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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
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COMMISSION FILE NO. 33-63838
NEODATA SERVICES, INC.
(a Delaware Corporation)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 75-2333190
833 W. SOUTH BOULDER ROAD
LOUISVILLE, COLORADO 80027
(303) 666-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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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 REQUIREMENT 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 AUGUST 22, 1997, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING
STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $0.
AS OF AUGUST 22, 1997, THE REGISTRANT HAD OUTSTANDING 1,173 SHARES OF ITS
COMMON STOCK, $.01 PAR VALUE PER SHARE.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS
GENERAL
Neodata(R) Services, Inc. (the "Company"), the sole direct operating
subsidiary of Neodata Corporation ("Holding"), provides comprehensive,
integrated outsourced services to organizations using direct marketing. These
services include magazine, book, and product fulfillment, product warehousing
and distribution, telephone customer service, marketing database management,
and loyalty program management. The Company's services are employed by various
organizations using direct marketing and are adaptable to a broad variety of
products and marketing activities. The Company's fulfillment services include
processing incoming and outgoing mail, responding to customer mail, telephone,
or on-line inquiries, preparing renewal notifications, maintaining and managing
client lists of customers and related databases, preparing mailing labels,
generating statistical and informational reports for clients, and billing and
collecting monies. The Company also offers its clients marketing database
management (which is principally used by clients to identify the most likely
purchasers of the clients' products or services), product promotion, order
taking, warehouse storage, product distribution, collection, and follow-up
consumer services.
The Company's client base includes magazine and book publishers, consumer
packaged goods companies, financial service companies, telecommunications
companies, airlines, and membership and non-profit organizations.
BACKGROUND
Formation. Holding was formed in 1990 by a group of investors led by Hicks,
Muse, Tate & Furst Incorporated ("Hicks, Muse") to acquire the magazine
fulfillment division ("Subscription Fulfillment") of A.C. Nielsen Company
("Nielsen") and TMI Corporation ("Telemedia") (collectively referred to as the
"Services Acquisition"). A Holding subsidiary ("Product") acquired the book and
product distribution assets of Meredith Corporation ("Meredith") in 1991 (the
"Product Acquisition"), and in 1992 Holding acquired the stock of Wiland
Services, Inc. ("Database"). Each of these acquired companies had an
established reputation and long operating history in one or more specialized
areas of the direct marketing services industry. On May 5, 1993, Holding and
the Company engaged in a series of transactions that resulted in all of the
operations and substantially all of the assets of Holding, the Company, and
their respective subsidiaries (collectively, the "Neodata Companies") being
held by the Company and its subsidiaries (the "Mergers").
The Transaction. On May 5, 1993, the Neodata Companies implemented a plan
(the "Transaction") which included, among other things, the sale of $163.0
million aggregate principal amount of the Company's 12% Senior Deferred Coupon
Notes (the "Notes"), the issuance of Holding common stock ("Holding Common
Stock") to certain affiliates of Hicks, Muse and to Electronic Data Systems
Corporation ("EDS"), the repayment of substantially all of the outstanding debt
of the Neodata Companies, the Company's entering into a revolving credit
facility, and the Mergers. In addition, the Company and EDS entered into an
Amended and Restated Agreement for Information Technology which required EDS to
manage the Company's data processing centers and to develop the Neodata
Customer Oriented Relational Environment System ("NCORE").
The Restructuring. During 1993, management reviewed the existing operations
and focus of the Company and adopted a plan (the "Restructuring") which
included, among other things, a new service delivery plan to transform the
Company's function-based operating divisions into customer-based service
centers ("CSCs"). The Company's 1993 operating results included Restructuring
charges of $20,280,000. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations -- The
Restructuring" and Note 20 to the Company's Consolidated Financial Statements.
The Recapitalization. The Company, Holding, and EDS entered into a
transaction (the "Recapitalization") in November of 1994 which reduced the
Company's obligations owed to EDS by approximately $28.3 million and resulted
in the issuance of additional Holding equity and the recapitalization of other
Holding equity. In connection with the Recapitalization the Company entered
into a new Agreement for Information Technology Services (the
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"Amended IT Agreement") with EDS. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Technology Agreement" and Notes 17 and 20 to the Company's
Consolidated Financial Statements.
Impairment of NCORE. In connection with the Recapitalization and the Amended
IT Agreement with EDS, the Company determined that the full value of NCORE
would not be recoverable. As a result, a $31.2 million write down of the NCORE
development asset was recorded in the fourth quarter of 1994. Costs capitalized
in connection with the development of NCORE were funded under a long-term
obligation to EDS which was released as part of the Recapitalization. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Impairment of NCORE" and Note 20 to the
Company's Consolidated Financial Statements.
RECENT ACQUISITIONS
In May 1996, the Company acquired the product distribution assets of an
operating division of Newfield Publications (the "Newfield Acquisition"). The
Newfield Acquisition included distribution machinery and equipment, a six-year
lease on a 235,000 square foot distribution facility in Fairfield, Ohio, and
the transfer of 55 employees from Newfield Publications to Neodata. Pursuant
to the Newfield Acquisition the Company signed a five year distribution
contract with Newfield Publications. See Note 3 to the Company's Consolidated
Financial Statements.
In July 1996, the Company acquired the subscription fulfillment assets of
International Subscription Services Limited ("ISS"), a United Kingdom based
subscription fulfillment subsidiary of The Economist Newspaper Limited (the
"ISS Acquisition"). ISS provides magazine subscription fulfillment services to
The Economist Newspaper Limited in Europe and to other publications unrelated
to The Economist Newspaper Limited. The ISS Acquisition included subscription
fulfillment systems and equipment, a lease on a 10,000 square foot facility
near London, England, and the transfer of 70 employees from ISS to Neodata.
Pursuant to the ISS acquisition the Company signed a three-year subscription
fulfillment contract with The Economist Newspaper Limited.
In February 1997, Neodata Creative Services, Inc. ("Creative Services"), a
newly formed wholly-owned subsidiary of the Company, acquired substantially all
of the business assets and assumed the associated liabilities of The Lacek
Group, Inc., as well as all of the outstanding stock of Lacek Systems and
Software, Inc., and Lacek Travel Services, Inc. ("Lacek" and the "Lacek
Acquisition"). Lacek, with approximately 95 employees, is a leading provider
of loyalty marketing services to clients in the United States and the Far East.
RECENT DEVELOPMENTS
On August 7, 1997, Holding entered into an Agreement and Plan of Merger with
EDS and Ramcad Corporation, a wholly-owned subsidiary of EDS ("Ramcad"),
pursuant to which Ramcad will merge with and into Holding, with Holding
surviving as a wholly-owned subsidiary of EDS (the "EDS Acquisition"). See
"Item 13. Certain Relationships and Related Transactions - The EDS
Acquisition."
DIRECT MARKETING INDUSTRY
Direct marketing is any direct communication to a consumer or business that
is designed to generate a response in the form of an order, a request for
further information, increase customer loyalty, and/or result in a visit to a
store or other place of business for purchase of a specific product or service.
Direct marketing has been utilized extensively in the magazine, book
publishing, catalog, and non-profit industries for over ten years. Its use by
companies in other industries, such as consumer goods, telecommunications,
financial services, retail, and government, has been increasing in recent
years. While the Company primarily serves the publishing and consumer goods
industries, the Company is able to provide services to direct marketers in any
industry, and its client base has broadened from the increased utilization of
direct marketing by non-traditional users.
As the usage of direct marketing increases, direct marketing programs are
becoming more sophisticated. Complex continuity and loyalty programs utilizing
integrated coupon and premium fulfillment, distribution,
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telephone customer service, and database analysis are being used to open new
channels of distribution and to increase customer loyalty. Increasingly
sophisticated database modeling and list optimization techniques are being used
to better target existing and potential customers. The trend to outsource
direct marketing functions is driven by economies of scale, investment
requirements in technology and capital equipment, and postal savings gained by
co-mingling of mail and parcels. Both suppliers and users in the direct
marketing industry are consolidating in order to take advantage of these
factors. The international direct marketing industry is also developing
rapidly. Like the American market in the 1980s, Europe, Central and South
America, and the Far East are discovering the benefits of direct marketing. The
Company believes it is well positioned to capitalize on these industry trends.
PRODUCTS AND SERVICES
The Company provides its integrated direct marketing products and services
through its five operating divisions: Publishing Industry, Consumer Products
Industry, Services Industries, International, and Lacek. The Company's
principal competencies include: Fulfillment Services (magazine, book, and
product), Distribution Services (book and product), Telephone Services
(Customer Service and Consumer Response), Database Marketing and Modeling
Services, and Loyalty Program Development and Management. In addition, the
Company provides Marketing, Promotional Services, and Internet Services to a
significant number of clients in various industries.
Fulfillment Services
The Company provides fulfillment services to publishers of magazines, books,
videos, and music, membership organizations, on-line subscription service
providers, and consumer products companies such as food, beverage, tobacco, and
apparel companies. Fulfillment services include processing new orders and
subscriptions, mailing of billing and renewal notices, processing payments,
responding to inquiries about account status, preparing mailing labels,
updating databases, and producing information reports. The Company serves
approximately 150 publishers of approximately 500 publications with
approximately 115 million subscribers, as well as consumer products and
services companies who serve over 40 million customers. Typical subscription
fulfillment contract terms are for three years, and many of the Company's
clients have continuously renewed. Consumer products contract terms range from
one to three years.
Fulfillment programs also include negative-option clubs, continuity
programs, and one-shot sales programs. Negative-option clubs mail announcements
that describe the next product that will automatically be shipped to the
customer unless the customer directs the club otherwise. Continuity programs
involve a series of sales of products to a customer over a period of time. With
continuity programs, a customer is enrolled until either the program's
completion or the customer cancels. The Company handles all of a continuity
club's contacts with its customers, including mailing the periodic offering
bulletins, processing customer billings, and receiving payments and customer
inquiries. A one-shot product program is a single sale, such as the sale of a
reference book rather than the sale of a series of books or products.
Fulfillment clients also benefit from the automation and economies of scale
offered through the Company's mail and distribution operations.
Distribution Services
The Company offers warehousing and distribution services to direct marketing
clients such as book clubs, music/video clubs, continuity (mail order) clubs,
and consumer packaged goods companies that make repetitive mailings, periodic
product offerings, and promotional shipments to their members or customers. The
Company's distribution services consist of customer invoicing, inventory
management and warehousing, order packaging and labeling, and package sorting
and mailing. The Company also provides its clients with daily reports of
inventory levels and shipments which enable clients to accurately and
efficiently manage their marketing operations.
The Company utilizes computer-operated automated package sorting and
manifest systems in its distribution centers in Iowa and Ohio. These systems
read bar codes applied to ordered merchandise, sort the merchandise by zip
code, and prepare detailed shipping instructions. Packages are delivered
directly to U.S. Postal Service bulk mail centers, resulting in significant
postal discounts and more rapid shipment to clients' customers. The Company is
currently the only service bureau to offer such a capability and ships, on
average, approximately 73,000 packages
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per day from its outbound warehouse/distribution centers in Iowa and Ohio. This
combination of automation and economies of scale gives the Company significant
competitive advantages.
Telephone Services
The Company provides telephone customer service and consumer response
services to a variety of clients as an integral component of its fulfillment
programs as well as on a standalone basis. Telephone services consist of
answering customer-initiated calls, including the processing of customer
inquiries, lead generation, customer service, and orders received via telephone
numbers presented in radio, television, newsprint, direct mail, product
packaging, or catalog advertising. In addition, the Company provides direct
sales and order processing, credit card promotions, product/service
introductions, fundraising, subscription sales and renewals (primarily for
magazine and book publishers), qualifications of sales leads, market surveys,
dealer locator, consumer affairs, and order capture for a variety of clients.
The Company's inbound services operate 24 hours a day, 365 days a year.
Because of the sophistication of the Company's telephone switching systems, it
is possible to direct calls to one or more service centers simultaneously.
Database Marketing and Modeling Services
The Company provides a variety of database marketing and modeling services
to its clients on a standalone or an integrated basis. These services include
list fulfillment, merge/purge services, database development and maintenance,
and modeling services.
List fulfillment services allow the client to extract a subset of their
customer files for rental to a third party. Clients can request segments of
their files based on geographic, demographic, or a wide variety of other
parameters for overnight delivery to a third party. The Company's "List
Lightning" product provides fast and flexible fulfillment of list rental
requests.
Merge/purge refers to a process of combining and cleansing multiple lists
from multiple sources. The process can be used to merge up to 100 lists
together and to purge duplicate, undeliverable, or undesirable names. The
process provides accounting support to ensure authorized usage of the lists and
proper payment to list owners.
The Company builds and maintains customer and promotional databases for a
number of its clients. A customer or prospect database can be built utilizing
existing customer files, promotional and sales history, and other sources of
marketing data. As new customers or prospects are added or deleted and monthly
sales transactions are received, the database is updated. This active database
is then used to drive a variety of promotional, analytical, or modeling
functions, all intended to better target direct marketing programs.
The Company provides quantitative research, segmentation, and response
analysis through the development of sophisticated statistical models for its
clients. These models are used to identify both high-potential and unprofitable
segments of an existing marketing database on a product-specific basis. By
utilizing the client's current customer database and marketing history, in
addition to certain demographic, behavioral, and other "overlaid" data
available from third parties, models predict buyer behavior in order to
increase the effectiveness of the client's direct marketing programs.
Loyalty Program Development and Management
The Company offers loyalty program development and management to clients in
the travel, hospitality, financial services, telecommunications, and health
care industries through its Lacek subsidiary. Loyalty programs are generally
designed to identify and track the purchases of a company's best customers, and
to retain and expand the company's relationship with these customers through
the use of special incentives, premiums, or promotional materials. The Company
offers a wide range of services related to loyalty programs including program
design and consulting, database management and analysis, creative services, and
mailing services. The Company has developed a proprietary software program
designed for loyalty program management which the Company believes
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to be the most sophisticated and powerful tool of its kind. This program is
used by the Company to manage its loyalty programs and is also sold to
organizations wishing to manage their own programs.
Marketing and Promotional Services
The Company provides promotional mailing and outbound telephone services to
direct marketing clients for the promotion and solicitation of new business.
The Company provides extensive personalized printing and mailing services to
its clients. Mailing services include first-time promotional offers, upgrade
promotions, renewals, and ongoing or continuity offers. In addition to cost-
effective print addressing and mailing services, the Company offers its clients
significant postal savings through the co-mingling of client outbound mail.
Outbound telephone customer services entail the calling of potential
customers, and include both business-to-business telemarketing and
business-to-consumer telemarketing. In most cases, the Company works with its
clients in designing marketing strategies, preparing telemarketing
presentations and scripts, and training the Company's telephone sales
representatives to sell clients' products.
Internet Services
The Company offers Internet fulfillment and customer service, providing
clients the option of routing new subscription requests, product orders, and
customer service requests directly to the Company via the Internet. This
alternative medium to mail or telephone allows clients to offer on-line
promotions and services via the Internet. Transactions received via the
Internet are directly entered into the Company's existing fulfillment systems
for processing. The Company processed over 1 million transactions in fiscal
1997 and usage of this service continues to increase dramatically as clients
expand their Internet presence and marketing initiatives.
COMPETITION
The Company has several competitors which provide a similar range of
services and integrated program support, as well as numerous competitors for
each of the primary services it offers. Some of these competitors offer
services the Company does not provide, and some have substantially greater
financial and other resources than the Company. There can be no assurance that
the Company will not encounter increased competition in the future.
Although the primary service areas in which the Company competes tend to be
highly fragmented, there is a trend toward the consolidation of previously
fragmented services into a single comprehensive provider through mergers,
acquisitions, and strategic alliances. The primary purpose of the consolidation
of previously fragmented services is to provide the convenience of "one stop
shopping" for total program management, to increase economies of scale and
improve speed of execution, and to increase the types of services that can be
cross-sold to an existing client base or offered to new clients by the
provider. In addition to building vertical expertise and expanding capacity, an
important challenge for providers in the Company's field is to satisfy client
demands for new and improved technology and greater operational efficiencies.
The primary competitors offering integrated services are DIMAC Corporation (a
subsidiary of Heritage Media Corporation), DiMark, Inc. (a subsidiary of Harte
Hanks), Carlsson Marketing, and Maritz.
The primary subscription fulfillment competitor of the Company is
Communications Data Services, Inc. (a subsidiary of the Hearst Corporation).
Other major competitors are Palm Coast Data (a subsidiary of Heritage Media
Corporation) and Kable News Company. The Company competes with a number of
product fulfillment, distribution, and database marketing firms, including both
in-house and contract companies. The Company's primary product fulfillment and
distribution competitors include R.R. Donnelley & Sons Company, Young America,
Gage Marketing Group, LCS Industries, Inc., and MBS/Multimode, Inc. (a
subsidiary of DIMAC Corporation). The Company's primary database marketing
competitors include Acxiom Corporation, Direct Marketing Technology Inc.,
Metromail Corporation, May & Speh, Inc., and Database America Companies, Inc.
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SIGNIFICANT CLIENT
Since December 1993, the Company has performed product fulfillment,
distribution, telephone customer service, and other services under successive
contracts with Philip Morris Incorporated ("Philip Morris"). The Company's
current contract with Philip Morris expires in January 1998. Due to
uncertainties arising from proposed legislation relating to the tobacco
industry, there can be no assurances that revenues derived from this client
subsequent to January 1998 will be consistent with revenues derived in the
past, or that additional contracts with this client will be obtained subsequent
to January 1998. Revenues related to these services provided accounted for
approximately 15%, 17%, 18%, and 9% of the Company's revenues in the years
ended June 30, 1997 and 1996 and in the years ended December 31, 1995 and 1994,
respectively.
EMPLOYEES
The Company currently employs approximately 4,700 people, of whom
approximately 300 are temporary employees used to meet seasonal needs. Of the
4,700 employees, approximately 4,610 are located in the United States and
approximately 90 are located in the United Kingdom. All employees are currently
non-union. Management believes its relationship with its employees is
satisfactory.
GOVERNMENT REGULATION
The direct marketing industry is affected by a variety of regulatory issues,
including Federal Trade Commission ("FTC") regulations, U.S. Postal Service
("USPS") reclassification and postal reform, sales and use tax legislation, as
well as legislation on a variety of privacy acts.
The Telemarketing Sales Rule (the "Rule") became effective December 31, 1995.
The Rule was written by the FTC to comply with the requirements of the 1994
Telemarketing Fraud and Abuse Prevention Act, which placed certain restrictions
on telemarketing activities. Many state legislatures have enacted or are
considering legislation which places restrictions on telemarketing activities
in addition to those required under the Rule. The Company believes it is in
compliance with all requirements of the Rule and applicable state statutes.
In 1996 and 1997, various Postal Classification Reform requirements
("Classification Reform") were implemented by the USPS. The Company has met the
Classification Reform requirements in its various mail preparation and
sortation systems. The impact of Classification Reform includes modification to
computer software, additional procedures to ensure address accuracy, changes to
physical makeup of mail, and maximizing automation in order to gain USPS
discounts. The Company expects to meet all future Classification Reform
requirements.
The United States House of Representatives is presently reviewing proposed
legislation that may make comprehensive and substantial modifications to the
management and pricing mechanisms developed as part of the Postal
Reorganization Act of 1970. The proposed legislation, known as the "Postal
Pricing Reform Act of 1997," proposes comprehensive and substantial changes for
setting postal rates.
New bills are regularly introduced in Congress and state legislatures that
propose restrictions concerning distribution of personal information, privacy
in telecommunications and Internet communications, and taxation of periodicals,
direct mail merchandise, and Internet transactions. A recently proposed
settlement between certain state Attorneys General and the tobacco industry
would, among other things, result in significant changes in the manufacture,
marketing, and distribution of tobacco products in the United States. The
Company cannot predict what effect, if any, the proposed settlement or related
legislation would have on its relationship with Philip Morris, a significant
client of the Company. See "Item 1. Business - Significant Client."
ENVIRONMENTAL REGULATION
Based upon current knowledge, the Company believes it is in material
compliance with all environmental laws and regulations as currently
promulgated. However, the exact nature of environmental control problems, if
any, which the Company may encounter in the future cannot be predicted,
primarily because of the increasing number,
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complexity, and changing character of environmental requirements that may be
enacted or of the standards being promulgated by federal and state authorities.
SEASONALITY
Certain elements of the Company's business are subject to seasonal
variations. Both revenues and cash needs tend to be higher in the latter part
of the third calendar quarter and in the fourth calendar quarter. This increase
is generally associated with the holiday activities of the direct marketing
industry and back-to-school promotional periods.
ITEM 2. PROPERTIES
PRINCIPAL PROPERTIES
The Company operates facilities in the United States, the United Kingdom,
Ireland, and other countries. The following table sets forth information
regarding the principal leased and owned properties:
<TABLE>
<CAPTION>
PRINCIPAL USE LOCATION SIZE (SQ. FT.) OWNED OR LEASED
------------- -------- -------------- ---------------
<S> <C> <C> <C>
Corporate Offices Louisville, Colorado 97,048 Owned
Customer Service Louisville, Colorado 207,923 Leased
Customer Service Louisville, Colorado 193,500 Leased
Customer Service Longmont, Colorado 152,200 Leased
Customer Service Longmont, Colorado 152,218 Leased
Customer Service Fairfield, Ohio 235,000 Leased
Customer Service Urbandale, Iowa 214,000 Leased
Customer Service Clarion, Iowa 210,400 Owned
Customer Service Des Moines, Iowa 173,033 Leased
Customer Service Knoxville, Iowa 10,864 Leased
Customer Service Phoenix, Arizona 65,900 Leased
Customer Service Phoenix, Arizona 23,595 Leased
Customer Service Phoenix, Arizona 18,562 Leased
Customer Service Phoenix, Arizona 8,268 Leased
Customer Service Fredericksburg, Virginia 51,848 Owned
Customer Service Romford, Essex, England 10,227 Leased
Customer Service Kilmallock, Ireland 8,500 Owned
Customer Service Newcastle West, Ireland 7,878 Owned
Office Space Des Moines, Iowa 154,000 Owned
Office Space Boulder, Colorado 74,119 Leased
Office Space Boulder, Colorado 34,026 Leased
Office Space Minneapolis, Minnesota 20,310 Leased
Office Space Limerick, Ireland 5,890 Leased
Warehouse Broomfield, Colorado 74,736 Leased
Warehouse Urbandale, Iowa 150,000 Leased
Warehouse Des Moines, Iowa 11,000 Leased
Warehouse Des Moines, Iowa 6,000 Leased
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits in the ordinary course of
business. The Company believes that the outcome of these lawsuits, individually
or in the aggregate, will not have a material adverse effect on its business or
financial condition or on future results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the quarter ended June 30, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this Item is not included because there were no
equity securities of the Company sold during the year ended June 30, 1997. As
of August 22, 1997, Holding was the sole holder of record of the Company's
common equity.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data information below presents financial information
of the Company, Holding, and their predecessors for the periods indicated. The
information presented below should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
related notes, included herein.
<TABLE>
<CAPTION>
COMPANY HOLDING (1)
-------------------------------------------------------- -----------
YEAR ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993 1992(2)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $264,631 $237,061 $244,255 $221,132 $192,004 $170,934
Expenses(3) 226,060 208,694 215,641 201,436 179,060 154,262
Restructuring charges(4) 1,896 1,667 1,667 (1,236) 20,280 --
Impairment of assets(5) -- -- -- 31,155 37,011 --
Depreciation and amortization(6) 16,378 14,665 14,761 13,246 29,270 23,184
-------- -------- -------- -------- -------- --------
Income (loss) from operations before
interest expense and other 20,297 12,035 12,186 (23,469) (73,617) (6,512)
Interest expense and other(7) 24,985 23,863 23,015 19,444 15,550 13,218
-------- -------- -------- -------- -------- --------
Net loss before extraordinary loss (4,688) (11,828) (10,829) (42,913) (89,167) (19,730)
Extraordinary loss - early
extinguishment of debt(8) (313) -- -- -- (7,089) --
-------- -------- -------- -------- -------- --------
Net loss $ (5,001) $(11,828) $(10,829) $(42,913) $(96,256) $(19,730)
======== ======== ======== ======== ======== ========
STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in)
operating activities $ 4,523 $ 25,412 $ 25,906 $ (574) $ 13,465 $ 11,278
Net cash used in investing activities (22,463) (12,165) (11,639) (17,343) (17,838) (38,663)
Net cash provided by (used in)
financing activities 18,065 (14,921) (16,478) 16,290 7,874 27,799
BALANCE SHEET DATA:
Working capital(9) $ 16,925 $ 21,404 $ 22,205 $ 37,493 $ 22,894 $ 13,046
Total assets 163,195 139,537 148,756 164,174 154,641 186,166
Long-term debt and capital lease
obligations, net of current
maturities 192,153 184,651 178,852 182,362 134,749 100,785
Total liabilities 271,792 241,914 244,683 247,593 221,268 184,928
Stockholders' (deficit) equity (108,597) (102,377) (95,927) (83,419) (66,627) 1,238
OTHER DATA:
Amortization of computer software
and intangible assets included in
depreciation and amortization
shown above $ 7,869 $ 5,399 $ 4,892 $ 3,631 $ 20,846 $ 17,060
EBITDA(10) 36,675 26,700 26,947 20,932 (7,336) 16,672
- ----------
</TABLE>
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(1) Prior to the consummation of the Mergers on May 5, 1993, the domestic
operations of the Company were conducted by four wholly-owned
subsidiaries of Holding. Holding did not conduct any material operations
separate from those of such subsidiaries. As a result of the Mergers,
the Company is the sole direct operating subsidiary of Holding and all
operations of the Neodata Companies are conducted through the Company.
Consequently, the financial information presented in respect of Holding
for the periods indicated is comparable to the financial information for
the Company as it is currently constituted. See "Item 1. Business -
Background."
(2) Includes three months of operations of Database.
(3) Includes only operating and production expenses, selling, general and
administrative expenses, and provision for doubtful accounts receivable
and excludes restructuring charges, impairment of assets, depreciation
and amortization, and interest expense and other.
(4) For 1993 and 1994, consists primarily of employee separation costs,
facility closings, recruiting, relocation, asset write- downs and other
costs associated with the Company's decision to engage in the
Restructuring. For 1995, fiscal 1996 and fiscal 1997, consists of costs
for the closure of facilities in Ireland. See "Item 1. Business -
Background - The Restructuring" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations - The Restructuring" and Note 20 to the Company's
Consolidated Financial Statements.
(5) Consists of the fourth quarter 1994 write-off of approximately $31.2
million of costs capitalized in connection with the development of
NCORE, and of the fourth quarter 1993 write-off of approximately $37.0
million of the remaining book value of intangible assets. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations - The Restructuring" and "-
Impairment of NCORE." See also Note 20 to the Company's Consolidated
Financial Statements.
(6) Consists of (a) depreciation and amortization of property, plant and
equipment, (b) amortization of computer software, and (c) amortization
of intangible assets.
(7) "Other" consists of the write-off of $1.2 million in 1992 of costs
incurred during that year related to a proposed public offering of
Holding Common Stock which was not consummated.
(8) In fiscal 1997, the Company incurred a charge to operations of $0.3
million as the result of the write-off of debt issuance costs under its
previous line of credit facility. See Note 11 to the Company's
Consolidated Financial Statements. In 1993, the Company incurred a
one-time charge to operations of $7.1 million as a result of the
Transaction consisting of (a) the write-off of debt issuance costs of
$2.1 million relating to the early retirement of certain debt, (b) the
write-off of original issue discount of $2.8 million upon the early
retirement of certain debt and (c) payment of prepayment penalties of
$2.2 million on the early retirement of certain debt.
(9) Excess of current assets over current liabilities.
(10) Earnings before interest, taxes, depreciation and amortization
("EBITDA"). EBITDA also excludes charges for impairment of assets. The
Company considers EBITDA an important indicator of the operational
strength and performance of its business. EBITDA, however, should not
be considered as an alternative to operating or net income as an
indicator of the performance of the Company's businesses or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
This discussion and analysis should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and notes thereto of
the Company included elsewhere in this report.
The Company began operations on August 27, 1990 with the acquisition of
Subscription Fulfillment and Telemedia. On June 26, 1991, Holding acquired
Product. On September 30, 1992, Holding acquired Database. These acquisitions
have been accounted for as purchases and are included in results of operations
from the respective dates of acquisition. The purchase price of each
acquisition was allocated to the assets and liabilities based upon the fair
market values of such assets and liabilities. Holding acquired Telemedia and
Database by means of stock acquisitions. Subscription Fulfillment and Product
were each purchased as operating divisions. As a consequence, independent
financial statements did not exist for these operating divisions and adequate
allocations related to infrastructure, primarily selling, general and
administrative expenses were excluded from such divisions' results. Therefore,
the historical results of such divisions prior to their acquisition by Holding
may not be representative of their post-acquisition results.
In April 1996, the Company changed its fiscal year end from December 31 to
June 30. References to "fiscal 1997" relate to the year ended June 30, 1997.
References to "fiscal 1996" relate to the year ended June 30, 1996.
RESULTS OF OPERATIONS
IMPAIRMENT OF NCORE
The Company reviewed NCORE between November 1994 and January 1995 and
determined that the full value of NCORE would not be recoverable. A $31.2
million writedown of NCORE was recorded in the fourth quarter of 1994. No
subsequent additions to or writedowns of NCORE have been recorded and
management does not anticipate any further additions or writedowns in future
periods. See Note 20 to the Company's Consolidated Financial Statements.
RESTRUCTURING CHARGES
During 1993, management reviewed the Company's business, including the
management, products, technology, service levels, facilities, systems, and
business strategy of the Company. The result of this review was a plan to
implement the Restructuring, which refined the strategic direction of the
Company. Expense savings associated with the elimination of nonessential
functions and excess facilities and other costs were largely offset by
transition inefficiencies through the end of 1994. Efficiencies anticipated
with the transition to CSCs were gradually realized through 1995 and fiscal
1996. No further cash payments or noncash charges are anticipated relating to
the Restructuring.
In the fourth quarter of 1995, the Company adopted a plan to close its
facilities in Kilmallock and Newcastle West, Ireland. The plan included
separating 110 employees. The cost associated with these separations was
approximately $1.7 million, all of which was paid in 1995.
In March 1997, the Company adopted a plan to close its remaining facilities
in Ireland. The plan included separating approximately 110 employees and
disposing of substantially all of the Company's remaining Ireland assets.
Accordingly, the Company incurred a charge to earnings of $1.9 million during
fiscal 1997 for the estimated net cost of the closure, of which $1.7 million
was paid in fiscal 1997.
See "Item 1. Business -- Background -- The Restructuring" and Note 20 to the
Company's Consolidated Financial Statements.
11
<PAGE> 13
THE YEAR ENDED JUNE 30, 1997, COMPARED TO THE YEAR ENDED JUNE 30, 1996
Revenue. Revenue increased by 11.6%, or $27.5 million, from $237.1 million
in fiscal 1996 to $264.6 million in fiscal 1997. Approximately $15.4 million
of the increase was due to revenues from new clients, and approximately $6.8
million and $3.6 million of the increase was due to the Lacek and ISS
Acquisitions, respectively. The remainder of the increase was due to a net
increase in revenue from existing clients, offset by decreases in distribution
revenues resulting from Meredith's sale of its book club and continuity
business, in addition to the downsizing in May 1996 of certain unprofitable
telephone customer service operations.
Expenses. Expenses increased $17.4 million, or 8.3%, from $208.7 million in
fiscal 1996 to $226.1 million in fiscal 1997, and decreased as a percentage of
revenue from 88.0% to 85.4%. "Expenses" as set forth in the Selected Financial
Data are comprised of the line items "operating and production" and "selling,
general and administrative," as set forth in the Company's Consolidated
Financial Statements.
Operating and production expenses (excluding depreciation and amortization)
increased by $12.1 million, or 7.0%, from $173.3 million in fiscal 1996 to
$185.4 million in fiscal 1997 and decreased as a percentage of revenue from
73.1% to 70.1%. The increase in operating and production expenses was due
primarily to the increased revenues described above. The decrease as a
percentage of revenue was due primarily to improvements in operating efficiency
and the discontinuation of unprofitable telephone customer service business,
offset by wage increases in some of the Company's CSCs.
Selling, general and administrative expenses (including provision for
doubtful accounts receivable) increased $5.2 million, or 14.7%, from $35.4
million in fiscal 1996 to $40.6 million in fiscal 1997, and increased as a
percentage of revenue from 14.9% to 15.3%. The increase was due primarily to
increased sales and marketing efforts, increased general corporate expenses,
and the ISS and Lacek Acquisitions.
Depreciation and Amortization. Charges for depreciation and amortization
increased from $14.7 million in fiscal 1996 to $16.4 million in fiscal 1997.
The increase was due to increased amortization of computer software of $2.0
million and increased amortization of intangible assets of $0.4 million, offset
by decreased depreciation and amortization of property, plant, and equipment of
$0.7 million.
Income before Interest Expense and Other. The Company reported income from
operations of $20.3 million in fiscal 1997, an increase of $8.3 million over
fiscal 1996. The increase is due to increased revenues and operating margins,
offset by increased selling, general and administrative expenses, all as
described above.
Interest Expense and Other. Interest expense and other increased 4.7%, or
$1.1 million, from $23.9 million in fiscal 1996 to $25.0 million in fiscal
1997. The increase in interest expense and other was due mainly to an increase
of $1.4 million in interest on the Notes as a result of the Notes being at
their full accreted value of $163.0 million throughout fiscal 1997, offset by a
net decrease in other interest expense. Interest expense was accreted as an
addition to the Notes through May 1996.
Extraordinary Loss. In fiscal 1997, the Company recognized a $0.3 million
extraordinary loss as a result of the write-off of unamortized debt issuance
costs related to the Company's previous line of credit facility. See Note 11
to the Company's Consolidated Financial Statements.
Net Loss. The Company reported a net loss of $5.0 million for fiscal 1997,
a decrease of $6.8 million from fiscal 1996. The decreased loss was the result
of increased revenues and operating margins, offset by increased selling,
general and administrative, depreciation and amortization, and interest and
other expenses, in addition to the extraordinary loss, all as described above.
Income Taxes. The Company has not accrued federal income taxes since its
inception and does not expect to incur a federal income tax liability in the
immediate future. However, during the years ended June 30, 1997 and December
31, 1995 the Company paid $68,000 and $129,000, respectively, in alternative
minimum tax. See Note 15 to the Company's Consolidated Financial Statements.
12
<PAGE> 14
The affiliated group filing consolidated federal income tax returns of
Holding and its subsidiaries, including the Company (the "Affiliated Group"),
has incurred net operating losses for federal income tax purposes of $42.3
million for the period from inception through June 30, 1997. These federal
income tax net operating losses are primarily a result of the write-off of
intangible assets and software arising from the Mergers. Under certain
circumstances, a change of control of the Company would result in a loss or a
substantial limitation of the Company's tax loss carryforwards.
THE YEAR ENDED DECEMBER 31, 1995, COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased by 10.4%, or $23.2 million, from $221.1 million
in 1994 to $244.3 million in 1995. The increase was the result of increased
demand from existing clients of approximately $35.6 million, including an
increase of approximately $23.7 million from Philip Morris, partially offset by
the loss of certain other clients totaling approximately $12.4 million. See
"Item 1. Business -- Clients" and "-- Revenues."
Expenses. Expenses increased $14.2 million, or 7.1%, from $201.4 million in
1994 to $215.6 million in 1995, but decreased as a percentage of revenue from
91.1% in 1994 to 88.2% in 1995.
Operating and production expenses (excluding depreciation, amortization and
interest expense) increased by $14.7 million, or 8.8%, from $167.4 million in
1994 to $182.1 million in 1995 but decreased as a percentage of revenue from
75.7% in 1994 to 74.5% in 1995. This increase was primarily the result of
operating volumes from new business and growth from existing clients. The
decrease as a percentage of revenues was due to operating efficiencies gained
in the transition to CSCs. See "Item 1. Business --The Restructuring and "--The
Restructuring."
Selling, general, and administrative expenses (including provision for
doubtful accounts receivable) decreased $.5 million, or 1.3%, from $34.1
million in 1994 to $33.6 million in 1995, and decreased as a percentage of
revenue from 15.4% in 1994 to 13.7% in 1995. The decrease was primarily due to
the implementation of cost controls.
Restructuring Charges. The Company recorded $1.7 million in restructuring
charges during 1995. Adjustments during 1994 to reserves established for the
1993 Restructuring amounted to approximately $1.2 million.
Depreciation and Amortization. Charges for depreciation and amortization
expenses increased by 11.4%, or $1.6 million, from $13.2 million in 1994 to
$14.8 million in 1995. The increase was due primarily to additions to plant,
property, equipment and capitalized software.
Income (Loss) before Interest Expense and Other. The Company reported
income from operations of $12.2 million for the fiscal year ended 1995, an
increase of $35.7 million compared to the loss of $23.5 million for the fiscal
year ended 1994. The decreased loss was due to the $31.2 million impairment of
NCORE recognized in 1994, as well as the increase in revenues combined with the
decreases in selling, general, and administrative expenses as described above.
Interest Expense and Other. Interest expense and other was $23.0 million
for the fiscal year ended 1995, an increase of $3.6 million, or 18.4%, from
$19.4 million for the fiscal year ended 1994. The increase in interest expense
and other was due primarily to an increase of $1.8 million in accreted interest
related to the Notes, as well as an increase of $1.0 million in interest
expense under capital lease obligations. Under the terms of the Notes,
approximately $17.2 million in interest was accreted in 1995 as an addition to
the Notes rather than being paid in cash.
Net Loss. The Company reported a net loss of $10.8 million in the year
ending December 31, 1995, as compared to a net loss of $42.9 million incurred
in the year ended December 31, 1994. The decreased loss of $32.1 million is the
result of the NCORE impairment recognized in 1994 as well as increased volumes
and decreased selling, general, and administrative expenses, offset by
increased depreciation, amortization, and interest expenses, all as described
above.
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations for fiscal 1997 was approximately $4.5 million,
a decrease of $20.9 million, or 82.2%, from $25.4 million in fiscal 1996. The
decrease was primarily due to the commencement in November 1996 of semi-annual
cash interest payments of $9.8 million under the Notes. Working capital
decreased $4.5 million, from $21.4 million at June 30, 1996 to $16.9 million at
June 30, 1997, due mainly to increases in book overdrafts and the current
portion of long-term debt.
Cash used in investing for fiscal 1997 was approximately $22.5 million, an
increase of $10.3 million from $12.2 million in fiscal 1996. The increase is
due primarily to cash payments related to the ISS and Lacek Acquisitions
totaling $8.4 million. Pursuant to the terms of the Lacek Acquisition, the
Company was also required to deposit $3.0 million into an escrow account as
security for additional consideration, all or part of which may be paid in
fiscal 1998 contingent upon the Lacek Companies achieving certain performance
targets. Further additional consideration (in excess of the $3.0 million
deposited into escrow) of up to $9.0 million is payable through June 2000
contingent upon the Lacek Companies achieving certain performance targets. The
Company believes that the total amount of additional consideration to be paid,
if any, cannot be reasonably estimated at this time.
Cash provided by operations for the year ended December 31, 1995 was
approximately $25.9 million, an increase of $26.5 million from the cash used in
operations of $0.6 million for the year ended December 31, 1994. The increase
over 1994 was primarily due to increased volumes and improved collections of
accounts receivable. Working capital decreased $15.3 million from $37.5 million
at December 31, 1994 to $22.2 million at December 31, 1995, due mainly to a
reduction in accounts receivable.
In accordance with the terms of the Notes, interest expense was added to the
balance of the Notes during the period from issuance through May 1, 1996 and
accrued for payment thereafter. Interest is calculated monthly on the accreted
value of the Notes, using an annual interest rate of 12.0% compounded
semi-annually. The Notes mature on May 1, 2003, when the principal balance of
$163.0 million becomes due and payable. However, upon consummation of the EDS
Acquisition, which will constitute a "Change of Control" under the Indenture,
the Company will be required pursuant to the terms of the Indenture to offer to
repurchase the Notes within 30 days following consummation of the EDS
Acquisition.
In fiscal 1997, the Company entered into the Senior Credit Facility, which
provides a senior revolving line of credit in the aggregate principal amount of
up to $40.0 million, as determined pursuant to a borrowing base formula. The
Senior Credit Facility replaced the Company's previous line of credit facility.
In connection with the Lacek Acquisition, the Company entered into the
Acquisition Credit Facility. The Acquisition Credit Facility provides for
advances, subject to lender approval, of up to $6.3 million and expires in
August 1998. At June 30, 1997, $4.3 million was outstanding against the
Acquisition Credit Facility. The Company anticipates that the Senior Credit
Facility and the Acquisition Credit Facility will be refinanced or paid off
entirely upon consummation of the EDS Acquisition.
In April 1993, the Company entered into the Centennial Building Capital
Lease in the amount of $9.0 million for an operating facility in Louisville,
Colorado. Certain of the existing Company facilities were consolidated into
the new facility. In December 1994, the Company completed construction on a
second phase addition to the Centennial Building, which houses two additional
CSCs. In connection therewith, the Company entered into an additional capital
lease obligation of $12.0 million pursuant to the amended Centennial Building
Capital Lease. During fiscal 1997, the lessor modified the financial covenants
under the Centennial Building Capital Lease to be similar to the financial
covenants under the Senior Credit Facility.
The Indenture, the Senior Credit Facility, the Acquisition Credit Facility,
and the Centennial Building Capital Lease contain certain covenants that, among
other things, limit the Company's ability to incur additional debt, create
liens, pay cash dividends (with certain exceptions), enter into sale/leaseback
transactions, or enter into certain other transactions, and which require the
Company to meet certain financial provisions. A failure by the Company to
comply with the applicable restrictions could lead to a default under the terms
of the Indenture, the Senior Credit Facility, and the Centennial Building
Capital Lease. In the event of such default, the holders of indebtedness under
the Indenture and the Senior Credit Facility could elect to declare all of the
funds borrowed pursuant thereto to be
14
<PAGE> 16
due and payable together with accrued and unpaid interest. In addition, the
Lessor under the Centennial Building Capital Lease could accelerate lease
payments payable for the lease term or require the Company to repurchase the
Centennial Buildings at a defined price. In any such event, there can be no
assurance that the Company would be able to make any such payment or borrow
sufficient funds from alternative sources on terms satisfactory to the Company
in order to make such payment.
For the year ended June 30, 1998, management expects operations, together
with borrowings under the Senior Credit Facility, and, following the EDS
Acquisition, intercompany borrowings, will generate sufficient cash flows to
meet anticipated operating cash needs, including interest payments under the
Notes. This expectation is based upon management's assessment of various
financial and operational factors including, but not limited to, assumptions
relating to sales volumes and prices, productivity and efficiency rates, labor,
employee benefits and other fixed and variable costs, working capital
requirements, capital expenditures, and, prior to the EDS Acquisition,
available borrowings under the Senior Credit Facility. Should sufficient funds
not be available from operations and, prior to the EDS Acquisition, from the
Senior Credit Facility to fund the interest payments, maintain working capital,
update technology, invest in productivity projects and meet other growth
requirements, other options would include: i) curtailing discretionary capital
expenditures; ii) reducing the costs associated with facilities management
services; iii) downsizing the Company's selling, general and administrative
overhead and iv) effecting sale/leaseback transactions to the extent permitted
under the Indenture and the Senior Credit Facility.
Inflation has not had a material impact on operations through June 30, 1997.
The Company's management does not anticipate that inflation will have a
significant impact on continuing operations.
Technology Agreement. Pursuant to the Amended IT Agreement, EDS provides
information technology services (the "IT Services") to the Company. Under the
Amended IT Agreement, the Company has control over the management direction of
the IT Services and EDS' delivery of the IT Services. The Amended IT Agreement
amended, restated and supersedes the terms and conditions of all prior
information technology services agreements between the Company and EDS as of
the effective date of the Amended IT Agreement.
The Amended IT Agreement provides for an initial term commencing January 1,
1995 and concluding on March 31, 2003 unless earlier terminated or subsequently
renewed. Under the Amended IT Agreement, EDS supplies all of the Company's
information technology, equipment, and services needs with certain exceptions.
Certain information technology functions formerly performed by the Company are
included in the IT Services. Effective January 1, 1995, approximately 112
Company employees were transferred to EDS, as well as certain operating lease
obligations for equipment and software.
The Company compensates EDS for IT Services on a "cost-plus" basis. The term
"cost-plus" means that the Company reimburses EDS for EDS's direct
out-of-pocket expenses incurred by EDS in performing the IT Services and pays
EDS an amount based on a percentage of the reimbursed costs.
Fees incurred under the Amended IT Agreement for the year ended June 30,
1997 were $48.3 million, including $7.5 million of capitalized expenditures.
Fees incurred under the Amended IT Agreement for the year ended June 30, 1996
were $47.2 million, including $8.4 million of capitalized expenditures. Fees
incurred under the Amended IT Agreement for the year ended December 31, 1995
were $44.8 million, including $7.6 million of capitalized expenditures. Fees
incurred under the then-existing EDS information technology services agreement
for the year ended December 31, 1994 were $31.7 million, including $5.3 million
of capitalized expenditures. The increase from 1994 to 1995 was primarily due
to the transfers of employees and operating leases discussed above.
The Company expects to spend approximately $50.4 million in fiscal 1998 with
respect to IT Services on a cost-plus basis as discussed above, including
approximately $6.5 million of capital expenditures. Amounts expended for
facilities management services may vary in accordance with the amount and kind
of services rendered, but are generally expected to remain flat or grow
commensurate with the growth in revenue for the foreseeable future.
The Company anticipates that the Amended IT Agreement will remain in effect
following the consummation of the EDS Acquisition.
15
<PAGE> 17
Service Credits. In connection with the Product Acquisition, the Company
entered into an agreement granting credits to Meredith against future services
to be provided by the Company through August 1998. In the event that revenue
from Meredith is insufficient to offset the scheduled service credits, the
Company is obligated to pay cash to Meredith in the amount of the remaining
service credits. Based on the anticipated level of revenues from Meredith, the
Company believes that the scheduled service credits due to Meredith will be
fully offset by such revenues. Total service credits due to Meredith at June
30, 1997 and 1996 amounted to $1.5 million and $2.9 million, respectively,
which equal the present value of the credits discounted at 14.5%.
In connection with the Newfield and ISS Acquisitions, the Company granted
service credits totaling $2.2 million and $0.8 million, respectively. The
Newfield and ISS service credits are scheduled over five and three year
periods, respectively. The Company is not obligated to pay cash in the event
that the related revenues are insufficient to offset the scheduled Newfield or
ISS service credits.
Holding Obligation. At June 30, 1997, Holding owed Meredith approximately
$3.5 million pursuant to a note executed in connection with the acquisition of
Product. Holding is a holding company with no independent operations. The Board
of Directors of the Company may, from time to time, declare dividends to the
extent of legally available funds to Holding in amounts sufficient to make
payments on such note. See Note 18 to the Company's Consolidated Financial
Statements.
Ireland Grants. Under the terms of a grant agreement with the Industrial
Development Agency of Ireland (the "IDA"), the IDA may demand reimbursement of
certain amounts previously advanced to the Company if the Company's employment
levels in Ireland are not sufficient. In March 1997, the Company adopted a
plan to close its remaining facilities in Ireland. As a result, the Company
will be required to repay approximately $1.7 million to the IDA in fiscal 1998.
See Notes 14 and 20 to the Company's Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section
of this report. See Index of Consolidated Financial Statements and Consolidated
Financial Statement Schedule on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, and positions of the executive officers
and directors of the Company and the directors of Holding as of August 22,
1997. All directors of Holding and the Company serve for the term for which
they are elected or until their successors are duly elected and qualified or
until death, retirement, resignation, or removal. All executive officers hold
office at the pleasure of the board of directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
A. Laurence Jones . . . . . 44 Director, President, and Chief Executive Officer of Holding and the
Company
Nicholas J. Cuccaro . . . . 54 Senior Vice President, Chief Financial Officer, Secretary, and
Treasurer of Holding and the Company
Frances M. Anhut . . . . . 44 Senior Vice President - Strategic Marketing of the Company
Edward R. Flaherty . . . . 39 Senior Vice President - Service Industries Group of the Company
Ed L. Frazier . . . . . . . 50 Senior Vice President - Chief Information Officer of the Company
Kevin G. Heery . . . . . . 47 Senior Vice President - International Division of the Company
Mark A. Lacek . . . . . . . 41 Senior Vice President - Services Subsidiary of the Company
Susan L. Morse . . . . . . 50 Senior Vice President - Human Resources of the Company
Richard L. Rosy . . . . . . 49 Senior Vice President - Consumer Products Group of the Company
Nancy S. Talmey . . . . . . 47 Senior Vice President - Publishing Group of the Company
Kurt J. Burghardt . . . . . 62 Director of Holding and the Company
Jack D. Furst . . . . . . . 38 Director of Holding and the Company
Thomas O. Harbison . . . . 53 Director of Holding and the Company
Thomas O. Hicks . . . . . . 51 Director of Holding and the Company
Bruce W. Schnitzer . . . . 53 Director of Holding and the Company
</TABLE>
A. Laurence Jones was elected a Director of Holding effective December 14,
1993. Mr. Jones was elected President and Chief Executive Officer and Director
of Holding on March 10, 1994 and of the Company on June 30, 1993. Mr. Jones
served as President and Chief Executive Officer of GovPX, a provider of U.S.
Treasury data and pricing services, from January 1992 to August 1993. From 1987
to January 1992, Mr. Jones held the position of Sr. Vice President with
Automatic Data Processing, Inc. as the General Manager of their Institutional
Markets Division. Between 1977 and 1987, Mr. Jones held management positions at
Wang Laboratories.
Nicholas J. Cuccaro was elected as Senior Vice President and Chief Financial
Officer of Holding and the Company effective June 1994 and was elected
Secretary and Treasurer of Holding and the Company effective March 1995. From
1985 to June 1994, Mr. Cuccaro served as Vice President of Finance and
Administration and Chief Financial Officer of Jupiter Technology, Inc. Mr.
Cuccaro also served as Chief Financial Officer in other technology companies
after having begun his career in public accounting with Deloitte & Touche. Mr.
Cuccaro is a Certified Public Accountant.
Frances M. Anhut was elected as Senior Vice President of Sales and Marketing
of the Company in March 1994, and subsequently changed to Senior Vice President
of Strategic Marketing in January 1996 to reflect changes brought about by the
Company's realignment into industry divisions. Prior to joining the Company,
Ms. Anhut served as Executive Vice President of Praxis International and
President of its Market Pulse Division since June 1990. From 1984 to June 1990,
Ms. Anhut held various positions with Computer Corporation of America,
including that of Vice President of Sales and Vice President of North American
Operations.
Edward R. Flaherty was elected as Senior Vice President, Services Industries
Division of the Company in September 1996. Prior to joining the Company Mr.
Flaherty held various positions with Citibank, N.A. for 12 years, serving most
recently as Vice President and Marketing Director of Citibank's Mastercard/Visa
business. Mr. Flaherty is a Certified Public Accountant.
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<PAGE> 19
Ed L. Frazier was elected as Senior Vice President and Chief Information
Officer of the Company in November 1995. Prior to that time Mr. Frazier held
various positions with TRW Information Systems and Services, including
Corporate Director of Technical Services, since 1989. From 1973 to 1989, Mr.
Frazier held various positions with Chilton Corporation, including Vice
President, Data Processing Division.
Kevin G. Heery was appointed as Senior Vice President of the International
Division of the Company in July 1996. Prior to joining the Company in 1995, Mr.
Heery served for four years as Director of International Marketing and Sales
for the European operations of A.T. Cross. From 1989 to 1991, Mr. Heery held
the position of Chief Executive Officer of Galvia, an Ireland-based healthcare
provider.
Mark A. Lacek was appointed as Senior Vice President, Services Subsidiary of
the Company in February, 1997. Mr. Lacek is President of The Lacek Group, a
loyalty marketing company, which the Company acquired in February 1997. Prior
to starting The Lacek Group in 1993, Mr. Lacek was Director of Global Business
Marketing for Northwest Airlines.
Susan L. Morse was elected as Senior Vice President, Human Resources of the
Company in October 1993. Prior to joining the Company, Ms. Morse held various
positions with Wang Laboratories, Inc. since 1979, including Director of Human
Resources.
Richard L. Rosy was elected as Senior Vice President of Sales of the Company
in March 1992, and subsequently changed to Senior Vice President, Consumer
Products Group in January, 1996, to reflect changes brought about by the
Company's reorganization into industry divisions. Prior to joining the Company
in 1992, Mr. Rosy served as Vice President of Sales and Marketing for A.B. Dick
Company, where he held various positions since 1972.
Nancy S. Talmey was elected as Vice President of Client Services of the
Company in 1994, and subsequently changed to Senior Vice President, Publishing
Group in January, 1996, to reflect changes brought about by the Company's
realignment into industry divisions. Ms. Talmey joined the Company in 1983.
Kurt J. Burghardt was elected a director of Holding and the Company in
August 1990. From 1977 to his joining the Company in August 1990, Mr. Burghardt
served as President of the Neodata Services Division of Nielsen and was
Executive Vice President of Nielsen. Mr. Burghardt began his career in 1960
with Nielsen.
Jack D. Furst was elected a director of Holding in August 1990 and a
director of the Company in April 1993. Mr. Furst is a Managing Director and
Principal of Hicks, Muse. From 1990 until 1992, Mr. Furst was Vice President,
Treasurer and Assistant Secretary of the Company. Prior to joining Hicks, Muse,
Mr. Furst was a Vice President and subsequently a partner of Hicks & Haas from
1987 to May 1989. Mr. Furst serves on the board of directors of International
Wire Holding Corp., Cooperative Computing, Inc., Crain Industries, and DESA
International, Inc.
Thomas O. Harbison was elected a director of Holding in August 1990 and a
director of the Company in 1990. He served as President and Chief Executive
Officer of Holding and Chairman and Chief Executive Officer of the Company from
August 1990 until June 1993. He also served as the Chairman of Holding from
June, 1993 until September 1993. From February 1983 to April 1989, he was
President of Telemedia and from 1989 through May 5, 1993, he was Chairman and
Chief Executive Officer of that company. Since October 1995, Mr. Harbison has
served as President of the CustomerSolutions Strategic Business Line of EDS.
Thomas O. Hicks was elected as Chairman of Holding in June 1990 and a
director of the Company in April 1993. Effective June 1, 1993, Mr. Hicks
resigned as Chairman of Holding (but continues to serve as a Director thereof).
Mr. Hicks is Chairman and Chief Executive Officer of Hicks, Muse, a private
investment firm in Dallas and New York specializing in strategic investments,
leveraged acquisitions and recapitalizations. From 1984 to May 1989, Mr. Hicks
was Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas
Incorporated, a Dallas-based private investment firm ("Hicks & Haas"). Mr.
Hicks also serves as a director of Sybron International Corporation, Berg
Electronics, Inc., Chancellor Media Corporation, International Home Foods, MVS
Corporation, Corp Group Limited, Capstar Broadcasting Corporation, and D.A.C.
Vision, Inc.
18
<PAGE> 20
Bruce W. Schnitzer was elected a director of Holding in August 1990 and a
director of the Company in April 1993. Since 1987, Mr. Schnitzer has served as
Chairman of the Board of Wand Partners Inc. which serves as the general partner
of Wand Investments L.P., a private investment firm located in New York City.
Mr. Schnitzer also serves as a director of the following publicly-held U.S.
companies: Chartwell Re Corporation, a property and casualty insurance holding
company, PennCorp Financial Group, AMRESCO Inc., and Nestor, Inc. Mr.
Schnitzer is also Chairman and director of the London-based New London Capital,
plc.
COMMITTEES
Each of the boards of directors of Holding and the Company has established
an Executive Committee comprised of Messrs. Hicks and Furst, which committee
possesses the powers and discharges the duties of the Board of Directors during
the interim between meetings of the full board. Each of the boards of directors
of Holding and the Company has also established an Audit Committee comprised of
Messrs. Burghardt and Schnitzer and a Compensation Committee comprised of
Messrs. Hicks and Furst. The boards of directors of Holding and the Company
hold meetings of the committees on a regular basis.
STOCKHOLDERS' AGREEMENT
In connection with the Recapitalization, Holding entered into a
Stockholders' Agreement with Hicks, Muse, EDS, certain affiliates of Hicks,
Muse, certain executive officers of Holding, and certain other stockholders of
Holding (the "Stockholders' Agreement"). The Stockholders' Agreement provides
that each party thereto will take action within its respective power, including
voting of capital stock of Holding, required to cause all members of the Board
of Directors of Holding to at all times consist of persons designated by Hicks,
Muse.
In consideration for the execution and delivery of the Stockholders'
Agreement by Holding, each other party to the Stockholders' Agreement waived
any and all rights that such party possessed (with respect to registration
rights or otherwise) pursuant to that certain Amended and Restated
Stockholders' Agreement dated as of May 5, 1993 among Holding and each of the
parties thereto.
Messrs. Furst, Burghardt, Hicks, and Harbison serve on the board of
directors of Holding pursuant to the terms of the Stockholders' Agreement as
the nominees of Hicks, Muse. The Hicks, Muse Voting Agreement (as defined)
requires Mr. Harbison be one of Hicks, Muse's nominees to Holding's Board of
Directors, subject to certain conditions. See "Item 13. Certain Relationships
and Related Transactions - Hicks, Muse Voting Agreement." Mr. Jones serves on
the Board of Directors pursuant to the terms of the Stockholders' Agreement as
the Chief Executive Officer of Holding.
Upon consummation of the EDS Acquisition, the Stockholders' Agreement will
be terminated.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Current directors, other than Mr. Burghardt, receive no compensation for
their services as Directors; however, Directors of the Neodata Companies are
entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof. Mr. Burghardt receives director's fees
$12,000 per year plus $1,000 for each Board meeting attended.
19
<PAGE> 21
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for the
years ended June 30, 1997 and 1996 and for the years ended December 31, 1995
and 1994 awarded to or earned by the Chief Executive Officer of the Company and
the four other most highly compensated executive officers of the Company
serving as such at June 30, 1997 (collectively, the "named executive
officers").
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
YEAR SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION ENDED ($) ($) ($) OPTIONS(#)(1) ($)
--------------------------- ----- --- --- --- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
A. LAURENCE JONES June 1997 375,000 431,252 --(2) 450,000 18,130(3)
Director, President and Chief Executive June 1996 350,000 270,812 --(2) 20,673/355,578 11,297
Officer of Holding and the Company Dec. 1995 350,000 124,687 --(2) 0 10,272
Dec. 1994 350,000 0 --(2) 20,673/355,578 13,555
NICHOLAS J. CUCCARO June 1997 195,000 88,725 --(2) 225,000 5,500(4)
Senior Vice President, Chief Financial June 1996 183,539 71,592 --(2) 1,509/25,952 4,145
Officer of Holding and the Company Dec. 1995 180,100 63,830 --(2) 0 4,386
Dec. 1994 96,284 12,500 74,424 1,509/25,952 114,582
FRANCES M. ANHUT June 1997 180,000 81,360 --(2) 140,000 4,569(5)
Senior Vice President - Strategic June 1996 180,000 50,569 --(2) 1,207/20,761 10,779
Marketing of the Company Dec. 1995 180,000 24,469 --(2) 0 69,091
Dec. 1994 158,173 0 17,629 1,207/20,761 24,280
NANCY S. TALMEY June 1997 175,000 76,825 --(2) 180,000 340(6)
Senior Vice President - Publishing June 1996 162,500 41,900 --(2) 402/6,920 291
Group of the Company Dec. 1995 150,000 27,000 --(2) 0 226
Dec. 1994 116,467 0 --(2) 0 230
ED L. FRAZIER (7) June 1997 160,000 71,740 --(2) 150,000 19,739(8)
Senior Vice President - Chief June 1996 96,139 52,502 --(2) 0 35,072
Information Officer of the Company Dec. 1995 14,770 15,702 --(2) 0 57
Dec. 1994 0 0 0 0 0
- ----------
</TABLE>
(1) For fiscal 1997, represents options to purchase Holding nonvoting common
stock ("Holding Nonvoting Common Stock"). For fiscal 1996, represents
repricing of options to purchase Holding voting common stock ("Holding
Voting Common Stock") and Holding Series 2 Preferred Stock,
respectively. For 1994, represents options to purchase Holding Voting
Common Stock and Holding Series 2 Preferred Stock, respectively.
(2) Holding and the Company provide to certain executive officers the use of
automobiles, club memberships, insurance policies, and certain other
benefits. The aggregate incremental costs of these benefits to Holding
and the Company for such officer did not exceed the lesser of either
$50,000 or 10.0% of the total of annual salary and bonus reported for
such officer.
(3) Represents (i) $14,914 of matching contributions to a defined
contribution supplemental retirement plan, (ii) $591 in premiums for
group term life insurance pursuant to the group insurance plan of the
Company that are taxable as compensation to the executive, and (iii)
$2,625 in premiums paid by or on behalf of the Company for an additional
life insurance policy for the benefit of the executive under terms of
his employment agreement.
20
<PAGE> 22
(4) Represents (i) $3,285 of matching contributions to a defined
contribution supplemental retirement plan, (ii) $650 in premiums for
group term life insurance pursuant to the group insurance plan of the
Company that are taxable as compensation to the executive, and (iii)
$1,565 in premiums paid by or on behalf of the Company for an additional
life insurance policy for the benefit of the executive under terms of
his employment agreement.
(5) Represents (i) $1,683 of matching contributions to a defined
contribution supplemental retirement plan, (ii) $256 in premiums for
group term life insurance pursuant to the group insurance plan of the
Company that are taxable as compensation to the executive, and (iii)
$5,530 in premiums paid by or on behalf of the Company for an additional
life insurance policy for the benefit of the executive under terms of
her employment agreement.
(6) Represents premiums for group term life insurance pursuant to the group
insurance plan of the Company that are taxable as compensation to the
executive.
(7) Mr. Frazier joined the Company in 1995.
(8) Represents (i) $466 in premiums for group term life insurance pursuant
to the group insurance plan of the Company that are taxable as
compensation to the executive, and (ii) $19,273 in relocation hardships
paid by the Company.
OPTION GRANTS TABLE
The following table sets forth certain information regarding the grant of
options to named executive officers during fiscal 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM (2)
GRANTED EMPLOYEES PRICE -------------------
NAME (#) (1) IN FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
---- ------- -------------- ------ --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
A. Laurence Jones 450,000 18.74 $0.50 July 1, 2005 141,503 358,583
Nicholas J. Cuccaro 225,000 9.37 $0.50 July 1, 2005 70,751 179,291
Nancy S. Talmey 180,000 7.50 $0.50 July 1, 2005 56,601 143,433
Ed. L. Frazier 150,000 6.25 $0.50 Nov. 29, 2005 47,168 119,528
Frances M. Anhut 140,000 5.83 $0.50 July 1, 2005 44,023 111,559
</TABLE>
(1) Represents options to purchase shares of Holding Nonvoting Common Stock.
The options vest in three equal installments commencing on the date of
grant, subject to acceleration or cancellation under certain
circumstances, including a change of control. All options to acquire
Nonvoting Common Stock have been accelerated in connection with the EDS
Acquisition.
(2) A market price of $0.50 per share is assumed for purposes of this
calculation.
21
<PAGE> 23
OPTION EXERCISES AND YEAR-END VALUES
The following table summarizes the value of options to acquire Holding
Common Stock held by the named executive officers as of June 30, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END (#) OPTIONS AT FY-END($)(2)
NAME EXERCISABLE/UNEXERCISABLE(3) EXERCISABLE/UNEXERCISABLE
---- ---------------------------- -------------------------
<S> <C> <C>
A. Laurence Jones . . . . . . . . . . . . . . . . . . 20,673/ 0* 0/ 0
355,578/ 0** 3,377,991/ 0
150,000/ 300,000*** 0/ 0
Nicholas J. Cuccaro . . . . . . . . . . . . . . . . . 1,509/ 0* 0/ 0
25,952/ 0** 246,544/ 0
75,000/ 150,000*** 0/ 0
Nancy S. Talmey . . . . . . . . . . . . . . . . . . . 402/ 0* 0/ 0
6,920/ 0** 65,740/ 0
60,000/ 120,000*** 0/ 0
Frances M. Anhut . . . . . . . . . . . . . . . . . . 1,207/ 0* 0/ 0
20,761/ 0** 197,230/ 0
46,667/ 93,333*** 0/ 0
Ed L. Frazier . . . . . . . . . . . . . . . . . . . . 50,000/ 100,000*** 0/ 0
</TABLE>
__________
* Represents options to purchase Holding Voting Common Stock.
** Represents options to purchase Holding Series 2 Preferred Stock.
*** Represents options to purchase Holding Nonvoting Common Stock.
(1) No options were exercised by a named executive officer during the year
ended June 30, 1997.
(2) Value is calculated on the basis of the remainder of the per share fair
market value of Holding Common Stock, and Holding Series 2 Preferred
Stock, as applicable, minus the exercise price multiplied by the number
of shares of Holding Common Stock, and Holding Series 2 Preferred Stock,
as applicable underlying the option. The per share fair market value of
Holding Common Stock used in making the calculation is $0.50. The per
share fair market value of Holding Series 2 Preferred Stock used in
making the calculation is $10.00. All amounts are rounded to the nearest
dollar.
(3) All outstanding options have been accelerated in connection with the EDS
Acquisition and, upon the consummation of the EDS Acquisition, such
options will represent only the right to receive the consideration to be
paid to the shareholders of Holding as a result of the EDS Acquisition,
less any applicable exercise price.
22
<PAGE> 24
OPTION REPRICING TABLE
The following table sets forth certain information regarding the repricing
of options to named executive officers during the preceding ten years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES EXERCISE OPTION TERM
UNDERLYING PRICE AT NEW REMAINING AT
OPTIONS TIME OF EXERCISE DATE OF
NAME DATE (1) REPRICED (#) (2) REPRICING PRICE (3) REPRICING
---- -------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
A. Laurence Jones June 26, 1996 20,673/ 355,578 $1.60 $0.50 7.52
Nicholas J. Cuccaro June 26, 1996 1,509/ 25,952 $1.60 $0.50 7.99
Frances M. Anhut June 26, 1996 1,207/ 20,761 $1.60 $0.50 7.71
Nancy S. Talmey June 26, 1996 402/ 6,920 $1.00 $0.50 4.17
Ed L. Frazier -- -- -- -- --
</TABLE>
(1) The Board of Directors and Stockholders of Holding approved the option
repricings during fiscal 1997, to be effective as of June 26, 1996. A
total of 1,598,111 options with exercise prices ranging from $1.00 to
$1.60 were repriced to $0.50 per option. These options are exercisable
for an aggregate total of 32,150 and 552,985 shares of Holding Voting
Common Stock and Holding Series 2 Preferred Stock, respectively.
(2) Represents options to purchase Holding Voting Common Stock and Holding
Series 2 Preferred Stock, respectively.
(3) There is no established market price for any of Holding's equity
securities. In the judgment of the Compensation Committee, the fair
market value per option did not exceed the new exercise price at the
effective date of the repricing.
Board of Directors Compensation Committee Report on Option Repricings
Holdings and the Compensation Committee believe that stock options are an
effective incentive for optionees to create value for Holding's stockholders.
In order to increase the incentive for its optionees to create value, Holdings
believed it was necessary to reduce the option price to a level which was
closer to the options' fair market value. While the Compensation Committee
believes that the fair market value per option did not exceed the new exercise
price at the effective date of the repricing, the repricing significantly
increases the optionees' opportunity to add to the value of their own
respective equity interests.
Members of the Compensation Committee: Thomas O. Hicks
Jack D. Furst
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Jones has entered into an employment contract (the "Jones Employment
Contract") with the Company. No fixed term of employment is provided by the
Jones Employment Contract. The Jones Employment Contract provides for an annual
base salary of $375,000. The Jones Employment Contract provides for the
eligibility of the executive for an annual merit bonus as established by the
Board of Directors pursuant to the Company's cash bonus plan as in effect from
time to time. The Jones Employment Contract provides that upon (i) a
termination of the executive's employment by the Company for any reason other
than cause, (ii) the executive's death, disability, or retirement, or (iii)
upon the termination of employment by the executive for good reason, Mr. Jones
is entitled to receive severance pay in an amount equal to his base salary for
a period equal to the longer of eighteen months or three years from the date of
the Jones Employment Contract, a prorated bonus for the year of the executive's
termination, and certain other benefits. The Jones Employment Contract
provides that in the event of the sale of the
23
<PAGE> 25
Company, the Company may terminate Mr. Jones and provide the severance benefits
discussed above or require Mr. Jones to continue to work for a specified
transition period and, unless agreed otherwise, provide the severance benefits
discussed above at the expiration of the transition period for a period of
eighteen months. Notwithstanding the foregoing, following the termination of
Mr. Jones' employment after a sale of the Company, Mr. Jones will receive a
one-time bonus of $750,000 in lieu of a prorated bonus for the year of the
termination. For purposes of the Jones Employment Contract, (i) "cause"
includes conviction of a felony, use of illegal drugs, fraud, or willful
neglect of duties, (ii) "good reason" includes adverse change of title, duties,
responsibilities, compensation, or benefits, and (iii) a "sale of the Company"
occurs when (a) Hicks, Muse owns less than 25% of the outstanding common stock
of Holding and has an unrecovered investment in Holding and its Subsidiaries
amounting to less than $1 million, (b) Hicks, Muse receives, for its shares of
Holding Common Stock, cash and/or marketable securities equal to at least 75%
of the total value of Holding Common Stock, (c) a person or group other than
Hicks, Muse acquires a majority of the outstanding voting stock of Holding or
the Company, (d) Holding or the Company sells substantially all of its assets
to someone other than Hicks, Muse, or (e) a majority of the board of Holding or
the Company consists of persons nominated by anyone other than the then-current
board.
The Company has employment agreements with Messrs. Cuccaro, Flaherty,
Frazier, Heery, Lacek, and Rosy, and Mss. Anhut, Morse, and Talmey
(collectively, the "Senior Vice Presidents") with variable terms. The
agreements provide for annual base salaries and additional annual merit bonuses
as established by the Board of Directors. Under certain circumstances,
including termination without cause (as defined), Senior Vice Presidents will
be entitled to receive (i) monthly severance payments in an amount equal to
their monthly base salary for a period of 6-12 months, (ii) a pro-rated portion
of the bonus that would have been payable for the year in which such
termination occurs, and (iii) certain other benefits.
The Company also has change in control employment agreements (the "Change in
Control Agreements") with each of the Senior Vice Presidents, with the
exception of Mssrs. Heery and Lacek. The Change in Control Agreements provide
that for a period of eighteen months (the "Retention Period") following a sale
of the Company (as defined), if the Company terminates the employee for reasons
other than cause (as defined), the employee shall receive severance pay equal
to the employee's aggregate base salary through the remainder of the Retention
Period. The Change in Control Agreements also provide that in the event of a
sale of the Company (as defined) in which the holders of Holding Preferred
Stock receive at least $125,000,000 in the aggregate, the employee shall
receive a retention bonus equal to the 100% of the employee's then-existing
base salary. The Company's aggregate obligation under the Change in Control
Agreements is limited to $3,000,000. The EDS Acquisition does not constitute a
sale of the Company as defined under the Change in Control Agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Furst, who is also a director of Holding and the Company, is Managing
Director of Hicks, Muse. Mr. Hicks, who is also a director of Holding and the
Company, is Chairman and Chief Executive Officer of Hicks, Muse. The Company
has engaged Hicks, Muse to provide financial advisory services during the
ten-year period ending August 22, 2000, in consideration for which Hicks, Muse
will receive aggregate fees of approximately $1,800,000, which is currently
payable in forty equal quarterly installments of $45,000. Hicks, Muse is also
entitled to reimbursement for all reasonable and customary disbursements and
out-of-pocket expenses incurred in the performance of those financial advisory
services and will be indemnified by the Company against certain liabilities and
expenses. During the year ended June 30, 1997, Hicks, Muse received fees
pursuant to such agreement of $180,000. The financial advisory agreement will
be terminated upon consummation of the EDS Acquisition.
24
<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding shares of common stock of the Company are
held by Holding. The following table sets forth certain information as of
August 22, 1997, regarding the beneficial ownership of the equity securities of
Holding by each person who is known by Holding to beneficially own more than 5%
of any class of Holding's voting securities, by the directors of the Company,
and by the executive officers of the Company named in the Summary Compensation
Table, individually, and by the directors and all executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT/NATURE PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OF OWNERSHIP CLASS
-------------- ---------------- ------------ -----
<S> <C> <C> <C>
5% STOCKHOLDERS OF VOTING SECURITIES:
Common Stock Thomas O. Hicks 363,312(1) 84.52%
200 Crescent Court, Suite 1600
Dallas, TX 75201
Common Stock HMC/Neodata, L.P. 147,065 37.86%
200 Crescent Court, Suite 1600
Dallas, TX 75201
Common Stock HM/Neodata DBMS, L.P. 98,210 25.29%
200 Crescent Court, Suite 1600
Dallas, TX 75201
Common Stock Bruce W. Schnitzer 47,094(2) 12.10%
630 5th Avenue, Suite 2435
New York, NY 10111
Common Stock Wand/Neodata Investments, L.P. 47,094(3) 12.10%
30 Rockefeller Plaza, Suite 3226
New York, NY 10112
Common Stock Thomas O. Harbison 22,901(4) 5.79%
5400 Legacy Drive, H1-5B-29
Plano, TX 75024
Common Stock Steven L. Korby 19,912 5.07%
15110 North Dallas Parkway
Dallas, TX 75248
MANAGEMENT AND
DIRECTORS:
Common Stock A. Laurence Jones 170,673(5) 30.53%
(director of Holding and the Company
and named executive officer)
Common Stock Nicholas J. Cuccaro 76,509(6) 16.46%
(named executive officer)
Common Stock Nancy S. Talmey 60,402(7) 13.46%
(named executive officer)
Common Stock Ed. L. Frazier 50,000(8) 11.41%
(named executive officer)
Common Stock Frances M. Anhut 47,874(9) 10.97%
(named executive officer)
Common Stock Thomas O. Hicks 513,312(10) 88.53%
(director of Holding and the Company)
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
Common Stock Bruce W. Schnitzer 47,094(2) 12.10%
(director of Holding and the Company)
Common Stock Thomas O. Harbison 22,901(4) 5.79%
(director of Holding and the Company)
Common Stock Jack D. Furst 1,998 *
(director of Holding and the Company)
Common Stock Kurt J. Burghardt 805 *
(director of Holding and the Company)
Common Stock DIRECTORS AND EXECUTIVE OFFICERS 869,677 94.57%
AS A GROUP
Series 2 A. Laurence Jones 355,578(11) 5.05%
Preferred Stock (director of Holding and the Company
and named executive officer)
Series 2 Nicholas J. Cuccaro 25,952(11) *
Preferred Stock (named executive officer)
Series 2 Frances M. Anhut 20,761(11) *
Preferred Stock (named executive officer)
Series 2 Nancy S. Talmey 6,920(11) *
Preferred Stock (named executive officer)
Series 2 Thomas O. Hicks 6,248,971(12) 84.53%
Preferred Stock (director of Holding and the Company)
Series 2 Bruce W. Schnitzer 810,017(13) 12.10%
Preferred Stock (director of Holding and the Company)
Series 2 Thomas O. Harbison 393,899(14) 5.79%
Preferred Stock (director of Holding and the Company)
Series 2 Jack D. Furst 34,358 *
Preferred Stock (director of Holding and the Company)
Series 2 Kurt J. Burghardt 13,841 *
Preferred Stock (director of Holding and the Company)
Series 2 DIRECTORS AND EXECUTIVE OFFICERS 6,731,105 88.69%
Preferred Stock AS A GROUP
- ----------
</TABLE>
* Represents less than 1%.
(1) Includes (i) 4,459 shares of Voting Common Stock held directly of record
by Thomas O. Hicks or by trusts pursuant to which Mr. Hicks is sole
trustee and has sole investment and voting power, (ii) 147,065 shares of
Voting Common Stock held directly of record by HMC/Neodata, (iii) 98,210
shares of Voting Common Stock held directly of record by HM/DBMS, (iv) 47
shares of Voting Common Stock held directly of record by an employee of
Hicks, Muse, for which Mr. Hicks has sole investment and voting power,
and (v) 113,531 shares of Voting Common Stock beneficially owned by other
stockholders (including, among others, Wand and Messrs. Furst and Turner)
who are obligated pursuant to the Stockholders Agreement to vote their
shares of Holding Common Stock in favor of nominees of HMC/Neodata for
election to Holding's board of directors.
HMC/Neodata is a limited partnership in which the sole general partner is
HMC Partners, L.P., a limited partnership in which the managing general
partner is Hicks, Muse. Mr. Hicks is a controlling stockholder of Hicks,
Muse and is also its Chairman of the Board, President, Chief Operating
Officer, Chief Executive Officer, and Secretary. Accordingly, Mr. Hicks
may be deemed to be the beneficial owner of Common Stock held by
HMC/Neodata. John R. Muse, Jack D. Furst, Charles W. Tate, Lawrence D.
Stuart, Michael J. Levitt, and Alan B. Menkes are officers, directors and
minority stockholders of Hicks, Muse and as such may be deemed to share
26
<PAGE> 28
with Mr. Hicks the power to vote or dispose of Common Stock held by
HMC/Neodata. HMC/Neodata and each of Messrs. Hicks, Muse, Furst, Tate,
Stuart, Levitt, and Menkes disclaims the existence of a group and
disclaims beneficial ownership of Common Stock not held directly of
record by it or him.
HM/DBMS is a limited partnership in which the sole general partner is HMC
Partners, L.P., a limited partnership in which the managing general
partner is Hicks, Muse. Mr. Hicks may be deemed to be the beneficial
owner of Common Stock held by HM/DBMS. Messrs. Muse, Furst, Tate,
Stuart, Levitt, and Menkes may be deemed to share with Mr. Hicks the
power to vote or dispose of Common Stock held by HM/DBMS. HM/DBMS and
each of Messrs. Hicks, Muse, Furst, Tate, Stuart, Levitt, and Menkes
disclaims the existence of a group and disclaims beneficial ownership of
Common Stock not held directly of record by it or him.
Mr. Hicks may be deemed to be the beneficial owner of Common Stock held
by Hicks, Muse. Messrs. Muse and Furst may be deemed to share with Mr.
Hicks the power to vote or dispose of Common Stock held by Hicks, Muse.
Hicks, Muse and each of Messrs. Hicks, Muse, Furst, Tate, Stuart,
Levitt, and Menkes disclaims the existence of a group and disclaims
beneficial ownership of Common Stock not held directly of record by it or
him.
(2) Mr. Schnitzer holds no shares of Common Stock directly. Includes (i)
46,381 shares of Voting Common Stock held directly of record by Wand and
(ii) 713 shares of Voting Common Stock issuable to Wand pursuant to a
warrant issued in connection with the formation of the Company. Mr.
Schnitzer is a director, an executive officer, and the controlling
stockholder of the general partner of Wand and has investment and voting
power with respect to shares of Common Stock held by Wand. Accordingly,
Mr. Schnitzer disclaims beneficial ownership of Common Stock not held
directly of record by it or him.
(3) Includes (i) 46,381 shares of Voting Common Stock held directly of record
by Wand and (ii) 713 shares of Voting Common Stock issuable to Wand
pursuant to a warrant issued in connection with the formation of the
Company.
(4) Includes (i) 15,808 shares of Voting Common Stock held directly of record
by Harbison Family Living Trust pursuant to which Mr. Harbison has
investment and voting power with respect to shares of Common Stock held
by it, (ii) 2,012 shares of Voting Common Stock that are immediately
issuable pursuant to options granted under the Harbison Employment
Agreement, and (iii) 5,081 shares of Voting Common Stock that are
immediately issuable pursuant to an option.
(5) Represents 20,673 and 150,000 shares of Voting and Nonvoting Common
Stock, respectively, that are immediately issuable pursuant to options.
(6) Represents 1,509 and 75,000 shares of Voting and Nonvoting Common Stock,
respectively, that are immediately issuable pursuant to options.
(7) Represents 402 and 60,000 shares of Voting and Nonvoting Common Stock,
respectively, that are immediately issuable pursuant to options.
(8) Represents shares of Nonvoting Common Stock that are immediately issuable
pursuant to an option.
(10) Includes (i) 4,459 shares of Voting Common Stock held directly of record
by Thomas O. Hicks or by trusts pursuant to which Mr. Hicks is sole
trustee and has sole investment and voting power, (ii) 147,065 shares of
Voting Common Stock held directly of record by HMC/Neodata, (iii) 98,210
shares of Voting Common Stock held directly of record by HM/DBMS, (iv) 47
shares of Voting Common Stock held directly of record by an employee of
Hicks, Muse, for which Mr. Hicks has sole investment and voting power,
and (v) 263,731 shares of Voting and Nonvoting Common Stock beneficially
owned by other stockholders (including, among others, Wand and Messrs.
Furst and Turner) who are obligated pursuant to the Stockholders
Agreement to vote their shares of Holding Common Stock in favor of
nominees of HMC/Neodata for election to Holding's board of directors.
27
<PAGE> 29
(11) Represents shares of Series 2 Preferred Stock that are immediately
issuable pursuant to an option.
(12) Includes (i) 76,695 shares of Series 2 Preferred Stock held directly of
record by Thomas O. Hicks or by trusts pursuant to which Mr. Hicks is
sole trustee and has sole investment and voting power, (ii) 2,529,522
shares of Series 2 Preferred Stock held directly of record by
HMC/Neodata, (iii) 1,689,212 shares of Series 2 Preferred Stock held
directly of record by HM/DBMS, (iv) 808 shares of Series 2 Preferred
Stock held directly of record of an employee of Hicks, Muse for which Mr.
Hicks has sole investment and voting power, and (v) 1,952,734 shares of
Series 2 Preferred Stock beneficially owned by other stockholders
(including, among others, Wand and Messrs. Furst, Jones and Turner) who
are obligated pursuant to the Stockholders Agreement to vote their shares
of Series 2 Preferred Stock in favor of nominees of HMC/Neodata for
election to Holding's board of directors. See Footnote 1 for additional
information concerning Mr. Hicks.
(13) Mr. Schnitzer holds no shares of Series 2 Preferred Stock directly.
Includes (i) 797,753 shares of Series 2 Preferred Stock held directly of
record by Wand and (ii) 12,264 shares of Series 2 Preferred Stock
issuable to Wand pursuant to a warrant in connection with the formation
of the Company. Mr. Schnitzer is a director, and executive officer, and
the controlling stockholder of the general partner of Wand and has
investment and voting power with respect to shares of Series 2 Preferred
Stock held by Wand. Accordingly, Mr. Schnitzer disclaims beneficial
ownership of Series 2 Preferred Stock not held directly of record by it
or him.
(14) Includes (i) 271,895 shares of Series 2 Preferred Stock held directly of
record by The Harbison Family Living Trust pursuant to which Mr. Harbison
has investment and voting power with respect to shares of Series 2
Preferred Stock held by it, (ii) 34,602 shares of Series 2 Preferred
Stock that are immediately issuable pursuant to options granted under the
Harbison Employment Agreement and (iii) 87,402 shares of Series 2
Preferred Stock that are immediately issuable pursuant to an option.
CHANGE OF CONTROL
Upon consummation of the EDS Acquisition, Holding will become a wholly-owned
subsidiary of EDS. As a result, the Company will undergo a change of control.
See "Item 13. Certain Relationships and Related Transactions - The EDS
Acquisition."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FINANCIAL ADVISORY AGREEMENTS
The Company has engaged each of Hicks, Muse and Wand to provide financial
advisory services during the ten-year period ending August 22, 2000, in
consideration for which Hicks, Muse and Wand will receive aggregate fees of
approximately $1,800,000 and $350,000, respectively, which fees are currently
payable in forty equal quarterly installments of $45,000 and $8,750,
respectively. Hicks, Muse and Wand are also entitled to reimbursement for all
reasonable and customary disbursements and out-of-pocket expenses incurred in
the performance of those financial advisory services and will be indemnified by
the Company against certain liabilities and expenses. During the year ended
June 30, 1997, Hicks, Muse and Wand received fees pursuant to such agreements
of $180,000 and $35,000, respectively. Upon consummation of the EDS
Acquisition, the foregoing agreements will be terminated.
RELATIONSHIP WITH EDS
The Company, Holding and EDS consummated the Recapitalization of Holding in
November 1994. This transaction reduced the Company's obligations owed to EDS
relating to NCORE by approximately $28.3 million. The transaction resulted in
the issuance of additional Holding equity and the recapitalization of other
Holding equity but had no effect on the Company's common equity ownership. See
"Item 1. Business -- Background -- The Recapitalization" and Note 20 to the
Company's Consolidated Financial Statements.
Pursuant to the Amended IT Agreement, EDS will (i) continue to supply to the
Company IT Services and (ii) assist the Company in reducing costs and improving
its business operations. Under the Amended IT Agreement, the Company has
control over the management direction of the IT Services and EDS' delivery of
the IT Services. The
28
<PAGE> 30
Amended IT Agreement amended, restated and supersedes the terms and conditions
of all prior information technology services agreements between the Company and
EDS as of the effective date of the Amended IT Agreement.
The Amended IT Agreement provides for an initial term commencing January 1,
1995 and concluding on March 31, 2003 unless earlier terminated or subsequently
renewed in accordance with the terms of the Amended IT Agreement. Under the
Amended IT Agreement, EDS supplies all of the Company's information technology,
equipment, and services needs. Excluded from the IT Services to be provided are
the Company's existing information technology functions in Ireland; advanced
function printing technicians, letter shop printing functions, and
corporate-wide data entry systems (with certain exceptions); and any new
business, entities, units or subsidiaries acquired or formed by Services
subsequent to the effective date of the Amended IT Agreement which are operated
independently from the Company's then existing information technology
functions. Certain information technology functions formerly performed by the
Company are included in the IT Services. Effective January 1, 1995,
approximately 112 Company employees were transferred to EDS, as well as certain
operating lease obligations for equipment and software. The Amended IT
Agreement eliminated funding for NCORE.
The Company compensates EDS for IT Services on a "cost-plus" basis. The term
"cost-plus" means that the Company reimburses EDS for EDS' direct out-of-pocket
expenses incurred by EDS in performing the IT Services and pays EDS an amount
based on a percentage of the reimbursed costs.
Fees incurred under the Amended IT Agreement for the year ended June 30,
1997 were $48,301,000, including $7,500,000 of capitalized expenditures. Fees
incurred under the Amended IT Agreement for the year ended June 30, 1996 were
$47,177,000, including $8,380,000 of capitalized expenditures. Fees incurred
under the Amended IT Agreement for the year ended December 31, 1995 were
$44,773,000, including $7,553,000 of capitalized expenditures. Fees incurred
under the then-existing EDS information technology services agreement for the
year ended December 31, 1994 were $31,664,000, including $5,271,000 of
capitalized expenditures.
The Company expects to spend approximately $50,400,000 in fiscal 1998 with
respect to information technology services on a cost- plus basis as discussed
above, including approximately $6,500,000 in capital expenditures. Amounts
expended for facilities management services may vary in accordance with the
amount and kind of services rendered, but are generally expected to remain flat
or grow slightly commensurate with the growth in revenue for the foreseeable
future.
It is expected that the Amended IT Agreement will remain in effect after the
consummation of the EDS Acquisition.
Mr. Harbison, who is a director of Holding and the Company, is currently
serving as President of the CustomerSolutions Strategic Business Line of EDS.
THE EDS ACQUISITION
On August 7, 1997, Holding entered into an Agreement and Plan of Merger with
EDS and Ramcad Corporation, a wholly-owned subsidiary of EDS, pursuant to which
Ramcad Corporation will merge with and into Holding, with Holding surviving as
a wholly-owned subsidiary of EDS (the "EDS Merger"). Pursuant to the EDS
Merger, all outstanding capital stock of Holding not presently owned by EDS
will be converted into the right to receive $2.60 per share, in the case of
Voting Common Stock and Nonvoting Common Stock, and approximately $7.67 per
share, in the case of Series 2 Preferred Stock. All outstanding options and
warrants will be converted into the right to receive the consideration
applicable to the shares of stock underlying such options and warrants, less
any applicable exercise price. The EDS Acquisition is scheduled to close on
August 29, 1997.
THE TAX SHARING AGREEMENT
Holding and its subsidiaries file consolidated federal income tax returns
and are parties to a tax sharing agreement for the purpose of allocating the
federal income tax liability of the group among its members. The tax sharing
agreement generally allocates the consolidated federal income tax liability to
each member according to the
29
<PAGE> 31
ratio of what that member's tax liability would be if it filed separate federal
income tax returns (subject to certain modifications) to the similarly computed
separate return tax liabilities of all of the members of the group. Pursuant to
the agreement, a member is permitted to utilize the net operating loss of
another member (a "Loss Member") to reduce its share of consolidated federal
income tax liability and is not required to compensate the Loss Member for such
tax benefit unless and to the extent that the Loss Member generates taxable
income which would have permitted the Loss Member to utilize the net operating
loss in a separate federal income tax return.
HICKS, MUSE VOTING AGREEMENT
Mr. Harbison has entered into a letter agreement with Hicks, Muse (the
"Hicks, Muse Voting Agreement"). The Hicks, Muse Voting Agreement provides
that, so long as either HMC/Neodata or HM/DBMS has the right, pursuant to the
Stockholders' Agreement, to designate certain members of Holding's Board of
Directors, Hicks, Muse will cause Mr. Harbison to be one of such designees.
Such obligation of Hicks, Muse (i) shall terminate in the event that Mr.
Harbison owns less than 10,059 shares of Holding Common Stock and (ii) shall be
suspended during such period of time as certain former shareholders of
Telemedia who are parties to the Stockholders Agreement designate someone other
than Mr. Harbison to act in such capacity. Such agreement will terminate
pursuant to its terms upon consummation of the EDS Acquisition.
30
<PAGE> 32
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
The following financial statements, financial statement schedule, and
exhibits are filed as part of this report.
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See Index to Consolidated Financial Statements and Consolidated Financial
Statement Schedule on page F-1 of this report.
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated August 7, 1997, by and among Holding, EDS, and Ramcad Corporation*
3.1 -- Certificate of Incorporation of the Company. (incorporated by reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
3.2 -- By-Laws of the Company. (incorporated by reference from Exhibit 3.2 to the Company's Registration Statement on Form S-1
as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
4.1 -- Indenture, dated as of May 5, 1993, between the Company, as Issuer, and Ameritrust Texas National Association, as
Trustee. (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
4.2 -- Form of 12% Series B Senior Deferred Coupon Note due 2003. (incorporated by reference from Exhibit 4.3 to the Company's
Registration Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993
(Registration No. 33-63838))
10.1 -- Registration Rights Agreement, dated as of May 5, 1993, between the Company and Morgan Stanley & Co. Incorporated.
(incorporated by reference from Exhibit 10.6 to the Company's Registration Statement on Form S-1 as declared effective
by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.2 -- Tax Sharing Agreement, dated as of May 5, 1993, among the Company, Holding, Neodata Mailing Services, Inc. and Neodata
Distribution Services, Inc. (incorporated by reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
10.3+ -- Amended and Restated Employment Agreement, dated as of June 1, 1993, among Mr. Thomas O. Harbison, the Company, and
Holding. (incorporated by reference from Exhibit 10.57 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.4+ -- Letter Agreement between Hicks, Muse & Co. (TX) Incorporated and Mr. Thomas O. Harbison executed in connection with the
Amended and Restated Employment Agreement. (incorporated by reference from Exhibit 10.58 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
10.5+ -- Stock Option Agreement, dated as of January 1, 1994, between Mr. A. Laurence Jones and Holding. (incorporated by
reference from Exhibit 10.12 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended
December 31, 1993)
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.6+ -- Stock Option Agreement, dated as of January 1, 1994, between Mr. William J. Turner and Holding. (incorporated by
reference from Exhibit 10.14 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year
ended December 31, 1993)
10.7+ -- Amendment and Restatement of Neodata Corporation Employee Investment Plan, dated as of January 1, 1994. (incorporated
by reference from Exhibit 10.23 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year
ended December 31, 1993)
10.8+ -- Neodata Corporation Amended and Restated Employee Incentive Plan, dated as of March 9, 1994 (incorporated by reference
from Exhibit 10.24 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December
31, 1993)
10.9+ -- Neodata Corporation Supplemental Executive Investment Plan, effective as of January 1, 1994. (incorporated by reference
from Exhibit 10.25 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December
31, 1993)
10.10+ -- Financial Advisory Agreement, dated as of August 22, 1990, among Hicks, Muse, Holding, and the Company. (incorporated
by reference from Exhibit 10.14 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.11+ -- Amendment Number One to Financial Advisory Agreement, dated as of September 30, 1992, among Hicks, Muse, Holding, and
the Company. (incorporated by reference from Exhibit 10.15 to the Company's Registration Statement on Form S-1 as
declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.12+ -- Amendment Number Two to Financial Advisory Agreement, dated as of May 5, 1993, among Hicks, Muse, Holding, and the
Company. (incorporated by reference from Exhibit 10.16 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.13 -- Circulation Fulfillment Service Agreement, dated June 26, 1991, between the Company (formerly Neodata
Books/Distribution Services, Inc. by name change and merger) and Meredith. (incorporated by reference from Exhibit
10.48 to the Company's Registration Statement on Form S-1 as declared effective by the Securities and Exchange
Commission on August 24, 1993 (Registration No. 33-63838))
10.14 -- Fulfillment Agreement, dated as of June 26, 1991, between the Company (formerly Neodata Books/Distribution Services,
Inc. by name change and merger) and Meredith. (incorporated by reference from Exhibit 10.49 to the Company's
Registration Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993
(Registration No. 33-63838))
10.15 -- Securities Purchase Agreement, dated as of May 5, 1993, among Holding, HM/DBMS, and Wand. (incorporated by reference
from Exhibit 10.50 to the Company's Registration Statement on Form S-1 as declared effective by the Securities and
Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.16 -- Amended and Restated Stockholders Agreement, dated as of May 5, 1993, among Holding, HMC/Neodata, HM/DBMS, Wand, and
certain other stockholders of Holding. (incorporated by reference from Exhibit 10.51 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
10.17 -- Securities Purchase and Exchange Agreement, dated as of May 5, 1993, between Holding and EDS. (incorporated by
reference from Exhibit 10.52 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.18 -- Securityholders Agreement, dated as of May 5, 1993, among Holding, HMC/Neodata, HM/DBMS, and EDS. (incorporated by
reference from Exhibit 10.53 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.19 -- Securities Repurchase Agreement, dated as of May 5, 1993, among Holding, Continental Bank N.A., and Philadelphia Life.
(incorporated by reference from Exhibit 10.54 to the Company's Registration Statement on Form S-1 as declared effective
by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.20 -- Nonexclusive License Agreement, dated as of May 5, 1993 and effective as of April 15, 1993, between the Company and
EDS. (incorporated by reference from Exhibit 10.56 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.21 -- Financial Advisory Agreement, dated as of August 22, 1990, among Holding, the Company, and Wand. (incorporated by
reference from Exhibit 10.60 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.22+ -- Amendment Number One to Financial Advisory Agreement, dated as of September 30, 1992, among Holding, the Company, and
Wand. (incorporated by reference from Exhibit 10.61 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.23 -- Amended and Restated Lease Agreement, by and among NeoServ (Co.) QRS 10-13, Inc., NeoServ (Co.) QRS 11-18, Inc., and
the Company dated as of June 8, 1994 (incorporated by reference from Exhibit 10.76 to the Company's Quarterly Report on
Form 10-Q File No. 33-63838 for the quarterly period ended June 30, 1994)
10.24 -- Construction Agreement, among the Company and Neoserv (Co.) QRS 10-13, Inc., NeoServ (Co.) QRS 11-18, Inc., and the
Company dated as of June 8, 1994 (incorporated by reference from Exhibit 10.77 to the Company's Quarterly Report on
Form 10-Q (File No. 33-63838) for the quarterly period ended June 30, 1994)
10.25 -- Amended and Restated Lease Agreement, by and among Neoserv (Co.) QRS 10-13, Inc. and Neoserv (Co.) QRS 10-8 Inc. (as
landlord) and the Company (as tenant), dated as of June 8, 1994 (incorporated by reference from Exhibit 10.78 to the
Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December 31, 1994)
10.26 -- First Amendment to Amended and Restated Lease Agreement, by and among Neoserv (Co.) QRS 10-13, Inc. and Neoserv (Co.)
QRS 11-8, Inc. (as landlord) and the Company (as tenant) (incorporated by reference from Exhibit 10.79 to the Company's
Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December 31, 1994)
10.27 -- Agreement for Information Technology Services, dated as of January 1, 1995, between the Company and EDS (incorporated
by reference from Exhibit 10.83 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year
ended December 31, 1995)
10.28 -- Form of Second Amendment to Amended and Restated Lease Agreement, dated as of March 25, 1996, by and among Neoserv
(Co.) QRS 10-13, Inc. and Neoserv (Co.) QRS 11-8, Inc. (as landlord) and the Company (as tenant) (incorporated by
reference from Exhibit 10.89 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended
December 31, 1995)
10.29 -- Stockholders Agreement, dated as of November 28, 1994, among Holding, HMC/Neodata, HM/DBMS, Hicks, Muse, EDS, and other
stockholders (incorporated by reference from Exhibit 10.40 to the Company's Annual Report on Form 10-K (File No. 33-
63838) for the transition period ended June 30, 1996)
10.30+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Mr. Nicholas J. Cuccaro
(incorporated by reference from Exhibit 10.41 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the
transition period ended June 30, 1996)
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.31+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Ms. Frances M. Anhut (incorporated
by reference from Exhibit 10.42 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition
period ended June 30, 1996)
10.32+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Mr. Ed L. Frazier (incorporated by
reference from Exhibit 10.43 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.33+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Ms. Susan L. Morse (incorporated by
reference from Exhibit 10.45 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.34+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Mr. Richard L. Rosy (incorporated by
reference from Exhibit 10.46 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.35+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Ms. Nancy S. Talmey (incorporated by
reference from Exhibit 10.47 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.36+ -- Letter Agreement, dated as of June 2, 1994, between the Company and Mr. Nicholas J. Cuccaro (incorporated by reference
from Exhibit 10.48 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.37+ -- Letter Agreement, dated as of March 15, 1994, between the Company and Ms. Frances M. Anhut (incorporated by reference
from Exhibit 10.49 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.38+ -- Letter Agreement, dated as of August 14, 1995, between the Company and Mr. Kevin G. Heery(incorporated by reference
from Exhibit 10.51 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.39+ -- Letter Agreement, dated as of September 23, 1993, between the Company and Ms. Susan L. Morse (incorporated by reference
from Exhibit 10.52 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.40+ -- Letter Agreement, dated as of February 25, 1992, between the Company and Mr. Richard L. Rosy (incorporated by reference
from Exhibit 10.53 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.41+ -- Letter Agreement, dated as of December 20, 1994, between the Company and Ms. Nancy S. Talmey (incorporated by reference
from Exhibit 10.54 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.42 -- Credit Agreement, dated as of January 31, 1997, among Holding, the Company, Various Banks and Bankers Trust Company, as
Agent (incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (File No. 33-63838)
for the quarterly period ended December 31, 1996)
10.43 -- Agreement, dated as of December 11, 1996, between the Company and Philip Morris Incorporated (incorporated by reference
from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (File No. 33-63838) for the quarterly period ended
March 31, 1997)**
10.44 -- Credit Agreement, dated as of February 24, 1997, among Holding, Neodata Creative Services, Inc., Neodata Investment
Services, Inc. No. 1, Neodata Investment Services, Inc. No. 2, Various Banks and Bankers Trust Company, as Agent
(incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (File No. 33-63838) for the
quarterly period ended March 31, 1997)
10.45 -- Third Amendment to Amended and Restated Lease Agreement, dated as of January 31, 1997, by and among Neoserv (Co.) QRS
10-13, Inc. and Neoserv (Co.) QRS 11-8, Inc. (as landlord) and the Company (as tenant)*
10.46+ -- Letter Agreement, dated as of November 7, 1995, between the Company and Mr. Ed L. Frazier*
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C> <C>
10.47+ -- Letter Agreement, dated as of June 17, 1996, between the Company and Ms. Frances M. Anhut*
10.48+ -- Letter Agreement, dated as of June 17, 1996, between the Company and Ms. Susan L. Morse*
10.49+ -- Letter Agreement, dated as of August 22, 1996, between the Company and Mr. Edward R. Flaherty*
10.50+ -- Letter Agreement, dated as of August 27, 1996, between the Company and Mr. Ed L. Frazier*
10.51+ -- Letter Agreement, dated as of September 18, 1996, between the Company and Mr. Kevin G. Heery*
10.52+ -- Executive Employment Agreement, dated as of December 17, 1996, between the Company and Mr. Edward R. Flaherty*
10.53+ -- Amended and Restated Executive Employment Agreement, dated as of January 1, 1997, between the Company and Mr. A.
Laurence Jones*
10.54+ -- Executive Employment Agreement, dated as of February 25, 1997, between the Company and Mr. Mark A. Lacek*
10.55+ -- Letter Agreement, dated as of February 27, 1997, between the Company and Ms. Nancy S. Talmey*
21 -- Subsidiaries of the Company*
27 -- Financial Data Schedule*
- ----------
</TABLE>
* Filed herewith.
** Confidential treatment has been granted with respect to certain portions of
such agreement and the confidential portions have been filed separately with
the Commission pursuant to the confidential treatment request.
+ Indicates a management contract or compensatory plan or arrangement.
REPORTS ON FORM 8-K
None.
35
<PAGE> 37
NEODATA SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets -- as of June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations -- for the years ended June 30, 1997 and 1996
and for the years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholder's Deficit -- for the year ended June 30, 1997,
the six month period ended June 30, 1996, and for the years ended December 31, 1995 and 1994 . F-5
Consolidated Statements of Cash Flows -- for the years ended June 30, 1997 and 1996,
and for the years ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
F-1
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
NEODATA SERVICES, INC.
We have audited the consolidated financial statements and consolidated
financial statement schedule of Neodata Services, Inc. listed in the Index
appearing on page F-1 of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule 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 Neodata Services, Inc. as of June 30, 1997 and 1996, and the consolidated
results of its operations and cash flows for the years then ended and each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
consolidated financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
August 6, 1997, except for Footnote 21
which is as of August 18, 1997
F-2
<PAGE> 39
NEODATA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,786 $ 1,304
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,800 54,996
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,859 6,088
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,445 62,388
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 47,593 51,649
Computer software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,362 18,819
Excess of cost over acquired net assets, net . . . . . . . . . . . . . . . . . . . 9,517 --
Debt issue costs and other assets, net . . . . . . . . . . . . . . . . . . . . . . 7,278 6,681
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,195 $139,537
======== ========
LIABILITIES AND STOCKHOLDER'S
DEFICIT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,329 $ 18,323
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,387 22,062
Current maturities of long-term debt and capital lease obligations . . . . . . . 1,804 599
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 63,520 40,984
Long-term debt and capital lease obligations, net of current maturities . . . . . . 192,153 184,651
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,521 10,522
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,598 5,757
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,792 241,914
-------- --------
Commitments and contingencies (See Notes 13, 14 and 18)
Stockholder's deficit:
Common stock, par value $.01 per share, 10,000 shares authorized,
1,173 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,029 28,029
Contributed capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,946 56,522
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (192,019) (187,018)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . 447 90
-------- --------
Total stockholder's deficit . . . . . . . . . . . . . . . . . . . . . . . . (108,597) (102,377)
-------- --------
Total liabilities and stockholder's deficit . . . . . . . . . . . . . . . . $163,195 $139,537
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 40
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . $264,631 $237,061 $244,255 $221,132
-------- -------- -------- --------
Expense:
Operating and production, excluding
depreciation and amortization
shown below . . . . . . . . . . . . . . . 185,455 173,289 182,081 167,363
Selling, general and administrative . . . . . 40,605 35,405 33,560 34,073
Restructuring charges . . . . . . . . . . . . 1,896 1,667 1,667 (1,236)
Impairment of NCORE . . . . . . . . . . . . . -- -- -- 31,155
Depreciation and amortization . . . . . . . . 16,378 14,665 14,761 13,246
-------- -------- -------- --------
244,334 225,026 232,069 244,601
-------- -------- -------- --------
Income (loss) before interest expense
and other . . . . . . . . . . . . . . . . . 20,297 12,035 12,186 (23,469)
Interest expense and other . . . . . . . . . . 24,985 23,863 23,015 19,444
-------- -------- -------- --------
Net loss before extraordinary loss . . . (4,688) (11,828) (10,829) (42,913)
Extraordinary loss -- early extinguishment
of debt . . . . . . . . . . . . . . . . . . . (313) -- -- --
-------- -------- -------- --------
Net loss . . . . . . . . . . . . . . . . $ (5,001) $(11,828) $(10,829) $(42,913)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 41
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE YEAR ENDED JUNE 30, 1997, THE SIX MONTH
PERIOD ENDED JUNE 30, 1996, AND FOR
THE YEARS ENDED DECEMBER 31, 1995 AND
1994
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN CONTRIBUTED ACCUMULATED TRANSLATION
SHARES CAPITAL CAPITAL DEFICIT ADJUSTMENT TOTAL
------ ------- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 1,173 $ -- $ 61,145 $(127,576) $(196) $(66,627)
Dividends to Holding to provide for
purchase of Holding treasury stock (310) (310)
Capital contribution from Holding 88 88
Dividends to Holding to provide for
payments on Meredith Note (1,841) (1,841)
Costs associated with a capital
contribution (271) (271)
Capital contribution from EDS as a
result of the release of certain
obligations 28,300 28,300
Net loss (42,913) (42,913)
Foreign currency translation adjustment 155 155
------ ------- -------- --------- ----- ---------
Balance, December 31, 1994 1,173 28,029 59,082 (170,489) (41) (83,419)
Dividends to Holding to provide for
payments on Meredith Note (1,735) (1,735)
Net loss (10,829) (10,829)
Foreign currency translation adjustment 56 56
------ ------- -------- --------- ----- ---------
Balance, December 31, 1995 1,173 28,029 57,347 (181,318) 15 (95,927)
Dividends to Holding to provide for
payments on Meredith Note (825) (825)
Net loss (5,700) (5,700)
Foreign currency translation adjustment 75 75
------ ------- -------- --------- ----- ---------
Balance, June 30, 1996 1,173 28,029 56,522 (187,018) 90 (102,377)
Dividends to Holding to provide for
payments on Meredith Note (1,576) (1,576)
Net loss (5,001) (5,001)
Foreign currency translation adjustment 357 357
------ ------- -------- --------- ----- ---------
Balance, June 30, 1997 1,173 $28,029 $ 54,946 $(192,019) $ 447 $(108,597)
====== ======= ======== ========= ===== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 42
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,001) $ (11,828) $ (10,829) $(42,913)
--------- --------- --------- --------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 16,378 14,665 14,761 13,246
Impairment of NCORE -- -- -- 31,155
Extraordinary loss 313 -- -- --
Provision for doubtful accounts receivable 560 1,642 1,259 1,099
Accretion of interest on long-term debt -- 15,032 17,190 15,384
Loss on disposal of assets 542 55 70 82
Changes in assets and liabilities:
Accounts receivable (8,134) (3,277) 4,196 (13,455)
Prepaid expenses and other 77 7,140 3,460 (5,682)
Debt issue costs and other assets (184) 1,097 707 (20)
Accounts payable 116 1,636 (1,347) 12,135
Accrued liabilities 476 2,913 (1,242) (8,276)
Customer deposits 1,999 (1,648) (1,330) 726
Other liabilities (2,619) (2,021) (995) (4,146)
Other, net -- 6 6 91
--------- --------- --------- --------
Total adjustments 9,524 37,240 36,735 42,339
--------- --------- --------- --------
Net cash provided by (used in) operating 4,523 25,412 25,906 (574)
--------- --------- --------- --------
activities
Cash flows from investing activities:
Purchases of property, plant and equipment (4,383) (2,760) (2,586) (12,101)
Proceeds from sales of property, plant and equipment 276 197 138 29
Purchases and development of computer software (6,963) (9,602) (9,191) (5,271)
Increase in restricted cash (3,000) -- -- --
Payments for acquisitions, net of cash acquired (8,393) -- -- --
--------- --------- --------- --------
Net cash used in investing activities (22,463) (12,165) (11,639) (17,343)
--------- --------- --------- --------
Cash flows from financing activities:
Change in book overdrafts 12,605 (5,421) 5,603 --
Borrowings under long-term lines of credit 187,921 111,350 155,900 69,436
Payments on long-term lines of credit (178,621) (119,350) (176,324) (49,012)
Debt issue cost (1,189) (450) (450) (374)
Payments on long-term debt and capital leases (665) (635) (765) (2,558)
Payments for NCORE development -- -- -- (709)
Dividends to Holding for payments on Meredith Note (1,986) (415) (442) --
Dividends to Holding for purchase of Holding
treasury stock -- -- -- (310)
Capital contribution from Holding -- -- -- 88
Costs associated with a capital contribution -- -- -- (271)
--------- --------- --------- --------
Net cash provided by (used in) financing 18,065 (14,921) (16,478) 16,290
--------- --------- --------- --------
activities
Change resulting from cumulative translation adjustment 357 262 56 155
--------- --------- --------- --------
Net change in cash 482 (1,412) (2,155) (1,472)
Cash at beginning of year 1,304 2,716 2,341 3,813
--------- ---------- --------- --------
Cash at end of year $ 1,786 $ 1,304 $ 186 $ 2,341
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 43
NEODATA SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Total cash interest payments were $24,038,000 and $4,452,000 for the years
ended June 30, 1997 and 1996, respectively, and $4,798,000 and $2,717,000 for
the years ended December 31, 1995 and 1994, respectively.
In fiscal 1997, the Company paid $68,000 in alternative minimum tax. In
1995, the Company paid $129,000 in alternative minimum tax and $54,000 in state
income taxes.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In July 1996, the Company acquired assets in exchange for service credits
totaling $780,000 (see Notes 3 and 12), which were recorded at their estimated
present value at 12% of $653,000.
In May 1996, the Company acquired assets in exchange for service credits
totaling $2,200,000 (see Notes 3 and 12), which were recorded at their
estimated present value at 12% of $1,676,000.
During the year ended December 31, 1995, the Company entered into capital
lease obligations for equipment totaling $400,000.
The Company satisfied Holding's obligation under the Meredith Note (see
Notes 1 and 16) for the second, third, and fourth quarters of 1995, and for the
first three quarters of 1994, totaling $1,293,000 and $1,389,000, respectively,
by reducing accounts receivable. Amounts due of $452,000 and $410,000 under the
Meredith Note at December 31, 1995 and June 30, 1996, respectively, are
included in accounts payable.
In November 1994, in connection with the Recapitalization (see Note 20),
Holding issued preferred stock to Electronic Data Systems Corporation ("EDS")
in exchange for a reduction in obligations owed to EDS of $28,300,000.
Liabilities reduced included certain obligations incurred in the development of
NCORE of $26,903,000 and certain current obligations of $1,397,000.
In December 1994, the Company entered into an additional capital lease
obligation of $11,990,000 under the Centennial Building Capital Lease (see Note
11).
In connection with the development of the Neodata Customer Oriented
Relational Environment System ("NCORE"), the Company incurred obligations of
$7,777,000 during 1994. (See Note 13).
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 44
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Neodata Services, Inc. (the "Company"), a wholly owned subsidiary of Neodata
Corporation ("Holding"), provides comprehensive, integrated outsourced services
to organizations using direct marketing. These services include magazine, book,
and product fulfillment, product warehousing and distribution, telephone
customer service, marketing database management, and loyalty program
management. In addition, the Company provides marketing and promotional
services and Internet services to a significant number of clients in various
industries. The Company's services are used by various organizations using
direct marketing and are adaptable to a broad variety of products and marketing
activities.
The Company was incorporated in August 1990 for the purpose of acquiring
certain net assets of the Neodata Division ("Subscription Fulfillment") of A.C.
Nielsen Company, a subsidiary of Dun & Bradstreet Corporation (the "Services
Acquisition"). Concurrently, Holding acquired 100% of the common stock of TMI
Corporation ("Telemedia" and the "Telemedia Acquisition"). In April 1991,
Holding formed Neodata Product/Distribution Holdings, Inc. and its wholly-owned
subsidiary Neodata Product/Distribution Services, Inc. (collectively "Product")
for the purpose of acquiring substantially all the assets of the Fulfillment
Services Division of Meredith Corporation (the "Product Acquisition"). In
September 1992, Holding formed Neodata Database Marketing Services, Inc.
("Database") for the purpose of acquiring the stock of Wiland Services, Inc.
(the "Database Acquisition").
In 1993 the Company issued $163,000,000 in Senior Deferred Coupon Notes (the
"Notes"), and Telemedia, Product, and Database were merged into the Company
(the "Mergers"). After the Mergers, the Company included all operations, assets
and liabilities of Holding with the exception of a note payable (the "Meredith
Note"), which totaled approximately $3,492,000 and $4,711,000 at June 30, 1997
and 1996, respectively. The Meredith Note is not reflected in the financial
statements of the Company, as such note is not an obligation of the Company or
any of its subsidiaries. Holding's only asset is its equity investment in the
issued and outstanding shares of common stock of the Company, and it does not
conduct operations other than through the Company. Therefore, the only source
of payment on the Meredith Note is cash generated by the Company.
In November 1994, the Company, Holding and EDS entered into a transaction
(the "Recapitalization") that resulted in the release of certain financial
obligations owed by the Company to EDS and an increase in EDS' equity ownership
in Holding (see Note 20).
The Company is affected by a variety of regulatory issues, including
Federal Trade Commission ("FTC") regulations, U.S. Postal Service ("USPS")
reclassification, sales and use tax legislation, as well as legislation on a
variety of privacy acts. New bills are regularly introduced in Congress and in
state legislatures that propose restrictions concerning distribution of
personal information, privacy in telecommunications, and taxation of
periodicals, direct mail merchandise, and Internet transactions.
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
In April 1996 the Company changed its fiscal year end from December 31 to
June 30 (see Note 4). References to "fiscal 1997" relate to the year ended
June 30, 1997.
F-8
<PAGE> 45
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. Intercompany transactions and balances have
been eliminated.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Property, plant and
equipment is depreciated over estimated useful lives of approximately five to
thirty-one years using the straight-line method. Assets recorded under capital
leases and leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the related leases using the straight-
line method.
The cost of normal maintenance and repairs is charged to expense as
incurred. Significant expenditures which increase the life of an asset are
capitalized and depreciated over the remaining estimated useful life of the
asset. Upon sale or retirement of assets, the costs and related accumulated
depreciation or amortization are eliminated from the respective accounts and
any resulting gains or losses are reflected in operations.
Computer Software
The Company capitalizes the costs of internal software development in
accordance with Statement of Financial Accounting Standards No. 86.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies. The
Company has also capitalized the direct and indirect allocable costs and
interest costs of internally developed software and the cost of purchased
software to be used for internal use. Currently, the Company is amortizing all
software costs using the straight-line method over estimated economic lives
ranging from one to five years.
Intangible and Long-Lived Assets
The excess of cost over fair value of net assets acquired is amortized over
the estimated useful lives of the costs, currently 3 to 15 years. The Company
evaluates the recoverability of the excess of cost over net assets acquired,
other intangible assets, and other long-lived assets annually to determine if
impairment exists. A quantitative analysis of future undiscounted operating
income (before the amortization of intangible assets) is used to determine the
recoverability of these assets. In addition to reviewing the recoverability of
assets annually, at each quarterly balance sheet date the Company evaluates
whether events, changes of circumstances, or changes in the Company's business
plan indicates that these assets might not be recoverable. If not, further
quantitative analysis of future undiscounted operating income (before the
amortization of intangible assets) is then performed. Adjustments are made if
the sum of expected future cash flows is less than carrying value.
Debt Issue Costs
The costs related to the issuance of the Notes, the Senior Credit Facility,
the Acquisition Credit Facility, and the Centennial Building Capital Lease (see
Note 11) are capitalized and amortized to interest expense using the
straight-line method over the lives of the related debt.
F-9
<PAGE> 46
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Translation of Foreign Currencies
The accounts of the Company's foreign subsidiaries in the United Kingdom and
Ireland are measured using the local currency which has been designated as the
functional currency. Assets and liabilities of those subsidiaries are
translated at the exchange rate in effect at the end of each period. Revenues
and expenses of those subsidiaries are translated at the average exchange rate
for the period. Translation adjustments arising from the use of differing
exchange rates from period to period are included in a cumulative translation
adjustment account in stockholder's deficit.
Use of Estimates in the Preparation of Financial Statements
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 at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Significant Client
The Company enters into contracts with its clients with various terms and
renewal provisions. Each of these contracts, with the exception of a contract
with a significant client as described in the following paragraph, are subject
to performance standards and certain contracts contain fixed price provisions
subject to cost of living adjustments. There are no annual volumes committed
under these contracts. Revenue is recognized when services are performed.
Since 1993, the Company has performed product fulfillment, distribution,
telephone customer services and other services under successive contracts with
a significant client. The current contract with this client expires in January
1998. The client is billed on a "cost-plus" basis rather than a fixed price
basis. Revenues are recorded as costs are incurred and include earned fees
based on a percentage of costs incurred to date. Fees under the contract may
be increased or decreased in accordance with cost or performance incentive
provisions which measure actual performance against established targets. Such
incentive fee awards or penalties are included in revenues at the time the
amounts can be reasonably determined. Incentive fee awards recognized in
fiscal 1997 amounted to $420,000. Revenues from services provided were
approximately $40,281,000, $39,373,000, $44,083,000, and $20,375,000 for the
years ended June 30, 1997 and 1996 and the years ended December 31, 1995 and
1994, respectively. Accounts receivable for revenue, postage, and other
reimbursables from this client at June 30, 1997 and 1996 totaled $3,849,000 and
$4,728,000, respectively. Revenues for similar services from an affiliate of
this client were approximately $16,037,000, $13,430,000, $12,589,000, and
$10,808,000 for the years ended June 30, 1997 and 1996 and the years ended
December 31, 1995 and 1994, respectively. Accounts receivable for revenue,
postage, and other reimbursables from this affiliate at June 30, 1996 totaled
$2,816,000; no accounts receivable were outstanding at June 30, 1997.
Cash and Cash Equivalents
The Consolidated Statements of Cash Flows classify changes in cash or cash
equivalents (short-term, highly liquid investments readily convertible into
cash with an original maturity of three months or less) according to operating,
investing, or financing activities. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash and temporary cash investments. At times, cash balances held at financial
institutions were in excess of FDIC insurance limits. The Company places its
temporary cash investments with high-credit, quality financial institutions
and, by policy, limits the amount of credit exposure to any one financial
institution. The Company believes no significant concentration of credit risk
exists with respect to these cash investments.
F-10
<PAGE> 47
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain balances have been reclassified to conform to the current year
presentation.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes requirements for the disclosure of
comprehensive income. Comprehensive income includes such items as foreign
currency translation adjustments and unrealized holding gains and losses on
available-for-sale securities which are presented, under current standards, as
a component of Stockholder's equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes requirements
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for disclosures about products and services, geographic areas, and
major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise."
Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning
after December 15, 1997. Management is currently evaluating the requirements of
these standards and has not yet determined their effect, if any, on the
Company's Consolidated Financial Statements.
3. ACQUISITIONS
In February 1997, Neodata Creative Services, Inc. ("Creative Services"), a
newly formed wholly-owned subsidiary of the Company, acquired substantially all
of the business assets and assumed the associated liabilities of The Lacek
Group, Inc., as well as all of the outstanding stock of Lacek Systems and
Software, Inc., and Lacek Travel Services, Inc. (the "Lacek Companies" and the
"Lacek Acquisition"). The Lacek Acquisition was funded from cash, in addition
to borrowings totaling $4,300,000 under a new line of credit agreement entered
into by Creative Services (the "Acquisition Credit Facility") (see Note 11).
Pursuant to the terms of the Lacek Acquisition, the Company deposited
$3,000,000 into an escrow account as security for additional consideration, all
or part of which may be paid in fiscal 1998 contingent upon the Lacek Companies
achieving certain performance targets. The escrow deposit is accounted for as
restricted cash and is included in "Prepaid expenses and other" on the
Company's Consolidated Balance Sheet. Further additional consideration (in
excess of the $3,000,000 deposited into escrow) of up to $9,000,000 is payable
through June 2000 contingent upon the Lacek Companies achieving certain
performance targets. The Company believes that the total amount of additional
consideration to be paid, if any, cannot be reasonably estimated at this time.
In July 1996, the Company acquired substantially all of the business assets
of International Subscription Services Limited, a United Kingdom based
subscription fulfillment subsidiary of The Economist Newspaper Limited (the
"ISS Acquisition"). The ISS Acquisition was funded from cash, in addition to
service credits totaling $780,000 over a three-year period (see Note 12), which
were recorded at their estimated present value at 12% of $653,000.
In May 1996, the Company acquired the product distribution assets of an
operating division of Newfield Publications (the "Newfield Acquisition"). The
Newfield Acquisition was funded through service credits totaling $2,200,000
over a five-year period (see Note 12), which were recorded at their estimated
present value at 12% of $1,676,000.
Results of operations after the respective acquisition dates are included in
the Company's Consolidated Statements of Operations and Cash Flows. Pro forma
results of operations have not been presented as the effect of the acquisitions
was not material on a consolidated basis.
F-11
<PAGE> 48
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. TRANSITION PERIOD
In April 1996 the Company changed its fiscal year end from December 31 to
June 30. The change was made in order to conform the Company's fiscal year to
its natural business cycle. Results of operations for the six-month periods
ended June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $114,665 $121,859
-------- --------
Expense:
Operating and production . . . . . . . . . . . . . . . . . . . . . . . 81,953 90,745
Selling, general and administrative . . . . . . . . . . . . . . . . . 18,662 17,200
Provision for doubtful accounts receivable . . . . . . . . . . . . . . 680 297
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 7,102 7,198
-------- --------
108,397 115,440
-------- --------
Income (loss) before interest expense and other . . . . . . . . . . . . 6,268 6,419
Interest expense and other . . . . . . . . . . . . . . . . . . . . . . . 11,968 11,120
-------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,700) $ (4,701)
======== ========
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 1997 and 1996 consist of billed and unbilled
amounts as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accounts receivable, trade $57,956 $46,565
Unbilled revenue 6,548 5,889
Unbilled postage cost and other reimbursables 4,540 4,135
------- -------
69,044 56,589
Allowance for doubtful accounts (1,244) (1,593)
------- -------
$67,800 $54,996
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1997 and 1996 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 1,412 $ 1,414
Machinery and equipment 54,204 53,804
Buildings and improvements 37,052 36,375
-------- --------
92,668 91,593
Accumulated depreciation and amortization (45,075) (39,944)
-------- --------
$ 47,593 $ 51,649
======== ========
</TABLE>
___Included in machinery and equipment above is computer and other equipment
held under capital leases with a cost of $447,000 and accumulated depreciation
of $137,000 and $89,000 at June 30, 1997 and 1996, respectively. Included in
buildings and improvements are the Centennial Building Capital Leases (see Note
11) with a cost of $22,299,000 and accumulated depreciation of $3,835,000 and
$2,720,000 at June 30, 1997 and 1996, respectively.
Repairs and maintenance expense was $4,765,000, $4,194,000, $4,879,000, and
$5,759,000 for the years ended June 30, 1997 and 1996 and the years ended
December 31, 1995 and 1994, respectively. Depreciation expense
F-12
<PAGE> 49
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
related to property, plant, and equipment was $8,509,000, $9,266,000,
$9,869,000, and $9,615,000 for the years ended June 30, 1997 and 1996 and the
years ended December 31, 1995 and 1994, respectively.
7. COMPUTER SOFTWARE
Computer software at June 30, 1997 and 1996 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Purchased and developed software $ 33,069 $ 26,204
Software acquired in acquisitions 6,952 6,952
-------- --------
40,021 33,156
Accumulated amortization (21,659) (14,337)
-------- --------
$ 18,362 $ 18,819
======== ========
</TABLE>
NCORE was developed for the Company by EDS to replace and enhance software
components of existing systems. Associated costs included developed software,
system integration, systems conversion, purchased software packages, and costs
of re-engineering certain input and output business processes. Amortization of
NCORE applications commenced in December 1994. As discussed in Note 20, the
Company determined that the NCORE development asset was not fully recoverable,
resulting in a $31,155,000 write down of NCORE in the fourth quarter of 1994.
Amortization expense related to computer software was $7,420,000,
$5,399,000, $4,892,000, and $3,631,000 for the years ended June 30, 1997 and
1996 and the years ended December 31, 1995 and 1994, respectively.
8. EXCESS OF COST OVER ACQUIRED NET ASSETS
The excess of cost over acquired net assets relates to the Lacek and ISS
Acquisitions (see Note 3), which occurred during fiscal 1997. The excess of
cost over acquired net assets is amortized on a straight-line basis over the
estimated useful lives of the costs, currently 3 to 15 years. Accumulated
amortization at June 30, 1997 and amortization expense for the year amounted to
$426,000.
F-13
<PAGE> 50
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACCOUNTS PAYABLE
Accounts payable at June 30, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accounts payable, trade $11,696 $ 9,264
Book overdrafts 13,451 846
Amounts due to EDS 9,182 8,213
------- -------
$34,329 $18,323
======= =======
</TABLE>
10. ACCRUED LIABILITIES
Accrued liabilities at June 30, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued compensation cost $ 9,120 $ 6,340
EDS license fee and other 427 656
Accrued taxes 1,204 1,796
Current portion of Meredith service credits 1,456 1,424
Accrued interest 3,375 3,436
Other accrued liabilities 11,805 8,410
------- -------
$27,387 $22,062
======= =======
</TABLE>
11. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
A summary of long-term debt and capital lease obligations at June 30, 1997
and 1996 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Notes with interest at 12% and semi-annual interest payments $163,000 $163,000
Senior Credit Facility 5,000 --
Acquisition Credit Facility 4,300 --
Centennial Building Capital Lease with imputed interest at 14.5% 7,140 7,248
Centennial Phase II Capital Lease with interest at 10% 12,874 13,136
Other notes 1,362 1,441
Capital lease obligations, varying terms through 2001,
interest from 12.0% to 14.5% 281 425
-------- --------
193,957 185,250
Less current maturities (1,804) (599)
-------- --------
$192,153 $184,651
======== ========
</TABLE>
In May 1993, the Company issued $163,000,000 aggregate principal amount
($115,057,000 initial accreted value) of the Notes. Interest on the Notes is
payable at 12% per annum. Interest was accreted on the Notes through May 1,
1996 and accrued for payment thereafter. Semi-annual interest payments of
$9,780,000 commenced on November 1, 1996. The Notes mature on May 1, 2003 and
are general unsecured obligations of the Company.
The Notes are not subject to redemption prior to May 1, 1998. On and after
such date, the Company may redeem the Notes, in whole or in part, at the
redemption prices set forth below plus accrued and unpaid interest to the date
of redemption. Redemption prices are 106% of par value at May 1, 1998, 103% at
May 1, 1999 and 100% at May 1, 2000 and thereafter. If less than all of the
Notes are to be redeemed, the trustee may elect the Notes or portions thereof
to be redeemed pro rata, by lot or by any other method the trustee shall deem
fair and reasonable. The Notes
F-14
<PAGE> 51
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contain covenants that, among other things, restrict (with certain exceptions)
the payment of dividends, and limit (with certain exceptions) other
indebtedness, investments, asset sales, consolidations, mergers, and
transactions with shareholders and affiliates.
In January 1997, the Company and Holding entered into a new five-year senior
revolving line of credit facility (the "Senior Credit Facility") with a new
lender to replace the Company's previous line of credit facility. The Senior
Credit Facility provides for advances up to $40,000,000, subject to certain
limitations, and is collateralized by the Company's accounts receivable and
Holding's common stock in the Company. Interest on loans outstanding under the
Senior Credit Facility is based, at the Company's option, on 1) the greater of
the agent bank's prime rate (as defined) plus 1.25% or the certificate of
deposit rate (as defined) plus 1.75%, or 2) LIBOR plus 2.5%. The Company is
also obligated to pay an unused line fee equal to 0.5% computed on the average
unutilized portion of the facility, in addition to an annual administrative fee
of $75,000. The Senior Credit Facility includes certain covenants that, among
other things, limit the Company's ability to incur additional debt, create
liens, pay cash dividends (with certain exceptions), or make certain other
payments, and which require the Company to meet certain financial provisions on
a quarterly basis. Subject to significant limitations, the Company may
complete acquisitions or make investments in subsidiaries.
At June 30, 1997, $5,000,000 was outstanding under the Senior Credit
Facility. No amounts were outstanding against the previous line of credit
facility as of June 30, 1996. Letters of credit outstanding against existing
line of credit facilities were $4,761,000 and $4,886,000 as of June 30, 1997
and 1996, respectively. Total remaining availability under existing line of
credit facilities was $26,791,000 and $25,114,000 as of June 30, 1997 and 1996,
respectively.
Debt issue costs of $1,038,000 under the Senior Credit Facility are
amortized using the straight-line method over the term of the agreement.
Unamortized debt issue costs of $313,000 related to the previous line of credit
facility were charged as an extraordinary loss.
In connection with the Lacek Acquisition (see Note 3), Creative Services
entered into the Acquisition Credit Facility. The Acquisition Credit Facility
provides for advances, subject to lender approval, of up to $6,300,000, is
collateralized by substantially all the assets of Creative Services, and
expires in August, 1998. The Acquisition Credit Facility includes certain
covenants that, among other things, prohibit Creative Services from paying
dividends to the Company, limit Creative Services' ability to incur additional
debt, create liens, or make certain other payments, and which require Creative
Services to meet certain financial provisions on a quarterly basis. At June
30, 1997, $4,300,000 was outstanding against the Acquisition Credit Facility.
Debt issue costs of $151,000 under the Acquisition Credit Facility are
amortized using the straight-line method over the term of the agreement.
In April 1993, the Company entered into a capital lease obligation in the
amount of $9,000,000 (the "Centennial Building Capital Lease") for a building
in Louisville, Colorado ("Centennial Phase I"). In December 1994, the
Centennial Building Capital Lease was amended to reflect a major addition to
the building ("Centennial Phase II"). In connection therewith, the Company
entered into an additional capital lease obligation of $11,990,000. Interest on
Centennial Phase I is imputed at approximately 14.5%, and the remaining
obligation at June 30, 1997 and 1996 totaled approximately $7,140,000 and
$7,248,000, respectively. Interest on Centennial Phase II is imputed at 10%,
and the remaining obligation at June 30, 1997 and 1996 totaled approximately
$12,874,000 and $13,136,000, respectively. The Centennial Phase II obligation
includes $1,500,000 originally included in the Centennial Phase I obligation.
The Centennial Building Capital Lease contains certain covenants that, among
other things, limit the Company's ability to incur additional debt, create
liens, pay cash dividends (with certain exceptions), or make certain other
payments, and which require the Company to meet certain financial provisions on
a quarterly basis. During fiscal 1997, the lessor modified the financial
covenants under the Centennial Building Capital Lease to be similar to the
financial covenants under the Senior Credit Facility.
The initial term of the Centennial Building Capital Lease is 20 years, with
four successive five year renewals. The Company may purchase the Centennial
Building at fair market value during the ninth year of the lease, or at the
F-15
<PAGE> 52
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
end of the first five year renewal period. Total monthly payments amount to
approximately $109,000 and $130,000 for Centennial Phase I and Centennial Phase
II, respectively. On June 1, 2001 and every fifth year thereafter, total annual
payments under the Centennial Building Capital Lease will be increased by the
lesser of 22.10% or the cumulative rate of inflation for the preceding five
years.
Holding has guaranteed performance on all terms of the Centennial Building
Capital Lease. The Centennial Building Capital Lease is collateralized by the
buildings.
Future maturities of long-term debt and capital leases are as follows (in
thousands):
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
Year ending June 30: DEBT LEASES TOTAL
---- ------ -----
<S> <C> <C> <C>
1998 $ 1,311 $ 2,803 $ 4,114
1999 4,351 2,803 7,154
2000 -- 2,801 2,801
2001 -- 2,752 2,752
2002 5,000 2,716 7,716
Thereafter 163,000 32,044 195,044
-------- --------- --------
173,662 45,919 219,581
Less amounts representing interest on capital lease obligations -- (25,624) (25,624)
Less current maturities (1,311) (493) (1,804)
-------- --------- --------
Long-term debt and capital lease obligations, net
of current maturities $172,351 $ 19,802 $192,153
======== ========= ========
</TABLE>
12. OTHER LIABILITIES
Other liabilities at June 30, 1997 and 1996 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Service credits $ 1,384 $ 2,638
EDS license fee and contract obligation 1,635 2,435
Other 579 684
------- -------
$ 3,598 $ 5,757
======= =======
</TABLE>
Pursuant to prior technology agreements (see Note 13), EDS purchased certain
computer equipment used in the Company's data center for $4,603,000 and prepaid
a $1,600,000 license fee for a ten-year license to use certain of the Company's
proprietary data processing information. The license fee is recognized in
income on a straight-line basis over ten years. The proceeds from the sale of
the equipment have been deferred as a long-term contract obligation.
The amortization on the license fee and obligation is as follows (in
thousands):
<TABLE>
<S> <C>
Year ending June 30:
1998 $ 757
1999 757
2000 757
2001 127
------
2,398
Less amounts representing interest and current portion (763)
------
$1,635
======
</TABLE>
F-16
<PAGE> 53
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. NCORE DEVELOPMENT AND TECHNOLOGY AGREEMENT
Through December 31, 1994, the Company incurred liabilities totaling
$29,333,000 related to NCORE development. Payments through December 31, 1994
reduced these liabilities by $2,430,000. In connection with the
Recapitalization, EDS eliminated the Company's remaining liabilities of
$26,903,000 in exchange for Holding preferred stock (see Note 20). This
reduction in liabilities together with a reduction in certain trade payables of
approximately $1,397,000 was accounted for as a capital contribution.
In connection with the Recapitalization, EDS and the Company entered into
the Amended IT Agreement effective as of January 1, 1995. The Amended IT
Agreement amended and restated the terms upon which EDS will (i) continue to
supply to the Company information technology services (the "IT Services") and
(ii) assist the Company in reducing costs and improving its business
operations. Under the Amended IT Agreement, the Company has control over the
management direction of the IT Services and EDS's delivery of the IT Services.
The Amended IT Agreement amends, restates and supersedes the terms and
conditions of all prior information technology services agreements between the
Company and EDS as of the effective date of the Amended IT Agreement. Certain
information technology functions formerly performed by the Company are included
in the IT Services. Effective January 1, 1995, approximately 112 Company
employees were transferred to EDS, as well as certain operating lease
obligations for equipment and software.
The Amended IT Agreement provides for an initial term concluding on March
31, 2003 unless earlier terminated or subsequently renewed in accordance with
the terms of the Amended IT Agreement. Under the Amended IT Agreement, EDS
supplies to the Company substantially all of the Company's information
technology, equipment, and services needs, with certain exceptions. Any
information technology services of the Company which are beyond the scope of
the Amended IT Agreement must be agreed to in writing in advance by the
parties. If either party materially defaults in the performance of any of its
duties or obligations under the Amended IT Agreement, and such default shall
not be substantially cured within sixty days after written notice is given to
the defaulting party specifying the default, then the other party may terminate
the Amended IT Agreement as of a date specified in such notice of termination.
The Company compensates EDS for IT Services on a "cost-plus" basis. The term
"cost-plus" means that the Company reimburses EDS for EDS's direct
out-of-pocket expenses incurred by EDS in performing the IT Services and pays
EDS an amount based on a percentage of the reimbursed costs. EDS is required to
use its reasonable efforts to obtain the various third party resources and
services to be provided to the Company at the lowest vendor charges
commercially available to EDS. In addition, EDS must take any and all
reasonable steps to minimize the amount and level of reimbursed service costs
consistent with the performance of its obligations under the Amended IT
Agreement. The Company estimates fiscal 1998 expenditures to be approximately
$50,400,000 under the Amended IT Agreement, including approximately $6,500,000
in capitalized expenditures. EDS has also agreed to provide the Company with
related financing on commercially customary terms and conditions.
Fees incurred under the Amended IT Agreement for the year ended June 30,
1997 were $48,301,000 (including $7,500,000 of capitalized expenditures), of
which $9,182,000 and $427,000 was included at June 30, 1997 in accounts payable
and accrued liabilities, respectively. Fees incurred under the Amended IT
Agreement for the year ended June 30, 1996 were $47,177,000 (including
$8,380,000 of capitalized expenditures), of which $8,213,000 and $656,000 was
included at June 30, 1996 in accounts payable and accrued liabilities,
respectively. Fees incurred under the Amended IT Agreement for the year ended
December 31, 1995 were $44,773,000 (including $7,553,000 of capitalized
expenditures), of which $12,581,000 and $518,000 was included at year-end in
accounts payable and accrued liabilities, respectively. Fees incurred under the
then-existing EDS information technology services agreement for the year ended
December 31, 1994 were $31,664,000 (including $5,271,000 of capitalized
expenditures), of which $7,208,000 and $592,000 was included at year-end in
accounts payable and accrued liabilities, respectively.
F-17
<PAGE> 54
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS
Financial Advisory Agreements
The Company has engaged each of Hicks, Muse, Tate & Furst Incorporated
("Hicks, Muse") and Wand/Neodata Investments, L.P. ("Wand"), to provide
financial advisory services during the ten-year period ending August 22, 2000,
in consideration for which Hicks, Muse and Wand will receive aggregate fees of
approximately $1,800,000 and $350,000, respectively, which are currently
payable in quarterly installments of $45,000 and $8,750, respectively. Hicks,
Muse and Wand are also entitled to reimbursement for all reasonable and
customary disbursements and out-of-pocket expenses incurred in the performance
of those financial advisory services and will be indemnified by the Company
against certain liabilities and expenses. Hicks, Muse received fees of $180,000
in each of the years ended June 30, 1997 and 1996 and in the years ended
December 31, 1995 and 1994 pursuant to such agreements. Wand received fees of
$35,000 in each of the years ended June 30, 1997 and 1996 and in the years
ended December 31, 1995 and 1994 pursuant to such agreements.
Leases
The Company leases various office and warehouse space and certain property
and equipment under noncancelable operating lease agreements. Most leases
contain options to renew at varying terms and some contain purchase options.
Under contracts existing at June 30, 1997, the future minimum annual rentals
applicable to these leases that have initial or remaining lease terms in excess
of one year are as follows (in thousands):
<TABLE>
<S> <C>
Year ending June 30:
1998 $ 13,380
1999 12,000
2000 10,855
2001 9,108
2002 5,992
Thereafter 25,601
--------
Total minimum lease payments $ 76,936
========
</TABLE>
___Rental expense for operating leases was $14,718,000, $15,918,000,
$14,328,000, and $12,888,000 for the years ended June 30, 1997 and 1996 and the
years ended December 31, 1995 and 1994, respectively.
Employment Agreements
The Company has employment agreements with certain executive officers with
variable terms. The agreements provide for annual base salaries and additional
annual merit bonuses as established by the Board of Directors. Under certain
circumstances, including termination without cause (as defined), certain
executive officers will be entitled to receive (i) monthly severance payments
in an amount equal to their monthly base salary for a period of 3-18 months,
(ii) a pro-rated portion of the bonus that would have been payable for the year
in which such termination occurs, and (iii) certain other benefits. The maximum
aggregate commitment for future salaries, excluding bonuses, under these
employment agreements is approximately $2,500,000.
Ireland Grants
In November 1994, the Company signed an agreement (the "Agreement") with the
Industrial Development Agency of Ireland (the "IDA") to grant the Company's
foreign subsidiary in Ireland cash payments in various installments. Through
June 30, 1997, the Company received cash payments totaling approximately
$1,700,000 under the Agreement, which were recorded as deferred income. In
March 1997, the Company adopted a plan to close its remaining facilities in
Ireland (see Note 20). As a result, the Company will be required to repay
approximately $1,700,000 of grant funds to the IDA in fiscal 1998.
F-18
<PAGE> 55
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Telecommunications Agreement
The Company has entered into a three-year noncancelable agreement with a
telecommunications provider pursuant to which the Company will receive, among
other things, interstate and international telecommunications services at a
discount from the telecommunications provider if certain minimum billing levels
are maintained. This agreement superseded a previously existing agreement with
the same telecommunications provider. Under the current agreement, minimum
billing levels amount to $3,000,000 for each of the years ended June 30, 1998,
1999, and 2000. The Company believes that it will satisfy the requirements
under the agreement.
Real Estate Partnership
The Company has a minority interest in a real estate partnership which owns
one of the Company's facilities. Rental expense paid to this partnership
amounted to $362,000, $382,000, $412,000, and $400,000 during the years ended
June 30, 1997 and 1996 and the years ended December 31, 1995 and 1994,
respectively. At June 30, 1997 and 1996, the Company held a note receivable
from the partnership amounting to $129,000.
Other Contingencies
In the normal course of business, the Company is subject to certain legal
proceedings. In management's opinion, the outcome of such litigation will not
have a material adverse effect on the Company's financial position or operating
results.
15. INCOME TAXES
Holding and the Company file a consolidated federal income tax return and
are parties to a tax sharing agreement for the purpose of allocating the
federal income tax liability of the group among its members. The tax sharing
agreement generally allocates the consolidated federal income tax liability to
each member according to the ratio of what that member's tax liability would be
if it filed a separate federal income tax return (subject to certain
modifications) to the similarly computed separate return tax liability of the
members of the group. Pursuant to the agreement, a member is permitted to
utilize the net operating loss of another member (a "Loss Member") to reduce
its share of consolidated federal income tax liability and is not required to
compensate the Loss Member for such tax benefit unless and to the extent that
the Loss Member generates taxable income which would have permitted the Loss
Member to utilize the net operating loss in a separate federal income tax
return.
F-19
<PAGE> 56
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's principal temporary differences between the financial
reporting and tax basis of assets and liabilities at June 30, 1997 and 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 568 $ 795
Property, plant and equipment depreciation 3,174 3,505
Computer software amortization and intangible and other assets 2,266 4,836
Original issue discount 18,196 18,196
Other accrued liabilities 3,952 3,316
Stock of foreign subsidiaries 2,423 2,424
Alternative minimum tax payments 193 137
Net operating loss carryforwards 15,399 17,723
---------- ----------
Total gross deferred tax assets 46,171 50,932
Valuation allowance (46,155) (50,855)
---------- ----------
Net deferred tax assets 16 77
---------- ----------
Deferred tax liabilities:
Service credits (16) (77)
---------- ----------
Total gross deferred tax liabilities (16) (77)
---------- ----------
Net deferred income tax asset (liability) $ 0 $ 0
========== ==========
</TABLE>
The Company has incurred cumulative losses in recent years. Therefore, in
accordance with SFAS 109, the Company has concluded that a full valuation
allowance must be applied to the gross deferred tax asset, resulting in a net
deferred tax asset of zero, except to the extent that the benefit of operating
loss carryforwards can be used to offset future reversals of existing deferred
tax liabilities. The net increase (decrease) in the valuation allowance for the
year ended June 30, 1997, the six month period ended June 30, 1996, and the
years ended December 31, 1995 and 1994 was $(4,700,000), $1,358,000,
$6,351,000, and $8,350,000, respectively.
The Company has net operating loss carryforwards for income tax purposes of
approximately $40,500,000 at June 30, 1997 that expire beginning in 2006. Net
operating loss carryforwards for alternative minimum tax purposes at June 30,
1997 are approximately $37,700,000. These carryforwards expire beginning in
2006.
In 1995, the Internal Revenue Service completed its examination of the
Company's federal income tax returns for the years 1991 through 1993.
Adjustments relating to this examination capitalized amounts originally
expensed and reduced original purchase price allocations. Additional deferred
tax assets resulting from the audit consist primarily of accrued but unpaid
original issue discount which will be deductible when paid. The examination
resulted in the payment of $129,000 in alternative minimum tax.
In fiscal 1997, the Internal Revenue Service began an examination of the
Company's federal income tax returns for 1994 and 1995. The Internal Revenue
Service has proposed adjustments to reduce the Company's net operating loss
carryforwards by approximately $8,100,000. The proposed adjustments primarily
reduce certain depreciation and amortization deductions claimed by the Company.
The proposed adjustments are included at June 30, 1997 in the schedule of
principal temporary differences shown above. The Company anticipates
completion of this examination in fiscal 1998.
Any future change of control of the Company could, under certain
circumstances, result in the limitation of net operating loss carryforwards.
F-20
<PAGE> 57
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of the United States federal statutory rate and state income
tax rates to the Company's effective tax rate for the year ended June 30, 1997,
the six month period ended June 30, 1996 and the years ended December 31, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. statutory rate of tax 34.0% 34.0% 34.0% 34.0%
State income tax rates 4.0 4.0 4.0 4.0
Operating losses with no current tax benefit (38.0) (38.0) (38.0) (38.0)
----- ----- ----- -----
0.0% 0.0% 0.0% 0.0%
===== ===== ===== =====
</TABLE>
16. RETIREMENT SAVINGS PLAN
The Neodata Corporation 401(k) Savings Plan (the "Plan") is a defined
contribution plan and covers all non-union employees of Neodata. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA") as amended and Section 401(k) of the Internal Revenue Code.
The assets of the Plan are held and the related investment transactions are
executed by the Plan's trustee. Participants in the Plan have four investment
alternatives in which to place their funds and may place their funds in one or
more of these investment alternatives. Administrative fees, including audit and
attorney fees, are paid by the Company on behalf of the Plan. The Company may
make contributions to the Plan at its sole discretion. The Company matches
one-half of participants' contributions to the Plan up to 6% of compensation.
The Company contributed $1,365,000, $1,041,000, $960,000 and $1,012,000 to the
Plan for the years ended June 30, 1997 and 1996 and the years ended December
31, 1995 and 1994, respectively.
17. HOLDING EQUITY
Holding's only asset is its equity investment in the issued and outstanding
shares of common stock of the Company. Information relating to Holding equity
is presented to provide a more complete description of the Company's equity
transactions.
Holding Common Stock
Holding's certificate of incorporation, as amended, authorizes 66,000,000
shares of common stock, of which 63,000,000 shares have voting rights (the
"Voting Common Stock") and 3,000,000 shares do not have voting rights (the
"Nonvoting Common Stock"). Voting Common Stock, as a class, was created
pursuant to the Recapitalization in 1994; all common stock existing previous to
the Recapitalization was retired. Nonvoting Common Stock, as a class, was
created in fiscal 1997 pursuant to an amendment to Holding's certificate of
incorporation. As of June 30, 1997 and 1996, outstanding shares of common
stock amounted to 388,395, all of which were Voting Common Stock.
Holding Class A Convertible Preferred Stock
Holding's certificate of incorporation, as amended, authorizes 18,000,000
shares of Class A Convertible Preferred Stock, consisting of 9,000,000 shares
designated as Series 1 Preferred Stock and 9,000,000 shares designated as
Series 2 Preferred Stock. Class A Convertible Preferred Stock may, under
certain conditions, be converted into shares of Voting Common Stock. Each
share of Series 1 Preferred Stock is convertible into approximately 2.91 shares
of Voting Common Stock, subject to adjustment under certain conditions. Each
share of Series 2 Preferred Stock is convertible into approximately 2.85 shares
of Voting Common Stock. Each share of the Class A Convertible Preferred Stock
has an initial liquidation preference of $10. Dividends accumulate on the Class
A Convertible Preferred Stock, without interest, at the rate of 10% per year;
such dividends are added to the liquidation preference of the stock whether or
not they have been declared by the Board of Directors. Cumulated and unpaid
dividends on the Class A Convertible Preferred Stock may, under certain
conditions, be converted into a
F-21
<PAGE> 58
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
number of shares of Voting Common Stock equal to 1) the dollar amount of such
cumulated dividends, divided by 2) the current market price (as defined) per
share of the Voting Common Stock.
Holding Class A Convertible Preferred Stock has no voting rights except that
holders of Series 1 Preferred Stock have the right to designate an advisory
director who may attend meeting of the board of directors but will not have the
right to vote on any matters.
As of June 30, 1997 and 1996, outstanding shares of Series 1 and Series 2
Class A Convertible Preferred Stock amounted to 8,600,000 and 6,680,394,
respectively.
Holding Class B Junior Convertible Preferred Stock
Holding's certificate of incorporation, as amended, authorizes 3,090,000
shares of Class B Junior Convertible Preferred Stock. Class B Junior
Convertible Preferred Stock may, under certain conditions, be converted into a
number of shares of Voting Common Stock equal to 1) the number of Class B
shares being converted multiplied by $10, divided by 2) the current market
price (as defined) per share of the Voting Common Stock. Each share of the
Class B Junior Convertible Preferred Stock has an initial liquidation
preference of $10. Dividends cumulate on the Class B Junior Convertible
Preferred Stock, without interest, at the rate of 10% per year; such dividends
are added to the liquidation preference of the stock whether or not they have
been declared by the Board of Directors. The liquidation preference of the
Class B Junior Convertible Preferred Stock is junior to that of the Class A
Convertible Preferred Stock. Cumulated and unpaid dividends on the Class B
Junior Convertible Preferred Stock may, under certain conditions, be converted
into a number of shares of Voting Common Stock equal to 1) the dollar amount of
such cumulated dividends, divided by 2) the current market price (as defined)
per share of the Voting Common Stock.
Class B Junior Convertible Preferred Stock has no voting rights.
As of June 30, 1997 and 1996, outstanding shares of Class B Junior
Convertible Preferred Stock amounted to 3,090,000.
Warrants
In connection with the Company's senior subordinated debt issuance in 1990,
Holding issued warrants (the "Subdebt Warrants"), all of which are exercisable
at no cost. Each Subdebt Warrant is exercisable for approximately 0.02 shares
of Voting Common Stock and 0.34 shares of Series 2 Preferred Stock. The Subdebt
Warrants expire in August 2000. As of June 30, 1997 and 1996, outstanding
Subdebt Warrants amounted to 1,405,000.
In connection with the Services Acquisition in 1990, Holding issued warrants
(the "Bridge Warrants") at an exercise price of $.10 per warrant to affiliates
of certain stockholders. Each Bridge Warrant is exercisable for approximately
0.02 shares of Voting Common Stock and 0.34 shares of Series 2 Preferred Stock.
The Bridge Warrants expire in August 2000. As of June 30, 1997 and 1996,
outstanding Bridge Warrants amounted to 65,000.
Options
1990 Employee Incentive Plan. In 1990, Holding adopted the 1990 Employee
Incentive Plan (the "1990 Plan"). Under the 1990 Plan, Holding granted to
certain officers and employees both incentive and non-qualified stock options.
The maximum term for incentive options under the 1990 plan is ten years. Each
1990 Plan option is exercisable for approximately 0.02 shares of Voting Common
Stock and 0.34 shares of Series 2 Preferred Stock. All outstanding options are
exercisable in varying amounts beginning one year after grant. Pursuant to the
Recapitalization, 2,969,000 1990 Plan options having an exercise price of $2.60
per option were canceled and replaced with a like number of options having an
exercise price of $1.60 per option. Effective June 26, 1996, 1,598,111 1990
Plan options having exercise prices ranging from $1.00 to $1.60 per option and
having a weighted
F-22
<PAGE> 59
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
average fair value of $0.15 per option were repriced to $0.50 per option. No
more options will be granted under the 1990 Plan.
1994 Stock Option Plan. In 1994, Holding adopted the 1994 Stock Option Plan
(the "1994 Plan"). Under the 1994 Plan, the maximum aggregate number of shares
of common stock as to which options may be granted is 2,631,579, subject to
adjustment in the event of a Reorganization (as defined). Under the 1994 Plan,
Holding may grant to officers and any employees both incentive and
non-qualified stock options to acquire shares of Voting or Nonvoting Common
Stock. The maximum term for incentive options under the 1994 plan is ten years.
Incentive stock options and non-qualified stock options must have an exercise
price of at least 100% of fair market value of the shares on the date of grant.
All outstanding options become exercisable in varying amounts as deemed
appropriate by the Board of Directors at the time of the grant or as limited by
Section 422 of the Internal Revenue Code of 1986, as amended. In fiscal 1997,
Holding issued a total of 2,401,500 1994 Plan options with a weighted average
fair value of $0.17 per option to certain Company officers and employees. Each
of the 1994 Plan options issued to date are exercisable for one share of
Nonvoting Common Stock.
Other Options. In 1990 and 1993, Holding granted options at exercise prices
ranging from $1.00 to $1.60 per option to certain executive officers (the
"Other Options"). Each of the Other Options are exercisable for approximately
0.02 shares of Voting Common Stock and 0.34 shares of Series 2 Preferred Stock.
A summary of Holding's stock option activity is as follows:
<TABLE>
<CAPTION>
1990 PLAN 1994 PLAN OTHER OPTIONS
------------------------ ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 909,000 $1.22 -- -- 935,526 $1.06
Granted 2,732,759 $1.60 -- -- -- --
Exercised (41,998) $1.00 -- -- -- --
Canceled (445,049) $1.31 -- -- (247,720) $1.00
--------- ---------
Balance, December 31, 1994 3,154,712 $1.54 -- -- 687,806 $1.09
Exercisable, Dec. 31, 1994 478,849 $1.18 -- -- 687,806 $1.09
Canceled (475,594) $1.52 -- -- -- --
--------- ---------
Balance, December 31, 1995 2,679,118 $1.54 -- -- 687,806 $1.09
Exercisable, Dec. 31, 1995 1,857,379 $1.51 -- -- 687,806 $1.09
Canceled (81,000) $1.39 -- -- -- --
--------- ---------
Balance, June 30, 1996 2,598,118 $1.02 -- -- 687,806 $1.09
Exercisable, June 30, 1996 2,193,917 $0.94 -- -- 687,806 $1.09
Granted -- -- 2,401,500 $0.52 -- --
Canceled (13,500) $0.63 7,500 $0.50 -- --
--------- --------- ---------
Balance, June 30, 1997 2,584,618 $0.94 2,394,000 $0.52 687,806 $1.09
Exercisable, June 30, 1997 2,582,952 $0.94 652,680 $0.50 687,806 $1.09
</TABLE>
F-23
<PAGE> 60
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following summarizes information about Holding's stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------- -------------------------
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE CONTRACTUAL AVERAGE AVERAGE
PRICES OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
------ ------- ------------ -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
1990 Plan $0.50-$1.60 2,584,618 6.17 $0.94 2,582,952 $0.94
1994 Plan $0.50-$0.75 2,394,000 8.31 $0.52 652,680 $0.50
Other Options $1.00-$1.60 687,806 2.79 $1.09 687,806 $1.09
</TABLE>
Holding accounts for stock-based compensation under APB No. 25 and has
elected to comply with SFAS No. 123 through adoption of its disclosure
requirements. Had the compensation cost for Holding's stock options been
determined based on fair value at the grant dates consistent with the method
prescribed by SFAS No. 123, Holding's net income would have been reduced by
approximately $349,000 and $106,000 for the years ended June 30, 1997 and 1996,
respectively. This pro forma effect was calculated using the Minimum Value
Method, assuming a 7-year expected life, a forfeiture rate of zero, a dividend
yield of zero, and risk-free interest rates at the date of grant ranging from
5.01% to 7.75%.
18. TRANSACTIONS WITH HOLDING
In 1993, Holding assumed the obligation for the Meredith Note from Product
as a result of the Mergers. The balance of the Meredith Note was $3,492,000
and $4,711,000 at June 30, 1997 and 1996, respectively. The only source of
payment of the note is cash flow generated by the Company or reductions in the
Company's accounts receivable from Meredith. Cash paid to service the note
payable is reflected in the financing activities section on the statement of
cash flows. The Company satisfied Holding's obligation under the Meredith Note
for the second, third, and fourth quarters of 1995, and for the first three
quarters of 1994, totaling $1,293,000 and $1,389,000, respectively, by reducing
accounts receivable. Amounts due of $452,000 and $410,000 under the Meredith
Note as of December 31, 1995 and June 30, 1996, respectively, are included in
accounts payable.
The remaining balance of the Meredith Note, together with interest totaling
$451,000, will be paid in fiscal 1998.
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
For cash and cash equivalents the carrying amount approximates fair value.
For long-term debt, the fair value of the Company's fixed rate long-term
debt is estimated based on the quoted market prices for the same or similar
issues or on the Company's current incremental rate of borrowing. The variable
rate long-term debt is computed at current quoted market rates.
The Company enters into forward foreign exchange contracts to protect
against future fluctuations in foreign currency exchange rates. At June 30,
1997, the Company had no contracts outstanding to buy foreign currency.
The estimated fair values of the Company's financial instruments at June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Capital leases and long-term debt, including
current portion, net of original issue discount . . $193,957 $206,378 $185,250 $187,369
</TABLE>
F-24
<PAGE> 61
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SIGNIFICANT EVENTS
Restructuring Charges
In March 1997, the Company adopted a plan to close its remaining facilities
in Ireland. At June 30, 1997, the Company had separated substantially all its
Ireland employees and was in the process of disposing of substantially all
remaining Ireland assets. Accordingly, the Company incurred a charge to
earnings of $1,896,000 during fiscal 1997 for the estimated net cost of the
closure, of which $1,675,000 was paid in fiscal 1997.
In the fourth quarter of 1995, the Company adopted a plan to close its
facilities in Kilmallock and Newcastle West, Ireland. The plan included
separating 110 employees. The cost associated with these separations was
approximately $1,667,000, all of which was paid in 1995.
In 1993 the Company entered a plan (the "Restructuring") whereby it revised
its delivery plan from function-based operations to customer-based service
centers and changed the strategic direction of the NCORE technology. Total
charges related to the Restructuring were $20,280,000, and remaining reserves
related to the Restructuring were $8,987,000 at December 31, 1993.
A summary of restructuring activity for the years ended December 31, 1994
and 1995, the six month period ended June 30, 1996, and the year ended June 30,
1997 is as follows:
<TABLE>
<S> <C>
Restructuring reserves, December 31, 1993 $ 8,987
1994 activity:
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,261)
Adjustments to reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,236)
-------
Balance, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 490
1995 activity:
1995 provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,667
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,038)
Adjustments to reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . (119)
-------
Balance, December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . --
1996 activity --
-------
Balance, June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
1997 activity:
1997 provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,675)
-------
Balance, June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 221
=======
</TABLE>
Recapitalization
The Company, Holding, and EDS entered into a transaction (the
"Recapitalization") in November of 1994 which reduced the Company's obligations
owed to EDS by approximately $28.3 million and resulted in the issuance of
additional Holding equity and the recapitalization of other Holding equity.
Pursuant to the Recapitalization, Voting Common Stock, as a class, was created,
and all previously existing common stock was retired.
The Recapitalization was consummated on November 28, 1994, in two steps.
First, Holding and EDS entered into a Securities Exchange Agreement dated
November 15, 1994, pursuant to which EDS (i) released certain financial
obligations relating to the development of NCORE owed by the Company to EDS at
the time of the consummation of the Recapitalization (the "Closing"), (ii)
transferred to Holding all of the Holding common stock then owned by EDS
representing approximately 27.8% (on a fully-diluted basis) of the Holding
common stock outstanding immediately prior to the Recapitalization, and (iii)
terminated portions of the then- existing Technology Agreement and entered into
a new Agreement for Information Technology Services (the "Amended IT
Agreement")
F-25
<PAGE> 62
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with the Company. In exchange for the above, Holding issued to EDS (a)
8,600,000 shares of Class A Convertible Preferred Stock - Series 1 of Holding
("Series 1 Preferred Stock") having an initial aggregate liquidation preference
of $86.0 million, and, subject to certain antidilution adjustments, convertible
under certain conditions into a number of shares of new Voting Common Stock of
Holding equal to 50.0% of the common stock outstanding (on a fully-diluted
basis, assuming no conversion of the Class B Preferred Stock) immediately
following the Closing, and (b) 3,090,000 shares of Class B Junior Convertible
Preferred Stock (the "Class B Preferred Stock") having an initial aggregate
liquidation preference of $30.9 million and convertible under certain
conditions into a number of shares of Voting Common Stock having a fair market
value equal to the liquidation preference of such Class B Preferred Stock.
Second, all remaining shares of Holding common stock not owned by EDS
(assuming the exercise of all warrants and options to purchase existing common
stock outstanding on the date of the Closing) were converted into (i) an
aggregate of 500,000 shares of Voting Common Stock equal to 1.0% of the common
stock outstanding (on a fully-diluted basis, assuming no conversion of the
Class B Preferred Stock) immediately following the Closing, and (ii) an
aggregate of 8,600,000 shares of Class A Convertible Preferred Stock - Series 2
of Holding (the "Series 2 Preferred Stock") having an initial aggregate
liquidation preference of $86.0 million and convertible under certain
conditions into shares of Voting Common Stock equal to 49.0% of the common
stock outstanding (on a fully- diluted basis, assuming no conversion of the
Class B Preferred Stock) immediately following the Closing.
Impairment of NCORE
During 1993 management reviewed the Company's business including its
technology direction for NCORE. The NCORE development project was originally
expected to result in a major single deliverable software project becoming
available from the development efforts of EDS on behalf of the Company. During
the month of June 1993, management decided to implement a new plan for the
deliverable projects and hardware platform for NCORE that would be focused
primarily on client needs and individual "short-term deliverable" projects that
would utilize the software developed to date to deliver substantially upgraded
services. This new direction for NCORE represented a change in the timing of
expected deliverable projects from that employed by previous management and was
initiated as a result of a determination that the existing development plan was
resulting in a rate of expenditure that was deemed unacceptable. The
deliverable project related to the development of NCORE software still
represented a fully relational database processing software system that would
replace substantially all of the Company's client's operations software.
Management reallocated resources from the project to focus on short-term
deliverable projects and scaled down the rate of expenditures originally
contemplated but not the size of the project. The Company proceeded to focus
its efforts on how to disaggregate the project into specific discrete projects
that could be delivered over a shorter period of time.
The Company, Holding and EDS consummated the Recapitalization on November
28, 1994, which resulted in the release of certain financial obligations owed
by the Company to EDS. The Recapitalization reduced the Company's obligations
owed to EDS relating to the development of NCORE by approximately $28.3 million
and resulted in the issuance of additional Holding equity and the
recapitalization of other Holding equity. A significant component of the
Recapitalization was the Amended IT Agreement.
In connection with its decision to effect the Recapitalization and the
Amended IT Agreement with EDS, the Company reevaluated its business plan and
strategic technology direction. As a result of such reevaluation and in view of
the Company's need to focus its financial and management attention on achieving
short-term improvements in financial and operational performance in other areas
of the business, the Company decided to utilize the software developed to date
and discontinue all uncompleted portions of NCORE. Because of the departure
from the technology employed in the development of NCORE, the Company reviewed
NCORE between November 1994 and January 1995 to determine whether its full
value would be recoverable. In January 1995 management determined that the full
value would not be recoverable, and a $31.2 million writedown of the NCORE
development asset was recorded in the fourth quarter of 1994. Costs
capitalized in connection with the development of NCORE were funded under a
long-term obligation to EDS, which was released as part of the Recapitalization
and as a result,
F-26
<PAGE> 63
NEODATA SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the writedown of these costs does not affect operating cash flows. The value of
certain discrete program components of NCORE together with purchased software
was determined by estimating the future gross revenues from the product reduced
by the estimated future costs of maintenance and customer support required at
the time of sale. The remaining balance of this asset at December 31, 1994 was
$4.2 million and amortization commenced in December 1994 using an estimated
life of five years.
21. OWNERSHIP CHANGE
On August 7, 1997, Holding entered into an Agreement and Plan of Merger with
EDS and Ramcad Corporation, a wholly-owned subsidiary of EDS, pursuant to which
Ramcad Corporation will merge with and into Holding, with Holding surviving as
a wholly-owned subsidiary of EDS (the "EDS Merger"). Pursuant to the EDS
Merger, all outstanding capital stock of Holding not presently owned by EDS
will be converted into the right to receive $2.60 per share, in the case of
Voting Common Stock and Nonvoting Common Stock, and approximately $7.67 per
share, in the case of Series 2 Preferred Stock. All outstanding options and
warrants have been accelerated in connection with the EDS Acquisition and, upon
the consummation of the EDS Acquisition, such options and warrants will
represent only the right to receive the consideration to be paid to the
shareholders of Holding as a result of the EDS Acquisition, less any applicable
exercise price.
Upon consummation of the EDS Acquisition, which will constitute a "Change of
Control" as defined under the Notes, the Company will be required to offer to
repurchase the Notes within 30 days following consummation of the EDS
Acquisition.
The EDS Acquisition is scheduled to close on August 29, 1997.
F-27
<PAGE> 64
SCHEDULE II
NEODATA SERVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions
---------
Balance at Charged to Balance
Beginning Charged to Other at End of
Description of Period Expenses Accounts(2) Deductions(1) Period
----------- ---------- -------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Current . . . . . . . . . . . . . . . . $ 1,593 $ 560 -- $ (909) $ 1,244
Long-term . . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- -------- -------
Year ended June 30, 1997 . . . . . . . . $ 1,593 $ 560 -- $ (909) $ 1,244
======= ======= ======= ======= =======
Current . . . . . . . . . . . . . . . . $ 1,819 $ 680 -- $ (906) $ 1,593
Long-term . . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- -------- -------
Six month period ended June 30, 1996 . . $ 1,819 $ 680 -- $ (906) $ 1,593
======= ======= ======= ======= =======
Current . . . . . . . . . . . . . . . . $ 2,284 $ 1,259 -- $(1,724) $ 1,819
Long-term . . . . . . . . . . . . . . . -- -- -- -- --
------- ------- ------- ------- -------
Year ended December 31, 1995 . . . . . . $ 2,284 $ 1,259 -- $(1,724) $ 1,819
======= ======= ======= ======= =======
Current . . . . . . . . . . . . . . . . $ 4,086 $ 1,099 -- $(2,901) $2,284
Long-term . . . . . . . . . . . . . . . 476 -- -- (476) --
------- ------- ------- ------- -------
Year ended December 31, 1994 . . . . . . $ 4,562 $ 1,099 -- $(3,377) $ 2,284
======= ======= ======= ======= =======
Valuation allowance for NCORE:
Year ended December 31, 1994 . . . . . . -- $31,155 -- -- $31,155
======= ======= ======= ======= =======
Valuation for deferred tax asset:
Year ended June 30, 1997 . . . . . . . . $50,855 -- $(4,700) -- $46,155
======= ======= ======= ======= =======
Six month period ended June 30, 1996 . . $49,497 -- $ 1,358 -- $50,855
======= ======= ======= ======= =======
Year ended December 31, 1995 . . . . . . $43,146 -- $ 6,351 -- $49,497
======= ======= ======= ======= =======
Year ended December 31, 1994 . . . . . . $34,796 -- $ 8,350 -- $43,146
======= ======= ======= ======= =======
</TABLE>
- ---------
(1) Represents uncollectible accounts written off to the allowance
account and transfers to long-term valuation accounts.
(2) Represents changes in the valuation allowance resulting from
changes in the deferred tax asset.
S-1
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEODATA SERVICES, INC.
Date: August 22, 1997 /s/ A. LAURENCE JONES
-------------------------------------
A. Laurence Jones
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
Date: August 22, 1997 /s/ A. LAURENCE JONES
---------------------------------------------
A. Laurence Jones
President and Chief Executive Officer
(principal executive officer of the Company)
Date: August 22, 1997 /s/ NICHOLAS J. CUCCARO
---------------------------------------------
Nicholas J. Cuccaro
Senior Vice President and Chief Financial
Officer (principal financial and accounting
officer of the Company)
Date: August 22, 1997 /s/ KURT J. BURGHARDT
---------------------------------------------
Kurt J. Burghardt
Director
Date: August 22, 1997 /s/ JACK D. FURST
---------------------------------------------
Jack D. Furst
Director
Date: August 22, 1997 /s/ THOMAS O. HARBISON
---------------------------------------------
Thomas O. Harbison
Director
Date: August 22, 1997 /s/ THOMAS O. HICKS
---------------------------------------------
Thomas O. Hicks
Director
Date: August 22, 1997 /s/ BRUCE W. SCHNITZER
---------------------------------------------
Bruce W. Schnitzer
Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY COMPANIES WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Company has not sent to its security holders any annual report to
security holders covering the Company's last fiscal year or sent any proxy
statement, form of proxy or other proxy soliciting material with respect to any
annual or special meeting of security holders to more than ten of the Company's
security holders.
<PAGE> 66
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
- ----------- -------------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated August 7, 1997, by and among Holding, EDS, and Ramcad Corporation*
3.1 -- Certificate of Incorporation of the Company. (incorporated by reference from Exhibit 3.1 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
3.2 -- By-Laws of the Company. (incorporated by reference from Exhibit 3.2 to the Company's Registration Statement on Form S-1
as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
4.1 -- Indenture, dated as of May 5, 1993, between the Company, as Issuer, and Ameritrust Texas National Association, as
Trustee. (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
4.2 -- Form of 12% Series B Senior Deferred Coupon Note due 2003. (incorporated by reference from Exhibit 4.3 to the Company's
Registration Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993
(Registration No. 33-63838))
10.1 -- Registration Rights Agreement, dated as of May 5, 1993, between the Company and Morgan Stanley & Co. Incorporated.
(incorporated by reference from Exhibit 10.6 to the Company's Registration Statement on Form S-1 as declared effective
by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.2 -- Tax Sharing Agreement, dated as of May 5, 1993, among the Company, Holding, Neodata Mailing Services, Inc. and Neodata
Distribution Services, Inc. (incorporated by reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
10.3+ -- Amended and Restated Employment Agreement, dated as of June 1, 1993, among Mr. Thomas O. Harbison, the Company, and
Holding. (incorporated by reference from Exhibit 10.57 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.4+ -- Letter Agreement between Hicks, Muse & Co. (TX) Incorporated and Mr. Thomas O. Harbison executed in connection with the
Amended and Restated Employment Agreement. (incorporated by reference from Exhibit 10.58 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
10.5+ -- Stock Option Agreement, dated as of January 1, 1994, between Mr. A. Laurence Jones and Holding. (incorporated by
reference from Exhibit 10.12 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended
December 31, 1993)
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT INDEX
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<S> <C> <C>
10.6+ -- Stock Option Agreement, dated as of January 1, 1994, between Mr. William J. Turner and Holding. (incorporated by
reference from Exhibit 10.14 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year
ended December 31, 1993)
10.7+ -- Amendment and Restatement of Neodata Corporation Employee Investment Plan, dated as of January 1, 1994. (incorporated
by reference from Exhibit 10.23 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year
ended December 31, 1993)
10.8+ -- Neodata Corporation Amended and Restated Employee Incentive Plan, dated as of March 9, 1994 (incorporated by reference
from Exhibit 10.24 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December
31, 1993)
10.9+ -- Neodata Corporation Supplemental Executive Investment Plan, effective as of January 1, 1994. (incorporated by reference
from Exhibit 10.25 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December
31, 1993)
10.10+ -- Financial Advisory Agreement, dated as of August 22, 1990, among Hicks, Muse, Holding, and the Company. (incorporated
by reference from Exhibit 10.14 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.11+ -- Amendment Number One to Financial Advisory Agreement, dated as of September 30, 1992, among Hicks, Muse, Holding, and
the Company. (incorporated by reference from Exhibit 10.15 to the Company's Registration Statement on Form S-1 as
declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.12+ -- Amendment Number Two to Financial Advisory Agreement, dated as of May 5, 1993, among Hicks, Muse, Holding, and the
Company. (incorporated by reference from Exhibit 10.16 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.13 -- Circulation Fulfillment Service Agreement, dated June 26, 1991, between the Company (formerly Neodata
Books/Distribution Services, Inc. by name change and merger) and Meredith. (incorporated by reference from Exhibit
10.48 to the Company's Registration Statement on Form S-1 as declared effective by the Securities and Exchange
Commission on August 24, 1993 (Registration No. 33-63838))
10.14 -- Fulfillment Agreement, dated as of June 26, 1991, between the Company (formerly Neodata Books/Distribution Services,
Inc. by name change and merger) and Meredith. (incorporated by reference from Exhibit 10.49 to the Company's
Registration Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993
(Registration No. 33-63838))
10.15 -- Securities Purchase Agreement, dated as of May 5, 1993, among Holding, HM/DBMS, and Wand. (incorporated by reference
from Exhibit 10.50 to the Company's Registration Statement on Form S-1 as declared effective by the Securities and
Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.16 -- Amended and Restated Stockholders Agreement, dated as of May 5, 1993, among Holding, HMC/Neodata, HM/DBMS, Wand, and
certain other stockholders of Holding. (incorporated by reference from Exhibit 10.51 to the Company's Registration
Statement on Form S-1 as declared effective by the Securities and Exchange Commission on August 24, 1993 (Registration
No. 33-63838))
10.17 -- Securities Purchase and Exchange Agreement, dated as of May 5, 1993, between Holding and EDS. (incorporated by
reference from Exhibit 10.52 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
</TABLE>
<PAGE> 68
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10.18 -- Securityholders Agreement, dated as of May 5, 1993, among Holding, HMC/Neodata, HM/DBMS, and EDS. (incorporated by
reference from Exhibit 10.53 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.19 -- Securities Repurchase Agreement, dated as of May 5, 1993, among Holding, Continental Bank N.A., and Philadelphia Life.
(incorporated by reference from Exhibit 10.54 to the Company's Registration Statement on Form S-1 as declared effective
by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.20 -- Nonexclusive License Agreement, dated as of May 5, 1993 and effective as of April 15, 1993, between the Company and
EDS. (incorporated by reference from Exhibit 10.56 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.21 -- Financial Advisory Agreement, dated as of August 22, 1990, among Holding, the Company, and Wand. (incorporated by
reference from Exhibit 10.60 to the Company's Registration Statement on Form S-1 as declared effective by the
Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.22+ -- Amendment Number One to Financial Advisory Agreement, dated as of September 30, 1992, among Holding, the Company, and
Wand. (incorporated by reference from Exhibit 10.61 to the Company's Registration Statement on Form S-1 as declared
effective by the Securities and Exchange Commission on August 24, 1993 (Registration No. 33-63838))
10.23 -- Amended and Restated Lease Agreement, by and among NeoServ (Co.) QRS 10-13, Inc., NeoServ (Co.) QRS 11-18, Inc., and
the Company dated as of June 8, 1994 (incorporated by reference from Exhibit 10.76 to the Company's Quarterly Report on
Form 10-Q File No. 33-63838 for the quarterly period ended June 30, 1994)
10.24 -- Construction Agreement, among the Company and Neoserv (Co.) QRS 10-13, Inc., NeoServ (Co.) QRS 11-18, Inc., and the
Company dated as of June 8, 1994 (incorporated by reference from Exhibit 10.77 to the Company's Quarterly Report on
Form 10-Q (File No. 33-63838) for the quarterly period ended June 30, 1994)
10.25 -- Amended and Restated Lease Agreement, by and among Neoserv (Co.) QRS 10-13, Inc. and Neoserv (Co.) QRS 10-8 Inc. (as
landlord) and the Company (as tenant), dated as of June 8, 1994 (incorporated by reference from Exhibit 10.78 to the
Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December 31, 1994)
10.26 -- First Amendment to Amended and Restated Lease Agreement, by and among Neoserv (Co.) QRS 10-13, Inc. and Neoserv (Co.)
QRS 11-8, Inc. (as landlord) and the Company (as tenant) (incorporated by reference from Exhibit 10.79 to the Company's
Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended December 31, 1994)
10.27 -- Agreement for Information Technology Services, dated as of January 1, 1995, between the Company and EDS (incorporated
by reference from Exhibit 10.83 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year
ended December 31, 1995)
10.28 -- Form of Second Amendment to Amended and Restated Lease Agreement, dated as of March 25, 1996, by and among Neoserv
(Co.) QRS 10-13, Inc. and Neoserv (Co.) QRS 11-8, Inc. (as landlord) and the Company (as tenant) (incorporated by
reference from Exhibit 10.89 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the fiscal year ended
December 31, 1995)
10.29 -- Stockholders Agreement, dated as of November 28, 1994, among Holding, HMC/Neodata, HM/DBMS, Hicks, Muse, EDS, and other
stockholders (incorporated by reference from Exhibit 10.40 to the Company's Annual Report on Form 10-K (File No. 33-
63838) for the transition period ended June 30, 1996)
10.30+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Mr. Nicholas J. Cuccaro
(incorporated by reference from Exhibit 10.41 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the
transition period ended June 30, 1996)
</TABLE>
<PAGE> 69
<TABLE>
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10.31+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Ms. Frances M. Anhut (incorporated
by reference from Exhibit 10.42 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition
period ended June 30, 1996)
10.32+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Mr. Ed L. Frazier (incorporated by
reference from Exhibit 10.43 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.33+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Ms. Susan L. Morse (incorporated by
reference from Exhibit 10.45 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.34+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Mr. Richard L. Rosy (incorporated by
reference from Exhibit 10.46 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.35+ -- Executive Employment Agreement, dated as of June 14, 1996, between the Company and Ms. Nancy S. Talmey (incorporated by
reference from Exhibit 10.47 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period
ended June 30, 1996)
10.36+ -- Letter Agreement, dated as of June 2, 1994, between the Company and Mr. Nicholas J. Cuccaro (incorporated by reference
from Exhibit 10.48 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.37+ -- Letter Agreement, dated as of March 15, 1994, between the Company and Ms. Frances M. Anhut (incorporated by reference
from Exhibit 10.49 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.38+ -- Letter Agreement, dated as of August 14, 1995, between the Company and Mr. Kevin G. Heery(incorporated by reference
from Exhibit 10.51 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.39+ -- Letter Agreement, dated as of September 23, 1993, between the Company and Ms. Susan L. Morse (incorporated by reference
from Exhibit 10.52 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.40+ -- Letter Agreement, dated as of February 25, 1992, between the Company and Mr. Richard L. Rosy (incorporated by reference
from Exhibit 10.53 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.41+ -- Letter Agreement, dated as of December 20, 1994, between the Company and Ms. Nancy S. Talmey (incorporated by reference
from Exhibit 10.54 to the Company's Annual Report on Form 10-K (File No. 33-63838) for the transition period ended June
30, 1996)
10.42 -- Credit Agreement, dated as of January 31, 1997, among Holding, the Company, Various Banks and Bankers Trust Company, as
Agent (incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (File No. 33-63838)
for the quarterly period ended December 31, 1996)
10.43 -- Agreement, dated as of December 11, 1996, between the Company and Philip Morris Incorporated (incorporated by reference
from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q (File No. 33-63838) for the quarterly period ended
March 31, 1997)**
10.44 -- Credit Agreement, dated as of February 24, 1997, among Holding, Neodata Creative Services, Inc., Neodata Investment
Services, Inc. No. 1, Neodata Investment Services, Inc. No. 2, Various Banks and Bankers Trust Company, as Agent
(incorporated by reference from Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q (File No. 33-63838) for the
quarterly period ended March 31, 1997)
10.45 -- Third Amendment to Amended and Restated Lease Agreement, dated as of January 31, 1997, by and among Neoserv (Co.) QRS
10-13, Inc. and Neoserv (Co.) QRS 11-8, Inc. (as landlord) and the Company (as tenant)*
10.46+ -- Letter Agreement, dated as of November 7, 1995, between the Company and Mr. Ed L. Frazier*
</TABLE>
<PAGE> 70
<TABLE>
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10.47+ -- Letter Agreement, dated as of June 17, 1996, between the Company and Ms. Frances M. Anhut*
10.48+ -- Letter Agreement, dated as of June 17, 1996, between the Company and Ms. Susan L. Morse*
10.49+ -- Letter Agreement, dated as of August 22, 1996, between the Company and Mr. Edward R. Flaherty*
10.50+ -- Letter Agreement, dated as of August 27, 1996, between the Company and Mr. Ed L. Frazier*
10.51+ -- Letter Agreement, dated as of September 18, 1996, between the Company and Mr. Kevin G. Heery*
10.52+ -- Executive Employment Agreement, dated as of December 17, 1996, between the Company and Mr. Edward R. Flaherty*
10.53+ -- Amended and Restated Executive Employment Agreement, dated as of January 1, 1997, between the Company and Mr. A.
Laurence Jones*
10.54+ -- Executive Employment Agreement, dated as of February 25, 1997, between the Company and Mr. Mark A. Lacek*
10.55+ -- Letter Agreement, dated as of February 27, 1997, between the Company and Ms. Nancy S. Talmey*
21 -- Subsidiaries of the Company*
27 -- Financial Data Schedule*
- ----------
</TABLE>
* Filed herewith.
** Confidential treatment has been granted with respect to certain portions of
such agreement and the confidential portions have been filed separately with
the Commission pursuant to the confidential treatment request.
+ Indicates a management contract or compensatory plan or arrangement.
REPORTS ON FORM 8-K
None.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ELECTRONIC DATA SYSTEMS CORPORATION,
RAMCAD CORPORATION
AND
NEODATA CORPORATION
AUGUST 7, 1997
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
THE MERGER
1.1 The Merger............................................................. 1
1.2 The Closing............................................................ 1
1.3 Effective Time of the Merger........................................... 2
1.4 Effects of the Merger.................................................. 2
(a) Effects of the Merger.............................................. 2
(b) Directors and Officers............................................. 2
(c) Certificate of Incorporation....................................... 2
(d) Bylaws............................................................. 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Conversion of Capital Stock............................................ 2
(a) Capital Stock of Sub............................................... 2
(b) Cancellation of Treasury Stock and Parent-Owned Stock.............. 3
(c) Conversion of Capital Stock of the Company......................... 3
2.2 No Further Ownership Rights in the Company............................. 3
2.3 Payment for Shares..................................................... 3
(a) Paying Agent....................................................... 3
(b) Payment Procedures................................................. 4
(c) Unregistered Transfer of Capital Stock............................. 4
(d) Termination of Payment Fund........................................ 4
(e) Withholding Rights................................................. 5
(f) No Liability....................................................... 5
2.4 Stock Transfer Books................................................... 5
2.5 Dissenting Shares...................................................... 5
2.6 Stock Options.......................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Standing.............................................. 6
3.2 Subsidiaries........................................................... 7
3.3 Corporate Power and Authority.......................................... 7
3.4 Capitalization of the Company.......................................... 8
3.5 Conflicts, Consents and Approvals...................................... 9
3.6 Absence of Certain Changes............................................ 10
3.7 Company SEC Documents................................................. 11
3.8 Taxes................................................................. 11
3.9 Compliance with Laws.................................................. 13
3.10 Litigation........................................................... 13
3.11 Employee Benefit Plans............................................... 13
3.12 Contracts............................................................ 16
3.13 No Defaults.......................................................... 16
3.14 Permits.............................................................. 16
3.15 Environmental Matters................................................ 17
3.16 No Undisclosed Liabilities........................................... 20
3.17 Corporate Records.................................................... 21
3.18 Accounting Records................................................... 21
3.19 Brokers.............................................................. 21
3.20 Properties........................................................... 21
i
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3.21 Insurance............................................................. 22
3.22 Intellectual Property................................................. 22
3.23 Labor Matters......................................................... 23
3.24 Bank Accounts......................................................... 24
3.25 Performance Consistent with Projections............................... 24
3.26 Related Party Transactions............................................ 24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
4.1 Organization and Standing.............................................. 25
4.2 Corporate Power and Authority.......................................... 25
4.3 Conflicts, Consents and Approvals...................................... 25
4.4 Litigation............................................................. 26
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Mutual Covenants....................................................... 26
(a) General............................................................ 26
(b) HSR Act............................................................ 26
(c) Other Governmental Matters......................................... 26
(d) Notification of Certain Matters.................................... 26
(e) Termination of Securityholders Agreement........................... 27
(f) Public Statements.................................................. 27
5.2 Covenants of the Company............................................... 27
(a) Access............................................................. 27
(b) Conduct of the Company's Operations................................ 28
(c) Discharge and Termination of Subdebt Warrants and Bridge Warrants.. 29
(d) Stock Options...................................................... 29
(e) Termination of Financial Advisory Agreements....................... 29
(f) Consent of Stockholders............................................ 29
5.3 Covenants of Parent and Sub............................................ 30
(a) Indemnification; Insurance......................................... 30
(b) Stockholder Actions................................................ 31
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligations of All Parties............................... 31
6.2 Conditions to Obligations of Parent and Sub............................ 31
6.3 Conditions to Obligations of the Company............................... 33
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination............................................................ 33
7.2 Effect of Termination.................................................. 34
7.3 Amendment.............................................................. 34
7.4 Extension; Waiver...................................................... 34
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties............................. 34
8.2 Notices................................................................ 34
8.3 Interpretation......................................................... 35
8.4 Counterparts........................................................... 36
8.5 Entire Agreement....................................................... 36
8.6 Third Party Beneficiaries.............................................. 36
8.7 Governing Law.......................................................... 36
8.8 Specific Performance................................................... 36
8.9 Assignment............................................................. 36
8.10 Expenses.............................................................. 36
ii
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8.11 Severability.......................................................... 36
8.12 Subsidiares........................................................... 37
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of the 7th day of August, 1997, by and among Electronic Data
Systems Corporation, a Delaware corporation ("Parent"), Ramcad Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and
Neodata Corporation, a Delaware corporation (the "Company").
RECITALS:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have unanimously approved the acquisition of the Company by Parent, by
means of the merger (the "Merger") of Sub with and into the Company, upon the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the consummation thereof;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Sub shall be merged with and into the
Company at the Effective Time (as defined). At the Effective Time, the separate
corporate existence of Sub shall cease, and the Company shall continue as the
surviving corporation and a direct wholly owned subsidiary of Parent (Sub and
the Company are sometimes hereinafter referred to as "Constituent Corporations"
and, as the context requires, the Company is sometimes hereinafter referred to
as the "Surviving Corporation"), and shall continue under the name "Neodata
Corporation."
1.2 The Closing. Unless otherwise mutually agreed by the parties
hereto, the closing of the transactions contemplated hereby (the "Closing")
will take place at the offices of Weil, Gotshal & Manges LLP, 100 Crescent
Court, Suite 1300, Dallas, Texas 75201, at 10:00 a.m., local time, on August
29, 1997, or on such other business date on which all conditions to the
obligations of the parties hereto shall have been satisfied or waived in
writing by the appropriate party (the "Closing Date").
<PAGE> 6
1.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the Secretary
of State of the State of Delaware, as provided in the DGCL, on the Closing
Date. The Merger shall become effective upon such filing or at such time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
1.4 Effects of the Merger.
(a) Effects of the Merger. The Merger shall have the effects as set
forth in the applicable provisions of the DGCL.
(b) Directors and Officers. The directors of Sub and the officers
of Sub immediately prior to the Effective Time shall, from and after the
Effective Time, be the initial directors and officers, respectively, of the
Surviving Corporation, holding the same offices in the Surviving Corporation as
they held in Sub immediately prior to the Effective Time, until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
(c) Certificate of Incorporation. At the Effective Time and
without any further action on the part of the Constituent Corporations, the
Certificate of Incorporation of Sub shall be the Certificate of Incorporation
of the Surviving Corporation, provided that Article One of such Certificate
Incorporation shall be amended to read in its entirety as follows:
"The name of the corporation is Neodata Corporation."
(d) Bylaws. At the Effective Time and without any further action on
the part of the Constituent Corporations, the Bylaws of Sub shall be the Bylaws
of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of any holder of shares of
capital stock of the Company or any holder of shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $0.01 per share, of the Surviving Corporation.
2
<PAGE> 7
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each
share of capital stock of the Company that is owned, directly or indirectly, by
the Company and each share of capital stock of the Company that is owned,
directly or indirectly, by Parent, Sub or any other subsidiary of Parent shall
be canceled and retired and shall cease to exist and no consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to the other
provisions of this Section 2.1, each share of capital stock of the Company
issued and outstanding immediately prior to he Effective Time (excluding shares
referred to in Section 2.1(b) above and other than Dissenting Shares (as
defined in Section 2.6)) shall be converted into the right to receive the
Merger Consideration, without any interest thereon, upon surrender of the
certificate formerly representing such share of capital stock. For purposes of
this Agreement, "Merger Consideration" shall mean collectively (i) in the case
of the Common Stock, par value $.01 per share of the Company (the "Common
Stock"), and the Nonvoting Common Stock, par value $.01 per share of the
Company (the "Nonvoting Common Stock"), an amount in cash equal to $2.60 per
share of Common Stock, and (ii) in the case of the Class A Convertible
Preferred Stock - Series 2, par value $.01 per share, of the Company (the
"Series 2 Preferred"), an amount in cash equal to $7.6727090241 per share of
Series 2 Preferred, in each case subject to withholding.
2.2 No Further Ownership Rights in the Company. All shares of
capital stock of the Company, when converted as provided in Section 2.1, no
longer shall be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each certificate previously evidencing shares of
capital stock of the Company outstanding immediately prior to the Effective Time
(collectively, the "Certificates") shall thereafter represent only the right to
receive the Merger Consideration, without any interest thereon. Following
conversion of the shares of capital stock of the Company as provided in Section
2.1, the holders of Certificates shall cease to have any rights as stockholders
of the Company except as otherwise provided herein or by law.
2.3 Payment for Shares.
(a) Paying Agent. Prior to the Effective Time, Sub shall appoint
a United States bank or trust company reasonably acceptable to the Company to
act as paying agent (the "Paying Agent") for the payment of the Merger
Consideration. At Closing, Sub shall deposit or shall cause to be deposited
with the Paying Agent in a separate fund established for the benefit of the
holders of shares of capital stock of the Company (other than the Company or
Parent, Sub or any other subsidiary or Parent, or holders of Dissenting Shares)
immediately available funds in amounts necessary to make the payments described
in this Section 2.3 (the "Payment Fund").
The Paying Agent shall invest portions of the Payment Fund as Parent
directs in obligations of or guaranteed by the United States of America, in
commercial paper obligations receiving the highest investment grade rating from
both Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000 (collectively,
"Permitted Investments"); provided, however, that the maturities of Permitted
Investments shall be such as to permit the Paying Agent to make prompt payment
to former holders of capital stock
3
<PAGE> 8
of the Company entitled thereto as contemplated by this Section. The Surviving
Corporation shall cause the Payment Fund to be promptly replenished to the
extent of any losses incurred as a result of Permitted Investments. The Paying
Agent shall, pursuant to irrevocable instructions, pay the Merger Consideration
out of the Payment Fund. Any interest or other income earned on the investment
of cash held in the Payment Fund shall be paid to Parent as and when requested
by Parent. If for any reason (including losses) the Payment Fund is inadequate
to pay the amounts to which holders of shares of capital stock of the Company
shall be entitled under this Section 2.3, Parent shall in any event be liable
for payment thereof or to cause the Surviving Corporation to make payment
thereof. The Payment Fund shall not be used for any purpose except as expressly
provided in this Agreement.
(b) Payment Procedures. Parent will instruct Paying Agent to
distribute the Merger Consideration as soon as reasonably practicable after the
Effective Time (subject to withholding), to each holder of record of a
Certificate or Certificates (excluding Certificates representing shares
referred to in Section 2.1(b) above and Dissenting Shares) as set forth herein.
Upon surrender of a Certificate (or affidavit of lost Certificate in form and
substance reasonably satisfactory to Parent and Paying Agent, and, if Parent or
Paying Agent shall reasonably request, the posting of a bond in form and
substance reasonably satisfactory to Parent and Paying Agent) to the Paying
Agent or to such other agent or agents as may be appointed by the Surviving
Corporation, together with a blank stock power, duly executed, and such other
documents as may be required by Parent or the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor the aggregate
Merger Consideration into which the shares theretofore represented by such
Certificate so surrendered shall have been converted. No interest will be paid
or will accrue on the Merger Consideration upon the surrender of any
Certificate. Until surrendered as contemplated by this Section 2.3(b), each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration as
contemplated by this Section 2.3.
(c) Unregistered Transfer of Capital Stock. In the event of a
transfer of ownership of capital stock of the Company which is not registered
in the transfer record of the Company, the appropriate Merger Consideration may
be issued to a transferee if the Certificate representing such capital stock is
presented to the Paying Agent, accompanied by all documents reasonably required
by Parent, including (i) documents to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid and (ii)
documents evidencing transferee's representation or warranties to Parent with
respect to the ownership of such capital stock.
(d) Termination of Payment Fund. Any funds deposited with the
Paying Agent that are payable to a former stockholder of the Company which has
not submitted a claim for its portion of the Merger Consideration as described
in this Section 2.3 within six months after notice of the Effective Time has
been transmitted to stockholders of record shall be paid or delivered, as the
case may be, to Parent upon demand, and any former stockholders of the Company
who have not theretofore complied with the instructions for exchanging their
Certificates shall thereafter look only to Parent for payment, it being
acknowledged by Parent and Sub that Parent's receipt of any such amounts shall
not relieve it of its payment obligations to
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<PAGE> 9
such former stockholders. In no event will any former stockholder of the
Company be entitled to receive interest or any other amounts earned on the
Merger Consideration held by the Paying Agent or Parent in accordance with this
Section 2.3(d).
(e) Withholding Rights. Parent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of shares of capital stock of the Company such amounts as Parent is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by Parent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of such shares of capital
stock of the Company in respect of which such deduction and withholding was made
by Parent. To the extent applicable, the parties hereto agree that the Parent
may require a holder of a Certificate to certify, under penalty of perjury, such
person's taxpayer identification number and that such person is not a foreign
person pursuant to Section 1445(b)(2) of the Code. Prior to the Closing Date,
the Company will provide Parent with an affidavit under penalties of perjury
which satisfies Section 1445(b)(3) of the Code.
(f) No Liability. Neither Parent nor the Surviving Corporation
shall be liable to any holder of shares of capital stock of the Company for any
cash from the Payment Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
2.4 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of capital stock of the Company thereafter
on the records of the Company. On or after the Effective Time, any
Certificates presented to the Paying Agent or Parent for any reason shall be
converted into the Merger Consideration.
2.5 Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, shares of capital stock of the Company that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal
for such shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders instead shall be entitled
to receive payment of the appraised value of such shares of capital stock of
the Company held by them in accordance with the provisions of such Section 262
of the DGCL, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such shares of capital stock of the Company under such
Section 262 of the DGCL shall thereupon be deemed to have been converted into
and to have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the appropriate Merger Consideration
upon surrender, in the manner provided in Section 2.3, of the Certificate or
Certificates that, immediately prior to the Effective Time, evidenced such
shares of capital stock of the Company. The Company shall give Parent (i)
prompt notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other written instrument served pursuant
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<PAGE> 10
to Section 262 of the DGCL received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under such Section. Prior to the Effective Time, the Company will
not voluntarily make any payment with respect to any demands for appraisal and
will not, except with the prior written consent of Parent, settle or offer to
settle any such demands.
2.6 Stock Options. Other than (i) nonvested options held by
Nicholas Cuccaro, Francie Anhut, Ed Flaherty, Ed Frazier, Ben Gill, Sue Morse,
Nancy Talmey and Rich Rosy, the acceleration of exercisability of which is
contingent upon delivery by each such person of an Amendment to Executive
Employment Agreement, and (ii) certain options held by A. Laurence Jones to the
extent that such acceleration would result in an "excess parachute payment"
within the meaning of Section 280G of the Code, prior to the Closing, the
Company shall cause each outstanding Performance Option (as hereinafter
defined), Harbison Option (as hereinafter defined) and each outstanding option
under the 1990 Plan (as hereinafter defined) and the 1994 Plan (as hereinafter
defined, and together with the 1990 Plan, the "Stock Option Plans") to become
exercisable for a period beginning on such date after the date hereof as the
Company shall reasonably determine and ending immediately prior to the
Effective Time. At the Effective Time, each then outstanding Performance
Option, Harbison Option or option under the Stock Option Plans (collectively,
the "Options") which was not exercised prior to the Effective Time shall
terminate and the holder thereof will have the right to receive for the shares
of Common Stock, Series 2 Preferred or Nonvoting Common Stock subject to such
Option an amount (subject to any applicable withholding tax) in cash equal to
the difference between the aggregate Merger Consideration applicable to such
shares and the aggregate per share exercise price of such option to the extent
such difference is a positive number (such amount being hereinafter referred to
as, the "Option Consideration"). The surrender of an Option to the Company in
exchange for the Option Consideration shall be deemed a release of any and all
rights the holder had or may have had in respect of such option.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce Parent and Sub to enter into the Agreement, the
Company hereby represents and warrants to Parent and Sub that the statements
contained in this Article III are true, correct and complete.
3.1 Organization and Standing. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation with full power
and authority to own, lease, use and operate its properties and to conduct its
business as and where now owned, leased, used, operated and conducted. Each of
the Company and its subsidiaries is duly qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the property it owns, leases or operates makes such qualification
necessary, except where the failure to be so qualified or in good standing in
such jurisdiction would not have a material adverse effect on the Company.
Section 3.1 of the Disclosure Schedule delivered by the Company to parent
herewith (the "Company
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<PAGE> 11
Disclosure Schedule") lists, for the Company and each of its subsidiaries, (i)
the jurisdiction of incorporation and (ii) each jurisdiction in which such
entity is qualified or licensed to do business. The Company has previously
delivered to Parent complete and correct copies of (i) the Certificates of
Incorporation (or similar governing documents) and all amendments thereto to
the date hereof and (ii) the Bylaws (or similar governing documents) as in
effect on the date hereof, in each case for the Company and each of its
subsidiaries.
3.2 Subsidiaries. As of the date hereof, the Company does not own,
directly or indirectly, any equity or other ownership interest in any
corporation, partnership, joint venture or other entity or enterprise, except
as set forth in Section 3.2 of the Company Disclosure Schedule. Section 3.2 of
the Company Disclosure Schedule sets forth as to each subsidiary of the
Company: (i) its name, (ii) its authorized capital stock or share capital,
(iii) the number of issued and outstanding shares of it capital stock or share
capital, and (iv) the number of shares owned beneficially and of record by the
Company or any of its subsidiaries. Except as set forth in Section 3.2 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock of
each of the Company's subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and is owned, directly or indirectly, by the Company
free and clear of all liens, pledges, security interests, claims, options,
rights of first refusal, limitations on voting rights, or other encumbrances.
Other than as set forth in Section 3.2 of the Company Disclosure Schedule,
there are no outstanding shares of capital stock or subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other commitments
or rights of any type relating to the issuance, sale or transfer of any
securities of any subsidiary of the Company, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of
capital stock of any subsidiary of the Company; and no subsidiary of the
Company has any obligation of any kind to issue any additional securities or to
pay for securities of any subsidiary of the Company or any predecessor thereof
(other than any obligation of Neodata Services, Inc., a Delaware corporation
and a wholly-owned subsidiary of the Company ("Services"), under the Indenture
(as defined in Section 3.7)).
3.3 Corporate Power and Authority. The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company, and no other corporate proceedings on the part of the
Company are necessary to approve this Agreement and to consummate the
transactions contemplated hereby (other than, with respect to the Merger, the
approval and adoption of this Agreement by the stockholders of the Company in
accordance with the DGCL and the Company's Certificate of Incorporation).
This Agreement has been duly executed and delivered by the Company and,
assuming the due execution and delivery of this Agreement by the other parties
hereto, constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditor's rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
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<PAGE> 12
3.4 Capitalization of the Company. The Company's authorized
capital stock consists solely of (a) 63,000,000 shares of Common Stock, (b)
3,000,000 shares of Nonvoting Common Stock, and (c) 21,090,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"), of which
9,000,000 shares are designated as "Class A Convertible Preferred Stock -
Series 1," 9,000,000 shares are designated as "Class A Convertible Preferred
Stock - Series 2" and 3,090,000 shares are designated as "Class B Junior
Convertible Preferred Stock." As of the date hereof, (i) 387,892.08 shares of
Common Stock are issued and outstanding, (ii) no shares of Nonvoting Common
Stock are issued and outstanding, (iii) 8,600,000 shares of Class A
Convertible Preferred Stock - Series 1 are issued and outstanding, (iv)
6,671,743.73 shares of Series 2 Preferred are issued and outstanding and (v)
3,090,000 shares of Class B Junior Convertible Preferred Stock are issued and
outstanding. As of the date hereof, (i) 75,441.26 shares of Common Stock and
1,297,589.65 shares of Series 2 Preferred are reserved for issuance upon
exercise of outstanding options granted under the Company's 1990 Employee
Incentive Plan (the "1990 Plan"), of which options to purchase 51,714.84 shares
of Common Stock and 889,495.29 shares of Series 2 Preferred are outstanding,
(ii) 20,117.67 shares of Common Stock and 346,023.91 shares of Series 2
Preferred are reserved for issuance upon exercise of outstanding options
granted to executive officers in 1990 (the "Performance Options"), of which
options to purchase 11,825.29 shares of Common Stock and 203,394.93 shares of
Series 2 Preferred are outstanding, (iii) 2,011.77 shares of Common Stock and
34,602.39 shares of Series 2 Preferred are reserved for issuance upon exercise
of outstanding options granted to Thomas O. Harbison (the "Harbison Options"),
all of which options are outstanding (iv) 2,631,579 shares of Common Stock and
2,631,579 shares of Nonvoting Common Stock are reserved for issuance upon
exercise of outstanding options granted under the Company's 1994 Incentive Plan
(the "1994 Plan"), of which no options for Common Stock are outstanding and
options to purchase 2,322,334 shares of Nonvoting Common Stock are outstanding
and (v) 61,987.57 shares of Common Stock and 1,066,186.17 shares of Series 2
Preferred are reserved for issuance upon exercise of outstanding warrants, of
which Bridge Warrants (as hereinafter defined) to purchase 1,307.65 shares of
Common Stock and 22,491.56 shares of Series 2 Preferred are outstanding and
Subdebt Warrants (as hereinafter defined) to purchase 28,266.23 shares of
Common Stock and 486,179.16 shares of Preferred Stock are outstanding (the
"Warrants"). The Conversion Rate (as such term is defined in the Certificate of
Incorporation of the Company) for the Series 2 Preferred is 2.9510419319. As of
the date hereof, all outstanding shares of capital stock of the Company are
owned of record as set forth in Section 3.4 of the Company Disclosure Schedule.
Each outstanding share of capital stock of the company is duly authorized and
validly issued, fully paid and nonassessable and free of any preemptive rights.
Following (A) the execution and delivery of the Warrant Exercise Agreements (as
defined in Section 5.2) and the consummation of the transactions contemplated
thereby and (B) consummation of the Option Plan Terminations (as defined in
Section 5.2(d)), except for the Class A Convertible Preferred Stock - Series 1,
the Series 2 Preferred, the Class B Junior Convertible Preferred Stock and the
Nonvoting Common Stock, and except as provided in the Stockholders Agreement,
dated as of November 28, 1994, among the Company and the stockholders of the
Company listed on the signature pages thereto (the "Stockholders Agreement"),
which will terminate and cease to be effective at the Effective Time, and in
the Indenture, there will be no outstanding subscriptions, options, warrants,
puts, calls, agreements, understandings, claims or other commitments or rights
of any type relating to the issuance, sale or transfer by the Company or any
subsidiary of the Company of any securities
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<PAGE> 13
of the Company or any such subsidiary, nor will there be outstanding any
securities which are convertible into or exchangeable for any shares of capital
stock of the Company, and the Company will have no obligation of any kind to
issue any additional capital stock. The Company has no outstanding bonds,
debentures, notes or other similar obligations the holders of which have the
right to vote generally with holders of the Common Stock (or convertible into
securities having such right). Except pursuant to this Agreement, there are
not now, and at the Effective Time there will not be, any voting trusts or
other agreements or understandings to which the Company or any of its
subsidiaries is a party or is bound with respect to the voting of the capital
stock of the Company or any of its subsidiaries, other than the Stockholders
Agreement and the Securityholders Agreement (as hereinafter defined). Section
3.4 of the Company Disclosure Schedule sets forth (i) all options to purchase
capital stock of the Company which are outstanding on the date hereof, the
number and class of shares of capital stock for which such options are
exercisable, the exercise price of such options, which of such options are
currently exercisable, the vesting schedule for all other options and the
identity of the optionees, and (ii) the number of Warrants which are
outstanding on the date hereof, the number and class of shares of capital stock
for which such Warrants are exercisable, the exercise price and the record
holders thereof.
3.5 Conflicts, Consents and Approvals. Neither the execution and
delivery of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will:
(a) conflict with or violate any provision of the Certificate of
Incorporation or Bylaws (or any similar organizational document) of the
Company or any subsidiary of the Company;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under,
result in the loss of any benefit under, result in the termination,
acceleration or cancellation of, or result in the creation of any lien,
security interest, charge or encumbrance upon, any of the properties or
assets of the Company or any of its subsidiaries under any of the terms,
conditions or provisions of, any note, bond, mortgage, indenture, deed of
trust, license, contract, undertaking, agreement, lease or other instrument
or obligation to which the Company or any of its subsidiaries is a party or
by which any of their respective properties or assets may be bound;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to the Company or any of its subsidiaries or their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by the Company or any of its affiliates with, any
third party or any court, arbitral tribunal, administrative agency or
commission or other governmental or regulatory body, agency, instrumentality
or authority (a "Governmental Authority"), other than (i) actions
9
<PAGE> 14
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR
Act") and (ii) the filing and recordation of the Certificate of Merger as
required by the DGCL;
except as set forth in Section 3.5 of the Company Disclosures Schedule and, in
the case of subparagraphs (b), (c) and (d) above, for any of the foregoing that
would not, in the aggregate, have a material adverse effect on the Company.
3.6 Absence of Certain Changes. Except as set forth in Section 3.6 of
the Company Disclosure Schedule, since June 30, 1996, each of the Company and
its subsidiaries has conducted its business in the ordinary course, consistent
with past practice, and there has not occurred (i) any event which has had or
which would have, individually or in the aggregate, a material adverse effect
on the Company (but, excluding for such purposes, events that are generally
applicable in the Company's industry and the United States economy), (ii) any
transaction or commitment, other than in the ordinary course of business,
entered into by the Company or any of its subsidiaries, (iii) any material
change by the Company in its accounting methods, principles or practices; (iv)
any declaration, setting aside or payment of any dividend or distribution in
respect of any capital stock of the Company or any subsidiary (other than
dividends by a subsidiary to the Company); (v) any acquisition of material
assets or stock or other material interests of a third party or agreement with
respect to the foregoing other than in the ordinary course of business
consistent with past practice; (vi) any sale, transfer or other disposition of
material assets of the Company or any subsidiary or agreement with respect to
the foregoing other than in the ordinary course of business consistent with
past practice; (vii) any material revaluation by the Company or any subsidiary
of any asset (including, without limitation, any writing down of accounts
receivable, other than the writing down of accounts receivable in the ordinary
course of business); (viii) any mortgage or pledge of any of the material
assets or properties of the Company or any of its subsidiaries or the
subjection of any of the material assets or properties of the Company or any of
its subsidiaries to any liens, charges, encumbrances, imperfections of title,
security interests, options or rights or claims of others with respect thereto,
other than in the ordinary course of business consistent with past practice;
(ix) any assumption or guarantee by the Company or any of its subsidiaries of
the indebtedness of any person or entity other than in the ordinary course of
business consistent with past practice; (x) any capital expenditures by the
Company and its subsidiaries other than in the ordinary course of business
consistent with past practice; (xi) any cancellation, satisfaction or
prepayment of any debt, obligation, liability or encumbrance, or waiver of any
claim or right of value of the Company or any of its subsidiaries, other than
in the ordinary course of business consistent with past practice; (xii) any
labor organizational efforts or complaints, or any labor trouble or
controversies with a group of employees; (xiii) any material deterioration or
adverse change in internal control systems; or (xiv) any increase in the
compensation payable or to become payable by the Company or any subsidiary to
any employees, officers of consultants as salary or wages or under any bonus,
insurance, welfare, severance, deferred compensation, pension, retirement,
profit sharing, stock option, stock purchase or other employee benefit plan,
other than pursuant to the terms of the employment agreements and employee
benefit plans listed in Sections 3.11 or 3.12 of the Company Disclosure
Schedule or other than in the ordinary course of business consistent with past
practice.
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3.7 Company SEC Documents. Services has timely filed with the
Securities and Exchange Commission (the "Commission"), and the Company has made
available to Parent, all forms, reports, schedules, statements, exhibits and
other documents required to be filed by Services under the Securities Exchange
Act of 1934 (together with the rules and regulations thereunder, the "Exchange
Act"), the Securities Act of 1933 (together with the rules and regulations
thereunder, the "Securities Act"), and the terms of that certain Indenture,
dated May 5, 1993 (the "Indenture"), by and between Services and Ameritrust
Texas National Association, as Trustee (such documents as supplemented and
amended since the time of filing, collectively, the "Company SEC Documents").
The Company SEC Documents, including, without limitation, any financial
statements or schedules included therein, at the time filed (a) did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be. The
financial statements (including the related notes) of Services included in the
Company SEC Documents comply in all material respect as to form with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), and fairly present
(subject in the case of unaudited statements to normal, recurring and year-end
audit adjustments) in all material respects the consolidated results of its
operations and cash flows for the periods then ended. The consolidated
financial statements of the Company and its subsidiaries attached to Section 3.7
of the Company Disclosure Schedule have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except that the Company's investment in Services is
carried at historical cost and except for the absence of footnotes) and fairly
present (subject in the case of unaudited statements to normal, recurring and
year-end audit adjustments) in all material respects the financial position of
the Company and its subsidiaries and cash flows for the periods then ended. The
Company has previously made available to Parent correct and complete copies of
(i) annual management letters from the Company's independent certified public
accountants and (ii) all material correspondence between the Commission and the
Company (including its subsidiaries) or its representatives, in each case since
January 1, 1993.
3.8 Taxes. (a) Except as disclosed on Section 3.8 of the Company
Disclosure Schedule:
(i) All Tax Returns required to be filed on or before the Closing
Date by or on behalf of, or in which is required to be reported the income
or other items of, the Company or any subsidiary of the Company have been or
will be filed within the time prescribed by law (including extensions of
time approved by the appropriate taxing authority). Such Tax Returns are
accurate and complete in all material respects.
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(ii) The Company and all subsidiaries of the Company have paid or will
pay, on a timely basis, all Taxes that are due on or before the Closing Date
(including, but not limited to, Taxes shown to be due on the Tax Returns
described in the preceding paragraph), except those Taxes that are being
disputed in good faith and for which adequate provision has been made in the
consolidated financial statements of the Company.
(iii) Adequate provision has been made on the Company's consolidated
balance sheet at June 30, 1997 attached to Section 3.7 of the Company
Disclosure Schedule and Services' most recent consolidated balance sheet
included in the Company SEC Documents for the payment of Taxes not yet due
as of the respective dates thereof.
(iv) There are no liens for Taxes upon any of the properties or assets
of the Company or any subsidiary of the Company, except liens for Taxes not
yet due or for Taxes being disputed in good faith and for which adequate
provision has been made in the financial statements of the Company (on the
date thereof).
(v) There are no pending audits, actions, proceedings, investigations,
disputes or claims with respect to any Taxes payable by or asserted against
the Company or any subsidiary of the Company and, to the Company's
knowledge, there is no basis on which any claim for Taxes can be asserted
with respect to the Company or any subsidiary of the Company that would
have a material adverse effect.
(vi) Neither the Company nor any subsidiary of the Company has given or
been requested in writing to give waivers or other agreements extending any
statue of limitations for assessment or collection of Taxes with respect to
the Company or any subsidiary of the Company for taxable periods for which
the applicable statue of limitations has not expired.
(vii) Neither the Company nor any subsidiary of the Company has made an
election that would result or has resulted in an adjustment under Section
481 of the Code increasing taxable income in taxable years ending after the
Closing Date.
(viii) All Taxes required to be withheld, collected or deposited by the
Company or any subsidiary of the Company have timely been withheld,
collected or deposited and, to the extent required, have been timely paid to
the relevant taxing authority.
(ix) As of the Closing Date, there are no unsatisfied actual or
proposed adjustments or assessments for Taxes, against the Company or any
subsidiary of the Company, and to the Company's knowledge, there is no basis
for any such assessment or adjustment.
(x) No closing agreement or agreements pursuant to Section 7121 of the
Code or any similar provision of any state or local law have been entered
into by or with respect to the Company or any subsidiary of the Company.
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(b) As used in this Agreement:
(i) "Tax" means all federal, state, local and foreign taxes,
charges, fees, levies or other similar assessments or liabilities
(including, without limitation, income, receipts, ad valorem, value
added, excise, property (whether real or personal property), sales,
occupation, service, stamp, use, licensing, withholding, employment,
payroll, share, capital, surplus, franchise or other taxes), whether
computed on a separate, consolidated, unitary or combined basis or in
any other manner, and includes any interest, fines, penalties,
assessments, deficiencies or additions to tax.
(ii) "Tax Returns" means any returns, renditions, declarations,
reports, claims for refund, and any informational returns or statements,
including any schedules or attachments thereto, required to be supplied
to a taxing authority in connection with or relating to Taxes.
3.9 Compliance with Laws. Except as set forth on Section 3.9 of
the Company Disclosure Schedule, each of the Company and its subsidiaries is in
compliance with all applicable laws, statutes, orders, rules, regulations,
policies or guidelines promulgated, or judgments, decisions or orders entered,
by any Governmental Authority (collectively, "Applicable Law") relating to it
or its business or properties, except for any such failures to be in compliance
therewith which, in the aggregate, would not have a material adverse effect on
the Company. Except as set forth in Section 3.9 of the Company Disclosure
Schedule, no investigation or review by any Governmental Authority with respect
to the Company or any of its subsidiaries is pending or, to the knowledge of
the Company, threatened.
3.10 Litigation. Except as set forth on Section 3.10 of the
Company Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation (an "Action") pending or, to the knowledge of the Company,
threatened against the Company, any of its subsidiaries or any of their
respective properties which, if decided adversely, would, individually or in
the aggregate, have a material adverse effect on the Company or would prevent
or delay in any material respect the consummation of the transactions
contemplated hereby. Neither the Company nor any of its subsidiaries is subject
to any outstanding order, writ, injunction or decree which, individually or in
the aggregate, would have a material adverse effect on the Company or would
prevent or delay in any material respect the consummation of the transactions
contemplated hereby. There is no action, suit, or proceeding pending, or to the
knowledge of the Company, threatened against the Company that questions the
validity of this Agreement or any action taken or to be taken by the Company in
connection with this Agreement.
3.11 Employee Benefit Plans.
(a) For purposes of this Agreement, the following terms have the
definitions given below:
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"Controlled Group Liability" means any and all liabilities under
(i) Title IV of ERISA, (ii) section 302 of ERISA, and (iii) sections 412
and 4971 of the Code, in each case other than pursuant to the Company
Plans (as defined below).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a
group described in Section 414(b), (c), (m) or (o) of the Code or
Section 4001(b)(1) of ERISA that includes the first entity, trade or
business, or that is a member of the same "controlled group" as the
first entity, trade or business pursuant to Section 4001(a)(14) of
ERISA.
"Company Plans" means all employee benefit plans, programs,
voluntary employee benefit arrangements, policies, practices, and other
arrangements providing benefits to any employee or former employee or
beneficiary or dependent thereof, whether or not written, and whether
covering one person or more than one person, sponsored or maintained by
the Company or any of its subsidiaries or to which the Company or any of
its subsidiaries contributes or is obligated to contribute. Without
limiting the generality of the foregoing, the term "Company Plans"
includes all employee welfare benefit plans within the meaning of
Section 3(1) of ERISA and all employee pension benefit plans within the
meaning of Section 3(2) of ERISA.
(b) Section 3.11(b) of the Company Disclosure Schedule lists all
Company Plans. With respect to each Company Plan, the Company has made
available to Parent and Sub a true, correct and complete copy of: (i) each
writing constituting a part of such Company Plan, including without limitation
all plan documents, benefit schedules, actuarial reports, valuation statements,
trust agreements, insurance contracts and other funding vehicles; (ii) the last
two (2) annual Forms 5500, 990 and 1041 reports and accompanying schedules, as
filed with the Internal Revenue Service; (iii) the current summary plan
description, if any; (iv) the most recent annual financial report, if any; (v)
the most recent determination letter from the Internal Revenue Service, if any;
and (vi) all other correspondence from the Internal Revenue Service or
Department of Labor received which relates to any Company Plan ever sponsored,
maintained or acquired by the Company or an ERISA Affiliate.
(c) The Internal Revenue Service has issued a favorable
determination letter with respect to each Company Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code (a "Qualified
Company Plan") and, to the Company's knowledge, there are no existing
circumstances nor any events that have occurred that would adversely affect the
qualified status of any Qualified Company Plan or the related trust.
(d) All contributions required to be made to any Company Plan by
Applicable Law or by any plan document or other contractual undertaking, and
all premiums due or payable
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with respect to insurance policies funding any Company Plan, for any period
through the date hereof have been timely made or paid in full and through the
Closing Date will be timely made or paid in full or, to the extent not required
to be made or paid on or before the date hereof or the Closing Date, as
applicable, have been or will be properly reflected in the Company's financial
statements contained in the Company SEC Documents in accordance with generally
accepted accounting principles.
(e) Except as set forth in Section 3.11(e) of the Company Disclosure
Schedule, the Company and its subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the Code
and all laws and regulations applicable to the Company Plans, including the
timely filing of all required reports and disclosures and the timely delivery
of all information and communications to employees during every year of
existence. To the Company's knowledge, there are no existing circumstances that
would give rise to any requirement for the posting of security with respect to
a Company Plan or the imposition of any lien on the assets of the Company or any
of its subsidiaries under ERISA or the Code.
(f) Except as set forth in Section 3.11(f) of the Company
Disclosure Schedule, no Company Plan is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code. No Company Plan is a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA (a "Multiemployer
Plan"), or a plan that has two or more contributing sponsors at least two of
whom are not under common control, within the meaning of Section 4063 of ERISA
(a "Multiple Employer Plan"), nor has the Company or any of its subsidiaries
or any of their respective ERISA Affiliates, at any time within five years
before the date hereof, contributed to or been obligated to contribute to any
Multiemployer Plan or Multiple Employer Plan.
(g) To the Company's knowledge there are no existing circumstances
that would result in any Controlled Group Liability that would be a liability
of the Company or any of its subsidiaries following the Closing, other than
normal funding responsibilities. Without limiting the generality of the
foregoing, neither the Company nor any of its subsidiaries nor any of their
respective ERISA Affiliates has engaged in any transaction described in Section
4069 or Section 4204 of ERISA. The Company Plans have not engaged in any
transactions described in Sections 406 or 407 of ERISA not exempt under ERISA
Section 408, or any transaction described in Section 4975 of the Code which
was not exempt under Code Section 4975.
(h) Except as set forth in Section 3.11(h) of the Company
Disclosure Schedule and except for health continuation coverage as required by
Section 4980B of the Code or Part 6 of Title I of ERISA, neither the Company
nor any of its subsidiaries has any liability for post-employment life, health,
medical or other welfare benefits under any Company Plan (excluding claims
incurred but not paid on or before termination of employment) to former
employees or beneficiaries or dependents thereof.
(i) Except as set forth in Section 3.11(i) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will result in, cause
the accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee or director or former employee or
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former director of the Company or any of its subsidiaries, pursuant to a
"change in control" or "change of control" or otherwise.
(j) Except as set forth in Section 3.11(j) of the Company
Disclosure Schedule, there are no pending or, to the Company's knowledge,
threatened claims (other than claims for benefits in the ordinary course),
lawsuits or arbitrations which have been asserted or instituted against the
Company Plans, any fiduciaries thereof with respect to their duties to the
Company Plans or the assets of any of the trusts under any of the Company Plans
which would result in any material liability of the Company or any of its
subsidiaries to the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor or any Multiemployer Plan.
3.12 Contracts. Section 3.12 of the Company Disclosure Schedule
sets forth an accurate list of any of the following to which the Company or any
of its subsidiaries is a party or by which any of them or their properties or
assets may be bound; (i) any contract, commitment or agreement involving a
partnership, joint venture or similar arrangement; (ii) any contract,
commitment or agreement in which rights or obligations change upon the
consummation of the transactions contemplated by this Agreement; (iii) any
secrecy, non-compete or other agreement which (A) restricts the right of the
Company, its subsidiaries or any of its officers or employees to engage in any
type of business or activity after the consummation of the transactions
contemplated by this Agreement or (B) would restrict in any manner the right of
Parent or any of its subsidiaries to engage in any type of business or activity
after the consummation of the transactions contemplated by this Agreement; and
(iv) all written employment agreements, employment contracts or, to the
knowledge of the Company, understandings (other than the general employment of
employees pursuant to an at-will understanding) relating to employment to which
the Company or any of its subsidiaries is a party. The Company has made
available to Parent complete and correct copies of all contracts referred to in
the immediately preceding sentence. Section 3.12 of the Company Disclosure
Schedule also sets forth a true and correct list of all contracts with the top
twenty customers of the Company measured by revenues received from such
customers by the Company during the fiscal year ended June 30, 1997.
3.13 No Default. None of the Company or any of its subsidiaries is
in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of (i) its Certificate of Incorporation or Bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement, guarantee or other instrument, obligation or
executory commitment (each a "Contract") to which the Company or any of its
subsidiaries is now a party or by which any of them or any of their respective
properties or assets may be bound or (iii) any order, writ, injunction, decree,
law, statute, rule or regulation applicable to the Company, any of its
subsidiaries or any of their respective properties or assets, except in the
case of (ii) or (iii) for violations, breaches or defaults that would not,
individually or in the aggregate, have a material adverse effect on the
Company. To the knowledge of the Company, no other party to any Contract is in
default or violation of any Contract.
3.14 Permits. Each of the Company and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents,
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certificates, approvals and orders (collectively, "Permits") necessary to own,
lease and operate its properties and to carry on its business as it is now
being conducted, and the Company and its subsidiaries are in compliance with
the terms of the Permits, except for any such Permits the failure of which to
possess or be in compliance with, individually or in the aggregate, would not
have a material adverse effect on the Company.
3.15 Environmental Matters.
(a) Except as disclosed in the applicable subsection of Section
3.15 of the Company Disclosure Schedule, (i) the Company and each of its
subsidiaries and each of their businesses, operations and Properties comply
with all Environmental Laws, except where the failure to be in compliance would
not, individually or in the aggregate, have a material adverse effect on the
Company; (ii) the Company and each of its subsidiaries have obtained all
Environmental Permits necessary for the ownership and operation of their
respective businesses, operations and Properties, and all such Environmental
Permits are in good standing and are not the subject of any modification or
revocation proceeding, and the Company and each of its subsidiaries are in
compliance with all terms and conditions of such Environmental Permits, and to
the Company's knowledge, all such Environmental Permits are valid, except
where the failure to obtain such Environmental Permit or be in compliance
therewith would not, individually or in the aggregate, have a material adverse
effect on the Company; (iii) neither the Company nor any of its subsidiaries nor
any of their businesses, operations or Properties is the subject of any
outstanding written order, judgment, writ, decree, injunction, citation,
directive, or summons of, or agreement or settlement with, any Governmental
Authority or other person respecting (A) any alleged or asserted violation of or
noncompliance with Environmental Laws, (B) any Remedial Actions, or (C) any
Environmental Claims arising from the Release or threat of Release of a
Contaminant; (iv) neither the Company nor any of its subsidiaries is a party,
defendant or respondent in any pending judicial or administrative proceeding
alleging a violation of any Environmental Law, or asserting any Environmental
Claim arising from the Release or threat of Release of a Contaminant or relating
to any Remedial Action; (v) to the Company's knowledge none of the businesses,
operations or Properties of the Company or any of its subsidiaries is the
subject of any investigation by any Governmental Authority (other than periodic
and ordinary inspections) evaluating any alleged or asserted violation of or
noncompliance with any Environmental Law, including, without limitation, a
determination whether any Remedial Action is needed with respect to a Release or
threatened Release of any Contaminant; (vi) neither the Company nor any
subsidiary of the Company has filed any written notice under any Environmental
Law indicating past or present treatment, storage or disposal of a hazardous
water or solid waste or reporting a spill or Release of a Contaminant into the
environment under any Environmental Law, (vii) to the Company's knowledge,
neither the Company nor any subsidiary of the Company has any contingent
liability in connection with any Release or threat of Release of any Contaminant
at any location; (viii) neither the Company nor any subsidiary of the Company
has received any written notice or claim or is otherwise aware of any notice or
claim concerning (A) any alleged violation of Environmental Law, (B) any alleged
liability of the Company or any of its subsidiaries for any Environmental Claim,
or (C) any alleged liability of the Company or any of its subsidiaries arising
out of or related to the Release or threat of Release of a Contaminant at any
location; (ix) neither the Company nor any of its subsidiaries has engaged in
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or permitted any generation, storage, transportation, treatment, recycling,
reclamation, handling, use or disposal of any Contaminant, except in compliance
with Environmental Laws; (x) neither the Company nor any of its subsidiaries
has disposed of or released any Contaminant at any of its Properties and, to
the Company's knowledge, neither has any prior owner or operator or other
person; (xi) none of the Company's or any of its subsidiaries' properties
contain, or, to the Company's knowledge, have ever contained, any underground
storage tanks, surface impoundments, asbestos-containing materials or
polychlorinated biphenyls; (xii) no Environmental Lien in favor of any
Governmental Authority has been filed or attached to any of the Properties and,
to the Company's knowledge, there are no conditions or facts in existence that
with the passage of time could give rise to the filing or attachment of such an
Environmental Lien; (xiii) none of the Properties is listed or proposed for
listing on the National Priorities List ("NPL") pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act or any similar state or
foreign list of sites, or on the Comprehensive Environmental Response
Compensation and Liability Information System List ("CERCLIS") or any similar
state or foreign list of sites; (xiv) to the Company's knowledge, no Contaminant
has migrated from any of the Properties onto or underneath other properties, nor
has any Contaminant migrated from other properties upon, about or beneath any of
the Properties; (xv) neither the Company nor any of its Subsidiaries has
received or is otherwise aware of any written notice, claim or other
communication alleging liability on the part of the Company or any of its
Subsidiaries, and to the Company's knowledge, neither the Company nor any of its
Subsidiaries has any liability, for the violation of any Environmental Law, for
any Environmental Claim, or for the Release or threatened Release of any
Contaminant in connection with any businesses, operations or properties
previously owned or operated by the Company or any of its Subsidiaries or any
predecessors thereto.
(b) Prior to the Closing Date, the Company and its subsidiaries shall
have complied fully with all Environmental Notice Requirements, and any related
Environmental Permits shall have been issued, except where the failure to so
comply or to have obtained such Environmental Permits would not, individually or
in the aggregate, have a material adverse effect on the Company.
(c) There is no financial responsibility requirement issued by any
Governmental Authority pursuant to 42 U.S.C. 6991b(c)(6) or any state or local
equivalents applicable to the businesses, operations or Properties of the
Company and each of its Subsidiaries.
"Contaminant" means those substances, materials, articles and items, in
any form, whether solid, liquid, gaseous, semisolid or any combination thereof,
whether waste materials, raw materials, chemicals, finished products,
by-products or any other substance, material, article or item, which are
regulated by or form the basis of liability under any applicable Environmental
Law, including, without limitation, hazardous wastes, hazardous substances,
pollutants, contaminants, toxic substances, infectious waste, medical waste,
special waste, asbestos, polychlorinated biphenyls, petroleum (including, but
not limited to, crude oil, petroleum-derived substances, waste or breakdown or
decomposition products thereof or any fraction thereof) and radioactive
substances.
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"Environmental Claim" means any written notice of violation (including,
without limitation, any notice of expenditures necessary to come into
compliance with or maintain compliance with, any Environmental Law or
Environmental Permit), claim (whether based on strict liability or otherwise),
judgment, encumbrance, lien, settlement, citation, demand, abatement, order or
direction (conditional or otherwise) by any Governmental Authority or other
person for personal injury or death, toxic tort, tangible or intangible
property damage, damage to the environment, trespass, damage to natural
resources, nuisance pollution, contamination or other adverse effects on the
environment, or for fines, penalties or prohibitions, arising out of, related
to, resulting from or based upon (a) the existence, or the continuation of the
existence, of a Release or a threatened Release of any Contaminant, odor or
audible noise, (b) the environmental aspects of the transportation, storage,
treatment, disposal, generation, recycling, reclamation, use or handling of any
Contaminants or other materials in connection with the businesses, operations
or properties, or (c) the violation, or alleged violation, of any Environmental
Law by the Company or any of its subsidiaries.
"Environmental Damages" means all claims, judgments, damages (including
punitive damages), losses, penalties, fines, interest, fees, liabilities
(including strict liability), encumbrances, liens, costs, and expenses of
investigation and defense of any Environmental Claim, whether or not such
Environmental Claim is ultimately defeated, and of any good faith settlement or
judgment, of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable, including, without limitation,
reasonable attorneys' fees and disbursements and consultants' fees, any of
which are incurred at any time as a result of the existence of Contaminants or
noncompliance with any Environmental Law.
"Environmental Laws" means all applicable federal, state, local or
foreign laws, statutes, codes, ordinances, rules, regulations, Environmental
Permits, judgments, orders, decrees or settlements relating to the environment,
natural resources, safety, health or the regulation of contaminants, including,
without limitations, the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"), the Hazardous
Material Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.) ("RCRA"), the
Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Safe Drinking Water
Act (42 U.S.C. Section 201 and Section 300f et seq.), The Rivers and Harbors
Act (33 U.S.C. Section 401 Section et seq.), The Oil Pollution Act (33 U.S.C.
Section 2701 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), as such laws, statutes, codes, ordinances, rules,
regulations, Environmental Permits, judgments, orders, decrees, and settlements
have been and may be amended or supplemented from time to time, and any
analogous future enacted or adopted federal, state, local, or foreign laws,
statutes, codes, ordinances, rules, regulations, Environmental Permits,
judgments, orders, decrees and settlements.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (i) liability under Environmental Laws or (ii) damages arising
from, or costs incurred by such Governmental Authority in response to, a
Release or threatened Release of a Contaminant.
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"Environmental Notice Requirements" means requirements under any
Environmental Law which are applicable to the transactions contemplated by this
Agreement and which require notification, registration or filing of information
pertaining to such transactions, the Properties, and/or the parties to such
transactions, to or with any governmental authority or Parent, including,
without limitation, any Environmental Permit transfer or modification
requirements and any so-called "environmental cleanup responsibility acts."
"Environmental Permit" means any permit, approval, authorization,
registration, license, variance or permission required from a Governmental
Authority having jurisdiction under an applicable Environmental Law.
"Properties" means all real or personal property of any kind or
description presently owned, leased, operated or under the control of the
Company or any of its subsidiaries.
"Release" means any release, spill, emission, leaking, pumping,
emptying, dumping, injection, abandonment, deposit, disposal, discharge,
dispersal, leaching or migration of any Containment (including, but not limited
to, the abandonment or discarding of Contaminants in barrels, drums or other
containers) into the indoor or outdoor environment or into or out of any real
property, including the movement of Contaminants, into, under, on, through or
in the air, soil, subsurface strata, surface water, groundwater, drinking water
supply, any sediments associated with any water bodies or any other
environmental medium.
"Remedial Action" means all actions required to: (i) clean up, remove,
treat, dispose of or in any way remediate or undertake corrective action with
respect to Contaminants in the indoor or outdoor environment; (ii) prevent,
mitigate or minimize the Release or threat of Release of Contaminants; or (iii)
perform pre-remedial studies and investigations and post-remedial monitoring
and care in respect of actions contemplated in the preceding clauses (i) and
(ii).
3.16 No Undisclosed Liabilities. Except as and to the extent
disclosed in the Company SEC Documents or on the consolidated balance sheet of
the Company and its subsidiaries attached to Section 3.7 of the Company
Disclosure Schedule, as of June 30, 1997, neither the Company nor any of its
subsidiaries had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required by generally accepted
accounting principles to be reflected on a consolidated balance sheet of the
Company and its subsidiaries (including the notes thereto). Except as and to
the extent disclosed in the Company SEC Documents or no the consolidated
balance sheet of the Company and its subsidiaries attached to Section 3.7 of
the Company Disclosure Schedule, since June 30, 1997, neither the Company nor
any of its subsidiaries has incurred any liabilities of any nature, whether or
not accrued, contingent or otherwise, having or which would have, and there
have been no events, changes or effects with respect to the Company and its
subsidiaries having or which would have, in either case individually or in the
aggregate, a material adverse effect on the Company.
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3.17 Corporate Records. The minute books of the Company and its
subsidiaries accurately reflect in all material respects all actions taken to
this date by the stockholders, board of directors and committees of the board
of directors of the Company and its subsidiaries. The stock certificate books
and records of the Company and its subsidiaries accurately reflect on the date
hereof and will accurately reflect as of the Effective Time the ownership of
the capital stock of the Company and its subsidiaries.
3.18 Accounting Records. The Company and its subsidiaries maintain
accounting records which fairly and validly reflect, in all material respects,
their transactions and maintain accounting controls sufficient to provide
reasonable assurances that such transactions are, in all material respects, (i)
executed in accordance with management's general or specific authorization and
(ii) recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles (except that the
Company's investment in Services is carried at historical rates).
3.19 Brokers. No broker, finder, investment banker or financial
advisor is entitled to any brokerage, finder's, or other fee or commission
payable by the Company in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or any of
its subsidiaries, except for (i) the fee specified in the Hicks Muse
Termination Agreement (as hereinafter defined) and (ii) the fee payable to
Chase Securities, Inc. for rendering a fairness opinion to the Board of
Directors of the Company in connection with the transactions contemplated
hereby, which fee will not be in excess of $50,000 (plus reimbursement of
reasonable expenses).
3.20 Properties
(a) Section 3.20(a) of the Company Disclosure Schedule contains a
complete and correct list of all real property owned or leased by the Company
or any subsidiary of the Company (the "Real Properties"). Each of the Company
and its subsidiaries has good fee or leasehold title to the Real Property.
Except as set forth in the title insurance policies listed in Section 3.20(a)
of the Company Disclosure Schedule, no Real Property owned by the Company or
any of its subsidiaries is subject to any claims, liens, or encumbrances whether
by mortgage, pledge, lien, conditional sales agreement, charge or otherwise,
except for those which, individually or in the aggregate, would not have a
material adverse effect on the Company. Except as set forth in Section 3.20(a)
of the Company Disclosure Schedule, there is no contract, agreement,
arrangement or obligation of any kind with any person or entity regarding the
Real Property or the development, management or operation thereof.
(b) The Company has previously made available to Parent complete
and correct copies of each lease to which the Company or any of its
subsidiaries is a party or any of their properties are bound providing for
payments of at least $40,000 per year. A complete and correct list of each
such material lease is set forth in Section 3.20(b) of the Company Disclosure
Schedule. All of such material leases are valid and subsisting and in full
force and effect with respect to the Company and its subsidiaries and, to the
Company's knowledge, with respect to any other party thereto.
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3.21 Insurance. Section 3.21 of the Company Disclosure Schedule
sets forth a complete and correct list of all insurance policies currently in
force insuring against risks of the Company and its subsidiaries, and the
Company has previously made available to Parent copies of the directors and
officers insurance policy maintained by the Company for the fiscal year ending
June 30, 1998 and, with respect to the other policies listed on Section 3.21 of
the Company Disclosure Schedule, has previously made available to Parent true
and correct schedules listing the name of carrier, policy coverage, policy
limits and deductibles. The Company and its subsidiaries are in compliance
with the terms of such policies and there are no claims by the Company or any
of its subsidiaries under any such policy as to which any insurance company is
denying liability or defending under a reservation of rights clause.
3.22 Intellectual Property.
(a) The Company and its subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property (as hereinafter defined) necessary for the operation of the businesses
of the Company and its subsidiaries as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or used by
any of the Company and its subsidiaries in the Company's and its subsidiaries'
business immediately prior to the Effective Time will be owned or available for
use by the Surviving Corporation on identical terms and conditions immediately
subsequent to the Effective Time. To the knowledge of the Company, the Company
and its subsidiaries have taken all necessary action to maintain and protect
each item of Intellectual Property that the Company and its subsidiaries own or
use. Neither the Company nor any of its subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and to the knowledge of the
Company there has never been any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that the Company or any of its subsidiaries must license
or refrain from using any Intellectual Property rights of any third party). To
the knowledge of the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Company or its subsidiaries. "Intellectual Property"
shall mean the entire right, title and interest in and to all proprietary
rights of every kind and nature, including patents, patent applications,
registered and unregistered copyrights, registered and unregistered trademarks
and service marks, computer programs and databases, trade secrets and
proprietary information.
(b) Section 3.22(b) of the Company Disclosure Schedule sets forth
each patent, trademark or copyright registration which has been issued to the
Company or its subsidiaries with respect to any of their Intellectual Property,
each pending patent application or application for registration which the
Company and its subsidiaries have made with respect to any of their
Intellectual Property, and each license, agreement, or other permission which
the Company and its subsidiaries have granted to any third party with respect
to any of their Intellectual Property. Section 3.22(b) of the Company
Disclosure Schedule also sets forth each trade name and unregistered trademark
used by the Company and its subsidiaries in connection with their businesses.
With respect to each item of Intellectual Property required to be disclosed
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pursuant to this Section 3.22(b): (i) the Company and its subsidiaries possess
all right, title, and interest in and to the item, free and clear of any lien,
license, or other restriction; (ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; (iii) no action, suit,
proceeding, hearing, interference, opposition, re-issue, re-examination,
investigation, charge, complaint, claim, or demand is pending or, to the
knowledge of the Company, threatened which challenges the legality, validity,
enforceability, scope, use, or ownership of the item; and (iv) neither the
Company nor any of its subsidiaries has agreed to indemnify any person or
entity for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(c) Section 3.22(c) of the Company Disclosure Schedule sets forth
each item of Intellectual Property that any third party owns and that the
Company and its Subsidiaries use or Intellectual Property that the Company or
its subsidiaries have less than full ownership interests in pursuant to
license, sublicense, agreement, or permission, other than any item of
Intellectual Property licensed or sublicensed or used pursuant to an agreement
between Parent and a third party and used by parent in connection with the
connection with the performance of information technology services for the
Company. The Company has made available to Parent correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item, (i) the relevant license, sublicense,
agreement, or permission covering the item is legal, valid, binding,
enforceable, and in full force and effect and will continue to be legal, valid
binding, enforceable, and in full force and effect on identical terms following
the consummation of the Merger; (ii) to the knowledge of the Company, the
underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and (iii) no action,
suit, proceeding, hearing, interference, opposition, reissue, re-examination,
investigation, charge, complaint, claim, or demand is pending or, to the
knowledge of the Company, threatened, against the Company or any subsidiary
which challenges the legality, validity, scope, use, ownership or
enforceability of the underlying item of Intellectual Property.
(d) The Company shall not be deemed to be in breach of any
representation or warranty in this Section 3.22 if such breach arises from a
breach by Parent of its obligations under the Agreement for Information
Technology Services dated January 1, 1995 between Parent and Services.
3.23 Labor Matters. Except as set forth in Section 3.23 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries is
a party to, or is currently negotiating, any collective bargaining or other
labor union contract applicable to any person employed by the Company or its
subsidiaries. Except as set forth in Section 3.23 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has experienced any
labor dispute, strike or work stoppage since January 1, 1993, and there is no
pending or, to the Company's knowledge, threatened labor dispute, strike or
work stoppage against the Company or any subsidiary of the Company. Neither
the Company nor its subsidiaries, nor their respective representatives or
employees, has committed any unfair labor practices in connection with the
operation of the respective businesses of the Company or its subsidiaries, and
there is no pending, or to the knowledge of the Company threatened, charge or
complaint against the Company or its subsidiaries by the National Labor
Relations Board or any comparable state or foreign agency.
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The Company and its subsidiaries are in material compliance with all applicable
laws respecting employment, consulting, employment practices, wages, hours and
terms and conditions of employment. Except as set forth on Section 3.23 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
has had a "Plant closing" or "mass layoff" within the meaning of the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101 et seq.
3.24 Bank Accounts. Section 3.24 of the Company Disclosure Schedule
sets forth a complete and correct list of (i) the name and address of each bank
in which the Company or any subsidiary of the Company has an account or safe
deposit box and the names of all persons authorized to draw thereon or to have
access thereto and (b) the names of all persons, if any, holding powers of
attorney (including, without limitation, with respect to tax matters) from the
Company or any subsidiary of the Company and a summary of the terms thereof.
3.25 Projections. Certain projections for Services' consolidated
operations for each month from July through December 1997 are attached hereto
as Section 3.25 of the Company Disclosure Schedule (the "Projections"). The
Projections were prepared in good faith and consistent with past practices. All
assumptions on which the Projections are based were determined in accordance
with past practices. The Company believes that all such stated assumptions were
reasonable when made and continue to be reasonable. the Projections were not
prepared with a view to public disclosure and do not purport to present
financial condition or results of operations in accordance with generally
accepted accounting principles. The Projections have not been audited, compiled
or otherwise examined by independent accountants. The Projections reflect
numerous assumptions, many of which are beyond the control of the Company.
Accordingly, there can be no assurance that the assumptions made in preparing
the Projections will prove to be accurate, and actual results may be materially
greater or less than those contained in the Projections.
3.26 Related Party Transactions. Except as listed in Section 3.26 of
the Company Disclosure Schedule, since June 30 1996 there have been no material
transactions between the Company and any of its subsidiaries, on the one hand,
and any (i) officer or director of the Company or any of its subsidiaries, (ii)
record or beneficial owner of five percent or more of any class of equity
securities of the Company, or (iii) affiliated (as such term is defined in
Regulation 12b-2 promulgated under the Exchange Act) of any such officer,
director or beneficial owner, on the one hand, other than transactions with
Parent and any of its subsidiaries, any payments under the Hicks Muse Advisory
Agreement (as hereinafter defined) or the Wand Advisory Agreement (as
hereinafter defined), and payment of compensation for services rendered to the
Company or any of its subsidiaries pursuant to the employment arrangements
listed in Section 3.12 of the Company Disclosure Schedule as in effect on the
date hereof.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
In order to induce the Company to enter into this Agreement,
Parent and Sub, jointly and severally, hereby represent and warrant to the
Company that the statements contained in this Article IV are true, correct and
complete.
4.1 Organization and Standing. Each Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware with full power and authority to own, lease, use and
operate its properties and to conduct its business as and where now owned,
leased, used, operated and conducted.
4.2 Corporate Power and Authority. Each of Parent and Sub
has full corporate power and authority to execute and deliver this Agreement
and to perform the transactions contemplated hereby to be performed by it. The
execution and delivery of this Agreement by Parent and Sub and the consummation
by Parent and Sub of the transactions contemplated hereby to be performed by it
have duly and validly approved by the Board of Directors of Parent and Sub and
no other corporate proceedings with respect to Parent and Sub are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of Parent and Sub
and, assuming the due execution and delivery of this Agreement by the other
parties hereto, constitutes a valid and binding obligation of Parent and Sub
enforceable against them in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.3 Conflicts; Consents and Approvals. Neither the
execution and delivery of this Agreement by Parent or Sub nor the consummation
of the transactions contemplated hereby will:
(a) conflict with, or violate any provision of, the
Certificate of Incorporation or Bylaws of Parent and Sub;
(b) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with the
giving of notice, the passage of time or otherwise, would constitute a
default) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, contract,
undertaking, agreement, lease or other instrument or obligation to
which Parent, Sub or any of their subsidiaries is a party or by which
any of their respective properties or assets may be bound;
(c) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Parent or Sub or any of their
properties or assets; or
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(d) require any action or consent or approval of, or review by, or
registration or filing by Parent, Sub or any of their affiliates with, any
third party or any Governmental Authority, other than (i) actions required
by the HSR Act and (ii) the filing and recordation of the Certificate of
Merger as required by the DGCL;
except, in the case of (b), (c) and (d), for any of the foregoing that would
not, in the aggregate, have a material adverse effect on Parent or Sub or that
would not prevent or delay in any material respect the consummation of the
transactions contemplated hereby.
4.4 Litigation. There is no action, suit, or proceeding pending
or, to the knowledge of Parent or Sub, threatened against Parent or Sub that
questions the validity of this Agreement or any action taken or to be taken by
Parent or Sub in connection with this Agreement.
ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from and
after the execution of this Agreement until the Effective Time.
5.1 Mutual Covenants.
(a) General. Each of the parties shall use its reasonable efforts
to take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement as promptly as
possible (including, without limitation, using its reasonable efforts to cause
the conditions set forth in Article VI for which they are responsible to be
satisfied as soon as reasonably practicable and to prepare, execute and deliver
such further instruments and take or cause to be taken such other and further
action as any other party hereto shall reasonably request).
(b) HSR Act. As soon as practicable, and in any event no later
than two business days after the date hereof, each of the parties hereto will
file any Notification and Report Forms and related material required to be
filed by it with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the HSR Act with respect to the
transactions contemplated hereby.
(c) Other Governmental Matters. Each of the parties shall use its
reasonable efforts to take any additional action that may be necessary, proper
or advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of, any Governmental Authority that it
may be required to give, make or obtain.
(d) Notification of Certain Matters. Each of the parties shall
give prompt notice to the other parties of (i) the occurrence or non-occurrence
of any event the occurrence or
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non-occurence of which would cause any representation or warranty contained in
this Agreement made by such party to be untrue or inaccurate at or prior to the
Closing Date, except to the extent such representations and warranties speak as
of an earlier date, and (ii) any material failure of such party to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, provided, however, that the delivery of any notice
pursuant to this Section 5l(d) shall not limit or otherwise affect the
remedies available hereunder to any party.
(e) Termination of Securityholders Agreement. Simultaneously with the
Closing, Parent and the Company shall cause the Securityholders Agreement, dated
as of November 28, 1994, among the Company, HM/Neodata, L.P., HM/Neodata DBMS,
L.P. and Parent (the "Securityholders Agreement") to be terminated pursuant to
the provisions of the First Amendment to Securityholders Agreement in the form
of Exhibit A hereto (the "Securityholders Agreement Amendment").
(f) Public Statements. The parties shall consult with each other prior
to issuing any public statement or announcement with respect to this Agreement
or the transactions contemplated hereby and shall not issue any such public
statement or announcement prior to such consultation and without consent of the
other party, which shall no be unreasonably withheld, except that any party may
issue such a public statement or announcement prior to such consultation if and
to the extent required by law or any listing agreement with a national
securities exchange or any other similar regulatory bodies, in which case such
party shall use its best efforts to consult with the other parties prior to
issuing such public statement or announcement.
5.2 Covenants of the Company.
(a) Access. From and after the date of this Agreement until the
Closing Date (or the termination of this Agreement), the Company shall permit
representatives of Parent and Sub to have reasonable access to the Company's
officers, employees, premises, properties, books, records, financial and
operating data, contracts, tax records and documents. Without limiting the
foregoing, during such period, to the extent permitted by applicable law, one
or more representatives of Parent (a "Parent Representative") shall be permitted
to relocate to the Company's principal executive offices and/or such other
facilities of the Company and its subsidiaries as Parent shall deem necessary.
Management of the Company shall cooperate with such representatives of Parent
and shall offer to include such representatives in all material decisions,
actions or meetings regarding the management of the Company and its
subsidiaries. During the period from the date hereof to the Effective Time, the
Company shall notify Parent of any material change in the normal course of the
Company's business. During such period, the Company shall promptly furnish to
Parent all monthly or other interim financial information regarding the
Company's or Services' consolidated financial position or results of operations
as soon as practicable following the availability of such information. The
representations and warranties of the Company contained herein or in any
certificate or other document delivered to Parent or Sub shall not be deemed
waived or otherwise affected by any such investigation made by Parent or any of
its representatives.
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(b) Conduct of the Company's Operations. During the period from the
date of this Agreement to the Closing Date, the Company shall, and shall cause
its subsidiaries to, conduct its operations in the ordinary course, except as
expressly contemplated by this Agreement or authorized by Parent or a Parent
Representative (which authorization shall be proven by clear and convincing
evidence), and shall use its commercially reasonable best efforts to maintain
and preserve its business organization and its material rights and franchises
and to retain the services of its officers and key employees and maintain
satisfactory relationships with customers, suppliers and other third parties,
and to perform in all material respects all of its obligations under all
contracts and agreements to which it is a party to by which any of its assets
or properties are bound, to the end that their goodwill and ongoing business
shall not be impaired in any material respect. Notwithstanding the immediately
preceding sentence, prior to the Closing Date, except as may be authorized by
Parent or a Parent Representative (which authorization shall be proven by clear
and convincing evidence), neither the Company nor any subsidiary of the company
shall (i) take any action that would result in any of the Company's
representations or warranties set forth in this Agreement not being true or in
any of the conditions to the Merger set forth in Article 7 not being satisfied;
(ii) amend or propose to amend its Certificate of Incorporation or Bylaws;
(iii) increase in any manner the compensation or fringe benefits (including,
but not limited to, severance benefits) payable or to become payable to any
director, officer, employee, independent contractor (except for increases in
salary to non-officer employees in the ordinary course of business in
accordance with pre-established bonus targets and performance goals) or amend
or enter into any employment agreement with any present or future officer or
employee (except for the Amendments to Employment Agreements referred to in
Section 6.2(i) hereof), provided, however, that Parent acknowledges that the
creation of employment rights under applicable law in connection with the
hiring by the Company or a subsidiary of an employee in the ordinary course of
business in the absence of a written employment agreement shall not be deemed
to be prohibited by this clause; (iv) except pursuant to the exercise of
options or warrants existing on the date hereof and disclosed pursuant to this
Agreement and except for the conversion of Nonvoting Common Stock into common
Stock pursuant to the terms of the Company's Certificate of Incorporations,
issue any shares of capital stock, effect any stock split or otherwise change
its capitalization as it existed on the date hereof; (v) grant, confer or award
any option, warrant, conversion right or other right not existing on the date
hereof to acquire any shares of its capital stock; (vi) adopt any new employee
benefit plan or amend any existing employee benefit plan in any material
respect, other than the termination of option plans of the Company pursuant to
this Agreement; (vii) except for dividends declared by Services to the company
required for payment of the Promissory Note due 1998 of the company (as
successor to Neodata Books/Distribution/Holding, Inc.) dated June 26, 1991
payable to Meredith Corporation in the original principal amount of $7,000,000
(the "Meredith Note") in accordance with its terms, declare, set aside or pay
any dividend or make any other distribution or payment with respect to any
shares of its capital stock or directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any
subsidiary; (viii) sell, lease or otherwise dispose of any of its assets
(including capital stock of any subsidiary) which are material, individually
or in the aggregate, except in the ordinary course of business; or (ix) agree
to take any of the actions specified in this Section 5.2(b).
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(c) Discharge and termination of Subdebt Warrants and Bridge
Warrants. Prior to or simultaneously with the Closing, the Company shall
discharge and terminate (i) all of its obligations under the outstanding
Subdebt Warrants (as defined below) pursuant to a Subdebt Warrant Exercise
Agreement, to be dated as of the Closing Date, among the Company and the
holders of the Subdebt Warrants substantially in the form of Exhibit B hereto
(the "Subdebt Warrant Exercise Agreement") and (ii) all of its obligations
under the outstanding Bridge Warrants (as defined below) pursuant to a Bridge
Warrant Exercise Agreement, to be dated as of the Closing Date, among the
Company and the holders of the Bridge Warrants substantially in the form of
Exhibit C hereto (the "Bridge Warrant Exercise Agreement," and together with
the Subdebt Warrant Exercise Agreement, the "Warrant Exercise Agreements"). As
used herein, (i) the "Subdebt Warrants" means those certain Warrants to Acquire
Nonvoting Common Stock of Neodata Corporation, as amended, listed and described
under the heading "Subdebt Warrants" in Section 5.2(c) of the Company
Disclosure Schedule and (ii) the "Bridge Warrants" means those certain Warrants
to Acquire Common Stock of Neodata Corporation, as amended, listed and
described under the heading "Bridge Warrants" in Section 5.2(c) of the Company
Disclosure Schedule.
(d) Stock Options. Prior to the Closing, the Company shall cause
the 1990 Plan and the 1994 Plan to terminate as of the Effective Time and shall
cause the provisions in any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
the Company to be canceled as of the Effective Time (the "Option Plan
Terminations"). The Company agrees to take all action necessary to ensure that
following the Effective Time no participant in the 1990 Plan, the 1994 Plan or
any other plans, programs or arrangements shall have any right thereunder to
acquire equity securities of the Company or the Surviving Corporation.
(e) Termination of Financial Advisory Agreements. Simultaneously
with the Closing, the Company shall cause the Financial Advisory Agreement,
dated as of August 22, 1990, among the Company, Neodata Services, Inc. and
Hicks, Muse Co. Incorporated, as amended (the "Hicks Muse Advisory Agreement"),
and the Financial Advisory Agreement, dated as of September 30, 1992, among the
Company, Neodata Services, Inc. and Wand/Neodata Investments, L.P., as amended
(the "Wand Advisory Agreement"), to be terminated pursuant to the provisions of
the Hicks Muse Termination Agreement substantially in the form of Exhibit D
hereto (the "Hicks Muse Termination Agreement") and the Wand Termination
Agreement substantially in the form of Exhibit E hereto (the "Wand Termination
Agreement" and, collectively with the Hicks Muse Termination Agreement, the
"Financial Advisory Termination Agreements"), respectively.
(f) Consent of Stockholders. The Company shall take all action
reasonably necessary, in accordance with the DGCL and its Certificate of
Incorporation and Bylaws, to obtain the written consent of its stockholders to
(i) the Merger and the transactions contemplated hereby and (ii) all payments,
including amounts received in respect of stock and stock options, to be made to
Laurence Jones pursuant to the Amended and Restated Executive Employment
Agreement dated January 1, 1997 between the Company and A. Laurence Jones (the
"Jones Employment Agreement"). The information furnished to stockholders shall
include written
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disclosure in a form reasonably acceptable to Parent. At or prior to the
Closing, the Company shall deliver to Parent a certificate of the Company's
Secretary setting forth (i) the number of shares of capital stock of the
Company with respect to which consent has been granted to the foregoing matters
and (ii) the number of Dissenting Shares.
5.3 Covenants of Parent and Sub.
(a) Indemnification; Insurance.
(i) For a period of six years from and after the
Effective Time, Parent shall, and shall cause the Surviving Corporation
to, indemnify and hold harmless to the fullest extent permitted under
applicable law each person who is now, or has been at any time prior to
the date hereof, an officer or director of the Company for any
subsidiary thereof) (individually, an "Indemnified Party" and
collectively, the "Indemnified Parties") against all losses, claims,
damages, liabilities, costs or expenses (including reasonable
attorneys' fees), judgments, fines, penalties and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation (and shall pay reasonable expenses for legal fees in
advance of the final disposition of any such action or proceeding to
each Indemnified Party to he fullest extent permitted under applicable
law upon receipt from an Indemnified Party of any undertaking
contemplated by applicable law, including, without limitation, an
undertaking to reimburse Parent or the Surviving Corporation for such
expenses paid in advance in the event that it is ultimately determined
that such Indemnified Party is not entitled to the payment of such
expenses for any reason) arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as
such prior to the Effective Time, whether commenced asserted or claimed
before the Effective Time and including, without limitation,
liabilities arising under the Securities Act, the Exchange Act and
state corporation laws; provided that the Surviving Corporation shall
pay for only one law firm (in addition to local counsel) for all
Indemnified Parties, unless the sue of one law firm for all Indemnified
Parties would present such law firm with a conflict of interest. For a
period of six years from and after the Effective Time and except as may
be required by applicable law, Parent shall cause the Surviving
Corporation to keep in effect the Company's current provisions in its
Certificate of Incorporation and Bylaws providing for exculpation of
director and officer liability and indemnification of the Indemnified
Parties to the fullest extent permitted under the DGCL. In the event of
any actual or threatened claim, action, suit, proceeding or
investigation in respect of such acts or omissions, Parent shall cause
the Surviving Corporation to cooperate in the defense of any such
matter; provide, however, that neither Parent nor the Surviving
Corporation shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld).
(ii) From and after the Closing Date, Parent shall, or
shall cause the Surviving Corporation to, maintain in effect for a
period ending not earlier than the six year anniversary of the
Effective Time directors' and officers' liability insurance providing
at least substantially the same coverage with respect to the Company's
officers and directors as the current policy maintained by the Company,
with respect to
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matters occurring prior to or existing at the Effective time, including
the transactions contemplated by this Agreement, to the extent such
insurance is commercially available at reasonable cost with respect to
such matters.
(b) Stockholder Actions. Parent agrees that, in its
capacity as a stockholder of the Company, it shall execute such consents and
otherwise vote to approve such actions necessary to consummate the transactions
contemplated hereby.
ARTICLE VI
CONDITIONS
6.1 Conditions to Obligations of All Parties. The
obligations of the parties to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, contemporaneously with, or prior to,
the Closing, of each of the following conditions (all or any of which may be
waived in whole or in part by the Company or by Parent and Sub):
(a) no temporary restraining order, preliminary or permanent
injunction or other order or decree which seeks to prevent consummation
of any of the transactions contemplated hereby shall have been issued
and remain in effect, and no statute, rule or regulation shall have
been enacted by an Governmental Authority which prevents the
consummations of any of the transactions contemplated hereby;
(b) any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated; and
(c) this Agreement and the Merger shall have been approved
and adopted by the requisite vote of the stockholders of the Company in
accordance with the DGCL and the Company's Certificate of
Incorporation.
6.2 Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to perform the transactions contemplated by this
Agreement to be performed by them are subject to the satisfaction,
contemporaneously with, or prior to, the Closing, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
Parent and Sub):
(a) the representations and warranties of the Company
contained herein shall be true and correct as of the date of this
Agreement in all material respects and (except to the extent that such
representations and warranties speak specifically as of an earlier
date) as of the Effective Time as though made on and as of the
Effective Time, provided, however, that materiality for such purpose
shall be determined without reference to any material or knowledge
standard included in any particular representation or warranty;
(b) the Company shall have performed in all material
respects each covenant to be performed by it on or prior to the Closing
Date;
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(c) all consents and approvals of Governmental Authorities or third
party consents and approvals identified on Section 6.2(c) of the Company
Disclosure Schedule necessary for the consummation of the transactions
contemplated by this Agreement shall have been obtained.
(d) there shall not have occurred after the date hereof any events
resulting in or which would result in, individually or in the aggregate, a
material adverse effect on the Company, except to the extent that any such
event resulted from any action taken by the Company or a subsidiary which
was authorized by Parent or a Parent Representative where such
authorization can be proven by clear and convincing evidence;
(e) the Subdebt Warrants and the Bridge Warrants shall have been
exercised and the Company shall have no further obligations in connection
therewith, other than payment of the difference between the aggregate
Merger Consideration and the exercise price, if any, in respect thereof;
(f) all outstanding options to acquire capital stock of the Company
shall have been terminated;
(g) the Financial Advisory Termination Agreements shall have been
duly and validly executed and delivered by the parties thereto and shall be
valid, binding and in full force and effect;
(h) Parent shall have received the opinion of Weil, Gotshal, &
Manges, L.L.P., counsel to the Company, substantially in the form of
Exhibit F hereto;
(i) Parent shall have received the Amendment to Executive
Employment Agreement, substantially in the form of Exhibit G hereto, duly
executed by the Company and each of Nicholas Cuccaro, Francie Anhut, Ed
Fiaherty, Ed Frazier, Ben Gill, Sue Morse, Nancy Talmey and Rich Rosy,
except for any such person with respect to whom such person's stock options
shall not have been accelerated;
(j) the Securityholders Agreement Amendment shall have been duly
and validly executed and delivered by the parties thereto other than Parent
and shall be valid, binding and in full force and effect.
(k) the Company shall have filed with the Commission its Annual
Report on Form 10-K for its fiscal year ended June 30, 1997, which shall
include an unqualified opinion from Coopers & Lybrand, the Company's
independent auditors; and
(l) The Company shall have obtained the ratification and approval
by the vote of persons owning more than 75% of the voting power of all
outstanding stock of the Company, pursuant to written disclosure in a form
reasonably acceptable to Parent, of the
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amounts to be received by A. Laurence Jones in connection with the
transactions contemplated hereby.
6.3 Conditions to Obligations of the Company. The obligations of
the Company to perform the transactions contemplated by this Agreement to be
performed by it are subject to the satisfaction, contemporaneously with, or
prior to, the Closing, of each of the following additional conditions (all or
any of which may be waived in whole or in part by the Company):
(a) the representations and warranties of Parent and Sub contained
herein shall be true and correct as of the date of this Agreement in all
material respects and (except to the extent that such representations and
warranties speak specifically as of an earlier date) as of the Effective
Time as though made on and as of the Effective Time, provided, however,
that materiality for such purpose shall be determined without reference to
any material or knowledge standard included in any particular
representation or warranty
(b) each of Parent and Sub shall have performed in all material
respects each covenant to be performed by it on or prior to the Closing
Date
(c) the Securityholders Agreement Amendment shall have been duly
and validly executed and delivered by the parties thereto other than the
Company and shall be valid, binding and in full force and effect; and
(d) Parent and Sub shall have delivered the Merger Consideration,
the Option Consideration and all amounts necessary to cash out the Bridge
Warrants and the Subdebt Warrants to the Paying Agent by wire transfer of
immediately available funds.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company if any permanent injunction or
other order or decree of a court or other competent Governmental Authority
preventing the consummation of the transactions contemplated hereby shall
have become final and nonappealable, provided that the party seeking to
terminate this Agreement pursuant to this clause (b) shall have used its
reasonable best efforts to remove such injunction, order or decree;
(c) by either Parent or the Company if the Closing shall not have
occurred before October 15, 1997 (or November 15, 1997, in the event the
Closing shall not have
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occurred on or before October 15, 1997 due to the failure to receive
termination of the waiting period under the HSR Act); provided that the
right to terminate this Agreement under this Section 7.1(c) shall not be
available to any party whose failure to perform any material covenant or
obligation under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or before such date, or
(d) by Parent or the Company (so long as the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of
any of the covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of the other party, which
breach is not cured within 10 days following written notice given by the
terminating party to the party committing such breach, or which breach, by
its nature, cannot be cured prior to the Closing, but only if such breach
would constitute a failure of a condition contained in Section 6.2 or
Section 6.3, as applicable.
7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement, except for the provisions of
Sections 7.2 and 8.10, shall become void and have no effect, without any
liability on the part of any party or its directors, officers, employees or
stockholders. Notwithstanding the foregoing, nothing in this Section 7.2 shall
relieve any party to this Agreement of liability for a breach of any covenant or
agreement set forth in this Agreement.
7.3 Amendment. This Agreement may be amended by a written instrument
signed by the parties hereto and, if required by the DGCL or otherwise, approved
by action taken by their respective Boards of Directors, at any time, but no
amendment shall be made which by law requires further approval by the
stockholders of the Company or Sub without such further approval.
7.4 Extension; Waiver. At any time prior to the Closing Date, Parent
(with respect to the Company) and the Company (with respect to Parent and Sub)
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of such party, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The representations
and warranties made herein by the parties hereto shall not survive the Closing
Date.
8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given upon receipt if delivered personally,
telecopied (which is
34
<PAGE> 39
confirmed) or dispatched by a nationally recognized overnight courier service to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to the Company:
Neodata Corporation
833 W. South Boulder Road
Louisville, Colorado 80027
Attention: A. Laurence Jones
with copies to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Jack D. Furst
Lawrence D. Stuart, Jr.
Telecopy No.: (214) 740-7313
and
Mary R. Korby
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Telecopy No.: (214) 746-7777
(b) if to Parent or Sub:
Electronic Data Systems Corporation
5400 Legacy Drive
Mail Stop H2-8W-40
Plano, Texas 75024
Attention: General Counsel
Telecopy No.: (972) 605-5610
8.3 Interpretation. When a reference is made in this Agreement
to an Article, Section or Schedule, such reference shall be to an Article,
Section or Schedule of this Agreement unless otherwise indicated. The headings
and the table of contents contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. For the purposes of this Agreement, a "material adverse effect"
shall mean, as to any party, a material adverse effect on the assets,
liabilities, result of operations, business, properties or condition (financial
or otherwise) of such party and its subsidiaries, taken as a whole, or on such
party's ability to consummate the transactions contemplated hereby. For the
35
<PAGE> 40
purposes of this Agreement, the term "to the knowledge of the Company" or
similar terms shall be deemed to include the knowledge of any subsidiaries of
the Company.
8.4 Counterparts. This Agreement may be executed in counterparts,
which together shall constitute one and the same Agreement. The parties may
execute more than one copy of the Agreement, each of which shall constitute an
original.
8.5 Entire Agreement. This Agreement (including the documents and
the instruments referred to herein) constitutes the entire agreement among the
parties and supersedes all prior agreements and understandings, agreements or
representations by or among the parties, written and oral, with respect to the
subject matter hereof and thereof.
8.6 Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to create any third party
beneficiaries, except for the provisions of Section 5.3(a) which may be
enforced by the beneficiaries thereof.
8.7 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas without regard to principles
of conflicts of law.
8.8 Specific Performance. The transactions contemplated by this
Agreement are unique and monetary damages would not be an adequate remedy for a
breach hereof. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided that such
party is not in material default hereunder.
8.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign any or all of its
rights, interest and obligations hereunder to Parent or to any direct or
indirect wholly owned subsidiary of Parent. Subject to the preceding sentence,
the Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
8.10 Expenses. All costs and expenses incurred in connection with
the consummation of the transactions contemplated by the Agreement by Parent
and Sub shall be paid by Parent and all costs and expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement by the Company shall be paid by the Company. Notwithstanding the
foregoing, the filing fees incurred in connection with the filings or
registrations pursuant to the HSR Act shall be borne equally by Parent and the
Company.
8.11 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so
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<PAGE> 41
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
8.12 Subsidiaries. As used in this Agreement, the word "subsidiary"
when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least 50% of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect
to such corporation or other organization, or any organization of which such
party is a general partner.
[Remainder of page intentionally left blank]
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<PAGE> 42
IN WITNESS WHEREOF, Parent, Sub and the Company have signed this
Agreement as of the date first written above.
ELECTRONIC DATA SYSTEMS CORPORATION
By: /s/ GARY J. FERNANDES
-------------------------------------
Name: Gary J. Fernandes
Title: Vice Chairman
RAMCAD CORPORATION
By: /s/ GARY J. FERNANDES
-------------------------------------
Name: Gary J. Fernandes
Title: President
NEODATA CORPORATION
By: /s/ A. LAWRENCE JONES
----------------------------------
Name: A. Lawrence Jones
Title: President/Chief Executive Officer
38
<PAGE> 1
EXHIBIT 10.45
THIRD AMENDMENT TO AMENDED
AND RESTATED LEASE AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT (this
"Amendment") made as of the 31st day of January, 1997, by and between NEOSERV
(CO) QRS 10-13, INC., a Colorado corporation, and NEOSERV (CO) QRS 11-8, INC.,
a Colorado corporation (collectively. "Landlord"), and NEODATA SERVICES, INC.,
a Delaware corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a certain Amended and
Restated Lease Agreement, dated as of June 8, 1994 (the "Original Lease");
WHEREAS, the Original Lease has been amended pursuant to (a) that
certain First Amendment to Amended and Restated Lease Agreement, dated as of
December 13, 1994 (the "First Amendment") and (b) that certain Second Amendment
to Amended and Restated Lease Agreement dated as of January 25, 1996 (the
"Second Amendment") (the Original Lease, as amended by the First Amendment and
the Second Amendment, being hereinafter referred to as the "Lease"); and
WHEREAS, Landlord and Tenant have agreed to further amend the Lease
as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant covenant and
agree as follows:
1. Exhibit E (Financial Covenants) is hereby deleted in its entirety
and Exhibit E attached hereto is hereby inserted in lieu thereof.
2. Subparagraph (c) of Paragraph 40 Security Deposit is hereby
deleted in its entirety and the following is inserted in lieu thereof:
"(c) Notwithstanding anything to the contrary provided in this Lease,
Tenant hereby agrees to deliver to Landlord the Letter of Credit required
pursuant to Paragraph 40 of the Lease until such time that the Tenant
achieves either of the following credit ratings: (1) a Baa3 credit rating
from Moody's Corporation or (2) a BBB- credit rating from Standard & Poors
Rating Group."
<PAGE> 2
3. Subparagraph (g) of Paragraph 42 Miscellaneous is hereby deleted
in its entirety and the following is inserted in lieu thereof:
"(g) Notwithstanding anything to the contrary provided in this Lease,
if BT (as defined on Exhibit E) consents to, waives or amends any
provision, term or covenant in the BT Credit Agreement (as defined on
Exhibit E) or the BT Loan Documents (as defined on Exhibit E), without
consideration Landlord and the Lender (as hereinafter defined) shall be
deemed to have consented to, waived or amended such similar provision,
term or covenant in this Lease (without the necessity of executing a
consent, waiver or amendment to this Lease) as of the effective date of
BT's consent, waiver or amendment; provided, however, that Tenant shall
provide Landlord and PFL Life Insurance Company (the "Lender") written
notice of such consent, waiver or amendment. If Tenant does provide BT
consideration of any nature for such consent, waiver or amendment, then
Tenant shall provide Landlord and the Lender written notice of such
consent, waiver or amendment and Landlord and the Lender shall have a
period of twenty (20) days within which to approve or reject such consent,
waiver or amendment.
4. This Amendment shall be governed by and construed in accordance
with the laws of the State of Colorado.
5. Except as specifically amended by this Amendment, the terms and
conditions of the Lease shall remain in full force and effect and shall be
binding upon Landlord and Tenant and their respective successors and assigns.
6. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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<PAGE> 3
WITNESS the due execution hereof the day and year first above
written.
LANDLORD:
NEOSERV (CO) QRS 10-13, INC.
By: /s/ SEAN SOVAK
-------------------------------
Title: Vice President
----------------------------
NEOSERV (CO) QRS 11-8, INC.
By: /s/ SEAN SOVAK
-------------------------------
Title: Vice President
----------------------------
TENANT:
NEODATA SERVICES, INC.
By: /s/ NICHOLAS J. CUCCARO
-------------------------------
Title: Sr. Vice President and CFO
----------------------------
3
<PAGE> 4
CONSENT OF GUARANTOR
Neodata Corporation, a Delaware corporation, hereby consents to the
Third Amendment to Amended and Restated Lease Agreement and agrees that for
purposes of the Amended and Restated Guaranty and Suretyship Agreement, dated
as of June 8, 1994, pursuant to which Guarantor guaranteed the obligations of
Tenant under the Lease, the term "Lease" shall mean the Lease as amended by
this Third Amendment to Amended and Restated Lease Agreement.
NEODATA CORPORATION
By: /s/ NICHOLAS J. CUCCARO
-------------------------------
Title: Sr. Vice President and CFO
----------------------------
<PAGE> 5
CONSENT OF LENDER
PFL Life Insurance Company, an Iowa corporation (the "Lender"), the
Lender under that certain Assignment of Leases, Rents and Income, dated
December 13, 1994, from Neoserv (CO) QRS 10-13, Inc. and Neoserv (CO) QRS 11-8,
Inc. to the Lender, hereby consents to the Third Amendment to Amended and
Restated Lease Agreement.
PFL LIFE INSURANCE COMPANY
By: /s/ LINDSAY SCHUMACHER
-------------------------------
Lindsay Schumacher
Title: Vice President
----------------------------
<PAGE> 6
EXHIBIT E
FINANCIAL COVENANTS
1. Definitions. In addition to the terms defined elsewhere in this
Lease, the following terms used in this Exhibit E shall have the following
meanings:
"Affiliate" means any Person: (a) directly or indirectly controlling,
controlled by, or under common control with, Tenant; (b) directly or indirectly
owning or holding five percent (5%) or more of any equity interest in Tenant;
or (c) five percent (5%) or more of whose voting stock or other equity interest
is directly or indirectly owned or held by Tenant. For purposes of this
definition, "control" (including with correlative meanings, the terms
"controlling", "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise.
"Agent" means BT or its successor appointed pursuant to the BT Credit
Agreement.
"BT" means Bankers Trust Company.
"BT Closing Date" means the closing date of the BT Credit Agreement.
"BT Credit Agreement" means that certain Credit Agreement dated as of
January 31, 1997 among Holdings, Tenant, the various bank parties thereto from
time to time, and BT, as amended, supplemented, modified or restated from time
to time.
"BT Lender" or "BT Lenders" means BT and each of the other financial
institutions listed on the signature pages to the BT Credit Agreement, together
with their respective successors and permitted assigns pursuant to the BT
Credit Agreement.
"BT Loan" or "BT Loans" means an advance or advances under the BT
Credit Agreement.
"BT Loan Documents" means the BT Credit Agreement and all other
notes, security documents, instruments, documents and agreements delivered
concurrently with the BT Credit Agreement or at any time thereafter to or for
the benefit of Agent or any BT
<PAGE> 7
Lender to evidence the repayment of the BT Loans, to set forth agreements
governing the BT Loans, or to secure or guaranty the BT Loans; excluding
however, the EDS Documents and all Senior Note Documents.
"BT Loan Party" means, collectively, Tenant and any other Person
(other than Agent or any BT Lender) which is or becomes a party to any BT Loan
Document.
"BT Obligations" means all obligations, liabilities, and indebtedness
of every nature of each BT Loan Party from time to time owed to Agent or any BT
Lender under the BT Loan Documents including the principal amount of all debts,
claims and indebtedness, accrued and unpaid interest and all fees, costs and
expenses, whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and/or from time to time hereafter owing, due or payable
pursuant to the BT Loan Documents.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York City a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with
generally accepted accounting principles) and the amount of Capitalized Lease
Obligations incurred by such Person.
"Capital Lease" means any lease of any property (whether real,
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under generally accepted accounting principles, are or will
be required to be capitalized on the books of such Person, in each case taken
at the amount thereof accounted for as indebtedness in accordance with such
principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than
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<PAGE> 8
one year from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank having, or which is the principal banking
subsidiary of a bank holding company organized under the laws of the United
States, any State thereof, the District of Columbia or any foreign jurisdiction
having capital, surplus and undivided profits aggregating in excess of
$200,000,000, with maturities of not more than one year from the date of
acquisition by such Person, (iii) repurchase obligations with a term of not
more than 90 days for underlying securities of the types described in clause
(i) above, (iv) commercial paper issued by any person incorporated in the
United States rated at least A-1 or the equivalent thereof by Standard & Poor's
Rating Group or at least P-1 or the equivalent thereof by Moody's Investors
Service, Inc. and in each case maturing not more than one year after the date
of acquisition by such Person, (v) investments in money market funds
substantially all of whose assets are comprised of securities of the types
described in clauses (i) through (iv) above and (vi) deposit accounts
maintained in the ordinary course of business not in excess of $100,000 at any
single institution.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income of Tenant and its Consolidated Subsidiaries, before interest expense and
provision for taxes and without giving effect to any extraordinary gains or
losses or gains or losses from sale of assets other than inventory sold in the
ordinary course of business.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated EBIT for such
period.
"Consolidated Interest Coverage Ratio" for any period shall mean the
ratio of Consolidated EBITDA to Consolidated Net Cash Interest Expense for such
period.
"Consolidated Net Cash Interest Expense" shall mean, for any period,
without duplication, total cash interest expense (including that attributable
to Capital Lease in accordance with GAAP) of Tenant and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of Tenant and
its Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges paid with respect to letters of credit and bankers
acceptance financing and net cost under interest rate protection agreements,
but excluding the amortization of any deferred financing costs net of the total
3
<PAGE> 9
consolidated cash interest income of Tenant and its Consolidated Subsidiaries
for such period.
"Consolidated Net Income" shall mean, for any period, the
consolidated net after tax income of Tenant and its Consolidated Subsidiaries
determined in accordance with GAAP; provided that for purposes of this
definition, the net after tax income of any Subsidiary of Tenant that is not a
Wholly-Owned Subsidiary of Tenant shall be included in Consolidated Net Income
in an amount equal to the percentage equity ownership (direct or indirect) of
Tenant in such non-Wholly-Owned Subsidiary multiplied by the net after tax
income of such non-Wholly-Owned Subsidiary.
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes. Notwithstanding anything to the contrary
contained in this Lease (and except for purposes of the definition of
Unrestricted Subsidiary), an Unrestricted Subsidiary shall be deemed not to be
a Subsidiary of Tenant or any of its other Subsidiaries for purposes of this
Lease.
"Contingent Obligations" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment
of such primary obligation or (iv) otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof; provided,
however, that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated of determinable amount of the primary obligation in respect of which
such Contingent Obligation is made (or, if less, the maximum amount of such
primary obligation for which such Person may be liable pursuant to the terms of
the
4
<PAGE> 10
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Dividend" shall have the meaning set forth in the BT Loan Agreement.
"EDS" means Electronic Data Systems Corporation.
"EDS Agreement" shall have the meaning set forth in the BT Credit
Agreement.
"EDS Documents" means the EDS Agreement and all other documents,
agreements and instruments executed pursuant to the terms of such agreement.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
BT Loan Party or any ERISA Affiliate or (b) has at any time within the
preceding six years been maintained for the employees of any BT Loan Party or
any current ERISA Affiliate (or by any former ERISA Affiliate, but only with
respect to such period such Person was an ERISA Affiliate or if a BT Loan Party
would be deemed a contributing sponsor of such plan under Section 4069 of
ERISA).
"Existing Indebtedness" shall mean the Indebtedness listed on
Schedule 1 attached hereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect on
January 31, 1997 and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"Fiscal Year" means a twelve month period ending on the last day of
June in each year.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or the Securities
and Exchange Commission that are applicable to the circumstances as of the date
of determination.
5
<PAGE> 11
"Holdings" means Neodata Corporation, a Delaware corporation.
"Holdings Tax Allocation Agreement" shall mean the Tax Sharing
Agreement, dated May 5, 1993, among Holdings, the Tenant and certain
Subsidiaries of Holdings noted on the signature pages thereto.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters of
credit issued for the account of such person and all unpaid drawings in respect
of such letters of credit, (iii) all Indebtedness of the types described in
clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any
Lien on any property owned by such Person, whether or not such Indebtedness has
been assumed by such Person (to the extent of the value of the respective
property), (iv) the aggregate amount required to be capitalized under leases
under which such Person is the lessee, (v) all obligations of such person to
pay a specified purchase price for goods or services, whether or not delivered
or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person and (vii) all obligations under any Interest Rate
Protection Agreement and Other Hedging Agreements or under any similar type of
agreement.
"Indenture" means that certain Indenture dated as of May 5, 1993
between Tenant and Ameritrust Texas National Association, as Trustee.
"Interest Rate Protection Agreement" shall mean any interest swap
agreement, interest rate cap agreement, interest collar agreement, interest
rate hedging agreement, interest rate floor agreement or other similar
agreement or arrangement.
"IRC" means the Internal Revenue Code of 1986.
"Lease Obligations" means all monetary obligations and all other
obligations of Tenant under this Lease.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
6
<PAGE> 12
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing.
"Material Adverse Effect" means (a) a material adverse effect upon
the business, operations, properties, assets or condition (financial or
otherwise) of Tenant on an individual basis or on the BT Loan Parties taken as
a whole or (b) the impairment of the ability of Tenant to perform its
obligations under this Lease.
"Meredith Note" shall have the meaning set forth in the BT Credit
Agreement.
"Monitoring Agreements" shall mean, collectively, (i) the Financial
Advisory Agreement, dated as of August 22, 1990, by and among Tenant, Holdings
and Hicks, Muse & Co. Incorporated and (ii) the Financial Advisory Agreement,
dated as of August 20, 1990, by and among Tenant, Holdings and Wand/Neodata
Investments, L.P. in each case as amended, modified or supplemented from time
to time in accordance with the terms thereof and hereof.
"NSL" shall mean Neodata Services Limited, a corporation organized
under the laws of Ireland.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale of assets, net of reasonable transaction costs
(including, without limitation, any underwriting, brokerage or other customary
selling commissions and reasonable legal, advisory and other fees and expenses,
including title and recording expenses, associated therewith) and payments of
unassumed liabilities relating to the assets sold at the time of, or within 30
days after, the date of such sale, the amount of such gross cash proceeds
required to be used to repay any Indebtedness (other than Indebtedness pursuant
to the BT Loans) which is secured by the respective assets which were sold, and
the estimated magical increase in income taxes which will be payable by
Tenant's consolidated group with respect to the fiscal year in which the sale
occurs as a result of such sale; but excluding any portion of any such gross
cash proceeds which Tenant determines in good faith should be reserved for
post-closing adjustments (to the extent Tenant delivers to Landlord a
certificate signed by its chief financial officer, controller or chief
accounting officer as to such determination), it being understood and agreed
that on the day that all such post-closing adjustments have been determined,
(which shall not be later than six months following
7
<PAGE> 13
the date of the respective asset sale), the amount (if any) by which the
reserved amount in respect of such sale or disposition exceeds the actual
post-closing adjustments payable by Tenant or any of its Subsidiaries shall
constitute Net Sale Proceeds on such date received by Tenant and/or any of its
Subsidiaries from such sale, lease, transfer or other disposition.
"Other Hedging Agreement" shall mean any foreign exchange contracts,
currency swap agreements, commodity agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency values.
"Permitted Encumbrances" shall mean the same as "Permitted Liens"
set forth in Section 2 hereof.
"Person" means any individual, partnership, joint venture, firm,
corporation, association, trust, or other enterprise, or any government or
political subdivision or any agency, department or instrumentality thereof.
"Public Equity Offering" means an underwritten primary public
offering of the common stock of Tenant or Holdings pursuant to an effective
registration statement under the Securities Act of 1933.
"Reinvestment Assets" shall mean any assets to be employed in the
business of Tenant and its Subsidiaries in compliance with this Lease.
"Related Business" shall mean the outsourced product and management
support service business conducted by Tenant and its Subsidiaries (or, if the
reference is to an Unrestricted Subsidiary, by such Unrestricted Subsidiary)
and any and all related business in support of and ancillary to or reasonably
related to such outsourced product and management support services business.
"Related Transactions" means the execution and delivery of the
Related Transactions Documents, the funding of each borrowing under the
Revolving Loans (as defined in the BT Credit Agreement) and the offering of the
Senior Notes and the sale thereof.
"Related Transactions Documents" means the BT Loan Documents, the EDS
Documents, the Senior Note Documents and any other documentation implementing
or governing any of the Related Transactions.
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<PAGE> 14
"Senior Notes" shall mean Tenant's 12% Senior Deferred Coupon Notes
due 2003, as the save may be amended, modified or supplemented from time to
time.
"Senior Note Documents" means the Indenture and the Senior Notes, and
all other instruments, agreements, and documentation delivered concurrently
therewith or at any time thereafter to evidence the repayment of the Senior
Notes or to set forth agreements governing the Senior Notes.
"Specified Properties" shall mean the Tenant's facilities currently
located at (x) 833 West South Boulder Road, Louisville, Colorado 80027 and (y)
200 Eighth Street, N.W., Clarion, Iowa 50525.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such person and/or one or
more Subsidiaries of such Person and (ii) any partnership association, joint
venture or other entity in which such person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time. Notwithstanding
the foregoing (and except for purposes of the definition of Unrestricted
Subsidiary contained herein) an Unrestricted Subsidiary shall be deemed not to
be a Subsidiary of Tenant or any of its other Subsidiaries for purposes of this
Agreement.
"Test Period" shall mean, for any determination, the four consecutive
fiscal quarters then last ended (taken as one accounting period).
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of Colorado.
"Unrestricted Subsidiary" shall mean any Subsidiary of Tenant that,
at the time of determination, shall be an Unrestricted Subsidiary (as
designated by Tenant, as provided below) provided that such Subsidiary does not
and shall not engage, to any substantial extent, in any line or lines of
business activity other than a Related Business. Tenant may designate any
Person to be an Unrestricted Subsidiary if (a) no default or event of default
is existing or will occur as a consequence thereof under the BT Credit
Agreement, (b) either (x) such Subsidiary, at the time of designation thereof,
has no
9
<PAGE> 15
assets (except assets which could be invested in such Unrestricted Subsidiary
at the time of designation as described in the immediately succeeding sentence)
or (y) such Subsidiary is designated an "Unrestricted Subsidiary" at the time
of the acquisition thereof by Tenant, in the case of Subsidiaries acquired
after the BT Closing Date and (c) such Subsidiary does not own any equity
interests in, or hold any Lien on any property of, Tenant or any other
Subsidiary (excluding other Unrestricted Subsidiaries). Any such designation
shall also be deemed to constitute an investment pursuant to Section 6(xii) in
an amount equal to the sum of the net assets (with assets other than cash and
Cash Equivalents valued at fair market value) of such Subsidiary at the time of
the designation (which investment must be permitted to be made in accordance
with the requirements of Section 6(xii), unless the designation is made
pursuant to clause (b)(y) of the first sentence of this definition, in which
case the amount of consideration paid by Tenant and its Subsidiaries to effect
such acquisition shall be included as such an investment. Tenant may designate
any Unrestricted Subsidiary to be Subsidiary, provided that no default or event
of default is existing or will occur as a consequence thereof. Each such
designation shall be evidenced by filing with the Agent a certified copy of the
resolution giving effect to such designation and an officers' certificate of an
authorized officer certifying that such designation complied with the foregoing
conditions.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
2. Liens. Tenant will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Tenant or any of its Subsidiaries, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable with recourse to Tenant or any of its Subsidiaries), or
assign any right to receive income or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute; provided that the provisions of this Section 2
shall not prevent the creation, incurrence,
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<PAGE> 16
assumption or existence of the following (Liens described below are herein
referred to as "Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due and payable or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been established
in accordance with generally accepted accounting principles in the United
States;
(ii) Liens in respect of property or assets of the Tenant or any of
its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money, such
as carriers', warehousemen's, materialmen's and mechanics' liens and other
similar Liens arising in the ordinary course of business, and (x) which do
not in the aggregate materially detract from the value of the Tenant's or
such Subsidiary's property or assets or materially impair the use thereof
in the operation of the business of the Tenant or such Subsidiary or (y)
which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or assets subject to any such Lien;
(iii) Liens in existence on the date hereof, plus renewals,
replacements and extensions of such Liens, provided that (x) the aggregate
principal amount of the Indebtedness, if any, secured by such Liens does
not increase from that amount outstanding at the time of any such renewal
or extension and (y) any such renewal or extension does not encumber any
additional assets or properties of Tenant or any of its Subsidiaries;
(iv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure the payment of customs duties in connection with
the importation of goods;
(v) Liens created pursuant to the BT Loan Documents;
(vi) licenses, leases or subleases granted to other Persons in the
ordinary course of business not materially interfering with the conduct of
the business of Tenant and its Subsidiaries taken as a whole;
11
<PAGE> 17
(vii) Liens upon assets subject to Capitalized Lease Obligations to
the extent permitted by Section 5, provided that (x) such Liens only serve
to secure the payment of Indebtedness arising under such Capitalized lease
Obligation and (y) the Lien encumbering the asset giving rise to the
Capitalized Lease Obligation does not encumber any other asset of the
Tenant or any Subsidiary of the Tenant;
(viii) Liens placed upon equipment or machinery used in the ordinary
course of business of the Tenant or any of its Subsidiaries at the time of
acquisition thereof by the Tenant or any such Subsidiary or within 150
days thereafter to secure Indebtedness incurred to pay all or a portion of
the purchase price thereof, and all renewals, replacements and extensions
thereof, provided that (x) the aggregate outstanding principal amount of
all Indebtedness secured by Liens permitted by this clause (viii) shall
not at any time exceed $2,000,000 at any time outstanding and (y) in all
events, the Lien encumbering the equipment or machinery so acquired does
not encumber any other asset of the Tenant or such Subsidiary;
(ix) easements, rights-of-way, restrictions (including zoning
restrictions), encroachments, protrusions and other similar charges or
encumbrances, and minor title deficiencies, in each case whether now or
hereafter in existence, not securing Indebtedness and not materially
interfering with the conduct of the business of the Tenant or any of its
Subsidiaries;
(x) Liens arising from precautionary UCC financing statement filings
regarding operating leases entered into by the Tenant or any of its
Subsidiaries in the ordinary course of business;
(xi) Liens arising out of the existence of judgments or awards not
constituting an Event of Default, provided that no cash or property is
deposited or delivered to secure the respective judgment or award (or any
appeal bond in respect thereof, except as permitted by following clause
(xiii));
(xii) statutory and contractual landlords' liens under leases to
which the Tenant or any of its Subsidiaries is a party;
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<PAGE> 18
(xiii) Liens (other than any Lien imposed by ERISA) (x) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security or (y) to secure the performance of tenders, statutory
obligations (other than excise taxes), surety, stay, customs and appeal
bonds, statutory bonds, bids, leases, government contracts, trade
contracts, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money)
and (z) deposits made in the ordinary course of business to secure
liability for premiums to insurance carriers, provided that the aggregate
amount of deposits at any time pursuant to clauses (y) and (z) shall not
exceed $1,000,000 in the aggregate;
(xiv) any interest or title of a lessor, sublessor, licensee or
licensor under any lease or license agreement permitted by this Lease;
(xv) Liens in favor of a banking institution arising as matter of law
encumbering the deposits (including the right of setoff) held by such
banking institution incurred in the ordinary course of business and which
are within the general parameters customary in the banking industry;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Tenant or any of its Subsidiaries in the ordinary course of business
in accordance with the past practices of the Tenant and its Subsidiaries
prior to the date hereof;
(xvii) deposits made to secure statutory obligations in the form of
excise taxes;
(xviii) Liens arising out of barter transactions or arrangements for
the sale or purchase of goods or services entered into by the Tenant or
any of its Subsidiaries in the ordinary course of business in accordance
with the past practices of the Tenant and its Subsidiaries prior to the
date hereof;
(xix) Liens on cash collateral not to exceed $500,000 arising in
connection with Other Hedging Agreements permitted under Section 6(iii);
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<PAGE> 19
(xx) Liens on one (but not both) Specified Property arising pursuant
to, and created as a result of, a sale-leaseback transaction permitted
pursuant to Section 3(xiii); and
(xxi) Liens not otherwise permitted by the foregoing clauses (i)
through (xx) to the extent attaching to properties and assets with an
aggregate fair value not in excess of, and securing liabilities not in
excess of, $1,500,000 in the aggregate at any time outstanding.
3. Consolidation. Merger, Purchase or Sale of Assets, etc. Tenant
will not, and will not permit its Subsidiaries to, wind up, liquidate or
dissolve its affairs or enter into any transaction of merger or consolidation,
or convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any time except with the Landlord's prior written consent) all or
any part of its property or assets, or enter into any sale-leaseback
transactions, or purchase or otherwise acquire (in one or a series of related
transactions) any part of the property or assets (other than purchases or other
acquisitions of inventory, materials, equipment and intangible assets in the
ordinary course of business) of any Person, except that:
(i) Capital Expenditures by the Tenant and its Subsidiaries shall be
permitted to the extent not in violation of Section 8;
(ii) each of the Tenant and its Subsidiaries may (x) in the ordinary
course of business, sell, lease or otherwise dispose of any assets which,
in the reasonable judgment of such Person, are obsolete, worn out or
otherwise no longer useful in the conduct of such Person's business and
(y) sell, lease or otherwise dispose of any other assets, provided that
the aggregate Net Sale Proceeds of all assets subject to sales or other
dispositions pursuant to this clause (ii) which are not reinvested to
acquire Reinvestment Assets in accordance with this Lease shall not exceed
$1,000,000 in any Fiscal Year;
(iii) sales of assets the Net Sale Proceeds of which are used to
acquire Reinvestment Assets in accordance with this Lease;
(iv) investments may be made to the extent permitted by Section 6;
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<PAGE> 20
(v) each of the Tenant and its Subsidiaries may lease (as lessee)
real or personal property in the ordinary course of business (so long as
any such lease does not create a Capitalized Lease Obligation except to
the extent permitted by Section 5);
(vi) each of the Tenant and its Subsidiaries may make sales or
transfers of inventory in the ordinary course of business and consistent
with past practices (including, without limitation, sales or transfers of
inventory by the Tenant to its Subsidiaries so long as at fair market
value);
(vii) so long as no Default or Event of Default then exists or would
result therefrom, Tenant and its Wholly-Owned Subsidiaries (other than
NSL) may acquire the capital stock or assets of any Person provided that
(x) any such acquisition is for at least a majority of the capital stock
or all or substantially all of the business of, or an operating division
or a business unit, of such Person (each such acquisition permitted by
this clause (vii), a "Permitted Section 3(vii) Acquisition") and (y) the
aggregate amount expended pursuant to this clause (vii) does not exceed
$10,000,000 at any time minus the aggregate amount of investments made by
Tenant or any of its Wholly-Owned Subsidiaries pursuant to Section
6(xiii), it being understood that if any such Permitted Section 3(vii)
Acquisitions are made by Holdings, the Tenant may Dividend, advance or
loan such amount to Holdings so long as the aggregate amount of all such
Dividends, advances and loans does not exceed the limitation set forth
above;
(viii) the Tenant and its Subsidiaries may sell or discount, in each
case without recourse and in the ordinary course of business, accounts
receivable arising in the ordinary course of business (x) which are
overdue or (y) which the Tenant may reasonably determine are difficult to
collect, but only in connection with the compromise or collection thereof
consistent with customary industry practice (and not as part of any bulk
sale or financing of receivables);
(ix) transfers of condemned property to the respective governmental
authority or agency that have condemned same (whether by deed in lieu of
condemnation or otherwise), and transfers of properties that have been
subject to a casualty to the respective insurer of such property as part
of an insurance settlement;
15
<PAGE> 21
(x) license or sublicenses by the Tenant and its Subsidiaries of
software, trademarks and other intellectual property in the ordinary
course of business and which do not materially interfere with the business
of the Tenant or any Subsidiary;
(xi) the Tenant or any Wholly-Owned Subsidiary of the Tenant may
transfer assets to or lease assets to or acquire or lease assets from the
Tenant or any other Wholly-Owned Subsidiary so long as the aggregate fair
market value of all assets transferred or leased pursuant to this clause
(xi) does not exceed $500,000;
(xii) any Wholly-Owned Subsidiary of the Tenant may be merged into
the Tenant (as long as the Tenant is the surviving corporation of such
merger) or any other Wholly-Owned Subsidiary of the Tenant; and
(xiii) so long as no Event of Default is in existence at the time the
respective sale-leaseback transaction is effected or would exist
immediately after giving effect thereto, the Tenant may enter into a
sale-leaseback transaction in respect of either (but not both) of the
Specified Properties so long as (x) such sale is for cash and at fair
market value (as determined in good faith by management of the Tenant),
(y) the cash consideration is received at the time of the closing of such
transaction, and (z) the documentation with respect to such transaction is
reasonably satisfactory to the Landlord.
4. Dividends. Tenant shall not, and shall not permit any of its
Subsidiaries to, authorize, declare or pay any Dividends with respect to Tenant
or any of its Subsidiaries, except that:
(i) any Subsidiary of the Tenant may pay Dividends to the Tenant or
any Wholly-Owned Subsidiary of the Tenant;
(ii) the Tenant may pay cash Dividends to Holdings for the purpose of
paying, so long as all proceeds thereof are promptly used by Holdings to
pay, its operating expenses, incurred in the ordinary course of business
and other corporate overhead costs and expenses (including, without
limitation, legal and accounting expenses and similar expenses), provided
that the aggregate amount of cash Dividends paid pursuant to this clause
(ii) shall not exceed $250,000 during any Fiscal Year;
16
<PAGE> 22
(iii) the Tenant may pay cash Dividends to Holdings for the purpose
of paying, so long as all proceeds thereof are promptly used by Holdings
to pay, franchise taxes and federal, state and local income taxes and
interest and penalties with respect thereto, if any, payable by Holdings,
provided that any refund shall be promptly returned by Holdings to the
Tenant;
(iv) the Tenant may pay cash Dividends to Holdings for the purpose of
paying, so long as all proceeds thereof are promptly used by Holdings to
pay, management fees or executive compensation to the extent such
management fees or executive compensation are permitted by Section 7(iv);
(v) so long as no Event of Default then exists or would result
therefrom, the Tenant may pay cash Dividends to Holdings for the purpose
of enabling Holdings to pay the fees owing under the Monitoring
Agreements;
(vi) the Tenant may pay cash Dividends to Holdings for the purpose of
enabling Holdings to repurchase its common stock or options to purchase
its common stock, so long as all proceeds thereof are promptly used by
Holdings to make such purchases;
(vii) so long as no Event of Default then exists or would result
therefrom, the Tenant may pay cash Dividends to Holdings for the purpose
of enabling Holdings to make payments on the Meredith Note, provided that
the amounts of such payments do not exceed the amount necessary for the
payment of scheduled principal and interest thereon; and
(viii) the Tenant may pay cash Dividends to Holdings for the purpose
of enabling Holdings to make Permitted Section 3(vii) Acquisitions or
investments permitted by Section 6(xiii), provided the amount of such
Dividends is permitted by Section 3(vii) or 7(xiii), as the case may be.
5. Indebtedness. Tenant will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Lease and the other BT
Loan Documents;
(ii) Indebtedness of Tenant pursuant to the Senior Note Documents in
an aggregate principal amount not to exceed $163,000,000 at any time
outstanding;
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<PAGE> 23
(iii) Existing Indebtedness shall be permitted, and any refinancings
or renewals thereof so long as any such refinancing or renewal (x) shall
not exceed the principal amount of such Existing Indebtedness outstanding
at the time of the refinancing or renewal thereof, and (y) shall be on
terms and conditions (including, without limitation, with respect to the
obligor and guarantors, if any, in respect of such Existing Indebtedness,
amortization schedules, interest rates, redemption provisions, covenants,
defaults, security and remedies) no less favorable to the Tenant and its
Subsidiaries than the terms and conditions of the Existing Indebtedness so
refinanced or renewed;
(iv) accrued expenses and current trade accounts payable incurred in
the ordinary course of business;
(v) Indebtedness under Interest Rate Protection Agreements and Other
Hedging Agreements;
(vi) Indebtedness evidenced by Capitalized Lease obligations to the
extent permitted pursuant to Section 8;
(vii) intercompany Indebtedness of any Wholly-Owned Subsidiary of
Holdings owing to the Tenant or any other Wholly-Owned Subsidiary of
Holdings, or of the Tenant owing to any Wholly-Owned Subsidiary of
Holdings, to the extent permitted by Section 6;
(viii) Indebtedness of any Wholly-Owned Subsidiary of the Tenant to
the Tenant or another Wholly-Owned Subsidiary of the Tenant constituting
the purchase price in respect of intercompany transfers of goods made in
the Ordinary course of business to the extent not constituting
Indebtedness for borrowed money;
(ix) Indebtedness subject to liens permitted under Section 2(viii);
(x) Contingent Obligations of the Tenant or any subsidiary as a
guarantor of the lessee under any lease pursuant to which the Tenant or a
Subsidiary is the lessee so long as such lease is otherwise permitted
hereunder;
(xi) Indebtedness evidenced by Capitalized Lease obligations to the
extent incurred pursuant to Section 3(xii);
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<PAGE> 24
(xii) additional indebtedness not to exceed $5,000,000 in aggregate
principal amount outstanding at any one time; and
(xiii) accounts payable incurred by the Tenant and owing to NSL in
existence on January 31, 1997 that arose from services rendered by NSL to
the Tenant and accounts payable arising from time to time after January
31, 1997, consistent with past practices, incurred by the Tenant as a
result of services rendered by NSL to the Tenant to the extent permitted
by Section 7(ix), which accounts payable, at the time of the creation
thereof, do not exceed the costs incurred by NSL (as determined on any
reasonable basis) in providing the respective services to the Tenant;
provided that the proceeds from any payments received by NSL are promptly
used within ten (10) Business Days by NSL to pay its operating expenses
incurred in the ordinary course of business and other corporate overhead
costs and expenses.
6. Advances, Investments and Loans. Tenant will not, and will not
permit any of its Subsidiaries to, directly or indirectly, lend money or credit
or make advances to any Person, or purchase or acquire any stock, obligations
or securities of, or any other interest in, or make any capital contribution
to, any other Person, or purchase or own a futures contract or otherwise become
liable for the purchase or sale of currency or other commodities at a future
date in the nature of a futures contract or hold any cash or Cash Equivalents,
except that the following shall be permitted:
(i) the Tenant and its Subsidiaries may acquire and hold accounts
receivables owing to any of them, it created or acquired in the ordinary
course of business and payable or dischargeable in accordance with
customary terms;
(ii) the Tenant and its Subsidiaries may acquire and hold cash and
Cash Equivalents;
(iii) the Tenant may enter into Interest Rate protection Agreements
and Other Hedging Agreements to the extent permitted by Section 5;
(iv) any Wholly-Owned Subsidiary of the Tenant may make intercompany
loans and advances to the Tenant or any other Wholly-Owned Subsidiary of
the Tenant, and the Tenant may make intercompany loans and advances to any
Wholly-Owned Subsidiary of the Tenant, provided that the aggregate
principal amount of all such loans and advances (determined
19
<PAGE> 25
without regard to any write-downs or writeoffs thereof) does not exceed
$500,000 at any time outstanding;
(v) the Tenant and it Subsidiaries may sell or transfer assets to
each other to the extent permitted by Section 3;
(vi) the Tenant may establish Subsidiaries to the extent permitted by
Section 15;
(vii) promissory notes and other similar non-cash consideration
received by the Tenant and its Subsidiaries in connection with
dispositions permitted by Section 3 so long as the aggregate principal
amount thereof does not exceed $1,000,000 at any one time outstanding;
(viii) the Tenant and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement
of delinquent obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business;
(ix) advances, loans and investments in existence on January 31, 1997
without giving effect to any additions thereto or replacements thereof,
shall be permitted;
(x) the Tenant and its Subsidiaries may make loans and advances to
officers, employees and directors of Holdings and its Subsidiaries for
moving, entertainment, travel and other similar expenses, in each case
incurred in the ordinary course of business, in an aggregate outstanding
principal amount not to exceed $250,000 at any time;
(xi) Permitted Section 3(vii) Acquisitions shall be permitted; and
(xii) in addition to investments permitted by clauses (i) through
(xi) above, Tenant and its Wholly-Owned Subsidiaries (other than NSL) may
make additional investments, which may (but shall not be required to be)
be made in Unrestricted Subsidiaries, in a Person in an aggregate amount
which, when added to the aggregate amount expended on Permitted Section
3(vii) Acquisitions, does not exceed $10,000,000 at any time.
7. Transactions with Affiliates. Tenant will not, and will not permit
any of its Subsidiaries to, enter into any
20
<PAGE> 26
transaction or series of related transactions, whether or not in the ordinary
course of business, with any Affiliate of Holdings or any of its Subsidiaries,
other than in the ordinary course of business and on terms and conditions
substantially as favorable to Holdings or such Subsidiary as would reasonably
be obtained by Holdings or such Subsidiary at that time in a comparable
arm's-length transaction with a Person other than an Affiliate, except that:
(i) Dividends may be paid to the extent provided in Section 4;
(ii) loans may be made and other transactions may be entered into
between the Tenant and its Subsidiaries to the extent permitted by
Sections 3, 5 and 6;
(iii) customary fees may be paid to non-officer directors of
Holdings;
(iv) Holdings and its Subsidiaries may enter into employment
arrangements with respect to the procurement of services of their
respective officers and employees in the ordinary course of business;
(v) Holdings may make capital contributions to the Tenant;
(vi) Holdings and its Subsidiaries may make payments under the
Holdings Tax Allocation Agreement;
(vii) Holdings and/or the Tenant may make payments in connection with
the Monitoring Agreements;
(viii) the Tenant may make payments required by the EDS Agreement;
and
(ix) the Tenant may make payments to NSL in respect of services
rendered by NSL in accordance with past practices.
8. Capital Expenditures. (a) Tenant will not, and will not permit any
of its Subsidiaries to, make any Capital Expenditures, except that during any
Fiscal Year the Tenant and its Subsidiaries may make Capital Expenditures so
long as the aggregate amount of such Capital Expenditures made under this
Section 8(a) does not exceed in any Fiscal Year set forth below the amount set
forth opposite such Fiscal Year:
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<PAGE> 27
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- ------
<S> <C>
1997 $14,000,000
1998 $12,000,000
1999 $12,000,000
2000 $12,000,000
2001 $12,000,000
2002 $7,000,000
</TABLE>
(b) Notwithstanding anything to the contrary contained in clause (a)
above, to the extent that the aggregate amount of Capital Expenditures made by
the Tenant and its Subsidiaries in any Fiscal Year are less than the amount set
forth above with respect to such Fiscal Year, up to 50% of the amount of such
difference may be carried forward and used to make Capital Expenditures in the
immediately succeeding Fiscal Year.
(c) In addition to the Capital Expenditures permitted by the
preceding clauses (a) and (b), Tenant and its Subsidiaries may make additional
Capital Expenditures to the extent permitted under the BT Credit Agreement.
9. Minimum Consolidated Interest Coverage Ratio. Tenant will not
permit the Consolidated Interest Coverage Ratio for any Test Period (taken as
one accounting period) ended on the last day of a fiscal quarter of the Tenant
described below to be less than the amount set forth opposite such fiscal
quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended
Closest
to the Last-Day In Ratio
------------------- -----
<S> <C>
June, 1997 1.20:1.00
September, 1997 1.20:1.00
December, 1997 1.30:1.00
March, 1998 1.35:1.00
June, 1998 1.45:1.00
September, 1998 1.45:1.00
December, 1998 1.55:1.00
March, 1999 1.65:1.00
June, 1999 1.70:1.00
September, 1999 1.75:1.00
December, 1999 1.80:1.00
March, 2000 1.90:1.00
June, 2000 1.95:1.00
September, 2000 2.00:1.00
December, 2000 2.05:1.00
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
March, 2001 2.15:1.00
June, 2001 2.25:1.00
September, 2001 2.30:1.00
December, 2001 and thereafter 2.35:1.00
</TABLE>
10. Minimum Consolidated EBITDA. Tenant shall not permit Consolidated
EBITDA for any Test Period, in each case taken as one accounting period, ended
on the last day of a fiscal quarter of Tenant set forth below to be less than
the amount set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended
Closest
to the Last Day In Amount
------------------- ------
<S> <C>
June, 1997 $29,000,000
September, 1997 $30,000,000
December, 1997 $32,000,000
March, 1998 $34,000,000
June, 1998 $35,500,000
September, 1998 $36,500,000
December, 1998 $38,500,000
March, 1999 $40,500,000
June, 1999 $42,000,000
September, 1999 $42,000,000
December, 1999 $43,000,000
March, 2000 $45,500,000
June, 2000 $47,500,000
September, 2000 $48,500,000
December, 2000 $50,000,000
March, 2001 $52,000,000
June, 2001 $53,500,000
September, 2001 $54,500,000
December, 2001 and thereafter $56,500,000
</TABLE>
11. Limitation on Modifications of Indebtedness and Payments of
Indebtedness: Modifications of Certificate of Incorporation, By-Laws and
Certain Other Agreements; etc. Tenant will not, and will not permit any of its
Subsidiaries to (i) amend or modify, or permit the amendment or modification
of, any provision of the Existing Indebtedness, the Senior Note Documents, the
Holdings Tax Allocation Agreement, the Monitoring Agreements, the EDS Agreement
or of any agreement (including, without limitation, any purchase agreement,
indenture, loan agreement or security agreement) relating thereto other than
any amendments or modifications to the Existing Indebtedness which do not in
any way materially adversely affect the interests of the Landlord, (ii) make
(or give any notice in respect of) any
23
<PAGE> 29
voluntary or optional payment or prepayment on or redemption or acquisition for
value of, or any prepayment or redemption as a result of any asset sale, change
of control or similar event of, any Existing Indebtedness or the Senior Note
Documents, or (iii) amend, modify or change its Certificate of Incorporation
(including, without limitation, by the filing or modification of any
certificate of designation) or By-Laws, or any agreement entered into by it,
with respect to its capital stock (including any shareholders' agreement), or
enter into any new agreement with respect to its capital stock, other than any
amendments, modifications or changes pursuant to this clause (iii) or any such
new agreements pursuant to this clause (iii) which do not in any way materially
adversely affect the interest of the Landlord.
12. Limitation on Certain Restrictions on Subsidiaries. Tenant will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by Tenant or any Subsidiary of
Tenant, or pay any Indebtedness owed to Tenant or a Subsidiary of Tenant, (b)
make loans or advances to Tenant or any of Tenant's Subsidiaries or (c)
transfer any of its properties or assets to Tenant, the Tenant or any other
Subsidiary, except for such encumbrances or restrictions existing; under or by
reason of (i) applicable law, (ii) this Lease and the BT Loan Documents, (iii)
customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Tenant or a Subsidiary of the Tenant and
(iv) customary provisions restricting assignment of any licensing agreement
entered into by the Tenant or a Subsidiary of the Tenant in the ordinary course
of business.
13. Limitation on Issuance of Capital Stock. Tenant shall not issue,
or permit any of its Subsidiaries to issue (i) any preferred stock or (ii) any
redeemable common stock unless, in either case, all terms thereof are
satisfactory to the Landlord in its sole discretion, provided that Subsidiaries
formed after January 31, 1997 pursuant to Section 15 may issue capital stock to
the Tenant or the Subsidiary of the Tenant which is to own such stock.
14. Changes in Business. The Tenant and its Subsidiaries will not
engage in any business other than the business engaged in by them as of January
31, 1997 and activities directly related thereto, and businesses complementary
to the business or similar or related businesses.
24
<PAGE> 30
15. Limitation on Creation of Subsidiaries. Tenant shall not, and
shall not permit any Subsidiary to, establish create or acquire any additional
Subsidiaries without the prior written consent of the Lender.
25
<PAGE> 31
SCHEDULE I
Existing Indebtedness
1. Capital Leases:
<TABLE>
<CAPTION>
Lessor Outstanding Balance as of
------ -------------------------
12/31/96
- --------
<S> <C>
Siemens Credit Corp. $ 13,780
Bell & Howell $ 13,133
Siemens Credit Corp. $ 275,952
Bell & Howell $ 17,522
Northland Financial $ 7,196,089
Northland Financial $ 13,008,134
Ireland $ 6,070
</TABLE>
2. Fredericksburg Mortgage - $1,383,946 outstanding as of December 31, 1996.
3. Master Agreement for Neodata Services by and between NEODATA SERVICES,
INC. and MEREDITH CORPORATION - $3,987,022 outstanding as of December 31,
1996.
4. Lease Agreement by and between NEODATA SERVICES, INC., as Tenant, and
PRATT PARTNERSHIP, as Landlord, pertaining to premises located at 1800 and
1844 Nelson Road, Longmont, Colorado.
5. The BT Credit Agreement.
6. The Senior Notes.
26
<PAGE> 1
EXHIBIT 10.46
[NEODATA LETTERHEAD]
October 27, 1995
Revised November 7, 1995
Mr. Ed Frazier
Dear Ed:
This letter is to summarize our offer to you of employment with Neodata
Services, Inc. as Senior Vice President and Chief Information Officer reporting
directly to Larry Jones. You will be headquartered at the Boulder office. As we
have discussed, I will be available to assist you, as needed, on a variety of
issues both during the initial phases of your employment and on an ongoing
basis.
Our offer includes the following:
o An annualized base salary of $160,000 payable on a bi-weekly basis. You
will receive periodic performance reviews and these will determine the
timing and amount of future increases.
o Annual bonus plan participation targeted at 40%, beginning business year
1996
o Participation in the revised Neodata's Employee Incentive Plan
(historically a Stock Option Arrangement). While details are not yet
available, and will be communicated when finalized with the approval of
the Board of Directors, you will be granted stock option units
commensurate with the executive grant level; these options will vest
one-third per year; under terms of a soon to be finalized executive
agreement these options will vest immediately upon change of control;
o Moving and relocation assistance/reimbursement from Texas to Boulder
including:
o movement of household goods and possessions
o travel expenses for you and your spouse at time of relocation
o temporary living and bi-weekly trips for six months
o reasonable Realtor's fees and closing costs for the sale of your Texas
property;
o reasonable closing costs (excluding 'points') for the purchase of your new
home in Boulder
o miscellaneous relocation allowance of $5,000
o tax gross-up (Federal and State) on any relocation reimbursement to the
extent applicable and based on Neodata earnings
o You will be eligible to receive a signing bonus of $ 15,000
o You will be provided with use of a lap top PC
o You will be reimbursed for up to two months COBRA payments if required
<PAGE> 2
Mr. Ed Frazier
October 27, 1995
Revised November 7, 1995
Page 2 of 2
o You will be eligible for three (3) weeks vacation at Start.
o Participation in the Company's Medical/Dental benefit programs effective
at the first of the month following 30 days of employment. You may join
the 401(k) Plan at the first of the month following completion of one year
of service with the Company
o In the event your employment is terminated for any reason but cause you
will be paid a minimum of six (6) months of salary continuation payable
bi-weekly and calculated based upon your annual base salary in effect at
the time, less any taxes to be withheld as required by the law. If you do
not find suitable alternative employment within that six (6) month period,
severance payments will continue for an additional period equal to the
lesser of six (6) months: or until suitable alternative employment
commences. Cause includes gross negligence, malfeasance, and indiscretion
in judgment applicable to the level of your position. Should we eventually
sever you, we will provide you with an agreement specifying more fully the
non-compete and confidentiality arrangements connected with salary
continuation.
o This offer is contingent upon completion of the I-9 form, relocation/
signing bonus payment policy and Business Conduct Policy and shall not be
construed as providing any specific term of employment.
Please indicate your acceptance of this offer by signing and returning a copy
of this letter to my attention by November 8, 1995.
Sincerely,
/s/ SUSAN L. MORSE
- ----------------------
Susan L. Morse
Senior Vice President
Human Resources
/s/ ED FRAZIER 11/8/95
- ---------------------- ----------------------
Ed Frazier Date
cc: Larry Jones
<PAGE> 1
EXHIBIT 10.47
[NEODATA LETTERHEAD]
June 17, 1996
Francie Anhut
Dear Francie:
To confirm our recent conversations, we have revised our agreement on severance
with you. Our agreement is as follows:
o In the event your employment is terminated for any of the reasons set
forth in Neodata's Severance Policy, you will be paid a minimum of six (6)
months of salary continuation payable bi-weekly and calculated based upon
your annual base salary in effect at that time less any taxes to be
withheld as required by law. If you do not find suitable alternative
employment within that six (6) month period, severance payments will
continue for an additional period equal to the lesser of six (6) months or
until suitable alternative employment commences.
Should we eventually sever you, we will provide you with an agreement which
will specify more fully non-compete and confidentiality arrangements.
Sincerely,
/s/ SUSAN L. MORSE
- ----------------------
Susan L. Morse
Senior Vice President
Human Resources
cc: Larry Jones
<PAGE> 1
EXHIBIT 10.48
[NEODATA LETTERHEAD]
June 17, 1996
Sue Morse
Dear Sue:
To confirm our recent conversations, we have revised our agreement on severance
with you. Our agreement is as follows:
o In the event your employment is terminated for any of the reasons set
forth in Neodata's Severance Policy, you will be paid a minimum of six (6)
months of salary continuation payable bi-weekly and calculated based upon
your annual base salary in effect at that time less any taxes to be
withheld as required by law. If you do not find suitable alternative
employment within that six (6) month period, severance payments will
continue for an additional period equal to the lesser of six (6) months or
until suitable alternative employment commences.
Should we eventually sever you, we will provide you with an agreement which
will specify more fully non-compete and confidentiality arrangements.
Sincerely
A. Laurance Jones
President and CEO
<PAGE> 1
EXHIBIT 10.49
[NEODATA LETTERHEAD]
August 22, 1996
Mr. Ed Flaherty
Dear Ed:
This letter is to summarize our offer to you of employment with Neodata
Services, Inc. as Senior Vice President of the Services Division reporting
directly to Larry Jones. You will be headquartered at the Boulder office. As we
have discussed, I will be available to assist you, as needed, on a variety of
issues both during the initial phases of your employment and on an ongoing
basis.
Our offer includes the following:
o An annualized base salary of $175,000 payable on a bi-weekly basis. You
will receive periodic performance reviews and these will determine the
timing and amount of future increases.
o Annual bonus plan participation targeted at 40% of base (for 100%
results achievement), beginning October 1, 1996. This bonus will be
guaranteed at $25,000 payable in September 1997.
o A signing bonus of $35,000 payable February 1, 1997.
o An automobile allowance per policy of $575 monthly per policy attached.
o A grant of options on 100,000 shares of stock with the approval of the
Board of Directors; the date of the grant will be your date of hire; the
option price per share will be $.50. These options will vest one-third per
year with full vesting upon change of control. Further details will be
made available to you.
o Moving and relocation assistance/reimbursement from New Jersey to Boulder
including:
o movement of household goods and possessions
o travel expenses for you, your spouse and child at time of relocation
o temporary living (reimbursement on a furnished apartment) for three
months and bi-weekly trips home (for yourself to New Jersey or your
spouse and child to Boulder) during the temporary living
o reasonable Realtor's fees and closing costs for the sale of your New
Jersey Property
o reasonable closing costs (excluding 'points') for the purchase of
your new home in Boulder
o $20,000 maximum reimbursement for a loss incurred through the sale of
your home in New Jersey; the amount will be determined through the
respective purchase and sales agreements and IRS regulations
<PAGE> 2
Mr. Ed Flaherty
August 22, 1996
Page 2 of 3
o miscellaneous relocation allowance of $5,000
o tax gross-up (Federal and State) on any relocation reimbursement to
the extent applicable and based on Neodata earnings
o Participation in the Company's Medical/Dental benefit programs effective
at the first of the month following 30 days of employment. You may join
the 401(k) Plan at the first of the month following completion of one year
of service with the Company. You will be eligible to receive 60 hours of
PTO per quarter.
o Participation in our Executive Benefits program. This program offers you
an Excess Health Reimbursement Program, Financial and Estate Planning,
Supplemental Executive Retirement Plan (SERP), Private Banking and First
Class Travel/Upgrades. See plan documentation for specific details.
o In the event your employment is terminated for any reason but cause, you
will be paid a minimum of six (6) months of salary continuation payable
bi-weekly and calculated based upon your annual base salary in effect at
the time, less any taxes to be withheld as required by the law. If you do
not find suitable alternative employment within that six (6) month period,
severance payments will continue for an additional period equal to the
lesser of six (6)months or until suitable alternative employment
commences. Cause includes gross negligence, malfeasance, and indiscretion
in judgment applicable to the level of your position. Should we eventually
sever you, we will provide you with an agreement specifying more fully the
non-compete and confidentiality arrangements connected with salary
continuation.
o This offer is contingent upon completion of an application, I-9 form,
relocation/signing bonus payment policy, and Business Conduct Policy and
shall not be construed as providing any specific term of employment.
Please indicate your acceptance of this offer by signing and returning a copy
of this letter to my attention by August 28, 1996.
Sincerely,
/s/ SUSAN L. MORSE
- ----------------------
Susan L. Morse
Senior Vice President
Human Resources
/s/ EDWARD FLAHERTY 8/23/96
- ---------------------- ----------------------
Ed Flaherty Date
<PAGE> 3
Mr. Ed Flaherty
August 22, 1996
Page 3 of 3
cc: Larry Jones
Attachments:
1. Automobile Allowance Policy
2. Executive Benefits Program-under separate cover
3. New hire packet
<PAGE> 4
[NEODATA LOGO]
Relocation/Signing Bonus Payment
If you voluntarilv leave the employ of Neodata Services or subsidiaries within
twelve (12) months of your receipt of any relocation benefit or signing bonus,
you will be expected to reimburse the Company for all of its expenses in moving
you plus the amount of the signing bonus. Please sign below and return.
I, EDWARD FLAHERTY, understand that my relocation expense and my signing bonus
is an advance from the Company, and if I voluntarily leave the Company within
twelve (12) months following my receipt of any relocation benefits and signing
bonus, I agree to repay this amount through wages due and to reimburse the
Company within sixty (60) days for any balance that exceeds the wages due.
/s/ ED FLAHERTY 8/26/96
- ---------------------- ----------------------
Ed Flaherty Date
/s/ SUSAN L. MORSE 8/22/96
- ---------------------- ----------------------
Susan L. Morse Date
Senior Vice President
Human Resources
<PAGE> 1
EXHIBIT 10.50
Internal Memorandum
To: Ed Frazier
From: Sue Morse
Date: August 27, 1996
Subject: Your Severance Agreement
cc: Larry Jones
===============================================================================
This note is to confirm our discussion regarding your severance agreement with
Neodata.
The retention agreement dated June 14, 1996, supersedes the agreement in your
offer letter only when the change of control parameters defined in the
agreement are met.
If the change of control as defined has not been met, your agreement remains in
effect. Per your offer letter date November 7, 1995: "In the event your
employment is terminated for any reason but cause you will be paid a minimum of
six (6) months of salary continuation payable bi-weekly and calculated based
upon your annual base salary in effect at the time, less any taxes to be
withheld as required by the law. If you do not find suitable alternative
employment within that six (6) month period, severance payments will continue
for an additional period equal to the lesser of six (6) months or until
suitable alternative employment commences. Cause includes gross negligence,
malfeasance, and indiscretion in judgment applicable to the level of your
position. Should we eventually sever you, we will provide you with an agreement
specifying more fully the non-compete and confidentiality arrangements
connected with salary continuation."
bjc
<PAGE> 1
EXHIBIT 10.51
[NEODATA LETTERHEAD]
September 18, 1996
Mr. Kevin Heery
Dear Kevin:
Further to our various discussions with regard to the revision of your terms of
employment with Neodata, I set out below, for the purpose of record, the
variations to the terms of your existing contract of employment (as set out in
our letter to you dated the 14th of August 1995) ("the Original Contract") as
follows:
a) With effect from the 1st day of July 1996 your basic salary shall be
increased to IRL.85,000 per annum (and clause 1.01 of the Original
contract is varied accordingly);
b) With effect from the 1st day of July 1996 your current bonus entitlement
will be replaced by an entitlement under Neodata Services, Inc.'s
executive bonus scheme to a bonus of 40% at 100% achievement. In this
regard, clauses 1.02 and 1.03 of the Original Contract are varied
accordingly;
c) Subject to you remaining employed by the Company on the days that these
various options become exercisable, you are granted, pursuant to clause
1.04 of the Original Contract, options to purchase, at a price of US$0.50
per share, up to 100,000 shares in Neodata Services, Inc. These options
shall become exercisable, as to 33,333 shares each year, on the 1st days
of July 1997, 1998 and 1999 and may be exercised at any time after their
exercise date during the 10 years immediately following the date of grant;
d) In addition to your responsibilities as set our in clause 2.01 and 2.02 of
the Original Contract (which responsibilities continue) you are appointed
Senior Vice President of the International Division of Neodata Services,
Inc., with responsibility to supervise the management of Neodata's U.K. and
Irish divisions and reporting directly to Larry Jones. All terms and
conditions of the Original Contract will also apply to this new position.
e) This letter constitutes a revision of your remuneration package pursuant
to clause 1.09 of the Original Contract;
<PAGE> 2
I would be obliged if you would confirm your agreement to the revisions/
variations to the terms of your employment by returning to me the attached
copy of this letter duly signed.
Yours sincerely,
A. LAURENCE JONES
- ------------------------------
A. LAURENCE JONES
for Neodata Services Ltd.
To: Neodata Services Ltd.
I KEVIN HEERY, hereby accept the variation to the terms of my employment as
set out above.
Dated this 7th day of October 1996
Signed: /s/ KEVIN HEERY
----------------------
KEVIN HEERY
<PAGE> 1
EXHIBIT 10.52
EXECUTIVE EMPLOYMENT AGREEMENT
Ed Flaherty
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement"), made and
entered into effective December 17, 1996, by and between Neodata Services,
Inc., a Delaware corporation (hereinafter, together with its successors,
referred to as the "Company), and Ed Flaherty (hereinafter referred to as the
"Executive").
WHEREAS, the Board of Directors of the Company believes that it is in
the best interests of the Company (i) to provide the Executive with a special
incentive to encourage the Executive to maintain the Executive's current
employment relationship with the Company in the event of a Sale of the Company
(as hereinafter defined) for a period of up to eighteen months following any
such Sale, thereby promoting the Company's stability both before and after any
Sale and (ii) to provide for certain of the obligations of the Executive to the
Company during and following the Executive's termination of the Executive's
employment relationship with the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. CERTAIN DEFINITION.
a. "ACCRUED BENEFITS" means (i) all salary earned or
accrued through the date the Executive's employment is terminated, (ii)
reimbursement for any and all monies advanced by the Executive in connection
with the Executive's employment for reasonable and necessary expenses incurred
by the Executive through the date the Executive's employment is terminated, and
(iii) all other payments and benefits to which the Executive may be entitled
under the terms of any generally applicable compensation arrangement or benefit
plan or program of the Company, including any unused vacation pay; but
excluding any severance or termination benefits.
b. "BOARD" means, so long as Holding owns all the
outstanding capital stock of the Company, the board of directors of Holding. In
all other cases, Board means the board of directors of the Company.
C. "CAUSE" means the Executive's (i) conviction of, or
plea of nolo contendere to, a felony, (ii) illegal use of drugs, (iii) material
breach of this Agreement, fraud, dishonesty in connection with the Executive's
employment, competition with the Company, Holding or their respective
Subsidiaries, unauthorized use of any trade secret or other confidential
information of the Company, Holding or their respective Subsidiaries, or
continued gross neglect of the Executive's duties or responsibilities or (iv)
failure to properly perform the Executive's duties in the reasonable judgment
of the Board. In the case of a termination for
1
<PAGE> 2
Cause as described in clause (ii), (iii) or (iv) above, the Executive shall be
given the opportunity, during the period of not less than 30 days after the
receipt of written notice from the Company that such event constitutes Cause,
to meet with the Board to defend the Executive's acts or failures to act, prior
to termination. The company may suspend the Executive's title and authority
pending such meeting, and such suspension shall not constitute "Good Reason",
as defined below. After such meeting, the Board may rule whether the subject
conduct constituted "Cause," and the Board's determination shall be conclusive
and binding.
d. "EDS" means Electronic Data Systems Corporation, a
Texas corporation.
e. "EDS Company" means any Person in which EDS
beneficially owns more than 50% of the fully-diluted common stock.
f. "GOOD REASON" means (i) without the Executive's
written consent, any reduction, approved by the Board, in the amount of the
Executive's annual base salary or any adverse change, approved by the Board, in
the manner in which the Executive's opportunity for an annual bonus is
determined, (ii) any significant reduction, approved by the Board without the
Executive's written consent, in the aggregate value of the Executive's benefits
provided by contract with the Executive or generally available to all senior
executives of the Company (other than annual salary or bonus) as in effect from
time to time (unless such reduction is pursuant to a general change in benefits
applicable to all similarly situated employees of the Company), or (iii) any
significant reduction, approved by the Board without the Executive's written
consent, in the Executive's title, duties or responsibilities; provided,
however, that Good Reason shall not exist at any time after the Executive has
received written notice from the Company that an event has occurred
constituting Cause, unless the Board, after a meeting with the Executive,
determines that the noticed event did not constitute Cause. Notwithstanding the
above, the occurrence of any of the events described above will not constitute
Good Reason unless the Executive gives the Company written notice that such
event constitutes Good Reason, and the Company thereafter fails to cure such
event or events within 30 days after receipt of such notice.
g. "HICKS, MUSE" means Hicks, Muse, Tate & Furst
Incorporated, a Texas corporation, its successors and assigns, and its
affiliates and its and their respective officers, directors, and employees (and
members of their respective families and trusts for the primary benefit of such
family members), collectively.
h. "HICKS, MUSE COMPANY" means any Person in which
Hicks, Muse beneficially owns more than 25% of the fully-diluted common stock
or has an unrecovered investment of $1,000,000 or more, and each Subsidiary
thereof.
i. "HOLDING" means Neodata Corporation, a Delaware
corporation which is the parent of the Company, together with its successors.
2
<PAGE> 3
j. "MARKETABLE SECURITIES" means securities (i) of a
class or series listed or traded on the New York Stock Exchange. American Stock
Exchange, or the NASDAQ National Market System and (ii) which, as a matter of
law, shall at the time of acquisition be (or which at the date of acquisition
are legally committed to become within six months after the date of
acquisition) freely saleable in unlimited quantities by each Person acquiring
such securities to the public, either pursuant to an effective registration
statement under the Securities Act of 1933, as amended (including a current
prospectus which is available for delivery), or without the necessity of such
registration.
k. "PERSON" means any "person", within the meaning of
Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended,
including a "group" as determined thereby.
l. "PREFERRED STOCK" means the Class A Convertible
Preferred Stock, par value $0.01 per share, of Holding.
m. "SALE OF THE COMPANY" or "Sale" means the
consummation of any transaction or series of related transactions after the
date hereof whereby (i) the Company sells or otherwise transfers all or
substantially all of its assets to another Person (other than Hicks, Muse, a
Hicks, Muse Company, EDS, or an EDS Company), (ii) any Person (other than
Hicks, Muse, a Hicks, Muse Company, EDS, or an EDS Company) purchases or
otherwise acquires all or substantially all of the common stock of the Company
or Holding, (iii) the Company is merged with another corporation (a "Merger")
and the holders of the Company's fully-diluted common stock immediately prior
to such Merger hold less than 25% of the surviving corporation's fully-
diluted common stock immediately after such Merger or (iv) Holding is merged
with another corporation (a "Holding Merger") and the holders of Holding's
fully-diluted common stock immediately prior to such Holding Merger hold less
than 25% of the surviving corporation's fully-diluted common stock immediately
after such Holding Merger.
n. "SERIES 2 PREFERRED" means the Class A Convertible
Preferred Stock-Series 2, par value $0.01 per share, of Holding.
o. "SUBSIDIARY" means with respect to any Person, any
other Person of which such first Person owns or has the power to vote, directly
or indirectly, securities representing a majority of the votes ordinarily
entitled to be cast for the election of directors or other governing Persons.
2. SALE OF THE COMPANY.
In the event of a Sale of the Company:
a. The Executive, except for Good Reason, shall not
terminate the Executive's employment with the Company in such Executive's
position with the Company (or
3
<PAGE> 4
such other position as the Board and Executive shall mutually agree to in
writing) at the time of the Sale or for a period beginning on the date of such
Sale and ending on the date which is eighteen months following the date on
which such Sale is consummated (such period to be referred to herein as the
"Retention Period"); provided, however, if the Executive terminates the
Executive's employment relationship with the Company for Good Reason during the
Retention Period, the Executive shall be deemed to have continued the
Executive's employment with the Company for the Retention Period and the
Executive shall be entitled to the Termination Benefits (as hereinafter
defined) as set forth in Section 2c. herein.
b. On the date upon which the Sale is consummated, all
options to purchase common stock of Holding and Series 2 Preferred which have
been granted to the Executive pursuant to the Neodata Corporation amended and
Restated 1990 Executive Incentive Plan and any options and stock appreciation
rights granted to the Executive under any other plan approved by the Board
shall, to the extent not previously vested, immediately vest in full.
c. In the event the Company terminates the Executive for
any reason (other than Cause) during the Retention Period, the Executive shall
be entitled to, and the Company shall be obligated to pay, the following
termination benefits (the "Termination Benefits"), which Termination Benefits
shall be the Executive's exclusive right and remedy in respect of such
termination:
(i) The Company shall pay the Executive the
Executive's Accrued Benefits, except that, for this purpose, Accrued Benefits
shall not include any entitlement to severance under any Company severance
policy generally applicable to the Company's salaried employees, it being
understood that, if the Executive is terminated during the Retention Period,
the payments under Section 2c(ii) and Section 3 of this Agreement shall be
treated as a credit against any amount owed to the Executive under any general
severance benefit; and
(ii) The Company shall pay the Executive severance
pay equal to the Executive's then current monthly base salary, payable in
accordance with the Company's regular pay schedule, for the remainder of the
Retention Period ("Salary Continuance").
d. Notwithstanding the other provisions of this Section
2, if, at any time during the Retention Period, (i) the Executive shall
terminate the Executive's Employment with the Company for any reason other than
Good Reason, (ii) the Company shall terminate the Executive for Cause or (iii)
the Executive shall cease to be employed by the Company by reason of death,
permanent disability (as defined in the Company's Board-approved disability
plan or policy, as in effect from time to time) or retirement (as defined in
the Company's Board approved retirement plan or policy, as in effect from time
to time), then the Executive shall not be entitled to any Salary Continuance,
and shall only be entitled to receive from the Company (x) in the case of
clause (i) or (ii) of this sentence, the Executive's Accrued Benefit or (y) in
the case of clause (iii) of this sentence, any applicable death, disability or
retirement benefits, as the case may be, then generally provided by the Company
to its similarly situated employees.
4
<PAGE> 5
3. RETENTION BONUS.
a. In the event of a Sale of the Company that results in
the holders of Preferred Stock receiving, net of all selling, brokerage.
investment banking, and all related costs and expenses, upon the consummation
of the Sale, cash or Marketable Securities having a fair market value of at
least $125,000,000 in the aggregate, the Executive shall be entitled to a
retention bonus (the "Retention Bonus") in an amount equal to 100% of such
Executive's then existing base salary, payable in four installments, with 25%
being payable upon consummation of the Sale, and 25% on each of the dates six
months, twelve months, and eighteen months following such sale.
b. Notwithstanding the provisions of Section 3(a) above,
if at any time prior to the termination of the Retention Period the Executive
terminates the Executive's employment for any reason other than Good Reason or
because of the Executive's death or disability, or the Company terminates the
Executive for Cause, the Executive shall forfeit the Executive's right to any
unpaid installments of the Retention Bonus which would otherwise be due under
this Agreement.
4. LIMITATION ON OBLIGATIONS OF COMPANY.
The Company's aggregate obligations under this Agreement and all
agreements with other executives of the Company which have provisions similar
to Sections 2 and 3 hereof (whether or not dated concurrently herewith) (the
"Other Retention Agreements") with respect to all Salary Continuance and
Retention Bonus payments payable thereunder shall be subject to an aggregate
maximum dollar limitation such that the Company shall not be obligated to pay
aggregate Salary Continuances and Retention Bonuses hereunder and pursuant to
the Other Retention Agreements in an aggregate amount of more than $3,000,000.
In the event the aggregate amount that the Company would be obligated to pay in
Salary Continuances and Retention Bonuses hereunder and pursuant to the Other
Retention Agreements exceeds $3,000,000, the Salary Continuances and Retention
Bonuses payable in the aggregate hereunder and thereunder shall be reduced
ratably among the Executive and the parties to the Other Retention Agreements
in accordance with the amount of the then-existing base salary of each
individual who is a party to an executive retention agreement. Notwithstanding
anything to the contrary elsewhere herein, after the first Sale of the Company,
no further Termination Benefits, Salary Continuance or Retention Bonus shall
accrue to the Executive with respect to any subsequent Sale of the Company. Any
interpretation of the provisions of this or any other provision of this
Agreement shall be made by the Board, whose decision concerning such matters
shall be conclusive.
5. EFFECTIVENESS OF PROVISIONS.
The Company's and the Executive's rights and obligations under Section
2 and 3 of this Agreement shall vest upon the occurrence of a Sale of the
Company as defined herein, and
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nothing in this Agreement shall be construed as conferring any obligations or
benefits upon the parties hereunder prior to any such Sale. Nothing contained
herein shall be deemed to obligate the Board or the Company to engage in, or
negotiate towards, a Sale. In the event the Executive is not employed by the
Company for any reason at the time of a Sale of the Company, the provisions of
Section 2 and Section 3 of this Agreement shall cease to be of any force and
effect and neither party hereto shall have any obligations or be entitled to
any benefits thereunder, and the remaining provisions of this Agreement.
including but not limited to Section 6 and Section 7, shall survive such
termination of employment and remain in full force and effect.
6. NON-COMPETITION COVENANT.
The Executive shall not, during the period in which the Executive is
employed by the Company and for the eighteen-month period immediately following
the last day of the Executive's employment by the Company (as such last day of
employment is reasonably determined by the Company's Board of Directors), (a)
unless the Executive's employment by the Company was terminated by the Company
without Cause, act as an officer, director, employee, partner, or agent of, or
invest in or lend money to, or own, directly or indirectly, any interest in, or
participate in the control of, any corporation. partnership. joint venture or
other business organization which is engaged in the sale of any product or
service which is sold by the Company from time to time in the future prior to
the end of the Executive's employment, or (b) solicit to accept or negotiate
with concerning or offer to, any person employed by the Company or whose
employment by the Company has ended less than 180 days prior thereto,
employment with any business entity with which Executive may become associated
in any capacity other than the Company.
7. CONFIDENTIAL INFORMATION OF THE COMPANY.
The Executive shall not, except in the performance of the Executive's
duties hereunder and for the benefit of the Company, disclose or reveal to any
unauthorized person any trade secrets or other confidential information of the
Company, Holding or their respective Subsidiaries relating to the Company,
Holding or their respective Subsidiaries or to any of the businesses operated
by them, and the Executive confirms that such trade secrets and confidential
information constitute the exclusive property of the Company, Holding or their
respective Subsidiaries, as the case may be.
8. REMEDIES UPON BREACH.
The Executive acknowledges that the remedy at law for a breach by the
Executive of the provisions of Sections 6 or 7 hereof will be inadequate.
Accordingly, in the event of the breach or threatened breach by the Executive
of any of the provisions of Sections 6 or 7 hereof, the Company, Holding or
their respective Subsidiaries, as the case may be, shall be entitled to
injunctive relief in addition to any other remedy to which it may be entitled.
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9. SUCCESSORS.
The Company may assign its rights under this Agreement to any
successor to all or substantially all the assets of the Company, by merger or
otherwise, and may assign or encumber this Agreement and its rights hereunder
as security for indebtedness of the Company, Holding, and their respective
Subsidiaries. The rights of Executive under this Agreement may not be assigned
or encumbered by the Executive, voluntarily or involuntarily, during the
Executive's lifetime, and any such purported assignment shall be void.
10. ENFORCEMENT.
The provisions of this Agreement shall be regarded as divisible, and
if any of said provisions or any part thereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
11. AMENDMENT.
This Agreement may not be amended or modified at any time except by a
written instrument approved by the Board and executed by the Company and the
Executive.
12. WITHHOLDING.
The Company shall be entitled to withhold from amounts to be paid to
the Executive hereunder any federal, state, local, or foreign withholding or
other taxes of charges which it is from time to time required to withhold. The
company shall be entitled to rely on an opinion of counsel if any question as
to the amount or requirement of any such withholding shall arise.
13. GOVERNING LAW.
This Agreement and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of Colorado
without regard to principles of conflicts of law of the State of Colorado or
any other jurisdiction. Any dispute arising out of this Agreement shall be
determined by arbitration in Boulder, Colorado under the rules of the American
Arbitration Association then in effect and judgment upon any award pursuant to
such arbitration may be enforced in any court having jurisdiction thereof
14. NOTICE.
Notices given pursuant to this Agreement shall be in writing and shall
be deemed given when received and if mailed, shall be mailed by United States
registered or certified mail, return receipt requested, addressee only, postage
prepaid: if to the Company, c/o Hicks, Muse, Tate & Furst Incorporated, 200
Crescent Court, Suite 1600, Dallas, Texas 75201, Attention: Thomas 0. Hicks and
Lawrence D. Stuart, with a copy to Weil, Gotshal & Manges, 100 Crescent Court,
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Suite 1300, Dallas, Texas 75201, Attention: Mary R. Korby, Esq.; or if to the
Executive, at the address set forth below the Executive's signature line of
this Agreement; or to such other address as the party to be notified shall have
given to the other in writing.
15. NO WAIVER.
No waiver by either party at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement to be
performed by the other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at any time.
16. HEADINGS
The headings herein contained are for reference only and shall not
affect the meaning or interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
NEODATA SERVICES, INC.
By: /s/ SUSAN L. MORSE
----------------------------------
Name: Susan L. Morse
Title: Sr. Vice President,
Human Resources
EXECUTIVE
/s/ ED FLAHERTY
-------------------------------------
Ed Flaherty
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EXHIBIT 10.53
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of January 1, 1997, by and between
Neodata Services, Inc., a Delaware corporation (hereinafter, together with its
successors, referred to as the "Company"), and A. Laurence Jones (hereinafter
referred to as the "Executive").
WHEREAS, the Company and Executive are parties to that certain Executive
Employment Agreement, dated as of January 1, 1994 (the "Old Agreement"); and
WHEREAS, the Company and Executive desire to amend and restate the Old
Agreement in its entirety as set forth herein,
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein, the parties agree as follows:
1. Definitions.
(a) Accrued Benefits means (i) all salary earned or accrued through the date
the Executive's employment is terminated, (ii) reimbursement for any and all
monies advanced in connection with the Executive's employment for reasonable and
necessary expenses incurred by the Executive through the date the Executive's
employment is terminated; and (iii) all other payments and benefits to which
the Executive may be entitled under the terms of any applicable compensation
arrangement or benefit plan or program of the Company, including any unused
vacation pay.
(b) Act means the Securities Exchange Act of 1934, as amended.
(c) Board means, so long as Holding owns all the outstanding capital stock
of the Company, the board of directors of Holding. In all other cases, Board
means the board of directors of the Company.
(d) Cause means the Executive's (i) conviction of, or plea of nolo
contendere to, a felony, (ii) use of illegal drugs, (iii) material breach of
this Agreement, fraud, dishonesty in connection with his employment,
competition with
<PAGE> 2
the Company, Holding or their respective Subsidiaries, unauthorized use of any
trade secret or other confidential information of the Company, Holding or their
respective Subsidiaries, or continued gross neglect of his duties or
responsibilities under this Agreement, or (iv) failure to properly perform his
duties in the reasonable judgment of Chairman of the Board of the Company.
Notwithstanding the above, the occurrence of any of the events specified in
clause (iii) above shall not constitute Cause unless the Company gives the
Executive written notice that such event constitutes Cause, and the Executive
thereafter fails to cure such event within 30 days after receipt of such
notice. In the case of a termination for Cause as described in clause (i),
(ii) or (iv) above, the Executive shall be given the opportunity not less than
30 days after the receipt of such notice to meet with the Board to defend his
acts or failures to act, prior to termination. The Company may suspend the
Executive's title and authority pending such meeting, and such suspension shall
not constitute "Good Reason", as defined below.
(e) Employment Period means the period during which the Executive is
employed by the Company pursuant to this Agreement.
(f) Good Reason means (i) without the Executive's written consent, any
reduction, approved by the Board, in the amount of the Executive's annual
salary or any adverse change, approved by the Board, in the manner in which the
Executive's opportunity for an annual bonus is determined, (ii) any significant
reduction, approved by the Board without the Executive's written consent, in
the aggregate value of the Executive's benefits under Paragraph 4 hereof (other
than annual salary or bonus) as in effect from time to time (unless such
reduction is pursuant to a general change in benefits applicable to all
similarly situated employees of the Company), (iii) any material breach by the
Company of this Agreement (other than a breach caused solely by the Executive),
or (iv) any significant reduction, approved by the Board without the
Executive's written consent, in the Executive's title, duties or
responsibilities. Notwithstanding the above, the occurrence of any of the
events described above will not constitute Good Reason unless the Executive
gives the Company written notice that such event constitutes Good Reason, and
the Company thereafter fails to cure the event within 30 days after receipt of
such notice.
(g) Hicks, Muse means Hicks, Muse, Tate & Furst Incorporated, a Texas
corporation, and its affiliates and its and their respective officers,
directors, and employees (and members of their respective families and trusts
for the primary benefit of such family members).
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(h) Hicks, Muse Company means any Person in which Hicks, Muse beneficially
owns more than 25% of the fully-diluted common stock or has an unrecovered
investment of $1,000,000 or more, and each Subsidiary thereof.
(i) Holding means Neodata Corporation, a Delaware corporation which is the
parent of the Company, together with its successors.
(j) Marketable Securities means securities (i) of a class or series listed
or traded on the New York Stock Exchange, American Stock Exchange, or Nasdaq
National Market and (ii) which, as a matter of law, shall at the time of
acquisition be (or which at the date of acquisition are legally committed to
become within six months after the date of acquisition) freely saleable in
unlimited quantities by Hicks, Muse to the public, either pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(including a current prospectus which is available for delivery), or without
the necessity of such registration.
(k) Person means any "person", within the meaning of Sections 13(d) and
14(d) of the Act, including a "group" as therein defined.
(l) Sale of the Company means the first to occur of (i) the Company's
ceasing to be a Hicks, Muse Company in a transaction or series of related
transactions initiated or agreed to by Hicks, Muse, (ii) the consummation of a
transaction or series of related transactions initiated or agreed to by Hicks,
Muse pursuant to which Hicks, Muse receives, in respect of its shares of
Holding common stock, cash and/or Marketable Securities which have an aggregate
value equal to at least 75% of the total value of all common stock of Holding
owned by Hicks, Muse immediately prior to such transaction, as determined by
the Board in good faith, or (iii) a "change of control" as defined in the
Holding Amended and Restated 1990 Employee Incentive Plan.
(m) Subsidiary means, with respect to any Person, any other Person of which
such first Person owns or has the power to vote, directly or indirectly,
securities representing a majority of the votes ordinarily entitled to be cast
for the election of directors or other governing Persons.
2. Term of Employment. The Executive's Employment Period shall become
effective as of January 1, 1994 and shall continue until the date that the
Executive's employment relationship with the Company ceases for any reason.
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3. Duties. During the Employment Period, the Executive shall serve as
President and Chief Executive Officer of the Company, shall, subject to and in
accordance with the authority and direction of the Board and the Chairman of
the Board, have such authority and perform in a diligent and competent manner
such duties which are customary for a chief executive officer of a business
comparable to the Company as may be assigned to him by the Board or Chairman of
the Board of the Company, and shall devote his best efforts and his full
business time, attention and skill to the business and affairs of the Company.
So long as the Executive is employed by the Company, he shall be entitled to
serve on the Board.
4. Compensation. During the Employment Period, the Executive shall be
compensated as follows:
(a) the Executive shall receive, at such intervals and in accordance with
such Company policies as may be in effect from time to time, an annual base
salary equal to $375,000;
(b) the Executive shall be eligible to receive an annual bonus, effective
beginning with the fiscal year beginning January 1, 1996, with a target equal to
100% of the Executive's base salary as defined by the Company's management
incentive bonus plan, as approved by the Board and in effect from time to time;
(c) the Executive shall be reimbursed, at such intervals and in accordance
with such Company policies as may be in effect from time to time, for any and
all reasonable and necessary business expenses incurred by him for the benefit
of the Company, Holding and their respective Subsidiaries, including but not
limited to travel expenses;
(d) the Executive shall be included, to the extent eligible thereunder, in
any and all plans providing general benefits for the Company's employees (as
approved by the Board and in effect from time to time), including but not
limited to, group life insurance, accidental death and dismemberment insurance,
business travel accident insurance, disability, medical, dental,
pension/savings plans, supplemental pension/savings plans, and shall be
provided any and all other benefits and perquisites made available to other
employees of comparable status and position at the expense of the Company on a
comparable basis;
(e) the Executive shall be reimbursed annually for personal tax and estate
planning advice in an amount not to exceed $10,000;
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(f) the Executive shall receive (i) an automobile allowance, payable no less
frequently than monthly, equal to $1,000 per month and (ii) an annual
reimbursement for automobile gasoline, maintenance and insurance in an amount
not to exceed $3,000;
(g) the Executive shall be reimbursed, as incurred, for the reasonable
initiation or entry fee and monthly dues of (i) one membership for the
Executive in an eating club of his choice, and (ii) one membership for the
Executive and his immediate family in one country club of his choice (or as an
alternative, the Executive may choose one membership in a yacht club or marina
of his choice, provided the initial and ongoing cost of said membership shall
not exceed the reasonable initial and ongoing costs of one family golf club
membership); and
(h) the Executive shall be reimbursed for the premiums paid by him on
Phoenix Home Life Mutual Insurance Policy No. 2-496-827 (which is a whole life
insurance policy on the life of the Executive), provided such premiums shall
not exceed $2,625 per year. The Executive shall remain the owner of such
policy and the Company shall have no right or interest therein.
5. Termination of Employment. (a) All Accrued Benefits to which the
Executive (or his estate or beneficiary) is entitled shall be payable in cash
promptly upon termination of his Employment Period, except as otherwise
specifically provided herein, or under the terms of any applicable plan or
program.
(b) Any termination by the Company, or the Executive, of the Employment
Period shall be communicated by written notice of termination to the Executive
if such notice is delivered by the Company and to the Company if such notice is
delivered by the Executive. The Notice of Termination shall comply with the
requirements of Section 13 below.
(c) If the Employment Period is terminated by the Executive for Good Reason,
or if the Employment Period is terminated by the Company for any reason other
than (x) Cause, (y) the Executive's death, permanent disability (as defined in
the Company's Board-approved disability plan or policy, as in effect from time
to time) or retirement (as defined in the Company's Board-approved retirement
plan or policy, as in effect from time to time), or (z) Sale of the Company,
then, as his exclusive right and remedy in respect of such termination:
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(i) the Executive shall be entitled to receive from the Company his
Accrued Benefit, except that, for this purpose, Accrued Benefit
shall not include any entitlement to severance under any Company
severance policy generally applicable to the Company's salaried
employees;
(ii) the Executive shall receive from the Company severance pay equal to
then current monthly base salary, payable in accordance with the
Company's regular pay schedule, for 18 months from the date of
termination of employment;
(iii) the Executive shall be entitled to receive from the Company any
bonus he would otherwise have received in respect of the year in
which his employment is terminated, pro-rated to reflect the period
of the Executive's actual employment during such year, and payable
as soon as practicable after the year to which such bonus relates;
(iv) the Executive shall continue to receive from the Company the
automobile allowance contemplated by Paragraph 4(f) and to be
covered at the expense of the Company by the same or equivalent
medical, dental, and life insurance coverages as in effect for the
Executive immediately prior to termination of his employment, until
the earlier of (A) the expiration of the period he receives
severance pay or (B) the date the Executive has commenced new
employment and has thereby become eligible for comparable benefits;
(v) the Executive shall be entitled to receive from the Company the
personal tax and estate planning reimbursement contemplated by
Paragraph 4(e) until all his personal, state and federal income tax
returns have been filed for the first calendar year (full or
partial) in which he receives severance pay (all such returns to be
filed within the time required by applicable law, including any duly
obtained extensions); and
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(vi) the Executive shall be permitted the use of the clubs contemplated
by Paragraph 4(g) until the first payment of dues is required after
termination of Executive's employment, at which time the Executive
shall, at his option, either resign his membership in the clubs or
reimburse the Company for all initiation and similar fees
(excluding monthly or annual dues) paid by the Company pursuant to
this Agreement and assume all future financial obligations related
to club memberships (and have such membership transferred to his
personal name).
(d) In the event a Sale of the Company shall occur, the Company may, at its
option (i) terminate the Executive's employment concurrently with such Sale of
the Company, in which case the Executive shall receive, as his exclusive right
and remedy in respect of such termination, the same benefits as stated in
clauses (i) through (vi) of Paragraph 5(c) except that, in lieu of the bonus
payable pursuant to Paragraph 5(c)(iii) above, the Company shall pay the
Executive a one-time bonus payment of $750,000, and all of the options to
purchase Common Stock, par value $0.01 per share ("Common Stock"), Class A
Convertible Preferred Stock - Series 2, par value $0.01 per share ("Series 2
Preferred Stock"), and Nonvoting Common Stock, par value $0.01 per share
("Nonvoting Common Stock"), of Holding then held by the Executive shall fully
vest on the date of such termination and become immediately exercisable, or
(ii) require the Executive to remain in the employment of the Company, pursuant
to and on the terms of this Agreement, for a transition period specified by the
Company in writing (not to exceed 12 months from the consummation of such Sale
of the Company). Unless the Company and the Executive shall mutually agree
otherwise in writing, at the expiration of such transition period the
Executive's employment with the Company shall terminate and he shall be
entitled to receive, as his exclusive right and remedy in respect of such
termination, the same benefits as stated in clauses (i) through (vi) of
Paragraph 5(c) except that all of the options to purchase Common Stock, Series
2 Preferred Stock and Nonvoting Common Stock then held by the Executive shall
fully vest on the date of such termination and become immediately exercisable;
provided, that if at any time during such transition period the Executive is
not holding the title and responsibilities of Chief Executive Officer of the
Company, the Company shall also pay to Executive a one-time bonus of $750,000
upon such termination.
(e) Notwithstanding anything in Paragraph 5(d) hereof to the contrary, if
the vesting of the Executive's options in connection with a Sale of the
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Company pursuant to Paragraph 5(d) hereof would result in the Executive
receiving "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and any proposed and final Treasury
Regulations thereunder ("Excess Parachute Payments"), then the number of the
Executive's options which vest as a consequence of the Sale of the Company
shall be reduced to the maximum number of options the vesting of which would
not result in Excess Parachute Payments with respect to the Executive. The
Company shall be entitled to rely upon the advice of counsel regarding whether
and the extent to which the vesting of options will result in Excess Parachute
Payments with respect to the Executive.
(f) In the event that the Employment Period is terminated by reason of the
Executive's death or permanent disability (as defined in the Company's Board-
approved disability plan or policy, as in effect from time to time), then, as
his estate's, devisee's or legal representative's exclusive right and remedy
hereunder, the Executive's estate, devisee or legal representative shall be
entitled to his (i) Accrued Benefit, (ii) pro-rata bonus, and (iii) personal
tax and estate planning reimbursement, in accordance with Paragraphs 5(c)(i),
(iii) and (v) of this Agreement, respectively.
6. Further Obligations of the Executive. (a) During and following the
Executive's employment by the Company, the Executive shall hold in confidence
and not directly or indirectly disclose or use or copy or make lists of any
confidential information or proprietary data of the Company, Holding and their
respective Subsidiaries except to the extent authorized in writing by the
Board or required by any court or administrative agency, other than to an
employee of the Company, Holding or their respective Subsidiaries or a Person
to whom disclosure is reasonably necessary or appropriate in connection with
the performance by the Executive of duties as an executive of the Company.
Confidential information shall not include any information known generally to
the public. All records, files, documents and materials, or copies thereof,
relating to the Company's, Holding's and their respective Subsidiaries'
business which the Executive shall prepare, or use, or come into contact with,
shall be and remain the sole property of the Company, Holding or their
respective Subsidiaries, as the case may be, and shall be promptly returned by
the Executive to the owner upon termination of the Executive's employment with
the Company.
(b) Except with the Board's prior written approval, during the Employment
Period and so long thereafter as the Executive is receiving severance payments
pursuant to this Agreement or 18 months after the termination of the
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Employment Period, whichever is the longer period, the Executive shall not,
directly or indirectly:
(i) solicit, entice, persuade or induce any employee of the Company,
Holding or their respective Subsidiaries to terminate his employment by the
Company, Holding or their respective Subsidiaries or to become employed by any
Person other than the Company, Holding or their respective Subsidiaries; or
(ii) approach any such employee for any of the foregoing purposes; or
(iii) authorize or assist in the taking of such actions by any third party.
(c) During the Employment Period and so long thereafter as the Executive is
receiving severance payments pursuant to this Agreement or 18 months after the
termination of the Employment Period, whichever is the longer period, the
Executive shall not, directly or indirectly, engage, participate, make any
financial investment in, or become employed by or render advisory or other
services to or for any Person or other business enterprise which is engaged,
directly or indirectly, in competition with the Company, Holding or their
respective Subsidiaries. The foregoing covenant shall not be construed to
preclude the Executive from making any investments in the securities of any
company, whether or not engaged in competition with the Company, Holding or
their respective Subsidiaries, to the extent that such securities are actively
traded on a national securities exchange or in the over-the-counter market in
the United States or any foreign securities exchange and such investment does
not exceed five percent of the issued and outstanding shares of such company or
give the Executive the right or power to control or participate directly in
making the policy decisions of such company.
(d) If any court determines that any portion of this Paragraph 6 is invalid
or unenforceable, the remainder of this Paragraph 6 shall not thereby be
affected and shall be given full effect without regard to the invalid
provisions. If any court construes any of the provisions of this Paragraph 6,
or any part thereof, to be unreasonable because of the duration or scope of
such provision, such court shall have the power to reduce the duration or scope
of such provision and to enforce such provision as so reduced.
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(e) The Executive hereby acknowledges and agrees that damages will not be an
adequate remedy for the Executive's breach of any of his covenants contained in
this Paragraph 6, and further agrees that the Company, Holding, and their
respective Subsidiaries shall be entitled to obtain appropriate injunctive
and/or other equitable relief for any such breach, without the posting of any
bond or other security.
7. Purchase Option.
(a) If the Executive's Employment Period is terminated (i) by the Executive
other than for (x) Good Reason, (y) his death or (z) his permanent disability
(as defined in the Company's Board-approved disability policy, as in effect from
time to time) or (ii) by the Company for Cause, the Company and/or its
designee(s) will have the option (the "Option") to purchase, and if the Option
is exercised the Executive shall sell to the Company and/or its designee(s),
all or any portion (at the Company's option) of the shares of Common Stock
and/or Nonvoting Common Stock and/or options to acquire Common Stock and/or
Nonvoting Common Stock ("Stock Options"), if any, held by the Executive;
provided, that if such termination is for Cause of the type described in clause
(iv) of Paragraph 1(d), the Option shall pertain only to the Executive's Stock
Options plus any shares of Common Stock and/or Nonvoting Common Stock acquired
by the Executive after such termination pursuant to the exercise of Stock
Options. Any and all shares of Common Stock, Nonvoting Common Stock and Stock
Options purchasable pursuant to this Paragraph 7 are collectively referred to
herein as the "Purchasable Shares".
(b) The Company shall give notice in writing to the Executive of the
exercise of the Option within one year from the date of the termination of the
Executive's employment. Such notice shall state the number of Purchasable
Shares to be purchased and the determination of the Board of the Market Value
Per Share of such Purchasable Shares. If no notice is given within the time
limit specified above, the Option shall terminate.
(c) The purchase price to be paid for the Purchasable Shares purchased
pursuant to the Option shall be, in the case of any Common Stock or Nonvoting
Common Stock, the Market Value Per Share times the number of shares being
purchased, and in the case of any Stock Option, the Market Value Per Share
times the number of vested shares subject to such Stock Option less the
applicable per share option exercise price. The purchase price shall be paid
in cash. The closing of such purchase shall take place at the Company's
principal executive offices within 10
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days after purchase price has been determined. At such closing, the Executive
shall deliver to the purchaser(s) the certificates or instruments evidencing
the Purchasable Shares being purchased, duly endorsed (or accompanied by duly
executed stock powers) and otherwise in good form for delivery, against payment
of the purchase price by check of the purchaser(s). In the event that,
notwithstanding the foregoing, the Executive shall have failed to obtain the
release of any pledge or other encumbrance on any Purchasable Shares by the
scheduled closing date, at the option of the purchaser(s) the closing shall
nevertheless occur on such scheduled closing date, with the cash purchase price
being reduced to the extent of all unpaid indebtedness for which such
Purchasable Shares are then pledged or encumbered.
(d) "Market Value Per Share" means the per share cash price for which all of
the Common Stock on a fully-diluted basis could be sold to a willing purchaser
in an arms length transaction (without regard to minority discount, absence of
liquidity, or transfer restrictions imposed by any applicable law or agreement)
at the date of the event giving rise to the Option, as determined in good faith
by the Board; provided, however, that if the Executive shall so request within
30 days after his receipt of the Company's Option exercise notice, such
determination shall be made by an independent investment banking firm or other
qualified appraiser selected by the Board and compensated equally by the
Company and the Executive.
(e) The Executive agrees that, to assure the enforceability of the Company's
rights under this Paragraph 7, each certificate or instrument representing
Common Stock, Nonvoting Common Stock or an option to purchase Common Stock or
Nonvoting Common Stock, held by him shall bear a conspicuous legend in
substantially the following form:
"THESE SECURITIES ARE SUBJECT TO A PURCHASE OPTION UNDER AN EMPLOYMENT
AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN THE HOLDER HEREOF AND THE
COMPANY. A COPY OF SUCH EMPLOYMENT AGREEMENT IS AVAILABLE UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES."
(f) The Company's rights under this Paragraph 7 shall terminate upon the
consummation of an underwritten public offering of Common Stock, registered
under the Securities Act of 1933, as amended, pursuant to which the Company
receives aggregate cash sales proceeds, before underwriting discount, of at
least $50 million.
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8. Successors. The Company may assign its rights under this Agreement to
any successor to all or substantially all the assets of the Company, by merger
or otherwise, and may assign or encumber this Agreement and its rights
hereunder as security for indebtedness of the Company, Holding, and their
respective Subsidiaries. The rights of Executive under this Agreement may not
be assigned or encumbered by the Executive, voluntarily or involuntarily,
during his lifetime, and any such purported assignment shall be void. However,
all rights of the Executive under this Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
estates, executors, administrators, heirs and beneficiaries. All amounts
payable to the Executive hereunder shall be paid, in the event of the
Executive's death, to the Executive's estate, heirs and representatives.
9. Enforcement. The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are declared
invalid or unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts hereof and the
applicability thereof shall not be affected thereby.
10. Amendment. This Agreement may not be amended or modified at any time
except by a written instrument approved by the Board and executed by the
Company and the Executive.
11. Withholding. The Company shall be entitled to withhold from amounts to
be paid to the Executive hereunder any federal, state, local, or foreign
withholding or other taxes or charges which it is from time to time required to
withhold. The Company shall be entitled to rely on an opinion of counsel if
any question as to the amount or requirement of any such withholding shall
arise.
12. Governing Law. This Agreement and the rights and obligations hereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware, without regard to principles of conflicts of law of Delaware or any
other jurisdiction. Any dispute arising out of this Agreement (other than any
disputes relating to Paragraph 6 hereof) shall be determined by arbitration in
Boulder, Colorado under the rules of the American Arbitration Association then
in effect and judgment upon any award pursuant to such arbitration may be
enforced in any court having jurisdiction thereof. Disputes relating to
Paragraph 6 shall be determined by any court of competent jurisdiction
separately and independently of any arbitration proceeding (whether pending or
concluded) with respect to any other provision of this
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Agreement. No judicial proceeding relating to Paragraph 6 shall be stayed or
delayed by reason of any arbitration proceeding.
13. Notice. Notices given pursuant to this Agreement shall be in writing
and shall be deemed given when received and if mailed, shall be mailed by
United States registered or certified mail, return receipt requested, addressee
only, postage prepaid: if to the Company, c/o Hicks, Muse, Tate & Furst
Incorporated, 200 Crescent Court, Suite 1600, Dallas, Texas 75201, Attention:
Lawrence D. Stuart, Jr.; or if to the Executive, at the address set forth below
the Executive's signature line of this Agreement; or to such other address as
the party to be notified shall have given to the other.
14. No Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at any time.
15. Headings. The headings herein contained are for reference only and
shall not affect the meaning or interpretation of any provision of this
Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
NEODATA SERVICES, INC.
By: /s/ JACK D. FURST
------------------------------
Name: Jack D. Furst
---------------------------
Title: Chairman of the Board
--------------------------
/s/ A. LAURENCE JONES
---------------------------------
A. LAURENCE JONES
833 W. South Boulder
Louisville, Colorado 80027
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EXHIBIT 10.54
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") to be effective
as of February 25, 1997, is by and between Neodata Investment Services,
Inc. No.1, a Delaware corporation (the "Company"), and Mark A. Lacek, a
Wisconsin resident ("Executive"). Neodata Services, Inc., a Delaware
corporation, is a party hereto only for the purposes expressly stated herein.
RECITALS
A. Executive is presently employed by The Lacek Group, Inc., a
Minnesota corporation ("TLG"), in the capacity of President and Chief Executive
Officer of each of TLG, Lacek Systems and Software, Inc., a Minnesota
corporation ("Lacek Systems"), Lacek Travel Services, Inc., a Minnesota
corporation ("Lacek Travel"), and World Class Travel Assoc., Inc., a Minnesota
corporation ("World Class Travel").
B. Executive possesses certain unique skills, talents, contacts,
judgment and knowledge of the businesses, strategies, ethics and objectives of
the Lacek Companies (as hereinafter defined).
C. In connection with the acquisition of the Lacek Companies by
Neodata Creative Services, Inc., a Delaware corporation ("Creative Services"),
the Company and Neodata Investment Services, Inc. No. 2, a Delaware corporation
("Neodata 2"), and in order to provide for continuity in the management of the
Lacek Companies, which continuity is deemed to be vital to the continued growth
and success of the Lacek Companies, and in order that the Lacek Companies may
continue to avail themselves of the unique skills, talents, contacts, judgment
and knowledge of Executive, the Company desires to retain the employment of
Executive.
In consideration of the foregoing premises and the parties' mutual
covenants and undertakings contained in this Agreement, the Company and
Executive agree as follows:
ARTICLE I. DEFINITIONS
Capitalized terms used in this Agreement shall have their defined
meaning throughout the Agreement. The following terms shall have the meanings
set forth below, unless the context clearly requires otherwise.
<PAGE> 2
1.1 "Accrued Benefits" means (i) all salary earned or accrued
through the date Executive's employment is terminated; (ii) reimbursement for
any and all monies advanced in connection with Executive's employment for
reasonable and necessary expenses incurred by Executive through the date
Executive's employment is terminated; and (iii) all other payments and benefits
to which Executive may be entitled under the terms of any applicable
compensation arrangement or Plan, including any unused vacation pay.
1.2 "Acquisition Agreement' means the Agreement and Plan of
Merger, Asset Purchase Agreement and Stock Purchase Agreement dated February
21, 1997, by and among Executive, TLG, Lacek Systems, Lacek Travel, Creative
Services, the Company and Neodata 2.
1.3 "Agreement" means this Executive Employment Agreement, as from
time to time amended by mutual agreement of the parties hereto.
1.4 "Board" means, so long as Holding owns, directly or indirectly
through one or more Subsidiaries, all the outstanding capital stock of the
Company, the board of directors of Holding. In all other cases "Board" means
the board of directors of the Company.
1.5 "Company" has the meaning set forth in the introductory
paragraph of this Agreement.
1.6 "Confidential Information" means all information relating to
business plans, to business as conducted or anticipated to be conducted, and to
past or current or anticipated products of Holding, the Lacek Companies and
their respective Subsidiaries and all other information proprietary to Holding,
the Lacek Companies and their respective Subsidiaries including, but not
limited to, the following types of information and information of a similar
nature (whether or not reduced to writing): software in any and all stages of
development, designs, drawings, specifications, techniques, methods, models,
schematics, flow charts, research, development, processes, procedures,
formulae, marketing and development processes, procedures and plans, business
plans, whether or not developed specifically for a client of any of the Lacek
Companies and strategies, customer names and other information related to
customers, suppliers lists, price lists, pricing policies, financial
information, and employee files. Confidential Information also includes any
information which Holding, the Lacek Companies and their respective
Subsidiaries obtain from another party and treat as proprietary or designate as
proprietary or confidential, whether or not owned or developed by Holding, the
Lacek Companies or their respective Subsidiaries. Confidential Information
shall not include (a) any information in the public domain, except
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through fault of Executive, (b) information disclosed by Executive as
authorized in writing by the Board, (c) any information disclosed as reasonably
necessary or appropriate by Executive in connection with the performance by
Executive of his duties under the Agreement and (d) any information which
Executive is compelled to disclose in any judicial or administrative
proceeding; provided that prior to such disclosure Executive will give the
Company prompt written notice of such compulsion so that the Company may seek
an appropriate protective order or other remedy and will cooperate with the
Company in obtaining such protective order and other protective relief.
1.7 "Creative Services" has the meaning set forth in the recitals
to this Agreement.
1.8 "Direct Marketing Industry" means any commercial activity
related to or performed by direct marketing services providers.
1.9 "Executive' means Mark A. Lacek.
1.10 "Good Reason" has the meaning set forth in paragraph 4.3 of
this Agreement.
1.11 "Holding" means Neodata Corporation, a Delaware corporation
which is the indirect parent corporation of the Company, together with its
successors.
1.12 "Initial Term" has the meaning set forth in paragraph 2.3 of
this Agreement.
1.13 "Intellectual Property Rights" shall mean any and all rights,
title and interest under any and all worldwide patents, copyrights, trade
secrets, mask works, trademarks, trade names and service marks, including
without limitation all rights to apply therefor, in any inventions,
discoveries, improvements, works of authorship, confidential information and
know-how and other similar intellectual property rights recognized under the
laws of any country or jurisdiction.
1.14 "Lacek Companies" shall mean the Company, Lacek Systems, Lacek
Travel, World Class Travel and TLG-Korea.
1.15 "Lacek Systems" has the meaning set forth in the recitals to
this Agreement.
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1.16 "Lacek Travel" has the meaning set forth in the recitals to
this Agreement.
1.17 "Lodge" means the property located at 28140 Brynilson Road,
Danbury, Wisconsin 54830.
1.18 "NSI" means Neodata Services, Inc., a Delaware corporation,
together with its successors.
1.19 "Plan" means any plan providing general benefits to the Lacek
Companies' employees, such as a thrift, pension, deferred compensation,
medical, dental, disability, accident, life insurance, perquisite, fringe
benefit, vacation, sick or parental leave, severance or relocation plan or
policy.
1.20 "Renewal Term" has the meaning set forth in paragraph 2.3 of
this Agreement.
1.21 "Serious Cause" has the meaning set forth in paragraph 4.2 of
this Agreement.
1.22 "Subsidiary" means any corporation at least a majority of
whose securities having ordinary voting power for the election of directors
(other than securities having such power only by reason of the occurrence of a
contingency) is at the time owned, directly or indirectly through one or more
Subsidiaries, by Holding, the Lacek Companies and/or one (1) or more
Subsidiaries.
1.23 "Successor" has the meaning set forth in paragraph 8.1 of this
Agreement.
1.24 "TLG" has the meaning set forth in the recitals to this
Agreement.
1.25 "TLG-Korea" means The Lacek Group, Inc.-Korea, a Korean Joint
Venture Company.
1.26 "World Class Travel" has the meaning set forth in the recitals
to this Agreement.
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ARTICLE II. EMPLOYMENT, DUTIES AND TERM
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment, as Senior Vice President of NSI and as President of each of the
Lacek Companies.
2.2 DUTIES. During the Term of this Agreement, Executive agrees to
devote his best efforts and his full business time, attention and skill to the
business and affairs of the Lacek Companies; provided that it shall not be a
violation of this Agreement for Executive to serve on civic or charitable
boards or committees, deliver lectures, fulfill speaking engagements or teach
at educational institutions consistent with such activities conducted by other
senior executive officers of NSI. Executive shall, subject to and in accordance
with the authority and direction of the Board and the Chief Executive Officer
of NSI, have such authority and perform in a diligent and competent manner such
duties as may be assigned to him by the Board or the Chief Executive Officer of
NSI, including managing the day-to-day operations and personnel of the Lacek
Companies. Such management shall be consistent with a mutually agreed upon
budget established by the Board of Directors of the Company.
2.3 TERM. Unless terminated earlier pursuant to Article IV hereof,
the term of employment of Executive under this Agreement shall continue until
December 31, 1998 (the "Initial Term"); provided, however, that following the
Initial Term of this Agreement this Agreement shall be automatically renewed
for successive six month periods (each, a "Renewal Term") unless notice of
termination is given by either party to the other party not less than three
months prior to the end of the Initial Term or any Renewal Term, as the case
may be.
ARTICLE III. COMPENSATION, BENEFITS AND EXPENSES
3.1 BASE SALARY AND BONUS.
(a) During the term of Executive's employment under this
Agreement, the Company shall pay Executive, at such intervals and in accordance
with such Company policies as may be in effect from time to time, an annual
base salary equal to $175,000.00 or such higher annual rate as may from time to
time be approved by the Board.
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(b) In addition to the Base Salary and as partial consideration of
the Lacek Companies' utilization of the Lodge (from time to time as agreed upon
by Executive), Executive shall receive an annual bonus, payable in equal
quarterly installments, effective beginning with the calendar year beginning
January 1, 1997, of $50,000.
3.2 OTHER COMPENSATION AND BENEFITS. During the term of
Executive's employment under this Agreement, Executive shall be included, to
the extent eligible thereunder, in any and all Plans.
3.3 BUSINESS EXPENSES. Executive shall be reimbursed, at such
intervals and in accordance with such Company policies as may be in effect from
time to time, for any and all reasonable and necessary business expenses
incurred by him for the benefit of the Company, Holding and their respective
Subsidiaries, including but not limited to travel expenses.
3.4 VEHICLE. The Company shall furnish Executive with a monthly
vehicle allowance in the amount of $575.00. The Company shall also pay, or at
Executive's election, shall reimburse Executive for reasonable and necessary
fees, taxes, costs and expenses relating to licensing, insuring and maintaining
such vehicle in accordance with such Company policies as may be in effect from
time to time.
3.5 VACATION. For each calendar year during the term of this
Agreement, Executive shall be entitled to four (4) weeks of paid vacation. The
time or times at which such vacation days are to be taken shall be reasonably
determined by Executive consistent with Executive's duties and obligations
under this Agreement. Executive shall also be entitled to additional days off
for office holidays taken in accordance with such Company policies as may be in
effect generally for Company employees from time to time.
ARTICLE IV. EARLY TERMINATION
4.1 EARLY TERMINATION. Subject to the respective continuing
obligations of the parties pursuant to Articles V, VI and VII hereof, this
Article IV sets forth the terms for early termination of Executive's employment
under this Agreement.
4.2 TERMINATION BY THE COMPANY FOR SERIOUS CAUSE. The Company may
terminate this Agreement for Serious Cause. For purposes of this Agreement,
"Serious Cause" means Executive's (i) conviction of, or plea of nolo contendere
to, a felony, (ii) use of illegal drugs, (iii) material breach of this
Agreement, fraud, dishonesty in connection with
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his employment, competition with the Lacek Companies, unauthorized use of any
trade secret or other Confidential Information of Holding, the Lacek Companies
or their respective Subsidiaries, or (iv) continued gross neglect of his duties
or responsibilities under this Agreement or failure to properly perform his
duties in the reasonable judgment of the Chief Executive Officer of NSI. In the
case of a termination for Serious Cause as described in clause (i), (ii) or
(iv) above, Executive shall be given the opportunity not less than 30 days
after the receipt of written notice to meet with the Board to defend his acts
or failures to act, prior to termination. The Company may suspend Executive's
title and authority, with pay, pending such meeting, and such suspension shall
not constitute "Good Reason," as defined below.
4.3 Termination by Executive for Good Reason. Executive may
terminate Executive's employment under this Agreement for Good Reason in
accordance with the ensuing provisions of this paragraph 4.3. Termination by
Executive for "Good Reason" shall mean (i) without Executive's written consent,
any reduction, approved by the Board, in the amount of Executive's annual
salary or any adverse change, approved by the Board, in the manner in which
Executive's opportunity for an annual bonus is determined, (ii) any significant
reduction, approved by the Board without Executive's written consent, in the
aggregate value of Executive's benefits under Article III hereof (other than
annual salary or bonus) as in effect from time to time (unless such reduction
is pursuant to a general change in benefits applicable to all similarly
situated employees of the Lacek Companies, for such time as employees of the
Lacek Companies are covered by benefit plans that are different from those of
NSI, and thereafter, of NSI and its Subsidiaries), (iii) any material breach by
the Company of this Agreement (other than a breach caused solely by the
Executive), (iv) any significant reduction, approved by the Board without
Executive's written consent, in Executive's title, duties or responsibilities,
or (v) the Company's requiring Executive to be based anywhere other than
Minneapolis, Minnesota. Notwithstanding the above, the occurrence of any of the
events described above will not constitute Good Reason unless Executive gives
the Company written notice that such event constitutes Good Reason, and the
Company thereafter fails to cure the event within 30 days after receipt of such
notice.
4.4 Termination in the Event of Death or Disability. The term of
Executive's employment under this Agreement shall terminate in the event of
Executive's death or disability (as defined in the Company's board-approved
retirement plan or policy, as in effect from time to time).
4.5 Termination by Mutual Agreement. The parties hereto may
terminate Executive's employment under this Agreement at any time by mutual
written agreement.
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4.6 Effect of Early Termination. The provisions of this paragraph
4.6 shall apply in connection with any early termination of Executive's
employment under this Agreement.
(a) All Accrued Benefits to which Executive (or his estate or
beneficiary) is entitled shall be payable in cash promptly upon termination of
his employment, except as otherwise specifically provided herein, or under the
terms of any applicable Plan.
(b) Any termination by the Company, or Executive, of his
employment shall be communicated by written notice of termination to Executive
if such notice is delivered by the Company and to the Company if such notice is
delivered by Executive.
(c) If Executive's employment is terminated by the Company for any
reason other than (x) Serious Cause or (y) Executive's death, permanent
disability (as defined in the Company's Board-approved disability plan or
policy, as in effect from time to time) or retirement (as defined in the
Company's Board-approved retirement plan or policy, as in effect from time to
time), then, as his exclusive right and remedy in respect of such termination:
(i) Executive shall be entitled to receive from
the Company his Accrued Benefit, except that,
for this purpose, Accrued Benefit shall not
include any entitlement to severance under
the Lacek Companies' severance policy
generally applicable to the Lacek Companies'
salaried employees;
(ii) Executive shall receive from the Company
severance pay equal to then current monthly
base salary, payable in accordance with the
Company's regular pay schedule, for the
greater of (A) the remaining term of this
Agreement or (B) six months from the date of
termination of employment; and
(iii) Executive shall be entitled to receive from
the Company any bonus he would otherwise have
received in respect of the year in which his
employment is terminated, pro-rated to
reflect the period of Executive's actual
employment during such year, and payable as
soon as practicable following termination.
(d) In the event that Executive's employment is terminated by
reason of Executive's death or permanent disability (as defined in the
Company's Board-approved
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disability plan or policy, as in effect from time to time), then, as his
estate's, devisee's or legal representative's exclusive right and remedy
hereunder, Executive's estate, devisee or legal representative shall be
entitled to his (i) Accrued Benefit, and (ii) pro-rata bonus.
ARTICLE V. CONFIDENTIAL INFORMATION
5.1 Prohibitions Against Use. During the term of Executive's
employment with the Company, Executive will have access to and become familiar
with Confidential Information of Holding, the Lacek Companies and their
respective Subsidiaries. Executive acknowledges that such Confidential
Information is owned and shall be continued to be owned by Holding, the Lacek
Companies and their respective Subsidiaries. At all times during and after
Executive's employment with the Company, Executive shall not, at any time,
directly or indirectly, use or disclose any Confidential Information. All
records, files, documents and materials, or copies thereof, relating to the
business of Holding, the Lacek Companies and their respective Subsidiaries
which Executive shall prepare, or use, or come into contact with, shall be and
remain the sole property of Holding, the Lacek Companies and/or their
respective Subsidiaries, as appropriate and shall be promptly returned by
Executive to the Company upon termination of Executive's employment under this
Agreement.
ARTICLE VI. NON-COMPETITION
6.1 Non-Competition. Subject to paragraph 6.3 hereof, Executive
agrees that during his employment by the Company and for a period of time equal
to one year following the termination of his employment, Executive shall not,
directly or indirectly, engage, participate, make any financial investment in
(other than investments in entities of which are publicly owned and in which
Executive owns no more than 5% of the outstanding equity securities thereof),
or become employed by or render advisory or other services to or for any other
person or entity, alone or as a partner, officer, director, shareholder or
employee of any other person or entity, or engage in a commercial activity
related to the Direct Marketing Industry.
6.2 Covenant Not to Solicit. Subject to paragraph 6.3 hereof,
Executive agrees that during his employment by the Company and for a period of
time equal to one year following the termination of his employment, Executive
shall not, directly or indirectly:
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(a) solicit, entice, persuade or induce any employee of Holding,
any of the Lacek Companies or their respective Subsidiaries to terminate his
employment by Holding, any of the Lacek Companies or their respective
Subsidiaries or to become employed by any person or entity other than Holding,
the Lacek Companies or their respective Subsidiaries;
(b) solicit, entice, persuade or induce any client, customer, or
account of Holding, any of the Lacek Companies or their respective Subsidiaries
to terminate its relationship with Holding, any of the Lacek Companies or their
respective Subsidiaries;
(c) approach any such employee, client, customer, or account for
any of the foregoing purposes; or
(d) authorize or assist in the taking of such actions by any third
party.
6.3 Earn-Out Payments.
(a) If the Company does not make a material payment required to be
made to TLG pursuant to the Acquisition Agreement within the required periods
stated therein, Executive shall, following the final settlement of any dispute
relating thereto pursuant to the terms of Sections 4.3, 4.4(e) and 4.8 the
Acquisition Agreement, have the right to exercise any remedies granted to him
pursuant to Section 12.6 of the Acquisition Agreement.
(b) If Executive's employment pursuant to this Agreement is
terminated prior to January 1, 1999, other than (i) by Executive for Good
Reason, (ii) by the Company other than as a result of Executive's (A)
conviction of, or plea of nolo contendere to, a felony, (B) use of illegal
drugs, (C) fraud, dishonesty in connection with his employment, competition
with the Lacek Companies, unauthorized use of any trade secret or other
Confidential Information of Holding, or (D) gross misconduct as determined in
accordance with Company policy as applied consistently with past practice, the
Lacek Companies or their respective Subsidiaries, or other improper conduct, or
(D) continued gross neglect of his duties or responsibilities under this
Agreement, or (iii) as a result of Executive's death or permanent disability
(as defined in the Company's Board-approved disability plan or policy, as in
effect from time to time), in accordance with Section 4.4 of the Acquisition
Agreement, the Company shall have no obligation to make any Earn-Out Payment (as
defined in the Acquisition Agreement) relating to an Earn-Out Target Period (as
defined in the Acquisition Agreement) occurring, in whole or part, after such
termination.
6.4 Use of Name. Executive agrees that during his employment and
so long as any of the Lacek Companies or their successors use the "Lacek" name,
Executive
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shall not use the "Lacek" name in connection with any commercial activity
related to the Direct Marketing Industry; provided, however, it shall not be a
violation of this Agreement for Executive to use his name in connection with
any commercial activity unrelated to the Direct Marketing Industry. Two years
following the cessation by the Lacek Companies and, if applicable, their
successors of the use of the "Lacek" name, Executive shall be entitled to use
the "Lacek" name in any manner.
ARTICLE VII. WORK FOR HIRE
7.1 Ownership of Works for Hire. Executive hereby agrees that all
Intellectual Property Rights relating in any manner to work performed by or for
Executive in the Direct Marketing Industry after January 1, 1997, as part of
the performance of Executive's duties for Holding, any of the Lacek Companies
or their respective Subsidiaries shall be owned exclusively by the Company, and
that the Company may, in its sole discretion, take whatever steps are necessary
and appropriate to protect and enforce such Intellectual Property Rights.
Furthermore, without limiting the foregoing, any such Intellectual Property
Rights created by Executive and related to the actual or proposed business of
Holding, any of the Lacek Companies or their respective Subsidiaries shall be
deemed "works made for hire" and the Company shall be deemed the author thereof
under the U.S. Copyright Act (Title 17 of the U.S. Code).
7.2 Agreement to Transfer. To the extent that Executive owns,
acquires or controls any part of the Intellectual Property Rights, Executive
hereby irrevocably assigns, transfers, conveys and quitclaims all right, title
and interest therein and thereto to the Company, and agrees to irrevocably
assign, transfer, convey and quitclaim any and all future ownership and rights,
title and interest therein and thereto to the Company. Furthermore, to the
extent that some or all of the Intellectual Property Rights are determined not
to constitute "works made for hire,' as a matter of law, Executive hereby
agrees to irrevocably assign, transfer, convey and quitclaim to the Company,
without any separate or additional remuneration or compensation other than the
compensation paid by the Company pursuant to Article III hereof for services
rendered in accordance with this Agreement, all right, title and interest in
and to any such Intellectual Property Rights.
7.3 Disclosure. Executive agrees to promptly disclose to the
Company, and the Company hereby agrees to receive all such disclosures in
confidence, any invention, computer program and related architecture and
developments, modification, discovery, design, development, improvement,
process, system, formula, data, technique, writing, know-how, secret or any
intellectual property or proprietary right or any interest therein
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made, conceived, discovered, developed, written, reduced to practice or
acquired or possessed by Executive (either alone or with others) at any time or
times during Executive's relationship with Holding, any of the Lacek Companies
or their respective Subsidiaries or thereafter for the purpose of determining
whether they constitute Intellectual Property Rights for the purposes of this
Agreement.
7.4 Further Assurances. At the request and expense of the Company,
Executive agrees to sign or execute any and all documents, and perform any and
all such acts as the Company and its duly authorized agents may reasonably
require: (a) to apply for, obtain, and vest in the name of the Company alone
(unless the Company otherwise directs) letters patent, copyrights, trademarks
or other analogous protection for any Intellectual Property Rights in any
country throughout the world and when so obtained or vested to maintain, renew
and restore the same; (b) to assist, as required by the Company, in the defense
of any opposition proceedings in respect to such applications and any
opposition proceedings, petitions, applications or litigation for revocation or
invalidation of such letters patent, copyright or trademarks or other analogous
protection; and (c) to effectuate the vesting in the name of the Company alone
(unless the Company otherwise directs) of the ownership, title and interest of
any item of Intellectual Property Rights.
ARTICLE VIII. GENERAL PROVISIONS
8.1 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of any corporation, individual, group, association,
partnership, firm, venture or other person that acquires all or substantially
all the assets of the Company (a "Successor"); provided that the Company will
not sell or otherwise transfer all or substantially all of its assets to any
person or entity unless prior to such transfer such person or entity assumes by
written agreement all the obligations of the Company under this Agreement. The
Company may assign or encumber this Agreement and its rights hereunder as
security for indebtedness of Holding, any of the Lacek Companies and their
respective Subsidiaries. The rights of Executive under this Agreement may not
be assigned or encumbered by Executive, voluntarily or involuntarily, during
his lifetime, and any such purported assignment shall be void. However, all
rights of Executive under this Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, estates,
executors, administrators, heirs and beneficiaries. All amounts payable to
Executive hereunder shall be paid, in the event of Executive's death, to
Executive's estate, heirs and representatives.
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8.2 Disputes. Except for disputes described in paragraph 6.3
hereof regarding Executive's entitlement to payments pursuant to the
Acquisition Agreement, which disputes shall be resolved as set forth in the
Acquisition Agreement, disputes arising pursuant to this Agreement shall be
resolved as follows:
(a) The parties hereto shall attempt in good faith to resolve any
dispute among the parties arising out of or relating to this Agreement promptly
by negotiation. Any party may give the other party written notice of any
dispute not resolved in the normal course of business. Within fifteen days
after delivery of the notice, the receiving party shall submit to the other a
written response. The notice and response shall include (i) a statement of each
party's position and a summary of arguments supporting that position, and (ii)
the name and title of the person who will represent that party and the name of
any other person who will accompany that person. Within thirty (30) days after
delivery of the disputing party's notice, the representatives of both parties
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to attempt to resolve the dispute. All such
meetings may be held by telephonic conference. All reasonable requests for
information made by one party to the other will be honored, All negotiations
pursuant to the provision of this paragraph 8.2 are confidential and shall be
treated as compromise and settlement negotiations for the purposes of
applicable rules of evidence.
(b) Any dispute arising out of or relating to this Agreement which
has not been resolved in accordance with the provisions of this paragraph 8.2
within sixty (60) days after written notice of the dispute is received by
either party hereto, shall be settled by binding arbitration in accordance with
the rules of the American Arbitration Association in effect on the date of this
Agreement by a sole arbitrator selected in accordance with the AAA Rules.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof The place of arbitration shall be (a) Louisville,
Colorado, in the event that Executive provides the Company with written notice
of a dispute, (b) Minneapolis, Minnesota, in the event that the Company
provides Executive with written notice of a dispute, or (c) such location as
may otherwise be agreed to by the parties hereto. The arbitrator is not
empowered to award damages in excess of compensatory damages. The arbitrator
shall, however, award costs and a reasonable attorney's fee, not to exceed
$35.000.00, to the prevailing party. The statute of limitations of the State of
Minnesota applicable to the commencement of a lawsuit shall apply to the
commencement of an arbitration hereunder except that no defenses shall be
available based upon the passage of time during any negotiations or arbitration
called for by this paragraph 8.2.
(c) The parties declare that it is impossible to accurately
measure in money the damages which will accrue to either party by reason of a
failure to perform any of the
13
<PAGE> 14
obligations under this Agreement. Therefore, without prejudice to the above
procedures, either party may institute any action or proceeding to enforce the
provisions hereof, other than a claim by Executive for a monetary payment. The
party against whom such action or proceeding is brought hereby waives the claim
or defense that such party has an adequate remedy at law, and such party shall
not assert in any such action or proceeding the claim or defense that such
party has an adequate remedy at law. If any party files any action or brings
any proceeding against another party arising out of this Agreement, then as
among the parties, the prevailing party, as determined by a court or
arbitrator, shall be entitled to recover, as an element of its costs of suit
and not as damages, reasonable attorneys' fees to be fixed by the court or the
arbitrator, as the case may be.
8.3 No offsets. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of offsetting, either
directly or indirectly, any indebtedness or liability of Executive to the
Company, except as set forth in paragraph 8.5 hereof.
8.4 Notices. All notices, requests and demands given to or made
pursuant hereto shall except as otherwise specified herein, be in writing and
be personally delivered or mailed postage prepaid, registered or certified U.S.
mail to any party as its address set forth on the last page of this Agreement.
Either party may, by notice hereunder, designate a changed address. Any notice
hereunder shall be deemed effectively given and received: (a) if personally
delivered, upon delivery; or (b) if mailed, on the registered date or the date
stamped on the certified mail receipt.
8.5 Withholding. To the extent required by any applicable law,
including, without limitation, any federal or state income tax or excise tax
law or laws, the Federal Insurance Contributions Act, the Federal Unemployment
Tax Act or any comparable federal state or local laws, the Company retains the
right to withhold such portion of any amount or amounts payable to Executive
under this Agreement as the Company (on the written advice of outside counsel)
deems necessary.
8.6 Captions. The various headings or captions in this Agreement
are for convenience only and shall not affect the meaning or interpretation of
this Agreement.
8.7 Governing Law. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Minnesota (without regard to the conflict of
laws rules or statutes of any jurisdiction).
14
<PAGE> 15
8.8 CONSTRUCTION. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
8.9 WAIVER. No failure on the part of either party to exercise,
and no delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right or remedy granted hereby or by any related document or by law.
8.10 MODIFICATION. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
8.11 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto in reference to all the
matters herein agreed upon. This Agreement replaces in full all prior
employment agreements or understandings of the parties hereto, and any and all
such prior agreements or understandings are hereby rescinded by mutual
agreement.
8.12 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
8.13 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied terms extend
beyond the termination of Executive's employment hereunder shall continue in
full force and effect notwithstanding Executive's termination of employment
hereunder or the termination of this Agreement, respectively.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first as
first written above.
NEODATA INVESTMENT SERVICES, INC. NO. 1
By: /s/ NICHOLAS J. CUCCARO
-----------------------------------
Name: Nicholas J. Cuccaro
----------------------------------
Title: SVP and CFO
---------------------------------
Address:
833 West South Boulder Road
Louisville, CO 80027
EXECUTIVE
By: /s/ MARK A. LACEK
-----------------------------------
Mark A. Lacek
16
<PAGE> 17
NEODATA SERVICES ACKNOWLEDGMENT
NSI acknowledges and agrees that Executive shall hold the title of
Senior Vice President of NSI during the term of this Agreement, unless
otherwise agreed to by NSI and Executive. Other than as expressly stated in the
prior sentence and except as provided in NSI's Certificate of Incorporation,
NSI shall have no obligations or liabilities under this Agreement of any kind
or nature and Executive hereby acknowledges and agrees that he will not assert
any claim against NSI of any kind as a result of this Agreement, other than a
right to hold the title of Senior Vice President during the term hereof.
NEODATA SERVICES, INC.
By: /s/ NICHOLAS J. CUCCARO
-----------------------------------
Name: Nicholas J. Cuccaro
----------------------------------
Title: SVP and CFO
---------------------------------
17
<PAGE> 1
EXHIBIT 10.55
[NEODATA LETTERHEAD]
February 27, 1997
Nancy Talmey
Dear Nancy:
To confirm your recent conversation with Larry Jones, we have revised our
agreement on severance with you. Our agreement is as follows:
- - In the event your employment is terminated for any of the reasons set
forth in Neodata's Severance Policy, you will be paid a minimum of six
(6) months of salary continuation payable bi-weekly and calculated
based upon your annual base salary in effect at that time less any
taxes to be withheld as required by law. If you do not find suitable
alternative employment within that six (6) month period, severance
payments will continue for an additional period equal to the lesser of
six (6) months or until suitable alternative employment commences.
- - In exchange for the above consideration, you agree to not compete with
the Company in any fashion for six (6) months following your
termination from the Company without our written approval. Should we
eventually sever you, we will provide you with an agreement which will
specify more fully the noncompete and confidentiality arrangements.
Please indicate your acceptance of this offer by signing and returning
a copy of this letter to my attention by March 6, 1997.
Sincerely,
/s/ SUSAN L. MORSE
Susan L. Morse
Senior Vice President
Human Resources
AGREED AND ACCEPTED
/s/ NANCY TALMEY 2-28-97
- ------------------------ -----------------
Nancy Talmey Date
cc:
A. Laurence Jones
18
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
Name Form of Organization or Organization
- ---- -------------------- -----------------------------
<S> <C> <C>
Neodata Services Limited Corporation Republic of Ireland
Sarsfield Systems Limited Corporation Republic of Ireland
Neodata Creative Services, Inc. Corporation Delaware
Lacek Systems and Software, Inc. Corporation Minnesota
Lacek Travel Services, Inc. Corporation Minnesota
World Class Travel Assoc., Inc. Corporation Minnesota
The Lacek Group, Inc. - Korea Joint Venture Korea
The Lacek Group PTY Limited Corporation Australia
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,786
<SECURITIES> 0
<RECEIVABLES> 69,044
<ALLOWANCES> 1,244
<INVENTORY> 0
<CURRENT-ASSETS> 80,445
<PP&E> 92,668
<DEPRECIATION> 45,075
<TOTAL-ASSETS> 163,195
<CURRENT-LIABILITIES> 63,520
<BONDS> 192,153
0
0
<COMMON> 0
<OTHER-SE> (108,597)
<TOTAL-LIABILITY-AND-EQUITY> 163,195
<SALES> 0
<TOTAL-REVENUES> 264,631
<CGS> 0
<TOTAL-COSTS> 185,455
<OTHER-EXPENSES> 58,319
<LOSS-PROVISION> 560
<INTEREST-EXPENSE> 24,985
<INCOME-PRETAX> (4,688)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,688)
<DISCONTINUED> 0
<EXTRAORDINARY> (313)
<CHANGES> 0
<NET-INCOME> (5,001)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
