSINESS SEGMENT INFORMATION
The FASB issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
(SFAS No. 131) in June 1997. SFAS 131 supersedes FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise, but retains
the requirement to report information about major customers. SFAS 131
replaces the "industry segment" concept of Statement 14 with a
"management approach" concept as the basis for identifying reportable
segments. The management approach is based on the way that management
organizes the segments within the enterprise for making operating
decisions and assessing performance. Consequently, the segments are
evident from the structure of the enterprise's internal organization. It
focuses on financial information that an enterprise's decision makers
use to make decisions about the enterprise's operating matters. The
Company adopted SFAS 131 in 1998.
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 a
trade journal, provider (Galaxy) of registration services, exhibitor
marketing and information services all 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) 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
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.
F-28
<PAGE>
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 information files.
During 1998, 1997 and 1996, no customer represented ten percent or more
of the Company's revenue or operating profit.
F-29
<PAGE>
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS:
Business to Business Communications $ 59,455 49,403 42,891
Information Services 36,102 31,690 23,925
Corporate and other 880 1,366 1,826
----- ----- -------
$ 96,437 82,459 68,642
====== ====== ======
OPERATING INCOME ( LOSS):
Business to Business Communications $ 8,233 5,393 6,018
Information Services 8,061 4,562 5,612
------- ------- -------
Operating profit from segments 16,294 9,955 11,630
Corporate expenses, net (1,282) (21,467) (2,527)
Interest expense (10,676) (3,696) (581)
-------- ------- --------
Income (loss) before income taxes $ 4,336 (15,208) 8,522
======= ====== =======
IDENTIFIABLE ASSETS AT DECEMBER 31:
Business to Business Communications $ 34,206 16,748 14,629
Information Services 33,804 32,307 32,035
Corporate 6,524 21,911 9,318
----- ------ -------
$ 74,534 70,966 55,982
====== ====== ======
DEPRECIATION AND AMORTIZATION:
Business to Business Communications $ 3,407 2,168 2,192
Information Services 3,204 2,672 1,723
Corporate 467 156 103
-------- ---------- --------
$ 7,078 4,996 4,018
======= ======= =======
CAPITAL EXPENDITURES:
Business to Business Communications $ 2,924 2,947 1,097
Information Services 3,370 2,571 1,533
Corporate 209 23 11
---------- --------- ---------
$ 6,503 5,541 2,641
======= ======= =======
</TABLE>
11. SUBSEQUENT EVENT
On March 25, 1999, the Company executed an asset purchase agreement to acquire,
through a subsidiary, substantially all of the assets and liabilities of
International Travel Service, Inc., for approximately $22.7 million. The
consummation of the transaction is subject to certain conditions, including
approval under antitrust regulations. This transaction will be accounted for as
a purchase.
F-30
<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: March 29, 1999
THE OFFICIAL INFORMATION COMPANY
/s/ Ian L.M. Thomas
By ________________________________________
IAN L. M. THOMAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
March 29, 1999 and in the capacities indicated.
SIGNATURE TITLE
/s/ John S. Suhler Chairman of the Board and Director
__________________________________
(John S. Suhler)
/s/ Ian L.M. Thomas
___________________________________ President, Chief Executive
(Ian L.M. Thomas) Officer and Director
/s/ Steven J. Hunt
___________________________________ Chief Financial Officer and
(Steven J. Hunt) Treasurer
Director
___________________________________
(John J. Veronis)
Director
/s/ Jeffrey T. Stevenson
___________________________________
(Jeffrey T. Stevenson)
<PAGE>
Director
/s/ Gerard Benford
- -----------------------------------
(S. Gerard Benford)
Director
/s/ Jeffrey Tannenbaum
- -----------------------------------
(Jeffrey Tannenbaum)
Director
/s/ John Rolfe
- -----------------------------------
(John Rolfe)
Director
- -----------------------------------
(Stephan Selig)
<PAGE>
- -------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
among
TOIC ACQUISITION, LLC
("Purchaser"),
THE OFFICIAL INFORMATION COMPANY
("Guarantor"),
INTERNATIONAL TRAVEL SERVICE, INC.
("Seller")
and
WILLIAM A. PATTERSON JR.,
STEPHEN T. MARTIN
and
EDWARD A. HARRIS
(collectively, the "Shareholders")
Dated as of March 25, 1999
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
||
ARTICLE I DEFINITIONS............................................1
1.1 Definitions............................................1
1.2 Interpretation.........................................8
ARTICLE II SALE AND PURCHASE OF ASSETS;
ASSUMPTION OF ASSUMED OBLIGATIONS......................9
2.1 Purchased Assets.......................................9
2.2 Assignment of Contracts................................9
2.3 Assumed Obligations...................................10
ARTICLE III PURCHASE PRICE AND PAYMENT............................10
3.1 Payment of Purchase Price.............................10
3.2 Adjustments to Purchase Price.........................10
3.3 Allocation of Consideration...........................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER..............12
4.1 Due Incorporation.....................................12
4.2 Due Authorization.....................................12
4.3 Consents and Approvals; No Conflicts..................13
4.4 Business Information..................................14
4.5 No Material Adverse Effects or Changes................14
4.6 Title to Properties...................................15
4.7 Real Property.........................................15
4.8 Equipment; Personal Property..........................16
4.9 Contracts.............................................16
4.10 Employee Benefit Plans................................17
4.11 Employment and Labor Matters..........................18
4.12 No Material Defaults or Violations....................18
4.13 Litigation............................................18
4.14 Brokers...............................................19
4.15 Taxes.................................................19
4.16 Environmental Matters.................................19
4.17 Intellectual Property.................................19
4.18 Computer Matters......................................20
4.19 Proper Business Practices.............................20
4.20 Relations with Customers..............................20
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS........21
5.1 Due Authorization.....................................21
5.2 Consents and Approvals................................21
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
GUARANTOR.............................................22
6.1 Due Incorporation; Ownership..........................22
6.2 Due Authorization.....................................22
6.3 Consents and Approvals; No Conflicts..................23
<PAGE>
6.4 Litigation............................................23
6.5 Financing.............................................23
6.6 Due Diligence.........................................24
6.7 Brokers...............................................24
ARTICLE VII COVENANTS OF SELLER...................................24
7.1 Implementing Agreement................................24
7.2 Consents and Approvals................................24
7.3 Preservation of Business..............................25
7.4 Access to Information and Facilities..................27
7.5 Confidentiality.......................................27
7.6 Tax Matters...........................................27
7.7 Information and Records...............................28
ARTICLE VIII COVENANTS OF PURCHASER................................28
8.1 Implementing Agreement................................28
8.2 Consents and Approvals................................28
8.3 Confidentiality.......................................28
8.4 Post-Closing Access...................................29
8.5 Communications........................................30
8.6 Airline Reporting Corporation.........................30
ARTICLE IX CONDITIONS PRECEDENT
TO OBLIGATIONS OF PURCHASER...........................30
9.1 Warranties True as of Both Present Date and
Closing Date..........................................30
9.2 Compliance with Agreements and Covenants..............31
9.3 Certificate...........................................31
9.4 Hart-Scott-Rodino.....................................31
9.5 Consents and Approvals................................31
9.6 Legal Actions or Proceedings..........................31
9.7 No Material Adverse Change............................32
9.8 Employment Agreements and Consulting Agreement........32
9.9 Documents. ..........................................32
9.10 Investment by Martin and Harris.......................32
ARTICLE X CONDITIONS PRECEDENT TO
OBLIGATIONS OF SELLER AND SHAREHOLDERS................32
10.1 Warranties True as of Both Present Date and
Closing Date..........................................33
10.2 Compliance with Agreements and Covenants..............33
10.3 Certificate...........................................33
10.4 Hart-Scott-Rodino.....................................33
10.5 Consents and Approvals................................33
10.6 Legal Actions or Proceedings..........................33
10.7 Employment Agreements and Consulting Agreement........34
10.8 Documents. ..........................................34
10.9 LLC Agreement.........................................34
ARTICLE XI EMPLOYEES AND BENEFIT PLANS...........................34
11.1 Employees.............................................34
11.2 Liabilities Under Benefit Plans.......................35
<PAGE>
ARTICLE XII CLOSING...............................................36
12.1 Closing...............................................36
12.2 Deliveries by Seller..................................37
12.3 Deliveries by Purchaser...............................38
ARTICLE XIII TERMINATION...........................................38
13.1 Termination...........................................38
13.2 Effect of Termination.................................39
ARTICLE XIV INDEMNIFICATION.......................................39
14.1 Survival..............................................39
14.2 Indemnification by Seller and Shareholders............39
14.3 Indemnification by Purchaser..........................40
14.4 Limitations on Indemnification........................41
14.5 Claims................................................42
14.6 Notice of Third Party Claims; Assumption of
Defense...............................................42
14.7 Settlement or Compromise..............................42
14.8 Knowledge.............................................43
14.9 Exclusive Remedy......................................43
14.10 Effect on Purchase Price of Indemnity Payments........43
ARTICLE XV NONCOMPETITION AGREEMENT..............................43
15.1 Noncompetition; Seller and Patterson..................43
15.2 Noncompetition; Martin................................44
15.3 Noncompetition; Harris................................45
15.4 Enforcement...........................................45
15.5 Specific Performance..................................45
ARTICLE XVI MISCELLANEOUS.........................................46
16.1 Expenses..............................................46
16.2 Amendment.............................................46
16.3 Notices...............................................46
16.4 Payments in Dollars...................................48
16.5 Waivers...............................................48
16.6 Assignment............................................48
16.7 No Third Party Beneficiaries..........................48
16.8 Publicity.............................................48
16.9 Further Assurances....................................49
16.10 Severability..........................................49
16.11 Entire Understanding..................................49
16.12 Applicable Law........................................49
16.13 Choice of Forum.......................................49
16.14 Waiver of Jury Trial..................................50
16.15 Counterparts..........................................50
16.16 Remittances...........................................50
16.17 Bulk Sales............................................50
16.18 Schedules.............................................50
16.19 Disclaimer of Warranties..............................51
<PAGE>
ARTICLE XVII GUARANTY..............................................51
17.1 Guaranty..............................................51
<PAGE>
||
EXHIBITS
Exhibit A Form of Assignment and Assumption Agreement
Exhibit B Form Employment Agreement with Stephen T. Martin
Exhibit C Form of Employment Agreement with Edward A. Harris
Exhibit D Form of Consulting Agreement with William A.
Patterson Jr.
Exhibit E Form of Bill of Sale
Exhibit F Form of Opinion of Mayer, Brown & Platt
Exhibit G Form of Opinion of Brian Meyer
Exhibit H Form of LLC Operating Agreement of Gallaxy
Information Services, LLC
SCHEDULES
Schedule 1.1(k) Business Financial Information
Schedule 1.2 Knowledge
Schedule 2.1(a) Equipment
Schedule 2.1(f) Listed Assets
Schedule 2.2 Non-assigned Contracts
Schedule 2.2(a) Real Property Leases
Schedule 2.2(b) Personal Property Leases
Schedule 2.2(c) Customer Contracts
Schedule 2.2(d) Other Contracts
Schedule 3.3 Allocation of Consideration
Schedule 4.3 Seller's Consents
Schedule 4.5 Material Adverse Effects or Changes
Schedule 4.6 Title to Properties
Schedule 4.7 Real Property
Schedule 4.10 Employee Benefit Plans
Schedule 4.11 Employment and Labor Matters
Schedule 4.12 Material Defaults or Violations
Schedule 4.13 Litigation
Schedule 4.17 Intellectual Property
Schedule 4.18 Software
Schedule 4.20 Relations with Customers
Schedule 6.3 Purchaser's Consents
Schedule 6.7 Brokers
Schedule 7.3 Preservation of the Business
Schedule 11.1 Employees
vi
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT is made as of the 25th day of March,
1999, by and between TOIC ACQUISITION, LLC, a Delaware limited liability
company ("Purchaser"), THE OFFICIAL INFORMATION COMPANY, a Delaware corporation
("Guarantor"), INTERNATIONAL TRAVEL SERVICE, INC., an Illinois corporation
("Seller"), and WILLIAM A. PATTERSON JR. ("Patterson"), STEPHEN T. MARTIN
("Martin") and EDWARD A. HARRIS ("Harris" and, together with Patterson and
Martin, the "Shareholders"). Certain capitalized terms used herein are defined
in Article I.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser desires to purchase from Seller and Seller desires
to sell to Purchaser all of the Purchased Assets (as hereinafter defined), and
Purchaser desires to assume from Seller and Seller desires to assign to
Purchaser all of the Assumed Obligations (as hereinafter defined), all upon the
terms and conditions hereinafter set forth;
WHEREAS, the Shareholders will derive benefits from the sale
of the Purchased Assets; and
WHEREAS, the Guarantor will derive benefits from the purchase of the
Purchased Assets by Purchaser.
NOW, THEREFORE, in consideration of the foregoing and the mutual
warranties, representations, covenants and agreements herein contained, the
parties agree as follows:
ARTICLE I
DEFINITIONS
I.1 Definitions.
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(a) "Accounting Firm" shall have the meaning provided in Section
3.2(c).
(b) "Accounts Receivable" shall mean all accounts receivable,
trade receivables, notes receivable, future receivables and other receivables,
which are payable as a result of goods sold or services provided (or which will
be sold or provided), or goods or services billed, by Seller prior to the
Closing.
(c) "Affiliate" shall mean, with respect to any specified Person,
any other Person which, directly or indirectly, through one or more
intermediaries, owns or controls, is under
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common ownership or control with, or is owned or controlled by, such specified
Person. A Person shall be deemed to "own" another Person if it owns more than
50% of the capital stock or other equity interest of such other Person.
(d) "Agreement" shall mean this Asset Purchase Agreement,
including all exhibits and schedules hereto, as it may be amended from time to
time in accordance with its terms.
(e) "Assets" shall mean the Purchased Assets and the Leased
Assets.
(f) "Assignment and Assumption Agreement" shall mean an assignment
and assumption agreement between Purchaser and Seller to be dated the Closing
Date, in the form attached hereto as Exhibit A.
(g) "Assumed Obligations" shall have the meaning provided in
Section 2.3.
(h) "Benefit Plans" shall have the meaning provided in Section
4.10.
(i) "Business" shall mean the housing reservation and travel
management business conducted by Seller on the date of this Agreement.
(j) "Business Day" shall mean any day of the year other than (i)
any Saturday or Sunday or (ii) any other day on which banks located in Chicago,
Illinois generally are closed for business.
(k) "Business Financial Information" shall mean Seller's (i)
audited balance sheet as of December 31, 1998 and the related statement of
income for the twelve months ended December 31, 1998 and (ii) Seller's
unaudited balance sheet as of February 28, 1999 and the related statement of
income for the two months ended February 28, 1999, which are set forth on
Schedule 1.1(k).
(l) "Cash" shall mean all cash, certificates of deposits, bank
deposits, marketable securities and other cash equivalents, together with all
accrued but unpaid interest thereon.
(m) "Closing" shall mean the consummation of the transactions
contemplated herein in accordance with Article XII.
(n) "Closing Date" shall mean the date on which the Closing
occurs.
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(o) "Closing Escrow Agent" shall mean the bank or trust company
mutually agreeable to Purchaser and Seller, who shall not have an established
relationship with either Purchaser or Seller, to hold the escrow pursuant to
the Closing Escrow Agreement.
(p) "Closing Escrow Agreement" shall have the meaning provided in
Section 12.1(b).
(q) "Closing Statement" shall have the meaning provided in Section
3.2(b).
(r) "Closing Working Capital" shall have the meaning provided in
Section 3.2(a).
(s) "Code" shall mean the United States Internal Revenue Code of
1986, as amended.
(t) "Consent-Pending Contract" shall have the meaning provided in
Section 7.2.
(u) "Consulting Agreement" shall mean the consulting agreement,
substantially in the form of Exhibit D, to be entered into between Purchaser
and Patterson on or before the Closing Date.
(v) "Contract" shall mean any contract, agreement, lease,
indenture, mortgage, note, bond or other similar binding commitment.
(w) "Customer Contracts" shall have the meaning provided in
Section 2.2(c).
(x) "Customer Deposits" shall mean all deposits of customers of
the Business delivered to and not yet applied by Seller as of the Closing Date
pursuant to any Customer Contracts included in the Purchased Contracts.
(y) "December 31 Working Capital" shall have the meaning provided
in Section 3.2(a).
(z) "Employees" shall have the meaning provided in Section
11.1(a).
(aa) "Equipment" shall have the meaning provided in Section
2.1(a).
(bb) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(cc) "Foreign Governmental Authority" shall mean the government of
any foreign country, or any political subdivision
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thereof, or any entity, body or authority exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, in each case having jurisdiction over Seller or any of the
Purchased Assets.
(dd) "Foreign Law" shall mean any law (including common law),
statute, rule, regulation or ordinance enacted, promulgated or imposed by any
Foreign Governmental Authority.
(ee) "401(k) Plan" shall have the meaning provided in Section
11.2.
(ff) "GAAP" shall mean U.S. generally accepted accounting
principles, consistently applied with prior periods. Purchaser acknowledges
that Seller's accounting policies, as previously disclosed by Seller to
Purchaser, are in accordance with GAAP.
(gg) "Governmental Authority" shall mean the government of the
United States or any state or political subdivision thereof and any entity,
body or authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
(hh) "Guarantor" shall have the meaning provided in the preamble.
(ii) "Harris Employment Agreement" shall mean the employment
agreement, substantially in the form of Exhibit C, to be entered into between
Purchaser and Harris on or before the Closing Date.
(jj) "Hired Employee" shall have the meaning provided in Section
11.1(b).
(kk) "Holdback Amount" shall mean the amount of $1.0 million, to
be held by the Indemnity Escrow Agent, in an interest bearing account for a
period of one year from the Closing Date, to be applied against the
indemnification obligations, if any, of the parties pursuant to Article XIV
hereof.
(ll) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(mm) "Indemnified Person" shall mean the Person or Persons
entitled to, or asserting entitlement to, indemnification or reimbursement
under Article XIV.
(nn) "Indemnifying Person" shall mean the Person or Persons
obligated to, or who is alleged to be obligated to, provide indemnification or
reimbursement under Article XIV.
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(oo) "Indemnity Escrow" shall mean the escrow under the Indemnity
Escrow Agreement.
(pp) "Indemnity Escrow Agent" shall mean the bank or trust company
mutually agreeable to Purchaser and Seller, who shall not have an established
relationship with either Purchaser or Seller, to hold the Indemnity Escrow and
to enter into the Indemnity Escrow Agreement.
(qq) "Indemnity Escrow Agreement" shall mean the escrow agreement
among Seller, Purchaser and the Indemnity Escrow Agent, to be dated on or
before the Closing Date, in a form reasonably acceptable to Seller, Purchaser
and the Indemnity Escrow Agent.
(rr) "Information and Records" shall have the meaning provided in
Section 2.1(c).
(ss) "Intellectual Property" shall mean all United States and
foreign patents (including continuations, continuations- in-part, reissues and
re-examinations thereof) and patent applications; registered and unregistered
trade names, trademarks, service names and service marks (and applications for
registration of the same) and all goodwill associated therewith; copyrights and
copyright registrations (and applications for the same); trade secrets;
computer data (including formulations and analyses), computer programs and
software (in source code and object code form) and firmware and all related
programming, user and systems documentation; inventions, processes and designs
(whether or not patentable or reduced to practice); know-how and formulae; and
all other intellectual property rights and assets.
(tt) "Inventory" shall have the meaning provided in Section
2.1(b).
(uu) "Law" shall mean any law (including common law), statute,
rule, regulation or ordinance enacted, promulgated or imposed by any
Governmental Authority.
(vv) "Leased Assets" shall mean all assets leased to Seller
pursuant to any of the Real Property Leases or Personal Property Leases.
(ww) "Lien" shall mean any mortgage, deed of trust, lien (except
for any lien for Taxes not yet due and payable), pledge, security interest,
charge, option, right of refusal, easement, encroachment or other encumbrance.
(xx) "LLC Agreement" shall mean the Second Amended and Restated
Limited Liability Company Agreement of Gallaxy Information Services, LLC,
substantially in the form of Exhibit H, to be
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entered into by TOIC Holdings, LLC, Martin and Harris on or before the Closing
Date.
(yy) "Loss" or "Losses" shall mean any and all liabilities,
losses, costs, claims, damages, penalties and expenses (including reasonable
attorneys' fees and expenses but excluding lost profits and consequential
damages).
(zz) "Martin Employment Agreement" shall mean the employment
agreement, substantially in the form of Exhibit B, to be entered into between
Purchaser and Martin on or before the Closing Date.
(aaa) "Material Adverse Change" shall mean a change in the
business, operations, liabilities, financial condition or results of operations
of the Business or the Assets that is material and adverse.
(bbb) "Material Adverse Effect" shall mean an effect on the
business, operations, liabilities, financial condition or results of operations
of the Business or the Assets that is material and adverse.
(ccc) "Person" shall mean any individual, corporation,
proprietorship, firm, partnership, limited partnership, limited liability
partnership, limited liability company, trust, association or other entity.
(ddd) "Personal Property Leases" shall have the meaning provided
in Section 2.2(b).
(eee) "Pre-Closing Covenant Breach" shall have the meaning
provided in Section 14.1.
(fff) "Pro-Rata Share" shall have the meaning provided in Section
14.2.
(ggg) "Purchase Price" shall have the meaning provided in Section
3.1.
(hhh) "Purchased Assets" shall have the meaning provided in
Section 2.1.
(iii) "Purchased Contracts" shall have the meaning provided in
Section 2.2.
(jjj) "Purchaser" shall have the meaning provided in the preamble.
(kkk) "Purchaser Benefit Plans" shall have the meaning provided in
Section 11.2.
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(lll) "Purchaser Consents" shall have the meaning provided in
Section 6.3(a).
(mmm) "Purchaser Indemnified Party" shall have the meaning
provided in Section 14.2.
(nnn) "Real Property" shall have the meaning provided in Section
4.7(a).
(ooo) "Real Property Leases" shall have the meaning provided in
Section 2.2(a).
(ppp) "Related Agreement" shall mean any Contract that is or is to
be entered into at the Closing or otherwise pursuant to this Agreement. The
Related Agreements executed by a specified Person shall be referred to as "such
Person's Related Agreements," "its Related Agreements" or another similar
expression.
(qqq) "Retained Obligations" shall mean all liabilities and
obligations of Seller and the Business arising prior to the Closing, other than
the Assumed Obligations.
(rrr) "Seller" shall have the meaning provided in the preamble.
(sss) "Seller Consents" shall have the meaning provided in Section
4.3(a).
(ttt) "Seller Indemnified Party" shall have the meaning provided
in Section 14.3.
(uuu) "Shareholders" shall have the meaning provided in the
preamble.
(vvv) "Tax Return" shall mean any report, return, declaration or
other information filing required to be supplied to a Governmental Authority or
a Foreign Governmental Authority in connection with any Taxes, including all
exhibits, schedules and amendments thereto.
(www) "Taxes" shall mean all taxes, charges, fees, duties, levies
or other assessments, including, but not limited to, income, alternative or
add-on minimum, gross receipts, net proceeds, ad valorem, real and personal
property (tangible and intangible), sales, use, franchise, excise, value added,
stamp, user, transfer, fuel, excess profits, occupational, interest
equalization, windfall profits, license, payroll, capital stock, disability,
severance, employee's income withholding, other withholding, unemployment and
Social Security taxes, which are imposed by any Governmental Authority or any
Foreign Governmental
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Authority, and such term shall include any interest, penalties or additions to
tax attributable thereto, whether disputed or not.
1.2 Interpretation. The headings preceding the text of Articles and
Sections included in this Agreement and the headings to Schedules attached to
this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of the
masculine, feminine or neuter gender or the singular or plural form of words
herein shall not limit any provision of this Agreement. The use of the terms
"including" or "include" shall in all cases herein mean "including, without
limitation" or "include, without limitation," respectively. The use of the term
"or" shall, unless the context explicitly contemplates otherwise, herein mean
"and/or." Reference to any Person includes such Person's successors and assigns
to the extent such successors and assigns are permitted by the terms of any
applicable agreement. Reference to a Person in a particular capacity excludes
such Person in any other capacity or individually. Reference to any agreement
(including this Agreement), document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to time
in accordance with the terms thereof and, if applicable, the terms hereof.
Reference to any Law means such Law as amended, modified, codified, replaced or
re-enacted, in whole or in part, including rules, regulations, enforcement
procedures and any interpretations promulgated thereunder. References to
"Knowledge" of Purchaser or Seller, as the case may be, means the actual
knowledge of any of the individuals set forth on Schedule 1.2 and references to
"knowledge" of any other Person means the actual knowledge of such Person.
Underscored references to Articles, Sections, clauses, Exhibits or Schedules
shall refer to those portions of this Agreement, and any underscored references
to a clause shall, unless otherwise identified, refer to the appropriate clause
within the same Section in which such reference occurs. The use of the terms
"hereunder," "hereof," "hereto" and words of similar import shall refer to this
Agreement as a whole and not to any particular Article, Section or clause of or
Exhibit or Schedule to this Agreement.
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ARTICLE II
SALE AND PURCHASE OF ASSETS;
ASSUMPTION OF ASSUMED OBLIGATIONS
II.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, on and as of the Closing Date, Seller shall sell, assign, convey,
transfer and deliver to Purchaser, and Purchaser shall purchase, acquire and
take assignment and delivery of, all of Seller's title, right and interest in
and to all of the Seller's assets, including the following:
(a) Equipment. All equipment, machinery, fixed assets, furniture,
tools, computers, printers, vehicles and other items of personal
property (collectively, the "Equipment"), including the Equipment set
forth on Schedule 2.1(a);
(b) Inventory. All supplies, materials and other inventories
(collectively, the "Inventory");
(c) Information and Records. All books, records, files,
databases, plans, price lists, sales records, customer lists, lists
and files (collectively, the "Information and Records");
(d) Cash and Accounts Receivable. Subject to Section 3.2, all
Cash and Accounts Receivable;
(e) Intellectual Property and Goodwill. All Intellectual Property
and all customer relationships and related goodwill;
(f) Listed Assets. All assets set forth on Schedule 2.1(f); and
(g) Other Assets. All other tangible and intangible assets of
Seller.
All of the foregoing assets described in this Section 2.1, together with the
Purchased Contracts, are referred to herein collectively as the "Purchased
Assets."
II.2 Assignment of Contracts. Subject to the terms and conditions of
this Agreement, on and as of the Closing Date, Seller shall assign and transfer
to Purchaser, and Purchaser shall take assignment of, all of Seller's title,
right and interest in and to all of the Contracts to which Seller is a party
(except those Contracts listed on Schedule 2.2), including the following:
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(a) Real Property Leases. The leases to or by Seller of real
property set forth on Schedule 2.2(a) (collectively, the "Real
Property Leases");
(b) Personal Property Leases. All leases to or by Seller of
personal property (collectively, the "Personal Property Leases"),
including the Personal Property Leases set forth on Schedule 2.2(b);
(c) Customer Contracts. All customer contracts for the provision
by Seller of goods or services to customers (collectively, the
"Customer Contracts"), including the Customer Contracts set forth on
Schedule 2.2(c); and
(d) Other Contracts. All other Contracts of Seller that are set
forth on Schedule 2.2(d).
All of the foregoing are referred to herein collectively as the
"Purchased Contracts."
II.3 Assumed Obligations. At the Closing, Purchaser shall assume, and
agree to pay, perform, fulfill and discharge all of Seller's obligations (a)
that are reflected in Seller's December 31, 1998 balance sheet, (b) incurred in
the ordinary course of business since December 31, 1998 other than
extraordinary undisclosed liabilities, (c) under the Purchased Contracts and
the Benefit Plans to the extent related to periods after the Closing or as
otherwise included in clause (a) or (b) above, and (d) all liabilities of the
Business arising from the operation of the Business after the Closing (the
"Assumed Obligations"). Buyer shall not and does not assume any liability or
obligation of Seller other than the Assumed Obligations.
ARTICLE III
PURCHASE PRICE AND PAYMENT
III.1 Payment of Purchase Price. On the Closing Date, in consideration
for the sale of the Purchased Assets by Seller, Purchaser shall (a) assume the
Assumed Obligations and (b) pay a purchase price (the "Purchase Price") of
$22,650,000. Purchaser shall pay $21,650,000 of the Purchase Price to Seller in
immediately available funds by electronic transfer to such account or accounts
as Seller shall specify to Purchaser in writing prior to the Closing Date.
Purchaser shall deposit the Holdback Amount into the Indemnity Escrow at or
prior to the Closing. The Purchase Price shall be subject to adjustment as
provided in Section 3.2.
III.2 Adjustments to Purchase Price.
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(a) If the amount of Closing Working Capital (as defined below)
is greater than (i) the amount of current assets reflected on Seller's
December 31, 1998 audited balance sheet minus (ii) the amount of total
liabilities reflected on Seller's December 31, 1998 audited balance
sheet (i.e., $2,546,538) (such difference, "December 31 Working
Capital") then after the Closing in accordance with Sections 3.2(b)
and 3.2(c), the Purchase Price will be increased by the amount of such
excess and Purchaser shall pay the amount of such excess to Seller
within two (2) Business Days after the Closing Statement becomes final
and binding pursuant to Section 3.2(c). If the Closing Working Capital
is less than the December 31 Working Capital, the Purchase Price will
be decreased by the amount of such deficit and Seller and the
Shareholders shall pay the amount of such shortfall to Purchaser
within two (2) Business Days after the Closing Statement becomes final
and binding pursuant to Section 3.2(c); provided that each Shareholder
shall be required to pay only his Pro-Rata Share of such shortfall.
"Closing Working Capital" means the (i) the amount of current assets
reflected on the Closing Statement minus (ii) (A) the amount of total
liabilities reflected on the Closing Statement plus (B) an accrual for
a profit sharing contribution which as a percentage of Seller's net
income through the Closing Date is equal to the percentage that
Seller's 1998 profit sharing contribution represented of Seller's 1998
net income.
(b) Within sixty (60) days after the Closing Date, Purchaser
shall prepare and deliver to Seller at Purchaser's expense a statement
setting forth in reasonable detail the amount of all current assets
and the amount of Closing Working Capital, as of the Closing Date (the
"Closing Statement"), which shall be prepared by Purchaser in
accordance with GAAP applied on a consistent basis and using the same
accounting policies and procedures used to prepare Seller's audited
balance sheet as of December 31, 1998 and the related statement of
income for the twelve months ended December 31, 1998. Upon Seller's
request, Purchaser shall make available to Seller the work papers and
back-up material used by Purchaser in preparing the Closing Statement
and such other documents as Seller may reasonably request in
connection with its review of the Closing Statement.
(c) Within thirty (30) days after Seller's receipt of the Closing
Statement, Seller shall deliver to Purchaser a written statement
describing its objections, if any, to the Closing Statement. If Seller
does not raise any objections in a written statement within such
thirty-day period, the Closing Statement shall thereupon become final
and binding upon all parties. If Seller does raise objections in a
written statement within such thirty-day period, and the parties
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cannot resolve such objections within ten (10) days after Purchaser's
receipt of Seller's written statement of objections, any remaining
disputes shall be resolved by a nationally recognized independent
accounting firm mutually agreeable to Purchaser and Seller (the
"Accounting Firm"). If the parties are unable to select a mutually
agreeable accounting firm, Purchaser and Seller shall each select an
independent accounting firm which firms shall select a third
independent accounting firm which shall resolve the dispute. The
Accounting Firm shall be instructed to resolve such disputes within
thirty (30) days after its appointment. The resolution of disputes by
the Accounting Firm shall be set forth in writing and shall be
conclusive and binding upon all parties and the Closing Statement, as
modified by such resolution, shall become final and binding upon the
date of such resolution. The fees and expenses of the Accounting Firm
shall be apportioned by the Accounting Firm based on the degree to
which each party's claims were unsuccessful and shall be paid by the
parties in accordance with such determination. For example, if,
pursuant to this Section 3.2(c), Seller submitted an objection
affecting the Purchase Price in the amount of $100,000 and prevailed
as to $45,000 of the amount, then Seller would bear 55% of the fees
and expenses of the Accounting Firm.
III.3 Allocation of Consideration. The Purchase Price for the Purchased
Assets shall be allocated in accordance with Section 1060 of the Code among the
Purchased Assets as set forth on Schedule 3.3. Following the Closing, Purchaser
and Seller and their respective Affiliates in connection with their respective
U.S. federal, state and local income Tax Returns and other filings (including
Internal Revenue Service Form 8594) shall not take any position inconsistent
with such allocation. Any adjustment to the Purchase Price shall be allocated
as provided by Temp. Treas. Reg.
ss. 1.1060-1T(f).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as of the date hereof as
follows:
IV.1 Due Incorporation. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois, with all
requisite corporate power and authority to own, lease and operate its
properties and to carry on the Business as they are now owned, leased, operated
and carried on.
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IV.2 Due Authorization. Seller has full power and authority to
execute, deliver and perform this Agreement and its Related Agreements and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Seller of this Agreement and its Related Agreements
and the consummation by Seller of the transactions contemplated hereby and
thereby have been duly and validly approved by Seller's board of directors and
by the Shareholders and no other actions or proceedings on the part of Seller
or any of the Shareholders are necessary to authorize the execution, delivery
and performance by Seller of this Agreement or its Related Agreements or the
consummation by Seller of the transactions contemplated hereby and thereby.
Seller has duly and validly executed and delivered this Agreement and has duly
and validly executed and delivered (or prior to or at the Closing will duly and
validly execute and deliver) its Related Agreements. This Agreement constitutes
a legal, valid and binding obligation of Seller, and Seller's Related
Agreements upon execution and delivery by Seller will constitute legal, valid
and binding obligations of Seller, in each case, enforceable in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect that affect
the enforcement of creditors' rights generally, by equitable limitations on the
availability of specific remedies and by principles of equity.
IV.3 Consents and Approvals; No Conflicts.
(a) Except as set forth on Schedule 4.3 (the "Seller Consents"),
no consent, authorization or approval of, or filing or registration
with, any Governmental Authority (or, to the Knowledge of Seller, any
Foreign Governmental Authority) or any other Person is necessary in
connection with the execution, delivery and performance by Seller of
this Agreement and its Related Agreements and the consummation by
Seller of the transactions contemplated hereby or thereby; and
(b) Except as set forth on Schedule 4.3, the execution, delivery
and performance by Seller of this Agreement and its Related Agreements
and the consummation by Seller of the transactions contemplated hereby
and thereby do not and will not (i) violate any Law or any judgment,
order, decree or award applicable to or binding on Seller, the
Purchased Assets or the Business; (ii) violate or conflict with,
result in a breach or termination of, constitute a default or give any
third party any additional right (including a termination or
acceleration right) under, permit cancellation of, result in the
creation of any Lien upon any of the Assets under, or result in or
constitute a circumstance which, with or without notice or lapse of
time or both, would constitute any of the foregoing under, any
Contract to which Seller is a party or by which Seller or any of its
assets are bound; (iii) permit the
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acceleration of the maturity of any indebtedness of Seller or
indebtedness secured by any of the Purchased Assets; or (iv) violate
or conflict with any provision of the articles of incorporation or
bylaws of Seller.
IV.4 Business Information. Seller has furnished Purchaser with true and
complete copies of the Business Financial Information. The Business Financial
Information has been prepared from the books and records of Seller. Seller's
audited balance sheet as of December 31, 1998 and the related statement of
income for the twelve months ended December 31, 1998 have been prepared in
accordance with GAAP, applied on a basis consistent with preceding years and
present fairly in all material respects the financial condition of Seller at
the date indicated and the results of its operations for the period then ended.
Seller's unaudited balance sheet as of February 28, 1999 and the related
statement of income for the two months ended February 28, 1999 have been
prepared from the books and records of the Seller, have been prepared in
accordance with GAAP (except for the absence of footnote disclosure and subject
to normal year end adjustments consistent with prior years) and present fairly
in all material respects the financial condition of Seller at the date
indicated and the results of its operations for the period then ended.
IV.5 No Material Adverse Effects or Changes. Except as set forth on
Schedule 4.5, since December 31, 1998 until the date hereof, Seller has
conducted the Business and maintained the Assets in all material respects only
in the ordinary course and consistent with past practices. Without limiting the
foregoing, except as set forth on Schedule 4.5, since December 31, 1998 until
the date hereof, Seller has not with respect to the Business or the Assets:
(a) suffered any Material Adverse Change;
(b) suffered any material damage, destruction or loss to any of
the Assets whether or not covered by insurance;
(c) sold, transferred, conveyed, assigned or otherwise disposed
of any of its assets having an aggregate value in excess of $50,000,
other than in the ordinary course of business and consistent with past
practice;
(d) declared, set aside or paid, directly or indirectly, any cash
or noncash dividend or other cash or noncash distribution in respect
of any of the securities of Seller except for (i) tax distributions
and (ii) other distributions; provided that the aggregate amount of
distributions under clauses (i) and (ii) shall not result in the
Closing Working Capital being lower than the December 31 Working
Capital;
(e) written down the value of any assets of Seller or written off
as uncollectible any accounts receivable except in
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the ordinary course of business, none of which individually or in the
aggregate are material;
(f) increased compensation payable or to become payable to any of
the officers, directors or employees of Seller or any bonus payment or
arrangement made with any such person, or any material change in
personnel policies or benefits except in the ordinary course of
business;
(g) amended or terminated (other than in accordance with its
terms) any Contract to which Seller is a party or licensee, except in
the ordinary course of business;
(h) waived any right of any material value;
(i) committed to any labor organization which represents, or
proposes to represent, Seller's employees;
(j) received notice from any customer as to the customer's
intention not to conduct business with Seller, the result of which
loss or losses of business, individually or in the aggregate, has had
or could reasonably be expected to be material;
(k) changed its accounting principles; or
(l) agreed to do any of the foregoing.
IV.6 Title to Properties. Except as set forth on Schedule 4.6, Seller
has good and valid title to the Purchased Assets, free and clear of any Lien.
Except as set forth on Schedule 4.6 and subject to obtaining all Seller
Consents, Seller has the full right to sell, convey, transfer, assign and
deliver the Purchased Assets to Purchaser. Except as set forth in Schedule 4.6
and subject to obtaining all Seller Consents, at the Closing Seller shall
convey to Purchaser good and valid title to all of the Purchased Assets, free
and clear of any Lien.
IV.7 Real Property.
(a) Schedule 2.2(a) sets forth (i) a true, accurate and complete
list of all leases of real property to which Seller is a party and
which provide for the lease to or by Seller of any real property (all
such real property leased to Seller, collectively, the "Real
Property") and (ii) the street addresses of all of the Real Property.
The Real Property constitutes all of Seller's real property and real
property interests;
(b) All of the Real Property Leases are in full force and effect,
and are valid and enforceable in accordance with
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their respective terms, except as may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in
effect that affect the enforcement of creditors' rights generally, by
equitable limitations on the availability of specific remedies and by
principles of equity; and
(c) Except as set forth on Schedule 4.7, Seller is not in breach
of any provision of, and is not in default under the terms of, and no
event has occurred which with or without notice or lapse of time or
both would constitute such a default by Seller under the terms of, any
Real Property Lease, and as of the date hereof no other party to any
Real Property Lease is in breach of any provision of, or is in default
under the terms of, and no event has occurred which with or without
notice or lapse of time or both would constitute such a default by
such other party under the terms of, any Real Property Lease.
IV.8 Equipment; Personal Property. Schedule 2.1(a) includes a true,
accurate and complete list as of December 31, 1998 of all of the Equipment
having an original acquisition cost of $5,000 or more. Schedule 2.2(b) sets
forth a true, complete and accurate list as of the date hereof of each Personal
Property Lease that requires a payment by any party in excess of, or a series
of payments which in the aggregate exceed, $10,000.
IV.9 Contracts. Schedules 2.2(a), 2.2(b), 2.2(c) and 2.2(d) set forth a
true, accurate and complete list as of the date hereof of all Contracts of the
following types to which Seller is a party and which relate primarily to the
Business:
(a) any Customer Contract that requires a payment by any party in
excess of, or a series of payments which in the aggregate exceed,
$10,000;
(b) any Contract of any kind with any director, officer or
employee of Seller, including any Contract of any kind with any
Employee involving any post-termination commission, benefit or payment
other than retirement benefits paid pursuant to a union, employee or
employer sponsored benefit plan;
(c) any Contract with a sales representative, sales agency,
advertising agency or other Person engaged in sales, distributing or
promotional activities, or any Contract to act as one of the foregoing
on behalf of any Person;
(d) any Contract involving any restrictions with respect to the
geographical area of operations or scope or type of business of
Seller; and
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(e) any other Contract that requires a payment by any party in
excess of, or a series of payments which in the aggregate exceed,
$10,000.
Seller has furnished Purchaser with true and complete copies of all written
Contracts and summaries of all oral Contracts.
IV.10 Employee Benefit Plans. (a) Schedule 4.10 sets forth a true,
accurate and complete list as of the date hereof of all "employee welfare
benefit plans" or "employee pension benefit plans" as those terms are
respectively defined in sections 3(1) and 3(2) of ERISA, and all retirement or
deferred compensation plans, incentive compensation plans, stock plans,
vacation pay, severance pay, bonus or benefit arrangements, insurance or
hospitalization programs or any other fringe benefit arrangements which do not
constitute "employee benefit plans" (as defined in section 3(3) of ERISA),
which Seller maintains, is or may become or in the past has been obligated
(including obligations to make contributions or other payments) with respect to
any present or former employees, officers, directors, agents, consultants, or
similar persons providing services to or for Seller (collectively, the "Benefit
Plans") in connection with such services. True, accurate and complete copies or
descriptions of the Benefit Plans (including related trust agreements and the
most recent Form 5500, IRS determination letters and summary plan descriptions
to the extent applicable) have been supplied to Purchaser. None of the Benefit
Plans are subject to Title IV of ERISA;
(b) All Benefit Plans are and at all times have been in all material
respects maintained, funded and administered in compliance with ERISA, the
Code, the Age Discrimination in Employment Act of 1967, as amended, and other
applicable laws and regulations. Neither Seller nor to the Knowledge of Seller
any Benefit Plan fiduciary has engaged in any "prohibited transaction" as
defined in Section 406 of ERISA or in Section 4975 of the Code, with respect to
any Benefit Plan; and
(c) Seller has (i) filed or caused to be filed all returns and reports
on the Benefit Plans that it is required to file and (ii) paid or made adequate
provision for all fees, interest, penalties, assessments or deficiencies that
have become due pursuant to those returns or reports or pursuant to any
assessment or adjustment that has been made relating to those returns or
reports. All other fees, interest, penalties and assessments that are payable
by or for Seller with respect to the Benefit Plans have been timely reported,
fully paid and discharged. There are no unpaid fees, penalties, interest or
assessments due from Seller or from any other person with respect to the
Benefit Plans that are or could reasonably be expected to become a lien or
encumbrance on any Seller asset or otherwise adversely affect any of Seller's
assets. Seller has collected or withheld all amounts that are required to be
collected or withheld by it to discharge its obligations with
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respect to the Benefit Plans, and all of those amounts have been paid to the
appropriate governmental authority or set aside in appropriate accounts for
future payment when due.
IV.11 Employment and Labor Matters. Except as set forth on Schedule
4.11, since December 31, 1995 until the date hereof there has been no (i)
unfair labor practice proceeding, labor grievance or labor arbitration or (ii)
labor strike, slow-down, work stoppage or other material labor dispute, in any
case actually pending or, to the Knowledge of Seller, threatened involving the
Seller. Except as set forth on Schedule 4.11, on the date hereof none of the
Employees is covered by any collective bargaining agreement.
IV.12 No Material Defaults or Violations. Except as set forth on
Schedule 4.12:
(a) Seller is not in breach of any provision of, nor is it in
default under the terms of, any Purchased Contract, and to the
Knowledge of Seller no other party to any Purchased Contract is in
breach of any provision of, or is in default under the terms of, any
Purchased Contract except for such breaches and defaults which are not
likely to have a Material Adverse Effect; and
(b) Seller and the Assets are in compliance in all material
respects with all Laws (and, to the Knowledge of Seller, all Foreign
Laws) applicable to the Business or the Assets. Seller holds all
licenses from Governmental Authorities (and, to the Knowledge of
Seller, all Foreign Governmental Authorities) necessary in connection
with the Business and such licenses are in full force and effect.
IV.13 Litigation.
(a) Except as set forth on Schedule 4.13, there are no actions,
suits, proceedings or other litigation pending or, to the Knowledge of
Seller, threatened against or affecting Seller or any of its officers,
directors, employees or stockholders in their capacity as such before
any court or other Governmental Authority (or, to the Knowledge of
Seller, any Foreign Governmental Authority) with respect to the
Business. Except as set forth on Schedule 4.13, neither Seller nor any
of the Purchased Assets is subject to any order, judgment, decree,
injunction or consent order of or with any court or other Governmental
Authority (or, to the Knowledge of Seller, any Foreign Governmental
Authority); and
(b) There are no claims, demands, actions, suits, mediations,
arbitrations, proceedings, injunctions or other litigation pending or,
to the Knowledge of Seller, threatened by or against Seller, with
respect to this Agreement or any of
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the Related Agreements, or in connection with the transactions
contemplated hereby or thereby.
IV.14 Brokers. Seller has not used any broker or finder in connection
with the transactions contemplated hereby except for Nesbitt Burns Securities
Inc., the fees and expenses of which will be paid by Seller. Neither Purchaser
nor any Affiliate of Purchaser has or shall have any liability or otherwise
suffer or incur any Loss as a result of or in connection with any brokerage or
finder's fee or other commission of any Person retained by Seller in connection
with any of the transactions contemplated by this Agreement or the Related
Agreements.
IV.15 Taxes.
(a) Seller has duly and timely filed all required Tax returns, reports
and estimates for all periods for which any such returns, reports and estimates
were due, and all amounts shown thereon to be due and payable have been paid in
full except as may be contested in good faith. All of such returns, reports and
estimates are true and complete in all material respects. Seller has withheld
all Taxes required to be withheld under applicable law and regulations, and
such withholdings have either been paid to the proper Governmental Authority or
Foreign Governmental Authority, as the case may be, or set aside in accounts
for such purpose, or accrued, reserved against and entered upon the books of
Seller, as the case may be; and
(b) There are, and after the date of this Agreement will be, no Tax
deficiency (including penalties and interest) of any kind assessed against or
relating to Seller with respect to any taxable periods ending on or before the
Closing Date of a character that would result in a Lien upon any of the
Purchased Assets (other than Liens for current Taxes not yet due and payable)
or that would result in any claim against Purchaser.
IV.16 Environmental Matters.
To the Knowledge of Seller, there are no conditions existing currently
which are reasonably likely to subject Seller to damages, penalties, injunctive
relief or cleanup costs under any federal, state or local environmental laws,
rules or regulations ("Environmental Laws") or which require or are likely to
require cleanup, removal, remedial action or other response by Seller pursuant
to Environmental Laws.
IV.17 Intellectual Property.
(a) Seller has received no claims or demands, and no proceedings are
pending or, to the Knowledge of Seller, threatened by any third party,
pertaining to or challenging Seller's right to
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use any of the Intellectual Property used by Seller in the Business;
(b) To the Knowledge of Seller, Seller is not infringing upon or
otherwise acting adversely to any trademark, trade name, patent or copyright
owned by a third party;
(c) There are no royalty agreements between Seller and any third party
relating to any of the Intellectual Property used by Seller in the Business;
and
(d) The Intellectual Property listed and described on Schedule 4.17
constitutes all of the intangible and intellectual property used by Seller in
connection with the Business and, to the Knowledge of Seller, constitutes all
such property necessary in connection with owning and operating the Business.
IV.18 Computer Matters.
Schedule 4.18 sets forth a complete and accurate list of all software
owned or licensed by Seller in connection with the Business and all related
computer hardware used by Seller in connection with the Business. All of the
material software programs owned by Seller and to the Knowledge of Seller, all
other material software used by Seller and material software programs used by
Seller's significant vendors, suppliers and banks, are year 2000 compliant such
that attaining the year 2000 will not have a Material Adverse Effect.
IV.19 Proper Business Practices.
Neither Seller nor, to the Knowledge of Seller, its officers,
managers, employees, agents and representatives have, to obtain or retain
business for Seller, directly or indirectly, offered, paid or promised to pay,
or authorized the payment of any money or thing of value, or any commission
payment to (i) any person who is an official, officer, agent, employee or
representative of any governmental body or of any existing or prospective
customer, (ii) any political party or official thereof, (iii) any candidate for
political or political party office, or (iv) any other individual or entity
while knowing or having reason to believe that all or any portion of such money
or thing of value would be offered to any such person or entity referred to in
clause (i), (ii) or (iii) above. Each transaction of the Business is properly
and accurately recorded on the books and records of Seller in all material
aspects.
IV.20 Relations with Customers.
Except as disclosed on Schedule 4.20, to the Knowledge of Seller, (a)
there is no fact, condition or event that would
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materially and adversely affect its relationship with any customer, and (b) no
supplier, sponsor or exhibitor intends to terminate or materially reduce its
relationship with the Business in the future or as a result of the consummation
of the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder, severally and not jointly, represents and warrants
to Purchaser as of the date hereof as follows:
V.1 Due Authorization. Such Shareholder has full power and authority
to execute, deliver and perform this Agreement and his Related Agreements and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by such Shareholder of this Agreement and his Related
Agreements and the consummation by such Shareholder of the transactions
contemplated hereby and thereby have been duly and validly approved by such
Shareholder and no other actions or proceedings on the part of such Shareholder
are necessary to authorize the execution, delivery and performance by such
Shareholder of this Agreement or his Related Agreements or the consummation by
such Shareholder of the transactions contemplated hereby and thereby. Such
Shareholder has duly and validly executed and delivered this Agreement and has
duly and validly executed and delivered (or prior to or at the Closing will
duly and validly execute and deliver) his Related Agreements. This Agreement
constitutes a legal, valid and binding obligation of such Shareholder, and such
Shareholder's Related Agreements upon execution and delivery by such
Shareholder will constitute legal, valid and binding obligations of such
Shareholder, in each case, enforceable in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect that affect the
enforcement of creditors' rights generally, by equitable limitations on the
availability of specific remedies and by principles of equity.
V.2 Consents and Approvals. No consent, authorization or approval of,
or filing or registration with, any Governmental Authority or any other Person
is necessary in connection with the execution, delivery and performance by such
Shareholder of this Agreement and his Related Agreements and the consummation
by such Shareholder of the transactions contemplated hereby or thereby.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND GUARANTOR
Each of Purchaser and Guarantor represents and warrants to Seller and
the Shareholders as of the date hereof as follows:
VI.1 Due Incorporation; Ownership. Purchaser is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware, with all requisite power and authority to own, lease and
operate its properties and to carry on its business as they are now owned,
leased, operated and carried on. As of the date hereof, Purchaser is, and as of
the Closing Date, Purchaser will be, a wholly-owned subsidiary of Gallaxy
Information Services, LLC. Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as they are now owned, leased, operated
and carried on.
VI.2 Due Authorization. Each of Purchaser and Guarantor has full power
and authority to execute, deliver and perform this Agreement and its Related
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by each of Purchaser and Guarantor of
this Agreement and its Related Agreements and the consummation by each of
Purchaser and Guarantor of the transactions contemplated hereby and thereby
have been duly and validly approved by Purchaser's and Guarantor's, as the case
may be, board of directors and no other actions or proceedings on the part of
Purchaser or Guarantor are necessary to authorize the execution, delivery and
performance by Purchaser or Guarantor of this Agreement or its Related
Agreements or the consummation by Purchaser or Guarantor of the transactions
contemplated hereby and thereby. Each of Purchaser and Guarantor has duly and
validly executed and delivered this Agreement and has duly and validly executed
and delivered (or prior to or at the Closing will duly and validly execute and
deliver) its Related Agreements. This Agreement constitutes a legal, valid and
binding obligation of each of Purchaser and Guarantor and Purchaser's and
Guarantor's Related Agreements upon execution and delivery by Purchaser and
Guarantor, as the case may be, will constitute legal, valid and binding
obligations of Purchaser and Guarantor, respectively, in each case, enforceable
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
in effect that affect the enforcement of creditors' rights generally, by
equitable limitations on the availability of specific remedies and by
principles of equity.
VI.3 Consents and Approvals; No Conflicts.
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(a) Except for the consents set forth on Schedule 6.3 (the
"Purchaser Consents"), no consent, authorization or approval of, or
filing or registration with, any Governmental Authority (or, to the
Knowledge of Purchaser, any Foreign Governmental Authority) or any
other Person is necessary in connection with the execution, delivery
and performance by either Purchaser or Guarantor of this Agreement and
their Related Agreements and the consummation by Purchaser and
Guarantor of the transactions contemplated hereby or thereby; and
(b) Except as set forth on Schedule 6.3, the execution, delivery
and performance by Purchaser and Guarantor of this Agreement and their
Related Agreements and the consummation by Purchaser and Guarantor of
the transactions contemplated hereby and thereby do not and will not
(i) violate any Law (or, to the Knowledge of Purchaser, any Foreign
Law) or any judgment, order, decree or award applicable to or binding
on Purchaser or Guarantor or any of its properties or assets; (ii)
violate or conflict with, result in a breach or termination of,
constitute a default or give any third party any additional right
(including a termination or acceleration right) under, permit
cancellation of, result in the creation of any Lien upon any of the
assets or properties of Purchaser or Guarantor under, or result in or
constitute a circumstance which, with or without notice or lapse of
time or both, would constitute any of the foregoing under, any
Contract to which Purchaser or Guarantor is a party or by which
Purchaser or Guarantor or any of their respective assets are bound;
(iii) permit the acceleration of the maturity of any indebtedness of
Purchaser or Guarantor or indebtedness secured by any of its assets or
properties; or (iv) violate or conflict with any provision of the
articles of incorporation or bylaws or similar organizational
instruments of Purchaser or Guarantor.
VI.4 Litigation. As of the date hereof, there are no claims, demands,
actions, suits, arbitrations, mediations, proceedings, injunctions or other
litigation pending or, to the Knowledge of Purchaser, threatened by or against
Purchaser, with respect to this Agreement or any of the Related Agreements or
in connection with the transactions contemplated hereby or thereby.
VI.5 Financing. Purchaser has internal resources or financing
commitments from responsible financial institutions in connection with the
acquisition of the Purchased Assets in an aggregate amount sufficient to
consummate the transactions contemplated hereby and by the Related Agreements,
and Purchaser has provided evidence of such resources or commitments to Seller.
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VI.6 Due Diligence. Purchaser is a sophisticated Person that was
advised by knowledgeable counsel and other representatives in connection with
this Agreement, and Purchaser and its representatives have been permitted
access to the management, facilities and books and records of Seller for the
purpose of conducting a due diligence review of the Business and has had the
opportunity to discuss with such management the Business and such other matters
relating thereto and the transactions contemplated hereby as Purchaser has
elected in its sole discretion.
VI.7 Brokers. Except as set forth on Schedule 6.7, neither Purchaser
nor any of its Affiliates has used any broker or finder in connection with the
transactions contemplated hereby, and neither Seller nor any Affiliate of
Seller has or shall have any liability or otherwise suffer or incur any Loss as
a result of or in connection with any brokerage or finder's fee or other
commission of any Person retained by Purchaser or any of its Affiliates in
connection with any of the transactions contemplated by this Agreement or the
Related Agreements.
ARTICLE VII
COVENANTS OF SELLER
Seller agrees to perform each of the following covenants:
VII.1 Implementing Agreement. Subject to the terms and conditions
hereof, Seller shall take all commercially reasonable action required of it to
fulfil its obligations under the terms of this Agreement and shall otherwise
use all commercially reasonable efforts to facilitate the consummation of the
transactions contemplated hereby.
VII.2 Consents and Approvals. Seller shall cooperate with Purchaser in
attempting to obtain such Seller Consents as Purchaser reasonably requests.
Seller shall make, or cause to be made, all filings, notices, applications,
statements and reports consistent with the terms of this Agreement and the
Related Agreements to all Governmental Authorities that are required to be made
prior to the Closing Date by or on behalf of Seller or any of its Affiliates
pursuant to any applicable Law in connection with this Agreement and its
Related Agreements and the transactions contemplated hereby and thereby. Seller
shall cooperate with Purchaser in making all filings, notices, applications,
statements and reports that are required to be made prior to the Closing Date
by or on behalf of Purchaser or any of its Affiliates pursuant to any
applicable Law in connection with this Agreement and its Related Agreements and
the transactions contemplated hereby and thereby.
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If Seller is unable to obtain a necessary consent from a third
party to the assignment of a Contract to Purchaser by the Closing Date
("Consent-Pending Contract"), Seller shall so advise Purchaser and Purchaser
shall receive the benefits of such Consent- Pending Contract on and after the
Closing Date. Such ConsentPending Contracts will be treated as Purchased
Contracts for purposes hereof, and Purchaser will be responsible for all of the
obligations under such Contracts arising after the Closing Date. No Contract
shall be assigned prior to receipt of the consent. If at any time, Purchaser is
not able to receive substantially all of the material benefits under any
Consent-Pending Contract, such Contract shall thereafter be treated as a
Contract not to be assumed by Purchaser and Seller shall be responsible for the
obligations thereunder. If at anytime after the Closing Date, any necessary
third-party consent shall be received with respect to a Consent-Pending
Contract, such Consent-Pending Contract shall be assigned to and assumed by
Purchaser effective as of the date of such consent; provided, that if any such
consent is received more than nine months after the Closing Date, Purchaser
may, but is not obligated to, assume such Consent-Pending Contract.
VII.3 Preservation of Business. Except as set forth on Schedule 7.3 or
with the prior written consent of Purchaser, which consent shall not be
unreasonably withheld:
(a) until the Closing, Seller shall (i) operate the Business,
including maintaining the Assets, in the usual, regular and ordinary
course and in a manner consistent with past practice and in compliance
in all material respects with all Laws, (ii) use all commercially
reasonable efforts to preserve the goodwill and advantageous
relationships of the Business with customers and suppliers of the
Business and (iii) notify Purchaser of (A) any event of which Seller
has Knowledge and which would cause any of the representations or
warranties of Seller contained herein to be inaccurate in any material
respect or would reasonably be expected to have a Material Adverse
Effect; (B) an event of loss with respect to any of the Purchased
Assets in excess of $50,000; (C) any material violation by Seller or
notice of any alleged violation of any Law; or (D) any notice of
breach or default or termination of any Contract other than pursuant
to its terms; provided that, except for Seller's liability as a result
of an inaccurate representation or warranty under Section 14.2(a),
Seller shall not have any liability or obligation to any Purchaser
Indemnified Party for any breach of or failure by Seller to perform
any covenant or obligation in this clause (iii); and
(b) without limiting the generality of clause (a), until the
Closing, Seller shall not with respect to the Business:
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(i) sell, transfer, convey, assign or otherwise
dispose of any asset having a value in excess $10,000 or
$50,000 in the aggregate, other than in the ordinary course
of business and consistent with past practice,
(ii) authorize or make any capital improvements,
capital purchases or other capital expenditures that in the
aggregate are in excess of $50,000,
(iii) terminate (except at the anticipated
expiration thereof) or make any material amendment to any of
the Purchased Contracts, or reduce or waive any material
payment or right thereunder, or agree to any material
compromise or settlement with respect thereto,
(iv) terminate the employment or increase the
compensation of any Employee, other than in the ordinary
course of business and consistent with past practice,
(v) enter into any Contract which (A) will be a
Purchased Contract and (B) has a term of more than twelve
(12) months, or
(vi) enter into any other Contract, which requires a
payment by any party in excess of, or a series of payments
which in the aggregate exceed, $10,000 and which requires the
performance of any material obligation by Purchaser after the
Closing Date.
(c) Without limiting the generality of clause (a), until the
Closing, Seller shall:
(i) maintain Seller's assets in good working order,
ordinary wear and tear and casualty excepted and replace any
asset that is worn out, broken, stolen or destroyed, which
asset would have been replaced in the ordinary course of
business;
(ii) maintain in full force and effect policies of
liability and casualty insurance of substantially the same
type and coverage as currently carried;
(iii) not adopt or commit to adopt any Benefit Plan
other than those currently maintained;
(iv) not take any action inconsistent with
consummating the transactions contemplated by this Agreement
including negotiating, soliciting or accepting any offer with
any other party to purchase, directly or indirectly, all or a
material portion of the assets or capital stock of Seller;
and
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(v) follow Seller's usual and customary policy with
respect to collecting accounts receivable.
VII.4 Access to Information and Facilities. Prior to the Closing,
Seller shall (a) give Purchaser and Purchaser's representatives access during
normal business hours upon reasonable prior notice (but not less than one
Business Day's notice unless agreed to by Seller) to all of the Purchased
Contracts, the Real Property, the Equipment and the Information and Records,
(b) upon reasonable prior notice (but not less than one Business Day's notice
unless agreed to by Seller) to Seller make the management employees of Seller
available to Purchaser and its representatives as Purchaser and its
representatives shall from time to time reasonably request and (c) furnish to
Purchaser and its representatives any and all information concerning the
Business that Purchaser or its representatives reasonably request.
Notwithstanding the foregoing, Seller shall not be obligated to take any action
that would unreasonably disrupt the normal course of the Business or to violate
any Law or the terms of any Contract to which it is a party or to which any of
the Assets is subject.
VII.5 Confidentiality. After the Closing Date, Seller shall, and shall
cause its Affiliates to, maintain in strict confidence all non-public or
confidential information contained in the Information and Records in accordance
with the procedures it uses to protect its own information of a similar nature
and not disclose to any Person or use any such information; provided, that such
restrictions shall not apply to (i) any information which becomes publicly
available after the Closing Date through no fault of Seller or any of its
Affiliates, (ii) any information which is developed independently by Seller or
any of its Affiliates through Persons who have not had, either directly or
indirectly, access to or knowledge of such information, (iii) any information
which is legitimately received by Seller or any of its Affiliates from a third
party (provided such third party is not known by Seller to be bound by an
obligation of secrecy) or (iv) any disclosure required by Law or any
Governmental Authority, so long as notice of such disclosure is given to
Purchaser prior to making such disclosure and Seller cooperates with Purchaser
as Purchaser may reasonably request to resist such disclosure; and provided
further, that the restrictions in this Section 7.5 shall not apply to the use
by Seller of the Information and Records in connection with matters described
in Section 8.4.
VII.6 Tax Matters. After the Closing, Seller shall make available to
Purchaser such records related to the Business or the Purchased Assets as
Purchaser may reasonably require for the preparation of any Tax Returns or
other similar governmental reports or forms required to be filed by Purchaser
and such records as Purchaser may reasonably require for the defense of any
audit,
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examination, administrative appeal or litigation of any such Tax Return or
other similar governmental report or form.
7.7 Information and Records. At or after the Closing, Seller shall
promptly transfer the Information and Records to Purchaser at Purchaser's
request in the same form and format in which such Information and Records exist
on the Closing Date. Seller shall have no obligation to provide the Information
and Records to Purchaser in any different form or format.
ARTICLE VIII
COVENANTS OF PURCHASER
Purchaser agrees to perform each of the following covenants:
VIII.1 Implementing Agreement. Subject to the terms and conditions
hereof, Purchaser shall take all commercially reasonable action required of it
to fulfil its obligations under the terms of this Agreement and shall use all
commercially reasonable efforts to facilitate the consummation of the
transactions contemplated hereby.
VIII.2 Consents and Approvals. Purchaser shall use all commercially
reasonable efforts to obtain all Purchaser Consents. Purchaser shall make, or
cause to be made, all filings, notices, applications, statements and reports
consistent with the terms of this Agreement and the Related Agreements to all
Governmental Authorities that are required to be made prior to the Closing Date
by or on behalf of Purchaser or any of its Affiliates pursuant to any
applicable Law in connection with this Agreement and its Related Agreements and
the transactions contemplated hereby and thereby. Purchaser shall cooperate
with Seller in making all filings, notices, applications, statements and
reports that are required to be made prior to the Closing Date by or on behalf
of Seller or any of its Affiliates pursuant to any applicable Law in connection
with this Agreement and its Related Agreements and the transactions
contemplated hereby and thereby.
VIII.3 Confidentiality.
(a) At all times prior to the Closing, Purchaser shall, and shall
cause its Affiliates to, maintain in strict confidence all confidential
information relating to Seller or any of its Affiliates not included in the
Purchased Assets that was obtained by Purchaser or any of its Affiliates in
connection with this Agreement or the Related Agreements or the transactions
contemplated hereby or thereby in accordance with the procedures it uses to
protect its own information of a similar nature and not disclose to any Person
(other than its employees, attorneys,
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accountants and advisors who need to know) or use any such information;
provided, that such restrictions shall not apply to (i) any information which
becomes publicly available after the date of disclosure by Seller to Purchaser
through no fault of Purchaser or any of its Affiliates, (ii) any information
which prior to disclosure by Seller to Purchaser was properly within the
legitimate possession of Purchaser or any of its Affiliates, (iii) any
information which is developed independently by Purchaser or any of its
Affiliates through Persons who have not had, either directly or indirectly,
access to or knowledge of such information, (iv) any information which is
legitimately received by Purchaser or any of its Affiliates from a third party
(provided such third party is not known by Purchaser to be bound by an
obligation of secrecy) or (v) any disclosure required by Law or any
Governmental Authority, so long as notice of such disclosure is given to Seller
prior to making such disclosure and Purchaser cooperates with Seller as Seller
may reasonably request to resist such disclosure.
(b) At all times prior to the Closing, Purchaser shall, and shall
cause its Affiliates to, maintain in strict confidence all computer data,
software, firmware and other documentation that were obtained by Purchaser or
any of its Affiliates in connection with this Agreement or the Related
Agreements or the transactions contemplated hereby or thereby in accordance
with the procedures it uses to protect its own information of a similar nature
and not disclose to any Person (other than its employees, attorneys,
accountants and advisors who need to know) or use any such computer data,
software, firmware, documentation or materials without the prior written
consent of Seller or its licensors, as the case may be.
(c) If this Agreement is terminated for any reason, upon the request
of Seller, Purchaser shall promptly return any written materials it or any of
its Affiliates has received from Seller or its Affiliates in connection with
this Agreement or the Related Agreements or the transactions contemplated
hereby or thereby, together with any copies of such materials made by them, and
shall promptly return or destroy all analyses, compilations, studies and other
documents of or prepared by Purchaser or any of its Affiliates from such
information (and confirm to Seller in writing that it has done so).
(d) Purchaser shall use all commercially reasonable efforts to cause
its representatives, employees, attorneys, accountants and advisors to whom
information of the type referred to in this Section 8.3 is disclosed pursuant
to this Section 8.3 or otherwise to comply with the provisions of this Section
8.3 and shall be responsible for any failure by any such Person to so comply.
VIII.4 Post-Closing Access. After the Closing, Purchaser shall
make available to Seller such records related to the Business
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or the Purchased Assets as Seller may reasonably require for the preparation of
any Tax Returns or other similar governmental reports or forms required to be
filed by Seller and such records as Seller may reasonably require for the
defense of any audit, examination, administrative appeal or litigation of any
such Tax Return or other similar governmental report or form or for the
investigation, prosecution or defense of any litigation, arbitration or other
dispute. Purchaser shall retain all such records for a period of at least seven
years. Purchaser shall notify Seller prior to the destruction of any such
records and shall provide Seller with any such records that Seller desires to
keep.
VII.5 Communications. Prior to the Closing, except solely in connection
with Purchaser's operation of its business in the ordinary course (which
communication shall not refer to this Agreement or the transactions
contemplated hereby), Purchaser shall not communicate with any of the customers
of the Business without the prior written approval of Seller, which consent
shall not be unreasonably withheld.
VII.6 Airline Reporting Corporation. Purchaser shall obtain a letter of
credit in favor of the Airline Reporting Corporation and shall cooperate with
Seller in having Seller's letter of credit with the Airline Reporting
Corporation terminated and released as promptly as practicable on or after the
Closing Date. Purchaser agrees to indemnify Seller and the Shareholders for any
draws against Seller's letter of credit with the Airline Reporting Corporation
which either (a) relate to the operation of the Business after the Closing Date
or (b) relate to the operation of the Business on or before the Closing Date
and are in respect of liabilities that are Assumed Obligations.
ARTICLE IX
CONDITIONS PRECEDENT
TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under Articles II and III of this
Agreement are subject to the satisfaction or waiver by Purchaser of the
following conditions precedent on or before the Closing Date:
IX.1 Warranties True as of Both Present Date and Closing Date. The
representations and warranties of Seller contained herein and in its Related
Agreements shall have been true, accurate and correct in all material respects
on and as of the date hereof or of the Related Agreement, respectively, and
shall also be true, accurate and correct in all material respects on and as of
the Closing Date with the same force and effect as though made by Seller on and
as of the Closing Date; provided, that if one or more
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of such representations or warranties are not true, accurate and correct in all
material respects on and as of any such date, the conditions precedent in this
Section 9.1 shall nevertheless be deemed satisfied unless the falsity,
inaccuracy or incorrectness of such representations or warranties would
reasonably be expected to have a Material Adverse Effect; provided, further,
that, subject to Section 14.8, satisfaction of the conditions set forth in this
Section 9.1 shall not constitute a waiver of Purchaser's rights to
indemnification pursuant to Article XIV resulting from any such breach.
IX.2 Compliance with Agreements and Covenants. Seller shall have
performed and complied in all material respects with all of its covenants,
obligations and agreements contained in this Agreement and in its Related
Agreements to be performed and complied with by it on or prior to the Closing
Date.
IX.3 Certificate. Seller shall have delivered a certificate to
Purchaser, dated the Closing Date, representing and warranting as to compliance
by Seller with Sections 9.1 and 9.2.
9.4 Hart-Scott-Rodino. All waiting periods under the HSR Act shall
have expired or been earlier terminated without action by the Justice
Department or the Federal Trade Commission to prevent or alter in any material
respect the consummation of the transactions contemplated by this Agreement and
the Related Agreements or to impose a materially adverse requirement on
Purchaser in order to obtain approval under the HSR Act.
IX.5 Consents and Approvals. Purchaser shall have received written
evidence satisfactory to it that (a) all regulatory consents and approvals
(other than under the HSR Act) required for the consummation of the
transactions contemplated by this Agreement and the Related Agreements have
been obtained and become final orders and no such consent or approval shall
contain any condition, term or provision that is not acceptable to Purchaser in
its reasonable determination, (b) all other Purchaser Consents have been
obtained and (c) all other Seller Consents identified on Schedule 4.3 have been
obtained; provided that the closing condition described in clause (c) shall be
deemed to have been satisfied if the aggregate amount of estimated 1999 revenue
with respect to Purchased Contracts for which a Seller Consent is not obtained
is less than $500,000; provided further that, notwithstanding anything herein
to the contrary, the closing condition described in clause (c) shall be deemed
to have not been satisfied unless a Seller Consent is obtained related to item
9 on Schedule 2.2(c).
IX.6 Legal Actions or Proceedings. No legal action or proceeding by
any Governmental Authority or other Person shall have been instituted, and no
change in any applicable Law or
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interpretation thereof by any Governmental Authority shall have occurred, which
enjoins, restrains or prohibits, or has resulted in substantial damages in
respect of, this Agreement or any Related Agreement or the consummation of the
transactions contemplated hereby or thereby, or which imposes any material
adverse obligation upon Purchaser or any of its Affiliates in connection with
the operation of the Business by Purchaser after the Closing or in connection
with the transfer of the Business or the Assets by Seller to Purchaser; and no
legal action or proceeding by any Governmental Authority
shall have been instituted that has a reasonable possibility of giving rise to
any injunction, restraint or prohibition in respect of, or has a reasonable
possibility of resulting in substantial damages in respect of, this Agreement
or any Related Agreement or the consummation of the transactions contemplated
hereby or thereby, or which has a reasonable possibility of imposing any
material adverse obligation upon Purchaser or any of its Affiliates in
connection with the operation of the Business by Purchaser after the Closing or
in connection with the transfer of the Business or the Assets by Seller to
Purchaser or otherwise materially and adversely affects the ability of
Purchaser to operate the Business in a similar manner to the manner in which it
is currently operated.
IX.7 No Material Adverse Change. Since the date of this Agreement, no
Material Adverse Change shall have occurred.
IX.8 Employment Agreements and Consulting Agreement. At or prior to the
Closing, Purchaser shall have received (a) the Martin Employment Agreement,
duly executed by Martin, (b) the Harris Employment Agreement, duly executed by
Harris and (c) the Consulting Agreement, duly executed by Patterson.
IX.9 Documents. Purchaser shall have received all of the agreements,
documents and items specified in Section 12.2.
IX.10 Investment by Martin and Harris. At or prior to the Closing, each
of Martin and Harris shall have invested $1,000,000 in an Affiliate of the
Purchaser pursuant to the terms of the LLC Agreement.
ARTICLE X
CONDITIONS PRECEDENT TO
OBLIGATIONS OF SELLER AND SHAREHOLDERS
The obligations of Seller and the Shareholders under Article II of
this Agreement are subject to the satisfaction or waiver by Seller of the
following conditions precedent on or before the Closing Date:
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X.1 Warranties True as of Both Present Date and Closing Date. The
representations and warranties of Purchaser contained herein and in its Related
Agreements shall have been true, accurate and correct in all material respects
on and as of the date hereof or of the Related Agreement, respectively, and
shall also be true, accurate and correct in all material respects on and as of
the Closing Date with the same force and effect as though made by Purchaser on
and as of the Closing Date.
X.2 Compliance with Agreements and Covenants. Purchaser shall have
performed and complied in all material respects with all of its covenants,
obligations and agreements contained in this Agreement and in its Related
Agreements to be performed and complied with by it on or prior to the Closing
Date.
X.3 Certificate. Purchaser shall have delivered a certificate to
Seller, dated the Closing Date, representing and warranting as to compliance by
Purchaser with Sections 10.1 and 10.2.
X.4 Hart-Scott-Rodino. All waiting periods under the HSR Act shall
have expired or been earlier terminated without action by the Justice
Department or the Federal Trade Commission to prevent or alter in any material
respect the consummation of the transactions contemplated by this Agreement and
the Related Agreements.
X.5 Consents and Approvals. Seller shall have received written
evidence satisfactory to it that (a) all regulatory consents and approvals
(other than under the HSR Act) required for the consummation of the
transactions contemplated by this Agreement and the Related Agreements have
been obtained and become final orders and no such consent or approval shall
contain any condition, term or provision not acceptable to Seller in its
reasonable determination, (b)(i) all other Seller Consents identified on
Schedule 4.3 have been obtained or (ii) as to any such Seller Consent not
obtained, Purchaser has agreed to close without such consent, waive liability
for failure to obtain such consent and indemnify Seller for costs associated
with such failure and (c) all other Purchaser Consents have been obtained.
X.6 Legal Actions or Proceedings. No legal action or proceeding by
any Governmental Authority or other Person shall have been instituted, and no
change in any applicable Law or interpretation thereof by any Governmental
Authority shall have occurred, which enjoins, restrains or prohibits, or has
resulted in substantial damages in respect of, this Agreement or any Related
Agreement or the consummation of the transactions contemplated hereby or
thereby, or which imposes any material adverse obligation upon Seller or any of
its Affiliates in connection with the transfer of the Business or the Assets by
Seller to Purchaser; and no legal action or proceeding by any Governmental
Authority shall have been instituted that has a reasonable possibility of
giving rise to any injunction, restraint or prohibition in respect of, or has a
reasonable possibility of resulting in substantial damages in respect of, this
Agreement or any Related Agreement or the consummation of the transactions
contemplated hereby or thereby, or which has a reasonable
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possibility of imposing any material adverse obligation upon Seller or any of
its Affiliates in connection with the transfer of the Business or the Assets by
Seller to Purchaser.
X.7 Employment Agreements and Consulting Agreement. At or prior to
the Closing, Seller and the Shareholders shall have received (a) The Martin
Employment Agreement, (b) the Harris Employment Agreement and (c) the
Consulting Agreement, each duly executed by Purchaser.
X.8 Documents. Seller and the Shareholders shall have received all of
the agreements, documents and items specified in Section 12.3.
X.9 LLC Agreement. At or prior to the Closing, each of Martin and
Harris shall have received the LLC Agreement, duly executed by Purchaser.
ARTICLE XI
EMPLOYEES AND BENEFIT PLANS
XI.1 Employees.
(a) Schedule 11.1 sets forth a true, accurate and complete list
of the names, the titles or job descriptions and the hourly rate
schedule or annual compensation payable for the current fiscal year of
each employee of Seller, including employees on unpaid leave pursuant
to the Family and Medical Leave Act of 1993 and employees on long-term
disability (the "Employees"). From time to time prior to the Closing,
Seller shall promptly disclose in writing to Purchaser any changes to
the information set forth on Schedule 11.1 and upon such notice, any
individual added to such schedule shall be deemed an Employee, any
individual deleted from the schedule shall not be deemed an Employee
and any other information so disclosed shall be deemed added to
Schedule 11.1.
(b) Purchaser shall offer employment as of the Closing Date to
all of the Employees, except for Patterson. The offer of employment,
including, without limitation, wages, salaries and benefits, shall be
upon substantially the same or better terms and conditions as those
under which the Employees were employed by Seller. Purchaser agrees to
continue employment for any Employee hired pursuant to this Section
11.1 for a period of at least three months following the Closing Date;
provided that Purchaser may terminate an Employee's employment for
cause or performance reasons. Each Employee who accepts any offer of
employment from Purchaser and who becomes an employee of Purchaser
shall be referred to herein as a "Hired Employee." The employment by
Seller of each Hired Employee shall be terminated no later than the
Closing Date.
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(c) Prior to the Closing, Purchaser shall not and shall cause its
Affiliates not to (i), except solely in the operation by Purchaser of
its business in the ordinary course (which communication shall not
refer to this Agreement or the transactions contemplated hereby),
communicate with any of the Employees without the prior written
approval of Seller, which consent shall not be unreasonably withheld
or (ii) hire any Employee.
(d) The Closing Statement shall reflect an accrual for all
applicable wages, vacation pay, pay for other compensated absences and
other remuneration earned or accrued by the Employees as of the close
of business on the Closing Date. Seller shall be responsible for
making and remitting all payroll deductions to the appropriate taxing
authorities or trustees (such as any withheld Taxes and any pension or
other employee benefit plan contributions) with respect to such wages,
vacation pay, pay for other compensated absences and other
remuneration.
(e) Seller shall be responsible for the payment of all applicable
severance payments, if any, due to any of the Employees (other than
Hired Employees), arising on or prior to the Closing Date or arising
as a result of the transactions contemplated hereby and for providing
any appropriate Worker Adjustment and Retraining Notification Act
notices as may be required in connection with the transactions
contemplated hereby. Purchaser shall be responsible for the payment of
all applicable severance payments, if any, due to any of the Hired
Employees, including any such payments attributable to periods of
service prior to the Closing Date.
XI.2 Liabilities Under Benefit Plans.
(a) Purchaser agrees to assume, as of the Closing Date,
sponsorship of and liability for, all Benefit Plans to the extent such
liabilities constitute Assumed Obligations, including liability for
continuation coverage under section 4980B(f) of the Code arising with
respect to events occurring before, on or after the Closing Date.
Purchaser agrees to honor and to make required payments in accordance
with all Benefit Plans to the extent such liabilities constitute
Assumed Obligations, and further agrees that, for a period of six
months immediately following the Closing Date, it shall provide that
such employees and former employees may participate in plans of
Purchaser which provide benefits that are substantially comparable to
those provided to them under the Benefit Plans on the date of this
Agreement ("Purchaser Benefit Plans"). Purchaser agrees that for
periods after the Closing Date, it shall provide group health benefits
sufficient to satisfy the obligations of Seller and its Affiliates
under Section 4980B of the Code so that neither the Seller nor its
Affiliates shall incur any tax under Section 4980B or liability under
Part 6 of Title I of ERISA with respect to the Benefit Plans for
continuation coverage after the Closing Date (whether such obligation
arises on account of qualifying events occurring before, on or after
the Closing Date).
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(b) Purchaser agrees that for all purposes of the Benefit Plans
and any Purchaser Benefit Plans under which a Hired Employee's benefit
depends, in whole or in part, on length of service, Hired Employees
shall be credited as of the Closing Date with service equal to the
service credited to them for such purposes under the comparable plan,
program or arrangement of Seller.
(c) Purchaser agrees that Hired Employees and any qualified
beneficiaries who are receiving or entitled to receive continuation
coverage pursuant to section 4980B(f) of the Code under any Benefit
Plan on the Closing Date shall be given credit for deductibles, co-
payments or out-of pocket expenses already incurred by such
individuals in respect of the plan year in which the Closing Date
occurs to the extent that they participate in any Benefit Plans or
Purchaser Benefit Plans following the Closing Date. Purchaser shall
waive any preexisting condition restriction or waiting period
limitation under any Purchaser Benefit Plans with respect to the Hired
Employees to the extent that such condition or limitation was waived
under the terms of the corresponding Benefit Plan or to the extent
that the Hired Employee or his eligible dependents have satisfied any
similar waiting period limitation under a corresponding Benefit Plan.
ARTICLE XII
CLOSING
XII.1 Closing. (a) The Closing shall take place at the offices of
Mayer, Brown & Platt, 190 S. LaSalle Street, Chicago, Illinois 60603, at 10:00
a.m. on April 30, 1999 or at such other place, time and date as Seller and
Purchaser may mutually agree. All business activity related to the Business and
the Assets immediately before and up to the Closing shall be attributable to
Seller. Seller's ownership of the Purchased Assets shall be deemed to cease
immediately prior to the Closing. All business activity related to the Business
and the Assets immediately after the Closing shall be attributable to
Purchaser.
(b) The transactions contemplated by this Agreement shall not be
consummated unless and until the necessary waiting period with respect to
filings under the HSR Act has expired or shall have been earlier terminated,
and such consummation shall be permitted to occur without violation of the HSR
Act. If such conditions have not been met on the Closing Date, the Parties
shall execute and deliver an escrow agreement in a form mutually acceptable to
Purchaser and Seller (the "Closing Escrow Agreement") and, pursuant to the
Closing Escrow Agreement, (a) Purchaser shall deliver the Purchase Price to the
Closing Escrow Agent, (b) the transactions referred to in Section 3.2 may be
deferred until the termination of the Closing Escrow Agreement, and (c) each
party shall deliver to the Closing Escrow Agent all other closing documents
which otherwise would have been delivered to the other party pursuant to this
Agreement.
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XII.2 Deliveries by Seller. At the Closing, Seller shall deliver to
Purchaser the following:
(a) The Assignment and Assumption Agreement duly executed by
Seller;
(b) A bill of sale in the form set forth in Exhibit E duly
executed by Seller;
(c) A certificate of the secretary of Seller certifying
resolutions of the board of directors and of the shareholders of
Seller approving and authorizing the execution, delivery and
performance of this Agreement and its Related Agreements and the
consummation by Seller of the transactions contemplated hereby and
thereby (together with an incumbency and signature certificate
regarding the officer(s) signing on behalf of Seller);
(d) An opinion, dated as of the date of the Closing, of Mayer,
Brown & Platt, special counsel to Seller, to the effect noted on
Exhibit F;
(e) An assignment of Real Property Leases, duly executed by
Seller; and
(f) Such other documents and instruments as may be required by
any other provision of this Agreement or as may reasonably be required
to consummate the transactions contemplated by this Agreement and the
Related Agreements.
XII.3 Deliveries by Purchaser. At the Closing, Purchaser shall make the
payment described in Section 3.1 and deliver to Seller the following:
(a) The Assignment and Assumption Agreement duly executed by
Purchaser.
(b) A certificate of the secretary of Purchaser certifying
resolutions of the board of directors of Purchaser approving and
authorizing this Agreement and its Related Agreements and the
consummation by Purchaser of the transactions contemplated hereby and
thereby (together with an incumbency and signature certificate
regarding the officer(s) signing on behalf of Purchaser);
(c) An opinion, dated as of the date of the Closing, of Brian A.
Meyer, general counsel of Guarantor, to the effect noted on Exhibit G;
and
(d) Such other documents and instruments as may be required by
any other provision of this Agreement or as may reasonably be required
to consummate the transactions contemplated by this Agreement and the
Related Agreements.
ARTICLE XIII
TERMINATION
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XIII.1 Termination. This Agreement may be terminated at any time on or
prior to the Closing Date:
(a) With the mutual written consent of Seller and Purchaser;
(b) By Purchaser, if there shall have been a material breach of
any representation or warranty of Seller hereunder or under any of its
Related Agreements and the falsity, inaccuracy or incorrectness of
such representation or warranty would reasonably be expected to have a
Material Adverse Effect or a material breach of any covenant of Seller
hereunder or under any of its Related Agreements, and in any case such
breach shall not have been remedied within thirty (30) days after
receipt by Seller of a notice in writing from Purchaser specifying the
breach and requesting such be remedied;
(c) By Seller, if there shall have been a material breach of any
covenant, representation or warranty of Purchaser hereunder or under
any of its Related Agreements, and such breach shall not have been
remedied within thirty (30) days after receipt by Purchaser of notice
in writing from Seller specifying the breach and requesting such be
remedied; or
(d) By Seller or Purchaser, if the Closing shall not have taken
place on or before April 30, 1999; provided, that the right to
terminate this Agreement under this Section 13.1(d) shall not be
available to any party whose failure to fulfill any of its obligations
under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date.
In the event of any termination pursuant to this Section 13.1 (other
than pursuant to clause (a)), written notice setting forth the reasons therefor
shall forthwith be given by the terminating party to the other party.
XIII.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 13.1, all obligations and liabilities of the parties hereunder shall
terminate, except for the obligations and liabilities set forth in Sections
4.14, 6.7, 8.3, 16.1, 16.8, and 16.12, which shall survive the termination of
this Agreement. If the Agreement is terminated pursuant to Section 13.1(b),
Purchaser shall be entitled to pursue all legal and equitable remedies against
Seller and the Shareholders including specific performance. If the Agreement is
terminated pursuant to Section 13.1(c), Seller and the Shareholders shall be
entitled to pursue all legal and equitable remedies against Purchaser including
specific performance.
ARTICLE XIV
INDEMNIFICATION
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XIV.1 Survival. The representations and warranties of the parties
hereto contained herein or in any Related Agreement or in any document
delivered at the Closing shall survive the Closing for a period of one (1) year
except for representations and warranties set forth in Sections 4.10, 4.15 and
4.16, which shall survive for the applicable statute of limitations. The
covenants and obligations of the parties hereto contained herein or in any
Related Agreement or in any document delivered at the Closing shall survive the
Closing, except that no claim regarding a breach of any covenant or obligation
contained herein occurring prior to the Closing (a "Pre-Closing Covenant
Breach") shall be first asserted after one (1) year following the Closing Date.
Neither Purchaser nor Seller shall have any liability with respect to any such
claim first asserted thereafter.
XIV.2 Indemnification by Seller and Shareholders. Subject to the
provisions set forth in Section 14.4, each of the Shareholders, severally and
not jointly, and Seller agrees to indemnify Purchaser and its Affiliates (each
a "Purchaser Indemnified Party") against, and agrees to hold each of them
harmless from, any and all Losses incurred or suffered by them arising out of
or in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Seller or Shareholders in this Agreement or any
Related Agreement or any document delivered by Seller or Shareholders
at the Closing; provided, that a notice of the Purchaser Indemnified
Party's claim shall have been given to Seller not later than the close
of business on the first anniversary of the Closing Date; or
(b) any breach of or failure by Seller or Shareholders to perform
any covenant or obligation of Seller or Shareholders set forth in this
Agreement or any Related Agreement or any document delivered by Seller
or Shareholders at the Closing; provided, that in the case of
Pre-Closing Covenant Breaches, a notice of the Purchaser Indemnified
Party's claim shall have been given to Seller not later than the close
of business on the first anniversary of the Closing Date; or
(c) the Retained Obligations; or
(d) noncompliance with Laws applicable to the bulk sale or
transfer of the Purchased Assets.
Notwithstanding anything in this Agreement to the contrary, no Shareholder
shall be liable or responsible for more than his Pro-Rata Share of any Loss.
For purposes of this Agreement, the Shareholders' respective "Pro-Rata Share"
shall be as follows: Patterson, 76%; Martin, 14%; and Harris, 10%.
XIV.3 Indemnification by Purchaser. Subject to the provisions set forth
in Section 14.4, Purchaser agrees to indemnify Seller, the Shareholders and
their respective Affiliates (each a "Seller
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Indemnified Party") against, and agrees to hold each of them harmless from, any
and all Losses incurred or suffered by them arising out of or in connection
with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by Purchaser in this Agreement or any Related Agreement
or any document delivered by Purchaser at the Closing; provided, that
a notice of the Seller Indemnified Party's claim shall have been given
to Purchaser not later than the close of business on the first
anniversary of the Closing Date.
(b) any breach of or failure by Purchaser to perform any covenant
or obligation of Purchaser set forth in this Agreement or any Related
Agreement or any document delivered by Purchaser at the Closing;
provided, that in the case of Pre-Closing Covenant Breaches, a notice
of the Seller Indemnified Party's claim shall have been given to
Purchaser not later than the close of business on the first
anniversary of the Closing Date; or
(c) the Assumed Obligations or other debts, claims, obligations
or other liabilities relating to or arising out of the ownership or
operation of the Assets or the Business after the Closing Date.
XIV.4 Limitations on Indemnification.
(a) Neither Seller nor any Shareholder shall have any liability
pursuant to Section 14.2(a) unless the aggregate amount of Losses
incurred or suffered by the Purchaser Indemnified Parties from such
breaches or inaccuracies exceeds $100,000, after which Seller and the
Shareholders (severally and only to the extent of their respective
Pro-Rata Shares of any such Loss) shall be liable for all Losses
without regard to such $100,000 limitation. Notwithstanding anything
contained herein to the contrary, for purposes of determining whether
any Losses have been incurred, or the amount of any such Losses, the
representations, warranties and agreements hereunder will be
considered without regard to any materiality qualification set forth
therein and damages of less than $5,000 for an individual occurrence
shall not count towards the $100,000 threshold amount. In addition,
Seller and the Shareholders shall have no liability pursuant to
Section 14.2(a) for Losses in excess of an aggregate amount of $10
million; and no Shareholder shall have any liability in excess of his
Pro-Rata Share of $10 million. The liability of Seller and the
Shareholders pursuant to Section 14.2 shall first (but not
exclusively) be satisfied out of the Holdback Amount.
(b) Purchaser shall not have any liability pursuant to Section
14.3(a) unless the aggregate amount of Losses incurred or suffered by
the Seller Indemnified Parties from such breaches or inaccuracies
exceeds $100,000, after which Purchaser shall be liable for all Losses
without regard to such $100,000 limitation. Notwithstanding anything
contained herein to the contrary, for purposes of determining whether
any Losses have been incurred,
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or the amount of any such Losses, the representations, warranties and
agreements hereunder will be considered without regard to any
materiality qualification set forth therein and damages of less than
$5,000 for an individual occurrence shall not count towards the
$100,000 threshold amount.
XIV.5 Claims. As soon as is possible after becoming aware of a claim
for indemnification under this Agreement not involving any claim, or the
commencement of any suit, action or proceeding, of the type described in
Section 14.6, but in any event within thirty (30) days after first becoming
aware of such claim, the Indemnified Person shall give written notice to the
Indemnifying Person of such claim (which notice shall specify the facts alleged
to constitute a breach and the representations, warranties, covenants or
obligations alleged to have been breached and shall specify the amount the
Indemnified Person seeks hereunder from the Indemnifying Person); provided,
that the failure of the Indemnified Person to give notice within such
thirty-day period shall not relieve the Indemnifying Person of its obligations
under this Article XIV unless the Indemnifying Person can prove actual
prejudice thereby.
XIV.6 Notice of Third Party Claims; Assumption of Defense. The
Indemnified Person shall as soon as possible (and in any event within ten
(10)days after receiving notice thereof) give written notice to the
Indemnifying Person of the assertion of any claim, or the commencement of any
suit, action or proceeding, by any Person not a party hereto in respect of
which indemnity may be sought under this Agreement; provided, that the failure
of the Indemnified Person to give notice within such ten-day period shall not
relieve the Indemnifying Person of its obligations under this Article XIV
unless the Indemnifying Person can prove actual prejudice thereby. The
Indemnifying Person may, at its own expense (a) participate in the defense of
any claim, suit, action or proceeding and (b) upon notice to the Indemnified
Person, assume the defense thereof with counsel of its choice. If the
Indemnifying Person assumes such defense, the Indemnified Person shall have the
right (but not the obligation) to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel employed by the
Indemnifying Person. Whether or not the Indemnifying Person chooses to defend
or prosecute any such claim, suit, action or proceeding, all of the parties
hereto shall cooperate in the defense or prosecution thereof.
XIV.7 Settlement or Compromise. Any settlement or compromise made or
caused to be made by the Indemnified Person or the Indemnifying Person, as the
case may be, of any such claim, suit, action or proceeding of the kind referred
to in Section 14.6 shall also be binding upon the Indemnifying Person or the
Indemnified Person, as the case may be, in the same manner as if a final
judgment or decree had been entered by a court of competent jurisdiction in the
amount of such settlement or compromise; provided, that (i) no money damages,
obligation, restriction or other Loss shall be imposed on the Indemnified
Person as a result of such settlement or compromise without its prior written
consent, which consent shall not be unreasonably withheld, and (ii) the
Indemnified Person will not compromise or settle any claim, suit, action or
proceeding without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld, and will give
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the Indemnifying Person at least thirty (30) Business Days' notice of any
proposed settlement or compromise of any claim, suit, action or proceeding.
XIV.8 Knowledge. Notwithstanding anything contained herein to the
contrary, no party shall have any liability for any breach of or inaccuracy in
any representation or warranty by such party, if the other party had Knowledge
on or before the Closing Date of the facts as a result of which such
representation or warranty was breached or inaccurate unless the party with
such Knowledge informed the other party of such facts and allowed such party a
reasonable opportunity to cure such breach or inaccuracy and such breach or
inaccuracy was not cured within such reasonable period.
XIV.9 Exclusive Remedy. From and after the Closing, the provisions of
this Article XIV shall be the sole and exclusive remedies of the Purchaser
Indemnified Parties and the Seller Indemnified Parties for any breach of or
inaccuracy in any representation or warranty, or any breach of or failure to
perform any covenant or obligation, set forth in this Agreement or any Related
Agreement or any document delivered at the Closing, or for any other matter or
claim arising under or in connection with this Agreement, the Related
Agreements or the transactions contemplated hereby or thereby, except in the
case of fraud or as set forth in Section 15.5.
XIV.10 Effect on Purchase Price of Indemnity Payments. Any amounts
payable under Section 14.2 or Section 14.3 shall be treated by Purchaser and
Seller as an adjustment to the Purchase Price of the Purchased Assets
consistent with Section 3.3.
ARTICLE XV
NONCOMPETITION AGREEMENT
XV.1 Noncompetition; Seller and Patterson. As an inducement to
Purchaser to enter into this Agreement, Seller and Patterson agree that, for a
period of five (5) years after the Closing Date, neither Seller nor Patterson
shall, directly or indirectly,
(a) own, manage, control or be employed by (in any management, sales
or consulting capacity) any Person (except for Purchaser or an Affiliate of
Purchaser) that, directly or indirectly, engages in the Business in North
America and Europe. Nothing herein shall prohibit Seller or Patterson from
owning up to an aggregate of 5% of the outstanding capital stock of any
publicly traded Person engaged in the Business, so long as neither Seller nor
Patterson actively participates in the Business conducted by such Person;
(b) solicit or attempt to divert or remove from Purchaser any person
which is, or during the two (2) years preceding the Closing Date has been, a
customer of Seller or suggest to any such customer that the business it does
with Purchaser be reduced or placed with any other person; or
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(c) solicit any Hired Employee or other employee of Purchaser or any
of its Affiliates to terminate employment with such entity, or individually or
as owner, agent, employee, consultant or otherwise, employ or offer employment
to any person who is or was employed by Purchaser or an Affiliate thereof
unless such person shall have ceased to be employed by such entity for a period
of at least six (6) months.
XV.2 Noncompetition; Martin. As an inducement to Purchaser to enter
into this Agreement, Martin agrees that, for a period of three (3) years after
the Closing Date, he shall not, directly or indirectly,
(a) own, manage, control or be employed by (in any management, sales
or consulting capacity) any Person (except for Purchaser or an Affiliate of
Purchaser) that, directly or indirectly, engages in the Business in North
America and Europe. Nothing herein shall prohibit Martin from owning up to an
aggregate of 5% of the outstanding capital stock of any publicly traded Person
engaged in the Business, so long as Martin does not actively participate in the
Business conducted by such Person;
(b) solicit or attempt to divert or remove from Purchaser any person
which is, or during the two (2) years preceding the Closing Date has been, a
customer of Seller or suggest to any such customer that the business it does
with Purchaser be reduced or placed with any other person; or
(c) solicit any Hired Employee or other employee of Purchaser or any
of its Affiliates to terminate employment with such entity, or individually or
as owner, agent, employee, consultant or otherwise, employ or offer employment
to any person who is or was employed by Purchaser or an Affiliate thereof
unless such person shall have ceased to be employed by such entity for a period
of at least six (6) months.
Notwithstanding anything herein to the contrary, if Martin's employment with
Purchaser is terminated (other than for Cause) or if Martin terminates his
employment for Good Cause, Martin's obligations pursuant to this Section 15.2
shall cease and be of no further effect as of such termination date. As used in
this Section 15.2, the terms "Cause" and "Good Cause" shall have the meanings
given such term in the Martin Employment Agreement.
XV.3 Noncompetition; Harris. As an inducement to Purchaser to enter
into this Agreement, Harris agrees that, for a period of three (3) years after
the Closing Date, he shall not, directly or indirectly,
(a) own, manage, control or be employed by (in any management, sales
or consulting capacity) any Person (except for Purchaser or an Affiliate of
Purchaser) that, directly or indirectly, engages in the Business in North
America and Europe. Nothing herein shall prohibit Harris from owning up to an
aggregate of 5% of the outstanding capital stock of any publicly traded Person
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engaged in the Business, so long as Harris does not actively participate in the
Business conducted by such Person;
(b) solicit or attempt to divert or remove from Purchaser any person
which is, or during the two (2) years preceding the Closing Date has been, a
customer of Seller or suggest to any such customer that the business it does
with Purchaser be reduced or placed with any other person; or
(c) solicit any Hired Employee or other employee of Purchaser or any
of its Affiliates to terminate employment with such entity, or individually or
as owner, agent, employee, consultant or otherwise, employ or offer employment
to any person who is or was employed by Purchaser or an Affiliate thereof
unless such person shall have ceased to be employed by such entity for a period
of at least six (6) months.
Notwithstanding anything herein to the contrary, if Harris's employment with
Purchaser is terminated (other than for Cause) or if Harris terminates his
employment for Good Cause, Harris's obligations pursuant to this Section 15.3
shall cease and be of no further effect as of such termination date. As used in
this Section 15.3, the terms "Cause" and "Good Cause" shall have the meanings
given such term in the Harris Employment Agreement.
XV.4 Enforcement. If, at the time of any enforcement of this Article
XV, a court shall hold that the duration, scope, area or other restrictions set
forth in this Article XV are unreasonable under circumstances then existing,
the parties agree that the maximum duration, scope, area or other restrictions
reasonable under such circumstances shall be substituted for the stated
duration, scope, area or other restrictions.
XV.5 Specific Performance. Seller acknowledges that in the event of
breach by it of any of the provisions of this Article XV, money damages would
be inadequate and Purchaser would have no adequate remedy at law. Accordingly,
Seller agrees that Purchaser shall have the right, in addition to the rights
and remedies set forth in Article XIV, to enforce its rights and Seller's
obligations under this Article XV by an action or actions for specific
performance, injunction and/or other equitable relief.
ARTICLE XVI
MISCELLANEOUS
XVI.1 Expenses. Except as otherwise provided herein, each party hereto
shall bear its own expenses with respect to the transactions contemplated
hereby. Purchaser shall pay (or, if Seller has paid, reimburse Seller for) (a)
any filing fee required under the HSR Act in connection with the transactions
contemplated hereby, and (b) all sales, use and similar Taxes, if any, imposed
by any Governmental Authority in connection with the transfer and assignment of
the Purchased Assets.
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XVI.2 Amendment. This Agreement may be amended, modified or
supplemented but only in writing signed by Purchaser, Seller and each of the
Shareholders.
XVI.3 Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given (a) when received if given in person or by courier or a courier
service, (b) one (1) Business Day after the date of transmission if sent by
telex, facsimile or other wire transmission (receipt confirmed by telephone) or
(c) five (5) Business Days after being deposited in the mail, certified or
registered, postage prepaid:
If to Seller or William A. Patterson Jr., addressed as follows:
INTERNATIONAL TRAVEL SERVICE, INC.
225 Old Farm Road
Northfield, Illinois 60093
Attention: William A. Patterson Jr.
Telephone No.: (847)446-9593
Facsimile No.: (847) 446-3035
with copies to:
MAYER, BROWN & PLATT
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Richard S. Millard, Esq.
Telephone No.: (312) 701-7161
Facsimile No.: (312) 701-7711
If to Stephen T. Martin, addressed as follows:
2815 Seminole
Ivanhoe, Illinois 60060
Telephone No.: (847) 949-2473
with copies to:
MAYER, BROWN & PLATT
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Richard S. Millard, Esq.
Telephone No.: (312) 701-7161
Facsimile No.: (312) 701-7711
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If to Edward A. Harris, addressed as follows:
2547 Walters Avenue
Northbrook, Illinois 60062-4444
Telephone No.: (847) 498-4466
with copies to:
MAYER, BROWN & PLATT
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Richard S. Millard, Esq.
Telephone No.: (312) 701-7161
Facsimile No.: (312) 701-7711
If to Purchaser or Guarantor, addressed as follows:
THE OFFICIAL INFORMATION COMPANY 250 West 57th St., Suite 2421
New York, New York 10019
Attention: Brian A. Meyer, General Counsel
Telephone No.: (212) 247-5153
Facsimile No.: (212) 247-0026
with copies to:
Minkin & Snyder
3060 Peachtree Road, Suite 1100
Atlanta, GA 30305
Attention: Stacey Gallant, Esq.
Telephone No.: (404) 261-8000
Facsimile No.: (404) 233-5824
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
XVI.4 Payments in Dollars. Except as otherwise provided herein or in a
Related Agreement, all payments pursuant hereto shall be made in U.S. Dollars
in same day or immediately available funds, without any set off, deduction or
counterclaim whatsoever.
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XVI.5 Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one
or more instances shall be deemed to be a further or continuing waiver of any
such condition or breach in other instances or a waiver of any other condition
or breach of any other term, covenant, representation or warranty.
XVI.6 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, that no assignment of any rights or obligations shall be made by
Seller without the written consent of Purchaser or by Purchaser without the
written consent of Seller, in each case which will not be unreasonably
withheld, except that without such consent (a) each of Seller and Purchaser may
assign its rights and obligations hereunder to any successor entity in a merger
of Seller or Purchaser, respectively, into such successor entity and (b)
Purchaser may assign its rights and obligations to an Affiliate and may
collaterally assign its rights hereunder to its lenders; provided further, that
no assignment pursuant to this Section 16.6 shall relieve either party from any
obligations hereunder.
XVI.7 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and, to the extent provided herein, their
respective Affiliates, and no provision of this Agreement shall be deemed to
confer upon any other third parties any remedy, claim, liability,
reimbursement, cause of action or other right.
XVI.8 Publicity. At all times prior to the Closing Date, whether or not
the Closing occurs, no press release or other public announcement or publicity
regarding the existence of this Agreement or its contents or the transactions
contemplated hereby shall be made by Purchaser or Seller or any of their
respective Affiliates, officers, directors, employees, representatives or
agents, without the prior approval of Purchaser and Seller, in any case, as to
form, content, timing and manner of distribution and publication; provided,
that nothing in this Section 16.8 shall prohibit any party from (a) making any
public announcement required by Law or the rules of any stock exchange so long
as such party consults the other party as to the form, content, timing and
manner of distribution and publication, (b) enforcing its rights hereunder or
(c) disclosing this Agreement or its contents or the transactions contemplated
hereby to those Persons whose approval, agreement or opinion, as the case may
be, is required for consummation of the transactions contemplated hereby; and
provided, further, that nothing in this Section 16.8 shall prohibit Seller from
disclosing to Employees the existence of this Agreement or its contents
applicable to Employees. Notwithstanding anything herein to the contrary,
neither Purchaser nor Seller (or any of their respective Affiliates, officers,
directors, employees, representatives or agents) shall make any such press
release or other public announcement or publicity (including, without
limitation, in any filing with the Securities and Exchange Commission or any
stock exchange) prior to March 29, 1999. After the Closing Date, Purchaser
shall not make any references to Seller or any of its Affiliates in conjunction
with references to this Agreement, its contents, the transactions contemplated
hereby, Seller's past
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operation of the Business or Seller's past ownership of the Purchased Assets,
except to identify Seller as the past operator of the Business and the past
owner of the Purchased Assets.
XVI.9 Further Assurances. Upon the reasonable request of Purchaser,
Seller will on and after the Closing Date execute and deliver to Purchaser such
other deeds, assignments and other instruments as may be required to effectuate
completely the transfer and assignment to Purchaser of Seller's title, right
and interest in and to each of the Purchased Assets, and to otherwise carry out
the purposes of this Agreement.
XVI.10 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
XVI.11 Entire Understanding. This Agreement and the Related Agreements
set forth the entire agreement and understanding of the parties hereto with
respect to the transactions contemplated hereby and supersede any and all prior
agreements, arrangements and understandings among the parties relating to the
subject matter hereof, except that the Confidentiality Agreement, dated
December 8, 1998, between Guarantor and Seller, shall remain in full force and
effect.
XVI.12 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without giving effect to the principles of conflicts of law thereof.
XVI.13 Choice of Forum. Purchaser and Seller agree that any suit or
action or proceeding brought by either party against the other party to this
Agreement in connection with or arising out of this Agreement shall be brought
solely in the Federal Courts of the Northern District of Illinois or, if such
court lacks jurisdiction, in the Circuit Court of Lake County, Illinois.
XVI.14 Waiver of Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A
TRIAL BY JURY IN ANY DISPUTE RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY RELATED AGREEMENT, THE SUBJECT MATTER HEREOF OR THEREOF OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY
OR APPROPRIATE TO EFFECT SUCH WAIVER.
XVI.15 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
XVI.16 Remittances. All remittances, payments, mail and other
communications relating to the Purchased Assets or the Assumed Obligations
received by Seller at any time after the Closing Date shall be promptly turned
over to Purchaser by Seller. All remittances, payments, mail and other
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communications relating to the Retained Obligations received by Purchaser at
any time after the Closing Date shall be promptly turned over to Seller by
Purchaser.
XVI.17 Bulk Sales. Purchaser hereby waives compliance by Seller with
the provisions of the laws of any jurisdiction relating to the bulk sale or
transfer of assets that may be applicable to the transfer of the Purchased
Assets and Seller shall indemnify Purchaser for any Losses to Purchaser
resulting from such noncompliance in accordance with Section 14.2.
XVI.18 Schedules. The Schedules attached hereto reflect the material
supplied to Purchaser by Seller. Any information disclosed pursuant to any
Schedule hereto shall be deemed to be disclosed to Purchaser for purposes of
another schedule or schedules if it is reasonably apparent that such
information applies to such other schedule or schedules. Seller may, from time
to time prior to the date that is three (3) Business Days before the Closing,
by notice to Purchaser in accordance with the terms of this Agreement,
supplement or amend any Schedule, including one or more supplements or
amendments to correct any matter that would constitute a breach of any
representation, warranty, covenant or obligation contained herein. No such
supplement or amendment to any Schedule shall be deemed to cure any breach for
purposes of Section 9.1. Seller may cure such breach by reducing the Purchase
Price in an amount equal to the Losses to Purchaser caused by such breach or by
making payment to a third party or taking other action to discharge the Losses;
provided, the cure of breaches provided herein shall only be available to the
extent such Losses are less than $250,000. All references to any Schedule
hereto that is supplemented or amended as provided in this Section 16.18 shall
for all purposes (except as provided in the immediately preceding sentence) be
deemed to be a reference to such Schedule as so supplemented or amended.
XVI.19 Disclaimer of Warranties. Purchaser acknowledges that it has had
sufficient opportunity to make whatever investigation it has deemed necessary
and advisable for the purposes of determining whether or not to enter into this
Agreement and acknowledges and agrees that, EXCEPT TO THE EXTENT OF THE EXPRESS
REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS CONTAINED IN THIS
AGREEMENT, PURCHASER IS ACQUIRING THE PURCHASED ASSETS IN RELIANCE UPON ITS OWN
INVESTIGATION AND ON AN "AS IS, WHERE IS" BASIS AND WITHOUT RECOURSE AND
WITHOUT ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR PURPOSE OR ANY OTHER IMPLIED OR EXPRESS WARRANTIES WHATSOEVER.
Purchaser acknowledges and agrees that none of Seller, any Shareholder or any
of their respective Affiliates (or any representatives of any of the foregoing)
has made any representation or warranty, express or implied, as to the accuracy
or completeness of any memoranda, charts, summaries or schedules heretofore
made available by Seller, any Shareholder or any of their respective Affiliates
or representatives to Purchaser, any of its Affiliates or their representatives
(including the Confidential Information Memorandum dated November 1998) or any
information that is not included in this Agreement or the Schedules hereto, and
none of Seller, any Shareholder or any of their respective Affiliates or
representatives will have or be subject to any
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liability to Purchaser, any of its Affiliates or their representatives
resulting from the distribution of any such information (that is not included
in this Agreement or the Schedules hereto) to, or the use of any such
information (that is not included in this Agreement or the Schedules hereto)
by, Purchaser, any of its Affiliates or any of their representatives.
ARTICLE XVII
GUARANTY
XVII.1 Guaranty. Guarantor hereby unconditionally and irrevocably
guarantees to Seller and the Shareholders the due and punctual payment and
performance of all liabilities and obligations of Purchaser to Seller and the
Shareholders under this Agreement and the Related Agreements. This guaranty of
Guarantor is a guaranty of payment, performance and compliance and not of
collectability, is in no way conditioned or contingent upon an attempt to
collect from or enforce performance or compliance by Purchaser or upon any
other event, contingency or circumstance whatsoever. This guaranty is solely
for the benefit of the Seller and the Shareholders and not for the benefit of
any third party.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
INTERNATIONAL TRAVEL SERVICE, INC.
By:___________________________________
Name:
Title:
____________________________________
William A. Patterson Jr.
____________________________________
Stephen T. Martin
____________________________________
Edward A. Harris
THE OFFICIAL INFORMATION COMPANY
By:__________________________________
Name:
Title:
TOIC ACQUISITION, LLC
By:__________________________________
Name:
<PAGE>
Title:
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of September 1, 1998, by and
between GEM Communications, LLC, a Delaware limited liability company
("Employer"), and Richard J. Moeller ("Executive"):
Background
----------
Employer wishes to retain Executive and Executive wishes to
be employed by Employer on the terms and conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements set
forth herein, the parties hereto, intending to be legally bound hereby, agree
as follows:
ARTICLE I
----------
TERM OF AGREEMENT AND EMPLOYMENT
Section 1.01 Commencing on the date of this Agreement and for a period
ending on August 31, 2001, subject to earlier termination as provided in
Article VI hereof, Employer hereby employs Executive and Executive hereby
accepts employment with Employer as the President and Chief Executive Officer
of Employer. Subject to the direction and ultimate authority of the Chairman of
the Board and the Board of Directors of Employer, Executive shall be
responsible for the overall performance of GEM (the "Business") and, in
particular, Executive shall be responsible (i) for growing the Business'
earnings on an aggressive and consistent basis, (ii) improving profitability of
the Business' existing publications and trade shows, (iii) initially the
Executive's responsibilities will cover all North American operations but he
will be expected to cooperate with and participate in Employer's and TOIC's
worldwide gaming strategy and (iv) developing new products and services. The
Executive's responsibilities shall be determined from time to time in the sole
discretion of the Chairman of the Board of Employer. Employer, The Official
Information Company ("TOIC") and Employer's and TOIC's subsidiaries are
collectively referred to below as the "Related Entities."
Section 1.02 The term of this Agreement shall continue from year to
year after August 31, 2001, unless terminated by written notice, given by
either party to the other, on or before the date which is one year prior to the
expiration date of the term hereof or prior to the expiration of any extended
term.
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ARTICLE II
-----------
DUTIES AND OBLIGATIONS OF EXECUTIVE
Section 2.01 At all times during the performance of this Agreement,
Executive shall adhere to each Related Entity's policies, rules and regulations
governing the conduct of its employees, now in effect, or as subsequently
adopted or amended.
Section 2.02 Executive shall devote substantially all of his business
time, ability and attention to the operations of the Businesses during the term
of this Agreement and shall not, whether directly or indirectly, render any
services to any other person or organization, whether for compensation or
otherwise, except with Employer's prior written consent.
ARTICLE III
------------
COMPENSATION
Section 3.01 As full compensation for his services hereunder, Employer
shall pay Executive an annual salary of One Hundred Thousand ($160,000),
payable in equal semi-monthly installments (the "Base Salary"). On each
December 31, the Base Salary shall be increased by an amount equal to the
percentage increase during the previous calendar year in the Consumer Price
Index, All Items, in the New York City metropolitan area.
Section 3.02 In addition to the Base Salary, Executive shall be
eligible to participate in TOIC's Key Employee Bonus Plan (the "Bonus Plan").
The Chief Executive Officer of TOIC has the authority in its sole and absolute
discretion to select the participants in the Bonus Plan and to determine the
bonus formula for each participant. Contemporaneously with the execution of
this Agreement, Employer shall deliver a letter stating that Executive has been
selected to participate in the Bonus Plan with respect to 1998 but that shall
be guaranteed a minimum bonus of $15,000 for 1998.
Section 3.03 Contemporaneously with the execution of this Agreement,
Employer and Executive are executing an agreement in the form attached as
Exhibit A pursuant to which Executive is being granted 1,750 Equity
Appreciation Units under TOIC's Key Executive Equity Appreciation Plan.
ARTICLE IV
-----------
BENEFITS
Section 4.01 Executive shall be entitled to participate in all benefit
plans generally available to employees of Employer and, subject to Section 6,
to receive vacation, sick leave and leaves of absence in accordance with
general employee policies.
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ARTICLE V
----------
BUSINESS EXPENSES
Section 5.01 Employer shall reimburse Executive, in accordance with
Employer's policies, for all reasonable out-of-pocket business expenses
incurred by Executive in the performance of his duties hereunder. Executive
shall furnish to Employer documentary evidence of each such expense in the form
required to comply with Employer's policies and all applicable federal and
state tax statutes and regulations issued thereunder for the substantiation of
such expense as a tax deduction.
Section 5.02 Employer shall reimburse Executive up to $100,000 (plus a
gross-up for any taxes paid by Executive with respect to relocation expenses
referred to in clauses (i) and (ii) below) for (i) customary and necessary
expenses to move his family, household goods and other personal property from
Ohio to the New York City metropolitan area, (ii) real estate expenses related
to selling Employee's Ohio house and purchasing a house in the New York City
metropolitan area and (iii) customary and reasonable travel and lodging
expenses incurred by Executive prior to such move (in accordance with
Employer's travel policies). Executive shall furnish to Employer documentary
evidence of each such expense in the form required to comply with Employer's
policies and all applicable federal and state tax statutes and regulations
issued thereunder for the substantiation of such expense as a tax deduction.
Executive shall have completed his relocation by no later than June 1, 1999.
ARTICLE VI
-----------
TERMINATION OF EMPLOYMENT
Section 6.01 Termination with Cause. Employer may terminate
Executive's employment at any time for Cause by giving written notice of such
termination to Executive. For purposes of this Agreement, cause shall mean:
(a) The conviction of Executive of a felony;
(b) Fraud, embezzlement or other misappropriation by Executive of
funds or property of Employer or any of its affiliates;
(c) A breach of any of Executive's fiduciary duties as an employee of
Employer;
(d) Any gross misconduct of Executive which is injurious in any
material respect to Employer or any of its affiliates; or
(e) Executive's failure to perform in any material respect his
obligations under this Agreement.
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If Employer terminates Executive's employment for Cause under
this Section 6.01, Executive shall cease receiving his Base Salary as of the
date of such termination, shall not be entitled to any severance pay, and shall
cease as of the date of such termination to participate in the benefit plans
generally available to employees of Employer in which Executive is then
participating. Employer will assure that Executive receives all benefits
required by law, e.g., COBRA, but Executive will receive no other benefit
hereunder.
Section 6.02 Termination Resulting from Death or Disability. If, as
the result of any physical or mental disability, Executive shall fail or be
unable to perform in a satisfactory manner a material portion of his duties and
obligations hereunder for a period of 180 consecutive days or for a total of
180 days in any twelve (12) month period, Employer may, upon thirty (30) days
prior written notice to Executive, terminate Executive's employment hereunder.
Any dispute as to a disability shall be resolved by a medical doctor selected
jointly by Employer and Executive, or, failing agreement, by the President of
the American Medical Association.
The death of Executive shall terminate this Agreement and his
employment hereunder, effective at the time of death.
In the event of termination resulting from disability or
death, Executive or his estate, as the case may be, shall receive Executive's
Base Salary through the date of termination and a pro-rated portion (based on
the number of days in the year in which Executive was employed) of the Bonus,
if any, calculated for the portion of such calendar year through the last day
of the month preceding the month in which Executive's employment terminated.
Executive's participation in the benefits plans generally available to
employees of Employer shall cease as of the date of such termination, with the
exception of a disability insurance plan, if any.
Section 6.03 Termination for Other Reasons. Employer may terminate
this Agreement and Executive's employment for any reason at any time by giving
written notice of such termination to Executive. If Executive's employment is
terminated by Employer pursuant to this provision (i.e., other than for Cause,
death or disability), Executive shall cease receiving his Base Salary and to
participate in Employer's benefit plans as of the date of such termination. If,
however, Employer shall promptly receive from Executive a release of Employer
and its affiliates, in form and substance satisfactory to Employer (the
"Release"), from any and all claims which Executive may have in respect of such
termination or under this Agreement, (a) Employer shall pay Executive severance
pay in an amount equal to Executive's Base Salary (calculated at the rate of
Executive's annual salary at the time of such termination) for one (1) year
after the date of such termination (the "Severance Period") and a pro-rated
portion (based on the number of days in the year in which Executive was
employed) of the Bonus, if any, calculated for the portion of such calendar
year through the last day of the month preceding the month in which Executive's
employment terminated, and (b) Employer shall maintain in full force and effect
Executive's continued participation in the benefit plans generally available to
employees of Employer in which Executive was participating immediately prior to
such termination until the earlier of (i) one (1) year after the date of such
termination and (ii) Executive's commencement of full-time employment with a
new employer. At the end of the period of participation in such benefit plans,
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Employer will assure that Executive receives all additional benefits required
by law, e.g., COBRA. The payment of the severance pay referred to in clause (a)
above shall be made as follows: (i) one-half of the amount calculated based
upon Executive's Base Salary shall be payable upon delivery of the Release,
(ii) one-half of the amount calculated based upon Executive's Base Salary shall
be payable during the Severance Period in accordance with the same schedule of
payments provided for Executive's Base Salary pursuant to Section 3.01
beginning six months after the date of termination and (iii) the amount
calculated based upon the pro-rated bonus shall be payable in accordance with
the Key Employee Bonus Plan.
Section 6.04 Mitigation. Executive agrees to use reasonable efforts to
mitigate any severance pay hereunder, beginning six months after termination,
by seeking other comparable employment or consultancy arrangements. Subject to
Section 7.01(a), if during the Severance Period the Executive accepts other
employment or consultancy, the portion of the severance pay awarded to the
Executive hereunder that is based upon Executive's Base Salary shall be reduced
by the amount of any compensation payable as a result of such other employment
or consultancy.
ARTICLE VII
-----------
NON-COMPETITION, CONFIDENTIALITY
AND NON-SOLICITATION COVENANTS
Section 7.01 Executive acknowledges that Executive's employment
hereunder will provide Executive with access on a continual basis to
confidential and proprietary information concerning each of the Businesses,
which is not readily available to the public; and that Employer would not enter
into this Agreement but for the covenants (the "Restrictive Covenants")
contained in this Article VII. Accordingly, Executive agrees that:
(a) During the term of employment hereunder and, for a period of one
(1) year thereafter (the "Restricted Period"), Executive shall not, directly or
indirectly, (i) engage in any business that is competitive with the Businesses
for his own account; or (ii) render any services which constitute engaging in
any business that is competitive with the Businesses in any capacity to any
person (other than with the consent or at the direction of Employer); nor shall
Executive own an equity interest in any person which is engaged in any business
that is competitive with the Businesses (such activities being "Competitive
Activities"), provided, however, that Executive may own, directly or
indirectly, solely as a passive investment, securities of any person which are
traded on any national securities exchange or NASDAQ, if Executive is not a
controlling person of, or a member of a group which controls, such person, and
does not, directly or indirectly, own five percent (5%) or more of any class of
securities of such person.
In the event that Executive's employment is terminated by Employer
pursuant to Section 6.03 of this Agreement and Executive has received an offer
or opportunity to engage in any Competitive Activities during the Restricted
Period, Executive shall notify the Company that he has received such an offer
or opportunity, representing that such offer is a bona fide and firm offer and
that he intends to accept the same unless precluded hereby, specifying the
specific
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employment title and duties or other interest so offered and the terms of such
offer and consenting to the Company contacting appropriate officials at such
other company solely for the purpose of verifying the nature and terms of the
employment or other interest offered. Following receipt of such notice, the
Company shall notify Executive within 10 business days thereof whether it is
willing, in its sole discretion, to waive the provisions of this Section
7.01(a) with respect to such proposed Competitive Activity. If the Company does
not waive the provisions of this Section 7.01(a) with respect to such proposed
Competitive Activity, then Executive shall be relieved of his obligation to
mitigate pursuant to Section 6.04.
(b) Executive shall forever maintain in strictest confidence all
information relating to each of the Businesses and to each of the Related
Entities, which is known or becomes known to Executive, including, without
limitation, trade secrets, know-how, financial statements and data, contracts
(whether oral or written), customer and advertiser lists, rate schedules,
pricing policies, marketing plans and strategies, and business acquisition
plans (collectively, the "Confidential Information"), and shall not, except in
connection with the business affairs of Employer and its affiliates, disclose
any Confidential Information to any person, other than with the express written
consent of Employer. Confidential Information shall not include information
which Executive can demonstrate (A) has become generally available to the
public other than as a result of a disclosure by Executive, (B) was available
to Executive on a non-confidential basis prior to its disclosure to Executive
by Employer, or (C) has become available to Executive on a non-confidential
basis from a source other than Employer, provided that such source is not known
by Executive after reasonable inquiry to be bound by a confidentiality
agreement with Employer or otherwise prohibited from transmitting the
information to Executive by a legally binding obligation.
Notwithstanding anything in this Agreement to the contrary, in the
event that a request or demand is made upon Executive, by written
interrogatory, request for information or documents, subpoena, court order,
civil investigative demand or other legal process, to disclose any Confidential
Information, which disclosure is not otherwise permitted hereunder, Executive
will provide Employee with prompt notice of any such request or demand so that
Employer may seek an appropriate protective order or waive compliance with the
provisions of this Agreement. Executive will not oppose action by, and will
cooperate with, Employer in any effort to obtain an appropriate protective
order.
All memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Information heretofore or hereafter
made or compiled by Executive or made available to Executive concerning any of
the Businesses shall be the property of the respective Related Entities, shall
be kept confidential in accordance with the provisions of this Section 7.01(b),
and shall be delivered to the respective Related Entities promptly upon
termination of this Agreement or at any earlier or later time upon the request
of Employer.
(c) During the Restricted Period, Executive shall not, directly or
indirectly, solicit or encourage any current employee, officer or director of
any of the Related Entities to leave the employment of his employer, or hire
any current or former employee, officer or director of, any of the Related
Entities.
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(d) During the Restricted Period, Executive shall not, directly or
indirectly, solicit or encourage any person who is a customer or advertiser of
any of the Related Entities, or the affiliates or associates thereof, to
discontinue such person's business relationship with any of the Related
Entities.
Section 7.02 Executive acknowledges and agrees that (i) Executive has
had an opportunity to seek advice of counsel in connection with this Agreement;
(ii) the Restrictive Covenants are reasonable in scope and in all other
respects; (iii) any violation of the Restrictive Covenants will result in
irreparable injury to the Related Entities; (iv) money damages would be an
inadequate remedy at law for the Related Entities in the event of a breach of
any of the Restrictive Covenants by Executive; and (v) specific performance in
the form of injunctive relief would be an adequate remedy for the Related
Entities.
Employer and Executive hereby submit to the jurisdiction of the Courts
of the State of New York to enforce the Restrictive Covenants and agree that if
Executive breaches or threatens to breach a Restrictive Covenant, Employer (or
any of the other Related Entities) shall be entitled, in addition to all other
remedies, to an injunction restraining any such breach, without any bond or
other security being required and without the necessity of showing actual
damages.
ARTICLE VIII
-------------
ARBITRATION
Section 8.01 Except as otherwise set forth in Section 7.02 above,
Employer and Executive each waives any right each may have to a civil lawsuit
and trial by jury in connection with any dispute between them arising out of,
concerning or connected with this Agreement and each agrees that, upon the
written request of the other party, any such dispute shall be submitted to
arbitration. Arbitration shall take place in the City of New York, or such
other place as the parties may agree, and shall be governed by the rules of the
American Arbitration Association.
Section 8.02 Employer and Executive shall select one (1) arbitrator to
hear and determine the dispute from a list of five (5) candidates provided by
the American Arbitration Association.
Section 8.03 The arbitrator's award shall be final and binding on the
parties and the arbitrator may invoke any remedy available in equity or at law,
including, without limitation, injunctions and restraining orders. The parties
agree to the jurisdiction of the Courts of the State of New York for
confirmation and enforcement of the arbitrator's award.
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ARTICLE IX
-----------
GENERAL PROVISIONS
Section 9.01 In the event of arbitration or an action at law or in
equity to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees and costs. The
arbitrator's fees and costs incurred shall be borne by the losing party.
Section 9.02 This Agreement supersedes any and all other agreements,
whether oral or in writing, between the parties hereto with respect to the
subject matter hereof. Each party acknowledges that no representations,
inducements, promises or agreements, whether oral or in writing, have been made
by any party, or on behalf of any party, which are not embodied herein. No
agreement, promise or statement not contained in this Agreement shall be valid
and binding, unless agreed to in writing and signed by the parties sought to be
bound thereby.
Section 9.03 Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, faxed, or sent
by courier service (with next day delivery requested) or the U.S. Postal
Service by express mail (with next day delivery requested). Any such notice or
communication shall be deemed given and effective, in the case of personal
delivery, upon receipt by the other party, in the case of faxed, upon
transmission of the fax, in the case of a courier service or the U.S. Postal
Service, upon the next business day, after dispatch of the notice or
communication. Any such notice or communication shall be addressed as follows:
If to Employer:
The Official Information Company
888 Seventh Avenue
New York, New York 10106
Attn: President
If to Executive:
Mr. Richard J. Moeller
31115 Roxbury Park Drive
Bay Village, Ohio 44140
Any person named above may designate another address or fax number by giving
notice in accordance with this Section to the other persons named above.
Section 9.04 This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, without regard to principles
of conflicts of law.
Section 9.05 No breach of any provision hereof may be waived unless in
writing. Waiver of any breach of any provision hereof shall not be deemed a
waiver of any other breach of the same or any other provision hereof. This
Agreement may be amended only by a written agreement, executed by the parties
hereto.
Section 9.06 In the event any one or more of the provisions contained
in this Agreement shall be held by an arbitrator or court of competent
jurisdiction to be invalid or unenforceable in any respect, the validity and
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby and the parties will attempt to agree upon
a valid and enforceable provision which shall be a reasonable substitute for
such invalid and unenforceable provision in light of the tenor of this
Agreement, and, upon so agreeing, shall incorporate such substitute provision
in this Agreement.
Section 9.07 This Agreement may be executed in any number of
counterparts and each such duplicate counterpart shall constitute an original,
any one of which may be introduced in evidence or used for any other purpose
without the production of its duplicate counterpart. Moreover, notwithstanding
that any of the parties did not execute the same counterpart, each counterpart
shall be deemed for all purposes to be an original, and all such counterparts
shall constitute one and the same instrument, binding on all the parties
hereto.
Section 9.08 Both parties hereto acknowledge that they have had the
advice of counsel before entering into this Agreement, have fully read the
Agreement and understand the meaning and import of all the terms hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year first above
written.
GEM COMMUNICATIONS, LLC
By:_______________________________
-------------------------------
Richard J. Moeller
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of June 22, 1998, by and
between Atwood Publishing, LLC, a Delaware limited liability company
("Employer"), and William Newman ("Executive"):
Background
----------
Employer wishes to retain Executive and Executive wishes to
be employed by Employer on the terms and conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements set
forth herein, the parties hereto, intending to be legally bound hereby, agree
as follows:
ARTICLE I
----------
TERM OF AGREEMENT AND EMPLOYMENT
Section 1.01 Commencing on the date of this Agreement and for a period
ending on December 31, 2000, subject to earlier termination as provided in
Article VI hereof, Employer hereby employs Executive and Executive hereby
accepts employment with Employer as the President and Chief Executive Officer
of Employer. Subject to the direction and ultimate authority of the Chairman of
the Board and the Board of Directors of Employer, Executive shall be
responsible for the overall performance of Atwood (the "Business") and, in
particular, Executive shall be responsible for growing the Business' EBITDA on
a consistent and aggressive basis. The Executive's responsibilities shall be
determined from time to time in the sole discretion of the Chairman of the
Board of Employer. Employer, The Official Information Company ("TOIC") and
Employer's and TOIC's subsidiaries are collectively referred to below as the
"Related Entities."
Section 1.02 The term of this Agreement shall continue from year to
year after December 31, 2000, unless terminated by written notice. Notice of
termination must be provided 60 days prior to the date that the termination is
effective.
<PAGE>
ARTICLE II
-----------
DUTIES AND OBLIGATIONS OF EXECUTIVE
Section 2.01 At all times during the performance of this Agreement,
Executive shall adhere to each Related Entity's policies, rules and regulations
governing the conduct of its employees, now in effect, or as subsequently
adopted or amended.
Section 2.02 Executive shall devote substantially all of his business
time, ability and attention to the operations of the Businesses during the term
of this Agreement and shall not, whether directly or indirectly, render any
services to any other person or organization, whether for compensation or
otherwise, except with Employer's prior written consent.
ARTICLE III
------------
COMPENSATION
Section 3.01 As full compensation for his services hereunder, Employer
shall pay Executive an annual salary of One Hundred Sixty-Five Thousand
($165,000) (pro rated for partial years), payable in equal semi-monthly
installments (the "Base Salary"). On each December 31, the Base Salary shall be
increased by an amount equal to the percentage increase during the previous
calendar year in the Consumer Price Index, All Items, in the Overland Park,
Kansas metropolitan area.
Section 3.02 In addition to the Base Salary, Executive shall be
eligible to participate in TOIC's Key Employee Bonus Plan (the "Bonus Plan") or
such other bonus arrangement that is made available generally to key senior
executives of the Related Entities. The Chief Executive Officer of TOIC has the
authority in its sole and absolute discretion to select the participants in the
Bonus Plan and to determine the bonus formula for each participant.
Contemporaneously with the execution of this Agreement, Employer shall deliver
a letter stating that Executive has been selected to participate in the Bonus
Plan with respect to 1998.
Section 3.03 Contemporaneously with the execution of this Agreement,
Employer and Executive are executing an Incentive Plan Agreement in the form
attached as Exhibit A pursuant to which Executive is eligible to receive an
additional incentive payment under certain circumstances based upon the
performance of the Company following a change in control.
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ARTICLE IV
-----------
BENEFITS
Section 4.01 Executive shall be entitled to participate in all benefit
plans generally available to employees of Employer and, subject to Section 6,
to receive vacation, sick leave and leaves of absence in accordance with
general employee policies.
ARTICLE V
----------
BUSINESS EXPENSES
Section 5.01 Employer shall reimburse Executive, in accordance with
Employer's policies, for all reasonable out-of-pocket business expenses
incurred by Executive in the performance of his duties hereunder. Executive
shall furnish to Employer documentary evidence of each such expense in the form
required to comply with Employer's policies and all applicable federal and
state tax statutes and regulations issued thereunder for the substantiation of
such expense as a tax deduction.
ARTICLE VI
-----------
TERMINATION OF EMPLOYMENT
Section 6.01 Termination with Cause. Employer may terminate
Executive's employment at any time for Cause by giving written notice of such
termination to Executive. For purposes of this Agreement, cause shall mean:
(a) The conviction of Executive of a felony;
(b) Fraud, embezzlement or other misappropriation by Executive of
funds or property of Employer or any of its affiliates;
(c) A breach of any of Executive's fiduciary duties as an employee of
Employer;
(d) Any gross misconduct of Executive which is injurious in any
material respect to Employer or any of its affiliates; or
(e) Executive's failure to perform in any material respect his
obligations under this Agreement.
If Employer terminates Executive's employment for Cause under
this Section 6.01, Executive shall cease receiving his Base Salary as of the
date of such termination, shall not be entitled to any severance pay, and shall
cease as of the date of such termination to participate in the benefit plans
generally available to employees of Employer in which Executive is then
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participating. Employer will assure that Executive receives all benefits
required by law, e.g., COBRA, but Executive will receive no other benefit
hereunder. Notwithstanding the foregoing, Employer may terminate Executive's
employment pursuant to Section 6.01(e) only if Executive has not cured such
failure within 30 days of written notice thereof.
Section 6.02 Termination Resulting from Death or Disability. If, as
the result of any physical or mental disability, Executive shall fail or be
unable to perform in a satisfactory manner a material portion of his duties and
obligations hereunder for a period of 180 consecutive days or for a total of
180 days in any twelve (12) month period, Employer may, upon thirty (30) days
prior written notice to Executive, terminate Executive's employment hereunder.
Any dispute as to a disability shall be resolved by a medical doctor selected
jointly by Employer and Executive, or, failing agreement, by the President of
the American Medical Association.
The death of Executive shall terminate this Agreement and his
employment hereunder, effective at the time of death.
In the event of termination resulting from disability or
death, Executive or his estate, as the case may be, shall receive Executive's
Base Salary through the date of termination and a pro-rated portion (based on
the number of days in the year in which Executive was employed) of the Bonus,
if any, calculated for the portion of such calendar year through the last day
of the month preceding the month in which Executive's employment terminated.
Executive's participation in the benefits plans generally available to
employees of Employer shall cease as of the date of such termination, with the
exception of a disability insurance plan, if any.
Section 6.03 Termination for Other Reasons. Employer may terminate
this Agreement and Executive's employment for any reason at any time by giving
written notice of such termination to Executive. If Executive's employment is
terminated by Employer pursuant to this provision (i.e., other than for Cause,
death or disability), Executive shall cease receiving his Base Salary and to
participate in Employer's benefit plans as of the date of such termination. If,
however, Employer shall promptly receive from Executive a release of Employer
and its affiliates, in form and substance satisfactory to Employer, from any
and all claims which Executive may have in respect of such termination or under
this Agreement (but shall not waive Executive's rights to payments under TOIC's
Key Executive Equity Appreciation Plan or Key Employee Bonus Plan, and shall
not include any non-competition or non-solicitation provisions that extend
beyond the Severance Period (as defined below), (a) Employer shall pay
Executive severance pay in an amount equal to Executive's Base Salary
(calculated at the rate of Executive's annual salary at the time of such
termination) for one (1) year after the date of such termination (the
"Severance Period") and a pro-rated portion (based on the number of days in the
year in which Executive was employed) of the Bonus, if any, calculated for the
portion of such calendar year through the last day of the month preceding the
month in which Executive's employment terminated, and (b) Employer shall
maintain in full force and effect Executive's continued participation in the
benefit plans generally available to employees of Employer in which Executive
was participating immediately prior to such termination until the earlier of
(i) one (1) year after the date of such termination and (ii) Executive's
commencement of full-time employment with a new employer. At the end of the
period of participation in such benefit plans, Employer will assure that
Executive
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receives all additional benefits required by law, e.g., COBRA. The payment of
the severance pay referred to in clause (a) above shall be made as follows: (i)
the amount calculated based upon Executive's Base Salary shall be payable
during the Severance Period in accordance with the same schedule of payments
provided for Executive's Base Salary pursuant to Section 3.01 and (ii) the
amount calculated based upon the pro-rated bonus shall be payable in accordance
with the Key Employee Bonus Plan.
Section 6.04 Mitigation. Executive agrees to use reasonable efforts to
mitigate any severance pay hereunder, beginning six months after termination,
by seeking other comparable employment or consultancy arrangements. If during
the Severance Period the Executive accepts other employment or consultancy, the
portion of the severance pay awarded to the Executive hereunder that is based
upon Executive's Base Salary shall be reduced by the amount of any compensation
payable as a result of such other employment or consultancy.
ARTICLE VII
-----------
NON-COMPETITION, CONFIDENTIALITY
AND NON-SOLICITATION COVENANTS
Section 7.01 Executive acknowledges that Executive's employment
hereunder will provide Executive with access on a continual basis to
confidential and proprietary information concerning each of the Businesses,
which is not readily available to the public; and that Employer would not enter
into this Agreement but for the covenants (the "Restrictive Covenants")
contained in this Article VII. Accordingly, Executive agrees that:
(a) During the term of employment hereunder and, for a period of one
(1) year thereafter or, if shorter, the Severance Period (the "Restricted
Period"), Executive shall not, directly or indirectly, (i) engage in any
business that is competitive with the Businesses for his own account; or (ii)
render any services which constitute engaging in any business that is
competitive with the Business in any capacity to any person (other than with
the consent or at the direction of Employer); nor shall Executive own an equity
interest in any person which is engaged in any business that is competitive
with the Businesses, provided, however, that Executive may own, directly or
indirectly, solely as a passive investment, securities of any person which are
traded on any national securities exchange or NASDAQ, if Executive is not a
controlling person of, or a member of a group which controls, such person, and
does not, directly or indirectly, own five percent (5%) or more of any class of
securities of such person.
(b) Executive shall forever maintain in strictest confidence all
information relating to each of the Businesses and to each of the Related
Entities, which is known or becomes known to Executive, including, without
limitation, trade secrets, know-how, financial statements and data, contracts
(whether oral or written), customer and advertiser lists, rate schedules,
pricing policies, marketing plans and strategies, and business acquisition
plans (collectively, the "Confidential Information"), and shall not, except in
connection with the business affairs of Employer and its affiliates, disclose
any Confidential Information to any person, other than with the express written
5
<PAGE>
consent of Employer. Confidential Information shall not include information
which Executive can demonstrate (A) has become generally available to the
public other than as a result of a disclosure by Executive, (B) was available
to Executive on a non-confidential basis prior to its disclosure to Executive
by Employer, or (C) has become available to Executive on a non-confidential
basis from a source other than Employer, provided that such source is not known
by Executive after reasonable inquiry to be bound by a confidentiality
agreement with Employer or otherwise prohibited from transmitting the
information to Executive by a legally binding obligation.
Notwithstanding anything in this Agreement to the contrary, in the
event that a request or demand is made upon Executive, by written
interrogatory, request for information or documents, subpoena, court order,
civil investigative demand or other legal process, to disclose any Confidential
Information, which disclosure is not otherwise permitted hereunder, Executive
will provide Employee with prompt notice of any such request or demand so that
Employer may seek an appropriate protective order or waive compliance with the
provisions of this Agreement. Executive will not oppose action by, and will
cooperate with, Employer in any effort to obtain an appropriate protective
order.
All memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Information heretofore or hereafter
made or compiled by Executive or made available to Executive concerning any of
the Businesses shall be the property of the respective Related Entities, shall
be kept confidential in accordance with the provisions of this Section 7.01(b),
and shall be delivered to the respective Related Entities promptly upon
termination of this Agreement or at any earlier or later time upon the request
of Employer.
(c) During the Restricted Period, Executive shall not, directly or
indirectly, solicit or encourage any current employee, officer or director of
any of the Related Entities to leave the employment of his employer, or hire
any current or former employee, officer or director of, any of the Related
Entities.
(d) During the Restricted Period, Executive shall not, directly or
indirectly, solicit or encourage any person who is a customer or advertiser of
any of the Related Entities, or the affiliates or associates thereof, to
discontinue such person's business relationship with any of the Related
Entities.
Section 7.02 Executive acknowledges and agrees that (i) Executive has
had an opportunity to seek advice of counsel in connection with this Agreement;
(ii) the Restrictive Covenants are reasonable in scope and in all other
respects; (iii) any violation of the Restrictive Covenants will result in
irreparable injury to the Related Entities; (iv) money damages would be an
inadequate remedy at law for the Related Entities in the event of a breach of
any of the Restrictive Covenants by Executive; and (v) specific performance in
the form of injunctive relief would be an adequate remedy for the Related
Entities.
Employer and Executive hereby submit to the jurisdiction of the Courts
of the State of Kansas to enforce the Restrictive Covenants and agree that if
Executive breaches or threatens to breach a Restrictive Covenant, Employer (or
any of the other Related Entities) shall be entitled, in
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<PAGE>
addition to all other remedies, to an injunction restraining any such breach,
without any bond or other security being required and without the necessity of
showing actual damages.
ARTICLE VIII
-------------
ARBITRATION
Section 8.01 Except as otherwise set forth in Section 7.02 above,
Employer and Executive each waives any right each may have to a civil lawsuit
and trial by jury in connection with any dispute between them arising out of,
concerning or connected with this Agreement and each agrees that, upon the
written request of the other party, any such dispute shall be submitted to
arbitration. Arbitration shall take place in Kansas City, Kansas, or such other
place as the parties may agree, and shall be governed by the rules of the
American Arbitration Association.
Section 8.02 Employer and Executive shall select one (1) arbitrator to
hear and determine the dispute from a list of five (5) candidates provided by
the American Arbitration Association.
Section 8.03 The arbitrator's award shall be final and binding on the
parties and the arbitrator may invoke any remedy available in equity or at law,
including, without limitation, injunctions and restraining orders. The parties
agree to the jurisdiction of the Courts of the State of Kansas for confirmation
and enforcement of the arbitrator's award.
ARTICLE IX
-----------
GENERAL PROVISIONS
Section 9.01 In the event of arbitration or an action at law or in
equity to enforce or interpret the terms of this Agreement, each party shall be
responsible for the fees and expenses of its own counsel. The filing fee with
the American Arbitration Association shall be paid by the party requesting the
arbitration and the arbitrator's fees and costs incurred shall be shared
equally among the parties.
Section 9.02 This Agreement supersedes any and all other agreements,
whether oral or in writing, between the parties hereto with respect to the
subject matter hereof. Each party acknowledges that no representations,
inducements, promises or agreements, whether oral or in writing, have been made
by any party, or on behalf of any party, which are not embodied herein. No
agreement, promise or statement not contained in this Agreement shall be valid
and binding, unless agreed to in writing and signed by the parties sought to be
bound thereby.
Section 9.03 Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, faxed, or sent
by courier service (with next day delivery requested) or the U.S. Postal
Service by express mail (with next day delivery requested). Any such notice or
communication shall be deemed given and effective, in the case of personal
7
<PAGE>
delivery, upon receipt by the other party, in the case of faxed, upon
transmission of the fax, in the case of a courier service or the U.S. Postal
Service, upon the next business day, after dispatch of the notice or
communication. Any such notice or communication shall be addressed as follows:
If to Employer:
The Official Information Company
888 Seventh Avenue
New York, New York 10106
Attn: President
If to Executive:
William E. Newman
3815 W. 63rd Street
Shawnee Mission, Kansas 66208
Any person named above may designate another address or fax number by giving
notice in accordance with this Section to the other persons named above.
Section 9.04 This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, without regard to principles
of conflicts of law.
Section 9.05 No breach of any provision hereof may be waived unless in
writing. Waiver of any breach of any provision hereof shall not be deemed a
waiver of any other breach of the same or any other provision hereof. This
Agreement may be amended only by a written agreement, executed by the parties
hereto.
Section 9.06 In the event any one or more of the provisions contained
in this Agreement shall be held by an arbitrator or court of competent
jurisdiction to be invalid or unenforceable in any respect, the validity and
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby and the parties will attempt to agree upon
a valid and enforceable provision which shall be a reasonable substitute for
such invalid and unenforceable provision in light of the tenor of this
Agreement, and, upon so agreeing, shall incorporate such substitute provision
in this Agreement.
Section 9.07 This Agreement may be executed in any number of
counterparts and each such duplicate counterpart shall constitute an original,
any one of which may be introduced in evidence or used for any other purpose
without the production of its duplicate counterpart. Moreover, notwithstanding
that any of the parties did not execute the same counterpart, each counterpart
shall be deemed for all purposes to be an original, and all such counterparts
shall constitute one and the same instrument, binding on all the parties
hereto.
8
<PAGE>
Section 9.08 Both parties hereto acknowledge that they have had the
advice of counsel before entering into this Agreement, have fully read the
Agreement and understand the meaning and import of all the terms hereof.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year first above
written.
ATWOOD PUBLISHING, LLC
By:____________________________
------------------------------
William E. Newman
10
<PAGE>
EXHIBIT 12
----------
STATEMENT RE: COMPUTATION OF RATIOS
-----------------------------------
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt
and amortization of debt discount $736 $859 $581 $3,696 $ 10,676
==== ==== ==== ====== ========
Earnings, as defined:
Income (loss) before income taxes $ 6,134 $16,112 $8,522 $(15,208) $4,336
Total fixed charges (as shown above) 736 859 581 3,696 10,676
------- ---------- ---------- ---------- ----------
Earnings available for fixed charges $6,870 $16,971 $9,103 $(11,512) $15,012
===== ====== ===== ======== ======
Ratio of earnings to fixed charges and
preferred dividend requirements 9.3x 19.8x 15.7x - 1.4x
==== ===== ===== ======= == ====
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of the Company
Jurisdiction of
Entity Incorporation
- ------ -------------
Atwood Convention Publishing Inc. Missouri
Atwood Publishing, LLC Delaware
Casino Executive, LLC Nevada
Casino Publishing Co. Missouri
CORSEARCH, Inc. Delaware
Crimesearch, Inc. Oklahoma
Expo Magazine, Inc. Kansas
EXPO Magazine, LLC Delaware
FocalPoint Entertaining, Inc Maryland
Galaxy Design & Printing, Inc. Maryland
Galaxy Expocard Europe B.V. Netherlands
Galaxy Information Services, LLC Delaware
Galaxy Registration, Inc. Maryland
G.E.M. Communications, Inc. Oklahoma
GEM Communications, LLC Delaware
GEM Nevada, LLC Delaware
Transportation Communications Services, Inc. Oklahoma
Total Information Services, Inc. Oklahoma
T/SF Europe, Inc. Oklahoma
T/SF Investment Co. Delaware
T/SF of Nevada, Inc. Nevada
T/SF Holdings, LLC Delaware
<PAGE>
Exhibit 23.1
Consent of Arthur Andersen, LLP
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Of T/SF Communications Corporation:
As independent public accountants, we hereby consent to the inclusion in this
Form 10-K of our report dated February 21, 1997, included in the Registration
Statement File No. 1-10263. It should be noted that we have not audited any
financial statements of the company subsequent to December 31, 1996, or
performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
Tulsa, Oklahoma
March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,878
<SECURITIES> 0
<RECEIVABLES> 18,411
<ALLOWANCES> 856
<INVENTORY> 231
<CURRENT-ASSETS> 23,650
<PP&E> 21,609
<DEPRECIATION> 12,584
<TOTAL-ASSETS> 74,534
<CURRENT-LIABILITIES> 20,998
<BONDS> 98,500
0
0
<COMMON> 42
<OTHER-SE> (54,235)
<TOTAL-LIABILITY-AND-EQUITY> 74,534
<SALES> 95,557
<TOTAL-REVENUES> 96,437
<CGS> 51,707
<TOTAL-COSTS> 51,707
<OTHER-EXPENSES> 7,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,676
<INCOME-PRETAX> 4,336
<INCOME-TAX> 1,329
<INCOME-CONTINUING> 516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 516
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
