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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)
[ ] 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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 1-10263
THE OFFICIAL INFORMATION COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1341805
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
250 West 57th 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 23, 2000, 112,367 shares of common stock were outstanding, of
which 72,367 were owned by VS&A T/SF, L.L.C and 36,000 and 4,000 were owned by
Fir Tree Value Fund LP. and Fir Tree Institutional Value Fund L.P.,
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 business-to-business, communications and
information services company which principally operates in two lines of
business: (i) business-to-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 our subsidiary, Total
Information Services, Inc. ("TISI"), which, with its proprietary databases, is a
leading provider of comprehensive pre-employment screening information used by
the trucking industry to facilitate compliance with U.S. Government regulations
and is a leading provider of pre-employment screening services to the gaming
industry through World Gaming Network (WGN), the healthcare industry through
Healthcare Employment Screening (HES) and various other industries through
Record Search, Inc. (RSI), acquired by TISI in August 1999. The Company believes
that TISI is a leading supplier of specialized pre-employment screening
information to selected vertical markets. Business-to-Business Communications is
conducted through several individual businesses, each of which is characterized
by leading competitive positions within specialized vertical markets. 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 housing, travel, registration, exhibitor information and "lead"
management services to the trade show and convention industry in the United
States and (iii) GEM Communications, LLC (together with its subsidiaries and
affiliates, "GEM"), which owns and operates the World Gaming Congress(Registered
Trademark), the world's largest trade show catering to the legalized gaming
industry, and publishes trade magazines directed to the legalized gaming
industry, including IGWB (formerly International Gaming and Wagering Business),
a leading publication catering to gaming industry executives and UK based
InterGame, InterGaming and InterPark, a leading series of publications for the
international coin-operated amusement and gaming machines and amusement park
businesses and Gaming for Africa a leading trade publication to the Sub-Saharan
gaming industry. In April 1999, Galaxy acquired substantially all of the assets
of International Travel Services, Inc. (ITS), a leading provider of housing and
travel services to the trade show and convention industry. The Company's
consolidated revenues and adjusted EBITDA (as defined herein) for the year ended
December 31, 1999 were approximately $108 million and $26 million, respectively.
Of such consolidated revenues, approximately 39% represented Information
Services and approximately 61% represented Business-to-Business Communications.
Of such adjusted EBITDA, approximately 46% represented Information Services and
approximately 54% represented Business-to-Business Communications. In November
1999, the Company sold Corsearch, Inc., the second largest provider in the
United States of trademark and trade name research to law firms and
corporations.
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.
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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 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 owned all of the
common equity interests of each Operating LLC. In connection with the
acquisition of ITS in April 1999, Galaxy issued membership units to certain
former owners of the ITS business equal to approximately 6.9% of the outstanding
membership units. 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 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 voting
interest in the several operating limited liability companies through which
TOIC conducts certain of its business, such as GEM and Atwood, and in the
case of Galaxy, a majority of such interests. There are 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 the Notes of the Company's
consolidated financial statements included herein.
INFORMATION SERVICES
Information Services provides specialized information and database services
principally to the pre-employment screening market through TISI. In November
1999, the Company sold Corsearch, the second largest supplier in the United
States of trademark and trade name searches and information research.
TOTAL INFORMATION SERVICES, INC.
PRE-EMPLOYMENT SCREENING SERVICES
TISI, through its on-line 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.
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TISI has virtually instantaneous computer access to Motor Vehicle Records
(MVRs) maintained by 36 states and alternative methods to access the MVRs of the
remaining 14 states. In addition, TISI maintains a database which contains
certain workers' compensation records from 18 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, TISI began offering a manual searching capability for many
of those states which the workers' compensation records are not in TISI's
database.
TISI 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 1999, the information was resold to approximately 14,000
customers. Criminal records are maintained by approximately 3,300 jurisdictions
in the U.S. and there is no single source for all such records. However, TISI
can access for its customers criminal records from any U.S. jurisdiction
requested by a customer. TISI's 20/20 criminal record database includes
approximately 3.7 million records.
Management believes that the pre-employment databases being created by TISI
will become an increasingly valuable asset that will facilitate providing a full
range of pre-employment products and services to a variety of vertical
industries. In September 1999, TISI acquired RSI, a leading provider of
pre-employment screening services to the airline, staffing, high-tech and
healthcare markets.
Employers who access TISI's services have the option to choose a customized
package including only those records that meet their specific pre-employment
information needs through RSI and DAC's "Total Applicant Screening Services"
product.
For customers that want to perform their own background checks, TISI
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.
TRANSPORTATION INDUSTRY
TISI, which since 1983 has operated its transportation services business
under the trade name DAC Services ("DAC"), is the largest on-line 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 history database of over 3.2 million job records
concerning over 1.8 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.
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, provides
comprehensive employment history, criminal record, credit report, employment
verification and reference information and services to the industry.
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HEALTHCARE INDUSTRY
TISI also formed Healthcare Employment Screening (HES) during 1998 to
provide pre-employment screening services to the healthcare industry including
home healthcare and nursing home markets. 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.
HES offers a comprehensive pre-employment screening service to this industry
based on the successful DAC model.
RETAIL INDUSTRY
On March 15, 2000, the Company acquired a group of ten affiliated companies
collectively referred to as United States Mutual Association (USMA), a leading
provider of pre-employment screening services to the vertical retail industry.
Collectively, USMA is the nations largest provider of retail employee theft
incident records through its database of over 700,000 proprietary records.
Similar to the DAC model, USMA's database consists of theft incident records
contributed by USMA's clients. Through this proprietary relationship, USMA also
provides criminal records, MVR's, drug tests and other pre-employment screening
services to the retail industry.
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, in May
1995, the Company became a licensed reseller of Choice Point's CLUE(Registered
Trademark) 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 its 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. 1999
revenue from external sources increased by more than 51%.
DRUG TESTING SERVICES
In January 2000, TISI acquired substantially all of the assets of STA
United, Inc. (STA), a leading provider of pre and post employment drug screening
services. With 13,000 clients, STA is believed to be the largest third party
administrator of drug and alcohol testing services to the transportation
industry and is endorsed by the American Trucking Association and 35 state
trucking associations. As part of the transaction TISI acquired exclusive rights
to a database containing over 15 million drug test records, of which
approximately 2 million are considered potentially usable for pre-employment
screening.
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 vertical markets. Business-to-Business
Communications includes: (i) GEM, one of the world's leading owner and operator
of trade shows and publisher of trade magazines directed to the international
legalized gaming industry. (ii) Atwood, the largest domestic independent
publisher of exposition and association related publications and directories;
and (iii)
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Galaxy, the largest independent provider of housing, travel, registration,
exhibitor information and "lead" management services to the trade show and
convention industry in the United States
GEM COMMUNICATIONS
GEM, founded in 1986, is a leading global provider of business information
and marketing resources for the legalized gaming industry. GEM's trade show
division owns and operates the World Gaming Congress and EXPO (WGC), the largest
legalized gaming industry trade show in the world, as well as a number of
regional trade shows including Mid Atlantic Gaming Congress, Bingo World
(operated but not owned), California Indian Gaming Summit and Slot Manager
Institute. WGC 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 of the year. In 1999, WGC sold approximately
208,000 square feet of exhibition space and included approximately 24,000
attendees.
GEM publishes several trade magazines directed to the legalized gaming
industry, including IGWB and UK based InterGame, InterGaming and InterPark, a
leading series of publications for the international coin-operated amusement and
gaming machines and amusement park businesses. IGWB, with a qualified audited
circulation of over 21,000, is a leading trade journal directed to the worldwide
legalized gaming industry. In addition, the Company publishes Casino Executive,
a trade magazine directed to casino management executives in North America,
Vegas People and Bingo Business.
During 1998, GEM had a 49% interest in a company that owned Gaming for
Africa Expo, a gaming trade show and conference held in South Africa, and Gaming
for Africa, a leading trade magazine for gaming in Sub-Saharan Africa. Effective
as of January 1, 1999, GEM acquired, in a series of transactions, 100% of the
business of Gaming for Africa Expo and Gaming for Africa.
On March 8, 2000, the Company announced that it was combining the
businesses of Atwood and GEM. The combined business, operating under the GEM
name, will focus on (1) e-business solutions and enterprise portal web sites for
specific vertical markets, (2) trade magazine publishing and trade show
organization and (3) custom publishing.
ATWOOD PUBLISHING
Atwood, founded in 1982, is a leading independent publisher of daily trade
show and convention newspapers, directories, and related custom 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. Atwood's e-business group creates and maintains web sites,
offers ISP affinity services, provides CD ROMs, and develops and maintains
sophisticated systems for abstracting, document handling and archiving.
Approximately 77% of Atwood's 1999 revenues were derived from its
publication of dailies and directories. During 1999, Atwood provided publishing,
communication or promotional services to approximately 55,000 exhibitors at
approximately 140 trade shows and conventions, including 22 of the "Tradeshow
200" exhibitions. Of the 140 trade shows to which Atwood provided services in
1999, 65% represented trade shows served by Atwood in 1998. 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.
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GALAXY INFORMATION SERVICES
Galaxy, founded in 1982, markets its comprehensive housing, travel,
registration, automated "lead" management products and information services on
an exclusive basis to trade associations, promoters, exhibitors and attendees of
exposition, trade shows and conventions. Galaxy serves over 75,000 exhibitors
and over 3.5 million attendees annually. Among Galaxy's active clients are 62 of
the "Tradeshow 200" exhibitions, including three of the top five such
exhibitions. Of the 325 shows Galaxy provided services to in 1999, 85%
represented trade shows served by Galaxy in 1999. In April 1999, Galaxy acquired
substantially all of the assets of International Travel Services, Inc. (ITS), a
leading provider of housing and travel services to the trade show and convention
industry.
Galaxy's proprietary "Expocards' are utilized in the registration process
to allow convention and trade show exhibitors to digitally capture and utilize
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. Expocard allows
attendees to leave and retrieve messages on-line at a message center kiosk
established by the Company on site for a fee. The Expocard also permits the show
operator to receive information on-line including demographic data, attendance
results and exhibit visitation patterns.
Galaxy launched two major registration and lead management products in
1999. Web Based Registration, with real time credit card processing, allows
convention attendees, Galaxy's data management staff, and trade show managers to
access a common database via the web. Intellilead, an in-booth integrated survey
/ prize / lead management system, allows for real time transmission of sales
leads from the exhibit booth to any location around the world via the Web. In
addition, Galaxy's Infomanager System, introduced in 1998, successfully expanded
in its first full year. Using Infomanager, show managers have 24-hour on-line
access to show registration data via the Internet. OMINUS, introduced in 1999 by
ITS, allows conference and exposition managers, via the Web, to offer attendees
the means to register in full for conferences and shows, reserve or purchase
seating in space-limited events, and select and book hotel rooms through secure
e-commerce technology. Galaxy's attendee information products allow visiting
attendees access to information kiosks provided by Galaxy in various
high-traffic areas of the convention centers. Among the most popular products
are E-Access (new in 1999) e-mail access pavilions, message centers and exhibit
/ session locators.
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, 1999, 1998 and 1997, the
percentage of revenues of Galaxy generated from trade shows of varying
frequencies.
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ----
Annual Shows....................... 93% 90% 95%
Bi-Annual Shows.................... 3 9 3
Tri-Annual Shows................... 4 1 1
Other Shows........................ 0 0 1
---- ---- ----
100% 100% 100%
==== ==== ====
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
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is dependent upon its ability to continue to resell Choice Point's
CLUE(Registered Trademark) 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 IRSC. 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.
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. Galaxy is
increasingly encountering competition from a number of start-up companies
offering internet based housing and registration services.
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 are a number of smaller U.S.
shows, 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.
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 WGC its largest affiliate owned trade show, which was held in October
in 1997 and in September 1998 and 1999.
EMPLOYEES
As of February 29, 2000, the Company employed approximately 936 persons on
a full-time basis including approximately 360 in Information Services, 570 in
Business to Business Communications and six at the Company's corporate offices.
None of the Company's employees are subject to collective bargaining agreements.
The Company
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considers relations with its employees to be satisfactory. Most employees are
salaried, with sales personnel receiving commissions on sales.
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.
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 a few cases 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
8
<PAGE>
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 1999, 1998, and 1997 to customers outside
the U.S. and Canada were $8.1 million, $5.1 million, and $2 million,
respectively, representing 7.6%, 5.3%, and 2.5% of net revenues, respectively.
All of such net revenues are attributable to Business-to-Business
Communications.
TRADEMARKS, LICENSES AND PATENTS
The Company has registered numerous trademarks, including DAC
Services(Registered Trademark), EXPO(Registered Trademark), World Gaming
Congress(Registered Trademark) and IGWB(Registered Trademark), 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
-------- -------------- ------------
<S> <C> <C>
Information Services:
Tulsa, Oklahoma (TISI) 45,310 Leased (Expires October 2006)
Hollywood, Florida (RSI) 13,958 Leased (Expires December 2001)
Lincolnwood, Illinois (CrimeSearch) 4,318 Leased (Expires May 2001)
Business to Business Communications:
Frederick, Maryland (Galaxy) 51,000 Leased (Expires January 2003)
Deerfield, Illinois (ITS) 28,100 Leased (Expires September 2005)
Overland Park, Kansas (Atwood) 23,179 Leased (Expires September 2005)
New York, New York (GEM) 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>
The Company sold its Corporate 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.
In 1998, the Company sold its interest in 1995 Land Company for
$1,425,000 and recognized a gain of approximately $80,000.
9
<PAGE>
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.
10
<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 and 1999. 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,
-----------------------------------------------------------------------------
1999 1998 (2) 1997 (2) 1996 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues
Information Services (a) ................... $ 41,832 $ 36,055 $ 31,363 $ 23,925 $ 17,950
Business to Business Communications (b) .... 65,877 52,166 43,353 42,891 53,089
Corporate and other ........................ 84 422 1,091 1,826 1,039
--------- --------- --------- --------- ---------
Total revenues ........................... 107,793 88,643 75,807 68,642 72,078
Expenses
Operating costs ............................ 48,435 39,520 35,735 40,314 39,665
General and administrative expenses ........ 34,046 27,033 24,814 15,207 11,841
Recapitalization and Reorganization Expenses -- -- 21,774 -- --
Depreciation and amortization .............. 10,998 7,078 4,996 4,018 3,601
--------- --------- --------- --------- ---------
Total expenses ........................... 93,479 73,631 87,319 59,539 55,107
--------- --------- --------- --------- ---------
Operating income (loss) ...................... 14,314 15,012 (11,512) 9,103 16,971
Interest expense ............................. 10,792 10,676 3,696 581 859
--------- --------- --------- --------- ---------
Income (loss) before income taxes and other
Items ...................................... 3,522 4,336 (15,208) 8,522 16,112
Income tax (provision) benefit ............... (2,944) (1,329) 2,636 (3,101) (58)
Minority interest in consolidated subsidiaries (455) (2,491) -- -- (266)
Net gain on disposal of subsidiaries ......... 4,842 -- -- -- 37
--------- --------- --------- --------- ---------
Net income (loss) .......................... $ 4,965 $ 516 $ (12,572) $ 5,421 $ 15,825
========= ========= ========= ========= =========
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (1):
Capital expenditures ................. $ 6,692 $ 6,503 $ 5,541 $ 2,641 $ 2,589
EBITDA (3) ........................... 26,067 22,044 15,258 13,121 20,572
EBITDA margin (3) .................... 24.2% 24.9% 20.1% 19.1% 28.5%
Ratio of earnings to fixed charges (4) 1.3x 1.4x -- 15.7x 19.8x
</TABLE>
11
<PAGE>
AS OF DECEMBER 31,
--------------------------
1999 1998
---- ----
BALANCE SHEET DATA:
Cash and equivalents............................ $ 32,162 $ 3,878
Total assets.................................... 122,130 74,534
Total debt...................................... 122,317 100,752
Stockholders' deficit........................... (49,228) (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. Corsearch was sold in November 1999. In
September 1999 the Company acquired RSI.
(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. In January 1999 the Company acquired the remaining
51% interest in Gaming for Africa and in April 1999 acquired
substantially all of the assets of ITS.
(2) Certain 1998 and 1997 account balances have been reclassified to conform to
the 1999 consolidated financial statement presentation.
(3) EBITDA is included because management believes 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 reorganization
expenses, unusual gains and losses (including gains on disposition of real
estate in 1998 and provision for loss on disposition of subsidiary in
1999), minority interest in consolidated subsidiaries, discontinued
operations, 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, and the interest component of rent expense. Such
component was estimated at the current year weighted average interest rate
for capital leases.
12
<PAGE>
FORWARD-LOOKING STATEMENTS
This Annual Report for the year ended December 31, 1999, as well as other
public documents of the Company contains forward-looking statements which
involve risks and uncertainties. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for certain forward-looking statements. When used
in this 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 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 business-to-business, communications and information
services company which principally operates two lines of business: (i)
business-to-business and professional database information services
("Information Services") and (ii) business-to-business communications,
publishing and related marketing services ("Business to Business
Communications").
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 a 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.
During 1998, GEM had a 49% interest in a company that owned Gaming for
Africa Expo, a gaming trade show and conference held in South Africa, and Gaming
for Africa, a 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. In May 1999, the Company
acquired substantially all of the assets of ITS, a major provider of housing and
travel services to the tradeshow and convention industry. In connection with
this transaction, two of the former owners of ITS, who will remain as key
executives, invested $2 million of their proceeds in non voting membership units
of Galaxy. In September 1999, the Company acquired all of the outstanding stock
of RSI, a leading provider of pre-employment screening services. In November
1999, the Company sold 100% of the outstanding stock of Corsearch.
All of the above acquisitions have been accounted for as a purchase
business combination and are included in the Company's consolidated results from
the date of acquisition.
13
<PAGE>
CONSOLIDATED OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of revenue for the years ended December 31, 1999,
1998, and 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Information Services .............................. 38.8% 40.7% 41.4%
Business to Business Communications ............... 61.1 58.8 57.2
Corporate and other ............................... .1 0.5 1.4
---- ---- ----
Total revenues ............................... 100.0 100.0 100.0
Expenses:
Operating costs ................................... 44.9 44.6 47.1
General and administrative expenses ............... 31.6 30.5 32.7
Recapitalization and reorganization expenses ...... -- -- 28.7
Depreciation and amortization ..................... 10.2 8.0 6.6
---- ---- ----
Total expenses ............................... 86.7 83.1 115.1
---- ---- ----
Operating Income (Loss) before interest and income taxes 13.3% 16.9% (15.1)%
==== ==== =====
EBITDA Margin .......................................... 24.2% 24.9% 20.1 %
==== ==== =====
</TABLE>
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Versus Year Ended December 31, 1998
Revenues. Revenues of $107.8 million for the year ended December 31, 1999
were $19.2 million (22%) higher than 1998. Business to Business Communications
segment revenue totaled $65.9 million for the year ended December 31, 1999, an
increase of $13.7 million (26%), over 1998. Galaxy contributed $9.3 million to
the 1999 revenue growth. Galaxy's growth resulted principally from increased
registration and exhibitor volume, the growth of new lead management and
interactive services and inclusion of ITS ($8.0 million) from May 1, 1999.
Excluding the impact of ITS, Galaxy revenue increased 8%, despite the absence of
several bi-annual shows. At Atwood, growth in new directories business, a strong
increase in new digital products and expansion of proprietary publishing led to
a 7% increase in revenue for the year ended December 31, 1999 compared with
1998. The inclusion of InterGame ($3.2 million) and Gaming for Africa ($628,000)
which were not included in consolidated results until September 1, 1998 and
January 1, 1999, respectively, contributed to a 26% increase in 1999 revenue at
GEM. Excluding the impact of acquisitions, Business to Business Communications
segment revenue increased 8% in 1999.
The Information Services segment produced revenue of $41.8 million for the
year ended December 31, 1999, an increase of $5.8 million (16%) over the same
period in 1998. TISI's 1999 revenue increased 26% over 1998. TISI's 1999 revenue
growth resulted principally from increased criminal record volume, higher
pre-employment screening volume at DAC, inclusion of RSI from September 1, 1999
($2.6 million) and the launch of WGN. WGN provides pre-employment screening
services to the casino gaming industry based on the successful DAC model. TISI's
CrimeSearch affiliate experienced a 51% increase in 1999 revenue reflecting the
ongoing growth in demand for criminal records. Corsearch revenue reported during
1999 decreased 16% compared with full year 1998. Corsearch was sold effective
November 11, 1999. Excluding the impact of acquisitions and the Corsearch sale,
1999 Information Services segment revenue increased 16%.
Operating Costs. Operating Costs of $48.4 million for the year ended
December 31, 1999, increased by $8.9 million (23%) compared with the same period
in 1998. Operating Costs of the Business to Business Communications segment of
$33.8 million, increased by $7.3 million (28%) during 1999, on 26% higher
revenue, compared with 1998. This growth was attributable principally to
increased volume at Atwood and Galaxy and the inclusion of InterGame, Gaming for
Africa and ITS, which were not included in consolidated results until September
1, 1998, January 1, 1999 and May 1, 1999, respectively.
14
<PAGE>
Operating Costs of the Information Services segment of $14.7 million,
increased $1.6 million (12%) during 1999, compared with 1998, on 16% higher
revenue. The increase was attributable principally to higher criminal record and
pre-employment screening volume at TISI and inclusion of RSI from September 1,
1999, offset partially by cost control measures instituted at Corsearch and
exclusion of Corsearch after November 11, 1999.
General and Administrative Expenses. General and Administrative Expenses of
$34.0 million, increased $7.0 million (26%) for the year ended December 31,
1999, compared with the same period in 1998. Higher general and administrative
expenses were principally due to the inclusion of InterGame, Gaming for Africa,
ITS and RSI from September 1, 1998, January 1, 1999 and May 1, 1999,
respectively, increased staff to support volume growth, new product development
at TISI and corporate business development costs, offset partially by cost
control actions taken at Corsearch and exclusion of Corsearch after November 11,
1999. Corporate business development costs consisted principally of expenses
related to acquisition activity that could not be capitalized and provisions for
potential cost associated with the court supervised administrative process
involving Galaxy Europe, B.V., including a $736,000 provision for the potential
loss on Galaxy U.S. assets as part of the disposition or liquidation process.
Depreciation and Amortization. Depreciation and Amortization of $11
million, increased $3.9 million (55%) during the year ended December 31, 1999,
compared with 1998. During the fourth quarter of 1999, the Company determined
that its investment in a trade show acquired in 1998 had become permanently
impaired. Accordingly, during the fourth quarter of 1999, the Company wrote off
the balance of its investment ($1.8 million), which is included in depreciation
and amortization to recognize this impairment. The balance of the increase in
depreciation and amortization resulted principally from 1999 capital
expenditures ($6.7 million) to acquire data, expand exposition and trade show
capacity and upgrade information technology and increased amortization of
goodwill due to acquisitions.
Interest Expense. Interest Expense totaled $10.8 million for the year ended
December 31, 1999, compared with $10.7 million for the same period in 1998.
Interest expense results primarily from debt incurred in connection with the
Recapitalization.
EBITDA. EBITDA increased $4.0 million (18%) to $26.1 million for the year
ended December 31, 1999, compared with $22.0 million for the same period in
1998. The increase over 1998 was attributable principally to higher EBITDA in
the Business-to-Business Communications segment (up $3.7 million - 32%) and the
Information Services segment (up $2.0 million - 17%), partially offset by higher
corporate business development costs. Excluding the impact of acquisitions,
EBITDA in the Business-to-Business Communications and Information Services
segments increased 22% and 13%, respectively, for the year ended December 31,
1999, compared with the same period in 1998. 1999 EBITDA in total, excluding the
impact of acquisitions, increased 13% over 1998.
EBITDA is included because management believes 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 reorganization expenses,
unusual gains and losses (including gains on disposition of real estate in 1998
and provision for loss on disposition of subsidiary in 1999), minority interest
in consolidated subsidiaries, discontinued operations, 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.
ACQUISITIONS AND DIVESTITURE
On April 30, 1999, the Company, through Galaxy, acquired substantially all
of the assets and assumed substantially all of the liabilities of International
Travel Services, Inc. ("ITS") for an aggregate purchase price of $22,650,000
plus transaction costs. Of the total purchase price of this transaction,
$11,134,000 was paid out of proceeds from the Company's line of credit,
$2,000,000 was paid from a contemporaneous minority equity investment in Galaxy
Information Services, LLC by certain former ITS shareholders and the remainder
was paid from existing cash. The acquisition was accounted for under the
purchase method of accounting.
15
<PAGE>
On August 31, 1999, the Company, through TISI, acquired all the stock of
Record Search, Inc. ("RSI") for an aggregate purchase price of $12,780,000 plus
transaction costs. Of the total purchase price of this transaction, $9,000,000
was paid out from existing cash and the balance in the form of a note to be paid
over three years. The acquisition was accounted for under the purchase method of
accounting.
On November 11, 1999, the Company sold all of the outstanding stock of
Corsearch and executed a non-compete agreement for approximately $20 million,
plus additional consideration of $1.6 million for certain defined net assets.
On January 31, 2000, the Company acquired substantially all of the assets
of STA United, Inc. ("STA") for approximately $8.3 million. STA is a leading
provider of drug testing services to the pre-employment industry. On March 16,
2000, the Company acquired the stock and/or assets of a group of ten companies
collectively known as United States Mutual Association ("USMA"). The Investment
in USMA will total approximately $23.5 million, with approximately $15.2 million
payable in cash with the balance in non-voting stock of TISI. USMA provides
pre-employment screening services to the retail industry, principally through a
proprietary database of employee theft incident records. These acquisitions were
accounted for under the purchase method of accounting.
Year Ended December 31, 1998 Versus Year Ended December 31, 1997
Revenues. Revenues of $88.6 million for the year ended December 31, 1998,
were $12.8 million (17%) higher than 1997. Business to Business Communications
segment Revenue totaled $52.2 million for the year ended December 31, 1998, an
increase of $8.8 million (20%), over 1997. At GEM, increased advertising and
trade show volume and inclusion of the InterGame results since September 1, 1998
contributed $2.1 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 $5.6 million to 1998 revenue growth. Atwood increased
revenues by 7% 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
year ended December 31, 1998, an increase of $4.7 million (15%) over 1997.
Corsearch increased revenue 18% 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 $39.5 million, an increase of $3.8
million (11%) for the year ended December 31, 1998. Operating Costs of the
Business-to-Business Communications operations was $26.4 million for the year
ended December 31, 1998 and increased by $2.7 million (11%) 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 of $13.1 million, increased 9% 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 $27 million for the year ended December 31, 1998, an increase of $2.2
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
16
<PAGE>
corporate office in New York City. The favorable impact in General and
Administrative Expenses was more than offset by expenses attributable to the
consolidation of Galaxy Europe ($530,000) which was not included until May 1,
1997; the consolidation of InterGame ($460,000) from September 1, 1998; and the
effect of certain reclassifications to restate 1998 and 1997 expenses on a basis
consistent with 1999.
Depreciation and Amortization. Depreciation and Amortization of $7.1
million, increased $2.1 million (42%) during the year 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.
Interest Expense. Interest Expense totaled $10.7 million for the year 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 year 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 believes 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 reorganization expenses,
unusual gains and losses (including gains on disposition of real estate in
1998), minority interest in consolidated subsidiaries, discontinued operations,
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.
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
17
<PAGE>
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 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
18
<PAGE>
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, (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 $25 million 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. At December 31, 1999 the Company had $20
million outstanding under the Senior Credit Facility. The proceeds were invested
in high grade short term securities to provide funds for general corporate
purposes. In January 2000, the Company repaid these outstanding borrowings. 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
2000 will be approximately $7.5 million. The primary capital expenditures will
be for computer equipment and software and database acquisitions at TISI. 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 2000, even after
the anticipated capital expenditures for 2000. Thus, with the Company's
available cash reserves and cash flow, management does not anticipate a need for
additional capital during 2000 except for possible future acquisitions.
INFLATION
Management anticipates the effect of inflation on the Company's operations
during 2000 will be primarily limited to the effects which general inflation
will have on costs in most areas in which the Company operates.
19
<PAGE>
YEAR 2000 COMPLIANCE
GENERAL
TOIC's company-wide Year 2000 Project was completed on schedule. The
project addressed 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 were: (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 were 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, 1999, all
project phases for each business unit had been completed and detailed
remediation plans had been implemented by business units considered to have
material Year 2000 issues. No material Year 2000 problems were encountered.
COSTS
The total cost associated with required modifications to become Year 2000
compliant were not material to the Company's financial position. The estimated
total cost of the Year 2000 Project was approximately $1.4 million, nearly all
of which related to the cost to repair or replace software and related hardware
problems. Funds for the Project were included in existing operating budgets.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS
No. 132) and Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 132
revises employer's disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. Subsequently, the FASB issued SFAS No. 137,
which deferred the effective date of SFAS No. 133. SFAS No. 137 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. 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
None.
20
<PAGE>
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...................... 56 Chairman of the Board and Director
Ian L. M. Thomas.................... 62 President, Chief Executive Officer and Director
John J. Veronis..................... 72 Director
Jeffrey T. Stevenson................ 39 Director
Scott Troeller...................... 31 Director
Jeffrey Tannenbaum.................. 37 Director
John Rolfe.......................... 31 Director
Steven J. Hunt...................... 55 Chief Financial Officer and Treasurer
Brian A. Meyer...................... 39 General Counsel and Secretary
Wayne Gregus........................ 51 Director, Business Development
Richard A. Wimbish.................. 56 President and Chief Operating Officer of TISI
W. Michael Goodwin.................. 49 President and Chief Executive Officer of Galaxy
Richard W. Moeller.................. 61 President and Chief Executive Officer of GEM
William Newman...................... 50 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.
Scott Troeller, Managing Director and Principal, joined VS&A Communications
Partners, L.P. in July 1996. From 1991 through 1996 Mr. Troeller was an
investment banker at JP Morgan & Co.
21
<PAGE>
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 is an independent investor. Mr. Rolfe was an investment
professional with Fir Tree from 1997 to 1999. Prior to joining Fir Tree, Mr.
Rolfe was an investment banker with Donaldson, Lufkin & Jenrette specializing in
media and communications.
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.
Wayne Gregus joined the Company on December 31, 1999 as Director, Business
Development. Prior to joining the Company Mr. Gregus was owner and CEO of
Interim Management Group, LLC and G&G Publishing Services, LLC. From 1990 to
1996 Mr. Gregus was Senior Vice President, Operations for Reed Travel Group, a
unit of Reed Elsevier, Inc.
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.
22
<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 1999, 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) 1999 $185,000 $185,000 -- -- -- --
President and Chief Executive Officer 1998 175,000 168,998 -- -- -- --
1997 38,836 -- -- -- -- --
Steven J. Hunt 1999 $185,000 $107,500 -- -- -- $66,854
Chief Financial Officer 1998 175,000 35,000 -- -- -- 53,162
1997 29,167 -- -- -- -- --
Brian A. Meyer 1999 $170,000 $100,000 -- -- -- $6,400
General Counsel 1998 160,000 32,000 -- -- -- --
1997 26,667 -- -- -- -- --
Richard Wimbish 1999 $180,000 $61,200 -- -- -- $6,400
President, TISI 1998 175,000 49,000 -- -- -- 6,542
1997 165,000 25,000 -- __ -- 539,935
Mike Goodwin 1999 $169,808 $54,400 -- -- -- $6,400
President, Galaxy 1998 165,000 52,800 -- -- -- --
1997 165,000 33,333 -- 20,000 -- 24,088
</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 of $60,454 paid in 1999. The amount
in 1998 also represents relocation expenses. 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.
23
<PAGE>
OPTIONS. The Company did not grant any options or stock appreciation rights
during 1999 or 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
exercisable 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 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
24
<PAGE>
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.
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.
Wayne Gregus was hired by the Company on December 31, 1999 to serve as
Director, Business Development. Mr. Gregus entered into an employment agreement
as of December 31, 1999 which provides for his employment through December 31,
2002 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.
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, Mr. Meyer, General
Counsel of the Company, and Mr. Gregus, Director - Business Development, were
awarded Units equal to 1.5%, 1% and .3%, respectively, of the Equity
Appreciation under the Corporate Executive 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 Corporate Executive 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).
25
<PAGE>
The maximum number of Units issuable under the Phantom Stock Plans would
constitute approximately 10% of the common equity interests of the Company.
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 64.4%
350 PARK AVENUE
NEW YORK, NEW YORK
FIR TREE VALUE FUND LP.
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036 36,000 32.0%
FIR TREE INSTITUTIONAL VALUE FUND L.P.
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
4,000 3.6%
-------- ------
112,367 100%
======== ======
</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. The
Board currently consists of seven members, two of whom are Fir Tree nominees.
Fir Tree has the right to appoint a third nominee if it so desires. 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
26
<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. In
1999, VS&A was paid a monitoring fee of $90,000 and fees of $534,000 in
connection with advisory services provided to the Company with respect to the
acquisitions of ITS and RSI and the disposition of CORSEARCH. Approximately 18%
of both such fees were shared with Fir Tree pursuant to the Stockholders
Agreement.
27
<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(incorporated herein by reference to
Exhibit 2.1 to the Company's Annual Report on Form 10-K for the
period ended December 31, 1998).
2.4 Agreement for Stock Purchase dated as of August 31, 1999 among
Total Information Services, Inc., Records Search, Inc. and the
stockholders thereof (incorporated herein by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated August 31,
1999).
2.5 Stock Purchase Agreement dated as of October 6, 1999, by and
among CT Corporation System, The Official Information Company,
and Corsearch, Inc. (incorporated herein by reference to Exhibit
2.1 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1999).
2.6 Form of Stock Acquisition Agreement dated as of March 15, 2000
among TISI Holdings, Inc., The Official Information Company and
the transferor(s) (incorporated herein by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated March 15,
2000).
2.7 Form of Asset Acquisition Agreement dated as of March 15, 2000
among TISI Holdings, Inc., The Official Information Company and
the transferor(s) (incorporated herein by reference to Exhibit
2.2 to the Company's Current Report on Form 8-K dated March 15,
2000).
2.8 Stockholders Agreement dated as of March 15, 2000 among TISI
Holdings, Inc., The Official Information Company and the other
signatories thereto (incorporated herein by reference to Exhibit
2.3 to the Company's Current Report on Form 8-K dated March 15,
2000).
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)
28
<PAGE>
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)
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)
10.11(a)* Amendment dated January 1, 2000 to Employment Agreement by and
between Steven J. Hunt and The Official Information Company
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)
10.12(a)* Amendment dated January 1, 2000 to Employment Agreement by and
between Brian A. Meyer and The Official Information Company
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* The Official Information Company Corporate Executive Equity
Appreciation Plan
10.17 T/SF Communications Corporation Key Executive Equity Appreciation
Plan (incorporated herein by reference to Exhibit 10.17 to the
Registration Statement)
29
<PAGE>
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)
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 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)
10.25 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)
10.26 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)
10.27* Employment Agreement by and between Wayne Gregus and The Official
Information Company
12* Statement re: computation of ratios
21* Subsidiaries of the Company
27* Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
On November 11, 1999, The Official Information Company (the "Company") sold
all of stock of Corsearch, Inc. to CT Corporation System and executed a
non-compete agreement in consideration for approximately $20 million (subject to
adjustments).
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE OFFICIAL INFORMATION COMPANY
PAGE
----
Reports of independent auditors F-2
Consolidated balance sheets as of December 31, 1999 and 1998 F-3
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997. F-5
Consolidated statements of changes in stockholders' deficit
for the years ended December 31, 1999, 1998 and 1997 F-6
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 F-7
Notes to consolidated financial statements F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Official Information Company:
We have audited the accompanying consolidated balance sheets of The Official
Information Company, as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for each of the years in the three-year period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Official Information Company, as of December 31, 1999 and 1998, and the
consolidated results of its operations and their cash flows for each of the
years of the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 14, 2000
F-2
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,162 $ 3,878
Accounts receivable, less reserve for doubtful accounts
of $995 in 1999 and $856 in 1998 22,772 17,555
Due from related entity - 20
Inventories 191 231
Deferred tax assets 137 260
Notes receivable and other current assets 2,390 1,706
--------- --------
Total current assets 57,652 23,650
Notes receivable and investments 216 411
Property, plant and equipment, at cost:
Exposition equipment 7,707 7,301
Data processing and office furniture and equipment 17,808 14,308
--------- --------
25,515 21,609
Less accumulated depreciation 14,595 12,584
--------- --------
Property, plant and equipment, net 10,920 9,025
Deferred tax assets - 1,185
Intangibles and other assets, net 53,342 40,263
--------- --------
$ 122,130 $ 74,534
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998
------------------------------------- ---- ----
Current liabilities:
Accounts payable $ 3,681 $ 2,967
Accrued liabilities 15,098 9,984
Deferred revenue 6,594 6,680
Borrowings under credit facility 20,000 -
Customer deposits 13,315 -
Current portion of long-term debt 1,733 1,367
--------- --------
Total current liabilities 60,421 20,998
Long-term debt 100,584 99,385
Other liabilities 907 1,353
Minority interest 9,446 6,991
Stockholders' deficit:
Common stock, $.10 par value, 150,000
shares authorized 42 42
Additional paid-in capital 48,197 48,197
Retained earnings 17,009 12,044
--------- --------
65,248 60,283
Treasury stock (114,476) (114,476)
--------- --------
Total stockholders' deficit (49,228) (54,193)
--------- --------
$ 122,130 $ 74,534
========= ========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Operating revenues $ 107,709 $ 88,221 $ 74,716
Interest and other income 103 376 890
Gain (loss) on sale of fixed assets, net (19) 46 201
--------- -------- --------
Total revenues 107,793 88,643 75,807
--------- -------- --------
Costs and expenses:
Operating costs 48,435 39,520 35,735
General and administrative 34,046 27,033 24,814
Recapitalization and reorganization expenses - - 21,774
Depreciation and amortization 10,998 7,078 4,996
--------- -------- --------
Total Expenses 93,479 73,631 87,319
--------- -------- --------
Operating income (loss) 14,314 15,012 (11,512)
Interest expense 10,792 10,676 3,696
--------- -------- --------
Income (loss) before income taxes 3,522 4,336 (15,208)
Gain on Sale of Subsidiary 4,842 - -
Income tax (expense) benefit (2,944) (1,329) 2,636
Minority interest in consolidated subsidiaries (455) (2,491) -
--------- -------- --------
Net income (loss) $ 4,965 $ 516 $(12,572)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 42 $ 419 $ 332
Issuance of common stock - - 92
Retirement of common stock - - (5)
Reverse stock split - (377) -
----------- ----------- ----------
Balance at end of year 42 42 419
----------- ----------- ----------
Additional paid-in capital:
Balance at beginning of year 48,197 47,820 13,754
Issuance of common stock - - 35,350
Retirement of common stock - - (1,372)
Reverse stock split - 377 -
Compensation recognized on stock options,
net of tax benefit - - 88
----------- ----------- ----------
Balance at end of year 48,197 48,197 47,820
----------- ----------- ----------
Retained earnings:
Balance at beginning of year 12,044 11,528 24,100
Net income (loss) 4,965 516 (12,572)
----------- ----------- ----------
Balance at end of year 17,009 12,044 11,528
----------- ----------- ----------
Treasury stock: (284 shares)
Balance at beginning of year (114,476) (110,369) -
Repurchase of shares - (3,600) (110,369)
Minority shareholder conversion - (507) -
----------- ----------- ----------
Balance at end of year (114,476) (114,476) (110,369)
----------- ----------- ----------
Total stockholders' deficit $ (49,228) $ (54,193) $ (50,602)
=========== =========== ==========
Common shares outstanding:
Beginning balance 421 4,191 3,318
Retirement of common stock - - (50)
Reverse stock split - (3,770) -
Issuance of common stock - - 923
----------- ----------- ----------
Balance at end of year $ 421 $ 421 $ 4,191
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,965 $ 516 $ (12,572)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 10,998 7,078 4,996
Undistributed earnings of
unconsolidated subsidiary - - (156)
Gain on sale of subsidiary (4,842) - -
(Gain) loss on sale of assets 19 (46) 201
Reserves provided on investments - - 444
Compensation recognized on stock options,
net of tax benefit - - 88
Gain on debt repurchase - (60) -
Deferred income taxes 1,308 1,225 (1,196)
Changes in assets and liabilities:
Accounts receivable and refundable
income taxes (149) (2,639) (1,663)
Inventories 40 98 (34)
Current contract receivable and other
current assets (556) (360) 1,208
Intangibles and other assets - 308 (993)
Accounts payable and accrued liabilities 4,924 (1,646) 4,839
Deferred revenue (104) 3,837 394
Customer deposits (2,936) - -
Other long-term liabilities 256 - -
Minority interest 455 2,491 -
-------- --------- --------
Total adjustments 9,413 10,286 8,128
-------- --------- --------
Net cash provided by (used in) operating activities 14,378 10,802 (4,444)
-------- --------- --------
Cash flows from investing activities:
Collections on contract and notes receivable 7 41 345
Investments 828 - 100
Capital expenditures (6,692) (6,503) (5,541)
Proceeds from the sale of subsidiary 20,000 - -
Proceeds from the sale of assets - 1,625 35
Payments for acquisitions, net of cash acquired (20,461) (10,246) (813)
Payments on deferred contract liabilities (151) (290) (638)
-------- --------- --------
Net cash used in investing activities (6,469) (15,373) (6,512)
-------- --------- --------
</TABLE>
Continued on next page
F-7
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowing under long-term debt $ 590 $ - $ 100,000
Principal payments of long-term debt (2,215) (1,281) (1,493)
Borrowings under bank lines-of-credit 91,577 - 93,618
Payments under bank lines-of-credit (71,577) - (93,000)
Debt financing costs - (294) (3,558)
Issuance of common stock - - 35,442
Retirement of bonds - (1,440) -
Minority interest 2,000 4,500 -
Repurchase of common stock - (3,600) (111,746)
--------- -------- ----------
Net cash provided by (used in) financing activities 20,375 (2,115) 19,263
--------- -------- ----------
Net increase (decrease) in cash and cash equivalents 28,284 (6,686) 8,307
Cash and cash equivalents at beginning of year 3,878 10,564 2,257
--------- -------- ----------
Cash and cash equivalents at end of year $ 32,162 $ 3,878 $ 10,564
========= ========= ==========
Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest $ 10,411 $ 10,778 $ 1,693
Income taxes 216 (3,410) (1,209)
--------- -------- ----------
$ 10,627 $ 7,368 $ 484
========= ========= ==========
Non-cash transactions
Receivable relating to sale of subsidiary $ 1,588 $ - $ -
Note given on acquisition $ 3,780 $ - $ -
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-8
<PAGE>
THE OFFICIAL INFORMATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
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-to-business information and
communication 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/trade name 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., and Fir Tree
Institutional Value Fund L. P.
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 15 years for data processing and
office furniture and printing equipment.
F-9
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
Amortization ------------------------
Period 1999 1998
------ ---- ----
(In thousands)
<S> <C> <C> <C>
Goodwill 15-30 years $ 53,771 $ 41,494
Employment information costs 4 years 3,626 3,471
Debt financing costs and other Various 5,401 5,149
-------- --------
62,798 50,114
Accumulated amortization (9,456) (9,851)
-------- --------
$ 53,342 $ 40,263
======== ========
</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. During the fourth quarter of
1999, the Company determined that its investment in a trade show acquired
in 1998 had become permanently impaired. Accordingly, during the fourth
quarter, the Company wrote off the balance of its investment ($1.8
million), which is included in depreciation and amortization to recognize
this impairment.
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 were not significant. 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.
F-10
<PAGE>
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less 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 had
owned a 49% interest was 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 had been amortized on a straight line basis over 20 years.
See Note 3. Effective January 1, 1999, the Company acquired, through a
series of transactions, the remaining 51% interest.
CAPITALIZED SOFTWARE
In 1998, the Company adopted AICPA Statement of Position ("SOP") No.98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." SOP No.98-1 requires certain cost in connection with the
developing or obtaining internally used software to be capitalized that
previously would have been expensed as incurred. The adoption of SOP No.
98-1 resulted in the capitalization of approximately $229,000 and $300,000
related to software development cost as of December 31, 1999 and 1998,
respectively. At December 31, 1998, the Company had included in Property,
Plant & Equipment net deferred product enhancement costs of $602,000. This
asset was part of Corsearch, which was sold in 1999.
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with the provisions
of SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting comprehensive income and its components in the body
of the financial statements. Comprehensive income includes net income
(loss) as currently reported under generally accepted accounting
principles, all changes in equity during a period from non-owner sources
including, as applicable, foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on
F-11
<PAGE>
certain investments in debt and equity securities. There were no
significant differences between the Company's comprehensive loss and its
net loss as reported for all periods presented.
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, 1999, based on the current
offered market price, approximates its carrying value.
RECLASSIFICATIONS
Certain 1998 and 1997 account balances have been reclassified to conform to
the 1999 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 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
F-12
<PAGE>
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.
(in 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 November 11, 1999, the Company sold all of the outstanding stock of
Corsearch and executed a non-compete agreement in consideration for
approximately $20 million, plus additional consideration of $1.6 million
for certain defined net assets resulting in a gain of $4.8 million.
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 a 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".
F-13
<PAGE>
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, a
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.
On April 30, 1999, the Company, through Galaxy, acquired substantially all
of the assets and assumed substantially all of the liabilities of
International Travel Services, Inc. ("ITS") for an aggregate purchase price
of $22,650,000, plus transaction costs. Of the total purchase price of this
transaction, $11,134,000 was paid out of proceeds from the Company's line
of credit, $2,000,000 was paid from a contemporaneous minority equity
investment in Galaxy Information Services, LLC by certain former ITS
shareholders and the remainder was paid from existing cash. The acquisition
was accounted for under the purchase business combination. The excess of
the purchase price over the estimated fair value of the net assets acquired
was approximately $18.9 million, and has been recorded as goodwill, which
is being amortized on a straight-line basis over 15 years.
On August 31, 1999, the Company, through TISI, acquired all the stock of
Record Search, Inc. ("RSI") for an aggregate purchase price of $12,780,000,
plus transaction costs. Of the total purchase price of this transaction,
$9,000,000 was paid out from existing cash and the balance in the form of a
note to be paid over three years. The acquisition was accounted for under
the purchase business combination. The excess of the purchase price over
the estimated fair value of the net assets acquired was approximately $11.5
million, and has been recorded as goodwill, which is being amortized on a
straight-line basis over 15 years.
The following unaudited pro forma information is presented as if the
Company had completed the acquisitions as of January 1, 1998. The pro forma
information is not necessarily indicative of what the results of operations
would have been had the acquisitions taken place at January 1, 1998, or of
the future results of operations.
For the year
ended December 31,
------------------
1999 1998
-------- ---------
(In thousands)
(Unaudited)
Revenues 117,271 109,684
-------- ---------
Net income (loss) 6,790 1,260
-------- ---------
EBITDA $ 29,327 $ 26,407
-------- ---------
F-14
<PAGE>
4. LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt outstanding consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1999 1998
--------- --------
(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 $ 98,500
Note payable under a purchase agreement, discounted at 8.5% annual
payments per agreement with final payment in April 2000. 460 920
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. - 300
Promissory notes, unsecured, payable quarterly, plus interest,
through December 2000, interest rate adjusts semi-annually to the
base rate of Chase Manhattan Bank (8.5% at December 31, 1999). 83 166
7.25% promissory notes, unsecured, payments made over three years. 3,192 55
Capital lease obligation 72 653
Other 10 158
--------- --------
102,317 100,752
Less portion due within one year (1,733) (1,367)
--------- --------
$ 100,584 $ 99,385
========= ========
</TABLE>
Installments due on long-term debt during each of the five years subsequent
to December 31, 1999, are as follows:
(In thousands)
2000 $ 1,733
2001 958
2002 1,126
2003 -
Thereafter 98,500
--------
Total $ 102,317
=======
(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
F-15
<PAGE>
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.
CREDIT FACILITY
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. In December 1999, the
Company borrowed $20 million under the Senior Facility, with an effective
borrowing rate of 9%. This amount was repaid in January 2000. 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
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, I.T.S. Information Services LLC (from May 1, 1999), Holdings LLC
(collectively the "LLC Guarantors"), TISI, RSI (from September 1, 1999) and
Corsearch (until November 11, 1999), (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.
F-16
<PAGE>
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 $109,761 and $54,307 as of December 31, 1999 and
December 31, 1998, respectively.
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 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>
1999
----
BALANCE SHEET
-------------
ASSETS
- ------
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
---- --- ---------- -------- ----
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 35,061 $ 10,196 $ 12,395 $ 22,591 $ -- $ 57,652
Notes receivable and investments 18 15 183 198 -- 216
Investment in subsidiaries & affil 89,660 57,037 7,097 64,134 (153,794) --
PPE-Net 213 6,202 4,505 10,707 -- 10,920
Deferred tax assets -- -- -- -- -- --
Intangibles and other assets-net 3,080 32,515 17,747 50,262 -- 53,342
-----------------------------------------------------------------------------------------------
Total assets $ 128,032 $ 105,965 $ 41,927 $ 147,892 $(153,794) $ 122,130
========= ========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities $ 26,554 $ 27,632 $ 6,235 $ 33,867 $ -- $ 60,421
Long term debt 98,500 -- 2,084 2,084 -- 100,584
Other liabilities 727 3 177 180 -- 907
Minority interest 7,446 2,000 -- 2,000 -- 9,446
Total shareholders' equity (deficit) (5,195) 76,330 33,431 109,761 (153,794) (49,228)
-----------------------------------------------------------------------------------------------
Total liabilities and Shareholders'
equity $ 128,032 $ 105,965 $ 41,927 $ 147,892 $(153,794) $ 122,130
========= ========= ========= ========= ========= =========
<CAPTION>
1999
----
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
---- --- ---------- -------- ----
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue $ 84 $ 65,877 $ 41,832 $ 107,709 $ -- $ 107,793
Costs and expenses:
Operating costs -- 33,750 14,685 48,435 -- 48,435
General &admin 420 18,992 14,634 33,626 -- 34,046
Deprec. & amort 512 6,373 4,113 10,486 -- 10,998
----------------------------------------------------------------------------------------------------
Total costs 932 59,115 33,432 92,547 -- 93,479
----------------------------------------------------------------------------------------------------
Operating income(loss) (848) 6,762 8,400 15,162 -- 14,314
Interest expense (income) (270) 1,897 9,165 11,062 -- 10,792
----------------------------------------------------------------------------------------------------
Income (loss) before income (578) 4,865 (765) 4,100 -- 3,522
taxes
Gain on sale of subsidiary 4,842 -- -- -- -- 4,842
Minority interest -- -- -- -- (455) (455)
Income tax (expense) benefit (2,837) (107) -- (107) -- (2,944)
----------------------------------------------------------------------------------------------------
Net Income (loss) $ 1,427 $ 4,758 $ (765) $ 3,993 $ (455) $ 4,965
========= ========= ========= ========= ========= =========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
1999
----
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) $ 1,427 $ 4,758 $ (765) $ 3,993 $ (455) $ 4,965
Adjustments to reconcile net
income (loss) to net cash
provided by operating (4,311) 6,373 4,113 10,486 -- 6,175
activities, net
Changes in assets and
liabilities, net 11,855 (10,233) 1,161 (9,072) 455 3,238
---------------------------------------------------------------------------------------------------
Net cash provided by operating
activity 8,971 898 4,509 5,407 -- 14,378
Cash flows from investing
activities:
Collections on
Notes Receivable 7 -- -- -- -- 7
Capital expenditures (21) (2,905) (3,766) (6,671) -- (6,692)
Proceed from the
Sale of Corsearch 20,000 -- -- -- -- 20,000
Payments for
Acquisitions, net of
Cash acquired (20,461) -- -- -- -- (20,461)
Equity Investments 828 -- -- -- -- 828
Payments on
Deferred contract
Liabilities (151) -- -- -- -- (151)
---------------------------------------------------------------------------------------------------
Net cash used in investing 202 (2,905) (3,766) (6,671) -- (6,469)
activity
Cash flows from financing
activities:
Principal payments
of long-term debt (2,215) -- -- -- -- (2,215)
Borrowings under long-term 590 -- -- -- -- 590
debt
Borrowing under Bank lines of
credit 91,577 -- -- -- -- 91,577
Payments under Bank lines of
credit (71,577) -- -- -- -- (71,577)
Minority interest 2,000 -- -- -- -- 2,000
---------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 20,375 -- -- -- -- 20,375
---------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 29,548 (2,007) 743 (1,264) -- 28,284
Cash and cash equivalents at
beginning of year 1,078 2,339 461 2,800 -- 3,878
---------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 30,626 $ 332 $ 1,204 $ 1,536 $ -- $ 32,162
======== ======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE>
<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 assets-net 3,417 15,646 21,200 36,846 -- 40,263
------------------------------------------------------------------------------------------
Total assets $ 56,735 $ 30,100 $ 42,006 $ 72,106 $(54,307) $ 74,534
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities $ 4,529 $ 10,673 $ 5,796 $ 16,469 $ -- $ 20,998
Long term debt 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
======== ======== ======== ======== ======== ========
<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 $ 45,808 $ 42,291 $ 88,099 (336) $ 88,643
Costs and expenses:
Operating costs -- 22,760 16,760 39,520 -- 39,520
General & admin (205) 12,870 14,368 27,238 -- 27,033
Deprec. & amort 467 3,075 3,536 6,611 -- 7,078
----------------------------------------------------------------------------------------------------
Total costs 262 38,705 34,664 73,369 -- 73,631
----------------------------------------------------------------------------------------------------
Operating income (loss) 618 7,103 7,627 14,730 (336) 15,012
Interest expense 10,676 338 97 435 (435) 10,676
----------------------------------------------------------------------------------------------------
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-20
<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)
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 used in financing
activities (2,115) -- -- -- -- (2,115)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in
cash and cash equivalents (6,463) 169 (392) (223) -- (6,686)
Cash and cash equivalents at
beginning of year 7,541 2,170 854 3,024 -- 10,564
-------- -------- -------- -------- -------- --------
Cash and cash equivalents at
end of year $ 1,078 $ 2,339 $ 461 $ 2,800 $ -- $ 3,878
======== ======== ======== ======== ======== ========
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1997
----
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
SUBSIDIARY
----------
TOIC CORPORATE GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
-------------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
Total revenue $ 1,366 $ 74,441 $ -- $ 75,807
Costs and expenses:
Operating costs -- 35,735 -- 35,735
General & admin 903 23,911 -- 24,814
Recapitalization &
Reorganization expenses 21,774 -- -- 21,774
Deprec. & amort 156 4,840 -- 4,996
-------- -------- ------- --------
Total costs 22,833 64,486 -- 87,319
-------- -------- ------- --------
Operating income (loss) (21,467) 9,955 -- (11,512)
Interest expense 3,360 336 -- 3,696
-------- -------- ------- --------
Income (loss) before income taxes (24,827) 9,619 -- (15,208)
Income tax (expense) benefit 6,652 (4,016) -- 2,636
-------- -------- ------- --------
Net Income (loss) $(18,175) $ 5,603 $ -- $(12,572)
======== ======== ======= ========
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
1997
----
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
TOIC SUBSIDIARY TOIC
---- ---------- ----
CORPORATE GUARANTORS ELIMINATIONS 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 activity (13,206) 8,762 -- (4,444)
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
liabilities (638) -- -- (638)
-----------------------------------------------------------------------------
Net cash used in
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) financing
activities 20,526 (1,263) 19,263
-----------------------------------------------------------------------------
Net increase (decrease)
in cash and cash equivalents 7,039 1,268 -- 8,307
Cash and cash equivalents
at beginning of year 826 1,431 -- 2,257
-----------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 7,865 $ 2,699 $ -- $ 10,564
========= ========= ========= =========
</TABLE>
F-23
<PAGE>
6. INCOME TAXES
The provision for income tax expense (benefit) is comprised of the
following:
Year Ended December 31,
1999 1998 1997
------- ------- -------
(In thousands)
Current:
Federal $ 1,407 $ (119) $(1,824)
State 122 104 384
Foreign 107 119 --
------- ------- -------
1,636 104 (1,440)
------- ------- -------
Deferred:
Federal 1,176 1,118 (1,178)
State 132 107 (18)
------- ------- -------
1,308 1,225 (1,196)
------- ------- -------
$ 2,944 $ 1,329 $(2,636)
======= ======= =======
F-24
<PAGE>
The reconciliation of income tax computed at the federal statutory rate
(34%) to income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income tax provision at statutory rates $ 2,808 $ 1,474 $(5,171)
Minority share of LLC earnings (155) (847) --
Amortization of acquired assets not deductible for 410 362 395
income tax purposes
State income taxes 122 141 253
Increase (reduction) in previously provided taxes
related to settlement of tax examinations -- -- 344
Sale of subsidiary (510)
Non-deductible recapitalization expenses -- -- 1,680
Foreign taxes 107 119 --
Other 162 80 (137)
------- ------- -------
$ 2,944 $ 1,329 $(2,636)
======= ======= =======
</TABLE>
Significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Income recognized in different accounting period for
income tax purposes $ 69 $ 91
Deferred severance benefits payable 441 491
Reserves on assets 324 497
Accrued expenses deductible when paid 311 607
Net operating loss carryforwards 1240 2,185
Fixed asset basis differences 118 175
AMT credit carryforwards -- 24
------- -------
2,503 4,070
Less valuation allowance (1,786) (1,786)
------- -------
717 2,284
Deferred tax liabilities:
Other asset basis difference -- (471)
Deductions recognized in different accounting periods (580) (368)
------- -------
Net deferred tax assets $ 137 $ 1,445
======= =======
</TABLE>
At December 31, 1999, the Company had no net operating loss ("NOL")
carryforwards for federal income tax purposes. The Company has state NOL's
available of approximately $20.7 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
F-25
<PAGE>
pending the resolution of a revenue agent's 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 tax
assets, net of the existing valuation allowance, at December 31, 1999.
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 Note 2). 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 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 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, 2,772 shares 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.
F-26
<PAGE>
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 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.
F-27
<PAGE>
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 1999, 1998, and 1997 under operating leases was approximately
$2,268,357, $2,020,000, and $1,460,000, respectively.
As of December 31, 1999, future minimum lease payments are as follows:
Year Ending
December 31,
------------
(In thousands)
2000 $ 2,348
2001 2,262
2002 2,154
2003 2,106
2004 1,540
Thereafter 1,940
------
$ 12,350
========
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 any, will not have a
material adverse effect on the financial position or results of operations
of the Company.
9. RELATED PARTY TRANSACTIONS
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. In 1997 the Company paid its stockholders $20,000 in
management fees. 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. In 1999, VS&A was paid a monitoring fee of $90,000 and fees of
$534,000 in connection with advisory services provided to the Company with
respect to the acquisitions of ITS and RSI and the disposition of
Corsearch. Approximately 18% of both such fees were shared with Fir Tree
pursuant to the Stockholders Agreement. These costs are included in the
accompanying consolidated statement of operations.
10. BUSINESS SEGMENT INFORMATION
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. SFAS No. 131 replaces the "industry
segment" concept of SFAS No. 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
F-28
<PAGE>
decisions about the enterprise's operating matters. The Company adopted
SFAS No. 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 trade
journals, provider (Galaxy) of registration housing, travel, exhibitor
marketing and information services all to the exposition industry and owner
(GEM) of the several trade shows, including 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 until sold in November 1999.
Corporate revenues consist principally of revenues from interest,
covenants-not-to-compete and miscellaneous non-operating income. Operating
profit is net revenues less applicable operating expenses and segment
general and administrative expenses. Corporate general and administrative
expenses are generally not allocated to each segment.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets consist principally of cash
and cash equivalents, notes receivable, prepaid expenses and corporate
furniture, fixtures and equipment. Capital expenditures include additions
to property, plant and equipment, goodwill and truck driver employment
information files.
During 1999, 1998 and 1997, 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,
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS:
Business to Business Communications $ 65,877 $ 52,166 $ 43,353
Information Services 41,832 36,055 31,363
Corporate and other 84 422 1,091
--------- --------- ---------
$ 107,793 $ 88,643 $ 75,807
========= ========= =========
OPERATING INCOME ( LOSS):
Business to Business Communications $ 6,762 $ 8,495 $ 6,207
Information Services 8,400 8,255 6,201
--------- --------- ---------
Operating profit from segments 15,162 16,750 12,408
Corporate expenses, net (848) (1,738) (23,920)
Interest expense (10,792) (10,676) (3,696)
--------- --------- ---------
Income (loss) before income taxes $ 3,522 $ 4,336 $ (15,208)
========= ========= =========
IDENTIFIABLE ASSETS AT DECEMBER 31:
Business to Business Communications $ 48,928 $ 34,206 $ 16,748
Information Services 34,830 33,804 32,307
Corporate 38,372 6,524 21,911
--------- --------- ---------
$ 122,130 $ 74,534 $ 70,966
========= ========= =========
DEPRECIATION AND AMORTIZATION:
Business to Business Communications $ 6,373 $ 3,407 $ 2,168
Information Services 4,113 3,204 2,672
Corporate 512 467 156
--------- --------- ---------
$ 10,998 $ 7,078 $ 4,996
========= ========= =========
CAPITAL EXPENDITURES:
Business to Business Communications $ 3,476 $ 2,924 $ 2,947
Information Services 3,139 3,370 2,571
Corporate 77 209 23
--------- --------- ---------
$ 6,692 $ 6,503 $ 5,541
========= ========= =========
</TABLE>
FOREIGN SALES
The Company's net revenues for 1999, 1998, and 1997 to customers outside
the U.S. and Canada were $8.1 million, $5.1 million, and $2 million,
respectively, representing 7.6%, 5.3%, and 2.5% of net revenues,
respectively. All of such net revenues are attributable to
Business-to-Business Communications.
11. SUBSEQUENT EVENT - UNAUDITED
On January 31, 2000, the Company acquired substantially all of the assets
of STA United, Inc. ("STA") for approximately $8.3 million. STA is a
leading provider of drug testing services to the pre-employment industry.
On March 15, 2000, the Company acquired the stock and/or assets of a group
of ten companies collectively known as United States Mutual Association
("USMA"). The investment in USMA will total approximately $23.5 million,
with approximately $15.2 million payable in cash with the balance in
non-voting stock of the parent of TISI. USMA provides pre-employment
screening
F-30
<PAGE>
services to the retail industry, principally through a proprietary database
of employee theft incident records. These acquisitions were accounted for
under the purchase method of accounting.
F-31
<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__ , 2000
THE OFFICIAL INFORMATION COMPANY
By /s/ Ian L.M. Thomas
----------------------------------
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
__, 2000 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
- ----------------------------------- Officer and Director
(Ian L.M. Thomas)
/s/ Steven J. Hunt Chief Financial Officer and
- ----------------------------------- Treasurer
(Steven J. Hunt)
/s/ John J. Veronis Director
- ----------------------------------
(John J. Veronis)
/s/ Jeffrey T. Stevenson Director
- -----------------------------------
(Jeffrey T. Stevenson)
<PAGE>
/s/ Scott Troeller Director
- -----------------------------------
(Scott Troeller)
/s/ Jeffrey Tannenbaum Director
- -----------------------------------
(Jeffrey Tannenbaum)
/s/ John Rolfe Director
- -----------------------------------
(John Rolfe)
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT effective as of January 1, 2000
between The Official Information Company (f/k/a T/SF Communications
Corporation), a Delaware limited liability company ("Employer"), and Steven J.
Hunt ("Executive").
WITNESSTH:
WHEREAS, Employer and Executive are parties to that certain Employment
Agreement dated as of November 10, 1997 (the "Employment Agreement");
WHEREAS, the parties hereto desire to amend the Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT
1. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Employment Agreement.
2. Section 3.02 of the Employment Agreement is amended by substituting the
following in lieu thereof:
In addition to the Base Salary, for 2000 and each subsequent calendar year
during the term of this Agreement, Employer shall pay Executive a bonus
(the "Bonus") in an amount equal to 3.33% of his Base Salary as of the
beginning of that year for each 1% (rounded to the nearest whole
percentage) by which EBITDA for that year exceeds the prior year's EBITDA
by 15% or more, provided that the maximum Bonus the Executive shall be
entitled to receive with respect to any year shall be 50% of his Base
Salary as of the end of that year. As used in this Agreement, the term
"EBITDA" means the consolidated earnings of the Related Entities before
interest, taxes, depreciation and amortization, excluding extraordinary or
unusual nonrecurring items of income and expense, determined in accordance
with generally accepted accounting principles by Employer's independent
accountants. If in any year any of the Related Entities acquires or
disposes of any material business, the Bonus payable with respect to such
year shall be adjusted equitably to account for such acquisition or
disposition. The Bonus for any year shall be paid not later than 30 days
after delivery of Employer's audited financial statements for that year.
Notwithstanding the foregoing, the Board of Directors of the Company will
use its absolute discretion in determining the final amount of bonus
payable after taking into account Executive's contribution to the Company
during such year.
3. Except as expressly amended hereby, the terms of the Employment
Agreement shall be unchanged and shall remain in full force and effect.
<PAGE>
4. This Amendment shall be governed by the laws of the State of New York.
This Amendment may be executed in one or more counterparts, all of which shall
be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
THE OFFICIAL INFORMATION COMPANY
By:
----------------------------
Ian L.M. Thomas
President and CEO
By:
----------------------------
Steven J. Hunt
2
<PAGE>
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT effective as of January 1, 2000
between The Official Information Company (f/k/a T/SF Communications
Corporation), a Delaware limited liability company ("Employer"), and Brian A.
Meyer ("Executive").
WITNESSTH:
----------
WHEREAS, Employer and Executive are parties to that certain Employment
Agreement dated as of November 10, 1997 (the "Employment Agreement");
WHEREAS, the parties hereto desire to amend the Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT
---------
1. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Employment Agreement.
2. Section 3.02 of the Employment Agreement is amended by substituting the
following in lieu thereof:
In addition to the Base Salary, for 2000 and each subsequent calendar year
during the term of this Agreement, Employer shall pay Executive a bonus
(the "Bonus") in an amount equal to 3.33% of his Base Salary as of the
beginning of that year for each 1% (rounded to the nearest whole
percentage) by which EBITDA for that year exceeds the prior year's EBITDA
by 15% or more, provided that the maximum Bonus the Executive shall be
entitled to receive with respect to any year shall be 50% of his Base
Salary as of the end of that year. As used in this Agreement, the term
"EBITDA" means the consolidated earnings of the Related Entities before
interest, taxes, depreciation and amortization, excluding extraordinary or
unusual nonrecurring items of income and expense, determined in accordance
with generally accepted accounting principles by Employer's independent
accountants. If in any year any of the Related Entities acquires or
disposes of any material business, the Bonus payable with respect to such
year shall be adjusted equitably to account for such acquisition or
disposition. The Bonus for any year shall be paid not later than 30 days
after delivery of Employer's audited financial statements for that year.
Notwithstanding the foregoing, the Board of Directors of the Company will
use its absolute discretion in determining the final amount of bonus
payable after taking into account Executive's contribution to the Company
during such year.
3. Except as expressly amended hereby, the terms of the Employment
Agreement shall be unchanged and shall remain in full force and effect.
<PAGE>
4. This Amendment shall be governed by the laws of the State of New York.
This Amendment may be executed in one or more counterparts, all of which shall
be considered one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
THE OFFICIAL INFORMATION COMPANY
By:
--------------------------
Ian L.M. Thomas
President and CEO
By:
--------------------------
Brian A. Meyer
2
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CORPORATE EXECUTIVE EQUITY APPRECIATION PLAN
1. Purpose. The purpose of this Corporate Executive Equity Appreciation Plan
is to motivate and retain the Director of Business Development, the Chief
Financial Officer and the General Counsel of TOIC to attain the TOIC
Group's primary long-term performance goals.
2. Definitions. As used in the Plan, the following terms shall have the
indicated meanings:
"Administrator" means TOIC's board of directors or any committee or
individual appointed by the board of directors as Administrator of the
Plan.
"Base Amount" means $59.6 million.
"Cause" means (a) conviction of a felony; (b) fraud, embezzlement or other
misappropriation by Participant of funds or property of a member of the
TOIC Group; (c) a breach of any of the Participant's fiduciary duties as an
employee of a member of the TOIC Group; (d) any gross misconduct of the
Participant which is injurious in any material respect to any member of the
TOIC Group; or (e) Participant's failure to perform in any material respect
the obligations under his Employment Agreement with TOIC
"Change-in-Control" means a sale of a common equity interest of 50% or more
in TOIC to persons who are not affiliates of VS&A Communications Partners
II, L.P. ("VS&A"), or a merger of TOIC with, or a sale of all or
substantially all of the assets of the TOIC Group to, any other entity in
which VS&A does not in the aggregate own at least 50% of the equity
interests; provided, however, that a Change-in-Control shall not be deemed
to have occurred if, following a sale of common equity interests of TOIC
pursuant to a public offering, VS&A and its affiliates continue to have a
controlling interest in TOIC, even though such interest may constitute less
than 50% of the equity interests of TOIC.
"Closing Value" means:
(i) in the event a Participant's employment is terminated on account of
death, disability or termination by a member of the TOIC Group
without Cause (each, a "Qualified Termination Event"), an amount
equal to the Fair Market Value as of the date of such Qualified
Termination Event; or
(ii) in the event of a Change in Control prior to a Qualified Termination
Event, an amount equal to the Fair Market Value as of the effective
date of the Change in Control.
"Equity Appreciation Unit" means a hypothetical unit of interest in the
TOIC Group granted to a Participant.
<PAGE>
"Fair Market Value" means, on any day, the fair market value of the equity
of the TOIC Group as determined by the Administrator in its sole
discretion.
"Fiscal Year" means the period beginning on January 1 and ending on
December 31.
"Participant" means the Director of Business Development, the Chief
Financial Officer or the General Counsel of TOIC.
"Person" means any individual, partnership, firm, trust, corporation,
limited liability company or other similar entity.
"Plan" means this Corporate Executive Equity Appreciation Plan.
"TOIC" means The Official Information Company, a Delaware corporation, or
any successor thereto.
"TOIC Group" means TOIC and any entity in which TOIC and its shareholders
own all of the preferred and common equity interests.
3. Administration. The Plan shall be administered by the Administrator.
Subject to the provisions of the Plan, the Administrator shall have the
authority to establish from time to time regulations for the administration
of the Plan, interpret the Plan, delegate in writing administrative matters
to employees or other persons, and make such other determinations and take
such other action as it deems necessary or advisable for the administration
of the Plan. All decisions, actions and interpretations of the
Administrator shall be final, conclusive and binding upon all parties.
4. Participation. The Participants in the Plan shall be limited to the
Director of Business Development, the Chief Financial Officer and the
General Counsel of TOIC.
5. Equity Appreciation Units Subject to the Plan. Equity Appreciation Units
may be granted by the Administrator to a Participant from time to time,
provided that not more than an aggregate of 28,000 Equity Appreciation
Units may be granted under the Plan.
6. Vesting of Equity Appreciation Units. Except as otherwise provided in the
Plan:
(a) Vesting. 20% of the Equity Appreciation Units granted to a
Participant shall vest on the last day of each Fiscal Year after the
date of the award (in the case of Equity Appreciation Units granted
on January 1, 1998, beginning with December 31, 1998, and in the
case of Equity Appreciation Units granted on December 31, 1999,
beginning with December 31, 1999) provided that a Participant is an
employee of a member of the TOIC Group on that date.
2
<PAGE>
(b) Vesting Upon a Change of Control. Notwithstanding the foregoing, all
of the Equity Appreciation Units of a Participant shall vest upon
the effective date of Change of Control provided that a Participant
is an employee of a member of the TOIC Group on that date.
(c) Vesting Upon Termination in Connection with an IPO. In the event
that a Participant's employment is terminated by a member of the
TOIC Group in anticipation of or upon an initial public offering of
a member of the TOIC Group, all of the Equity Appreciation Units of
a Participant shall vest upon the date of such termination.
7. Entitlement to Payments Under the Plan.
(a) Qualified Termination Event. If a Participant's employment is
terminated on account of a Qualified Termination Event, the
Participant shall be entitled to receive from the shareholders of
TOIC, in full payment of all amounts payable to the Participant
under the Plan, an amount equal to (i) the excess of the Closing
Value over the Base Amount multiplied by (ii) the quotient obtained
by dividing the number of vested Equity Appreciation Units held by
the Participant as of the effective date of termination by one
million. Payment of the amount to which the Participant is entitled
shall be deferred until, and shall be paid (without interest) within
thirty business days after, the occurrence of a Change in Control,
unless the Administrator, in its sole discretion, elects to pay the
Participant earlier. In the event of the death of a Participant
after termination of his employment and prior to payment, the
payment shall be made to such beneficiary as the Participant may
have designated in writing during his or her lifetime or, if none,
to his or her estate.
(b) Change in Control. If there is a Change in Control, each Participant
shall be entitled to receive from the shareholders of TOIC, in full
payment of all amounts payable to the Participant under the Plan, an
amount, payable in cash within thirty days after the effective date
of the Change in Control, equal to (i) the excess of the Closing
Value over the Base Amount multiplied by (ii) the quotient obtained
by dividing the number of vested Equity Appreciation Units held by
the Participant as of the effective date of the Change in Control by
one million. TOIC shall give each Participant written notice of the
Change in Control as promptly as practicable thereafter.
(c) Termination of Employment for Cause or Voluntary Termination. If a
Participant's employment is terminated for Cause or a Participant
voluntary terminates his employment, all Equity Appreciation Units
granted to that Participant under the Plan, whether or not vested,
shall be forfeited and the Participant shall not be entitled to any
payment with respect to those Units.
8. Other Terms and Conditions of Equity Appreciation Units.
3
<PAGE>
(a) Agreements. Each Equity Appreciation Unit granted under the Plan
shall be evidenced by a written agreement, in form approved and
executed by the Administrator, which shall be subject to the terms
and conditions of the Plan and to such other terms and conditions
(including covenants by the employee not-to-compete or hire
employees of any member of the TOIC Group) as the Administrator may
consider appropriate.
(b) Adjustments in Event of Change in Units. In the event of any
issuance of new equity, capital raising, recapitalization,
reorganization, merger, consolidation, split-up, or of any similar
change affecting the equity interest in any member of the TOIC
Group, the number and terms of the Equity Appreciation Units
(whether or not then outstanding) and the Base Amount shall be
appropriately adjusted consistent with those changes and in such
manner as the Administrator may determine equitable to prevent
dilution or enlargement of the rights of Participants in the Plan.
(c) Participants Not to Have Rights as Partners. No Participant shall
be, or have any rights as, a shareholder or member of any member of
the TOIC Group by virtue of having been granted Equity Appreciation
Units.
(d) Plan and Equity Appreciation Units Not to Confer Certain Rights.
Neither the Plan nor any action taken under the Plan shall be
construed as giving any employee the right to be retained in the
employ of a member of the TOIC Group or shall interfere in any way
with the Administrator's right to terminate any Participant's
employment at any time with or without Cause, whether or not there
are then pending negotiations with respect to any transaction that
would give rise to a payment to the employee under the Plan. In
addition, nothing in the Plan or any agreement evidencing the grant
of Equity Appreciation Rights shall limit the Administrator's right
to determine in its sole discretion the terms of any such
transaction or limit the Administrator's right to manage the
business and affairs of TOIC and the other members of the TOIC Group
or give any Participant any claim against the TOIC or any such other
entity with respect to any good faith decision relating to the
business or affairs of TOIC or any other member of the TOIC Group
(whether or not that decision affects any payment to which the
employee would be entitled under the agreement).
9. No Claim or Right Under the Plan. No employee shall at any time have the
right to be selected as a Participant in the Plan or, having been selected
as a Participant and granted an Equity Appreciation Unit, to be granted any
additional Equity Appreciation Unit.
10. Disposition of Equity Appreciation Units. Neither all nor any portion of
the Equity Appreciation Units granted under the Plan nor any economic
interest therein may be sold, conveyed, transferred, assigned, mortgaged,
pledged, hypothecated or in any way otherwise
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encumbered or disposed of (each, a "Disposition") to any Person. Any
attempted Disposition shall be null and void and have no effect.
11. Taxes. TOIC may make such provisions and take such steps as the
Administrator may determine necessary or appropriate for the withholding of
all federal, state, local and other taxes required by law to be withheld
with respect to Equity Appreciation Units under the Plan, including, but
not limited to, deduction of the amount of withholding taxes from the
amount otherwise payable to a Participant under the Plan.
12. No Liability. No officer, director or shareholder of the Administrator
shall be personally liable to any employee of TOIC or any other member of
the TOIC Group by reason of any action taken on behalf of the Administrator
in connection with the Plan or for any mistake of judgment made in good
faith with respect to the Plan.
13. General Creditor Status. All payments from the Plan shall be made by the
shareholders of TOIC (who are also members of the other members of the TOIC
Group) from the amounts received by them on a Change of Control (net of any
withholding taxes referred to in Paragraph 11) and no special or separate
fund shall be established to assure payment with respect to any Equity
Appreciation Units.
14. Amendment or Termination. The Administrator may, with prospective or
retroactive effect, amend, suspend or terminate the Plan or any portion of
the Plan at any time, except that no such amendment, suspension or
termination shall deprive any Participant of any right with respect to any
Equity Appreciation Unit granted under the Plan unless a Participant shall
consent in writing to the amendment, suspension or termination.
15. Captions. The captions preceding the sections of the Plan have been
included solely as a matter of convenience and shall not in any manner
define or limit the scope or intent of any provision of the Plan.
16. Governing Law. The Plan and all rights under the Plan shall be governed by
and construed in accordance with the law of the State of New York
applicable to agreements made and to be performed entirely within New York.
17. Effective Date. The Plan shall become effective as of January 1, 1998 (as
amended effective as of December 31, 1999).
5
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of December 31, 1999, by and between THE
OFFICIAL INFORMATION COMPANY, a Delaware corporation ("Employer"), and WAYNE
GREGUS ("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, 2002, subject to earlier termination as provided in
Article VI hereof, Employer hereby employs Executive and Executive hereby
accepts employment with Employer as the Director of Business Development of
Employer and each of Employer's subsidiaries (the "Businesses"). Subject to the
direction and ultimate authority of the President and Chief Executive Officer of
Employer, Executive shall be responsible for helping the President and Chief
Executive Officer of Employer to grow its revenues and EBITDA at least 25% per
year and, specifically, for those responsibilities set forth on Exhibit A.
Employer and Employer'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, 2002, 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.
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,
<PAGE>
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. Notwithstanding the foregoing, Executive shall be
entitled to devote a limited amount of time to G&G Consulting, provided that
such activities do not interfere with Executive's obligations hereunder.
ARTICLE III
-----------
COMPENSATION
Section 3.01 As full compensation for his services hereunder (including the
services to Employer's subsidiaries), Employer shall pay Executive an annual
salary of One Hundred Sixty Five Thousand Dollars ($165,000), payable in equal
semi-monthly installments (the "Base Salary"). On each December 31 (beginning
December 31, 2000), 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, New York metropolitan area.
Section 3.02 In addition to the Base Salary, for 2000 and each subsequent
calendar year during the term of this Agreement, Employer shall pay Executive a
bonus (the "Bonus") in an amount equal to 3.33% of his Base Salary as of the
beginning of that year for each 1% (rounded to the nearest whole percentage) by
which EBITDA for that year exceeds the prior year's EBITDA by 15% or more,
provided that the maximum Bonus the Executive shall be entitled to receive with
respect to any year shall be 50% of his Base Salary as of the end of that year.
As used in this Agreement, the term "EBITDA" means the consolidated earnings of
the Related Entities before interest, taxes, depreciation and amortization,
excluding extraordinary or unusual nonrecurring items of income and expense,
determined in accordance with generally accepted accounting principles by
Employer's independent accountants. If in any year any of the Related Entities
acquires or disposes of any material business, the Bonus payable with respect to
such year shall be adjusted equitably to account for such acquisition or
disposition. The Bonus for any year shall be paid not later than 30 days after
delivery of Employer's audited financial statements for that year.
Notwithstanding the foregoing, the Board of Directors of the Company will use
its absolute discretion in determining the final amount of bonus payable after
taking into account Executive's contribution to the Company during such year.
Section 3.03 Contemporaneously with the execution of this Agreement,
Employer and Executive are executing an agreement in the form attached as
Exhibit B pursuant to which Executive is being granted 3,000 Equity Appreciation
Units under the Employer's Corporate Executive Equity Appreciation Plan.
2
<PAGE>
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
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<PAGE>
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 upon a Change of Control. This Agreement and
Executive's employment hereunder shall be terminated automatically effective
upon a Change of Control. In the event of termination resulting from a Change of
Control, Executive 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. "Change-in-Control" means a sale of a common
equity interest of 50% or more in Employer to persons who are not affiliates of
VS&A Communications Partners II, L.P. ("VS&A"), or a merger of Employer with, or
a sale of all or substantially all of the assets of the Employer and its
subsidiaries to, any other entity in which VS&A does not in the aggregate own at
least 50% of the equity interests; provided, however, that a Change-in-Control
shall not be deemed to have occurred if, following a sale of common equity
interests of Employer pursuant to a public offering, VS&A and its affiliates
continue to have a controlling interest in Employer, even though such interest
may constitute less than 50% of the equity interests of Employer.
Section 6.04 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
4
<PAGE>
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, (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) through the earlier of (i) the then current term
of this Agreement and (ii) two (2) years 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 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 Section 3.02.
Section 6.05 Breach of Agreement by Employer. In the event that (i)
Employer shall breach in any material respect any of its obligations under this
Agreement, (ii) there is a material diminution of Employee's duties as set forth
in this Agreement or (iii) there shall be a relocation of the primary business
offices of Employer outside of the New York City metropolitan area., upon
receipt from Executive of 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, (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) through 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 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 Section 3.02.
Section 6.06 Mitigation. Executive agrees to use his best efforts to
mitigate any severance pay hereunder by seeking other suitable employment or
consultancy arrangements. If
5
<PAGE>
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, 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
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.
6
<PAGE>
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 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.
7
<PAGE>
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.
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:
8
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If to Employer:
The Official Information Company
250 West 57th Street, Suite 2421
New York, New York 10019
Attn: President
With a copy to:
VS&A Communications Partners II, L.P.
350 Park Avenue
New York, New York 10022
Attn: President
If to Executive:
Wayne Gregus
1 Locust Court
Freehold, NJ 07728
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.
9
<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.
10
<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.
THE OFFICIAL INFORMATION COMPANY
By:
-------------------------------
----------------------------------
Wayne Gregus
11
<PAGE>
EXHIBIT A
---------
1. Helping the President to grow revenues and EBITDA at least 25% per year.
2. Identifying suitable acquisition opportunities.
3. Evaluating acquisition opportunities for fit and potential financial
return.
4. Preparation of acquisition proposals.
5. Coordinating all due diligence activities.
6. Assisting in the completion process for acquisitions.
7. Assisting the business units in the integration of acquisitions.
8. Identifying major development projects.
9. Evaluating major development opportunities for fit and potential financial
return including undertaking or commissioning the necessary market
research.
10. Preparation of the development proposal.
11. Assisting the project manager with the implementation of the major
development project.
12. Post acquisition and major development project evaluation.
13. Act as an additional managerial resource for Units on a project or
assignment basis.
<PAGE>
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIOS
-----------------------------------
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt, amortization of
debt discount, and interest component of
rent expense $ 11,019 $ 10,878 $ 3,842 $ 581 $ 859
======== ======== ======== ======== ========
Earnings, as defined:
Income (loss) before income taxes $ 3,522 $ 4,336 $(15,208) $ 8,522 $ 16,112
Total fixed charges (as shown above) 11,019 10,878 3,842 581 859
-------- -------- -------- -------- --------
Earnings available for fixed charges $ 14,541 $ 15,214 $(11,366) $ 9,103 $ 16,971
-------- ======== ======== ======== ========
Ratio of earnings to fixed charges and
preferred dividend requirements
1.3x 1.4x -- 15.7x 19.8x
======== ======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE COMPANY AT DECEMBER 31, 1999
------------------------------------------------
Jurisdiction of
Entity Incorporation
- ------ -------------
Atwood Publishing, LLC Delaware
EXPO Magazine, LLC Delaware
GEM Communications, LLC Delaware
TOIC, Limited United Kingdom
InterGame, Limited United Kingdom
Afro Games (Proprietary) Limited South Africa
Vegas People, LLC Nevada
Bingo World, LLC Nevada
Galaxy Information Services, LLC Delaware
I.T.S. Information Services, Inc. Delaware
Galaxy Expocard Europe B.V. Netherlands
Total Information Services, Inc. Oklahoma
Record Search, Inc. Delaware
Crimesearch, Inc. Oklahoma
World Gaming Network, Inc. Delaware
TOIC Nevada, Inc. Nevada
TOIC Holdings, Inc. Delaware
The Official Information Company, Limited United Kingdom
T/SF New Jersey, Inc. New Jersey
South Jersey Shopper, Inc. New Jersey
T/SF Holdings, LLC Delaware
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 32,162
<SECURITIES> 0
<RECEIVABLES> 22,772
<ALLOWANCES> 995
<INVENTORY> 191
<CURRENT-ASSETS> 57,652
<PP&E> 25,515
<DEPRECIATION> 14,595
<TOTAL-ASSETS> 122,130
<CURRENT-LIABILITIES> 60,421
<BONDS> 98,500
0
0
<COMMON> 42
<OTHER-SE> (49,270)
<TOTAL-LIABILITY-AND-EQUITY> 122,130
<SALES> 107,709
<TOTAL-REVENUES> 107,793
<CGS> 48,435
<TOTAL-COSTS> 48,435
<OTHER-EXPENSES> 10,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,792
<INCOME-PRETAX> 3,522
<INCOME-TAX> 2,944
<INCOME-CONTINUING> 3,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,965
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
